JK Lakshmi Cement Limited (500380) Earnings Call Transcript

Ladies and gentlemen, good day, And welcome to the Q3 FY '20 Conference Call of JK Lakshmi Cement Limited. Call hosted by PhillipCapital (India) Pvt. Ltd. [Operator Instructions] I would now like to hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital (India) Pvt. Ltd. Thank you, and over to you, sir.

Thank you, Stanford. Good afternoon, everyone. On behalf of PhillipCapital (India) Pvt. Ltd., we welcome you to the Q3 FY '20 call for JK Lakshmi Cement. On the call, we have with us Mr. Shailendra Chouksey, Whole-Time Director; and Mr. Sudhir Bidkar, CFO. I will now hand over the floor to the management of JK Lakshmi Cement for opening remarks, which will be followed by interactive Q&A. Thank you, and over to you sir.

Good afternoon. Welcome all of you. I'm sure you would have all seen the numbers, and we are all open for your questions, if any.

Shall we open up for Q&A, sir?

Yes, please.

[Operator Instructions] The first question is from the line of Amit Premchandani from UTI Mutual Fund.

Can you give us a breakup of capacity in different locations, both grinding as well as clinker? And what are the expansion plans?

You want the capacities, no, basically. We have about 4.9 million tonnes of clinker capacity at our Sirohi location and 2 million tonnes clinker capacity in the Durg plant. And the grinding is about 8.3 for this north, and 3.5 after the commissioning of the Odisha grinding unit, 2.7 at Durg and 0.8 at Odisha. So we have 3.5 in the east. As regard to the -- and in addition, we also have a clinker capacity of 1.2 million tonnes in our subsidiary, Udaipur Cement Limited with a 1.6 million grinding capacity. As of now, we are working on a small balancing scheme for the -- this Udaipur Cement Works wherein the grinding will go up from 1.6 to 2.2 and marginal increase in the clinker capacity to take care of the additional grinding with a small CapEx of about INR 60 crores. And as of now, those are the plans which are on hand. We'll announce as and when we finalize any major expansion at any of the 3 locations. Most likely, it would be north only, but we are debating whether it may happen at Sirohi or in Udaipur.

Do you have the land available at Sirohi...

And as well as the limestone mines -- limestone reserves are adequate to take care of additional lines at both the location in north. So we are just working out and would announce shortly about our expansion plans, maybe towards the end of this quarter.

And what -- in terms of expansion plan, this 4.5 million tonnes clinker, say, in Sirohi. In the existing land that you have, this can be expanded to how much million tonnes?

It can be -- another line can be added. Clinker can happen 1.5 million to 2 million tonnes additional, with [ commissioning ] of 2.5 to 3 can happen. Land is adequate; reserves, as I mentioned, are adequate at both the locations.

So now 1.5 to 2 clinker land is possible in each of these locations?

Yes.

And what are the utilization levels right now?

Sorry?

What are the utilization levels right now?

Utilization level is about -- in case of total, we don't give broadly the breakup, but broadly it is about 66% in this quarter and clinker is 95%.

So you -- basically, you are clinker-deficient right now, if demand comes up?

No. We are also -- have been storing some clinkers right now. It's not that all the clinker is being utilized. And Udaipur does have the surplus clinker as of now. Plus as Dr. Chouskey mentioned that we do have the stock of clinker, and that should take. And then if the demand further goes up, then you always can improve the blending and increase the blending to, with the same clinker, have higher quantity of cement to be sold in the market.

But you already added 95% utilization in clinker, right?

Yes. And this 95% also we are doing some sale of clinker that, obviously, when there is a increase in the demand that goes, clinker sales may not happen that much as we are doing. So obviously, there's a possibility of increasing the -- without a need -- immediate need of increasing the clinker capacity, which may not come overnight also to take care of any spurt in the demand.

And what is the debt level now, net debt and gross debt?

Basically, we are today -- on a stand-alone basis, we are -- gross as of 31 December, we are INR 1,570 crores, down by about INR 50 crores from the March level. And the net debt is INR 1,150 crores on a stand-alone basis. On a consolidated -- including the Udaipur, on a net debt, we are INR 1,665 crores. So on a net debt equity for the company is 0.7. Gross debt equity for the company, 0.95 and consolidated net debt is 1.03.

And sir, in terms of -- in case you expand going forward, what is the capital structure that you are looking at for expansion?

Broadly, when we do, we don't have any plans to raise any capital. It would be through the accruals. And if it happens in Udaipur, obviously, JK Lakshmi will have to end up -- money into that. And balance, maybe about 70-30 or 65-35 debt equity for the project, for the expansion. And that may take at least 2 years. So over the next 2 years, we have repayment of about 300-plus next 2 years. So I don't see our debt leveraging improving dramatically even after the expansion.

So 35 would be equity through interim accrual, is that what you are saying.

Yes

The next question is from the line of Shravan Shah from Dolat Capital.

Yes. Sir, can I have the volume numbers of cement sales, clinker sales, cement production, clinker production and RMC revenue?

We have total sales of 23 -- 21.03 in the quarter, 21.03 is the production and sales is 23.7, which includes clinker sale of 1.59. And...

Total, you said, are 23.01 sales?

21.03 is the production, [ 23.7 ] is the sales, which includes our clinker sale of 1.59. And the RMC revenue for the quarter is about INR 39 crores.

Okay. And sir, could you help us in terms of the -- now how do you -- for the third quarter also, how did you see the demand? And now how you are seeing the demand drop, particularly in the states where we are working? And whatever the price hike has happened, how much we have witnessed in terms of the price hike? And how do you see in terms of sustainability of the price hike?

The demand in the last quarter improved from somewhere end of November. So December was one full month in this quarter when we had a better demand. And going forward, I think this quarter should see a good demand quarter because the areas that -- where we have witnessed a good spot in the demand gives us the confidence that this will continue in this quarter. Now in terms of the price increase, the price increase that we have taken in the month of December and January, they are right now sustaining. And I think if the demand remains at this level, these prices should also sustain for the quarter.

How much price hike we have taken now? INR 15, INR 10?

No, we have taken about INR 15 now.

Okay. And for the -- now this quarter -- I think last time you guided around 9.8 -- 9.88 million, 9.9 million tonne of sales. So that remains as it is?

Yes, it should remain around that.

Okay. And sir, I need some numbers in terms of trade, nontrade sales and the fuel mix and the petcoke average for the quarter. And how -- particularly petcoke, how do we see the benefit in the fourth quarter also?

As far as the prices of petcoke are concerned I -- one would expect that they should remain now flat. We don't see any reason for -- until here is some global scenario changes in terms of the disturbance in any particular area. Otherwise, the prices should remain at the level at which we have witnessed in the last quarter, not much of a change there. In terms of usage percentage...

85.

We consume petcoke at the rate of over 85% in this quarter.

Okay. And trade and nontrade mix for the quarter?

We have slightly improved over the last quarter. We are at about 55%, 56% above our trade and nontrade as far as the northern operation is concerned. But if I take the combined, then it should be around 58% as [ a trade ].

Okay. And do we expect any further improvement in the trade sales?

You see, the need to improve trade is only if you are getting a better pricing. If we are able to get nontrade from the market because we are doing only pick and choose. So if we do that, and if we are able to get the -- almost the same profitability in the nontrade, then I don't really need to cut down on the nontrade just for the sake of increasing the trade. The increase in the trade must give me some additional value. So what we are trying to do is to stress more on the EBITDA margins that you get from respective orders rather than just going by the trade and nontrade definition.

Okay. And lastly, sir, how do we see the debt further reducing by March? And maybe if you can help me, if we are not going ahead with the expansion, then how do we see the debt at the end of the next year FY '21?

We expect the -- if there is no further contraction of any debt, then it should get reduced by about INR 300 crores next year.

And by March, this quarter, another INR 50 crores can be...

Yes. Yes. Another INR 50 crores should come down.

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity Investments.

Sir, just wanted to check the capacity expansion that we're talking about. What could be the time line and the cost to add capacity here?

Sorry. Can you repeat, you were not audible?

Can you please speak bit loudly?

So I am saying, could you help me with time line for the addition of the capacity and the cost per tonne for adding the 2.5 million to 3 million tonne grinding?

We have not yet announced. So it's too premature for me to put a time line to -- thereto or a cost thereto. But being a brownfield, obviously, it would be cheaper than a greenfield one. So time line could be, once we announce, 2 years max, it should be on.

[Operator Instructions] The next question is from the line of Niteen Dharmawat from Aurum Capital.

Sir, how is the pricing trend in north compared to the last quarter? You said that you have taken a hike of INR 15. Just wanted to see, across the board, how is the trend now?

Yes. As I mentioned, it is sustaining at the moment. And part of the INR 15 had come in the previous quarter and some of it has come in the -- has been taken in this quarter, calendar month.

Got it. And the thermal power plant that we have put up and commissioned in Durg, how is the stability now? Have you achieved that?

Yes, we have broadly achieved that there in Durg. So it is not giving us the required, whatever we had ambitioned. Though originally, it was -- when we had originally set out to put that plant, it was based on usage of the petcoke. But now we are using -- not -- cannot use petcoke, so the usage of coal, whatever savings those are generating, is still working out to be cheaper than the sourcing from the grid.

[Operator Instructions] The next question is from the line of Sanjay Nandi from Ratnabali Investments.

Yes. Sir, just to mention, like there is a INR 15 price hike in the last -- some part in last quarter and some part in this quarter. So can you just guide us what is the exactly, like in a net hike, like from the exit of Q3? Like, how much hike we are attending in this quarter, particularly?

Well, we have taken about INR 10 hike 2 weeks back and that is what I mentioned is sustaining.

So between, like, from the exit of Q3, we are up by INR 10 per bag, right, as of now?

Yes. INR 10 to INR 15.

Okay. Okay. And sir, we have also just heard that we have just produced some additional clinker. So sir, are we anticipating any hike in the demand in these coming quarters, like in Q4?

Yes. Q4s are normally better than Q3. That has always been the trend. And we expect no change in that trend.

Okay. And sir, what are the ratios, if you can kindly mention, like, from the government for this year is like visualizing in the years to come from where we are anticipating some good demand or what exactly things are happening on the ground? So if you can kindly throw some lights on all those projects, which are, like, creating the green shoots for this kind of demand in the northern parts of the country?

The current demand is actually more of a pent-up demand because in this year, almost 4 months were lost in monsoons -- the rains, in most part of our markets. So what we are witnessing currently from end of November is how that pent-up demand getting captured. So I don't think it is due to any particular reasoning of the economy, which we can attribute to. Going forward, yes, one is getting some optimism from the infra plan that has been announced by the Finance Minister. But obviously, we will get to know more about it from -- in the budget [ where it heads to ], because the million dollar question is where does the revenue come from, those big ticket infra that has been announced. So that you will get to understand truly [ hence ] when the budget is announced.

Okay. And sir, from the power and fuel cost front, we have already, like, reduced our total cost, power and fuel cost per tonne. So can we anticipate any further reduction in the power and fuel cost in the coming quarters, sir?

These are a matter of continuous improvement. When we were at 110, we still could not have imagined that we can go do 60, 70 units. So it's very, very difficult really to say that whether you've reached the peak of the appraisal. So I think -- at any given point of time, I think there is some headroom, which is available for further improvements. So I would not say that we have reached the peak.

Okay. And sir, what is the current utilization, like, if you can kindly guide us what happened exactly in the month of January, like, 66% would have been on exit utilization level in December quarter? So what kind of things, like, happened in the month of January, so if you can kindly guide us?

January, we have seen some improvements definitely if I compare to the Q3. But I think there's a normal trend, which always happens. So it's not very surprising that Q4 is always much better than Q3.

The question is from the line of Ritesh Shah from Investec Capital.

Sir, my first question is a clarification. You indicated that our clinker capacity at Durg is 2 million tonnes. Is that right?

Yes. Yes.

Sir, earlier we had plans to increase capacity from 1.7 to 2.7. We were doing some sort of expansion or debottlenecking over here. Please correct me if I'm wrong. Can you repeat...

For the cement capacity where we had increased to 2.7. The clinker was increased from 1.5 million to 2 million tonnes.

Okay. It was from 1.5 to 2-point...

2 million.

2 million tonnes. And sir, when we say clinker utilization at 95%, can you segregate it between north and east?

No. As we are not giving this separately, the figure of north and east. So I think it's difficult to answer that question.

Okay. Sir, alternatively, can you help us with the blended cement mix? What it is for OPC, PPC, PSC in north and east? So basically, it will help us understand the cement-clinker balance, sir.

We are operating at about 64%, 65% PPC in the north, while in the east we have additional 4% to 5% of [ slag ].

So PPC is also 65% in east and we have PSC, which is around 4%. That's -- is that correct?

Yes, it is 80% PPC in east.

Quite simply, yes.

Sir, 80% is in east?

Yes, it is in the east, combined if I take.

Sir, can you help us with the broad split, sir. It will be of good help, sir.

Broadly, I've given you the number that we have about 64% as far as north is concerned for PPC.

And sir, east you said?

East we talked of about 80% as we just mentioned, about 80% PPC. And additionally, we have 4% of about flat.

Okay. Sir, my second question is, how should one look at UCW? Wondered if you can give us volumes for 9 month, that is one. Secondly, current [ stakeholder is ] around 75%. So what is the incremental plan? And thirdly, was there any intercompany transfer of volumes, which I'm assuming it would be because of the GUs that we have in Gujarat, like, does it flow from UCW or does it go from Sirohi?

Yes, there is always a...

Previous quarter also we have answered that we do some inter-transfer of clinker and cement, both partly on account of the grinding facility available in Gujarat, which can be utilized by both the grinding units. Secondly, in the markets where Gujarat -- sorry, near Udaipur, offers some great advantage. In those markets, we supply from Udaipur even for JKLC brands.

Okay. Sir, what was the volumes for UCW for quarter, if not for 9 months?

9 months, we have 9-month figure, we have -- they have done our total sales of about 14.4 lakh tonnes, which includes clinker of 3.22, 11.22 is the cement sale.

Okay. And sir, for the quarter?

We can -- we will just give you that number. In the meanwhile, do you have any other...

Yes, sir. I have just 2 more questions. Sir, how should we look at our market share in north and east? Now we have a lot of optionality to do brownfield and greenfield. We have also limestone in place, which is a problem for others. So sir, how are we looking at the market share, given you have newer players like Wonder, you had JK Cement also, which is adding, and they will be putting more volumes into the market. So how should we look at it, sir?

We are -- still we are a much established player as far as Gujarat is concerned, where we have a market share close to 10%, there we have no worry on our market share getting -- being poached by any other brand. Similarly in Rajasthan. These 2 are our core markets. And there, we are not unduly worried about the other capacities coming because we are concentrating in our core areas. So we are not comprehending any loss of market share. If anything, we are more concerned about how do we ensure that our market share, we are able to maintain with -- by increasing our volume in time because, answered by Mr. Bidkar initially, that we have additional clinker stock. We have blending headroom available. So I think we -- until the time our new capacity come, we'll try to maintain our market share by cutting down on the clinker sales, increasing the blending and utilizing the stock that we have.

Sir, if I may just ask a hypothetical question. If you go by your desired blended mix, how much of legroom do we have on the sales volumes because definitely, there is more capacity which is coming up in north, and there is a risk for us to lose market share.

No. I am not clearly worried on that account immediately because these 2 new capacities which have come is only JK and Wonder, which both have capacity. Wonder, one grinding capacity is in MP, which is not exactly where we are marketing much. So I'm not really worried there. And in Gujarat, we have not seen any new capacities coming for the last -- any new capacity being added in the last 2 years. So the only addition is that of the grinding unit of JK which is going to come there. So I think whatever has been the growth, it will be absorbed by this capacity without diluting the market share of the existing players. Even in the north, if I see the total capacity which these [ Rajasthan ] plants cater to, it is close to about 75 million tonnes. So even on a 5% to 6% growth, which we envisaged for this 2021, what you require is about close to 4.5 million tonnes. And that is what is the additional capacity, which has come. I don't think any market share is in any sort of a worry of getting displaced.

Okay. Okay, sir. Sir, last question, should we look at anything specific on the cost side that we are doing, either debottlenecking or any particular projects that we are undertaking at Sirohi or at Durg? I think the only pending thing is conveyer belt, I think, in Durg. But are there any other variables that we should be aware of?

No. I think most of the initiatives that we have taken over time have been getting absorbed, except that one waste heat recovery plant which is being put up at Sirohi, that will help in reducing our power cost to some extent.

The next question is from the line of Pritesh Sheth from CRISIL.

Firstly, on the volumes. So for this quarter, you said 23.7 was sales for this quarter, right?

Correct.

And how much was it last year same quarter?

23.27, I think, we said.

Okay. 23.27. And how much was it last year same quarter, if you have the numbers ready?

23.05.

23.05 was total sales. And out of that, clinker was?

2.05.

2.05.

Clinker sales have more or less remained the same.

Remained the same, okay. Yes.

It has gone down marginally.

Yes, you're right. He is right. It has gone down by about the...

Yes. It has gone down.

Yes, it has gone down, but cement has gone up by 3%.

3%. Okay. And...

Though we are not giving you separately the figure for east and north, but I think we have been able to -- with the commissioning of our Cuttack grinding unit, our eastern cement has gone up. While in north, we have seen a decline in the cement sales.

Okay. Okay. So overall, not for your numbers, but overall, for north and east combined, how much would be the volume decline or growth for this quarter for the industry?

I think in the markets that where we are operating, it has been north in Gujarat and they are mainly Chatisgarh and Odisha, we have seen a decline in the north, while Chatisgarh and Odisha have shown some improvement. Here, we have seen a decline of about 3% to 4%.

In north?

Yes.

Okay. And Chatisgarh -- so east has grown?

East has grown in this quarter, yes.

Okay. And so you gave your estimation of demand growth for north, that is 5% to 6% for next year?

Yes.

How much do you expect in East, like especially Odisha? Is it somewhere close to double-digit growth you're expecting?

I'm expecting close to -- yes, it can be double-digit growth, 9% to 10% is what I would expect.

Okay. So that is particularly for Odisha. And Chatisgarh would largely be like same? Same growth in Chatisgarh market?

Sorry. It may not be double digit, but should be a good -- about 7% growth.

Okay. Okay. And with regards to pricing, so we already have seen one hike for this month. And I know there are -- so it's year-end for most of the cement players. So generally, March would be the month where the players would focus largely on volumes and milestones. So do you expect in that scenario, any further price hikes? Are we in a position to take further price hikes?

I think much will depend on the -- how the demand pans out. If there's a good demand then -- we find that the volumes are not able to really [ cope up ] that fast, then maybe there can be some increase.

Okay. Okay. So even downside is possible? Or do you completely take that out?