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ACC Ltd
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Thanks, Zayed. Good morning, and a warm welcome to everyone. On behalf of ICICI Securities, we welcome you to the earnings call of ACC Limited. On the call, we have with us Mr. Neeraj Akhoury, CEO, India LafargeHolcim; Mr. Sridhar Balakrishnan, MD and CEO of ACC; and Mr. Yatin Malhotra, CFO of the company. At this point of time, I will hand over the floor to management of the company, which will be followed by interactive Q&A. Thank you, and over to you, sir.
Yes. Thank you, Krupal. Good morning and a very warm welcome to all the participants to our first full year 2020 earnings call. Let me first start by wishing all of you a very, very happy, healthy and a safe 2021. I hope all your family members and friends are safe and healthy. We too at ACC continue to focus on the well-being of our employees and all our stakeholders. Health cost and cash has been the key pillar of our strategy. At ACC, we have really demonstrated our resilience during these trying times. The investor presentation has been uploaded on the website, and I'm sure all of you would have gone through the same. What we intend doing now is quickly run through the deck and then open up the floor for question and answers. Just to start, if one were to go to Slide #5, ACC has actually been an iconic organization, which has really played a stellar and a significant role in India's progress over the last few decades. We are also a responsible, purpose-driven organization, and we strongly believe in creating a confident future for all our stakeholders. We also have a very strong parentage from a Lafarge -- in terms of LafargeHolcim. Whether it's in the area of product, whether it's in the area of technology, whether it's in the area of sustainability, we believe that our parentage helps us compete better in the marketplace and gives us a strong sustainable competitive edge to compete in the marketplace. We've always believed in sustainable value creation to scale and innovation. We have 17 operating cement plants. We have over 80 ready-mix concrete plants. While at annual level, the capacity utilization is 72%, that's driven more by the lockdown during peak COVID times. But on a running basis, our capacity utilization is anywhere between 85% to 90%. As a responsible corporate citizen, we believe strongly in contributing to the society and ensuring that we leave the world a much better place. Be it taking care of employees during COVID times, whether it's physical health or mental health or basically contributing to the community health, whether it's in terms of altering the attitude of the community towards health and hygiene, whether it's in terms of sanitization, whether it's in terms of masks, I think ACC has played a leading role in ensuring community development and focusing on the community. Even our CSR initiatives are basically focused towards addressing the issue of malnutrition and education. If one were to look at the environment, from an environmental standpoint, we are amongst the lowest CO2 emitting cement companies. Even if you look at our alternate fuels, we strongly believe that we need to -- we're focusing on alternate fuels. We're focusing on blended cements. We're focusing on reducing the clinker factors and leveraging alternative sources of energy to ensure that the environment is a much better -- we leave environment much healthier than what it was. Whether it's in terms of leverage of usage of waste or whether it's in terms of clinker factor, ACC has always believed in contributing to the society and environment at large. We also believe in very strong governance. All of you know ACC. ACC has stood and will continue to stand for a very, very strong governance culture. As all of you know, ACC has been in existence since 1930s. It's a very strong -- it has a very strong legacy, a very strong equity. It's got -- it is trusted by the entire ecosystem, whether it's our consumers, whether it's our customers, and we intend to leverage the same to grow responsibly. Our responsible growth is going to be backed with strong pillars of innovation, digitization and sustainability. Apart from growing the core in our endeavor to become a building materials company, we are also focusing on concrete, and we're also looking at building new engines of growth, which is in the area of construction chemicals. A quick look at our footprint, ACC has a nationwide presence. We have our cement plants in over 12 states and our RMX -- we have RMX plants in over 17 states. We are a company which is well diversified, and we have a presence across all geographical locations. In terms of investments, as far as the brand is concerned, the whole objective is to retain the core identity of heritage and trust and to build on durability. But the idea is to make sure that we make the brand a lot more contemporary. So if you see all our initiatives, whether it's in terms of communication or whether it's in terms of digital or on-field presence during cricket matches, it is all geared towards retaining the old heritage of ACC and making the same a lot more contemporary. If one would look at Slide 12, I will not dwell much on it. ACC is a company which has received awards across a wide spectrum of business. Whether it's in terms of energy efficiencies, whether it's in terms of corporate excellence, whether it's in terms of the kind of annual reports that we have, whether it's in terms of energy efficiency. And if you see the awards, it spans locations, whether it's our plant at Bargarh, whether it's our plant at Wadi or whether it's our plant at Jamul. I will now hand over the mic to Yatin, who will take us through the performance review for the quarter ending. Over to you, Yatin.
Thank you, Sridhar. Good morning, everyone, and welcome to the call. I'll talk about the performance, I'm sure all of you would have read it through. Starting with quarter 4, we believe we have delivered a strong quarter in terms of our operating performance. Cement volume, we were almost flat versus where we were in the same quarter of last year. RMX, we clearly see the recovery happening gradually. We are roughly 80% of where we were in a pre-COVID era. On a net sales basis, we went up roughly 2 percentage, driven by both mix actions that we have been taking on our product portfolio and also the pricing actions. EBITDA, we delivered a jump of 30% versus where we were last year and with an EBIT margin expansion of 380 basis points versus last year. So what we have reported for the quarter is a PAT growth of roughly 73% at INR 472 crores. And moving to the full year performance, with a net sales degrowth of 12%, there's a jump in absolute EBITDA by 3%, which is at INR 2,484 crore. And at a PAT level, we are INR 1,430 crore, which is a jump of 3.8%. On the key levers on margin and cash flow, I think we have spoken, Sridhar also referred briefly about that. The first and foremost is definitely the product mix optimization. And in addition to that, the cost efficiency measures that we have been driving under the flagship project Parvat. I think all of them are coming, and that is leading to the uplift in margin for us. The year has been good for us in terms of working capital management, and that has led to decently strong cash flow deliveries for us. And there have been launches that we have done in RMX space, especially in the value-added spaces. Just to follow on sustainability, in terms of the carbon emissions, we have actually closed the year with less than 500 kgs per tonne. And as Sridhar mentioned, our focus on digital brand campaign continues. So if we were to look at the overall delivery at an EPS level for the quarter against the INR 14.6 to a share, we have delivered the INR 25. It's a jump of 73%. And on a full year basis, again, INR 73.3, we delivered INR 76 to a share. And moving to the income statement for cement. If you were to break the numbers on a per tonne basis, we can see very clearly a jump of INR 246 per tonne at an EBITDA level for cement, which is a healthy 42% uplift versus where we were last year. And on a full year basis from INR 758, we went to INR 925, which is a jump of roughly 22% versus what we did last year. The next few slides talk about a little more detail. We can quickly talk about that. Slide 19 talks about our overall sales volume performance that we have spoken, for the full year, it went down 11.6%, so flattish in the quarter. On a net selling price basis, I think there is a significant jump of 8% in the NSP for the quarter. On a full year basis, it is 2.4% versus the same period last year. On a material consumption basis and on other cost levers, also, I just want to put a caveat here that there are impacts from inventory movements. So Q4 is not a true reflection. But if we see the full year bars, raw materials, we can see a reduction of 11% from INR 519 to INR 462 to a tonne. Power and fuel, we can clearly see a reduction of 6.5% from INR 1,046 to INR 978. Moving to freight and forwarding, we see a reduction of almost 3% at INR 1,270 per tonne. And employee is an outlier, basically on account of volume absorption because we all know it was a year, which I think everyone was impacted by the pandemic and that is impacting the overall absorption of employee cost. On the other expenses, I think we can clearly see a significant reduction of roughly 10% from INR 774 to INR 698. So that's about our overall financial performance. I'll hand it over back to Sridhar to take us through the deck.
Thank you, Yatin. This is in terms of the demand supply dynamics. India is the second largest cement producer in the world, but if one were to look at its per capita consumption of cement, it is significantly lower than lot of other countries. So this low per capita consumption of cement offers significant headroom for growth. Now this, coupled with the government impetus on low-cost housing, roads, infra projects, metros, et cetera, ensures that at a category level, cement is poised for a good growth in the medium term. If you look at it, India also enjoys [indiscernible] and whether it's in terms of infra, whether it's in terms of low-cost housing, we strongly believe that infra as a category will grow [ very well over the next few years ]. A key driver in terms of affordable housing is government introduction [indiscernible] from 2020 to [indiscernible] drivers, especially for cement companies who are big in the retail sector. And overall, one would even look at it, whether it's low-cost housing, infrastructure, roads, metros, et cetera, I think the next few years portend well for cement as a category. If one were to look at the key strategic priorities, our focus was strong on health cost and cash. And this has basically enabled us to come out healthy, not only as individuals, but as a collective. When I say collective, I mean the organization. So whether it's the work done by the business resilience team or the safety teams or members of the team who are in the plant and various sales locations. I think they've done a fantastic job in ensuring that all our members, whether it's our employees or the communities nearby, stay healthy and safe. I think the other thing which we did this time is focused on the holistic well-being of our employees because our endeavor is to ensure that we take care of all our stakeholders. In terms of costs, Yatin has covered it in detail, so is the case with cash. I think it's been a good job that's happened this year in terms of managing working capital, especially during trying COVID times. From a futuristic standpoint, we believe that we are a purpose-driven organization who believe in responsible growth. Now growth is in terms of one, expanding capacity, it's in terms of investing to enhance profitability, it's to invest to drive and build new engines of growth. And most importantly to accelerate ESG across our areas of operation, whether it's in terms of sustainability, whether it's in terms of good governance or whether it's in terms of working towards betterment of society. A quick one in terms of capacity expansion, all of you would know, our new plant in Sindri, 1.4 million tonnes has already started producing cement. It's working. It's just started producing cement in the month of January. Our Ametha project is on, which is basically 3 million tonnes of clinkering. So if you look at Ametha and Sindri, it's 3 million tonnes of clinkering and roughly about 6.2 million tonnes of cement. So I think this should really enable us to really grow profitably and responsibly over the coming -- the next few years. In terms of key business enablers, as I discussed earlier, technology is going to be a backbone, where we are going to leverage our parentage. We're going to leverage the overall portfolio that LafargeHolcim has. Whether it's in terms of digitization of the front end, whether it's in terms of the transport analytics center, which is the logistics arm, whether it's in terms of [indiscernible], which is manufacturing, the idea is to ensure that we digitize all aspects of the value chain to enhance value. So if you look at logistics, as we've covered last year, we've managed to reduce costs. We've leveraged TAC, which is a Transport Analytics Center to drive safety of our drivers and to also drive -- derive cost efficiencies. We have been focusing on multiple levers, whether it's direct dispatches, mix optimization or lead optimization, so this is a journey. And what we have achieved last year is -- it's just a milestone in our journey of becoming a lot more cost competitive over the years. In terms of ESG, as I said earlier, we strongly believe in the adage and the principles of responsible growth. Whether it's in the area of environment, as you can see, in terms of carbon emission per tonne of cement, we are possibly the lowest in India at 493 kg per tonne of cement. Even if you study our reports, there has been a significant reduction of specific carbon emissions over the last few years. Whether it's increase in terms of green energy, whether it's in terms of water consumption. The other important thing I would like to call out here is this year, we've had -- we focused on not only health of employees during COVID, but our strong focus on safety continues. Testimony to that is the fact that we've had no on-site fatality this year. We've also invested in our members. We've leveraged digital to value-add and develop skills in our members. Our CSR team has done an extremely good job in ensuring that our communities stay safe, whether it's altering the attitude towards health and hygiene, whether it's producing masks or sanitization. So we are very clear that we believe in being a responsible corporate citizen with very, very high standards of governance with ESG being the bedrock. As I covered earlier, sustainability is a key agenda for us. It's the backbone, and that is and will continue to be a backbone in our agenda of being -- of driving responsible growth. So even if I were to look at sustainability growth, we have an ambitious plan from a 2030 standpoint. I'll just quickly touch upon 1 or 2 points. If one were to look at it, our endeavor is to ensure that we reduce carbon dioxide emission to about 400 kgs per tonne by 2030. At least we started well over the last couple of years. There's been progress there. And just we are confident that we'll reach that. Whether it's in the area of carbon dioxide emission, whether it's in the area of circular economy, where we are leveraging waste as alternative fuel, whether it's in the area of environment or community. We are very, very clear that we need to drive this very strongly in our endeavor to be a responsible corporate citizen. So as I said, we also -- I just called this out earlier, we strongly believe in promoting a safe, inclusive and a vibrant culture. So apart from our learning imperatives, we also have a strong talent review succession planning program. We have a program called, "Boots on Ground." The whole idea there is to focus on employee engagement across levels, it's also to ensure that people stay safe across various locations. So as I called out earlier, the idea is to deliver responsible growth. And by delivering a wide meaningful impact, whether it's in the area of, as we called out community, whether it's in the area of sustainability or whether it's the area of governance, some of the facts are there in Slide #43. And the other point which I will -- which I want to call out again is we believe in the best standards as far as governance is concerned. All of you are aware of the esteemed board that we have. If one were to look at it, ACC has been, will be and continue to be known as an organization with excellent governance standards. In terms of COVID, I think I covered this earlier, not only did we take steps to ensure that our own employees stay safe and healthy. We've also taken steps to ensure that the local communities in and around our areas of operations stay safe, whether it's in terms of altering the attitude of community members towards health and hygiene, whether it's in terms of sanitization of villages or whether it's in terms of producing and delivering masks. So all of you have the presentation, and you have the list of all the directors. And that's all from my side. The floor is open for questions now.
[Operator Instructions] The first question is from the line of Indrajit from CLSA.
I wanted to understand more on the cost and cost efficiency side. So how much of the benefits of project Parvat have you already exploited and what more can come? And similarly on the master supply agreement with Ambuja. How much more can we see in terms of benefits that will come from that side?
Yes. Okay. Thanks for your question. I think we have stated earlier that when we started with an ambition of chasing a number of INR 200 to a tonne when we stated it is a while back. I think we are very well on this path of improvement. It's a gradual journey, and there is no clear start or end state. And neither can we say, we have reach the stage and we are over with it. We are progressing on every single lever, as I presented, and we spoke about it in our call. By and large, the input costs have been a pressure point for us for the previous few quarters. We are handling that situation, and we are trying to extract more as we talk. So if I were to state a number, I think I would not hazard a guess on that. But I can tell you that we started with a target of INR 200, and we are going to chase much more than that.
Actually, just to add to what Yatin said, if you see the slides, they cover it in basically in various elements. So -- but just to reassure all of you that cost competitiveness is a key agenda for us, and we will continue to not only invest in growth, but also in -- we will continue to invest in initiatives, which make us far more cost competitive.
I think you had another question around MSA and how we can leverage that more. See, this is just the tip of the iceberg. If you look at it, this is -- this has been a bit of an extraordinary year. We've not seen a full year, but I think the start has been strong in terms of leveraging synergies, in terms of maximizing capacity utilization for both the organizations. There is a lot more that needs to be done, whether it's in the area of footprint optimization, whether it's in the area of having the right warehouse locations. And there is an entire value chain that needs to be exploited. We at ACC and at Ambuja believe that this is going to be an initiative which is certainly going to help us in our journey. It's one of the elements which is going to help us in our journey of becoming far more cost competitive.
Sure. That's really helpful. My second question is, again, on cost on the power and fuel side. So with the increase in coal and pet coke prices, how much of that is already reflected in our numbers? And what is the kind of cost inflation that you're expecting in the following quarters?
Again, it's not a binary number on how much has come in. Inventory does play the role, but I can tell you that we were not very high on inventory. So I would say a decent amount of proportion has already come in, but it's a gradual thing that is evolving for us. So that's where I would have gone to.
And any kind of fuel mix change we are doing or we are happy with the kind of mix that you have right now?
No. I think that's a constant journey. It's a journey of ensuring that we build capability in our plants to switch between various kinds of fuels based on the price of each fuel element at that particular point in time. So that's one area which we are working on now.
And we have demonstrated in the past that we have moved based on how the market has moved, so just to optimize the mix. And I think that is, again, something that we respond. Very mindful that we should not be knee-jerk, at the same time, we should be structured as we pursue these things.
Next question is from the line of Raashi Chopra from Citigroup.
Sir, just continuing on cost. What has been the lead distance during this quarter versus the prior quarter?
What is it?
Lead distance. Lead distance.
We haven't checked that out.
To be honest, we don't have it handy, maybe we can come back...
We can double back to you and get back to you with the lead numbers.
But I think just to answer, we have this question a while ago, Sridhar mentioned optimizing our warehouses footprint and the network is a priority for us. So it can be [ prompto ] number and I can get back to you on that, but that reduction is top of on mind. So that is the agenda that we are looking at very strongly.
Okay, sir. And on the balance capacity that's supposed to come, is that expected sometime in the second part of next year? Is that the time line?
Okay. So Sindri is already operational as we speak. It started producing in January. The Ametha capacity will be -- will come into play sometime during quarter 2, which is the April to June quarter of next year, which is Half 1 of next year.
Okay, sir. And any more expansionsbeyond what you've announced?
So I'm not in a position to give you any forward leading answers. It's a sensitive question, but I just want to assure you that we are committed towards growth.
Next question is from the line of Vivek Maheshwari from Jefferies.
A couple of questions. So first, continuing with the previous participants. So on the capacity side, while I understand you can't guide about something which has not been announced. But following a growth-oriented budget, is there -- and in the union budget, is there a change in thought process given that the fiscal deficit target of 4.5 itself has been pushed to F '26. So in that context, given the CapEx cycle and the expectations on the infrastructure build-out, do you think that there will be a case to, in fact, announce the capacity expansion soon? That is the first part of the question.
Yes. So okay. So we always believed in the India growth story. COVID might have been an aberration, but we had absolutely no doubt about the India story, as I had called out in the earlier presentation. India as compared to rest of the world is relatively under-indexed as far as infra is concerned. That is still proper headroom for growth. And the government has always been committed towards low-cost housing towards development of infra. It has basically given it a shot in the arm as far as these elements are concerned. So basis all these, we've always been very clear that India is a growth story. And if you look at -- barring a COVID year, if you look at the last 3, 4 years, at a secular standpoint, India as the cement industry has shown good growth. It's shown good healthy growth. So to that extent, has our view of India as a growth story changed? Certainly not. We are very, very clear. It was, is and will continue to be a growth story. But the recent budget just gives us an impetus to possibly see what we can do to -- it's difficult for me to comment on the future, but this is more of an impetus, and it just lends credence to our own belief that India is a growth market and will continue to be one.
Got it. Got it. Got it. And the second thing, specifically to Neeraj, after you took charge at ACC and now at Ambuja you had seen hectic changes in ACC as well as Ambuja. Can you just talk about your thought process from a next -- from a medium-term perspective and the journey so far? And how are you thinking about balancing out on the growth versus the efficiency part? I have seen parents comment in one of the calls where they have said that they are not particularly happy with the gap that ACC Ambuja have with UltraTech cement, and we have seen some bit of that being bridged. But how has been the journey? And what are you thinking from a medium term perspective?
Yes. So let me -- I will not be in a position to comment. I won't be in a position to comment on Ambuja because the results are not yet out. But I can only talk about ACC. 2 aspects, as I covered earlier, we are very, very clear that India is a growth market. We are committed to driving volume growth, and we're also committed to investing in terms of reducing our cost cap with competition. So I think these are the 3 things. As far as how the year has gone, I think this year has been a bit of a -- it's been a very, I don't know how to describe it, has been a very unique year in terms of this pandemic. So the focus has been -- has, in this year, been on health cost and cash, and I'm sure that would be the case across the overall spectrum. But as you can see, as soon as things return to normal, we quickly announced our growth projects, whether it is Ametha or whether -- we quickly got back to getting Sindri -- accelerated the Sindri project. We quickly announced Ametha and we are really working hard towards executing it in a real fast time. So I think it's very difficult to comment on the year gone by because the focus was fundamentally on health cost and cash given the pandemic. But going forward, I just want to reassure you that we are committed to growth, and we are also committed to investing in terms of bridging the cost gap with competition.
Sure. Wishing you all the best, and thank you for hosting this call. All this while, we have been wondering whether you care about the investors. So thank you, and we do hope that you will do it on a quarterly basis.
Yes.
Next question is from the line of Gunjan Prithyani from JPMorgan.
I had basically 2 questions. Firstly, again, a follow-up on this expansion. And I'm not asking you to give any time lines or how we will approach growth, but more a philosophy on expansions. Because having -- looking at this for a while, I mean, normally, we have waited to hit a capacity constraint, and that's when we start looking at more expansion. I'm just wondering, has there been any change to that approach that we are now more pro growth? We would try to add before we hit that constraint because, I mean, you've been emphasizing that you believe in India growth story. Then why not add beforehand? So maybe if you can share a philosophy, if there has been a change versus past, and we can then look at this company embarking on expansion before hitting a constraint? That's the first question for my side.
So I see, again, because of the sensitivity of the question, I'm not in a position to give you a response in terms of what our future expansion plans are. I can only assure you that we are committed towards leveraging the growth opportunity that India offers in the near to medium-term to long-term future. So giving you an answer in terms of what our expansion philosophy is right now would be a forward leading question, and that's a little sensitive in nature.
Okay. Sure. But there is no limestone constraint as such for us to embark on regular expansions? I mean, is that any worry at all, if I think about next 5, 10 years from this company's perspective?
Not really, no.
I think Gunjan, that's a part and parcel of business, we will solve it as we face it.
We will solve it as we face it. Yes, correct.
Okay. Got it. The second question, if I can ask is around capital allocation. Again, we do continue to carry a significant amount of cash on balance sheet and the expansions that we have, which we've laid out can comfortably be funded by the internal accruals. Or maybe we'll still generate more cash flow. What is the thought process around that? Would you look to take back the dividend payout higher? Is there a way you payout special dividend like the parent did? Any thought process on capital allocation will help.
So Gunjan, on the capital allocation piece, I think you're right, we have a decent amount of cash on our balance sheet. But you can also see, as Sridhar has mentioned, and you rightfully ask, do we have growth plan. I think we already announced one, and these are all pretty capital consuming projects. We would want to keep ourselves ready to embark on organic growth opportunities. We would also want us to be ready if we happen to lay our hands on an inorganic growth opportunity. So -- and we are still not out of the volatile times of COVID. There was a point in time when this cash was said to be the king. It is still the king. So this is where we are, I think, the cash belongs to the shareholders, and it is our responsibility to invest it prudently, and that is what we will do.
Okay. So if I get that right, it is more -- you want to preserve this for growth for now because you're clearly seeing more opportunities or you would look to expand. Okay. Just last question from my side. On the CapEx, if you can give us some sense on what is going to be the annual CapEx. And given some of these emission-related targets that you've laid out, which are clearly really commendable and very aggressive. What is the thought process around WHR investments? What kind of capacities we are looking at in terms of WHR or any green sources of energy? That's pretty much from my side.
So I can make a few [indiscernible] this question, Gunjan. Point number one, if you were to look at our quarter 4 CapEx outflow itself, it is more than INR 500 crores. Clearly, a step in the direction of putting the money behind what we believe is right. That is on account of Ametha. That is on account of certain -- the energy project. We've already announced WHR projects in a couple of our plants, and that is one big agenda on our table, and we will continue to invest. You will be, I think -- when we announce it, you will be made aware of it. So as we said and as management and look at what we need to invest at, rightly, what Sridhar mentioned, growth is topic #1. Efficiency is topic #2. Sustainability is a topic on the table, very much on the table. So it's a cumulative deployment of funds that we will do towards all 3 priorities.
Next question is from the line of core of Gaurav Rateria from Morgan Stanley.
While a lot of initiatives you've taken on, projects Parvat and MSA, it's visible in the full year numbers. If I look at the other expenses for the quarter, it is still higher on a Y-o-Y basis on a per tonne basis. So some of these benefits are not visible in the current quarter numbers. So should one be benchmarking the full year numbers on per tonne going forward? Should one be looking at the current quarter numbers as a benchmark? How should one think about it?
So Gaurav, I think to read too much into the quarter would not be the best way to read the numbers. Just because quarter-on-quarter, you had inventory movements of last year, which is '19 quarter versus '20 quarter. So -- and we all understand numbers that you have consumption basis production divided by sales. So inventory has a major role to play. So I would not read too much. I think directionally, if you have to pick up the numbers, I think the annual numbers would be a much more fair reflection of performance. And just to answer your question, other expenses, if you go -- we have put out a note this time, the other expenses line item has a charge of INR 129 crore on account of certain discounting that we have done for the government receivables and center's receivables. So that is a one-off which you should not read too much in.
Okay. So I was talking about the other expenses ex of that one-off. But okay.
So here, I would just say that read the full year trends. That is a much more real reflection of that number.
Okay. Sir, secondly, on the bench marking of cost side, if you could highlight some areas where we are still seeing a lot of efficiency which would come in? Is it more on the distribution side? Any specific initiative maybe like on more direct distribution versus what it is today? That will be helpful.
So I think we believe that there is enough room across the entire value chain, just to answer your question, whether it's in terms of WHRS, green power, in terms of other efficiencies that we have in the manufacturing space. Also in terms of logistics, there's a lot that needs to be done, whether it's in terms of footprint optimization, lead reduction through optimum warehouse locations, geo mix optimization. So I think there is a lot. So it's -- what we are looking at is the entire value chain, working on the entire value chain to extract value from it. So it's just not one aspect or one functional element of the business.
Next question is from the line of Raj Kiran Gandhi from SBI Mutual Funds.
In your annual reports, you've been steadily mentioning about -- in the last 2 years about maximum of your leases expiring in the 2028, 2030 period. So what's the company's thought process as you -- on that from a planning perspective?
No. So I think one way to look at it, I think that is something which is going to hit the entire industry. So -- and I think we will comply with the law and take necessary steps in the right direction to ensure that we have adequate limestone to manage our volumes and growth. I don't think that's an area which we really need to be worried about. I think that's an area which we are very, very conscious of and we are working on it.
Okay. Okay. And in terms of project Parvat, if you could just highlight you've ordered up to 25 megawatts, but what is the identifiable -- what is the identified WHR potential. Maybe the time lines and all could be a bit sensitive, but just in terms of potential...
So let me not give you a forward-looking statement, but some key indicators, you've already seen the WHRS announcement for Kymore and Jamul. We also have other kilns where we are evaluating the possibility of WHRS that apart even in Ametha project and -- WHRS, we have, I think, of 14 or a 15 megawatt WHRS planned. So these 3 are already tabled, and I can't really -- I'm not in a position to really tell you what are the other plants that we are looking at because this is sensitive information. But I'd like to assure you that we have a comprehensive power strategy in place, which is a part of our Parvat journey to ensure that, one, we optimize our power costs. And second also, we make our business a lot more sustainable.
Okay. Okay, sir. And any specific -- in project Parvat outside of WHR and MSA. Any specified or quantified point you can just highlight in terms of cost...
It's the entire value chain. As I said, it's the entire value chain. It's not just one element.
Parvat is a flagship project that we are doing and it is knocking off costs across line items. We happen to talk about the big ones, but we all understand, it has to come across the line items.
Next question is from the line of Nitin Arora from Axis Mutual Fund.
I just wanted to understand, you said India is a growth story and all. But generally, the gap between the volume growth -- and it could be a short-term question, but the direction I wanted a little longer term. The gap between ACC and Ambuja's volume growth is widening a lot. I mean when we look at, let's say, even this quarter performance for ACC and versus other companies, which are growing in way higher than double-digit. Even Ambuja is gaining across markets, ACC is losing out completely. How we should look at this going forward? Number one. And number two, what is the reason behind taking impairment of this plant in Tamil Nadu? If there is no issue in terms of limestone and all, why suddenly impairment happens in a cement plant of your company? That's my second question.
Okay. So let me take the first question. As I called out in the last quarter, by and large, in most quarters, ACC has been operating at very, very high capacity utilization, and that is something which I called out earlier. Our capacity utilizations are possibly the highest in our industry, which is what is leading to the relative volume underperformance. But as I called out in the next by, let's say, mid next year or let's say, by -- our Sindri plant is already operational. And by mid next year, we will be having roughly about 6.2 million tonnes of grinding capacity, which would see us getting back on to the growth track. On the impairment piece, Yatin, would you like to handle that?
Yes. So Nitin, on the impairment, it is an evaluation of the future cash flows of the plant versus the book value that we were carrying in our books. Now you are right, the quantity of limestone is not an issue. I don't think that is an issue. But it is -- there are 2 things that sort of merit attention regarding Madukkarai. Number one is the quality of limestone. That is a little bit of a concern. And second, the process that we run in that plant till the grinding stage -- clinkering stage, that is something that we need to work on. So right now, if you look at the future projections, future cash flows, they do not justify the book value, the carrying value in our books. And that is the reason as a prudent accounting conservative approach, we've taken that impairment in our books. Having said that, maximizing returns from this plant is high on our table. We are exploring all options to make sure that we maximize the returns that we generate from this asset.
Sorry, the cash flow or the future impairment being taken. As you said, if limestone is an issue or, let's say, the quality of limestone is an issue. Can you elaborate how much volume loss we will have and in which market because it's a huge impairment. It's not a small impairment. If you can quantify with respect to the volume per se, and which market you will lose out. Because you just added 1.57, or let's say, 1.4 million tonnes and 50%, 60% goes out, and it's almost a negligible net addition on capacity. So if you can clarify that.
Nitin, this plant, Madukkarai operates in a very different geography versus the capacity that we have added. So do we look at losing the market or the volumes in the market? I think I would not want to answer that question. Definitely, we have to be aggressive as a brand and we have to retain our market share and grow it. So it is -- I would say the cash flow generation, these are all accounting simulation, the modeling that you do to generally make sure that you have a clear outlook of the future cash flows. And that is what was compared with the book value when we did that transaction. I would want to close it at that.
Next question is from the line of Chetan Sehgal from Templeton.
Congratulations on the good set of numbers. I have a question as well on the EBITDA bridge with the best-in-class EBITDA, which are being reported. So you already are operating at higher capacity utilization than the industry, and you are making all these efforts to cut cost and improve investing in power, et cetera. So by when do you expect to actually catch up with the best-in-class EBITDA per tonne in the industry. So is there a roadmap to it? And are there well-defined targets along the way?
See, we have a very aggressive journey planned out for the next few years. So it will be very difficult for me to really comment on when we will be able to bridge the gap. But rest assured that we are taking all steps to ensure that our EBITDA margins improve significantly and we bridge the gap with competition. I can't give a date. I can't give a year to it. It's a very dynamic fluid piece. Totally variable.
Yes. No, the question is, does it happen in a 5-year horizon? I mean, is that something which is on your radar scheme of planning?
Yes, we are looking at bridging the gap in the 5-year horizon, yes.
And you got specific -- I mean, all these targets are very internal and very specific, and therefore, you think that there is a potential to actually do that?
Yes.
Okay. And so there was one more question which comes on this royalty issue, which has come in. So interestingly, this time, I think the parent's fees for a 2-year period. So one is to understand what is the rationale for just going for a 2-year period? And the second is, should -- wouldn't it be better to actually link it to the EBITDA margins rather than just do it on the base of turnover? So that the incentives are there in place to actually affect EBITDA improvements?
I think, Chetan, the fees that we pay to our parents is for the entire spectrum of the technical know-how that we take from them. We take pride in being a part of the LH Group. It's a fair reflection of the value that we generate being a part of the family. Actually, this is much lesser than the value that we generate for being the part of the family. So I think linking into some arbitrary numbers like sales or EBITDA, I don't think that's an industry factor. I don't think that is fair in the way of treating such agreements. And to your question of why 2 years, I think you will see as it comes.
That's very dynamic. So we'll take it as it comes.
We're moving as it comes, and we will see when the 2 years comes and what we do. So that's it.
Right. Because that has just created more uncertainty. So when you speak in the market and speak to analysts, generally, this just brings about more uncertainty at what happens 2 years end. 2 years is quite a short period in the life of a company. So that's the reason why we were thinking about the rationale for 2-year point of view, rather a much longer horizon?
We will see it.
Next question is from the line of Swagato Ghosh from Franklin Templeton.
Yes. I have 3 quick questions. First is, there have been a few amendments proposed in the mining law recently. I wanted to understand your reading of those amendments and whether that changes our merger plan, if at all?
No. So as we stand today, there is no plan of any merger. We are first waiting for that to become law. So that's where I would leave it at. But in terms of merger, as things stand today, we will -- we are and will continue to be 2 distinct, separate public listed entities.
Okay. But you're reading of the amendments. Does it actually reduce the cost of being a merger?
We have not gone to that depth in terms of reviewing that. So we would not want to comment on that.
Okay. Okay. Second question is, sir, on MSA and project Parvat. Firstly, if you can just give some clarity on the MSA related volumes for maybe CY '20? And what is our eventual target? And what was in CY '19, I think it was not a big number, but what has it grown to in CY '20? That would be very helpful. And what is our ballpark eventual target on MSA? And also on MSA and project Parvat combined, who are probably the 2 to 3 key people in the organization who are driving this. That would give us, as like shareholders, that will give us some comfort.
I think on the people, you have heard me and Sridhar talking for the last 30 minutes on Parvat. We lead this activity as a flagship thing for the company and the entire organization, I can say, is joined in this project. So I think that is a very simple question. To the point of how much we have done in MSA, what are the volumes and what is the end state. I do not think when you make progressions, you have end state defined. As Sridhar has mentioned multiple times, these are things of journeys. So 2020 versus 2019, the numbers are significantly higher is what I can put on the table. And we are chasing a -- even significantly bigger numbers in 2021, and we will see how it plays out. All the companies are adding capacities. The dynamics are not static, they are constantly changing. And we always have to find the best pace of optimizing the value creation for the shareholders of both the organizations, which should be incremental, value-accretive to the bottom. That's the only mission that we use when we actually evaluate MSA in both [ organizations ].
Okay. But at any point in time, will we get some update on the volumes? Like I understand that it is higher, but what it is tracking at, so that we can also track it as shareholders at different points in time?
I think when Ambuja has closed their annual results, maybe you will have a little more insight into that.
Okay. Great. And are we taking help of any external consultants on these MSA and Parvat?
Consultant for what?
For executing these 2 initiatives.
Swagato, we really believe that we can handle it.
Okay. Great. And one last just booking question. This inorganic plant that you just like referred to, are there any specific gaps you're looking to fill? Or we're just evaluating opportunities whenever something comes on the market?
I think the second one is what I would say. I think Sridhar very clearly stated, the mission is for us to grow in India. And in every single opportunity, we will be willing to explore, and we would not want to comment more on this point.
[Operator Instructions] Our next question is from the line of Ritesh Shah from Investec.
Sir, my first question is on diversification. On one of the slides, you have indicated waterproofing tile adhesives and RMC. Just wanted to know what is the management's thought process on this segment? And is it possible to relate this revenue number from this segment versus the discount and marketing spend, so what we published in the annual report. Because those numbers seem to be moving up faster than probably the top line number. If you could provide some details over here, that would be great. That's the first question.
Okay. So I think, first is that we strongly believe that RMX, if you are barring the year 2020, where RMX or the ready-mix business was impacted severely because of COVID relative to cement. But we strongly believe that RMX or concrete is going to be the way forward. So that's one business which we plan to continue to invest in. Whether it's in terms of plants or whether it's in terms of products, whether it's in terms of value-added products, whether it's in terms of sustainable products. So that's one area where we will -- we strongly believe that that's going to be an engine of growth for us. As far as the specialty chemicals is concerned, it's a fledgling business right now, it's a very, very small business. So it will be really premature to comment on that business as of now. But we believe that, that is a business which, hopefully, in times to come, should be a multiplier for us.
Right. Sir, would it be possible for you to give some contemplation on RMC numbers or bulk cement terminal numbers, because that's a way forward that you are seeing.
So, in terms of performance, I think that's...
So we mentioned, Ritesh, that we are roughly 80% of where we were at the pre-COVID era. RMC is a very different domain of business. Much more -- so this is where we are gradually recovering, I would say, and we should be back in full might, hopefully, in 2021.
Yes.
Okay. Okay. Sir, my second question is both short-term as well as long term. There is a one-off of INR 129 crores. You did indicate that one should just overlook it. It is something which is a one-off. But sir, my question over here is when we allocate capital, how important is this particular state incentives. I'm sure that for the incremental CapEx, what we have announced 6.2, 2.7 in cement clinker, there will be certain incentives. So just wanted to have some comfort on how critical is incentives as a variable when you look at ROC thresholds? And from a balance sheet perspective, how much is the outstanding that we -- that the state governments afford to us if at all there is any risk over here? That's the second question.
So Ritesh, I think number one, incentives are an important piece for us. And we have a decent amount of incentives in our books. So it is significant. You can very clearly see in our balance sheet. Point number two, when we evaluate projects, incentives are not the make or break of any project evaluation. Our projects are strong on merit irrespective of incentives or not. Definitely incentives are the icing on the cake. That is actually the whole idea. And we also see and we really appreciate the steps various state governments and central government is taking to incentivize setting up more projects and plants and industry. So it is an important consideration set, but it is not a make or break point, I would say. And just to elaborate a little more on the INR 129 crores charge that we took again. We do not, as an organization, see any risk whatsoever to this amount. It is for us sovereign debt. It is something that we are due to receive from various state governments on account of declared policies, industry policies in place. What we have done only is the fact that we see that the money coming in at a larger time period than rather than immediate. So we have discounted it for the time value of money because the same amount of money comes in, let's say, 5 years down the line, we have discounted that element of the time value of money And that is the entry that we have taken in the books. I hope I made myself clear, Ritesh.
Sure. Sir, my third -- I think I'll spill over to one more question. Mr. Akhoury, you have time and again indicated that our focus is on market share and not on capacity share. And you have also indicated that combined capacity for Ambuja and ACC because of swaps between the 2 companies, we will be more than adequately making up on market share. So would it be possible for you to provide some color over here? That's a related question. And I have one more question on ESG.
I think we were -- it was announced that we need not -- we have to limit the question. I will just take the answer to this question. I would rather not comment on this question on this call. This is an ACC earnings call. You can park it for the calls with Ambuja when it happens. So maybe we can move to the next speaker.
Next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is on this impairment, which we have taken at Madukkarai plant. So given we have like some of the other plants, which are probably similarly old or more old -- older than this plant. So is there some, I mean, which can -- this impairment, which hypothetically can come under other plants also?
So Prateek, I would not want to answer a hypothetical question as you rightly used the word. Every asset in the balance sheet is evaluated by the accountants regularly, and we will not be speculating on what may or may not happen. So let's close it at that, Prateek.
Sure. Just a small question on related questions earlier. So our utilization which we report in our presentation is 72%, which you also talked about in your opening remarks. 25.5 million tonnes gives us a 77% utilization on a 33 million tonne capacity. So the difference is the MSA volume?
Sorry, come again, Prateek with your question.
So in our presentation, we have given utilization at 72%, which you also talked about in the opening remarks. At 25.5 million tonne volumes for the year in CY '20, we get a 77% utilization on a 33 million tonne capacity.
The number that we have written is more of an annual reflection. I think you're calculating the quarter numbers, right?
No, no.
No, no, no. I'm calculating annual only. The annual number 25.5...
The difference score is MSA. Yes, that's correct.
Right. So over the next 1.5 years till Ametha comes, so we have a 1.4 million tonne grinding Sindri capacity for growth as well as this MSA volume for growth, right?
That's right. That's right.
Ladies and gentlemen, we will take our last question now, which is from the line of Sumangal Nevatia from Kotak Securities.
I'm just left with 1 or 2 bookkeeping questions. Is it possible to share what is the WHRS time line at Jamul and Kymore?
So I believe -- let me -- but I think we should be able to do it in about 10 to 11 months, give or take a month here and there.
Okay. Got it. And sir, is it possible to share, in CY '20, what is the mix of power in terms of grid PPP and alternate fuel? And how do we see this changing over the next, say, 5 years or 3 to 5 years?
So over the next few years, you will certainly see a shift towards green energy, whether it's in WHRS or solar or alternate forms of energy. Right now, I'm not in a position to share with you what our plan for next year is.
But sir, for CY '20, is it possible to share the mix?
Last year?
Yes, yes.
We can get back to you.
We can get back to you on that.
Ladies and gentlemen, that was our last question for today. I now hand the conference over to Mr. Krupal Maniar for closing remarks. Over to you, sir.
Thanks, Zayed. On behalf of ICICI Securities, we would like to thank the management of ACC Limited for providing us this opportunity to host the call and thank all the participants for joining the call. Thank you very much.