ACC Ltd

NSE:ACC

Earnings Call Analysis

Adani Cement Business Delivers Strong Quarter

After management changes, Adani Group's cement business saw a transformative quarter with improved operational efficiencies and synergies. Revenue grew by 4.1% to INR 7,424 crores, with EBITDA jumping 298% Y-o-Y to INR 1,302 crores. EBITDA margin rose by 12.9% to 17.5%. Operational costs decreased by 11.8%, energy costs by 33%, and transport costs by 3.1%. Ambuja Cements' EBITDA surged by 147% to INR 773 crores, with EBITDA margin expanding by 11% to 19.5%. Long-term strategic plans include reaching 140 million tonnes in cement capacity with new clinker and grinding units, with some expected to complete by Q3 FY'25 and Q2 FY'26.

Adani Group Cement Navigates Its Way Towards Strategic Transformation

Adani Group Cement has reached an important milestone in its journey toward operational and financial robustness post its change in management. The decisive quarter paints a tableau of success with a revenue increment of 4.1% year-over-year (Y-o-Y), reaching INR 7,424 crores. This improvement is delicately crafted through strategic market focus and network expansion, evidenced by a modest uplift in per-tonne realization and a maintained high sales volume blend of premium and blended products.

Cost Efficiency: The Invaluable Ingredient for Profitability

An impressive reduction in operational costs, down by 11.8% Y-o-Y, highlights the company's efficiency initiatives, prominently led by a 33% decrease in energy expenses. Thanks to comprehensive strategies, including better fuel management leading to considerable savings, transportation costs have also edged down by 3.1%. The productive measures do not stop there; direct dispatch to customers advanced by 5 percentage points, pushing the EBITDA margin to a strong 17.5%—a testament to disciplined cost stewardship.

A Journey of Expansion: Bold Steps to Cement Future Growth

Ambuja Group Cement lays down ambitious plans to enhance capacity, with Adani's foresight of commissioning around 40 million new clinker capacity and doubling grinding facility throughput. New integrated units and grinding setups spanning across India, complemented by infrastructural developments like 42-megawatt waste heat recovery systems and alternative fuel utilization, evidentially mark paths to future scalability. Noteworthy as well is the acquisition of Sanghi Industries, poised to escalate Ambuja's operational horizon.

Cost Leadership: A Structured Approach to Steer Ahead

In a strategic move to emerge as a cost leader, Adani Group Cement eyes a cost reduction of over INR 400 per tonne across energy, freight, and other operational segments. This approach reaps early rewards with a marked reduction in power and fuel costs by 33%. Logistics optimization and streamlining operations, such as consolidating operations under a single executive team, are upstreaming the cost-saving currents, building a strong margin base for expansion and shareholder returns.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the earnings conference call of Ambuja Cements Limited and ACC Limited, hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital India Private Limited. Thank you, and over to you, Mr. Agarwal.

[Vaibhav Agarwal, analyst]

Thank you, Michelle. Good afternoon, everyone. On behalf of PhillipCapital India Private Limited, we welcome you to the earnings call for the quarter and half year ended 30th September, 2023 for Ambuja Cements Limited and ACC Limited. On the call, we have with us Mr. Ajay Kapur, CEO; Mr. Vinod Bahety, CFO; and Mr. Charanjit Singh, Head, Investor Relations at Ambuja Cements Limited and ACC Limited. I will now hand over the floor to Mr. Charanjit Singh for his opening remarks and management presentation, which will be followed by interactive Q&A. Thank you, and over to you, Charanjit.

[Charanjit Singh, executive]

Thanks, Vaibhav. Good afternoon, everyone, and thank you very much for taking out the time to join our Q2 results call. Without taking any further time, requesting Ajay Ji to provide a quick overview on the performance of ACC and Ambuja for Q2 and HY FY '24. And thereafter, we will open the line for questions. So over to you, Ajay Ji.

[Ajay Kapur, executive]

Yes. Thank you, Charanjit. Warm greetings to everyone. Thank you for joining us today. It is my pleasure to share with you the operational and financial performance of Adani Group Cement business for the quarter ended September '23.

The fourth quarter post a change in management has been yet another important milestone for our progress and transformative journey on operational efficiencies, nurturing business synergies and business excellence, which have significantly improved key business metrics. Let me provide you key highlights on the consol performance of the second quarter ended 30th September, '23, as well as half yearly ended 30th September, '23 of FY '24 and share insights on the way forward.

To begin with the revenue. This quarter, on a Y-o-Y, we registered a revenue of INR 7,424 crores, a jump of 4.1%. The realization for the quarter was INR 5,334 per tonne, which is a jump of 0.9%, largely driven by a strong focus on our micro market management strategy, expansion of dealer network, blended cement as a mix of total sales volumes maintained at 89%. Premium products as a percentage of trade sales volume has increased by 0.8% to 23.4% compared to same quarter in previous year.

Talking about the cost. Operational costs for the quarter at INR 4,682 per tonne shows a decline of 11.8% on a Y-o-Y basis. This is attributable to 33% decline in energy costs driven by better fuel management, which resulted in reduction of current fuel cost by 38% to INR 1.82 per 1,000 kcal from INR 2.93 same period last year.

The transportation cost is at INR 1,377 per tonne, which is 3.1% decline Y-o-Y on account of footprint optimization. The direct dispatch to customers has further increased by 5 percentage to 49 percentage in the current quarter. The rail coefficient has gone up by 2% to 28%. The new operating business model led us to increased focus on improving business parameters, resulting in reduction of other expenses. This now stands at INR 829 per tonne, a 13.5% reduction on a Y-o-Y basis.

With the improvements mentioned on both revenue and cost front, EBITDA, excluding other income for the quarter came in at INR 1,302 crores, which is a jump of 298% Y-o-Y. EBITDA per tonne excluding other income for the quarter was INR 995, implying a jump of 291% Y-o-Y. EBITDA margin expanded by 12.9% to 17.5% on a Y-o-Y basis.

The CapEx spend of INR 1,101 crores for the quarter was achieved from internal accruals and cash in hand. As on 30th September '23, the consol cash and cash equivalents in the company's books was INR 11,721 crores. During half year ended 30th September '23, revenue is up [ 6.4% ] at INR 16,137 crores. EBITDA, excluding the other income for the quarter, came in at INR 2,969 crores, which is a jump of 107% on a Y-o-Y.

On a per tonne basis, it was INR 1,042, implying a jump of 95% on a Y-o-Y basis. EBITDA margin expanded by 8.9 percentage to 18.4% on a Y-o-Y basis. Now coming on stand-alone performance of Ambuja Cements for the second quarter, 30th September '23 on a Y-o-Y basis, net revenue was up 8% at INR 3,970 crores, in line with the volume growth of 7.3%. EBITDA, excluding other income jumped by 147% to INR 773 crores. EBITDA excluding other income per tonne stood at INR 1,020, showing a jump of 130%. EBITDA margin expanded by 11% to 19.5%. We had a robust PAT growth of 364% to INR 644 crores.

The same results on a stand-alone for half year ended 30th September Y-o-Y basis, net revenue up at 13.4% at INR 8,700 crores in line with volume growth of 15.4%. EBITDA excluding other income jumped by 72% at INR 1,722 crores. EBITDA, excluding other income on a per tonne basis, was INR 1,031, showing a jump of 49%. The margin expanded by 6.8 percentage points at 19.8%.

We had a robust PAT growth by 8.5% to INR 1,289 crores. The company won several awards and accolades for its overall outstanding work. Ambuja has been recognized amongst the Iconic Brands of India 2023 for the second year in a row. Gare Palma coal mine under Ambuja Cement secured 11 accolades at the Annual Mine Safety Fortnight and Interregional First Aid Competition hosted by SECL at Bilaspur. Several of our plants and grinding units were recognized as the 24th National Awards for Excellence in Energy Management by CII for the exceptional dedication to energy efficiency and sustainability.

Ambuja Cement's Bhatapara, Maratha, Farakka, Nalagarh and ACC's [indiscernible], Sindri and Madukkarai were recognized. Ambuja Cement's Bhatapara plant has also been honored as first runner up for the CII Award for Excellence in Safety, Health and Environment 2023. Ambuja Vidya Niketan, Ambujanagar, our school, secured the first runner up position at the International Model United Nations held in Kerala.

Now let me share with you the progress that we have made on our long-term strategy plan that I've shared with you in May '23 at the time of full year results of FY '23. First, on new capacity additions. In my strategy update, I highlighted that to reach a cement production capacity of 140 million by FY '28, we will add around 40 million of new clinker capacity, thereby employing around 10 new cement kilns, in line with our plan, Ametha integrated unit in Madhya Pradesh has been commissioned, enhancing the clinker capacity by 3.3 million tonnes per annum. For doubling the capacity of grinding facilities to 140 million by FY '28, we are targeting around 35 new grinding units. Of these, 2 units are mapped to the upcoming clinker facility at Bhatapara of 4 million tonnes. These include 1 unit at Sankrail, Kolkata, 1 at Farakka, another 2 units are mapped to Chandrapur clinker facility. These include 1 unit at Jalgaon and 1 at Amravati. Another grinding unit is being set up at Salai Banwa in Uttar Pradesh.

For the new facilities of 4 million clinker at Bhatapara apart from equipment, which has been ordered, civil execution work has started on ground. Expected completion is by quarter 2 FY '26. For its corresponding griding unit at Sankrail and Farakka, order has been placed on EPC vendor, and piling work has also started at the site. Expected completion of these unit is by quarter 3 FY '25.

For the new facility of 4 million tonnes clinker line at Maratha in Chandrapur, LOI has been placed on EPC vendor. Site development and pre-project work has also been started. EC and CT approval are expected in this quarter. Expected completion by quarter 4 FY '26. Each of these kiln lines will have 42-megawatt of waste heat recovery and provision for utilizing 50% alternate fuels in the kilns.

At our Salai Banwa grinding unit in Uttar Pradesh, groundbreaking activities have already been done. Expected completion is by quarter 1 FY '26. We will continue to provide progress updates of new orders and also the progress on individual projects on an ongoing basis. Status on Sanghi acquisition. On August 3, Ambuja Cement announced acquisition of Sanghi Industries at an enterprise value of INR 5,000 crores to be fully funded through internal accruals. Seller CPs are in the progress of completion and the acquisition is expected to close in quarter 3 current year. This acquisition would help us to accelerate Ambuja's goal of 140 million ahead of 2028 and reinforce its position as a leader in construction materials sector.

Now sharing an update on the structural initiatives to become the cost leader in the Indian cement industry. In my last call and also in our strategy presentation, I have guided for a total cost reduction of over INR 400 per tonne on the 3 broad segments, which are: energy cost, freight and forwarding cost and other costs. Let me first discuss on the progress made to reduce our energy cost.

Our waste heat recovery capacity at the time of takeover was 40 megawatts, which we are now targeting to increase to 170 megawatts by March '25. As of FY '23 end, we managed to increase the capacity to 70 megawatts. At present, the waste heat recovery capacity stands at 90 megawatts. I also mentioned that we are considering installation of 200 megawatts of captive renewal power generation. The construction of the facility has already started in Khavda in Gujarat and is expected to be ready by end of current financial year.

On multiple occasions, I've highlighted that we want to be self-sufficient on our coal requirements with captive coal supplies. As a result, we started bidding for coal mines in the auctions being conducted by the Government of India. Besides the 1.3 million captive coal mine at Gare Palma, which Ambuja has since 2018, we have won the bid for a 2 million tonne coal mine in Dahegaon Gowari in Maharashtra. The 2 mines together will cater to around 40% to 50% of our current coal requirement.

On account of these initiatives and reduction in fuel prices globally, our power and fuel costs have reduced by 33% to INR 1,425 per tonne in quarter 2 FY '24 from INR 2,134 per tonne in quarter 2 FY '23, the last reported quarter before our takeover.

The second cost item is freight and forwarding cost. There are 3 focus areas for cost reduction here: first, reduction in lead distance; second, warehouse footprint optimization; and third, rail road mix optimization. We are targeting to reduce the average primary road lead distance to about 100 kilometers. When we took over the company, this was 175 kilometers in quarter 2 FY '23, which has been reduced to 165 kilometers in the current quarter. For Ambuja stand-alone in the last quarter, it was at 174 kilometers. And for ACC, it was 153 kilometers. We have made progress on warehouse optimization as well and increased the direct dispatches from 44% to 49% on a Y-o-Y basis.

With focus on green cost reductions in logistics, we have ordered 25 bulk rakes. These rakes will enable safe and cost-effective transportation of fly ash from thermal power plants to our facilities. The costs are reducing mainly driven by detailed route planning at micro market level and adherence to our L1 source, renegotiation on commercial towns, GPS and technological measures. On account of these initiatives, our logistics costs have reduced by 3.1% to INR 1,377 per tonne in quarter 2 FY '24 from INR 1,421 per tonne in quarter 2 FY '23, the last reported before our takeover.

Talking about the third cost item, the other costs. Our business is now being run as a single entity with a single executive team and a streamlined employee hierarchy, thereby removing the role of redundancies between Ambuja and ACC. This streamlining has led to reduction of other costs by 13.5% to INR 829 per tonne in quarter 2 FY '24 from the earlier INR 958 per tonne on a Y-o-Y basis.

To secure our limestone supplies, we have won bids for 10 new mines with 1 in Orissa, 1 in Maharashtra, 2 in Gujarat, 1 in Madhya Pradesh and 5 in Rajasthan. Together, these limestone reserves are estimated to have a total of 584 million tonnes of limestone reserves. We have put a good discipline on the working capital, which has helped an improvement in working capital and operating cash flows, helping us continued increase in cash and cash equivalents.

In conclusion, we have made strong strides both operationally and financially in the recent quarter, a testament to our consistent efforts and strategic planning. We continue to generate significant cash to finance our expansion and pay dividends to our shareholders. Your trust and support have been our guiding source. Thank you for believing in us.

[Operator]

[Operator Instructions] We'll take the first question from the line of Prateek Kumar from Jefferies.

[Prateek Kumar, analyst]

So my question was regarding your guidance on INR 400 per tonne kind of reduction in cost. Where are we as of like now? We completed 1 year, where are we versus the INR 400 per tonne kind of reduction from company-specific initiatives?

[Ajay Kapur, executive]

Yes. Good question, Prateek. If you saw when we took over the companies, unfortunately, those are the quarter's #1 transition quarter, so not the best time to compare with.

Number two, the energy costs were very high during that period. If I normalize that and if you really see the structural efforts we are putting in, I think in my opening, I gave a very detailed explanation on how on all the 3 legs we are moving. Waste heat recovery, we already ordered 175 megawatts of waste heat between ACC and Ambuja. We've already ordered 200 megawatts of green. We've already acquired a new coal mine in addition to the one which was running and is now being run at full capacity. We are already focusing on logistics, and I've shown you how the direct dispatches have increased. I think each of these levers have already yielded some returns. The full spectrum of these results plus our additional strategy on long-term contracting, our own wagons, which I spoke, I think over a period of next 12 to 36 months, you will see a play of further improvement on the cost from the current level.

[Prateek Kumar, analyst]

Yes. So I was just asking that how much of the INR 400, maybe like INR 100 has come already or INR 50 has come already based on whatever is operational in terms of various CapEx projects? So that was my extended question.

[Ajay Kapur, executive]

See, I would say, straightaway 3% to 11% waste heat. So that was extra straightaway comes on the power. Coal, we're already seeing also some strategies working with the group companies. You've seen our power and fuel costs are getting optimized. The whole play of ACC and Ambuja using the best lowest cost models, increasing direct trade or logistics cost also. While there has been a general inflation, we are seeing the cost has been arrested. So I would say already a part of it is coming in. But I think a large part of it will come in over the next 12 months to 36 months.

[Prateek Kumar, analyst]

My second question is on your CapEx [indiscernible] on the expansions in your presentation. So there's nothing related to the grinding unit on -- related to Maratha clinker line which was given in the presentation, right, which will be given -- the details will be given later or some...

[Ajay Kapur, executive]

Yes, yes, yes. Actually, Maratha will have -- I think I also mentioned, I don't know, in my opening, that there will be 2 grinding units. I think I mentioned Amravati, and I mentioned Jalgaon in my speech. It is not captured here. But we'll come out with the next detailed presentation where we'll upload those as well.

But there's 1 at Jalgaon, 1 at Amravati, 2 plus 2, 4 million.

[Operator]

We'll take the next question from the line of Navin Sahadeo from ICICI Securities.

[Navin Sahadeo, analyst]

Also thank you for the detailed presentation. I think every quarter, the incremental details are really helpful. I'll ask 2 questions. One is about the strategy that the company has for Sanghi Industries in the sense that since the acquisition is about to complete, but have we started utilizing these assets on a tolling basis or like trying to achieve the market because I understand this capacity is large, but it was operating at very low utilization. So what we are gathering from the market is that the ACC brand, which is not present in Gujarat, can be like -- made an entry to leverage on the Sanghi entire capacity. So that is part of the question that what is the strategy, if I may request, also there was a plan to increase to 50 million tonnes. Will that also on time in 2 years? Or how should one look at that? Overall, Sanghi -- your comments on Sanghi?

[Ajay Kapur, executive]

Yes. Thank you, Navin. I think what I would do is Sanghi, as I mentioned in my opening, we're expecting to conclude the transaction in quarter 3. I think it's fair that since we're in the process of acquisition, I don't speak about a potential company, which is still not part of our ecosystem. But I can tell you 2 things: number one, Ambuja and ACC continue to remain our 2 main brands, wherever we operate, that's our current stated strategy. Therefore, post acquisition of Sanghi, Ambuja and ACC would continue to remain 2 brands, which would be used to improve the output and reach from the Sanghi plant. That's the first set of answer.

The second set of answer, how will we expand? The Sanghi acquisition has 2 underlying strategies: first, it is a great asset at a great location and is very synergistic within our own ecosystem. Number two, it has 1 billion tonnes of milestone reserve, which allows us to increase clinker capacity in a very good location to help us cater to the West Coast.

So I think both the strategies are very much part of our plan. And post acquisition, once it's complete, we'll come up and stay at a very clear laid out plan. I can assure you all the plans are ready with us.

[Navin Sahadeo, analyst]

Great. That's helpful. Sir, second question was about the CapEx timelines and you mentioned this unit-wise. But frankly, are we moving a little slow consciously. I mean just trying to understand because Maratha and Bhatapara units, I think were announced as -- 6 months back, and now we are looking at sometime around April or May of [ '23 ] time around. And now we're looking at these competing towards end of FY '26. That's like nearly 3 years timeline. So is there a challenge with these clearances? Is that the reason why we are moving a little slow because what we gather or in our experience, typically, 2 years or rather less than that is more than enough typically for such units to come on board?

[Ajay Kapur, executive]

So basically, Bhatapara we already have environment clearance. So I believe that will be a little ahead of time. Maratha, public hearing has been done. We are in the process of securing the EC. But notwithstanding that, all the ordering work has been completed. Whatever we can do, we are already doing it.

So I think Bhatapara will be ahead of time. All grinding units, you will find are also coming ahead of time. So there, we're taking about year -- about, I think, 18 months to 16 months. Again, in some places, there's a piling work. Wherever ECs are available, we are going fast. Wherever ECs are not available, that is what has taken some time.

[Navin Sahadeo, analyst]

No. I appreciate. The only thing I was referring to was the clinker and...

[Ajay Kapur, executive]

The land and [indiscernible] are in place. That's the positive news.

[Operator]

We'll take the next question from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, analyst]

First question is on the volume growth this quarter. So if you look at consolidated, volume growth is around 2.3%, which as per [indiscernible] reporting, industry growth appears to have been upward, almost double-digit industry growth. So if you could just explain what is the reason why we have not been able to match the industry growth and the market share loss continues?

[Ajay Kapur, executive]

So Sumangal, we had not a very good July month. As you know, a large part of our capacity in north, in Himachal, -- it was seriously flooded. It had some supply chain impact in the month of July. I think we also had very heavy monsoons in the Central India. So this is the 2 very big markets for ACC and Ambuja combined. Post that, I think we had good 2 months.

And again, October, we are seeing a very healthy double-digit growth in top line. So I think it was more a very strong impact of July rubbing on our quarter 2 numbers.

[Sumangal Nevatia, analyst]

Okay. I understand. Sir, second question with respect to the grinding unit announcements, Amravati, Jalgaon details. I mean can we assume that this is beyond FY '26 given that things are not yet finalized?

[Ajay Kapur, executive]

So we believe these grinding units from today should take 24 months. That is what I think because the basic engineering, basic designs, they are really standard -- and we are at very advanced stages of closing these sites. So I think 24 months from today.

[Operator]

[Operator Instructions] We have the next question from the line of Ashish Jain from Macquarie.

[Ashish Jain, analyst]

Sir, my first question is a follow-up of the question from an earlier participant. Is it possible to give some sense of the cost savings out of that INR 400, how much is already there until this quarter? I know you spoke about that a larger part is going to come, but any rough cut number just to have a starting point for us?

[Ajay Kapur, executive]

Ashish, the way to look at it is we're making INR 1,000 per EBITDA margin on an average over the last 2 years before acquisition, right? Then came a period of very uncertain energy, which I think impacted everybody, including us. Then we launched our initiatives. So what we have to -- we have reset the whole clock. Our target EBITDA would be closer to INR 1,450, which is what I think I've laid out in my strategy update also.

We are still not there because some things have played out. Some things will play out in time to come in addition to the volume growth. So I think on a waste heat recovery, if I were to say, if [ INR 175 ] was 100%, we are at 90%. So you can -- we are almost 50% there.

On coal mines and coal strategy, I think we are about 30%, 40% there. Another 60% more improvement will happen. And then on other expenses, if you have seen, we already shaved off about 10% of the cost, which is translating to about 10% per tonne, directly impacting -- helping us in the EBITDA. What has not helped is, obviously, the prices have remained constant. Had the prices moved with the normal trends, you would have already started seeing some of the better upsides. So I think these are the 3 things. Logistics, I believe there's still ample room for us to improve.

We have reduced about 3% to 4%. I think I would say another INR 100, INR 150 per tonne over the next 6 to 12 months, you will see on logistics as well. So I think we add all that, then you hit a figure of INR 400 or maybe even slightly higher than that.

[Ashish Jain, analyst]

Right. Sir, just 1 small follow-up. Other expenses, shall we believe has laid out completely within that INR 400 number? Or there could be more in other? Because that is something which is completely in your hand in a way.

[Ajay Kapur, executive]

I think it's a constant journey of excellence. Whatever you leave it stable, will either go up or go down, right? So we try not to have it go up. We have done a lot of optimization, but we also stabilization of the current organization, preparing it for the growth. I think my focus is also on those 2 areas.

So when it comes to sales and marketing, we are actually adding a lot of people, increasing our footprint, putting more resources on the field, at the same time, optimizing wherever there were redundancies. I think a little bit more room is always there for us to improve.

[Operator]

We'll take the next question from the line of Rahul Gupta from Morgan Stanley.

[Rahul Gupta, analyst]

Sorry, my first question again is on cost optimization. So just to put it simply, costs per tonne has improved by around INR 650 versus September quarter last year. So how much of this INR 650 million is part of the INR 400 cost optimization that you were talking about? So that's my first question.

[Ajay Kapur, executive]

So Rahul, I think interestingly, I've got 3 of my colleagues on the call have asked me the same question, but with a different opening. Whether my answer can be different? I don't think it will be different because you understand where I'm coming from.

You have to shave off the general energy prices, which have come down to everybody. So I would, let's say, about 30% or 20%, 25% cost for power and fuel has come down to everybody. I would say additional 10% is coming out or 15% is coming out from our own work, which is largely waste heat recovery. Own coal mine improved production. Better mix of various 5 or 6 kinds of fuels that we can use, and improved focus on alternate fuels and green energy.

Green energy will still play out after March of 24, and we will keep this open because we're still thinking a lot more on that direction. So we'll come back to you on that. Waste heat recovery, still, as I said, from 90 to 175, the remaining 60 -- 70 megawatts have still to be commissioned. Each megawatt of waste heat gives you a cost of INR 1 versus a grid cost of INR 6 and captive sometimes at INR 6.50 or INR 7. So I think that saving is still to translate.

The whole saving on logistics is still to come in. I would say about 25%, 30% has come in. 70% more has to come in. So of the INR 400 , you can say about INR 100 has come in, INR 300 more to go. But by the time I hit the figure of INR 400, this INR 400 will get increased to INR 500 -- because the end gold target is INR 1,450, INR 1,500 EBITDA per tonne.

[Rahul Gupta, analyst]

Got it. This is very helpful. My second question is, if we look at Ambuja consol volumes, can you help us understand how one should look at over the next couple of years given a large part of the new plant commissioning would not come in before the end of fiscal '25? I mean would you continue to lose market share? Or this was just a one-off quarter?

[Ajay Kapur, executive]

I think it's -- as I said, July was a negative month for us because of reasons explained. October, interestingly, has been a very good month for us. We are looking at a double-digit sort of a number. So the answer lies there.

[Vinod Bahety, executive]

And Sanghi -- by the way, Sanghi growth will -- Sanghi has been acquired by Ambuja. So clearly, 6.6 million clinker with a very little investment straightaway or can go up to 10 million cement. That further improves your footprint in some of the core markets where we have very good positions, where we perhaps feel we are undersupplied today. Those markets are namely Gujarat, most of the Gujarat, Mumbai, parts of Maharashtra and down South.

So I think if you take all that, these markets where we're actually undersupplied and there's a great demand. So easily, market share will come up. Ametha, we have just fired the kiln. The cement mill will also come in, in this quarter. That will give us additional 1 million.

There is a group company have put up a 1 million grinding station in the Dahej. That's another 1 million. That will also give us additional grinding capacity. And then the first set of grinding units of Sankrail and Farakka would come up over the next 1.5 years. So that will give us a next set of -- in addition, we are also looking at Bhatinda in Punjab. We're doing a debottlenecking project. So that will give us 1 million in Punjab. We are also looking at Sindri in Jharkhand for ACC, another 1.6 million.

If you add all this together, to do a growth of 10% to 12% in line with the industry or slightly better in markets where we have an acquisition should not be a problem for us.

[Operator]

We'll take the next question from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Couple of questions. Sir, first is, can you please repeat on basically the orders that we have placed, and if you could highlight, like are we looking at KHD, FLS or any of the Chinese equipment suppliers? And sir, you did indicate a few plans wherein you have raised orders. But any specific update on likes of Mundra wherein we were looking at around 3.8 million tonnes? Or has it been moved to -- it was always under Adani cementation, that's the reason why it's not there right now?

[Ajay Kapur, executive]

So Mundra, we have actually put up in our presentation, a GU of 4.5 million. And actually, by -- it's a typo error. We have put GU of another 2.4 million. It is basically an IU of clinker capacity of 2.25 million or 2.4 million and cement capacity of 4.5 million. So -- and it is being put up under Ambuja. Sorry, sorry, Mundra, we have put up 4.6 million, that's right. And Marwar is another 2.4 million. That's right, that's right. So that's under -- that is being put up under Ambuja -- Mundra...

[Ritesh Shah, analyst]

Both under Ambuja, right? Marwar obviously, and Mundra as well, right?

[Ajay Kapur, executive]

Yes, yes, yes.

[Ritesh Shah, analyst]

Can you repeat on the order placement, sir? It was not clear.

[Ajay Kapur, executive]

So we already placed orders for Bhatapara, Maratha, Sankrail, Farakka. And LOI has also been issued for another 5 grinding units. I think some of them are already featuring in this list. And we have placed order on TCDRI, China.

[Ritesh Shah, analyst]

This is helpful. And sir, my second question is in the presentation, we do indicate long-term tie-up for key raw materials. Can you please highlight this? Does it include fly ash as well as slag that's there? And what are that we are looking at over here? And lastly, a structure simplification. Can we see Ambuja, ACC as a single unit from a market standpoint? Any timelines over there?

[Ajay Kapur, executive]

On the long-term tie-ups of raw materials, clearly, you're right. One is fly ash for this slag. Slag, as you know, there are only a few companies. So wherever we are bidding, we're trying to secure longer term. Not so long term, but I think in fly ash because there are government plants also. And in the past, we have had long-term tie-ups, so we are looking at long-term tie-ups. The terms are very transparently determined because either there is a public auction done by a government entity or again, there is a EOI done with a listed Indian entity in the private sector. The third is within our group, which again, being an RPT, we go through a EOI process and a transparent what we call tendering.

But whatever we do, what we are looking at is which plant is the best fit for location and then also making some investments in loading and unloading because that is something was missing earlier. Putting our own fleet of railway wagons that allows us seamless connectivity. And more importantly, when you have that well-planned connectivity and source to, what we call, consumption plant, you end up optimizing. I think beyond that, we can take it up one-on-one, but I think needless to say, these are all going to be highly value accretive and are part of my INR 400-plus plan.

[Operator]

The next question is from the line of Jashandeep Singh from Nomura.

[Jashandeep Singh Chadha, analyst]

Sir, my first question is a [ booking thing ] question. So sir, you said 170 million tonne of WHRS coming, so since both companies are still separate legal entity, can you tell us how much is coming in each company?

[Ajay Kapur, executive]

Just give me a sec, I have to -- I'll just speak to you. Yes. So you have waste heat -- we'll have 129 million tonne in Ambuja and about 86 million tonne in ACC.

[Jashandeep Singh Chadha, analyst]

And what will be the current status of these, sir?

[Ajay Kapur, executive]

Current, as on September, Ambuja is 60 million tonne and ACC 30 million tonne, when I said nothing.

[Jashandeep Singh Chadha, analyst]

Got it. And sir, you said INR 1,450. So what is the timeline you are thinking of, by this you can comfortably achieve that? Is it by end of FY '25 or beyond that?

[Ajay Kapur, executive]

Sorry, what is the question? Can you repeat it?

[Jashandeep Singh Chadha, analyst]

Yes. So you said the sustainable EBITDA of INR 1,450 to INR 1,500 per tonne...

[Ajay Kapur, executive]

That is sort of 36 months from now. Because you understand I have to complete some of the new kilns, which are lower cost because that's also part of the strategy. I have to complete the new GUs, which will help me enable better go-to-market and thereby reduce my lead distance. I have to see the culmination of my long-term raw material contracts. And then finally, I have to complete the current stage of waste heat recovery and green -- and also some of the optimization projects which are also laid out in my presentation, many cooler projects are taken up, which were ignored earlier. We are also looking at the best power mix at each plant using our group expertise. So I think that's -- all those things will play out over 12 to 36 months, maybe earlier, but I think you can take 36 as the last -- upper limit of that.

[Jashandeep Singh Chadha, analyst]

So from today -- from now, you are seeing a sustainable EBITDA, let's say, INR 1,450 or INR 1,500 per tonne. And sir, my last question is on ACC. So we have seen post the transition period also Ambuja has recovered to the previous EBITDA level, right? You are saying around INR 100 is included. We have synergies including that. But I think ACC, we are not seeing any recovery happening. The first quarter was somewhat good [indiscernible] EBITDA per tonne, but now again INR 650. So what is going wrong or what is lagging in ACC, which we are seeing in Ambuja, but ACC is lagging behind? So I mean we see utilization levels are higher than when Holcim used to be there. So there's nothing on the operations front. So why is ACC's EBITDA [indiscernible] synergies are same for both the companies?

[Ajay Kapur, executive]

Yes. See the ACC and Ambuja always had a gap of about 4 to 5 percentage in the margin traditionally. Actually, last year September, had actually gone pretty low. It's almost like a negative or 0 margin when we acquired the business.

From there to now, I think the movement has been, I would say, has been structured in the right direction. And I believe in time to come -- see, we are buying the same coal for both the companies. We're buying the same raw material. The cost benefits are going equally to both the companies. The sales and the pricing is also driven by the same set of leaders.

So I believe the catch-up will be even sharper in time to come. ACC did have legacy plants in past, and we are structurally looking at each of the legacy plant, and either those plants would be replaced by new kilns next door or we are going to either make investment, or if nothing else, we'll outbound them. So I think very clear, we want to increase our performance. In fact, an answer to many of you who asked me on the growth, besides, of course, bad July and some hit in our core markets, we're also looking at wherever they were bad trade practices, where we found there were leakages or there was lower EBITDA sales happening from some plants, we have curtailed those in order to improve our efficiency because I think that's what will stay with us. And that's the only way you can get to a much better level of performance.

[Operator]

[Operator Instructions] The next question is from the line of Shyam Sriram from Franklin Templeton.

[Shyam Sundar Sriram, analyst]

Yes. Very healthy operating performance at Ambuja. My question is somewhat on similar lines to the prior participant. When you compare ACC and Ambuja, the unit EBITDA level -- the gap between ACC and Ambuja has widened this quarter at that EBITDA per tonne. This quarter, it has become INR 345 per tonne, which was earlier around the INR 220 mark last quarter.

Now while I do understand why this is one should not look to from a quarter-to-quarter perspective. Are there any business reasons for this EBITDA, unit EBITDA gap widening for -- from an ACC perspective? If you can share any thoughts on that? And any regional mix or any other business reasons attributable on to this?

[Ajay Kapur, executive]

I think one is, of course, the market mix of Himachal, as I said, had serious flooding. ACC has 1 unit in Gagal. Not many grinding units. Ambuja is well integrated. It has 4 grinding units in North, Ropar, Bhatinda, Dadri, then Roorkee; whereas ACC, entire grinding is in Gagal, and then they have a tolling arrangement with the company [indiscernible]. So I think to that extent, we got a little bit more severely than that.

Other than that, East also, we saw a little bit of a demand slowdown. Bihar is -- some of these markets, ACC is very strong there. So I think that also adds something on the sales footprint. Other than that, I do not think there are any major concerns. And I also don't have any major concerns going forward.

[Operator]

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

[Amit Murarka, analyst]

First, I wanted to check what was the MSA sales volume in the quarter?

[Vinod Bahety, executive]

So yes, Amit, Vinod here. In terms of MSA between Ambuja and ACC, together it was 2.4 million, ballpark 1.2 million each, sale from Ambala to ACC, and sales from ACC to Ambuja.

[Amit Murarka, analyst]

Sure. And could you also give a split of clinker and cement in this? Like how much of clinker from ACC to Ambuja and vice versa?

[Vinod Bahety, executive]

It was largely cement only. So almost 95% of this volume will be -- would be cement only.

[Unknown Executive]

Cement only, yes. Largely cement.

[Amit Murarka, analyst]

Got it. And with Ametha commissioning, given that Ametha has much higher clinker and grinding. How will the utilization of that clinker happened between Ambuja and ACC?

[Ajay Kapur, executive]

So we already put in additional 1.5 million grinding at Tikaria ahead of time. So I think we'll use that fully. Besides some of the units of Ambuja in East have the grinding capacity available. So I think we should be able to absorb this clinker very profitably by realigning the clinker and also further optimizing the MSA.

[Amit Murarka, analyst]

Sure. Also coal advances, could you provide the status of that?

[Ajay Kapur, executive]

So coal advance in Ambuja had already become 0 in the last quarter. ACC, it has already become 0 in the current quarter. It's fully spread off.

[Amit Murarka, analyst]

And I see the balance sheet cash flow that the receivables seem to have gone up in 1H even though the volume seems to be the same as what we did in Q4. So why would that be?

[Ajay Kapur, executive]

So basically, Amit, if you compare Q-on-Q, we would -- we have improved on the working capital, when it comes to March versus September, that is a factor of the year-end closing versus a half-year closing. Otherwise, we don't see any concern. My receivables are at 12 days of the overall debt turnover. So that is -- and in fact, if you see my payables, we have improved over there. So effectively, I improved on my working capital on an overall basis.

[Amit Murarka, analyst]

Sure. Got it. And the last question is on Sanghi. Like once the deal is completed., So generally, what would your sales strategy? Would that be like a purchase from Sanghi on MSA basis because Ambuja, ACC are much stronger brands? Or would you continue to sell under the Sanghi brand? .

[Ajay Kapur, executive]

I think clearly, as I said earlier, we have a strategy in place. We would continue to run our company's cement business for Adani through Ambuja and ACC brands.

Of course, we have a leverage of using any regional brands as and when we acquire, like this one. But I think the market would also expect us to be selling an Ambuja brand or ACC brand, we'll use those. How we would structure it? I think we have a very good experience of structuring between Ambuja and ACC, as and when Ambuja acquires completion of Sanghi, we would use more or less similar arrangement as we are already doing for Ambuja or ACC.

[Operator]

The next question is from the line of Aman Agarwal from Equirus Securities.

[Aman Agarwal, analyst]

Sir, my question is on the demand situation in the Eastern region. We have been hearing, sir, some softness for quite a few quarters now. At the same time, the upcoming capacity in East is one of the highest among all the regions in India. Do you think there is a reason to worry about the utilization levels in the East? Or if there's anything of temporary sort?

[Ajay Kapur, executive]

The East also saw a very good base effect over the last, if you saw, 12 months. East was having a very good -- in certain months, it was even growing 2 digits. So sometimes it's also the base effect. The current last couple of months, East had serious monsoons. And of course, currently, we are reeling out of the Puja, Diwali time.

And Puja, as you know, has a very strong sales impact in East. I expect post November, December, East should go back to its normal 8%, 10% demand growth. Earlier times, it was growing at about 15%, 16%. That is my guess.

[Operator]

We'll take the next question from the line of Shyam Sriram from Franklin Templeton.

[Shyam Sundar Sriram, analyst]

Yes. One follow-up here. On the other expenses line item, sir, you did explain on this EBITDA gap and some business reasons. But other expenses for ACC seems to have been higher than Ambuja, that is 1 part. And the other one on the housekeeping question. For ACC, the receivables seems to have moved quite a bit higher as compared to March. And you did talk about March and being year closing, but the receivables have substantially shot up for ACC per se. Any reasons that can be attributed there?

[Ajay Kapur, executive]

Yes -- so basically, on the other expenses -- your question was on ACC, it is not showing the same trajectory as Ambuja, right?

[Shyam Sundar Sriram, analyst]

Correct.

[Ajay Kapur, executive]

I think 1 other expense was the technical know-how fees, I think which both the companies are paying 1% to [indiscernible] Holcim. They have both reduced that. I think I'm asking Vinod to just bring out the final details of what you're asking me right now.

On the -- second question was on receivables. I think, by and large, on -- in the market, both the companies have a debtors balance of -- we were at about 11 days last year. We have gone up by 1 day. And this is also reflecting in the market. We are a very trade-focused business. We still continue to sell almost 85% to 86% sales in trade.

ACC is more or less there. And when you have to increase volume and trade where rest of the industry is much, much lower here. Sometimes, you have to give a little bit of a credit in the market. That is purely on the trade side. But Vinod Bhai also add something more.

[Vinod Bahety, executive]

So Shyam, again, actually, it is a factor of March versus September Otherwise, I see that in SEC as well, the receivables are in this range of 10 to 12 days for the trade sales and for the nontrade in the range of 30 to 45 days. And then there is this element of MSA. So earlier, we would settle the sales intercompany in a week or 10 days' time. But now just to avoid multiple entries, we do it once in a month and at the end of the month. Hence, you will find that the receivables at the end of September will be little higher from -- for sale to Ambuja. But otherwise, nothing of any, per se, unusual item here.

[Shyam Sundar Sriram, analyst]

Sir, just 1 follow-on, if I may. Because this MSA volumes are a little bit obscure, the actual underlying working profitability picture for ACC. Would it be possible to share what will be ACC's production numbers per se? And how do we think of the revenue split on what ACC produces in sales? .

[Ajay Kapur, executive]

Shyam, in the interest at the time, I see 10 people on the call as of now. So in the interest of the time, we will take this question offline, if that's okay with you.

[Operator]

The next question is from the line of Mangesh Bhadang from Centrum Broking.

[Mangesh Bhadang, analyst]

Sir, a couple of questions from my side. So firstly, almost 12 million tonnes of grinding capacity is getting commissioned in second half of FY '25. But the clinker, associated clinker is coming in, say, post second quarter. So is it right to assume that most of the volume growth from these expansion should follow in '26 only?

[Ajay Kapur, executive]

No. So we always have some clinker available in our systems. And Ametha, we already commissioned. That is 3.3 million, and we believe we can still take out a little more. Most of the kilns, as you know, we generally optimize another 10%.

Our existing kilns also have a residual capacity. There is some capacity still in Chanda. So I think we will be able to meet the growth targets of about 10% to 12% per annum on the current basis.

Grinding units are easier to bring forward, and some of these grinding units are also brought ahead of the time is because if you can use the current clinker and produce cement from it, that is even more value accretive for us. Salai Banwa is a plant we have bringing up in Uttar Pradesh. We already have an EC. We already have the land. We are now already starting the work at the site. That is 2 million will help immediately in our central region. So I think those are the measures we are taking. So you'll always find clinker unit coming up a little delayed versus the grinding unit.

[Mangesh Bhadang, analyst]

Understood. And sir, second question is the -- what would be the CapEx, actual CapEx for ACC and Ambuja for the next 2 years?

[Ajay Kapur, executive]

So I think the larger CapEx, I can give it to you. But final bifurcation will be difficult to give you now. The current year, we have by and large about INR 7,500, of which ACC is about INR 2,500, Ambuja is about INR 5,000.

[Operator]

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

[Satyadeep Jain, analyst]

Couple of questions on capacity. You mentioned in your opening remarks achieving 140 million tonnes before FY '28 and ordering 10 kilns. If you look at your own target and guidance, you're talking about 3 kilns by the end of FY '26. Does it mean 7 cadence to organic growth in FY '27 and first half of FY '28? And what gives you the confidence given these new kilns are taking 2.5, 3 years that you would be able to commission 7 kilns in FY '27 and '28?

[Ajay Kapur, executive]

Basically, all the kilns we are talking about are coming at our current locations, which are largely brownfield. In fact, mostly brownfield other than maybe one odd, number one. Number two, now we also have Sanghi in the ecosystem.

So the moment Sanghi comes in, it's already -- there are 2 kilns producing -- capable to produce 6.6 million clinker, which I believe can easily go up to 7.2 million clinker. One new kiln there adds straightaway from 7 plus 4, 11 million, 12 million clinker. What I have to do is from the current 40 million clinker, I have to add another 40 million clinker.

I think, Ametha just got commissioned 3.3 million. I already mentioned about 3 kilns. That's 12 [ million ]. If you add Sanghi, 6.6 million, which is actually 7 million. Add another Sanghi, add another 4 million. We're almost, I think, 70% there already. I need to just open up 2 new sites of 4 million each and I'm done.

[Operator]

Ladies and gentlemen, due to time constraint, we'll take only 2 questions, which is from the line of Prateek Maheshwari from HSBC.

[Prateek Maheshwari, analyst]

Sir, I have a question on the MSA. You just made a comment that there is still some room left to kind of optimize it. I'm looking at your last 8 quarters of data, in that your MSA volumes have increased from 1.5 lakh tonnes a month them on to upwards of 8 lakh tonnes per month. So just looking at the existing capacity base, how much is the opportunity to kind of further improve on the MSA? Or this MSA improvements could happen after the commissioning of new capacity? That's question #1.

Sir, also, I wanted to understand on the coal -- yes, sorry. Go ahead, sir.

[Ajay Kapur, executive]

[indiscernible] question #1 because if you heard the last 2, 3 participants, this is the last, I think, if I'm not mistaken, the last or 1 more. But MSA, currently, with the current footprint minus Ametha is already optimized. Once Ametha comes in, next set of optimization will happen.

But believe me, what is MSA? MSA is saying, master supply agreement between 2 entities to continue to optimize. So when we add the kiln at Ambuja, that kiln will have a clinker of 4 million -- it will be used for Ambuja and ACC both, and vice versa.

[Operator]

Ladies and gentlemen, this will be the last question for today, which is from the line of Rajesh Ravi from HDFC Securities.

[Rajesh Ravi, analyst]

My question pertains to first on the CapEx, which you mentioned, Ambuja, INR 5,000. So this is beyond the Sanghi acquisition, right?

[Ajay Kapur, executive]

Yes.

[Rajesh Ravi, analyst]

Okay. So first half number has been quite low. So second half, you're looking at an accelerated CapEx?

[Ajay Kapur, executive]

Yes, Yes.

[Rajesh Ravi, analyst]

And ACC, how much is -- among the list with CapEx which you have mentioned, I assume most of them are happening in Ambuja?

[Ajay Kapur, executive]

Yes. Except for Salai Banwa, which is happening in ACC. See, Sindri, I don't know whether it's in this list, but it's happening in ACC. It is there in the list. All the waste heat and all the optimization CapEx of ACC plants are happening in ACC, Ambuja plants in Ambuja. Sanghi, of course, is happening [indiscernible].

[Rajesh Ravi, analyst]

So this next year also would be around similar CapEx, INR 7,000 crores to INR 8,000 crores?

[Ajay Kapur, executive]

I think so, yes. We will have to continue because [indiscernible] will be the current CapEx rolling in. Some of it with the fresh CapEx, which will start in. And some of will be the next stage of growth, which I've announced in time to come, to come to 140 million target.

[Vinod Bahety, executive]

So Rajesh, we will give the guidance at the year-end for the next...

[Rajesh Ravi, analyst]

Sir, could you share the clinker production number in 1H for both the companies, ACC and Ambuja? And also what is the status on the Sanghi by that?

[Ajay Kapur, executive]

Yes. Just give me a sec -- I can just pull out the number -- clinker production, first half. So we have done -- you want breakup company-wise or I can give you the full entity -- 17.4 million tonnes of clinker has been produced in the first half.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the floor over to Mr. Charanjit Singh for closing comments. Over to you, sir.

[Charanjit Singh, executive]

So thank you once again for joining the call. For any queries which have been left unanswered, feel free to reach out to me after this, and we'll be happy to respond to any of the pending queries. Also looking forward to having another fruitful session after Q3 results in January. So thank you very much, and good day, everyone.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.