Shree Cement Limited (SHREECEM) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Shree Cement Limited Q2 FY'27 Earnings Conference Call hosted by ICICI Securities Limited. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Gupta from ICICI Securities Limited. Thank you, and over to you, Mr. Gupta. Yes, we can hear you.

Yes. So this is Navin here. Good evening, everyone. On behalf of ICICI Securities, I welcome you all to the Q2 FY'27 Earnings Call of Shree Cement Limited. On the call from the management, we have with us Mr. Neeraj Jakhuri, Managing Director; Mr. Subhash Jaju, CFO; Mr. Khandelwal, Company Secretary; and also Mr. Jain, Joint President, Finance. So without any further ado, I hand over the call to the management for their opening comments. Over to you, sir.

Thank you, Navin. Good afternoon, ladies and gentlemen, and welcome to Shree Cement Limited's earnings call for the quarter ended 30th September '26. Before we begin, I want all of us to remember Mr. Ashok Bhandari our special adviser. He passed away suddenly 2 days after our Q1 results call. Many of you know him from these calls. He earned the trust of the investor community. During his tenure, the market cap of Shree Cement grew significantly. At work, I will still remember him as a person who was firm and direct with people, he was warm and cared. His passing his real loss for Shree Cement and for everyone who worked with him. We will miss him. We miss him every time. Our condolences are with his family. May his sole best in peace. Going into our quarterly performance. The second quarter is usually a soft quarter for the cement industry. This year, it was also affected by the conflict in West Asia and by a weak monsoon in most regions. The East was an exception. Against this backdrop, our focus on volumes continued to deliver results. India sales volumes increased by approximately 18% year-on-year from 7.91 million tonnes to 9.31 million tonnes. Realizations improved marginally by 1% from INR 4,840 per tonne to INR 4,870 per tonne. Consol EBITDA rose by about 4% from INR 974 crores to INR 1,016 crores. However, consolidated EBITDA per tonne declined to INR 966 from INR 1,055 a year ago, primarily due to a higher fuel cost. Consol sales volumes also grew by about 14% from 9.23 million tonnes to 10.52 million tonnes. This improvement in volumes was also supported better capacity utilization in our India operations, which increased to 56% compared to 52% in the corresponding quarter last year. On a sequential basis, against the first quarter, the numbers are lower, which is what the season usually brings. India volume fell 11% from 10.49 million tonnes to 9.3 million tonnes. Realization was 1% lower at INR 4,870 against INR 4,919. Consol EBITDA declined from INR 1,272 crores to INR 1,016 crores, while EBITDA per tonne moved to INR 966 from INR 111. Consol sales volumes were down by 8% from 1.45 million tonnes to 10.5 million tonnes. Our capacity expansion program continues to progress. In September 26, Union Cement Company, our step-down subsidiary in the United Arab Emirates, commissioned a new cement mill with an annual capacity of 3 million tonnes. This takes its total cement production capacity to 7 million tonnes per annum. In India, work is progressing on our greenfield integrated plant in Mehalia, which is expected to be commissioned in the quarter ending 31st March 2028. We continue to evaluate and pursue strategic expansion opportunities across our markets with a focus on building capacity and delivering our long-term growth objectives. A few words on ready-mix concrete business. Our ready-mix concrete continues to grow and has continued to grow in the last quarter also. The commercial network is now 28 plants with captive units, the total is 35 plants. The plants have been running longer -- which has been running longer, did quite well and new ones are ramping up. Volume rose 123% year-on-year to 2.73 lakh cubic meter. Revenue rose 182% to INR 129 crores. The business stayed EBITDA positive -- as each plant fills up, its fixed cost is spread over more cubic meters, and that shows in the numbers. We have said for some years that ready-mix is where cement in India is heading. This quarter is a small step in that direction. As you all know, sustainability remains an integral part of our operating strategy. In Q2 FY '27, green electricity accounted for 65.2% of total electricity consumption, including our wholly owned subsidiaries in India. I believe these are amongst one of the highest levels in the Indian cement industry, if not the global cement industry. Our green power generation capacity currently stands at 667 megawatts, including our wholly owned subsidiary in India, and we are progressing additional projects to further increase the share of green power in our energy mix. For us, saving energy and saving cost are the same work. Every unit of green power we add makes cotton cleaner and not only cheaper to produce. All our manufacturing locations operate on a zero liquid discharge basis, treating, recycling and reusing 100% of the wastewater generated by our operations. These initiatives helped us to achieve a water quality index of more than 8x in FY '25. We remain committed to sustaining and improving this performance in the current financial year. October month is also the month of great leader, Mahma Gandhi, who very actually said to destroy something is easy to build requires great skill and care. This thought resonates strongly with our business, building a sustainable enterprise requires the same discipline and care, not only in the quality of our product, but also in how we serve our customers, invest for the future and contribute to nation building. In terms of the outlook, India economy remains supportive. Infrastructure investment, urbanization and stable macroeconomic conditions are all helping. A weak monsoon may hold back rural demand for some time, but spending on road, railways, housing and data center continues, and that will keep India cement demand moving in a positive direction. We remain focused on strengthening our market positions, improving operational efficiency and executing our growth plans while navigating the near-term pressures facing the industry. With these remarks, I now hand over the mic to our colleague, Mr. Subhash Jaju, Mr. K.K. Jain and Mr. S. Kwal for your questions. I am very confident that you are in good hands. And since we are in a cement business, we'll try to make sure these discussions do not set very quickly and that your questions are well answered. Thank you, Navin. We can now open for Q&A.

[Operator Instructions] The first question is from the line of Parth from Investec.

Sir, I just wanted to get a sense on the fuel cost. So what was our landed fuel cost on Kcal basis? And how do we see this going ahead into Q3 and Q4? For the current quarter, the landed cost was INR 2.9 as against INR 1.66 last year and INR 1.95 of the June quarter.

And for the quarter -- coming quarter, we believe this will be around INR 15 to INR 20... Okay. Sir, my next question is on raw material cost. So there is a swing in basically change in inventory, which is of around INR 100 crores, and this number was INR 69 crores even in Q1. So what is this related to? And how should we see this in H2?

This quarter, our clinker production is higher by, say, 33% as compared to the September 25. And we hope that the demand would be good in the next 2 quarters. So it will be -- it will be consumed.

Okay. So sir, what would be the sustainable number going ahead?

It should be around by year-end, it should be around INR 60 crores, INR...

The next question is from the line of Pinakin from HSBC Private Limited.

I have 3 quick questions. My first is there was very strong volume growth in first quarter and second quarter of 17%. Now as we move into the second half, what is the volume growth that you expect the company to?

So as I said, the demand figures are strong. There is only one topic which is concerning is the weak monsoon. Other than that, we are seeing demand to be supportive in infrastructure, in railways, in data centers and many other segments. Last quarter, there are different figures. We still have to assess, but it looks like the demand growth in India was about -- for the industry was about 10%. Other estimates are about 7%. So let's say, 7% to 10% was the demand growth. We'll get more real pictures sometime soon. If this trend continues, then what we have promised you all that our growth will be slightly better than the industry. So if demand growth is around 7% in the next 2 quarters, we should grow a little better than that. At this moment, any forecast beyond that is difficult to give, but we remain confident that we should be able to deliver slightly better numbers than the industry...

Got it. My second question, sir, is there are a lot of moving parts on costs, right? So you gave some -- the company gave some color on coal. But overall, between packaging, other variable cost freight, on a consolidated cost outlook, how should we see second half versus Q2 because there will -- there will also be benefits of operating leverage in terms of higher volumes?

This was a difficult one to say. What we do know that whatever major cost driver, which is the fuel, we should be able to forecast it based on the kind of purchases that we have already done, which is what our CFO, Mr. Subhash spoke about. There are other elements of the cost where things are moving rapidly. For example, the bag cost. Today, it is not a matter of worry, but we do not know what will happen in future. So I think any cost line which is external to us is difficult to forecast. Having said that, my sense is that quarter 3 cost should not be very different than what we have seen in quarter 2.

Got it, sir. And my last question is on cement pricing. I mean companies which have reported so far have indicated a INR 20 to INR 25 bag price increase in markets in North and East. From your vantage point, are you seeing similar price hikes in October or in September versus Q2 average? And do you think that price increases should be able to offset the cost inflation we saw in Q2 and probably see in Q3?

So far, we have seen better prices. October is better than September, for example, right? But again, price is purely a function of demand and supply. We have to see how it evolves in the coming quarter. But with the internal actions that we have taken, especially on premium percentages, I feel we should be able to deliver a better price than what we saw in Q2.

The next question is from the line of Rashi from Citigroup.

Just on the cost of production for cement roughly, what was the on a sequential basis...

The blended cost of production is INR 466 per tonne for this quarter against June INR 4,329 and again September '25, it is INR 445 blended...

How much?

INR 46.

Okay. But is this -- can we get it for cement purely just the cement cost of expansion cost of production?

Cement data is available, we will give you.

Got it. Anything -- okay, how much was the capital expenditure in the first half?

It is the capital INR 895 crores for the first half, and we expect in the second half, it would be around INR 70 crores to INR 80...

What would be our consolidated net cash at the moment?

Consolidated net cash is around -- at the group level, it is INR 8,158 crores.

INR 8,168 crores.

Right.

And just last 2 questions. In the last quarter, you had said that 40 million tonnes is doable for the year. I would imagine that is still the case, 40 million or more in the second half despite the concerns on the monsoon.

U, as we said, we should be between 40 million to 41 million tonnes. If you all are wishing us so much, then most probably we will be able to reach up to 41 million tonnes.

Just one question. What tax rate should we take for the year?

The tax is coming around 32% for the quarter and almost same at the half year also, 31%. And you should assume that it will be between 31% to 32% for the year also. Rashi, continues to remain in the old tax regime, and that's why the rate is around 30%...

Do you have a follow-up question? -- the next question is from the line of V. Nahar from Willis Capital Limited.

I have just one question about what kind of action you have taken on using the for your mining operation as well as transportation of cement... Is it renewal for the mining...

No, no. No, no, not Basically, your mining equipment, whether those are still run on diesel or you are converting the electric equipment that is on the mining...

We are experimenting with EV in the mining equipment. It is too initial phase. So not being able to give you -- it's a testing period for us, yes, of how does this equipment perform. Historically, all of us have always used equipment with traditional fuel. EV, we have started and give us a few more quarters before we give you some kind of a stronger response on what -- how the performance is.

And about your transportation of clinker or cement are you using the EV truck?

We are trying to produce EVs everywhere. not only in mining, but also in our clinker transportation. We are also testing with cement transportation. As I said, this is the first phase of this activity. We are still evaluating how complex it is to manage and how will we -- and what are the real returns on this investment. Give us a few more quarters, and we should be able to tell you our longer-term plans around EVs and both in mines as well as road movement.

And on the same line, whether in any of your plants to optimize the use of renewable, whether you have installed the BES

I am not able to understand the question, sorry. Renewable power, as I said, we are putting up about at 80 megawatts now. Currently, we have at 67 megawatts, we are putting up 80 more.

Sorry to interrupt, Mr. N. Due to time constraints, I request you to join back the queue for follow-up questions. The next question is from the line of Sanjeev Singh Motilal Oswal Financial Services Limited.

I have 2 questions. Firstly, in terms of volume growth, which is at around 18%, can you give us some regional mix? Because as we understand that there was some volume pressure in the Eastern region. So it would be helpful if you give some regional mix? And also, how has been the growth in the trade and non-trade segment both?

So on regional mix, a large part of Shri volume comes from North, yes. And balance is equal mixed in East and South. Of course, when we say North, part of that material also flows into states like MP or Gujarat, which is not really north, north for the industry. It is more West and Central for the industry. Having said that, our growth is kind of very balanced across. We have grown a little stronger in South India, followed by North and then by the East. However, it's something that we monitor very closely. It is kind of equally balanced across regions. As I said, South leads followed by North and then by the East.

Secondly, sir, channel feedback also suggests that we are trying to withdraw from some of the markets which are not remunerative or lesser remunerative compared to other markets. If that is true, then can you throw some light on what type of actions are being taken to improve profitability?

This is totally untrue. In fact, we are trying to increase our penetration across markets. For example, now we are a significant player in Jammu Kashmir. We are a player now a significant player also in Gujarat. We are also making our first presence in parts of South Karnataka. So it is not true that we are withdrawing from markets. In fact, we are increasing our penetration.

The next question is from the line of Amit Murarka from Axis Capital Limited.

Sir, just in the quarter, what was the trade, non-trade mix? I just missed that data.

Trade, non-trade, -- so we have done better on non-trade. We are now 61% is trade and balance is 61%...

Yes. Okay. Okay. Because if I put that number, then essentially, like I get a flat Y-o-Y volume on trade from you and nontrade obviously is a big chunk of 50%, 52%. So is that correct?

No, trade has also grown. So that is not true. Trade has...

Based on the data which was shared last year Q2.

I'll ask Raju to send to the...

Okay. And also generally on the pricing, like typically, we have seen strong hikes being taken in the last couple of weeks. But does that kind of change your outlook on the way you kind of do volumes in trade, non-trade because the last few quarters, at least we're doing stronger volumes on the non-trade side as yourself have said. That is one. And secondly, I think in the previous call, it was also said that because of the change in fuel mix also, you have been forced to do more non-trade. So is that continuing to be an issue for you? Or like you can -- I mean, you have kind of gotten over that problem?

So non-trade and trade realization gaps are somewhat coming down, yes. Having said that, at Shree, we are actively looking at participating in some of the nation's core projects, which is why you are seeing increase in non-trade. It in no way means that we have -- we are not pushing trade equally hard or even harder. Trade has been our bread and butter. So trade, we will be pushing, yes. But non-trade, the nature of market is also changing with large institutional buyers, large infrastructural projects, railway projects and so on. So we are seeing this kind of a shift.

Got it. Also, could you share your fuel mix as of now?

Amit, the fuel mix for this quarter, pet coke was almost 11%. Coal was -- imported coal was 75%, 2% Indian coal and alternatives were 12%. So we have gradually reduced the use of pet coke because of the increased prices. Last year, the same was almost 66%, so it has come down to 11%. And coal, we have started using.

The next question is from the line of Siddharth Mehra from Kotak Securities Limited.

On strong volume growth. I just wanted to check, sir, our freight costs seem to have come down significantly. And if I sort of try to calculate them on a per tonne basis, they are lower on a consolidated basis. So sir, can you just explain why this is?

So quarter 2 has 2, 3 things happening together. One is our run to market has come down. Second is that this is a period when we get some special discounts from railways as part of the new season discounts. Third is that we are having some new processes where freight fixation is now a little more data based using some modern tools, which is allowing us to correct a lot of freights across markets. All these 3 steps have allowed -- have given us an opportunity to reduce our freight to these levels. But as I said, this is something we have to see how it is -- how we can stabilize it over a period of -- a longer period. This quarter does not say much as it could be also because demand was good. But as we progress, we'll see how much it is this freight cost has been -- that we are able to retain, yes.

So there are no one-offs in this number. Is that understanding correct?

No, there is no one-off. There is no one-off...

Understood Sir, secondly, we've been hearing that -- we will be on the lookout for the number in the coming quarters. Sir, there have been some sort of news that our Mehale plant is sort of facing certain protests on the ground. So sir, what is the latest update on that, sir?

So there was kind of a hearing by the state authorities in which various people who are supporting the projects also participated and some who are -- who have an issue with this project also participated. I understand that the doubt has been cleared by the state government. And very soon, we should be able to start the project construction. Our entire workforce is now at the site. The contractors have been mobilized. The orders have been placed. And very soon, we should actually start the construction activity.

Got it, sir. So basically, no delays anticipated...

In my opening remarks, I said we should be able to commission it in FY '20.