Ladies and gentlemen, good day, and welcome to UltraTech Cement Limited Q3 FY 2019 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements on the basis of any subsequent developments, information, or events or otherwise. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company.
Thank you. Over to you, Mr. Daga.
Thank you, Aman. Good evening, good afternoon to everybody, and welcome to this call to discuss UltraTech's Q3 results. Let me straight get into the burning point. That is on pricing. Cement prices have not risen as expected during the quarter. I really don't have the magic wand to tell you when the prices will move. For me, it is similar to stargazing or you forecasting the Nifty level five or six days from now. Pricing ultimately is a pure demand and supply game. You know, there are more than 60 named players in the country. Look up any micro market, there is aggressive competition since supply is in excess of demand.
Average capacity utilization in the country is hovering around 70%, which is definitely a significant and meaningful improvement over the last two years since from the bottom of about 65% that we have seen. Is this 70% capacity utilization good enough for natural pricing? I don't think so. We have seen in Indian markets, companies generating very high margins when national capacity utilizations were upwards of 85%. This was seen last in 2012, 2010, 2008, as well as 2003. Markets like central India, where the demand is very robust, capacity utilization is hitting all-time high. We are seeing significant improvement in profitability and pricing. To refer to the exact numbers for this quarter, prices have corrected on an average 1% or lesser in central, east and west. South saw the maximum amount of correction, which was about 3%. North markets have registered around 1% increase in prices.
Talking about new capacity additions, as it stands today, 17.3 million tons of capacity would get added in this financial year, taking the industry total to about 478 million tons. Demand has been growing at much more than this new capacity, which will thus reduce the surplus capacity as compared to previous years. Similarly, we expect another 18 million tons to be added in FY 2020 and perhaps 16 million tons in FY 2021. Two points to note over here. These capacities will never have a full run in their first year of operations. Secondly, it takes time to ramp up these capacities, any new capacity. Hence, the annual increase in demand, which is expected to be in excess of 25 metric tons year-on-year, should be good for improving the capacity utilization in the country and thus profitability for the cement sector.
At UltraTech, we have led from the front in our attempt at consolidating the industry. You all know the way we have been acquiring assets. Yes, this will lead to an increase in supply, in terms of overall capacity. Obviously, we are not acquiring an asset to run it at substandard or suboptimal capacities. In fact, nobody would do that. Next, let me touch about demand. As we have told you in the past and everybody has observed, demand has been strong. It has come back with a very strong gusto. It's only the headwinds of high growth last year, which is reflected in the reported quarter's performance. Otherwise, you could be seeing higher numbers.
This is obviously on the back of nearly 15% growth every quarter that we saw in the last few quarters, except this quarter, where we expect the demand growth to be somewhere around 9%-10%. One important point to note is that infrastructure and low-income housing segment have eating into the share of rural and urban housing. Clearly, cement industry in India is institutionalizing. We now see the housing segment share at 53%-55%, as compared to what we used to record it at 65%. Of course, this is splitting the segment into two parts, looking at rural and urban housing at around 53%, 55%, and the remaining 18% being brought up by low-income housing program, which is growing at a very rapid pace.
Bear in mind with improvement in infrastructure quality, distances become shorter and housing demand is bound to spring back in the next three to four years. During this quarter, there was a minor setback in demand due to 15 days construction ban in the NCR region. Besides the usual phenomena of slow pace of construction activity during the festive period, elections in big states like Rajasthan, M.P., and Chhattisgarh obviously had an impact on slowing down the demand. Despite this, the overall demand growth for the industry for this quarter is expected around 9%-10%. Let me now talk about costs. I think there is some relief. Diesel prices have not been going up so sharply. However, comparing crude and diesel prices in India from 1st April 2018, crude has corrected nearly 25% and diesel has not moved down in parallel till the end of December 2018.
Though in the past, crude and diesel prices in India have mirrored each other with a lag of 15 days. Q3 FY 2019, average diesel prices increased around 3% over Q2. YOY also, diesel prices are up 21%, which impact logistics costs. Secondly, the busy season surcharge of railways resulted in increase in cost in Q3 as compared to Q2, nearly 3.5%, amounting to an increase in costs for us to the extent of INR 40 per ton over the previous quarter. Actually, we should call this not as a busy season surcharge, but it was an off-season discount which the railway authorities give in the period of July to September. Through the nine months, this busy season surcharge is applicable.
It is worth mentioning about our logistics efficiency, where we have been continuously bringing down our lead distance, which would be down about 6% YOY and 2% quarter-on-quarter at the end of December 2018, resulting in overall impact on logistics cost. Non-availability of rail network is also a concern in the country and is adversely impacting our logistics cost. Since road movement is nearly 1.7 times as compared to the cost of rail movement. Next important element is pet coke. Imported pet coke costs increased by around 8%, 35% of requirements of pet coke are from imports. Today, there is a 15%-20% reduction in international pet coke prices from its peak. Coupled with rupee depreciation of 5%-6%, we are still giving a 10%-12% reduction in international pet coke prices.
There is always a lead time of two months to roughly give or take two months for imported pet coke, and hence, whatever orders are being placed during this quarter will benefit the next quarter. Domestic supplies of pet coke have started shrinking. 65% of our requirements are met through domestic markets, which in fact, still saw a 4% reduction in costs. Considering all implications, the fuel costs have risen during the quarter, resulting in an extra cost quarter-on-quarter of INR 6 per ton or YOY about INR 156 per ton. In our kilns fuel mix, pet coke is nearly 70% and thus should have a favorable impact in Q4 with the falling prices of pet coke. Another aspect which may be a one-time cost, and that is why I should highlight it, is about maintenance.
In the quarter October, December, we had nearly 11 kilns under maintenance, out of which one kiln standalone accounted for nearly INR 26 crores of maintenance expense. This was one of the last plants that we acquired in the Jaypee network, which required major overhauling and major maintenance. I am glad to inform you that the kiln was lit up somewhere around 17th of this month after all the major overhauling expenditure has been incurred and completed, and it is firing full cylinders. We expect the cost to normalize going forward in the next quarter. Let me now brief you on our acquisitions. The 2017 acquisition of 21.2 million tons is now tracking at par with our existing operations in terms of quality and efficiency.
One of the plants that I just mentioned, Bara in MP, was under a long shutdown in Central India, and we expect its costs also to normalize from Q4 and boost the profitability in central markets further. Post-shutdown, the costs have reduced significantly, and we should start seeing the benefits from next quarter itself. That is from January-March 2019. There's one more small shutdown planned for this plant in February 2019, after which the cost will be 100% aligned with our older operations. This acquisition is now operating at about 75% capacity utilization. The next one, which was in 2018, Nathdwara Cement, which was formerly called Binani Cement. We have completed the quality improvement work at the plant and launched UltraTech brand in the markets. We're now busy integrating the acquired dealers network with our network.
The plant was operating at about 50% at the time of acquisition and generating an EBITDA of INR 100 per ton. It's just 40 days of operation in our hands, and I'm sure the capacity utilization and EBITDA profile of this plant will improve significantly, based on our brand premium as well as synergies with our existing network. The acquisition has been funded 40% with internal accruals and 60% with debt. This being a 100% subsidiary of UltraTech, let me explain the financials and the operating model going forward. UltraTech has infused an equity of INR 3,400 crores and borrowings of INR 4,500 crores for this acquisition. UNCL, as in UltraTech Nathdwara Cement. Binani Cement has been renamed UltraTech Nathdwara Cement. UltraTech will market all the products manufactured by UltraTech Nathdwara, i.e., UltraTech Nathdwara will have just one single customer, that is UltraTech.
Depreciation in the books of UNCL will continue on its book value of assets, will be around INR 75 crores, whereas depreciation on consolidated books will be on the revalued assets. We are in the process of revaluing the assets. However, you might want to note that depreciation will be significantly higher. Out of the debt of INR 4,500 crores, INR 1,800 crores of debt is in UTCL books and INR 2,700 crores is in the books of UNCL. The interest accounting will be accordingly. UltraTech standalone results that have been declared today include the UNCL cement purchase cost as part of our traded purchase, with a contribution to EBITDA. On a standalone sales volume of UTCL, it includes the sales from UNCL to UTCL also, with effect from 10th December 2018, that is the date of migration to UltraTech brand. Century Cement.
As you know that the shareholders' and creditors' approval process has already been completed. We have filed a petition with NCLT Mumbai and got a date of 13th February 2019 for the hearing of our petition, for admission of the petition. After the petition gets admitted, it takes roughly a month for the hearing to take place, and we would expect the NCLT order somewhere closer to the end of March. It all depends upon the backlog of cases in NCLT. In parallel, we are working towards the mines transfers of the Century-acquired plants, which are located in the states of Chhattisgarh, MP, and Maharashtra. Chhattisgarh and MP were going through elections, hence a bit slow, but we are hopeful to coincide the mine transfer process with the NCLT order, and we'll see the closure of transaction in Q1 FY 2020.
Very difficult to commit an exact date at this point in time. We have already started working on our transition plans for integrating this acquisition. The plants are currently operating at a capacity utilization of 75%. There is no more acquisition, hence there is nothing to talk about. With that, I would like to end this commentary, happy to take on any questions. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. All participants are requested to limit their question to two per participant. If time permits, we will take your follow-up questions.
1.42.
Thank you. First question is from the line of Gunjan Prithyani from J.P. Morgan. Please go ahead.
Yeah. Hi, sir. Thanks for taking my questions. Two questions. Firstly, on the industry, you spoke about the utilization levels being still at 70%, if I just look at it south, I would think that most of the markets are in the range of 75%-80% utilization.
Correct.
Just taking that forward, what is the issue on pricing? Do you think it's the demand profile of the industry, or is it just way too high competitive intensity? What is really holding back the pricing in the market?
I think it's both the points put together. More important is, as I mentioned, the structure of demand is changing. It is institutionalizing, which has caused a bit of resistance, and price increases are taking time. Though we have seen price increases being done in the institutional or the non-trade segment also. Second point always remains that any regional market you go, there is minimum five, or you go up to 10 players also in the market, so competition intensity is always there. In these two scenarios, it has been slow going on price improvement. However, if you were to look at a longer period of time, the prices have not gone down. They have remained stable, and it's now time that the prices should go up. It's anybody's guess. I was very strongly hopeful that October, December was all logical conclusions, all fingers pointing towards price hike.
Because post festive season, the demand starts picking up, but you got hit with elections and then that NCR ban on construction. There was some bit of a pull down on the demand also. We've seen price increases happening in January, in the northern markets, in the southern markets as well. I think the price increases are now happening.
Just a follow on this. Now that the commodity or the pet coke prices are easing, there can always be an argument that we have the cost which is coming down. Is there a need to take price increases? Do you think that can be a risk to pricing action?
No, Gunjan, because prices and costs have never moved in tandem for cement industry in India or for any industry where there is a supply-demand mismatch. When costs were going up, that is one reason why it becomes difficult for the industry to pass on the impact of cost increases. Now is the opportunity for the industry to take the benefit of cost reduction. Having said that, when the capacity utilizations are going up, as you mentioned rightly, that excluding South, the capacity utilizations are significantly higher. There is no reason why price increases should not happen. As I mentioned, January, we have already seen price hikes taking place.
This low-cost housing, which you mentioned in your slide of about 11%-12%, does this pertain just to the Pradhan Mantri Awas Yojana program?
Yes. I thought it is important for everybody to know that it's a good effort that the government has been doing, and it's gaining strength.
Almost 28 million-30 million tons of demand coming from this segment is fairly high. Is this just this program or you are including some other low costing also? I would have thought it would be in the range of about 15 million tons or from this program.
This is the PMAY low-cost housing program. The affordable housing program is still not meaningful. That's why it continues to be part of the housing demand in our analysis.
Okay, got it. Now just moving to the Binani transaction.
How many questions are these?
Just last.
Okay.
On the Binani transaction, you mentioned that the cement will essentially be sold from UNCL to UTCL.
Correct.
Does that mean the EBITDA that we capture on the sales that we do on Binani will be captured in the standalone financials?
Yes.
The fixed cost expenses pertaining to the revalued assets of the depreciation and the debt taken on the subsidiary will be captured on the consol?
The revalued depreciation will appear on consol only. Not on standalone UTCL or standalone UNCL.
Thank you, Mr. Prithyani . Maybe the request to join back to the question queue for any follow-ups. Thank you. The next question from the line of Amit Murarka from Deutsche Bank. Please go ahead.
Yeah, hi. Good afternoon.
Good afternoon.
Just a couple of questions on the Binani kind of arrangement first. You said it is cost plus margin. What is the margin kind of that will be built in over here?
We are taking a transfer pricing opinion, it should be at an arm's length basis. Not yet confirmed. We just started off the transaction. The accounting firms are examining the norms to be laid down.
Okay. The sales volumes will be reflected in the standalone sales volumes, or basically Binani volume will be reflected in standalone sales volumes.
Yes.
The margin that will be coming into the standalone books will be lower than, let's say, for our own production, right?
Very insignificant. For all intents and purposes, we should look at domestic market from a market mix point of view, a consolidated picture. That only will make sense.
Got it. Binani will have a PBT loss, right?
Yes.
Which means that consol tax rate will be higher.
I expect by end of Q4 FY 2020, for the quarter FY 2020, we should be PBT breakeven. This first nine months of operations could see a PBT loss.
Oh, okay. This time around, the standalone tax rate has come down by about 300 basis points. Any specific reason for that?
Only that we have reduced our projection of profitability a little bit. That is the only point.
Okay. Got it. Lastly, what is the status of Pali now and the Binani plant expansion?
No decision taken yet. I think we are stabilizing and ramping up the Nathdwara plant, which is Binani plant in your parlance. We will take a decision, I think, by the next board meeting. Hopefully, we should have a decision on Pali expansion.
Okay. By the next quarter we get.
Next board meeting, I think so. Yeah. We should be.
Lastly, what is the trade non-trade share this time around in volume?
65, 64% is trade and the remaining being non-trade.
Okay, great. That's all from me.
Thanks.
Thank you. The next question is from the line of Rajesh Lachhani from HSBC. Please go ahead.
Yeah. Many thanks for the opportunity. Sir, I just want to ask, what would be your estimate of the return on capital employed on the Binani as well as the Century assets once they are integrated in the next one or two years? I assume it will take time to ramp up and bring it to the UltraTech.
I wouldn't want to look at the next one year or two year returns and depress myself. I would look at a third year position from now where we will be inching towards 14%-15% mark.
All right. Sir, other question is, what would be the volume from Binani that you have recognized in the standalone?
100,000 tons.
100,000 tons. Okay. That's it from my side.
Thanks.
Thank you. The next question is from the line of Jatin Jain from CLSA. Please go ahead.
Hi, good evening, this is Vivek. Sir, two questions. First, on the non-trade segment, your comment about demand profile shifting. I would imagine that the non-trade portion or, let's say, infrastructure demand can grow faster. Does that in any way impact the branding going ahead?
No, it doesn't because there is, especially for the big players, big customers, there is very significant importance of the brand. Let's say the metro network which is happening in Mumbai, maximum will be UltraTech or any major project. These are project specific, location specific preferences. Quality and strength which a particular company delivers becomes very important.
Okay.
Hence brand stickiness prevails.
Okay, I see.
In fact we have now been seeing improvement in pricing from the what we call key accounts or non-trade segment also.
Non-trade price differentiation is possible. It's not that every brand will be procured at the same price then.
Within the market, yes, absolutely.
Basically, it doesn't impact the branding structurally.
It does not.
Okay. Second couple of things on Binani. One is, sorry, I don't fully understand this depreciation bit. The balancing figure will be intangible?
No, let me explain that. The existing depreciation on the existing assets is somewhere around INR 75 crores.
INR 75 crores?
Yeah, somewhere around INR 75 crores. Accounting standards require to revalue the assets.
Right.
Revaluation, since we have paid INR 8,000 crore, the asset value will stand at INR 8,000 crore. Within that INR 8,000 crore, whatever is attributable to land or mining rights, to that extent that their depreciation rates will change. The overall value of the asset, let's say INR 8,000 crore only for a split second, then INR 8,000 crore needs to be depreciated, and hence the depreciation charge on a consolidated basis only. When I am doing my accounting in UltraTech standalone books, there is no depreciation, of course, on account of UNCL. When UNCL is accounting, there's a INR 75 crore charge, and there's a third set of books which get created, which is consolidated books, which will have a higher depreciation.
If you are revaluing, sir, that will be intangible?
No.
Not necessarily.
Not intangible.
Is it? Okay.
It will not be intangible because it will be linked to the valuation model that we have looked at, what we will be able to realize from non-core assets taking that off, and then how we allocate the value. That value will be depreciated.
Okay. Two small bits, if I may, on Binani itself. First is when you said cost plus, would you include the interest charge also, or it is just the operational cost?
Interest cost also, because we have funded the acquisition 40:60. That's a norm which we would follow in a commodity sector for any new project, and it has to be able to bear its interest cost also.
Basically transfer pricing will be their variable fixed cost plus interest cost.
Yes.
Okay. Lastly, non-core assets, could you give?
Vivek, my colleague just clarified. Limestone reserve, in any case, is an intangible asset. Yeah.
Okay.
Yeah.
Sure. Non-core assets, can you give any idea about the foreign assets? Does that include glass fiber unit also?
Yes.
Yeah.
We will get rid of the glass fiber unit hopefully within this FY 2020.
Thank you, Mr. Vivek. May I request you to join the queue for any follow-ups. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question is from the line of Bhoomika Nair from IDFC Securities. Please go ahead.
Yes, sir. Just wanted some more color on this Binani thing. What you're saying is the volumes will get reflected in standalone. The EBITDA in the standalone will really be very marginal because the UNCL will actually have to cover the variable cost plus the interest cost of INR 2,700 crore.
Yeah. It will cover all its costs and then there'll be a small margin on which it'll sell to UltraTech India.
Right. From our perspective, actually, the EBITDA from that volumes will be actually very low on a standalone basis, though on a consolidated basis, it will add up.
Yes. In UTCL books, the EBITDA from those volumes will be insignificant.
Understood. Sir, if you can just explain how you will bridge the gap between INR 100 and on a higher and take it closer to what UltraTech's EBITDA per ton is.
Within the 40 days, we have already gone up significantly. I don't want to still comment on the number individually. You see, one big driver, of course, is pricing power. There used to be a gap of anywhere between INR 25 to INR 30 a bag, between our brand and the erstwhile brand. Manufacturing costs, where we are seeing our efforts we are putting in for reduction in costs, that will also bring significant amount of savings. There are synergies, logistics synergies. I don't know whether I'd explained to you in our one-on-one conversation. There are two plants which are located 600 km away from each other. Earlier, they were transporting clinker from the mother unit to the grinding unit. Now we have our own unit located less than 75 km from that grinding unit, as compared to 600 km. It saves on significant amount of logistics cost.
Procurement synergies. There are huge amount of procurement synergies that, I mean, there's a no-brainer. It's buying efficiency and economies of scale. Third one is they were not using any pet coke. We are beginning to use pet coke, which, of course, will get built into my manufacturing cost reduction. It's a multi-pronged attack. There is benefit because of price premium, cost reduction, which are directly linked to the plant and logistic synergies or synergies due to combining hands with a 50-plant network. You get synergy gains, and we should be able to see a significant improvement in costs.
By when do we see the benefit?
As I was saying, by Q4 FY 2020, we should become EPS accretive for this standalone asset.
Understood. Just lastly, if I can just squeeze in terms of some color on the international cement assets. What are the utilization like, profits like? What is our outlook on that asset? Lastly, the Bara status.
Yeah. China was under shutdown in this quarter because of peak winters. The UAE plant is operating full capacity. It is very well located in the Jebel Ali export zone. The advantage that we are deriving is, its customer base is within 15 kilometers, so that is the lead distance that this plant has. It has got a huge potential. We are evaluating what we would want to do with these plants. As you know, we have a significant presence in the UAE already, and it is easy to manage that UAE plant. China plant, lesser keen to keep it. It's not our core market, and we might give it up. Our first focus right now is to consummate the Century deal, focus on integrating those assets and synergies from there.
In parallel, we might start thinking about what is to be done with the China asset and the UAE asset. Sorry, you had also asked about capacity utilization. 40-day capacity utilization is meaningless to talk about. That's why I'm not commenting.
Sure. Sir, lastly, on the Bara asset, what is the-
Yeah. Bara line, it's delayed because, as per contract, Jaiprakash Associates, their engineering firm was executing the contract for us. There have been challenges for them to complete it. As of now, we expect commissioning by June 2020 only, not before that.
Okay, sir. Thanks. Wish you all the best. I'll come back with a few.
Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Thanks a lot for taking my question. My question is on demand. Since you break down the low-cost housing and infrastructure, which together is contributing to a significant portion of the demand. Now as we head into election, clearly these are two government-funded and government-driven drivers. What would be your outlook for demand, say, for the next six to nine months, keeping in mind that we've got election and keeping in mind that the three states which underwent election this quarter all saw demand slow down, since you mentioned about it in your opening remarks.
Pulkit, we are expecting an impact on demand. Obviously election court kicks in maybe February or mid-Feb or March, depending upon the election dates. Any case, it has to happen by May. April-June quarter will be subdued, which is supposed to be the peak period or, I mean, a good period for demand. Not commenting about nine months, but if I were to look at the FY 2020, we are still looking at a demand forecast of about 7%-8%.
Fair point, sir. Thanks a lot.
Thanks, Suket.
Thank you. The next question is from the line of Santham Achi from Credit Suisse. Please go ahead.
Yeah. Hi, this is Anubhav here.
Hi, Anubhav.
Thanks. Sir, just one clarity on this Binani, I have not understood this. When you say breakeven, do you mean to say at UNCL, or you mean to say like total assets when you take the total loan of INR 4,500 crore, that's what you mean the breakeven?
No, UNCL.
At INR 2,700 crore of debt and depreciation, INR 75 crore.
Yes.
Okay. That's clear. Just couple of more questions. One of maintenance expense, you mentioned INR 26 crore as one number, but when you look at the other than the central plant, everything as a maintenance cost, how much was this in the other expense this quarter?
Sorry?
How much was the total maintenance cost in this quarter? You just mentioned about INR 26 crore just for the central plant.
Roughly INR 80 a ton is the maintenance cost.
Even in terms.
Yes, sir.
INR 100 ton.
Just speak loudly. Just one second, let me just verify.
The INR 100 per ton was in last month. Sorry, last quarter, and INR 80 ton in this quarter.
Yeah, Dinesh sir, what is the tonnage there? Are you talking only about the total capacity here?
Yeah, total capacity. Total 11,000. He's talking about total capacity only.
Okay. Understood. One just last question. At the spot prices of pet coke and diesel, cost in the next quarter should be lower. If you just assume that if you're buying everything at spot, how much the cost could come down by at the spot of diesel and pet coke?
On account of diesel, which prices have not yet come off significant. As I mentioned, Q3 saw, in fact, increase in diesel prices, average diesel prices.
Spot is about 5-6% lower.
Huh?
Spot is about 5-6% lower than Q3 average.
Now. If that 5-6% lower, give me a calculator. Just one second, Anubhav. Anubhav, sorry.
Five into 0.7 into 0.4.
It would impact roughly 1.5% of costs. Pet coke, as I mentioned, costs have dropped about net of exchange impact anywhere between 10%-12%. 10%-12%, right?
Yes.
10%-12% pet coke costs have dropped into 0.3. What is the percent impact? Just one second.
Sixteen.
Into 16%.
Yeah. About 2%.
Roughly in total cost, we could see an impact of 2% on account of pet coke and 1%-1.5% on account of freight.
Okay, sure. This is a helpful number. Thank you, sir.
All right.
Thank you. The next question is from the line of Jaspreet Arora from Systematix Shares. Please go ahead.
Hi, good evening. Thanks for the opportunity. Just continuing with the Binani acquisition. I understand you do not comment on the last quarter performance. Can you leave us with some guidance for the next financial year in terms of both EBITDA per ton and volumes or the utilization even?
Normally, I don't want to give guidance numbers. I don't want to comment on this quarter because it was not even a quarter.
Okay.
It was just 40 days of operation in our hands.
Sure.
As I had mentioned that we are targeting an EPS accretive performance in January-March 2020.
Sure.
All right. Capacity utilization, I can say we will go up to about 80%.
Okay. Interesting. On the cement prices, as it prevails, you mentioned there was some uptick, but what we hear from the channel is that except North, all other regions, it was kind of rolled back. Can you just clarify?
I did not talk about other regions. I talked about North and South only, where improvements have happened.
In the month of January?
In the month of January.
Okay. Just lastly on what was the fiscal incentive that was, kind of booked in the revenue, which was part of the other income in last quarter versus INR 85 crore in last quarter?
Just one second. Versus INR 85 crore, anybody, guys?
INR 97 crore.
INR 97 crores.
Sure. Thank you so much. All the best.
Thank you.
Thank you. The next question is from the line of Raj Gandhi from SBI Mutual Fund. Please go ahead.
Hi. Thanks for the opportunity. Just on Binani and Century both, not for the previous quarter, but let's say as we speak, we are in the peak demand quarter. What would be the utilizations currently, if you could mention?
Currently, it's first month of the quarter.
Yep.
It's upwards of 76%, that's all I can say.
76. It's at your annual target, you mentioned 35%, it's reached your target utilization in that sense.
Yeah. Sorry, I missed your question, Raj. Can you repeat?
I'm not asking for the previous quarter, as you mentioned, it was just 40 days, but as we speak, current month is a peak.
Oh.
One month for current quarter.
Using UNCL asset, it's somewhere around 60% as of now.
Okay.
If I were to annualize my Jan number, it's somewhere around 60%.
Okay. Century
Is already operating at 75% in the hands of the earlier management.
Okay. Just on the CapEx, while acquisition of Century, you were mentioning that few of the plants require some bit of overall CapEx. Also in light of that, what would be the overall CapEx over the next two, three years as a company?
We have an average CapEx of INR 1,000 crore-INR 1,200 crore on an annual basis, which includes Nathdwara Cement also. When Century comes into fold, there will be an initial CapEx of maybe INR 500 crore, which will take time because there are structural changes that have to be carried out at the Raipur plant. That INR 500 crore will get committed but get spent over a couple of years.
The annual maintenance CapEx, which I would look at, will rise to maybe INR 1,300 crore or INR 1,400 crore per annum.
Okay. Sure. Thanks a lot.
All right.
Thank you. The next question is from the line of Madhav Marda from Fidelity Investments. Please go ahead.
Hi, sir. Thanks for taking the questions. Wanted to understand your outlook on the rural housing demand, x of the PMAY scheme, because we keep reading about monsoons not doing too well in some parts of the country. How has it been so far and, in your sort of understanding, how do you expect it-
Rural markets have been buoyant till now. Yes, you're right, monsoons have been impacting negatively, again, back into the Karnataka, Maharashtra markets. However, in the northern markets, with the rains happening right now, are sounding good fortunes for the crop this season. As of now, the rural demand has not seen a setback yet. The big things which had happened, the farm loan waivers, the small MSP hike that was given, is holding good for overall rural demand.
Okay. On the urban housing side, your outlook, because all of us are aware of the high inventory situation, etc , the tier 2, tier 3 cities, how are you seeing demand there for where data is not really available?
March in tier 2, tier 3. On the contrary, the tier 1s, Mumbai, Bangalore, Gurgaon, these kind of places have started seeing significant improvement in demand for new constructions. The new constructions in the price bracket of INR 1 to one and a half crores are seeing big positive movement. New projects are getting launched. The luxury segment is not seeing a pickup of demand. There's a huge surplus inventory in the luxury segment. Anywhere where you are launching a product for INR 1 to one and a half crores, it's selling like hotcakes.
Okay. Just summing it up, 7%-8% demand growth on the base that we've seen with affordable housing execution at such a high pace, roads at probably the best India has seen, affordable housing at the best that India has seen in history that available to us. Do you think on that base you can still grow 7%-8%? Given-
Yes, the confidence level is very high, because the roads, the kind of work that is happening, and we've looked at projects in pipeline, projects being announced and under execution or to be announced. There is massive amount of work in the country which is unfolding. The big challenge is, the big risk is general elections. What happens if there is a change of guard?
Right. Okay. Thank you so much, sir. Thank you.
Yeah.
Thank you. The next question is from the line of Ashish Jain from Morgan Stanley. Please go ahead.
Hi. Good evening, sir. Sir, I have just one question. The point that you made that Binani will be PBT positive by Q4, that implies if I add the INR 75 crores depreciation and interest cost on INR 2,700 crores-
Yes
comes to roughly INR 800, INR 850 kind of EBITDA per ton for Binani. Is that the right number?
I don't want to do a forward-looking number, Ashish. You can do your maths.
Okay. No, but is that a number kind of.
Yeah. It will be a high delivery number.
Oh, yeah. That's what I wanted.
We are aiming towards that side only, and it is possible in those markets.
Okay, fine. Thanks.
Thank you.
Thank you. The next question is from the line of Abhinav Bhandari from Reliance Mutual Fund. Please go ahead.
Yeah, good evening, sir. Just a couple of questions. One is on both Binani and Century. On the overall EV, could you help us understand the breakup in terms of tangible, intangible, and working capital takeover?
It's very difficult to split that offhand. If you are to look at EV per ton, all the acquisitions, and I'm looking at the EV per ton for the Binani acquisition net of the realization that we expect from non-core assets and the potential expansion benefit. The EBITDA per tonne would range between INR 7,000-INR 7,500, either for Century or for Binani.
Okay.
If that helps.
Okay. The other question was, sir, on Nathdwara Cement, you explained in terms of positioning, but on Century, how would be the positioning of products? Would the existing brands and existing products continue, or is there a change there as well once you take over?
It will get rebranded to UltraTech.
Okay.
That's the strategy as of now, and as I mentioned, we have started working on the integration program. As it evolves, we'll figure out what to do, but there's no logic of having a separate brand.
Sure. The structuring would be similar to what you have done in case of Binani?
No. Because we're not acquiring Century as a company.
Correct.
The assets are being acquired from there. It will be folded up into UltraTech only.
Sure.
Binani was different because we had to acquire the company.
Yes. On the synergy and savings part, you explained on the procurement and the freight side. Any savings or rationalization can we expect on the employee cost and the other expenses once both these-
No, no impact on employee costs because we need the employees. The plant-level employees are definitely required. The marketing network, as we expand the market, because we're now going to sell in the same limited market only. As we acquire capacity, we expand our markets also. Marketing people are equally required.
Sure. Got it. Just one last bookkeeping number, sir. On the consolidated side, if you could understand the volumes, UltraTech consolidated entity, including the overseas cement business, as well as the usual white cement revenue volume and RMC revenues that you have.
Sure. All in, the volumes are at about 19.3 million tonnes, an increase of 15%. White cement revenues would be somewhere around INR 500 crores. RMC would be about INR 521 crores.
White cement volumes?
937.
Sure. Thanks a lot, sir. Thank you.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss Securities. Please go ahead.
Hello.
Go ahead, sir. We can hear you.
Yeah.
Yeah.
Thanks for the opportunity. Just two questions. One, I'm looking at your investor presentation, in this quarter and just also recollecting the previous two quarters, keeping the view positive on demand. On the industry outlook, are we a little more cautious now incrementally, especially mentions of surplus capacity and uncertainty around prices?
No. The reason I mentioned specifically about surplus capacity, because I keep hearing comments, that there's 25 million tons coming or 50 million tons coming in one year or two years. Where is that 50 million tons or 25 million tonns? Where is the 17 million tons? I was expecting 16 million tons for this year. It is actually 17 million tons. That is why it was important to clarify that the new addition, when it is announced, you have to peg it in a particular period. Quite often, people miss timing of the new capacity.
Fair.
I'm looking at 16 million tons now, 16 million tons two years down the road. Next year might be slightly higher. Bigger point is that the demand growth is in excess of 25 million tons every year, which will absorb the new capacity which is coming in and keep on inching up the capacity utilization. Capacity utilization, Navin, mind you, is not behaving in arithmetic progression. When the demand surge happens, we are today looking at, excluding South, we're looking at 75% capacity utilization or even more than 75%. In my arithmetical progression, 75% would have been achieved much later on. Demand surge is all defining how the capacity utilization is going to behave.
Because I was just looking at it from an incremental conviction from management, because past few quarters on consol, the commentary was far too positive. Now it sounds a little too cautious, especially from prices, given your Tamil Nadu actions. I was just trying to say that pricing perspective, we are getting into a zone of muted price hike, kind of an expectation. Is that fair to expect?
Difficult for me to say. I think January price hike have happened in some parts of the country, and it's like a plague. If a region sees price hikes happening in one area, the other regions might follow suit. It's a game of wait and watch.
Okay. My second question is on the cost. In that, you said this quarter particularly had this maintenance cost, related to Bara facility-
Bara plant. Yes.
of around 26 crore.
Yes.
I'm looking at the total other expenses, which come in about 1,200 plus crore in the quarter, with a maintenance cost, as you said, is about INR 80 per tons. I'm comparing it with the previous quarter, which is about 1,058 or even lower, 980 in Q1. I'm saying this component of other expenses seems to be sharply moving up. What else is impacting this cost besides this maintenance?
No, it's only other maintenance costs, as I mentioned, there are 11 kilns which were under shutdown. Beside that, there would be maintenance on account of those plants. Packing cost has gone up a bit. That's because of.
Volume
Absolute volumes. One more thing which I'm forgetting to add is like for like, Dhar plant was non-existent last year. Now we've had the Dhar plant fully operational into the stream, which will increase the absolute quantum of expenditure.
I'm just referring to, let's say Q1, we did about 17-plus total volumes.
In Q3 also, we have done 17-plus, or 17 and a half, little higher kind of volumes.
This cost from INR 980 crore in Q1 is shooting up to almost INR 1,211. I'm just trying to understand. There seems to be more cost than besides maintenance cost, the tough cut numbers which you mentioned of INR 80.
Navin, as we mentioned, the maintenance cost in this quarter is about INR 80 a ton, which is not there in Q1 at all. If you take with the volume of 18 million tons, at INR 80 a ton, it gives about INR 145 crore. As we discussed earlier also, the other cost includes some variable component also. Like we mentioned that packing, it's more in tandem with the volume.
Okay, fine. Last one is just on this purchase of finished goods, which is also sequentially up about INR 100 crore. Even if Binani volumes of 1 lakh ton come into this, it will cost not more than, I think, INR 35 crore-INR 40 crore. What explains the further increase there?
See, this is linked to the additional volume because sequentially our volume is up, so this has also increased.
Purchase of traded goods, you're saying?
Yeah.
Okay. Thank you.
Thanks.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, my first question, it's more philosophical. Sir, how do you see UltraTech in the current environment? Is it something market share is more dear to us or is it profitability? Because in the prior questions, you emphasized a lot on utilization levels, be it Century, Binani, at 80%, say in FY 2020. Sir, how should one look at this?
One is we can't be operating, as I mentioned in my commentary also. We do consolidation, but not for operating at suboptimal capacity. There's no point in operating Binani plant at 40% only. It was because of working capital crunch that the erstwhile owners were not able to operate or JP assets which were operating at 18%. An optimal capacity utilization has to be achieved to absorb your fixed overheads and deliver profitability. Century assets, that's why it was important to specify that it is already operating at 75% capacity utilization. It's almost optimal. There's nothing much to do on fixed cost absorption. It is more to what we'll have to do work in Century assets is improve costs and take up our pricing.
Pricing, wherever we have gone into, whether it was JP or the Binani acquisition or Century, we will peg the output from these plants at the prices at which UltraTech sells. There is no way, no chance that it will get discounted.
Sir, let me put this the other way around. When we look at regional profitability at UltraTech, is it like one region would subsidize the other when we acquire a new asset? I don't know at what level is Dhar operating right now. Binani utilization levels will increase. Let me put it the other way around. If you had the optionality to utilize Binani at 90% utilization at 450 kilometers of lead distance, would you prefer that or would you operate it at 70% utilization levels with 250 kilometers of lead distance?
See, logistics is the biggest cost, 450 kilometers is something that we wouldn't want to do. As I mentioned in my address also that we have been reducing our lead distance. We would look at operating closer to the plant and selling the output closer to the plant, not sending out further.
Okay. That helps. Sir, second question is, trade versus non-trade profitability, how has it changed, say, a year back, how does it stack up right now, specifically non-trade prices have been pretty depressed.
Non-trade prices have been improving, in fact, at least in the markets that we have seen. The margin difference, if I were to look at, would continue to be somewhere around INR 30, INR 40 a ton.
Okay. That's not much. Sir, last two questions. One is, any update on the Dalla clinker unit? It has been quite some time we haven't commissioned.
No, there was an NGT process which is on. Just to explain, the land which has to be handed over to the forest department has been identified. We keep testing the plant, firing it up and testing how it goes and stuff. My expectation is in the next two or three months, that clinker plant should be available. March, maybe a quarter or six months of tidying it up and sprucing it up to start operations.
Thank you. Ladies and gentlemen, due to paucity of time, we will take our last question from the line of Swagato Ghosh from Franklin Templeton. Please go ahead.
Yeah, thank you. Sir, quickly, one clarification. The cost-saving numbers that you gave, I just want to confirm 1.5% due to diesel and 2% due to pet coke. Those are 2% of total cost and 1.5% of total cost.
Total cost, yes.
Okay. Sir, axle load norms, whatever had to come in has already come in. There is nothing incremental left.
No, there are still negotiations going on. I would expect January, March to Internally, we have seen month-on-month improvements. We would see January-March quarter showing maximum benefit.
Okay. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. On behalf of UltraTech Cement Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.