Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q2 FY 2022 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 public amendment, 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 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 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, and over to you, Mr. Daga.
Thank you, Steven, and good evening, ladies and gentlemen. Once again, thank you for joining our earnings call for quarter two FY 2022 today, the 18th of October 2021. First and foremost, greetings to all of you for the festive season in India. I hope that all of you and your dependents have already been vaccinated for COVID and are able to kill the boredom of work from home by returning back to your respective workspaces and enjoying meeting your colleagues and associates in person. At UltraTech, we believe that work from home is here to stay and we are enabling roster services, relieving office leaders wherever possible, redesigning our larger offices to suit the new normal. To quote, "New normal is never normal." Yes, that is what we are seeing in the cement industry as well.
Every now and then we are waking up to the news of a new cyclone. Ida, Tauktae, Yaas and whatnot. Cyclones generally would give our shores a miss but now are hitting our shores every now and then. Monsoons have continued in the country in the month of October as well and have only started receding in the last few days. World is just recovering from the aftermath of COVID and now fuel is creating roadblocks for economic growth. Shortages in gas market is pushing demand of electricity generation from coal-based power plants. The surge in demand for coal is largely from recovering economies. China first shut down its coal mines and now is stockpiling domestic coal and gas reserves. On the other side, Russia is curtailing its supplies.
China was not importing coal from Australia, but of late I guess that is getting resolved that they have started importing from Australia. Fuel prices have seen an unprecedented rally. Who could have forecast more than a $50 jump in less than a month? Added to that, the stock built up requirements of U.S. and North Asia for their winters. In India also, all the coal supplies were being diverted to the thermal power plants. Today's newspaper was some relief that inventory at Coal India has been improving and the power rates have corrected on the exchange. With this kind of pricing in the coal market, pet coke again becomes favorable in terms of energy cost at the current price levels of coal. I guess switching back to pet coke makes more economic sense.
Using alternate sources of coal from wherever the most economical coal is available is the order of the day. Increasing alternate fuel is slow in India. This quarter, we have reached 4.4% of our total fuel consumption as alternate fuel and our efforts will be to continuously increase the sourcing of alternate fuel from wherever possible. However, something needs to be done to protect our margins too. Industries like coal and other commodities are raking in the big moolah with price increases and artificial shortages. Cement cannot keep on just improving efficiency to protect and limit margins. We have taken a call at UltraTech to increase prices of cement to help manage the rising cost of production. Current spot prices of coal have already gone up 3X from June 2021 and pet coke is up nearly 2X.
Sometime during the month of October, we have increased the prices in almost all the regions. The prices are now back to where they were pre-monsoons. This is certainly not enough to cover the cost pressures. Needless to mention, you must have already got the information from your infamous channel checks. On other costs, you would have noticed an increase in UltraTech. I would urge you not to annualize these numbers. At the beginning of COVID, we had told you about a reduction in our overheads plan of about 10% over FY 2020. Yes, we are at it. FY 2022 will see our overheads around the same number as FY 2020, thus having absorbed the inflation of 2 years. Let me now talk about the brighter side, demand. It seems to be robust.
As monsoon have been receding, volumes are going up. In spite of heavy rain that the country witnessed, UltraTech has recorded a domestic gray cement volume growth of 8%, 17% in white cement. Could we have done better? Yes, most certainly, but we were at the mercy of rain gods. In the light of rain, a pharma company would always urge for rains. A pharma company manufacturing anti-malaria drug would urge for rains, and cement company would pray otherwise. Q2 was substantially impacted by monsoons, which were above normal in most parts of the country. In fact, till yesterday, some parts of Northern India and Kerala were facing heavy showers. On the infrastructure side, the trust by the government continues to be very high as part of implementation of its INR 1.1 trillion project under NIP to be completed by 2025.
If you are to deep dive briefly on the various subsets of infrastructure, roads, fastest growing sectors with a massive plan to connect entire length and breadth of the country under the Bharatmala Pariyojana project. There are 20 expressways already operational and 30 are under construction. Highway construction is almost at par with last year, with 3,824 km completed till September. Ordering was a tad slower, but we expect it to catch up this quarter. Railways. Q3 onwards, the speed of implementation at DFC is picking up, and most of the work is expected to be completed by the end of fiscal 2022. Metro rails. 18 existing metro rail systems have already started increasing the length of their existing metro lines, and 27 new metro lines are being added in the country. Irrigation projects are also back on track. Airports.
Two major airports, which is New Bombay and Jewar, are likely to commence this fiscal year. Airports in the major districts are being implemented as part of UDAN scheme to improve the regional connectivity. On the commercial real estate side, it's a mixed trend. The IT infrastructure space demand is again booming, giving rise to the commercial space. We are also seeing good traction in the urban housing market in the Tier 2 and Tier 3 markets. Infrastructure spends continue to lead the demand boost with the increase in execution speed across all projects. To quickly touch upon our expansion plans. We have commissioned 1.2 metric ton greenfield expansion of our Bengal and Bihar unit. This is part of the 3.2 million tons scheduled for this financial year.
The 1.2 million tons is additional grinding capacity for which clinker is sourced from our existing units in Chhattisgarh, East MP, and East UP. These expansions are focused on composite cement and in the overall capacity, grow less than 1%, but certainly a tiny contribution towards increasing the share of blended cement in our endeavor to continuously improve our CO2 emission norms. The next in line for this fiscal is the 2 million tons phase II of our Bara grinding unit. Small delays. It's on course now. We expect to commission it before the end of this fiscal year. All other projects of the 19.5 million tons expansion are on track except for small delays of a month or two here and there. In these coal crisis time, happy to share with you that our Bicharpur coal block will also start coal mining operations from Q3 FY 2022.
The coal will be used in our Satna cluster plants. During this quarter, we have also commissioned 12 MW of WHRS capacity and added 21 MW of solar capacity sites. With these expansions, our green power share has increased to 15% of our total requirements. Before I conclude, let me talk about the cash flows. Working capital has been increased in value terms due to the rising purchase costs. However, we continue to maintain a negative working capital of around 8 days- 9 days on this quarter's sales. This negative working capital will further improve in the second half with reduction in inventories post-monsoon. We generated an operating cash flow of INR 1,750 crore. A large part of this was used on the ongoing CapEx plans.
In the first half of this year, we have spent INR 2,300 crores on CapEx and should end the year with nearly INR 4,000 crores-INR 5,000 crores of CapEx all being funded from internal accruals, and yet deleveraging further. During this quarter, we trimmed our treasury surplus to INR 7,600 crores and retired INR 5,200 crores of long-term debt. At the end of this quarter, we are 0.47x net debt to EBITDA at consolidated level and will only improve going forward quarter-on-quarter. With rising sales volumes and expansions coming on stream, the reduction in net debt will certainly pick up pace as we move forward. To conclude, I believe cement demand seems to be on a stronger path. There is a pressure on fuel supplies and costs, but rising costs will be compensated by increase in cement prices. Ladies and gentlemen, let's sit back and enjoy the ride.
Thank you, and over to you for questions. I also have with me our Managing Director, Mr. K. C. Jhanwar, to take on any questions.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah. Good evening, and festive greetings to everyone. Mr. Daga, the first question is on the cost. If you can elaborate a little bit more on the fuel cost specifically. We currently have a very changing, a very dynamic situation for the economics of pet coke and thermal coal. Also with the inventory in hand, how are we looking at coal costs in coming quarters, if the spot price sustains for a couple of more months? Also, there's a spike in the employee cost. Is this a new run rate to work with?
On fuel costs, your guess is as good as mine. We don't know where the peak is, when will it start switching gears. The general feedback that we are getting is at least there is a few more months of pain in the cost on fuel. More importantly, we are passing on all these cost increases in cement prices. As far as availability is concerned, I don't see a challenge as of now in availability of imported coal. We were, in any case, very loosely dependent on domestic coal. A shade under 15%, or maybe 12% of domestic coal is part of our fuel mix. The balance is all imported. As for employee costs, last year there were no increments which were given, as you are all aware, as part of our COVID plan.
This year, the increments were given, which came into effect in this quarter and will rationalize as we go forward in the near future years.
Understood. Second, sir, with respect to the demand front, you shared a very strong commentary in your opening remarks. Any ballpark number for second half for the industry demand growth, which you all are working with internally or expecting? Any quantification or guidance on that front?
I would be very safe in estimating it anywhere between 6%-8% in the next six months, which could be conservative. Would you like to add, K. C. Jhanwar?
Yeah. Yes, as Atul said rightly, because now it's a very challenging time because with such an increase of fuel prices, which will obviously result into increase in the cement prices. All we know that the steel prices have also doubled actually in the last few months. There may be some impact on the demand side, but yes, we can still safely assume about 6%-8%. To our understanding, the demand should be there. All of you know that these months are the peak months from the cement demand point of view.
As the festive season gets over, November, the Chhath Puja, I don't remember when is this Chhath Puja in India. Typically, from there onwards, we start falling short of capacity. That's what we saw last year, January, March, and I think it will repeat.
Understood. Just one last thing, this European loan asset, which we have, we've classified that as discontinued. Any progress on the recovery of that?
We are fairly advanced in our negotiation, and my sense is by end of December, we would be reporting a closure on that transaction as well.
Got it. Okay. Thank you so much, and I'll get back in the queue. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Just a few questions on cost for Atul. One is, last quarter, I think our coal consumption cost was about $123. Do you have a blended cost for this quarter?
This quarter is a shade under $110.
Lower than our-
Sorry. $120, not $110. $120.
It's flattish on a quarter.
It's flattish, yeah.
You have gotten to this one because you had inventory?
We had inventories, and we have done some smart contracts, which enabled us to procure fuel at lower costs.
What do you suggest will be in the third quarter?
It's bound to go up. I would expect, here's a chart. $120 could go up.
70, 180.
No, maybe $10, $20 more it could go up. Take the average.
This INR 10, INR 20 in our third quarter, I would imagine you're still talking about some inventory this quarter. This is like the peak given current pricing. Will the fourth quarter be higher?
Rajesh, peak I cannot guarantee. I don't know how long these prices will keep on going up. Yeah, we will see an increase in our fuel costs going forward.
Okay. Sachin, on the price increases that you are referring to sort of absorb the cost inflation. When you think about that, is it you want to kind of maintain that EBITDA level versus 1Q or versus last year? When you say cost inflation absorption, again, what is the direction?
I will want to reach the best-in-class EBITDA margin that we would have achieved. Our endeavor will be not to be buckled under the pressure of rising fuel costs. On a steady state, if I were to look at, 34%, 35% is a very high number, but on a steady state, 26%-28% would be a good range to benchmark performance.
Since October, you took price increases. What has been the quantum roughly?
Varies from market to market, and average, I would say INR 10-INR 15 has already gone up.
Yes. Yeah, INR 10-INR 15 the price has gone up, as you know, it varies from market to market, and sometimes the discounts are in the different markets.
INR 10-15, Rajesh, across the country, and the good part is all the regions have absorbed these price hikes. Other thing is, there is a general expectation amongst the infra players, amongst the dealer community, that price rises are imminent, so there is very little resistance.
Okay. Just one more thing. On the coal block, this coal will be used.
In the power plant.
In the power plant. Right.
Yeah. We can blend it also in the kiln as well as in the power plant.
How much approximately of the coal are you able to substitute?
That way, Rajesh, it's a very small portion. I think on today's capacity, we need plus minus 12 million tons of fuel.
Yes.
This mine coal block is annual mining plan is 750,000, less than a million tons per annum.
Okay. Last question, what is the lead distance this quarter?
I'm sorry, what?
What is the lead distance? You made a comment that your geographical mixture has also helped the freight cost. Just, number 1, what does that mean? Number 2, what is the lead distance?
Lead distance. Sorry, I heard trade. Around 425 kilometers.
Okay. Got it. Okay. Thank you.
Thanks, Rajesh.
Thank you. The next question is from the line of Pinakin from JP Morgan. Please go ahead.
Thank you very much, sir. My first question is just trying to understand this energy cost trend issue better. If you look at slide number 17, where there is the green line, which is the index of pet coke prices versus the black line, which is the energy cost index. Now it's nearly half of where the spot pet coke prices are. When we look at spot prices of thermal coal, pet coke, and if there were no inventory benefits, how much would have been the energy cost been higher by? Assuming there is no change in spot prices from here, the roughly INR 1,100 a ton should be at INR 1,500, INR 1,800, INR 1,300. How should we look at the total cost inflation from here, sir?
Sure. Pinakin, there 1 is carry forward inventory. The other is efficiency improvement. We have been continuously improving our power consumption, heat consumption. Power consumption has gone down by 4% YOY. That is 1. That is where the big difference delta between INR 240 and INR 126 lies. Of course, this is only a schematic reference because I have taken only pet coke price index, I haven't taken the coal price index, and the blending ratios will continue to change. To answer your question, INR 1,100 could be INR 1,300, but not INR 1,500.
Thank you.
Hello?
Sorry, spot thermal coal and spot pet coke prices.
Yeah.
Understood, sir. My second question is that if I look at the broader, moving beyond energy cost, there is a cascading impact of inflation coming through in other line items also, because rent is moving higher, diesel prices are starting moving higher. You mentioned packaging cost is also higher. When we are looking at total cost over the next two quarters, if we take the starting point as the 2Q realization, if we were to go back to the first quarter EBITDA margins or EBITDA per ton, what kind of price hikes would the industry need to see? Would the industry be okay with a 5% price hike to absorb all the costs and revert back to margin, or we are talking about 10%-15%?
If I were to assume INR 350 as a base price, 10% minimum is required.
To cover all the costs, and you to go back to the first quarter.
To go back to Q1 margin, because Q1 you are referring to is a very high margin level.
Yes, sir.
Yeah.
Okay, understood. That is very clear. Thank you.
It will happen.
Understood, sir. Thank you very much.
Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.
Hi, Ashish.
Hi, sir. Hi, good evening. Sir, again, my question goes back to the earlier questions. One is on power and fuel cost. If I understood your comment right, versus the $120 that you said was a blended consumption cost, versus that if I paid $220, $230, we are seeing the energy cost will go up only by ₹200? Is that?
Give or take, yes.
Okay. Sir, like this $10 number that you said could be the impact in Q3 on the fuel cost side, this is good for whole of Q3 based upon a reasonable production assumption?
Yeah.
Okay. The $210, $220 is not going to hit us even in Q4, you think, based upon the contracts we have?
Q4, whether Q4 ends with $220 or higher, is yet to be seen. We will try and keep the various expertise that the team has, various levels of expertise that the team has in sourcing and planning will come to its play, and we will try and keep our energy costs as controlled as possible.
No, sir. My apologies. Just to persist on this, what I want to understand is that either due to our contracts or based upon some other sourcing mechanism, is it possible for us to source coal even if the spot is $220, are we sourcing at $160, $170?
I wish I could.
Okay. At some level the market price should-
It will catch up.
Okay, great.
Ashish, I'm not able to say whether it will happen in Q4 or Q5, which is Q1 2023.
Right. Okay. Sir, secondly, just on the CapEx plans. You said that we are seeing some delays, and I understand one or two months is what you indicated. Are we seeing these delays across locations or one or two locations?
One or two locations. Odisha, we saw some delays. That's the only delay. I really think there has been a catch-up in fact. Like Chhattisgarh was delayed, they have caught up brilliantly. Pali, they have caught up brilliantly. These are the larger ones. Others are smaller ones. Cuttack was the maximum.
Dhar also.
Dhar also delayed?
Yes. No, Dhar also picked up.
Dhar also has picked up, sorry. Out of the 19.5, 3.2 million will get commissioned this year, and next year, every quarter we will have out of the remaining 16 million tons. I had given the schedule in the earlier presentation, one of the, I think, quarter or the CapEx plan presentation. We will be able to meet that schedule. A month here or a month there. Hello? Ashish?
This is Ashish Jain. If you're able to hear me?
I think he's disconnected or lost a signal.
Yeah. Seems like we lost the connection for Mr. Jain. We move to the next question from the line of Amit Murarka from Axis Capital. Please go ahead.
Hi. Good evening, Mr. Daga. My first question is on mix. What would have been the trade mix in this quarter?
67% is trade mix.
Okay. Broadly stable then.
Yeah.
Also on other operating income, I see that it has jumped quite sharply this quarter. Any reason for that?
Incentives keep coming in and out. This quarter, we had our Dhar incentive coming in, some incentive expired, and there could be some other miscellaneous income kicking in. This would be a one-off, and I would have a stability at the way we have been around INR 60 crores-INR 70 crores per ton.
Right. Okay, this quarter it is almost double of your usual run rate in that sense.
Yeah.
Okay. Also in terms of the capacities, obviously you've highlighted about the ongoing expansions which are on track, which should be done, let's say, by March 2023. Given that you know that it takes, let's say, 18 months or 2 years or more also if it's a greenfield, are you thinking around further expansions more from FY 2024 and further pipeline point of view?
Yeah, we cannot stop growing. India is the only market, as you very well know, which is expected to see a growth of 6%-7%. If I look at a CAGR of 10 years, 6%-7% is a very confident number to go by. If we don't grow, then we will start losing market share.
Okay. We should assume, let's say, that kind of a capacity growth rate then on a usual basis.
Inorganic or organic.
Okay. Also in terms of capital allocation now that you're quite fast going towards the net cash balance sheet. What is going to be the capital allocation plan or inorganic is back on the radar, or how is it?
It's always there on the radar. The right opportunity is what we would look for. Capital allocation, as you know, that the return to shareholders will increase. We had stepped it up in last financial year. I think this was a very well-thought-out decision taken by the board after looking at the long-term cash flow plan, that we will be able to step up returns to shareholders after taking into account our requirements for growth, which will not be leveraged.
Is it fair to say that the balance sheet will not turn into a net debt balance sheet, maybe even if there is an acquisition or something?
No. If there's an acquisition, there will be one year of leverage because, you see, acquisition has a front-ended payment.
Yeah.
Depends on the size also. If it's a small 1 million ton, you will not even realize that the balance sheet has absorbed it. If it's a 10 million ton or a 13 million ton acquisition, then bump up for a year will take place.
It all depends on the kind of opportunity we get, and obviously, if the opportunity is quite big, then as Atul said rightly, it may have some impact year-on-year.
I think I have mentioned this earlier also, in some forum. Your financial models will tell you what is the size of the EBITDA that UltraTech will be in FY 2024. FY 2023, all capacity, 20 million tons of new capacity coming on stream, stabilizing in 2024. 2024 is the new normal EBITDA for UltraTech.
Yeah.
Take a thumb rule of whatever leveraging you want to do on that, and it's a one-year reduction.
Right. Got it. Lastly, on Super Cement , I guess there is some more delays. Could you just throw some light on that as well?
Quite unforeseen, unfortunate instances keep taking place at the bureaucracy level. We were scheduled to fast-track, then PM visit happened, so everybody went into the PM visit. No meetings taking place, or somebody not there, et cetera. Having said that, March 2022 is a very realistic number that we will have our plant cleared up, ready to start work. March 2022, yes.
Okay.
I will not bother you with the nitty-gritties.
Yeah, sure.
things that have been there. Yeah.
I remember there is some work also that needs to be done once you get the plant, because it's been shut for a long time.
Yes, you see, we have clearly identified the CapEx plan. If I am able to wrap it up by December, we'll start work in January. Touch and go March. April, we'll start generating clinker from there. It's a 2.3 million ton clinker.
Of course. This is all. Thank you very much.
Thanks.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. A couple of questions. Sir, first, is it possible if you can break up the INR 286 crore number? You did indicate that incentive related to Dhar payment. Related to this, I wanted a wider answer from you regarding what are the sort of incentives that you're expecting from, say, Dhar or Pali or from the incremental announcements that you already made. That's the first question.
Let me first, before I forget, your questions are long and more complex than say. Incentives are not standard anywhere. You have to approach the authorities, the regulatory body, and see whatever is best possible under the ongoing scheme. Suddenly a new scheme gets announced. Whether you are eligible, not eligible, it all is a mixed bag. We don't depend on incentives at all for our project returns. Incentives are always a topper. Let's say Pali, I expect to commission by September 2023. When will I get the incentive? Application is fairly advanced stage. When will I get it? I don't know. Practically all the projects are there in different stages of consideration at the state authority levels remains to be seen when we get it.
Sir, coming back to Dhar. I understand that under the earlier government, cement was in negative risk for MP.
Yeah.
After that it was taken off. I'm sure we would have got some benefits over here. Sir, if you can compare this to understand the IRR of the project better, that would be useful, if possible.
I will give you details offline. Now, earlier the incentives used to be directly linked to VAT. Now they cannot be linked to SGST because it is very difficult to track from the state exchequer's perspective, how much material is sold within the state and how much material has gone out. They keep structuring different packages to incentivize investments. We have got a completely different incentive package for Dhar and completely different hypothesis, which we are pursuing at Pali. It's completely different.
Sure. Sir, second question, just coming back to the cost inflation part. Sir, what is our procurement strategy? Basically, when we procure fuel, we have optionality for pet coke, which you indicated will increase in pie going forward. When it comes to pet coke or coal, there will be spot contracts, medium, long-term contracts. I just wanted to understand, what is our sourcing strategy when we say that our cost will only increase by $20-$30 next quarter. Is it like we already have booked something at low cost? Just wanted to have some sense on thought process behind that.
I'll give you a bigger picture instead of giving exact details being confidential from competition perspective. In cement, obviously, we are the largest consumer of fuel, 12 million- 13 million tons of fuel. We cannot depend on spot alone. We do a blend. We do long-term contracts at fixed prices. We do long-term contracts on index-linked prices, discount to index, different sources to try and manage the average cost. We do blending of fuel within as a kiln feed to reduce the average fuel cost. We are trying to increase our alternate fuel, so that dependence on fuel goes down. We are increasing our WHRS capacity, which is helping me reduce my fuel consumption for power.
There are also a number of initiatives, ongoing initiatives in terms of fuel and power.
Efficiency.
The efficiency improvement.
Consumption.
Yeah, consumption normally. It's a combination of multiple things actually, of course, the blended part of it.
Continuously trying to improve our conversion ratio. That is also helping improve the fuel consumption.
Sure, sir. This is very helpful. I will join back the queue. Thank you so much.
Thanks.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to 2 per participant. Should you have any follow-up, may we request you to rejoin the queue. The next question is from the line of Madhav Marda from Fidelity International. Please go ahead.
Yeah. Hi, sir. Good evening. Thank you so much for your time.
Yeah.
I just had a quick question, sir. Basically, given that UltraTech, like you mentioned, is the largest consumer in the Indian cement space, and we have all these long-term contracts. If we think about some of the smaller players in the industry, would they also have access to such long-term contracts, which would be at sort of more fixed prices and more favorable prices, or such contracts would be more limited to the larger players in the industry?
Would you like to ask them instead of asking me about them?
We might reverse it then and tell you to ask them.
Madhav, there are benefits of scale and size, which UltraTech certainly enjoys. I wouldn't want to comment about what others are doing on a public forum.
Okay. Then, just a second question was that, like you said, price hikes should happen considering how heavily coal and pet coke costs have gone up. Should we broadly basically expect this to come through January onwards once the peak season kicks in, or it could be even earlier?
Sorry. Can you repeat your question, Madhav?
No. The price hikes, basically, would be coming usually as it happens January onwards when the peak season-
October onwards, yeah. October 7th onwards.
Okay. We'll keep on passing ahead through the quarter-
Yeah. Absolutely. You can't do a lag effect over here, otherwise the damage would be done in this quarter.
Okay. Understood. All right, sir. Thank you.
Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.
Hi. Thank you for the opportunity. First, on capital cost inflation, given where steel prices are, cement prices are you seeing any capital cost inflation on your existing project, or if you had to start a new project? Could you elaborate on that?
Let me take the latter part of the question first. A new project obviously will cost much more. A greenfield project would go above $100 a ton very easily. As for our ongoing projects, there are some cost overruns, but there are cost reductions and optimizations. Again, thanks to bulk buying longer term contracts that we have been able to largely weather the storm of increase in steel prices. I mean, steel work becomes a major component for CapEx costs. K. C. Jhanwar, do you would like to add something?
Yeah. Just to further add upon, because the major contracts for the technology supply and the steel part was reasonably well covered before the steep price increase started in steel and the other metals. I don't think there would be a major surprise in terms of the cost. There will be some minor here and there. Very marginal increase may be there, but we are putting all efforts so that by better efficiency or better other improvement initiatives, we can contain the cost within the budgeted cost.
Total project cost for the INR 19.5 or INR 6,800?
Yeah.
Somewhere around, a shade under INR 7,000 crores. I think INR 6,800 is the number to my memory. We will remain at that.
Okay. You're well covered on the existing projects. If you had to start a new project, obviously there you'll see some capital costs.
Yeah. There the cost will go up.
Yeah, obviously, because it's one, the overall inflation, the impact of the exchange rate and so many other factors. It's not only cement, but I think all metal prices, right from copper, aluminum, everything.
Everything is up.
The contractor cost is also now increasing substantially.
If you were to look at average greenfield cost of, let's say $90, it would go up to $110 for sure.
Okay. Secondly, you did talk about imported coal, but coming to domestic coal also for your CPPs, what kind of long-term FSAs do you have with Coal India for a coal consignment?
As of now also Coal India is canceling the shipments and coal.
They have totally stopped for the time being, allocation of coal to the non-power sector. Yes, obviously it's the combination of FSA, the auction coal and.
How much % is domestic coal?
17% combined.
Combined. Between kiln and our power plants, total fuel cut 17% is domestic, which was being met out of auction coal or FSA. Don't count what is happening today or yesterday as of now, because that I believe, temporary. Coal India will get its reserve back on track. There were delays because of heavy monsoons. Movement was not taking place, so on and so forth. With season improving, things will come back to normalcy in Indian domestic supply.
Okay. As you do your planning and you look at different scenario analysis, typically the power situation would improve in winter and supplies would improve. In case they don't, what's your fallback option that you're looking at for your CPPs?
Well, we'll have to depend on green power also and imported coal.
Okay. Thank you so much.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss. Please go ahead.
Yeah. Good evening, sir. Hello, am I audible?
Yes, Navin. How are you?
I'm good. Thank you. Thank you, sir. Thank you for the opportunity. Two questions. One is, first of all, clarification. Sorry if it's a repeat. You said Q2, the average fuel cost was about $120, which in the current spot terms is over $200. For that increase, the max hit that will come to us in terms of average fuel cost increase will be just about INR 200 or roughly $3. Is that understanding correct?
Okay. Yes. In Q3.
In Q3? Okay.
Yeah.
Okay. In Q3, we are expecting a fuel cost increase of roughly INR 200 per ton, and thereafter another impact in Q4.
You will see.
Right
the way spot is crazy.
Right. If I were to just ask from, let's take Q2, the current quarter at the base at which it's about $120 and the spot of $240-$250, I really hope that it spirals down as quickly as it went up. Assuming at the current rate, what is the cost delta?
Sorry, for what period? We just discussed.
Yes, you said it's Q3.
Fuel cost goes up by INR 200, INR 300, INR 200.
In Q3?
Yeah.
At current spot, it goes up to how much?
Current spot, it should go up by maybe INR 500 more. If I have to consume everything at $225, $230, $240.
Understood.
I am very peaceful and sleeping comfortably at night because we are passing it on to you if you are constructing your house.
No, I already did last year. Thank you.
You're second now in your villa in Alibaug. I know, Navin.
Right. Thank you so much for that. The second question is about the fuel mix. Pet coke from Q4 has been falling. I think it was 28%, 30% in Q4. This quarter we were at about 17%, 18%. Currently, where is this fuel mix in terms of broadly pet coke, imported coal, how should one look at it?
Pet coke was how much? 18%?
19%.
Pet coke was 19%.
Now he's interested in you.
Just to add upon, see, the fuel mix is very dynamic, actually, because at one point of time the coal was very competitive, and pet coke had become expensive. Now the pet coke is equally competitive. The second is now the major challenge is not the price. If you ask me honestly, it's availability and the fuel security. We have developed a reasonably very good skill to switch over from one fuel to another fuel very quickly without losing much of time. It all depends what kind of prices of the pet coke and the coal.
No, precisely, sir. I asked this question precisely for that reason, that it's not about the price, it's about the availability.
Yeah.
On a kcal basis, as we speak, I think the imported coal is much costlier as compared to pet coke.
True.
Pet coke availability is a challenge.
Yes.
With that in mind, as we speak, as you said, pet coke is again become the favorable fuel. How much can it go to in terms of %?
You would know it better. You ask a coal analyst, not a cement industry.
It's very difficult, very honestly, to predict. You said very rightly, the availability of pet coke is not such a huge as the way the coal is available. It all depends actually what kind of scenario gets emerged from different parts of the world, not only from India.
Okay. One last-
Navin, to give you comfort, two things. As of now, the pipeline has not choked, so there is a continuous flow, and we are ensuring that none of our operations, not a single plant will suffer or shut down because of non-availability of fuel.
Of course, that must be certainly draft of ultimate.
Again, I think that's the beauty of being a large player. You have the reach, factory everywhere to get resources. Secondly, I'm sleeping peacefully because the cost is being pushed on to the consumer.
Great. That's really nice. Just one last question, if I may slip in. Staff cost sequentially is higher. I know other expense is higher because of maintenance. Staff cost sequentially is higher. That's for the increment.
I already told you, the increment got factored in in this quarter.
Correct. Can that be taken as a normalized base to be analyzed? We cannot analyze the other expenses. Can we analyze?
There were some one-time bonuses also factored in. It will be lower, not same level.
Understood. Thank you. Thank you so much.
Thanks, Navin.
Thank you. Ladies and gentlemen, in order to ensure that everyone gets an opportunity to ask questions, please limit your questions to two per participant. Should you have any follow-up, may we request you to rejoin the queue. The next question is from the line of Girish Choudhary from Spark Capital Advisors. Please go ahead.
Yeah. Good evening, and thanks for the opportunity. Most of my questions have been answered. One thing, if you can share the regional pricing trends like you generally share on a sequential basis, that would be great.
Regional pricing trends for what?
During the quarter, yeah.
For the last quarter?
Yeah. For UltraTech.
Do you have the numbers, Girish? One is the average prices were up about 4%-5% on an all-India basis. There was an increase of 2%-3% in north and east. Central was flat. West was 5%-7% increase. South was flat.
These were on YOY basis, right?
YOY.
Yeah, this is YOY.
Can you share the sequential number, if possible?
Sequential, the prices were marginally down about 3%. The biggest drop was in the eastern markets, closer to 10%. Otherwise, average 3% plus minus, plus or minus.
Got it. Thank you.
Thank you. The next question is from the line of Rajesh Ravi from HDFC Securities. Please go ahead. Mr. Ravi, your line is open. You can go ahead with your question.
Hi, sir. Good evening. On the earlier part of the call, you mentioned that the second half you're looking at 6%-8% volume growth. If we do the math for the full year, it works out to be around 13%. Around 97 odd million tons gray cement sales, is this what you're looking at?
I guess so.
Great. Second is, if I look at the gray cement performance. On a QOQ basis adjusted for the other two businesses, realization is down just 1%. Any specific reason? Because markets, we understand their prices were down 3%-4% across markets, barring North and Central, where things look slightly flattish. Is there any change in sales strategy which helps you clock lower decline sequentially?
Are you a shareholder, Rajesh? Yes or no?
No. No, I'm not.
Well, you should be holding UltraTech then. I think UltraTech, as a leader in the industry, always commands respect in pricing as compared to the other players.
Mm-hmm. Okay. On the cost side, if I look at the cost line items which you mentioned in the PPT, if I take that with a gray cement realization, we see around INR 330 odd decline QOQ in your EBITDA margin. Is this all because of the power and fuel cost or-
Cost. It's cost, cost.
Okay. This is what you're looking to with the realization increase from this month onwards?
Yes. Monsoon space is very difficult as it is. There's a pressure on volumes and in spite of the heavy monsoons, I think nobody complimented us, but I take the compliment from you that we did a 7.5%, 8% growth in volumes. The moment monsoons have started subsiding, we've taken the opportunity of increasing the prices.
Okay. On the costing side, WHRS, which you installed 13 MW, what is your total installed capacity post that?
It's mentioned in the presentation, 150 something, right?
137.
137 MW WHRS.
Okay, 137 MW.
For a non-shareholder, you ask very questions.
Lastly, on the capacity.
Rajesh, let me take on some other question.
Okay, sir. Welcome. Thank you.
Thank you. The next question is from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.
Yeah, good evening, sir, and thanks for the opportunity. My first question is on the truckers issue in eastern markets. Is this something which impacts us also? There was a strike which resulted into slowdown in some plants in Chhattisgarh. Has that issue been resolved?
Yeah. No, the trucker issue is there in Chhattisgarh, the good part is we are not too much impacted, obviously, because our all plants have the railway siding actually. Yes, definitely there's maybe some marginal impact on the road movement actually from the plant. As of now, I understand it is getting resolved tonight or by tomorrow morning. Almost understanding has been reached. Let's see there because this development of negotiation discussions is happening since last three days. Yes, we are near to reach to some understanding.
Thanks, sir. Second question is on this demand trend chart which we generally give on a presentation is also very useful, which mentioned that central region has a flat growth during the quarter. Is this purely reflection of monsoons?
Any monsoons. We have cities like Bhopal and Madhya Pradesh faced torrential rains this time.
Okay. Something like elections related demand coming in UP is something which is seen on the ground, or it is also sort of impacted by monsoon?
No. Now you will have the benefit of election demand. 2022, 2023 will be all election-driven demand. General elections are there 2024. You'd seen what happened in 2019.
I was talking about state elections in UP.
No, I was referring besides state elections, I'm referring to general elections also coming in. 2022, 2023 will see a very robust demand momentum.
Thanks, sir. These are my questions. I'll get back to this.
Sure.
Thank you. The next question is from the line of Mihir Zaveri from Avendus Capital. Please go ahead.
Yeah, thank you for the opportunity. Just wanted to ask you, Dhananjay, this demand thing which you said in second half, which is going to be 6%-8%. If I look at purely from a math angle, the base is pretty high in Q3 and Q4. Last year was phenomenal given the COVID situation. Even Q1 was very strong. How should we look at it? Is there a risk to this guidance of 6%-8%?
No.
We have a very high base.
There is a huge, I went in a long detail in my commentary on the infra space. Let me give you the basics. What is now happening is post-COVID, the urban housing sector has also been reviving. Monsoons have been good, crops have been good, rural demand will continue to have a party time. Infrastructure was continuously growing. Earlier, pre-COVID, rural markets and infrastructure were the torchbearers for demand. You are seeing the urban housing also coming in. I also touched upon the IT-related commercial demand, which is coming up in Karnataka, in Andhra big time, in Tamil Nadu in a big way. You will see huge amount of cement consumption going forward.
Okay, sir. Just a clarification on the cost part, sir. The cost impact, probably what you highlighted from the fact that Q3 will have a less impact. Cost impact clearly will continue given at current spot price in Q4 and Q1 as well, right?
True.
Okay.
The cost will be northbound.
Okay. Thanks a lot. That's it from my side. Thank you very much.
Thank you.
Thank you. The next question is from the line of Kamlesh Parmar from Prabhudas Lilladher. Please go ahead.
Sir, just one question for, like say, related to your Middle East and overseas operations. I believe this quarter has been one of the worst in last, like say around 18 odd quarters. Our derived or imputed EBITDA has been hardly around INR 8 crore. What has been the reason behind that? Has there been some one-time cost?
This was a temporary setback. One is cost going up in the U.A.E. market and export markets into Sri Lanka from India suffering. We had a bit of a slowdown from our Gujarat plant into Sri Lanka. Now, I think there will be a catch-up, because Sri Lanka, which we sell close to 1.5 million tonnes per annum. It was a controlled price regime, now it's gone into free price. The prices are decontrolled. Price increases have already been taken in Sri Lanka. I expect it to come back. It's one of bad quarters for our overseas operations.
Lastly, sir, we know that Q2 is a mix of maintenance cost and lower efficiencies. Like say, given the Q3, where we could have a peak quantity, a very strong quantity of cement, and on top of that, better efficiency. Secondly, we will have a higher energy cost. Taking that into consideration, like say for Q3 and Q4, fixed cost element is also there. How do we see the cost? I know that a lot of questions have been asked, like I believe most of the part have been discussed on that thing. Taking fixed costs, shutdown cost, all that into consideration, Q3, Q4, or combined H2 over Q2, how the cost would pan out in terms of overall trajectory?
I will give you some overview. Do the calculation of our operating leverage over the last three or four quarters, and it'll answer you.
Okay. Great, sir. Thanks a lot.
Thank you. We take one last question from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services. Please go ahead.
Sir, thanks for the opportunity, sir. I wanted to understand what sort of capacity additions are you foreseeing in the industry? Secondly, in terms of inorganic accretion, I believe that in one of the presentations you have written that 50 million, 60 million tons of inorganic accretion opportunities are available. Any comment on that? Are there good assets available? When the profitability is higher, when there will be sellers available.
First point, I think this year, 20 million-25 million times is what I would expect, slowing down next year. On a longer term basis, I still believe as auction mines come into play. Recently, somebody took a small mine in Chhattisgarh at INR 660. It's quite unrealistic to generate a return on these kind of highly expensive resources. You won't see too many. Besides, you need to also to look at what are the mining resources each player has, at what location. The data is easily available.
Yes.
If somebody wants to run a plant with just five years or 10 years of life, God save them and God save the investor who's putting money in that company. Expansion, 20 million tonnes coming up. Next year, again, we have a large chunk of our expansion, 15 million tonnes coming up next year. Beyond that, there is, I would say, slow down in investments. As for acquisitions, we are always open to a target which gives us a profitable growth opportunity. Growth as in increase in my market share and profitable, obviously it has to generate a return on my investment. As of now, there are a couple of transactions which I am examining. Small ones, very small ones. I'm sure, there will be people who will want to cash out at some point or the other, and we will be there to have a discussion.
Okay, sir. Second, just a clarification. Was gray cement realization down to 0.5% QOQ? If I go by the presentation, it looks like it was down to 0.5%. Am I correct, or it was lower than that?
Realization is down QOQ.
Yeah.
About, yeah, 2.5%, 3%.
Okay. Thanks a lot, sir.
Thank you.
Thank you. Ladies and gentlemen on via phone and private line, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
Thank you so much.