Ladies and gentlemen, good day, and welcome to UltraTech Cement Limited Q3 FY 2021 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 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. Good evening, and a warm welcome to all of you on this call. Wishing you all a very safe 2021, and my apologies for having dragged you on a holiday of Saturday. I'm happy to inform you today that we have our Managing Director, Mr. K. C. Jhanwar, also on this call to talk to all of you. I could go on and speak for an hour to introduce him, but I'll have to restrict myself from doing that. To introduce him, he has spent a major part of his career of more than 35 years in cement, having worked at the grass root of plants, putting up several of our projects. The best being Dhar unit, setting it up in a world record for time taken and the cost at which the project was done. He's a veteran of the group, I have already mentioned.
A chartered accountant by profession and a thorough gentleman. Thank you, sir, for joining us today. Before I delve into the quarter, let's discuss ESG. I think nobody's better equipped to talk about how conscious UltraTech is with the environment other than Mr. Jhanwar himself. Over to Jhanwar, sir.
Thank you, Atul, and again, a very warm welcome to all analysts joined on this meeting. I am extremely very happy to be interacting with all of you on this particular event of at the time of quarterly results.
Sir, we are not able to hear you.
Yes, sir. Yeah. I'll start with the ESG part, actually. Particularly, if I say about the ESG, I would say that this is one of the important pillar of our vision and mission statement, where we have committed that this would be going to remain as important as other business pillar.
Sorry.
We have put all kind of policies to achieve this particular objective on whether it's environment, whether it's safety or whether it is a social responsibility, everything. Whatever area which covers under the ESG have been very well defined in the organization. There is a framework also in place where our three strategic pillars on sustainability framework are responsible stewardship, stakeholder engagement, where we have interaction with the stakeholder group and the future proofing, which is equally important. We have very clear-cut focus area in the area of ESG, whether it's decarbonization, water management, environment side, circular economy, which is very important, biodiversity, and of course, you can't achieve anything without having a thought leadership.
I'm also happy to share with you that there is a well-defined milestone-based action plan under these focus area, whether it's the consumption side, whether it's alternate fuel usage, whether green power, WHRS, renewable energy, et cetera. These all areas are tracked on a very regular basis, and on a quarterly basis, it gets discussed in the management meeting. It is not only these two, three areas, but equally important that the environment norms, which are, of course, mandatory, but we need to exceed those norms so that we are ahead of those things and norms. In terms of circular economy, I would say that we are one of the largest consumer of the fly ash. Actually, we consume almost 12 million ton fly ash per year.
We consume almost a million ton alternate fuels and raw materials, and we consume almost another 500,000 ton in terms of various waste products of the industry. If I may say, it's not only the ESG per se for doing the ESG, but all these areas are well-aligned. Along with these focus areas, the biodiversity is another one important area where we have already completed five plants for our assessment, and plants have been made under execution, and three more plants assessments would be done during this year. If I may say, the company has already committed the science-based targets, which are under validation. We are committed to build our business in line with this below two degree world under the Paris Agreement. We are hopeful that by 2032 we would be definitely able to achieve the targets as defined.
If I may say, whether this ESG is done in a right spirit, I can commit you all, the ladies and gentlemen present in this meeting, it is being done very religiously. If I may share some numbers actually about our green power, we have target to achieve our green power ratio in total almost to 34% by 2024, which includes our waste heat recovery systems and the solar power, wind power, et cetera. This area is under huge focus. Coming to the social responsibility front, again, ladies and gentlemen, Aditya Birla Group is started on this front much ahead than anyone else, if I may say, in the industry. Some of the industrial houses were doing, but we are among one of them. Our focus is on the education, healthcare, sustainable livelihood, infrastructure development, et cetera.
The total beneficiaries with all these, our initiatives are more than 1.6 million people who are benefited, on the education front almost 1 lakh children are benefited. Rural healthcare village covered are 502 villages, we cover almost 16 states. If I may share about the number also, our CSR spend even for April to December, this year is almost little more than INR 100 crore. This is all about the ESG, but I would not say it's the work is in still in progress. We have to go yet long way. Every day this subject, as you know, is getting evolved. We are fully aligned, we are again part of the Global Cement and Concrete Association. We are the founding members, actually. There is a regular interaction, knowledge learning from those platforms. We are also one of the member of the TERI waste platform.
In terms of we have disclosure to Dow Jones Sustainability Index, I'm happy to share that we have improved our Dow s ustainability zone almost by 9 points, from 59 to 68. It's a journey is still on and we have yet to go long way. I can only make this statement on this opportunity that the entire company is fully committed. We are well-aligned. Business objectives are well aligned with our ESG. Thank you, Atul. Sorry I have taken little more time, but it was maybe the need of the hour.
Thank you, Jhanwar-ji. No, it was certainly very important to tell the whole world of investors how serious we are and how committed we are on saving the environment. Coming back to the nitty-gritties of our quarter, let me start with how demand has been shaping up. Pandemic has not had a significant impact on the cement industry. I think everybody is aware of that now. After the initial setback, the industry has got on track with demand surfacing from almost all the quarters. We already talked about rural and infrastructure demand picking up. Now we are also seeing Tier 2, Tier 3 towns, urban real estate, which was languishing in the dark for last few years, has started showing signs of recovery.
Aided by the current low interest cost regime, various benefits being given by the authorities to home buyers, as well as builders to give a boost to the real estate sector. We've seen a healthy improvement in capacity utilization across regions. UltraTech achieved a capacity utilization of 80% for the quarter, ending December with as high as 85%. Sales have gone stronger only month after month. These markets continue their swan song on cement consumption. Pre-COVID, rural market and infrastructure segment was driving demand. Now, as I mentioned, urban housing is also gaining momentum. Let me now quickly talk about our CapEx, the way things have been shaping up. Firstly, the last acquisition, Century Cement, was consummated on the 1st of October 2019. This quarter, finally, UltraTech is a like for like quarter. Century assets have been shaping up very well.
There was a small delay in terms of the rebranding exercise because of COVID, but we are sure that we will be able to complete the rebranding exercise as per plan by March or not later than Q1 next financial year. Line two of Bara grinding mill was another delay, beyond our control. Now it's in the last phase, and we expect that the line will get commissioned by March 2021. Line one, which was commissioned in February 2020, has already achieved a capacity utilization of more than 70%. Work on our next phase of expansion, which was about close to 19 million tons, has commenced in full swing, and we are on course for commissioning during FY 2023 in a staggered manner. You're also aware that we were holding the assets, a 2 million ton grinding unit, which was acquired as part of the Binani Cement acquisition.
It was held for sale. We have finally decided to give up the idea of selling that unit and consolidated the asset itself as part of our UAE operations. Our total overseas capacity now stands at 5.4 million tons. I'm very proud to tell you about the way our team has managed cash flows. Not a penny of extra cash anywhere. That's the mantra which the team has been following. Our efforts have resulted in the reduction of net debt by a further INR 2,696 crore this quarter, totaling to INR 7,123 crore in the first nine months of the year. You all know January-March quarter is supposedly a very good quarter for cement industry. Net debt stands at INR 7,973 crore. We are having a current gross debt of INR 21,000 crore and a treasury surplus of INR 13,000 crore.
Our treasury surplus continues to give us an interest arbitrage and we are always in the money, our treasury surplus. This treasury is deployed in 100% secured Triple A risk-free investment opportunities only. Another dimension which we keep looking at is our ROE. ROE without goodwill has reached a number of 14.1%. We are confident to improve this further with all our new investments with being at a low cost and generating very high returns. I expect to cross the number of 15% ROE along with the new projects coming on stream. We must talk about the cost curve as well. Yes, cost of coal and pet coke both have been going up. Fuel forms nearly 13% of costs for cement industry. Currently, coal and pet coke both are trading around $110 per ton as compared to somewhere around $60 or $65 in June 2020. It's almost doubling from there.
Pet coke market has been soaring high over the last few months and is expected to peak by June in all probability. This has happened because availability of U.S. pet coke has been scarce with petroleum crude production going down, with automobile sector demand going down in the earlier times of COVID. The demand for pet coke has been rising in Latin America and the Mediterranean . Many cement manufacturers switched to coal. International coal prices have also risen steeply over the last few months due to production and logistic disruption, strong Chinese winter demand amid ban on Australian coal as well. As I mentioned, we expect that the coal prices, the fuel prices should stabilize in the next six months when again the crude production goes up for building up the winter stocks in the U.S. refineries. Quickly to tell you about selling prices.
Selling prices were marginally lower this quarter. This quarter has been volume led. Selling prices YOY have been stable. I must also update you on RMC, as in our last presentation we had talked about RMC. RMC is a space gaining momentum for us. We now have 109 plants in the country as compared to a number of 100 plants where our RMC network was stagnating for a very long period of time. We have started growing RMC in a significant manner. Besides being a large captive customer for our own cement, RMC generates incremental margins over cement and is also a high ROCE opportunity. Much has been talked about white cement. White cement continues to strengthen its position in the market. Net sales going up 15% this quarter. This was driven by good volume performance and a strong price mix with growth broad-based across categories and regions.
Growth comes from both white cement and WallCare Putty segment of the business. White cement grew about 13%, putty has grown strongly at 18%. With strong focus and penetration in new towns, rural sales have also grown by 91% over the same period last year. We are continuing on the path of innovation with launch of new products. We launched best-in-class waterproof putty in the market with 2x water resistance, meeting great success. Introduction of new variants of fragrance putty and expansion of current product portfolio has resulted in incremental growth in putty segment. I believe fragrance putty has also been very well appreciated in the market, while waterproof putty has shown promising results in a very short time after its launch. I hope our results brought a smile on your face, too.
Some of you might remember my message a few quarters ago, the best is yet to come. Hold on and enjoy the ride. Thank you. Over to you for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touch-tone 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. All participants are requested to limit their questions to two per participant. If time permits, we will take follow-up questions. Ladies and gentlemen, you may press star and one to ask the question. First question is from the line of Bhoomika Nair from IDFC Securities. Please go ahead.
Yeah. Good evening, sir. Congratulations to the entire team for a great set of numbers. Thank you for the update on the ESG and the direction towards the green production that we are looking at. The first question is on everybody's mind, is the group investment or new entry of the paint business, and just wanted to get our thoughts on why we are not doing this ourselves, given that we have the moat of the dealer network and the brand through white cement. The second question is on the fundraise, given that we've been deleveraging quite well, the reason for the INR 3,000 crore of fundraising.
Bhoomika, first question on paints. I think we do not see any synergy of paints with cement. Globally, there is no cement company who is doing paints. The customer for paints from a sales force perspective is different for a cement sales guy as well as a paints salesperson. We are a single product core cement company and I think surging ahead with our investment plan and growth plan in cement in a big way. To your second point, fundraise. Fundraise, there is a lot of interest arbitrage opportunities that exist in the market. I'm happy to tell you that last month we had raised a three-year bonds at 4.5%. Sorry.
4.6%.
4.6%. My colleague is correcting me for a few decimal points. We see an opportunity of interest arbitrage whereby we can refinance some of our existing debt, and that's where we are looking at this opportunity of raising debt. To quell all doubts and for any other question that might come on this fundraising, we are not raising equity. There have been questions which have been raised in the last two days whether we are going for equity raise. It's not an equity raise. We did not mention in any shape or form about equity. It's a debt raise only.
Okay. It's refinancing.
Yeah.
Okay. If I may just squeeze in one question. We've done quite well across all our acquisitions of both UNCL as also Century. Are there any further synergies and possible ways to reduce costs further between all the assets that we've acquired and setting up?
There are lots of things that are happening. If you will see our presentation, there's a big investment that we are doing in WHRS in both UNCL as well as Century. There are production cost improvement program, which is happening at Raipur unit, which is the oldest unit in the network of Century plants. When we complete our WHRS implementation, the cost will come down further. I request Jhanwar-j i also to add further on this.
Yeah. Just to add up on, ma'am, because, yes, as far as the old assets acquired, Jaypee and the Binani Cement, the most of the synergy has been, I would say, realized. Yes, always there is every day some learning and some opportunities. In terms of Century, yes, the major part has been done and Atul has said in his opening remark that the brand transition, we have completed brand transition to the extent of about 79%, 80% under UltraTech, so that the balance part will definitely give additional benefit to the UltraTech once the full brand transition takes place.
In terms of the cost side, yes, definitely some more opportunities are there, we are hopeful that in next two, three quarters, we would be able to realize further value in terms of optimization of certain our consumption ratios and raw mix designs, et cetera, which is already on. Yes, definitely, as you know, it's a continuous process industry and take little time to reach at the optimum level.
I'll come back in the queue and wish you all the best.
Thank you, Bhoomika.
Thank you very much. The next question is from the line of Gunjan from JP Morgan. Please go ahead.
Yeah. Hi, sir. Thanks for taking my questions. Two questions from my side. Firstly, on the cost side, there is clearly a huge difference still between the accrual rate and the spot prices for pet coke and international coal. Could you just give us some sense, like what kind of inflation you further expect, assuming spot stays where it is right now? Along with that, on this WHRS program, which is fairly aggressive for the next two, three years, what kind of cost savings can this yield when it is fully executed?
Yeah. I'll start with the second part, actually, of your question. In terms of waste heat recovery system, yes, the project got little bit delayed during this pandemic because of the non-availability of manpower. Now, I would say the work is in full swing since last later part of the second quarter, and we are hopeful to the commission all those projects, maybe three, four months later than what it was originally targeted. In terms of saving, definitely, as you know, the WHRS power is generally, if we exclude the CapEx cost and depreciation aspects, then the power is practically free subject to the certain government levies actually, like electricity duty, et cetera.
At most of the places, if I may say a safer number, it is within INR 1 per kilowatt of the total cost actually, which is generally the major part is of the coming, contributing from the government levies. The second, in terms of the pet coke prices. To us actually now pet coke prices have already touched on the upper band actually, and there may be some possibility it may further move maybe another $10, $15. It is very difficult to predict, but, yes, that is what the general feeling in the marketplace. The coal is now reasonably settled, but, yes, there are always challenges to switch over from one fuel to another fuel.
I would say, at UltraTech, our team could able to develop a good understanding so that we can switch over to either fuel without much of delay, because sometimes it takes little time, but I think that flexibility has been developed. Atul, if I have missed something. That is the case.
Sure. No, that is really helpful. If I can just put the numbers, if we are at $74 accrual versus $110 at pet coke, is it fair to say that there is almost INR 120-INR 150 of incremental cost, assuming spot stays where it is, which is incremental increase that can come from?
Gunjan, it can be there. It's all linked to how each company or each player manages its fuel. We have reduced our dependence on pet coke.
Pet coke.
Increased our consumption of imported coal and taking new sources of coal. My sense is that the current high cost purchases will come up for consumption in April-June quarter. The math that we had run earlier, every $10 increase could impact the cost by INR 50. Jhanwar-ji?
Yeah. Yes, it has been explained. I would only say because always there is some inventory in the pipeline, so it may not have that much impact actually of $74 versus $120. Yes, if it continues for a longer period, then obviously we are also going to hit with the $120 kind of cost. Yes, I don't think at least in our case, it is likely to happen at least in a short period.
Gunjan, in my commentary, I'd mentioned we see it maybe six months more of this high price regime.
Sure. Before just taking the second question, would you be able to put any number to the savings from WHRS? I mean, or maybe if I think through it, incremental 20% shifting to WHRS potential savings can be INR 70-INR 80.
Let me flip that question. I will leave it to your calculations. As Jhanwar-ji already mentioned, the cost of WHRS is less than INR 1 and the cost of the thermal power is INR 4-INR 5.
Between INR 4- INR 5, depending on the location.
Between INR 4- INR 5. 26% of our power will become WHRS.
Okay. That makes it amply clear. Just second question is on the industry growth. We've done 14%, and if you can share what is your assessment that where industry would have been in December quarter. To me, it seems there are clearly some market share gains. Are there any specific regions where we have done better than the market? Any thoughts you can share around this?
Very difficult because there's no data that is available to quantify how the market has grown. Yes, I'm sure UltraTech has done much better than the industry. The other point that you asked, which zones? Almost all regions. East has grown phenomenally well, again growing more than 20%. North is also growing 20%. It's general euphoria, I can say, which is visible in the cement industry across the country.
Okay, got it. I'll join back the queue. Thank you so much.
Thank you very much. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, sir. Congratulations on a great set of numbers. Thank you for the opportunity. First question is, can you tell us tentatively what is your capacity utilization in each region, or what was your utilization in each region in the quarter gone by?
Okay. I'll give you a range.
When we ended for the year around 80%, East was doing more than 100%, and the lowest would have been South, which was in the 70s, and rest all were closer to the 80% mark.
Sure. That is helpful. Second is, what is your sense on industry capacity addition over the next two, three years? Where do you see that? Do you see that outstripping the demand growth, or it should be lower than that?
The way we have looked at the announcements and plans in the industry, I think demand will outstrip the incremental new capacity, and you will start seeing the supply-demand gap tightening over a longer period of time. Longer period is three, four years.
What Atul said, there is good opportunity for improvement in the capacity utilization going forward. As you know, because everything the demand is fundamentally is linked with how infrastructure momentum gets maintained, actually. Whatever we read or whatever we hear from the policy makers, that the infrastructure spend is likely to continue. Now the urban growth has started happening. Hopefully the demand should support for improving the capacity utilization going forward.
Sure. That's very helpful. Last one, if I may. You have done a phenomenal job on working capital usage throughout the course of the year. Do you think there's still some scope left, or we could see some reversal in the next couple of quarters?
Indrajit, can I keep surprises to myself?
Sure, sir. Thank you.
All right.
Done.
Yeah.
Okay. Thank you.
Thank you. The next question is from the line of Gaurav from Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question, sir. Firstly, a little bit of color on how has been the growth in the trade versus non-trade, and within the trade, how has urban done and rural done. I am sure that rural has been doing phenomenally well. Just want to get a little bit of understanding that what is the delta which has come in the urban trade and the non-trade segment.
Yes. Let me start saying that trade has obviously done very well in the, if I may say, from the first quarter, second quarter. The overall trade ratio, if you calculate arithmetically, then the trade ratio was higher because the urban and the infra was not picked up, actually. In the last call, you must have been definitely informed that there was a very good demand from the rural side because of the lot of migrant labor moving to their hometown, constructing some small houses here and there. This time the rural growth is also good. Water level is also increasing, almost 112% of the last one decade. There is every likelihood that the rural demand is going to be robust. Urban demand, yes, I may say that there is a lot of articles in the paper that unsold inventory getting reduced.
I think no major activity in terms of new constructions have started on the ground at least. Yes, now, if the unsold inventory gets reduced, obviously the activity will happen on the ground. If I may say in total, yes, in last six months, the trade was, in terms of ratio trade ratio, derived ratio, was definitely good because of the lower demand from urban and the infra. The same, I'm sure, will get normalized now going forward because now the urban demand has started showing some sign of improvement, and particularly the infra and the government policy related with low-cost urban housing, Pradhan Mantri Awas Yojana, et cetera. Obviously, the calculated ratio of trade should come down. Obviously it was much better in the last two quarters. That's my response.
Okay. Sir, second question on UNCL. Historically, it has been at around 60% utilization. Current presentation says 75%, and profitability has been in line or even better. Has there been any rethinking in terms of strategic decisions on increasing lead distance or anything which has led to this increase in utilization rate?
The demand has generally been good in the market. Yes, we are not leaving any stone unturned to service our customers. A lead might have increased, but the increase in capacity utilization is not because of lead, but it's more because of overall improvement in the demand sentiment, and we are able to service all our customers.
Sir, last question. Bookkeeping on white cement and RMC revenue. Thank you.
RMC was INR 620 crore and white cement was INR 538 crore.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Congratulations for a good set of numbers. Sir, I have two questions, one on the ESG side and one on the call that we had earlier during the day. Actually, sir, I specifically wanted to check with you.
Ritesh, what? Earlier during the day, I did not have any call.
Grasim call, sorry. Group call. Right. Sir, this question is specifically for you. How should one look at the incremental CapEx deployment on the distribution network specifically for white cement and putty? I'm specifically asking this, given Grasim's goals of INR 5,000 crore over the next three years, and they are looking to leverage on UltraTech's network. How should one look at this angle? Should one expect that UltraTech will get some royalty from Grasim going forward, as they make good of the brand Birla White as well as the network?
Our first part of your question, Ritesh, on CapEx on distribution network. There's hardly any CapEx that we do on our distribution network. Correct me, the way I am understanding your question, because distribution network for me is my dealer network and transporters. Transporter is all outsourced. We don't buy fleet on our books. Appointment of a distributor is not a CapEx for us. Whilst we have generally a large part of dealers prefer dealing only in UltraTech, but there are lots of multi-brand dealers also attached with our product line. When there are multi-brand dealers attached to UltraTech Cement, if they want to sell Grasim's paint, they are free to do so. It does not in any way impact the performance of Birla White or UltraTech, and anybody can approach those dealers to empanel their product. There is hardly any problem over there.
Okay. There won't be any cash flow drag on back of this as Grasim goes aggressive on paints, specifically for UltraTech. If I'm understanding it right.
No. UltraTech cash flow is on cement. We breathe cement, we sleep cement, we make cement, we eat cement.
Okay.
We are expanding. Ritesh, you've seen our expansion plan, and this is not the end of the road for expansion. India is a growing market for cement, and we will continue to participate in the growth of cement in the country.
If I may add in, even in the worst cases, suppose if some resources get shared from the synergy point of view, obviously it would be 100% on arm's length, but there is no question of CapEx utilization and kind of thing.
There's no CapEx.
Yeah.
Zero CapEx.
That's useful. Sir, my second question is on ESG side. We have recently placed a voluntary target reduction of 25% on a new baseline. If I look at what our target was for FY 2021 on a FY 2010 year baseline, we have actually lagged to what we had stated. How would you reflect upon that? Given that we have new targets, what we have already laid out, is there a particular roadmap on cement to clinker ratio or carbon capture or using hydrogen as an alternate fuel? How should one look at that, given we are specifically now actually moving up the ladder when it comes to commitments over here? That's the first thing.
The second thing is, would it be possible for you to classify what percentage of our capacities or plants are in safe, semi-critical, critical, and overexploited regions, looking at it from a water perspective? Thank you.
Okay. Let me start with the first part. Yes, based on the science-based target, actually, we have a very clear-cut roadmap in terms of how we are going to do in terms of improving our conversion ratio. Actually, how we are going to come out with some new products in time to come. For achieving those targets, I briefed in my initial talk, actually, we have clear-cut focus area defined for each thing, how we are going to reduce power consumption, how we are going to reduce fuel consumption by modernization of our coolers and the plants, preheaters, et cetera, so as to bring down the energy efficiency, electrical energy, as well as the thermal efficiency. How we can do the process optimization, use of alternate fuel, et cetera.
The entire roadmap is very much in place, whether it is a roadmap for CO2 or anything else. Coming to the water management, I would say, I'm happy to share that today we are almost water positive to the extent of 3x actually. We have a very aggressive target how we can reduce the water consumption in the process, and we are targeting that our water consumption positive ratio should increase to four, at least by after one year or so. I don't remember any of our plant is in the trouble zone as far as the water consumption side is concerned or the water ratio is concerned. Am I able to answer your questions, sir?
Yes, sir. I wanted specific numbers. Probably I'll come back.
Ritesh, let's discuss offline. I'll share the numbers whatever is there.
Sure. Thank you so much. Thank you.
Thanks, Ritesh.
Thank you. The next question is from the line of Amit Murarka from Motilal Oswal. Please go ahead.
Hi. Good evening and congratulations on a great result. My first question is around the mix. What was the trade mix in this quarter?
64% was trade.
Sure. Is it right to say that the strong growth that has come is also implying a recovery of the non-trade or the institutional demand.
Yes, Amit, absolutely. I think infra demand has been picking up. Urban real estate has been picking up, which is also institutional or non-trade. We're seeing non-trade coming back very well.
You see, fundamentally, because the ratio is, as I said, a derived number. If the infra demand is, say, suppose growing by 20% or urban is growing much faster, then obviously the overall ratio of trade looks down. We are very clear that our trade sales should continue to increase. Actually, that's how we measure internally.
Okay. Just also on the cost side, like already mentioned, power and fuel is moving up. Also, I want to check on freight. There was a 15% busy season surcharge which was waived last year. Is it getting levied now?
It's not there now.
As on today.
It's not there.
It is not there. I don't think, if I may share my personal view actually, the government wants to give the push and I think based on whatever we had some always interaction, the government is very clear that I think they would get more benefit if this surcharge is not there. I don't think it should be charged again, but you never know because how the overall budget gets optimized by the policymakers.
Okay. On pet coke, I believe the low-cost inventory now would be exhausted. In 4Q, if the cost as such has gone up, let's say 30%-40%, so all of it should reflect in 4Q in that case, right?
No, it will be a mix because inventory is there and there's a lead time in deliveries coming in. You would start seeing full impact would be in Q1 only and there'll be a marginal impact in Q4. Q1 next year and marginal impact in Q4.
Sure. Lastly on the price. Generally this time around every year we see some seasonal hikes happening around because of the heavier construction season and demand being good. For January, I believe has not seen much of hike. What is the sense around pricing in this environment?
Shall we restrict to Q3, Amit?
Okay. Sure.
Thanks.
Sure. Okay, thanks. That's all.
Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Just on costs, just rechecking for you, talked about the impact of pet coke coming through in the first quarter, and obviously there are a lot of efficiency measures that are ongoing. How does one think about costs in the sense that any of the COVID-related expenses that had stopped, them coming back? How do I think about costs in the next half with a combination of all three?
Yeah, I didn't get your point, Raashi. COVID-related expense, as in?
As in like a lot of the spend, in terms of your travel, etc., all of that advertising, all of that kind of went down.
Advertising spends are coming back, yes. I've been maintaining right from Q1 that what we saw 20% reduction in expenses will not stay. We've also learned a new way of working and I foresee a 10% saving on overheads going forward in any case year-on-year. Travel is not happening in the new ways of working. It's more of online meeting, unfortunately. There are lots of overhead reduction that is taking place, and don't foresee costs coming back to the same levels of Q4 ever again.
Okay. Just to clarify, when you say 10% reduction on overheads, you're talking about again next year versus as in FY 2022 versus FY 2021? Or this is just an ongoing?
No, FY 2021 is a year not to be used for comparison. If you were to compare, you'd compare with FY 2020.
Okay. What is the lead distance now?
It's close to 440 km. Somebody might get alarmed why our lead has gone up. This was a conscious effort to service our customers. As I mentioned, eastern plants were running at more than 100% capacity. We were falling short of material. That is where, when we saw this coming, we also pressed the pedal on our expansion plans. A lot of expansion happening in eastern markets, that we are able to meet the growing demand in the east. We have been servicing east from as far as Maharashtra plants, from central plants, from south plants also. That is the reason for lead going up. Yeah.
It's fundamentally because of what Atul said, we had to move a lot of material to service our valued customer. It is also to do a lot with the market mix, actually, because the eastern markets generally have a much larger lead than any part of the-
Country.
... the country, whether it's south, west or north. That also have the impact.
Got it. Okay. Thank you.
Thank you very much. The next question is from the line of Ashish Jain from Macquarie Group. Please go ahead.
Hi, sir. Good evening. My first question is on the debt raise that you indicated that we have also raised debt at 4.6% last year.
4.54%.
Okay. 4.54%.
Saurabh will kill me if I say 4.6%. Yeah.
Sir, what is the hedge cost of that debt and does it still make it attractive versus whatever you're earning on your treasury at this point of time? Another question for the same context is also that now we're sitting on a huge INR 13,000 crore of treasury. Our cash flows are fairly strong. We're well-covered for our CapEx as well. Is there no thought of actually reducing the gross debt going ahead? If you are doing more fundraise with the longer tenure issuances, should it be read as a thought that you will not reduce gross debt going ahead?
As long as I am having a positive arbitrage, we are keeping our treasury. The treasury will also start getting deployed for our expansion, for all the CapEx that we are undertaking. Monies will be used over there. I don't know, what is the linkage of hedge cost? 4.5% was rupee cost of debt. Saurabh, you want to say something?
It's an INR bond, so there is no hedge cost attached to it.
Yeah.
Sorry. I thought that is a dollar bond.
No, it was Indian rupee bond.
Okay, fine.
Yeah.
Sir, secondly, is any part of the treasury invested as intercompany loan or something?
No, Ashish, I have told you guys N number of times.
Right. Fine. Thank you.
Yeah.
Sir, just lastly, in terms of pricing and all, can you give some color how Q3 pricing was at a regional level? Sequentially, your pricing is flattish, which is better than my expectation, for sure. Can you give some color on where we are on each region in terms of Q3 pricing in December quarter?
Generally, we saw a reduction of 1% or 2% in prices Q- on- Q. Regionally, east was weaker than the other markets because the volume uptick was very high. It's not only us, practically every player who doesn't have enough capacity in these markets tends to bring material from other markets. North was stable, if I remember it right. There was some correction in the southern market as well.
Okay. Understood. Thank you so much, sir. Thanks.
Thank you. The next question is from the line of Navin Sahadeo from Edelweiss Financial. Please go ahead.
Hello.
Hi, Navin.
Yeah. Good evening, sir, and good evening, Jhanwar-ji. Congratulations for posting a great set of numbers.
Thank you.
While most of the questions are answered, just one question, and this is just in continuation of what we heard from the parent's conference call this morning, that the entire idea of the paint business was to leverage on the very strong distribution network of the white cement business and putty business, because that is where the paints business has most of the synergies with. Just a question here was, because since our business, again, as you mentioned, it's gray cement, is there a possibility that we hive off or give back this white cement business to the parent and that helps unlocking some value for this? It's typically seen as an FMCG business, but gets a multiple of a gray business. Is there a possibility that this kind of a hive off can happen?
No thoughts as yet on this point which you have raised of hiving off white cement, because for us, we have white cement, we have gray cement, we have weatherproof cement, we have PPC, we have OPC, we have PSC. We have various kinds of cement, and white cement is an integral part of UltraTech. White cement can be manufactured in a gray cement kiln also. That is also a possibility. There is a lot of synergy amongst the operating teams. Procurement is common. In fact, pet coke procurement is common. As far as distribution network is concerned, or Grasim Paints business leveraging on our distribution network. I already mentioned in one of the questions, because we have lots of multi-brand dealers. Today, let's say any other cement company can also approach them to keep their product.
Any other paint company, there might be dealers already who are stocking some other paint. There is no reason why they will not be willing, and given the trust, the respect that Aditya Birla Group's brand has with all our dealer community, they'll be more than happy to do paints. For them, it will be one more source of attachment and connection with the group and generating revenues for them. This does not in any way, create a problem or hamper our distribution network.
Okay. That's helpful. Just one question on RMC, you mentioned that business has come back strong with INR 620 crore of revenues in the quarter, if I understand correct, it's over 20% YOY growth. Given that we are still recovering and I'm sure our demand in all probabilities in Q4 will be better. Is it safe to say that, going ahead now, since this quarter, December itself has seen over INR 600 crore revenues, going ahead, this business can continue to grow with more plants and all coming under its fold?
Yes, certainly. In the last call itself, when I showcased our portfolio of products, I mentioned RMC was bound to grow 10%-20% by the end of March 2021 itself, we are on course.
Yeah. To further add upon what Atul said, because as you know, the RMC is linked with the infra and the urban centric. If the urban demand is now showing improvement and so the infrastructure, I am sure the RMCs should continue to do better, going forward also.
Great. Just one small bookkeeping question. How much was white cement volumes for the quarter?
White cement volume was 3.9 lakh tons.
3.9 lakh tons. Okay. That's helpful. Thank you, sir.
Thank you. The next question is from the line of Prateek Kumar from Antique Stock Broking Limited. Please go ahead.
Yeah. Good evening sir, thanks for the opportunity. My first question is regarding the recent cabinet approval for this mining law. Although the fine print is not available, do you think from the read, is it something which will facilitate cement sector M&As or, and will also help reduce your royalty payments on the acquisitions which you did in the past?
Yes. I would say there are some amendments are yet to be announced. Some decisions have been taken by the cabinet committee actually, nothing has been put under PIB actually. Yes, there are a lot of rumors that this has happened, this has not happened. If I'm very honest, it's one thing we see the final print and the notification, once it is passed in this coming parliament session, then only we'll get to know. The ministry has so far not shared anything officially with anyone. Yes, as you said rightly, somebody is talking that now levies have been removed, the limestone can be sold, and some positive, some negative for the industry, but would be able to make comment very honestly once it is in.
Let me, to your question, if the proposed amendments come through, it will make consolidation easier. There's a lot of if, as Jhanwar-j i already mentioned.
How would it [crosstalk] finally there.
There's a slip between the cup and the lip. The final print lines have to be seen, final law as and when it gets implemented has to be seen. If it does, then yes, it could help consolidation.
Also, it could be retrospective reducing our cost of royalty as well.
Yeah. We haven't got any fine print yet.
Just one question on other expense. It seems to be now higher on year-on-year basis versus large decline which we saw last two quarters.
Sure.
Is there any additional expenditure?
There's slight increase in ad spend, which was there YOY, but if I look at on a nine-month basis, we are still below our numbers. I, again maintain, we'll have a reduction in overall expenses going forward in any case.
Sure sir. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Raj Gandhi from SBI Mutual Fund. Please go ahead.
Hi sir. Thanks for the opportunity and congrats for the great set of numbers. Just here, during the announcement of the capacity addition, you did highlight UltraTech moving into this building solutions business, wherein we are rolling out outlets with paints and everything, and even construction chemicals and also. It seemed like a great opportunity, right? From a standalone UltraTech perspective to create value, and given we're already moving in that direction and we have the dealer network with us. Sorry for the same repetition, it seemed like a huge opportunity for UltraTech on a standalone basis to capture.
What opportunity? I didn't understand.
The paint opportunity.
One is UBS. We did not start UBS network last quarter. It has been there, and I had just showcased the strength that we have developed with a network of 2,300 stores. Yes, we do sell paint from that network, which is a trading play for us. More important for us is UBS acts as a customer for us for selling cement.
Paint, as I explained, does not fit into the overall scheme of things of cement as a business. I think, let me flip that question. Had we done paints in UltraTech, you guys would have questioned, "Why are you doing paint and cement?" Now, you are questioning, why is it not there. Jokes apart, Raj, is the world over, if you see, there is no cement company which is doing paint. The customer profile, if we evaluate, the customer for gray cement and customer for paint is totally different.
Right. I know gray cement is different, but just because we have that white cement wall putty and-
Customer for white cement is also different than customer for paints. Completely different. Customer for white cement is my mason and a painter, and customer for paints is the lady of the house.
This is my understanding. I'm not a paints person.
Right.
There may be some synergy, but I think still there is a big difference because it's altogether different segment. Yes, as you said rightly, no connection with gray cement, but yes, may have something with the white cement.
Also, just on this, because the paint company have been pushing putty based on a very bundled offering. From now, for us, it being in a different company, to offer similar bundle offers and all that, it gets kind of.
It's too early for us to say anything, and there can always be a cross-selling of products within the same group. There's nothing wrong in that.
Sure.
Whatever we do, it will be on arm's length. That is most important.
Sure. Thanks, sir.
Thank you.
Thank you. The next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.
Yeah. Hi, sir. Good evening, and congrats on great set of numbers. First of all, on few numbers, like you mentioned your WHRS capacity. Would you also give us what is your current thermal power capacity with the group, UltraTech as a whole?
It's total 1,100 or 1,200 MW.
1,200. Okay. Sir, on the RMC, you did mention that there is a sharp increase, and it will continue to grow. On the working capital, even in your September quarter, you had already squeezed in your working capital significantly. Thereafter, you have further reduced it. Do you believe that the December quarter number are more sustainable or there are few specific reasons because of which your working capital has come off significantly?
December is sustainable.
Okay. Yeah, I think most of the other questions are already answered.
Thanks.
Thank you. The last 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. I just wanted to ask, because there have been so many questions on why UltraTech didn't enter the paints business, which I find very surprising why you should do paints. Very surprising. I don't understand. There's no gray cement company in the world that's doing paints. I think my question only was that, even if you do an arm's length kind of transaction, would you be able to give us some sense on how that could be structured? It could be some sort of distributor margins or something that you could earn or?
I don't know, Madhav. As and when it happens, because this has just been taken up by Grasim. I'm sure they will come to us in case they need to do some kind of a tie-up or synergy. Because, as I explained, anybody can approach the dealer to empanel, enlist their product. Today, I'm not 100% sure, but there might be a white cement dealer who's already selling some paint. It is a possibility. I don't know for sure. They'll be more than happy to sell-
Okay.
Grasim's paint. They don't even have to take any permission, any approval from us.
Right. Understood. Okay. That's all from my side. Thank you.
Thank you very much. I will now hand the conference over to Mr. Atul Daga for closing comments.
Thank you, everybody, for having spent your Saturday evening with us. As I said earlier also, the best is yet to come. Hold on and enjoy the ride. Look forward to meeting you again for the next quarter results. I'll be more than happy to talk to you. In case there are any queries left, you can give me a call or my colleagues later on. Jhanwar-ji, anything from you ?
Yeah. Thank you once again. It was nice interacting with all of you. Thank you once again.
Thank you.
Thank you very much. On behalf of UltraTech Cement, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.