JSW Cement Limited (JSWCEMENT) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to JSW Cement Limited Q2 FY '26 Earnings Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dharmesh Shah from JM Financial. Thank you, and over to you, sir.

Good morning, everyone. On behalf of JM Financial, we welcome you to the JSW Q2 FY '26 Results Conference Call. I will now hand over the floor to the Management for their opening remarks, which will be followed by interactive Q&A. Thank you, and over to you, Mr. Kunal Mukherjee.

Thank you, Dharmesh, and good morning to all. I would like to warmly welcome all of you to the Q2 FY '26 earnings call of JSW Cement. I trust that all of you have had the chance to review the company's results and investor presentation. We are pleased to have with us Mr. Nilesh Narwekar, CEO; and Mr. Narinder Singh, CFO. With this, I will hand over the call to Mr. Narwekar for his opening remarks.

Thank you, Kunal. Good morning, all. First, let me comment on the industry context. RBI has slightly revised upward the GDP growth projections for FY26 from 6.5% to 6.8%, which naturally, from a cement industry perspective is encouraging. We also view the CapEx spending trend quite positively. As per the data that was released, around 52% of the central CapEx has already been spent in H1 FY26. This front-loading of CapEx on infrastructure is definitely seen as positive for our business. On the state CapEx front the utilization in H1 FY26 has been moderate, but definitely this leaves plenty of space for catch-up in the CapEx going forward. This trend in public CapEx will support Cement and the GGBS demand going forward. The other big development during this quarter there was a reduction in GST. I am happy to announce that JSW Cement has fully passed on these benefits to its customers. Before I go into the Q2 performance, let me reiterate one key message. Now again, in this quarter, JSW Cement remains among the fastest-growing cement companies in India in terms of sales volumes, and it is our ambition to continue this growth trajectory for the remainder of this year and also for the next few years as we ramp up our capacities. Let me now list a few highlights for quarter 2. Our total sales volume in Q2 FY '26 increased by 15% year-on-year to 3.11 million tons. This is much faster than the industry growth in our regions, which we believe is broadly between 4% and 5%. So we continue to outperform versus industry volume growth that we had highlighted in Q1 as well. Now taking the same number product-wise, cement volumes sold was 1.64 million tons, which increased by 7% Y-o-Y. GGBS volumes sold was 1.38 million tons increased by 21% Y-o-Y. Within cement, the trade mix remained broadly stable at 52% and the share of premium sales within trade stood at 58%. Revenue of INR 1,436 crores increased 17% Y-o-Y. Operating EBITDA for the quarter was INR 267.5 crores, a very substantial 64% Y-o-Y improvement against a weak base last year. On the cost-saving initiatives, we reiterate the targets we mentioned in our September call. We have achieved INR 200 per ton savings at the cement level already, and the work is continuing for the balance INR 200 per ton for us to achieve the entire gamut. In terms of some of our key operational highlights, our clinker utilization in Q2 FY '26 was 86% and the grinding utilization was 58% versus 62% in the previous quarter, which is a seasonal dip. Our clinker to cement factor was 50% in Q2 FY '26. Again, as we have been mentioning, it's the lowest in the industry. With respect to our 2 main products, cement and GGBS, let me give you a sense of the realizations. Cement realization for Q2 was INR 4,638 per ton, an increase of 4% Y-o-Y, but softening of 5.2% on a sequential basis. GGBS realization for quarter 2 was INR 3,685 per ton, broadly flat on a Q-o-Q basis. The slight variation Q-o-Q is more a factor of regional mix change and conversion of some small part volumes in the South from FOR to EX. Our strategy for GGBS remains unchanged, that is to hold the GGBS pricing flat for the customer so we can drive volume adoption. Our lead distance was 283 kilometers for Q2 FY '26, nearly flat on a Q-o-Q basis. We continue to make full efforts to reduce this over the course of the year. In terms of capacity expansion, just to reiterate, our capacity expansion plan will take the company to grinding capacity of 41.85 million tons per annum with the clinkerization of 13.04 million ton per annum, as is outlined in our investor presentation. Very happy to announce, we have delivered on the time line committed for the first step in this expansion program, the 1 million ton Sambalpur grinding unit in Odisha, which was commissioned in early September, and we started cement dispatches from there already. This GU has been funded by and is part of our listed subsidiary, Shiva Cement, and we believe is key to position Shiva Cement for sustained growth in capacity utilization and the EBITDA going forward. Now Shiva Cement will supply clinker to this unit, and Shiva benefits from this grinding unit in 2 ways: one, of course, from the increased capacity utilization of its clinkerization line; and second, the stream of income because of cement sales. I would like to highlight 2 other initiatives that we are progressing with at Shiva Cement. One, of course, is around the land acquisition, which is underway for the overland belt conveyor system from the mine to the plant. And the second one is we've signed a 5-megawatt PPA, renewable power by end of FY '26, which will lower our production costs going forward as well. An update on the Northern region. The Naguar integrated unit is being set up in 2 phases, as many of you are aware. The 3.3 million clinkerization and the 2.5 million grinding unit is first phase and is on track to be commissioned in early Q4 FY '26. In the next phase, by mid-calendar year 2026, the waste heat recovery system and the additional 1 million ton grinding unit will come on stream. On the Punjab grinding unit, all approvals is under process. Engineering is progressing as per plan and the topography survey, which has also been completed at site. Finally, we continue to have the lowest CO2 emission intensity. Our Scope 1 plus Scope 2 emission intensity was stable at 277 kgs per ton in quarter 2 FY '26. Let me hand over to Narinder Singh, our CFO, to take it forward.

Good morning. I will add some points on the financial performance for Q2 as well as H1. In terms of our Q2 FY '26 financial performance, revenue was INR 1,436 crores, which is an increase of 17% year-on-year. Operating EBITDA has improved substantially by 64% year-on-year to INR 268-odd crores, equating to INR 860 a ton for the quarter. Our operating EBITDA margin stands at 18.6% in the quarter, which is a jump of 5.3% over the same quarter last year. Total EBITDA, including other income, was INR 291.2 crores, an increase of 53% year-on-year. PBT was INR 121 crores for the quarter, including positive contribution of INR 10 crores from the Fujairah operations, JV. PAT for the quarter was INR 75.4 crores. There was no exceptional item or noncash expense on account of the CCPS in quarter 2. We had highlighted this in the last quarter that we have booked all the noncash expenses on account of the CCPS conversion in Q1 itself. In terms of the major cost elements for the quarter, raw material and power and fuel declined on a quarter-on-quarter basis. Broadly, this was on account of 2 reasons: increase in GGBS in the overall sales mix and lower slag cost in the West region. We had highlighted in Q1 that some additional raw material cost on account of shutdown of JSW Steel blast furnace slag at Dolvi. So we had to procure slag from third parties in quarter 1. Happy to report that in Q2, we did not have any third-party slag procurement on spot basis, which has reduced our raw material cost. In terms of fuel, our blended fuel cost in rupees per Mcal for the quarter was INR 1.5 versus INR 1.55 per Mcal in the previous quarter. Recent purchase of pet coke was near $105 per ton, CFR. And in Q3, we expect fuel cost to marginally reduce, given the inventory we are carrying. Our current fuel inventory is sufficient till end of Jan '26. On the logistics side, while lead was stable quarter-on-quarter, we have benefited from efficiency improvement levers such as mode and direct depot optimization, which has reduced our logistic costs quarter-on-quarter. In terms of our H1 '26 financial performance, total sales volume have increased 11% year-on-year to 6.42 million tons, with cement and GGBS volumes increasing by 8.5% and 12.5% year-on-year, respectively. Revenue close to INR 3,000 crores at INR 2,996 crores, an increase of 12% year-on-year. Operating EBITDA is INR 590 crores, a 49% year-on-year increase, equating to INR 919 a ton for H1. Total EBITDA, including other income, was INR 636 crores for the first half. PAT, excluding the CCPS, which is a noncash expense, was INR 175 crores for the first half. In terms of balance sheet, net debt reduced substantially from INR 4,566 crores in June to INR 3,231 crores at the end of September. We have repaid INR 520 crores of debt from the IPO proceeds and utilized some of the amount for CapEx and general corporate purpose and parked the balance in FDs for now. Net debt to EBITDA on last 12 months stood trailing -- on 12-month trailing stood at 2.8x. During quarter 2 and H1 '26, the company incurred CapEx, including maintenance CapEx of INR 509 crores in quarter 2 and INR 964 crores for the first half. For the full year FY '26, our total CapEx is estimated at around INR 2,300 crores. Average cost of debt for the quarter was 8% and currently is 7.7%. I want to highlight one point on volume outlook for FY '26. During H1, there was some shortfall versus the plan due to extended monsoons and the impact on demand due to GST rate change, which was announced by the government. We are confident of achieving our H2 target. And therefore, for FY '26, we are now aiming for mid-teen percentage volume growth over FY '25. We will now be happy to address your questions. Thank you.

[Operator Instructions] Our first question comes from the line of Rajesh Ravi from HDFC Securities.

Sir, my first question pertains to your margin guidance, which you had guided at INR 1,150 to INR 1,200 for FY '26. You lowered your volume guidance. Is there any outlook on the margins? And also related to that, cost savings of INR 200 per ton, what is the trajectory over there?

So firstly, on your question on the guidance of INR 1,100-odd that was with North operations. Once our North comes in, which is expected in Q4, this number, we would be definitely achieving. And coming to the second part of the question, we are on track with the target mentioned last time, of the INR 400-odd that we had mentioned is the initiatives that we have planned, 50% has already been delivered. We will start to see the benefit of renewable energy, the capacities for which are coming online in Q4 and the benefits would start flowing. We'll update you in Q3. Once the Q3 results are out, we will be updating you further on this. But yes, the benefits of these initiatives continue to flow.

Sir, when you talk about this INR 200 crores is already realized, I mean this is you're talking with the cement business, right?

Majorly cement, partially to GGBS because most of it is more linked to the renewable power fuel, AFR.

Correct. Correct, which will influence this.

Yes. So majorly goes to cement, very marginally to GGBS.

And sir, on what base this INR 200 crores is expected -- I mean when you said INR 200 crores is already achieved, this is already reflected in FY '25 performance?

Yes, '25 and Q1.

Okay. So on what base another INR 200 crores one should factor in, sir? And by when?

No, like another 200 I told you, most of it starts flowing from Q4. This continues in FY '27. Renewable power is one. Our renewable capacities, which are today about 60 -- 48 megawatts. It jumps to about 68 megawatts in Q3 and another 59 megawatts in Q4. So most of it comes from renewable power. We are trying to rationalize on the logistics, which we continue to do. Last quarter, we saw some reduction in lead distance, and this we will be further reducing. AFR Percentage is expected to be further increased. So that brings saving on the fuel. And of course, the premiumization -- efforts on premiumization, that continues. Hence, I said the benefits will flow in FY '27 also because this is the exercise that we have started. And the final thing is operating leverage. As the volume goes up, the benefits flow.

Understood. So green power from 22% order, how much will that go up to by, say, exit of FY '27?

Yes. So exit of FY '26, in terms of installed capacity, which we will start to extract, we should be starting to hit a 63% of our requirement to be furnished through green power. So FY '27, starting Q1, we should broadly be hitting that same ballpark, which is 63% of our total requirement is green power.

So from 21%, it will go to 63% for next financial year. Is this understanding correct?

Absolutely right.

So that will be one of your major cost drivers. Good saving would be flowing. Great. And sir, AFR, when you say AFR, that is thermal basis, calorific value or volume basis, 12% to 16% number?

Calorific value.

And this number, you're already achieving a very good number of 12% to 15%. So by -- how much is this expected to go up to?

Close to 18% to 19%.

Okay. And this is -- we are talking from a cement perspective, right?

That's right. This is used for making of clinker. So yes.

Our next question comes from the line of Raashi from Citigroup.

I have 2 questions. The first is on the volume side. Could you just elaborate a little bit more on the market share gain in specifically, last time you said that the South is that continuing?

We've broadly remained in line. Now, what we have done is because our geographic footprint is, of course, specific Yes. So geographic footprint is around South, West and East. Within South also restricted to specific districts within the states. So what we -- the way we allocate our volumes get distributed around 21% is South. There's a 20% growth in the South. There's a minus 3.1% degrowth, which has happened in the East and I think around 1% in the West. So overall, 8.5 8.1%, 8.2% is the growth in cement. This is for H1.

Sorry, West you said was a negative 1%?

West is positive at 1%. And please understand when you look at West for us, we are restricted to Mumbai metropolitan primarily as against the West for the industry, which includes other parts of Maharashtra and Gujarat, et cetera. So we get more severely impacted because of the onset of the monsoon. So just put it in that context, it's 1% for H1, negative 3% for East and 21% for South.

Okay. And the other question is on the -- you already elaborated on the cost savings. So would it be possible to kind of break up the EBITDA between cement as well as GGBS and if there has been any improvement after FY '25 on cement EBITDA outside of the realization?

No, we won't be able to give a breakup of cement and GGBS. But as we said, most of the benefit is flowing to cement. The improvement in EBITDA that we see is coming from cement. GGBS is almost in line with what we were doing last year because we haven't taken any price increases, we continue to maintain the price because our focus is more on gaining volume and improving the volumes. Costs continue to be same almost for GGBS.

Our next question comes from the line of Sucrit D Patil from Eyesight Fintrade Pvt Ltd.

I have a forward-looking question on this company's outlook and how you will be going ahead. As more players expand in the blended cement and green construction space, what is JSW Cement doing to build a strong edge, not just through capacity or pricing, but something in a more extended way like a way of working or thinking that grows over time and makes it hard for your competitors to copy? That's my first question. I'll ask my second question later.

Yes, it's a good one. So as you know, currently, our CO2 emission intensity is the lowest in the industry, and there are all steps that we are taking to ensure that we continue to maintain this gap and ensure that this becomes our calling card in the cement sector. So 2, 3 obvious things which are there, okay? One, of course, is the push and the thrust as we move towards green power and more of AF. That's one that we anyway are doing. Second, extending the same concept and idea in the supply chain as well. So an extended and a concerted effort towards all our outbound and inbound raw material movement, including the mining trucks, all of them moving towards EV or at least in the geographies where we don't have adequate -- at least trying to move towards a more greener fuel, which is CNG. So that trust is anyways underway. All the steps that we undertake is primarily with this particular lens in mind and all decisions are primarily driven basis this. Now as we expand in geographies where we probably don't have the benefit of slag, but there, there's a concerted effort to try and look at other methods and means of trying to see how we can reduce our carbon footprint. So like in the North, yes, everyone is experimenting with calcined clay. We guys are also doing so. And soon, we believe that that's something that we will also be having. So that's directionally how we're headed.

Okay. My final question is about margins and cost planning. Again, a forward-looking one. As realizations remain soft and input costs keep on fluctuating, how are you planning to protect the margins? And are there any smart internal methods that you will be putting into place that will help you keep the delivery high without hurting the profit?

So for us, we are working on 2 fronts. One is the initiatives which we had highlighted in the last call after the Q1 results. We have been taking initiatives which are going to bring us substantial savings. We have achieved INR 200-odd and we continue to focus on achieving another INR 200, which will flow over the balance quarters, the 2 quarters and in FY '27. So that's on the cost front in the existing operations. Our North operations become operational this Q4. And as we all know, North is a more attractive market, which will give us a spike in the overall EBITDA. And GGBS continues to be our main stay.

Our next question comes from the line of Amit Murarka from Axis Capital.

On GGBS, you said that you are looking to hold pricing stable in order to get some more volumes in the product. But we know that cement price in South particularly have declined quite substantially. So does it require you to drop GGBS pricing now in order to attain that objective of volume? Or do you think that even though the gap has reduced substantially within GGBS and OPC, you would still be able to deliver the desired volume growth on GGBS?

No. So if you see last year, FY '25, the prices at the lowest in a long time. Despite that, we didn't reduce the GGBS prices. But we have not taken the increases also in H1 when the cement prices again started moving north. So we continue to hold on to the GGBS current price. That's our strategy, and we'll continue to do that.

Yes. But then the gap is probably not that great as it was in H1. So, does it not impact the desired volume growth in GGBS then?

Yes. So Amit, the economic argument that you're referring to here, which is the GGBS mix versus the non-GGBS mix, that still remains profitable across many of our geographies. That's how we're seeing it play out. So, we do not expect any of the margins to bring down the GGBS prices. And of course, going forward, I guess you have heard the commentary from everybody else as well we expect the overall cement prices also to start to move up with the season opening up and that's going to augur well even for the additional GGBS sales that we intend to undertake.

Sure. And just also, if you could talk a bit about the North utilization outlook as in your plant, let's say, year 1, year 2, which is FY '27 and FY '28, what could be the expected utilization from that asset?