UltraTech Cement Limited (ULTRACEMCO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the UltraTech Cement Limited Q3 FY '24 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must therefore be viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent development, information or events or otherwise. [Operator Instructions] 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, sir.

Thank you so much. Good evening, everybody, and welcome to the earnings call for quarter 3 FY '24 for UltraTech Cement Limited. I will try and keep myself brief today and giving more opportunity for questions. One of the most critical points which has been doing the rounds is about demand, whether there's a slowdown, et cetera. We believe that this quarter, the industry should grow somewhere around 3% to 4%, not more than that. And there are several reasons around it. And I should clarify it upfront before too many theories start doing the rounds. Q3 is a festive season, which is generally subdued due to absenteeism of workers from project sites. And this has been a routine phenomenon year after year. Besides, a large country like ours will have something or the other going on, such issues do hamper the movement upwards. Specifically in this quarter, we had election in 4 major states: Chhattisgarh, Madhya Pradesh, Telangana, Rajasthan. Fiscal challenges in the states of Bihar, Jharkhand, West Bengal. There were floods in Tamil Nadu, cyclone in Andhra, sand and aggregate shortages in some parts of the country, NGT-related construction ban in NCR since last quarter or -- yes, since last quarter, which still continues and severe weather as we speak. We also had rains in Himachal, which impacted the movement of goods. You must already be aware that the first 2 days of January were also impacted by the truckers' strike, which would impact not just us but entire economy per se. So one should not panic because of such situations. There have been news items like government orders have slowed down. I believe if so, it is only temporarily. India is fundamentally poised for a huge intra-growth, which will benefit all the cement players alike. The bigger point is that any project that has been initiated will go on, and we are seeing substantial construction activities across the country. So long story short, fundamentals around growth of cement -- growth for cement in the country continue to be the same. We have already started seeing improvement in demand since the middle of December. Slower demand leads to correction in prices and most of the gains achieved initially have been surrendered. While Q-o-Q and Y-o-Y, there has been an improvement in prices for the quarter, but towards the end of December exit, prices had corrected largely. You are all monitoring daily prices, but I wish to reiterate that prices are always guided by demand. As and when demand improves, prices are bound to improve. It's a pure economic phenomenon. Jumping on to our expansion plans. I think we are happy to tell you that all our expansion plans are on schedule, and in fact, some of them are ahead of schedule. Given the way we are seeing cement consumption going up in the country, we are quite satisfied with the way our expansion plans are panning out. On the last announcement we made for 21.9 million tonnes of capacity, which we call internally Phase 3, orders have already been placed for critical technology items. Civil work has commenced on a few sites. We are confident that the plants will be commissioned as per schedule. This year, our CapEx cash flow will exceed our initial plans, which we have outlined, and we will spend around INR 9,000 crores. Next year, also, we could see our cash flows on CapEx being around INR 9,000 crores. Working capital has taken up some opportunistic bets on purchase of coal and pet coke, because of which, our working capital is slightly extended. Both of these elements added to a marginal increase in our debt position at the end of December '23. And given our belief that Q4 will be a high throughput quarter, we should be seeing a further improvement in our cash flows and shrinking net debt. Everything else remaining the same, we are working towards reaching a 0 net debt position by the end of March '25. Going forward, we keep seeing an improvement in costs. As per current data, imported coal and pet coke do not seem to be spiking up, albeit the ocean freight flare up due to the war issues. We achieved a fuel cost of 2.048 per kcal this quarter against 2.184 per kcal last quarter. Blended cost of fuel consumed net of moisture was -- in dollar terms was $150. We use very limited domestic fuel, which is around 6% of our total fuel consumption, and maximum energy is from imported coal and pet coke. We expect to see a further reduction in our fuel cost in the foreseeable future. With 455 megawatt of renewable energy and 264 megawatts of WHRS, we are now at about 24% of nonfossil fuel-based power, and work is in progress to nearly double this percentage by the end of FY '25. To give you some more numbers, we, today, in all, have 44 kilns in operation, out of which 29 kilns have already been covered by WHRS. Work is further in progress on 5 more kilns. The ongoing expansions by the -- which is at the end of completion of Phase 3 by fiscal '27, we will have in all 48 kilns, and 41 kilns will be covered with WHRS. All future expansions, current and further, will always be with WHRS and 0 thermal power. That is our commitment to sustainability. I have covered briefly, touched briefly upon costs, demand and our expansion plans. Last but not the least, I must communicate about the recent acquisition that we have announced of -- cement assets of Kesoram Industries. We have already filed the scheme with the stock exchanges. CCI application should be filed shortly, perhaps by the end of this month. And after that, there will be an NCLT process. Two NCLTs will be involved, which is namely Mumbai for us and Kolkata for Kesoram. The effective date of merger has been kept as April 1, '24. Hence as and when the merger gets completed, the numbers will be consolidated with retrospective effect once all regulatory approvals are in place. That's all I had to share with you today from my side, and look forward to questions from you and any more inputs that you may have. Thank you, and over to you.

[Operator Instructions] The first question is from the line of Amit Murarka from Axis Capital.

The first question is on other expenses. So like doesn't Q2 has higher other expenses which we saw and Q3 simply witnesses a drop at this time. That drop is not visible. First thing I wanted to highlight was -- I wanted to check was, was there any one-off in other expenses?

So it's not a one-off, but when we saw the slowdown -- I should say slow down or lukewarm response in the markets during October, November, we did some preemptive or early preponement of some maintenance costs, which would have become part of the overall cost during this quarter.

Okay. So recently, this campaign has also been launched with Shah Rukh Khan, of course. Congratulations on that. But that is already in the P&L or Q3? Or will that come?

Sorry, who is Shah Rukh Khan? Yes. Obviously, we will book their expenses. We don't keep anything for a later date.

Okay, okay. And just lastly, I see the slide on the capacity commissioning schedule. Like what will be the clinker capacity addition in Phase 3? And where will you go on total clinker capacity at the end Phase 3?

I think I had already mentioned last time, 10 million to 12 million tonnes, but not getting into details on clinker capacity, but 10 million to 12 million tonnes. So we will always be clinker backed, that is most important aspect. Just one second, Jhanwarji wants to speak.

Yes. See, the first of all, Atul has already just said that our all capacities are always clinker backed. Actually, we never put the supply grinding facility and not having the clinker on the back side.

The next question is from the line of Navin Sahadeo from ICICI Securities.

Congrats on a good set of numbers. Sir, 2 questions. First, I'll take on prices. So you said by the end of December, prices has turned fairly weak. So this exit of the current...

Not weak, I wouldn't say weak. But the gains which were there in the quarter were largely surrendered.

Fair. So can we say that the cost price like in January is at least, let's say, 2% or some number, so it's lower than Q3?

Lower than Q3, yes, prices will be currently lower than Q3.

Marginally.

Yes.

Okay. marginally. Fair. Fair. And sir, my second question was on your recently incorporated company in Northeast and a very peculiar name to it. So I'm just trying to understand, it seems like something has already firmed up and very soon, we could see either a greenfield expansion or some venture in that state. If you can throw some light on this.

So I will throw some light when I have the torch with me. So sorry, not to -- I don't know why I started joking on the call. But we will come back, Navin. Yes, we are making progress on our expansion in the Northeast. It has been long overdue. As per the legal requirements, we need a separate entity with local partnerships, local directors, et cetera. So that has been structured. We will come back with details as and when we are ready.

Fair. I mean my only question was, given the peculiarity of the name, I could sense that it could be a greenfield venture because there, you don't have to really go into an auction of a mine as such. If you have land already in place, you can start.

Yes, absolutely. Absolutely.

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

Sir, a couple of questions. First, sir, you used the word, "we have taken opportunistic bets on fuel." Sir, can you please provide some more color over here? You did indicate on a rupee per kcal basis for the quarter. If you have taken some nice bets, does it mean it is lower than the prevailing spot prices? How should we look at it?

So Ritesh, let's keep it for the next quarter. Why should I spill the beans right now? I have also mentioned that you will keep seeing our cost curve sliding down continuously. We will reveal the numbers as and when -- at the end of the next quarter.

Okay. Sir, if I put the question the other way around, would we have taken...

I can't help you other way around.

Okay. Right. So probably I'll try to move to the next question then. Sir, you did indicate that the incremental clinker capacity you had earlier indicated at 10 million to 12 million tonnes. This corresponds to Phase 2 and Phase 3 together?

This was about Phase 3.

This was Phase 3. And specific corresponding to Phase 2?

14 million.

14 million tonnes.

Okay. And the incremental announcements which we have detailed, do we -- are we incentive-backed on most of the states? Because I see a few states where...

I'll tell you which places have incentives. So you have Rajasthan. Rajasthan has incentives. Andhra doesn't have. Bihar has, yes. That's it. UP also will have it.

UP has. Tamil Nadu doesn't have?

Punjab is in Phase 2. So Punjab -- sorry, in Phase 3, you would have Rajasthan, UP, Bihar, yes. These states will have incentives.

Okay. So AP doesn't have? I presume Tamil Nadu also would not have, right?

Yes.

Tamil Nadu is very small.

Okay. And sir, when we give a IRR number of 15%, what is the...

We don't take incentives into account.

You don't take incentives into account, okay. That's useful. Okay. And sir, lastly, if you want to just touch upon probably the rationale behind Kesoram, and given we have already announced Phase 2 and 3, would there be a motivation to look at further inorganic assets given we have a very strong pipeline already in place?

So, Ritesh, inorganic is always opportunistic and each transaction has to be examined on its fitment with UltraTech given the fact that we are pretty densely present in the country. So each transaction has to be examined on its own merits. Both -- so fundamentally, I have maintained that we are looking for profitable growth opportunity. So it has to give us growth as well as has to be remunerative.

So at the end of the day, it has to be value-accretive actually. Otherwise, there may be a number of opportunities. If it doesn't add value, I don't think it makes sense just to add capacity.

Yes.

And sir, my question was will there be anything specific that will make us move or motivate us to look at it? So something in Southern India, which is rich in limestone, would it be of interest?

It's not about Southern India. Let me comment about whole of the entire country. So if it's a profitable growth opportunity, that's point number one. You seem to touch upon limestone. Obviously, it has to be limestone-backed.

Okay. Sure. And sir, Kesoram, basically, the motivation to go for Kesoram?

It has good limestone. We can certainly add value to ourselves, to our customers. We can service our customers in a much better way. Markets are very attractive.

And also the good brand, the markets where they are present.

The next question is from the line of Raashi Chopra from Citigroup.

Just on utilization, your utilization was about 77% in this quarter. So what are you expecting in the fourth quarter?

Fourth quarter, historically, if you see, I would expect this quarter also to repeat. However, election date -- depends on election date, as and when the election dates are announced and the code of conduct sets in. It's very, very confusing to put a number -- to put a finger to a number. As I already mentioned, mid-December onwards, we started seeing demand pick up, and the signs are very good. Still, if I have to put a number, we will definitely cross 80%, 85% for sure.

Okay. And in your opinion, like for the full year, what should the industry demand growth be for cement?

We were looking at close to double digits. So 8%, 9% for is a possibility.

Yes. Anything between 8% to 9%.

Just some bookkeeping. On your trade volumes and blended cement for the quarter?

Trade was 64%.

Blended, around 68%.

And while you're doing a blended coal site, what was the pet coke price? Like last quarter, you would mention the pet coke was $138. This quarter?

$126.

So this should continue to go down?

Yes. That's what the trend looks like.

Okay. Sorry, $126 you said, right?

$126.

Okay. And lastly, on the waste heat recovery, your capacity is 264 megawatts right now. Anything more getting added this year?

Yes, about 26 megawatt. In the last 2, maybe 16.

Some more will come in. One or 2 more lines will come in.

Sir, what is the -- is there -- what's the total megawatt capacity expected by FY '24-'25 on waste heat recovery?

About 16 to 20 megawatt additional will get commissioned by the end of March '24.

Okay. And then beyond that in FY '26?

'25 also, we'll have. So we have 5 existing lines under implementation, out of which you will see 16 to 20 megawatts getting commissioned by March. So 3 lines would have commissioning in the next fiscal year also.

Okay. Sir, just on CapEx. Sir, just one last thing. I don't really want to discuss the EBITDA per tonne for the next quarter. But generally speaking, directionally, prices are basically corrected. I know costs have come down or will come down as well. But I mean, this probably remains like a steady state number, what is reported in the quarter?

I assume so. I think I'm confident that it's a steady state number.

The next question is from the line of Indrajit, an individual investor.

Sorry, Indrajit Agarwal from CLSA. Yes, after the CapEx of INR 18,000 crores in the 2 years, how much would be remaining for Phase 3, till Phase 3?

We had total cost of INR 13,000 crores, INR 12,000 crores, so INR 25,000 crores. INR 25,000 crores, out of which INR 18,000 crores is getting completed. So balance is there INR 6,000 crores -- yes, INR 6,000 crores, INR 7,000 crores.

And given that not all the capacity -- about 2 million tonnes of capacity at Kesoram is not clinker-backed, so could we look to realign some of our like organic expansion to support that? Or how do we...

Yes, we are looking at it. I think in the next -- we have plenty of time. So once we are -- get CCI approval, we'll work more closely with them to understand their plans and how we can realign our capacities.

Sure. And sir, last question, on this post-Kesoram, we will be at around 190-odd million tonne capacity, right?

Very close to that number, yes. Very close to that number in India.

And our target is 200 million by '28 -- yes, in India. And our target is 200 million by '28. So do we have enough organic opportunities for getting to that additional 10 million tonnes? Or we'll have to...

Organic, most certainly, most certainly.

Okay. All right. And all those organic, we are still confident it is truly lower than, like, say, $90 to $100 per tonne, right?

Absolutely. No doubt about that.

The next question is from the line of Ashish Jain from Macquarie.

Take the next person, he's dropped down, I think.

Am I audible?

Yes. Yes, you're audible.

Sir, on -- you gave some numbers on kilns with WHRS. And while that you said that currently, we are 44 kilns and by '27 we will have 48 kilns. So are we adding this 25 million tonnes between Phase 1 and Phase 2 just across 4 new lines? I was not clear about that.

Yes, there are 4 lines -- 4 greenfield lines getting added.

Of 24 million tonnes of clinker. Okay.

The next question is from the line of Prateek from Jefferies.

My first question is on last quarter's demand growth, you said it's around 3%, 4%. Would you have like region-wise distribution of how this growth was?

Very difficult at the moment. We will wait to see numbers from regional players, then it will be better to comment on that.

And your utilization of 77%, how would that be region-wise?

More or less evenly spread, the highest being 80%, 85% and the lowest being 74%, 73%.

Okay. So South utilizations have like -- I believe the South number would be lower number of -- on the range. So South utilization for yourself and for the industry has like sustainably moved up? Or is it like we are operating at significantly high?

So we are -- so when we are growing at a pace higher than the industry, our capacity utilizations will also be higher than the industry. That is one. South market has been consolidating and improving continuously. Gone are the days when Southern markets used to operate sub-50%. So you are seeing South markets also going up above 70%, for sure.

Okay. And over the next 6 months, as you concur, like volume growth may like sort of get impacted. How do you see the pricing during this period?

The pricing is, Prateek, determined by demand, good demand across the country and as seen in the past also, when all India capacity utilization crosses 85%, prices become very strong. So it's a play of demand. If there's good demand, prices tend to improve.

Right. But versus last quarter, when we sort of seen the start of the quarter, we had 5% higher prices all of that roll back. We are sort of having a similar view on pricing we had that time? Or...

My sense is if capacity utilizations in January, March, which has been -- which has precedent, if you go last 2, 3 years, capacity utilizations have been strong, the prices could improve. However, we are heading into election period. So there might be -- how demand pans out, it remains to be seen.

Sure. And lastly, this INR 25,000 crores of CapEx, you said INR 9,000 crores, INR 9,000 crores and maybe INR 7,000 crores for 3 years. Is this maintenance CapEx also included in this?

All in, all in, all in.

Okay. So maintenance included, we have INR 25,000 crores spend?

One second. Sorry, sorry, sorry. Phase 2, Phase 3, yes. So maybe INR 1,000 crores or INR 2,000 crores on maintenance CapEx, give or take. And the WHRS also, which is under implementation. But all put together, CapEx, which I'm seeing this year, we have already crossed about INR 6,500 crores for the 9 months. So we will very -- has INR 9,000 crores on that, which includes both our growth CapEx as well as routine CapEx or maintenance CapEx. This is a trend which we see at least next year, for sure.

Sure. So INR 9,000 crores, INR 9,000 and next year -- FY '26, we'll have like INR 6,000 crores, INR 7,000 crores plus?

It will be higher only, not INR 7,000 crores, because there will be maintenance CapEx also.

And in between, there will be like acquisition EV of around INR 7,500 crores of...

Yes. Yes, that is coming in. That is coming in. So in my commentary, when I mentioned FY '25 net cash on the balance sheet, I am not taking into account this acquisition, which will bring in a debt of 18 -- INR 2,000 crores.

The next question is from the line of Devesh Agarwal from IIFL Securities.

Sir, firstly, in terms of cost, you did mention that the cost will continue to slide. But based on our inventories, can you give some sense what would be the decline we can expect in 4Q?

We are at $150, no, this quarter. So we are at $150 of consumption this quarter. I would expect 5%, 7% -- 7%, 8% reduction over the next 6 months for sure, it could be higher also.

Okay. And secondly, sir, based on our Kesoram acquisition, you do have some capacity addition plans in waste heat in Southern India. Can there be any rethink or those remain intact?

So I think somebody had asked about this. In the next 6 months, we will come back in case there is any change in our existing expansion plans.

Okay. And sir, in our RMC business, what would be the margin for the quarter?

In what, RMC business?

Yes, sir.

RMC business generally delivers 3% higher.

4%.

4%, sorry. 4% margin over and above cement, yes.

The next question is from the line of Satyadeep Jain from Ambit Capital.

Just a couple of questions. One, follow-up to Navin's question. The foray in Northeast, I just want a clarification. You already have some limestone assets there in Northeast?

Identified, yes.

But not existing assets. Secondly, on Nawalgarh, in the Phase 3, we don't see Nawalgarh. Is there some land acquisition....

No, no. There's -- that will come in Phase 4. Land acquisition is half of it. Because right now, we are doing Kotputli expansion in Rajasthan, which is part of our Phase 2, which will get commissioned. And then we will take up further expansion in Rajasthan in Phase 4, if I can call it that way.

So land acquisition is still going on there?