Ladies and gentlemen, good day and welcome to UltraTech Cement Limited Q2 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 development, 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 0 on your touchtone 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 so much. Very good evening to all of you and a warm welcome to this conversation on UltraTech's results for the quarter end September 2018. Before you jump to conclusions and give credence to what others talk about, let me tell you about cement prices. Prices have seen improvement in the regions where there is demand pull. However, the improvement in the margins is not visible since the costs have also been rising. We have seen improvement in prices in southern states, in Gujarat, central India, East has been marginal, North India has also shown some improvements. We are focusing on reducing the price gap between retail and institutional sales. That is becoming our prime focus area. At UltraTech specifically, we saw improvement of about 3% in north, south, and central markets, a small drop in West, and a small increase in the eastern markets.
Let me now jump to the section on costs. The concern still remains of the rising cost, as you are already aware of crude and U.S. dollar. Almost 30% of costs in cement industry are linked to U.S. dollar, this will result in some kind of cost pressure in future as well. On 23rd August 2018, China had imposed additional 25% anti-dumping duty on U.S. petcoke. This is clearly helping Saudi Arabian petcoke to shift its customer base. However, there will be a favorable impact on petcoke prices. Reduction in petcoke prices will help reduce the impact of rising crude and U.S. dollar. We have seen some softening in prices from peak of around $122 to around $108 as of now. The benefit of this reduction will flow into the October-December quarter only.
During this quarter, we have taken shutdowns for annual maintenance in 17 of the 32 plants that we operate, resulting in higher operating costs to the extent of INR 100 per tonne. We expect the manufacturing cost to go up by INR 1 or INR 2 a bag on the current exchange rate and fuel prices. Talking about costs, one of the recent favorable developments in the country is on account of change in the rules around axle loads. State governments have implemented the changes in the axle load allowance at different points in time since the announcement by the center. Benefits are direct flowing in our logistics cost. States like Tamil Nadu, Karnataka have not yet notified the revised norms. We are expecting full benefits of the revised axle load to reflect in Q4 this fiscal year. Let me now talk about demand.
Demand has been growing steadily, and as we have mentioned in the past that this year and the following few years will see a strong upcycle for the industry. Last four quarters, cement has been tracking a growth above GDP. Demand from rural segment is consistently picking up and likely to strengthen further with the recent 6%-23% MSP increase for rabi crop. Monsoon has been erratic for the country this season, which could have some impact on regional rural spends. It will vary from region to region. With our continuous efforts to increase rural presence during this quarter, our sales volume in rural areas grew about 15% annually. Infrastructure development program initiated by the government continues to boost demand. Work on airports like Mumbai, Jewar, Delhi, Bangalore upgradation, Goa, Chandigarh upgradation, Bikaner military airport will kick off in the next 12 months.
Surat, Coimbatore, Guwahati, Kanpur, Bhopal are the next cities going in for metro development. Work on some ports like Gopalpur, Jafrabad, Kandla, JNPT, Vizhinjam in Kerala will continue to keep the demand going strong. Structurally, in the long run, we foresee the customer profile will shift towards institutional customers and OPC. This will remove the vagaries in demand, helping the industry with steady performance. We have launched new products during this quarter. Composite cement was launched in the month of September in the eastern markets, and another special grade cement has been launched recently in Andhra and in the western markets. These products are picking up momentum in the market, and we hope will generate higher returns. We will continue to focus on value-added products, and you will see a flurry of launches of new products as we go forward.
On our retail segment, UBS, we have added another 120 stores during the second quarter, taking the total stores to around 1,760. Number of stores has increased 45% in the last two years. UBS is a fantastic platform helping us increase our reach in micro markets, with about 26% of UBS sales coming from the rural areas. On our sustainability initiatives. We are reducing our fossil fuel-based power consumption. During this year, we have invested and commissioned two WHRS projects of 30 megawatts capacity each in the states of Madhya Pradesh and Chhattisgarh, taking our total capacity of WHRS to 85 megawatts. This will definitely support the reduction in usage of high-cost power and will ease the energy costs for these plants. We are also implementing solar and wind power plants at various locations.
Till date, we have commissioned 55 MW of solar wind power, and together with our WHRS plants, renewable energy is contributing nearly 8% of our overall power requirement. We at UltraTech are very serious on energy conservation and target to increase the share of renewable energy up to about 20% of our power requirement of current capacity by the end of fiscal 2022. With continuous efforts on increasing the usage of alternate fuel, we have made investments in the feeding systems in almost all our plants to use alternate fuel. Environment-friendly solutions now contribute 3% of total fuel consumption in cement. Our efforts are to increase alternate fuel to around 10% by FY 2022. In our commitment for increasing energy productivity, UltraTech has signed up for EP100 and has voluntarily committed to double the energy productivity in 25 years.
The EP100 membership reaffirms the commitment by the company to have a low carbon business growth. In the earlier quarters, we have discussed about the operations and improvements on the acquisition that we have done in 2017. The assets are now operating smoothly in line with our existing assets. Cost gap, in comparison to UltraTech existing assets, has reduced to INR 135 per ton versus INR 160 per ton in Q1. This cost gap includes impact of structural cost differences and regional disparities. The next phase of improvement involves investment in WHRS at two of the five integrated plants, which we will undertake during the course of next fiscal year. This will be an investment of approximately INR 200-300 crore. Construction work at Bara grinding unit with 4 MTPA capacity is slightly delayed and expected to commission by June 2020.
Clinkerization plant at Dalla is expected to be available for operation in time for the Bara grinding unit. A short brief about the Binani Cement asset. As you all must be aware, the hearings were completed and the order is now reserved. The NCLAT is on vacation. I believe the courts will resume functioning from next week, and in the next 10 or 15 days, the order should be pronounced. The other transaction that we are doing is about Century Textiles cement assets. The shareholders and creditors meeting for voting on the transaction is scheduled on 24th of October. Let me take this opportunity to brief you on the transaction, since there were some concerns that we have heard about. Firstly, on valuation. Century Cement plants have a clinker capacity of 9.17 MTPA, effectively giving a cement capacity of 12.1 MTPA.
EV of INR 8,621 crore effectively works out to INR 7,124 per ton. In comparison, in 2017, when we acquired 21.2 million tons of capacity for INR 16,189 crore, it had a surplus clinker capacity of 1.6 million tons. Effective EV for that transaction worked to around INR 7,111 per ton. There are additional investments required in Century Cement assets. One of the plants requires additional investment in land for securing mining rights. We are also taking over contingent liabilities attached to these assets, unlike the other transactions that we have done so far. Given the size of the balance sheet, there is hardly any player which could have offered an equity of INR 5,000 crore. It would be a valuation for them in the range of 15%-30%, 35%.
Giving the equity of INR 5,600 crore offers an opportunity to the shareholders of Century to stay invested in pure play cement and have the advantage of higher value appreciation with UltraTech as compared to their investment in a multi-business Century Textiles. This is a large transaction, and UltraTech has a track record of completing the transaction and turning the assets around. This transaction, as I understand from Century's point of view, helps them deleverage and focus on their future plans. If Century had sold these assets to any other entity, it would result into a value loss for the shareholders due to a high capital gains tax and dividend distribution tax. Hence, we believe that we offer terms which are beneficial to the shareholders of Century Textiles. Leverage is something of concern for us, and we are very focused on reducing our leverage as fast as possible.
You might recall that as of March 2017, we were net cash on the balance sheet, after which we took on a debt for acquisition of 21.2 million tons of cement capacity. Our peak debt EBITDA had gone up to 2.3x. We are down to 2x as of September 2018. Our leverage is set to go up further with the INR 3,000 crore debt being taken over for Century Cement business acquisition. If we win the Binani Cement asset, a further debt of INR 7,200 crore. I don't see the relevance of the leverage provision at the end of March 2019, since the balance sheet will have accounted for these two acquisitions without accrual of any of their earnings. The leverage will start coming down from Q1 FY 2020, with cash generation from increased capacity and no major capital outlay in the offing.
Before I end my commentary, I would want to clarify on a small change in accounting from this quarter. As per the amendment in the accounting standards for revenue recognition, fiscal incentives are now to be treated as other incomes instead of other operating incomes. Certain sales promotion expenses are to be adjusted from sales instead of being part of expenses. The accounting standard change is effective from April 2018, and we have reported the prior period numbers accordingly. With that, I end my commentary on the results and open for questions. Thank you so much.
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 your 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Bhoomika Nair from IDFC. Please go ahead.
Yeah. Good evening, sir. Just on two aspects on the cost structure that you spoke about. I just wanted to clarify that you said the manufacturing cost has gone up by ₹1 to ₹2 per bag from current levels due to basically higher rupee depreciation, petcoke prices, diesel, et cetera. Is that what I understood correct?
No, no. What I was saying, Bhoomika, was that there could be a possible further increase in cost. Everybody's aware the depreciation hit in the month of September only. Big rupee depreciation within the month of September. Crude had shot up to $85, $86. It cooled off a bit, but there is always a chance of it going up. Anyway, the higher levels of crude will impact the cost in this quarter.
Okay. In terms of what would have been the average petcoke price that you've seen in 2Q and what would be at the current level? If you can just give some guidance.
$114 is the average consumption cost in Q2. The costs are down to less than $108. As we speak, I hear that the costs are down to $102, $103 also.
Okay. In terms of freight, as you mentioned that there has been a lot of benefit which has come through on the higher axle load, the entire benefit we will be able to see in Q4. Broadly, overall, in the second half or through the year, what has been the benefit on the axle load or which you expect to see?
The road freight comes down by about 7.5%. Today our road rail mix is 75/25.
Okay. Will this be able to partially offset the diesel prices, which is why we've not seen a Q2 increase in the-
Yes.
-cost?
Absolutely.
Okay. Sir, just lastly, if you can just comment on how is the pricing trend in October versus average of Q2?
October, I think the prices have been steady. There's no dramatic movement from the changes that we saw this quarter. I think the July, September pricing was pretty good from the perspective of it being monsoon period. We have effectively been able to see an improvement in realizations. Otherwise, historically, if you track the performance, prices generally drop significantly in monsoon period.
Okay. Nitya, I'll come back in the queue.
Thanks. Bye, Bhoomika.
Thank you. The next question is from the line of Raj Gandhi from State Bank of India. Please go ahead.
Hi. Thanks for taking the question. Just here, you clarified in the cost, you're saying despite of this axle load norms, which I think the benefit should be there for the next full quarter, still the overall cost will inch marginally up.
Actually, the freight cost is not part of manufacturing cost.
Okay.
The freight cost is separate.
Okay. Sure. Got it. Just on expansion, if you could, you mentioned the grinding unit will come in July.
June 2020. Sorry, June 2019.
Okay.
It is Q1 FY 2020. June 2019.
Okay. Great. Any update on the other plants, Pali?
Pali, actually, we are waiting. We haven't started work as yet. We are waiting for the decision on Binani asset, and then we will take a call.
Okay, sure. Thanks a lot.
Thanks, Raj.
Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Just to clarify on the cost again.
Yeah.
Manufacturing costs should go up and then, we've seen a softening in the petcoke prices.
Yeah.
I assume that the shutdown costs will go away.
Correct
This quarter. Effectively, we should have likely seen the peak of the costs now.
Yes. July, September will be the highest cost possible.
You're saying that the prices at the moment are stable or in line with what we saw in this last quarter, spot quarter.
Yes.
Right. The [Vikram Patan] has come-
Next month at [Vikram Patan], final improvement will take place. If that's what you're-
No, I was actually coming to the fact that, with demand being strong and we've seen double-digit growth in the last few quarters, when do we see an improvement enough in pricing to actually more than cover the cost inflation?
That is a trillion-dollar question. I would say wherever within micro markets, we have seen opportunities wherever the demand has been growing robust, we have taken price improvement. I give you example of our North, Central, and South. All three put together, right?
Yes.
All three put together, we have seen about 3% improvement average. There are pockets within that which have seen a higher amount of improvement, more than 5% improvement in prices.
We are seeing now it's a demand pull based price improvement are becoming visible rapidly. My sense, post-Diwali, I think, what happens post-monsoon is, Navaratri and Dussehra and Diwali, these times when labor is not available, construction work slows down, volume pickup is slower. Trade especially is lower because nobody wants to initiate. The individual home builder segment does not initiate any construction work.
Right.
Difficult to raise prices. It's only post-Diwali, in the month of November, you start seeing improvement in pricing trends. How much is anybody's guess.
Even in the Western markets, parts of the Western market that were weak in the last quarter, that hasn't seen any improvement as of now?
No. Western markets continue to be strong, and there's a marginal drop from their highs.
Just one last question. What were regional utilization levels for you, and what were JPA's utilization?
Regional utilization, North around 75%-77%, Central around 55%-60%, East around 80%-85%, West around 65%-70%, South 65%-70%. This acquired assets or JP assets were trending more or less the same, because Central assets tends to be the acquired assets, and North is hovering around 75%-80%.
Got it. Okay, cool. Thank you.
Thanks, Raashi.
Thank you. The next question is from the line of Madhav Marda from Fidelity Investments. Please go ahead.
Sir, you mentioned the clinker utilization levels for the industry are higher than the cement utilizations.
Correct.
Could you just help us out with how much is the differential, because this is one place where the data is not very clear for the industry. If you could give it region-wise or overall, just to give a broad color.
Yeah. I don't have it region-wise, Madhav. Perhaps I could collate that and share with you offline.
Sure. Overall, at the overall country level, how much would it be higher compared to cement, like you mentioned, is about 70%. How much of the clinker would be?
Seven, 8% higher than cement.
7%, 8%. Okay. Right. Okay, that's my only question. Thank you so much.
Thanks, Madhav.
Thank you. The next question is from the line of Saurabh Ghosh from Franklin Templeton. Please go ahead.
Yeah. Hi, sir. Good afternoon.
Hi.
Yeah. I had maybe a subjective question. On prices, you said that obviously monsoon quarter was good and October thus far has been stable. I want to understand what's happening on the ground. Is it the case that companies are actually trying to take price hikes, it's not going through hence stable, or are companies playing the wait-and-watch game? You said that now there are a few festivals, which are on and off in various regions. It looks like companies are actually not attempting price hikes, like major price hikes. I'm not talking about two, three rupees. I think the industry needs some major price hikes. Are we actually waiting out this period and waiting for the real strong demand period, and then we will see companies like yourself and the others actually take that concerted effort to take the price hikes?
To some extent, yes. I also agree with your first comment that companies do take the opportunity. Wherever there is a slight shortage, people take opportunities to increase prices. It's a yo-yo. Today the prices are higher, and tomorrow also, if there's one more rake which comes into the market, prices have to be corrected.
Right.
I think the market is evolving now, and it is becoming far more demand-driven pricing as compared to supply-driven pricing.
Okay. On the other side of the equation, like you mentioned, the trade and the non-trade gap, there's a focus from your side to reduce that gap. On the industry overall-
yeah, on the industry overall, is there a similar effort from everyone else? I think Q1, there was a sharp decline in the non-trade prices which were the overall realization. Can you give us the overall picture of what's happening in the industry?
For the industry, other guys, you'll have to talk to them. We have consciously taken price hikes for our institutional clients also.
Okay.
The demand is coming from that segment and that segment is demanding OPC which is a costlier product naturally. A customer who wants consistency of quality and continuity of supply will definitely be willing to pay a premium. Wherever large clients, small clients, we have taken price improvements in our institutional segment.
Right. You have taken that increase in Q2?
Yes.
Yeah. Okay. Got it, sir. Okay, I'll come back to you for more.
Sure.
Thank you.
Thank you. Next question is on the line of Naveen Sahadev from Edelweiss. Please go ahead. Hello.
Hi, Naveen.
Yeah. Good evening, sir. Just two questions. Sir, you mentioned some regions are operating at peak clinker utilizations.
Yes.
Just wanted to understand which according to you are these regions and why.
North and East.
Okay. Even then why are we still seeing in past two quarters very muted price hikes? I'm not saying that their prices are not improving at all. Your presentation does say there is a muted hike, but if they're running at peak clinker utilization, is it fair to say that peak utilizations for clinker per se does not really matter because there is always a blending ratio which can always be improved?
East market, of course, the blending ratio are the highest because that's where the slag market is.
The utilizations for clinker are you saying at the peak, right?
Yes. Absolutely.
My question basically is if at least let's forget other regions but.
What happened is that with the attraction that the eastern markets are presenting today, there is a lot of material which is coming in from south in the eastern markets. Eastern markets are such that they are absorbing the flow which is happening. I think eastern markets have been consistently growing at close to 20%.
Sure.
Today eastern markets, for your reference, I believe the capacity of the industry is about 89 million tons and it is set to cross the 100 million ton mark in the eastern market in next two years or so. That also will remain supply deficit I would say.
Sure.
There are opportunities which exist with good amount of profitability that people would want to take advantage of and move material towards South. From Andhra moving up to Odisha is hardly any distance.
Sir, I was also asking that since demand is good, utilizations for clinker are at peak and slag I believe would have almost doubled in the past one year or so.
Yeah.
Despite that why prices are still muted as in you're saying it's only because of competition from south?
No, it's competition. See the material is continuously flowing in. If it were to look at standalone East it would have been a totally different picture if there was no inflow from south.
Sure.
Central for that matter.
What about North in that case? Why North then? What is disturbing the price hikes in North?
As of now, we have taken small price improvements wherever possible in micro markets, as I mentioned. As of now, north markets, I believe post-Diwali, in the month of November, you should see further improvements.
Okay. Really, I think that's the most important figure to be watched out for.
I guess so.
Okay. My second question was that, as you said, Bara grinding unit and the cement clinker are now by June 2019.
Yes.
I think there has been a delay here since we acquired. If I remember correctly, since the time we acquired these units over a year, there has been, I think, a delay of couple of quarters now, at least two to three. Is there any specific issue for the delay or is it more to be able to push that much volume in the market? How should one look at it?
It's contractual delay. As part of our overall deal, Jaiprakash Associates, that is the company which is executing the project. They have their hands tied and because of which there are some delays. That's all.
Sorry, I didn't get you. You're saying delay because of their contractual obligations given by JP?
The process has taken some time. Maybe because I remember there was a labor strike in between which brought work to a halt or then mobilization labor takes time. Order placement might have got delayed. That's all. These are routine project-related delays, nothing else. Not money under it. We are waiting for the priorities in fact.
Yeah, our view was also similar because it required an additional investment of just around INR 500 odd crores and the benefits were far higher to release.
INR 470 crore is the total investment. The benefits are much larger.
Yeah.
We are waiting. We are in continuous follow-up with the Jaiprakash Associates team for execution of the project at the fastest pace.
Okay. Just one last question, if I may slip in. For the quarter, what were the revenues from RMC and white cement business?
RMC is about INR 480 crore and white cement is about INR 450 crore.
INR 450 crore. Okay. Thank you. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Abhijit from BNP Paribas. Please go ahead.
Yeah. Thanks for the opportunity. Sir, given that we are facing in terms of clinker utilization levels in north, as in upwards of 80% and eventually they will max out. Is there a timeline to Pali in the worst case if this litigation in Binani get extended?
I think beyond a point we will not wait for Binani and looking at the lucrative opportunity that the markets are offering. Obviously, every possible action will be taken to press the pedal on the Pali execution. Because everything is in place, land is in place, approval is in place. Orders already committed. We have issued LOI to our suppliers. Everything is stitched. It is about to get the engineering contractors on the ground. Even if we take a decision in January-March quarter, that is March 2019, March 2020, and September 2020, we could see 18 months? 18-21 months max. So September 2020 or December 2020. That is where we could see the commissioning, but the decision to the starting point will be known in January, March period.
Is there a possibility of a much faster because, of our record timing of commissioning less than 12 months, can Pali do the same or-
It can, I am keeping a standard project timeline of, let's say 18 months.
Okay.
Now that the team has delivered 12 months execution, the board expectation will be to deliver it in 12 months.
Exactly. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Jitin John from CLSA. Please go ahead.
Hi, Atul sir. This is Vivek.
Hi, Jitin.
Hi, sir. My first question is on the waste heat recovery bit. Let's say you have mentioned in your presentation that's what you want to focus on. Current capacity 85 megawatts, where does it reach? Have you done a math in terms of where can it reach?
Next halt is 121 megawatts.
Okay. timeline would be?
Give me a second. 2019, 2020. That is FY 2020.
FY 2020. Okay, got it.
FY 2020, yeah.
Okay, sure. Second, your commentary for the last few quarters has been consistently very positive on demand, and indeed the outcome has been similar. You have mentioned in your presentation, we'll take that offline, but I'm saying industry to witness new capacity addition at 15 million-17 million tons. Is there a risk to that number if demand growth is so strong?
No, it's not possible. One more fine point which was mentioned in that slide is this is coming on the basis of old limestone, existing limestone mines. As time passes, new limestone mines will have to be used, which will be far more costlier. People who have bid INR 300-INR 400 a ton on limestone, that limestone mine land, I know it is costing now that we have one mine for which we are buying land. Century Textiles, they have informed us that they have another option in buying land. Land is becoming expensive. People are asking for a much higher price than which could have been bought earlier. Also the operating cost will become more challenging because the royalties on the mines under option will come into play.
I don't hence see the capacity enhancement going beyond 13 million tons per year for the next two, three years.
Okay. Two more questions. One on Binani. Where exactly are we, are there any set of timeline by which the resolution will happen?
The hearings are done. The judge went on footing. NCLAT is also on vacation. I think NCLAT starts functioning from Monday, if I'm right. Once Judge Mukhopadhaya resumes office, we will wait for the order to be passed. I have no idea, actually. We are just waiting for the order to be passed. It could get passed in the next week or 15 days.
There's an option for the party losing to go to Supreme Court, which means can it get delayed by a few more months?
No, I don't think so. The losing party, I'm sure, will go to the Supreme Court. The matter is submitted. I can explain it to you offline because I don't know.
Okay. Last question. I know this has been asked so many times on the call, on the pricing bit again, costs are moving up. Demand is so strong. For long time, industry has been waiting for demand pickup. Is there a structural change in the industry structure or anything which is making prices go up so difficult? Anything that worries you?
No
we should be aware of?
I am happy on the contrary that the demand is becoming institutional because that helps consistency in volumes. All right. That is one plus point. Second thing is that the demand pickup which is taking place, I think we have to wait and watch the monsoons go by, which I have mentioned in the past also. There's no reason why we will not see stronger price movements November onwards. I maintain that today as well.
Okay, all right. On that positive note, wish you all the best, sir.
Thank you, sir.
Thank you. The next question is from the line of Indrajit Agarwal from Goldman Sachs. Please go ahead.
Good afternoon, sir. Thank you for the
Hi
Hello, sir. Sir, I have two questions. First, on demand. If I look at slide five of your presentation, what we see is the strong wave starts to catch up from the third quarter of this year. We're heading to general elections, we are hearing all sorts of liquidity concerns. Do you see downsides to demand growth numbers from these levels?
The liquidity concerns which we are hearing in the markets now that you mention, yes, it could have some impact because today we hear there is some concern on liquidity in the housing finance companies. If that happens, I see market comes to a slowdown. However, this leg of demand growth, this upcycle of cement is being driven by infrastructure. Infrastructure will lead to housing growth. I think this time will also pass for the financial market, I'm sure Indian economy is far more robust than any other economy, and they will be out of this mess.
Sure. That answers. Sir, secondly, again, on pricing, if I break the market into institutional and trade, is it like the reported pricing looks weak because the mix is changing more towards institutional where prices is a little bit lower? Or the underlying pricing is actually weak in both the markets?
No. If I look at my trade ratio, it's not gone down dramatically in this quarter over the previous quarter. The reduction is all on account of monsoon period. Yes, institutional prices are lower than the trade prices. However, as I have mentioned in the past also and today as well, that we have been taking improvements in prices for institutional play as well.
Sure. Thanks. Last, actually a follow-up to the second question only. How do you see the competitive intensity varying in these two markets? Is it similar or is it institutional is far more competitive than the trade or the other way around?
Again, market to market, depending upon the number of players able to meet the requirements of a particular project. To give you a simplistic example, the bullet train project. Today, there are 7 segments of bullet train which are under execution now. Gujarat phase has already begun. There are plants of UltraTech, and there are competition plants. There are two companies which are most suitably placed to capture the benefit of that project. It ultimately trades, which boils down to the profitability and the competitive advantage which each player would bring to the table.
Yes. All right, sir. That answers my question. Thanks so much.
Thank you.
Thank you. The next question is on the line of Gunjan Prithyani from JP Morgan. Please go ahead.
Yeah. Hi, sir. Thanks for taking my questions. I basically have a follow-up on this trade and non-trade. How has your trade and non-trade mix changed over maybe the last 12, 18 months? Another point on it is, do you think this market is lesser brand conscious, and to that extent, you see far more competitiveness?
No. Large projects are very brand conscious because they require very consistent quality and specific quality.
We have seen our trade mix at 66% in this quarter, over 68% last quarter. Which I think is insignificant because the IHB segment is generally very slow in terms of the monsoon period.
How would this compare with last year's same quarter? Maybe last year, if you can give us some sense.
Last year, trade segment was about 71%.
Okay.
I think we are inching back towards that by March 2019 or Q4 this financial year, we should be about 70%.
If I just step back a few years back, this number used to be for industry and for everyone more upwards of 75%, or maybe for you guys it was closer to 75%-80% range. This has structurally changed now, right?
Yeah, because Gunjan, infrastructure demand is institutional, and that is coming in a big way.
Yes.
As compared to the earlier times where we were maybe at 75%, ±7.5% on trade, it was largely IHB as a retail market, which was driving demand. Today, rural is driving growth and infrastructure is driving growth big way.
Okay. With the number of 10%-11% growth that you mentioned, or double-digit growth for the last few quarters, do you look at what has been the growth of the trade segment and growth of the non-trade segment? Is there a ballpark number that you can share or give us a sense of?
I don't have it immediately. Yes, the non-trade segment is growing at a faster pace than trade segment.
Is trade growing with rural?
No, it is growing because the volume, 20% growth cannot all be delivered by a small base of infrastructure. Yeah. In fact, if you will look at my commentary and presentation, we have grown 15% in our own rural markets.
Okay. I just noticed that your net debt on a sequential basis is going up. Has it gotten anything to do with the working capital related-
Working capital deployment, essentially. You pile up clinker, pile up coal during monsoon periods.
No, nothing to do with the mix because it is more non-trade?
No, nothing. The cement stock cannot be more than three to four days in any case. It's always at the same level. The finished cement stock.
Okay. On the cost side, the annual shutdowns, there was a large shutdown for the JPA assets, which of course you had not taken after the acquisition happened. Would it be possible for you to quantify what is the one time higher-
I don't have it, Gunjan. Let me dig it out and give it to you offline.
Okay. Just last follow-up on this cost difference. You mentioned INR 135 cost difference between the acquired assets and your old assets. You're looking at some investments going into next year. Where do you think the additional cost savings can come from?
There are certain markets or plants which have, I said there are structural differences and regional disparities. Regional disparities would be because of the quality of limestone that exists in central market versus north market. Regional disparity because of operating in a hilly area in Himachal, where cost of moving material becomes higher. These kind of differences will remain. INR 135, the differential which is there could have to come down to about INR 100, out of which INR 70 is royalty and the other INR 30 will be towards freight related and other local regional costs.
Okay. We're sticking to the cash break even.
Yes
by one.
Absolutely. All signs are pointing in that direction. If you look at one of the slides In our presentation where we've seen lot of improvements which have been done in the acquired plant. Slide 10, heat consumption has already been achieved to a level lower than our existing capacity. Petcoke usage has gone higher, and blended production is also higher than in our existing capacity. Power consumption is something which is still not there. I think post the shutdown. When does Birla shutdown come to an end?
20th of March.
Post in January-March quarter, I think we will see power consumption also be in line or better.
Sir, I think the issue is more from the pricing perspective. Right now, the cost efficiencies are fully exploited for you to reach the cash breakeven, you need additional pricing delta to kick in to meet that cash breakeven.
Correct.
The gap in cost no longer exists.
We already did cash breakeven in January-March. We are looking at PBT breakeven. I will cover in my presentation.
Sorry, you have mentioned PBT breakeven?
Yeah. We are looking at doing a PBT breakeven in April-June. There will be a small role by cost improvement and a bigger role by pricing.
Okay, got it. Thank you so much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from other participants in the queue, you are requested to limit your question to two per participant. If time permits, you may join the question queue for any follow-ups. Thank you. We have the next question from the line of Jayaraman Radhakrishnan from IIFL. Please go ahead.
Sir, just one question from my side. In slide number 20 in the presentation, you have given revenues net of taxes for current year and last year. Is it possible for you to give for 1Q also, what is this number, 1Q FY 2019?
One second. Q1, INR 8,354.
INR 8,354. Just if I can squeeze for one more question, sir. This trade mix declining 66% for this quarter. Sir, you took 71%, is it for full year last year, or it is for-
I was referring to Q2 last year.
Okay. If I'm just putting that math, it is looking like non-trade sales is up some 40% and trade sales is up some 11%. Is that somewhat a right kind of number or that is wrong?
Sorry, I didn't get you.
If I'm just applying that number for volumes, I am getting a 40% growth in non-trade segment and 11% growth in trade segment.
You're doing math and I'm sure your math will be right. I'm not in the math.
No. Just trying to understand, is that to some extent, right? It's maybe wrong. I put it down in-
I do the math and give you a revision.
Sure.
All right. Thanks.
Yeah. Thank you.
Thank you. The next question is from the line of Brijesh Patel from Goldman Sachs. Please go ahead.
Yeah. Thank you. Can you share your region-wise clinker utilization, please?
No, I don't have it.
Okay. Second question is this fiscal incentives from Q1 to Q2 sequentially, why is there such a sharp decline from INR 140 crores to INR 35?
Last quarter we had a new benefit kicking in, then there is a regional mix because depending upon where the growth is and where the fiscal incentive is, accordingly the mix will keep changing.
There is a sharp correction. Can you just give more color, like which region where you're not enjoying any of the gains?
We had kick-started a fiscal incentive in central market last quarter which gave us a bigger benefit in that INR 140 or INR 139 crore. Now the regional mix, I'll have to do a comparison of the regional capacity utilization of Q1 versus Q2. That will only tell me the answer, which I don't have it immediately.
Okay. All right. Thank you.
Thank you. The next question is from the line of Madhav Marda from Fidelity Investments. Please go ahead.
Sir, just a couple of follow-up questions. On the supply, you mentioned 15 million tons, 17 million tons additional. Is that all clinker back?
No. Furthermore, it is not clinker back.
Okay. How much of it is clinker versus grinding?
Madhav. I will get that information across to you, Madhav.
Okay. I think the second question on the demand, I think it was asked by a previous participant as well, demand has been strong because, people have mentioned this over and over again, it's basically infra, affordable housing by the government and the rural base which is helping. I just wonder with the HFC challenge which is going on across the country, plus I think the government spent on infra heavily when they had the crude windfall, which is sort of going to go away now. All these factors, do you think the government can continue to spend on infra the way that they have with pre-election spending coming to an end, certain southern states are having sort of debt-ridden balance sheets. Can they spend as much? Can we continue to see such strong numbers?
States having debt-ridden balance sheets are doing wonderful work. One should travel to Amaravati and see how the construction is happening. That is one. Second, the HFC issue, I think should be short-lived. I'm not the expert, but government spending on infrastructure and the low-income housing will continue. The urban housing is already not yet out of its surplus inventory and slower growth phase. It's still in the slower growth phase.
Okay. All right, sir. Thank you so much.
Hi, welcome.
Thank you. The next question is on the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, my first question is, what is the clinker factor for composite cement? You indicated another special grade of cement. What's the reasoning for the launch of composite cement and another special grade of cement?
Sorry, what was your first question, Ritesh?
Sir, you indicated you have launched two products. One was composite cement, and you indicated we have launched another special grade of cement.
Yes.
If you could please highlight basically what is the clinker factor in each of this and economic rationale. Is it like to beat slag inflation or it's something else?
No, it's product differentiation, and unfortunately, I won't be able to give you the breakers for confidentiality. The other product which has been launched, unfortunately, there is no name for the product, that's why I'm not able to tell you the name, but there is a specialty grade cement which was launched. Both are profitable because the costs become lower than existing costs.
Okay. Sir, is it like you're trying to reduce the clinker factor with this another special grade of cement? Is that the idea, or is it just getting a new brand into the market?
Brand is the same, but if you can bring a product with better features or better quality and giving construction, what should I say, something better to the end user, then it's always advantageous.
Sir, have you already seen a plan in the launch for this new product?
It's a soft launch done in East, and then we are gradually increasing.
Okay. Sir, my second question is, why is it that we are not expanding at Kotputli, and we are looking at Pali?
Mines.
Hello.
I need sufficient mines. We don't want to expand compromising on the existing mines. You can expand and reduce the life of mine, which might be, let's say, 30 years to 15 years. That is not what we want to do.
Okay. Sir, last question, you indicated, reducing the differential between trade and non-trade. Sir, can you please give some color region-wise over here? It will be quite useful.
We don't have it yet.
Okay. No worries. I'll get back to you, sir. Thank you so much.
Thank you.
Thank you. The next question is on the line of Kamlesh Jain from Kotak Securities. Please go ahead.
Thanks for the opportunity, sir. Sir, I have one question on our current utilization. Like say, if you see central plants, they are operating at roughly around 70%. Just saw that significantly lower utilizations. With the Binani coming in, which is currently operating at hardly around 40% yields. Don't you think that the intensity for us to keep the prices lower could continue to be there even going forward?
No, because in the north and western markets, we sell nearly two million tonnes every month.
Okay.
Binani, which is operating, let's say, around 2 lakh tonnes a month today at its lowest capacity utilization. That material is already selling. In addition to that, we might have to sell 1.5 lakh tonnes more. The market is growing at that pace to easily absorb that capacity. As I mentioned, we are fully maxed out on our clinker, and we need additional capacity.
Okay.
Demand exists to absorb it.
Sir, given the price which we are going to pay for the Binani and the capital cost at the Pali plant, don't you think that Pali makes much more sense as compared to the Binani? Even if you see the nearby plants like say, Lakheri, all are making hardly an EBITDA of minimum like hardly around INR 550 to INR 600, which whether it is like say, Pali or like say, nearby plants, all are making like say roughly around INR 800 to INR 900 EBITDA. In addition to the incentives which the state government is offering.
We will want to look at the incremental capital cost, I believe doing a brownfield at Binani will be far lower in terms of incremental capital outlay than at Pali. Binani certainly offers us advantages to access the western market, which is trying to grow as compared to Pali, which will be focusing more on the north and Rajasthan markets.
Okay. Sir, lastly, there are some fears or the doubts in the market that you are incurring some additional cost because of this delay on this order related to the Binani Cement. Can you highlight some facts whether we are incurring any additional cost?
I'm not incurring any cost at the moment. What are those additional costs?
Like say, in terms of dues for interest-
No, there's nothing like that.
Great. Thanks a lot, sir.
Thank you.
Thank you. The next question is from the line of Murtuza Arsiwala from Kotak Securities. Please go ahead.
Hi, sir. Just given the movement in trade versus non-trade sales and the demand from the infrastructure segment, can you give us the mix between OPC, PCC, slag or OPC versus other blended cements?
The blended ratio is roughly around 65%.
Blended is 65% in the current quarter. How would that have been in the same time last year?
67%.
67. How much of the cost increase would you attribute to the fact that you moved up your sort of?
I'll have to do that math, Murtuza. I don't have it offline.
What are the costs would have been because of higher OPC?
There will be some, yes. There will be some cost difference between blended and OPC.
Does it still dilute? While OPC may have.
What happens is OPC gives a higher price.
Yes. Does it offset or is selling a higher quantum of OPC still sort of dilutive in terms of overall profit?
No, no. The only concern one would have is that OPC consumes lime at a much faster pace. It earns more for sure.
It earns more for sure.
Yeah.
Despite the higher cost. All right. Sure, sir. Thank you.
Thank you so much.
Thank you. Ladies and gentlemen, that was the last question. On behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.