Ambuja Cements Ltd

NSE:AMBUJACEM

Earnings Call Analysis

Adani Cement Targets 20% Market Share and Capacity Expansion

Adani Cement's Q1 FY25 showed strong revenue of INR 8,311 crores driven by market management and network expansion. The company's cement capacity stands at 89 million tonnes, including the ongoing Penna acquisition, and it aims to reach 140 million tonnes by FY28. Significant cost reduction efforts led to a 3% decline in costs per tonne, with energy costs dropping 13%. EBITDA margins are at 15.4%. Adani Cement is focused on remaining debt-free during its expansion and plans further capacity growth through internal accruals and operating cash flow. The target market share is 20% by FY28.

Capacity Expansion and Market Strategy

Adani Cement, a part of Ambuja Cement Limited, is vigorously expanding its market share. Currently holding a market share of 14%, the company aims to reach 20% by FY '28. Their cement capacity stands at 89 million tonnes, and they are working towards expanding it to 140 million tonnes through internal accruals and operating cash flows, ensuring a debt-free growth journey. The acquisition of Penna will play a significant role in bolstering their presence in the Southern markets .

Financial Performance and Revenue Growth

The consolidated revenue for the first quarter of FY '25 reached INR 8,311 crores. This performance is attributed to strategic micro market management, an expanded dealer network, and maintaining the blended cement sales volume at 86%. Additionally, premium products now represent 24% of trade volumes, up by 200 basis points. On the cost side, energy management has been particularly effective, with a 13% decline in energy costs contributing to a reduction in the per tonne cost by 3% .

Operational Efficiency and Cost Management

Adani Cement has made notable strides in reducing operational costs. The cost per tonne decreased by 3% to INR 4,437, with energy costs dropping by 13% courtesy of better fuel management. Improved logistics resulted in a transportation cost decline by 8% to INR 1,323 per tonne. Additionally, the secondary lead distance was cut by 9 kilometers, and direct dispatches to customers increased to 55%. These efficiencies led to an EBITDA of INR 1,280 crores at a margin of 15.4%, equating to an EBITDA per tonne of INR 807 .

Sustainable and Green Initiatives

Sustainability remains at the core of Adani Cement's strategy. The company is increasing its reliance on green power to 60% by FY '28, expecting to cut power costs by INR 90 per tonne. Their waste-heat recovery capacity will surge from 40 megawatts to 186 megawatts by March '25. A significant CO2 reduction target is set, aiming for sub-400 levels by 2030 to align with their ESG responsibilities .

Capital Expenditure and Cash Flow Management

Adani Cement is undertaking vigorous capital expenditure to support its expansion. For FY '25, the CapEx plans include commissioning multiple grinding and clinker units. The company plans to invest approximately INR 10,000 crores in CapEx, balancing growth and maintenance. Despite these investments, it predicts a healthy end-of-year cash and cash equivalent of INR 10,000 crores after factoring in purchases and operational inflows .

Future Outlook and Market Conditions

Looking ahead, Adani Cement anticipates a cement demand growth driven by government investments in infrastructure and housing projects. The company expects its strategic capacity expansions and efficiency improvements to capitalize on this growth. With an estimated 7% to 8% increase in demand annually, Adani Cement positions itself as a robust player ready to meet market needs .

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Ambuja Cement Limited Q1 and FY '25 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Jashandeep from Nomura. Thank you, and over to you, sir.

[Jashandeep Singh Chadha, analyst]

Thank you, operator. Good afternoon, everyone, and thank you for joining the call. Without much ado, I will transfer the call to Mr. Deepak Balwani, Head of Investor Relations. Mr. Deepak, over to you.

[Deepak Balwani, executive]

Thank you, Jashandeep. It is indeed my pleasure to welcome all of you to Ambuja's earnings call for quarter 1 FY '25. Ambuja Cement Limited along with its listed subsidiary, ACC and Sanghi is one of the India's leading cement companies and a member of the diversified Adani Group, the largest and the fastest-growing portfolio of diversified, sustainable businesses. I hope you all had a chance to go through our financial results, investor deck and the press release, which are now available on the company website and on stock exchanges.

Joining us on this call Mr. Ajay Kapur, Chief Executive Officer; and Mr. Vinod Bahety, Chief Financial Officer. I would now like to invite Ajay Jee for sharing his valuable insights on the quarterly performance. Over to you Ajay Jee.

[Ajay Kapur, executive]

Thank you, Deepak. Good afternoon to all of you. I extend a warm welcome to each of you for joining us in our quarter 1 FY '25 earnings call of Adani Group's Cement business for Ambuja, ACC and Sanghi. We continue to strengthen our position as a market leader in the cement industry. Adani Cement is becoming stronger over time with an intense commitment towards capacity expansion through both organic and inorganic routes, along with efficiency improvement initiatives.

Adani Cement's current market share is about 14% with an internal target of 20% for FY '28. To begin with, I would like to share some of the high-level highlights before diving into specifics. Our current cement capacity is 89 million tonnes, which includes ongoing Penna acquisition. This will help in strengthening our market share in Southern markets. We have increased our capacity by 32% since acquisition through both organic and inorganic growth, translating to 21.4 million tonnes. 275 million tonnes of new limestone reserves have been secured in the first quarter FY '25.

Capacity growth from the current 89 million tonnes to 140 million tonnes will be met through internal accruals and operating cash flows. We will continue to remain debt-free during this journey. 4 million tonne clinkering and 6.4 million tonne cement capacity is expected to be commissioned in FY '25. To consolidate quarterly -- the consolidated quarterly Y-o-Y performance, we have achieved a revenue of INR 8,311 crores. This is driven by a strong focus on our micro market management, expansion of dealer network, blended cement as a mix of the total sales volumes maintained at 86%, premium products as a percentage of trade volume increased by 200 basis points to 24%.

On the cost for the quarter was at INR 4,437 per tonne showing a decline of 3%. This is driven by 13% decline in energy costs owing to better fuel management, which resulted in reduction in kiln fuel by 17% to INR 1.73 from INR 2.08 per 1,000 kilocal. The transportation cost declined by 8% at INR 1,323 per tonne on account of footprint optimization. The secondary lead distance reduced by 9 kilometers to 46 kilometers and the direct dispatches to customers increased by 4 percentage points to 55%.

With the improvement mentioned on the cost front, EBITDA stood at INR 1,280 crores at a margin of 15.4% and EBITDA per tonne of INR 807. As on 30th June, the consolidated cash and cash equivalents stood at INR 18,299 crores, approximately INR 6,000 crores have been utilized out of which INR 3,300 crores towards our organic and inorganic growth, namely for Tuticorin grinding unit acquisition, ongoing CapEx program and Penna acquisition.

Dividend outflow of INR 630 crores and balance towards working capital, which includes higher receivables during this quarter, higher inventory, lower payables, income tax payout, et cetera. In the best interest of time, I will not discuss the stand-alone financial performance of the listed companies separately as they are available on our stock exchanges.

Now I will share with you the progress we have made on our announced long-term strategy plan. As we plan to expand our cement capacity to 140 million tonnes by FY '28, we are facing web to achieve the stated target. This has also resulted into higher cash outflow as informed above. With the ongoing acquisition of Penna Cement, our operating cement capacity now stands at 89 million tonnes.

We are on course to commission our 4 million tonnes clinker unit at Bhatapara and Chhattisgarh and the associated grinding units at Sankrail and Farakka in West Bengal and Sindri in Jharkhand by the end of this financial year.

The grinding unit of Salai Banwa in Uttar Pradesh to be commissioned in quarter 1 of FY '26 and brownfield expansion of Bhatinda grinding unit in Punjab and Marwar Mundwa grinding unit in Rajasthan to be commissioned in quarter 2 FY '26.

With commissioning of these projects, we shall be reaching cement capacity of 100 million tonnes by quarter 2 FY '26, and that indeed will be a great day for us to hit the first hundred. Further clinker unit of 4 million tonnes at Maratha in Maharashtra and grinding units of Warisaliganj Bihar, Kalamboli unit expansion in Maharashtra, Mundra in Gujarat and Dahej grinding unit expansion in Gujarat are also expected to be commissioned by the end of FY '26, enabling us to reach 112 million tonnes cement capacity by FY '26.

We have also identified 14 additional grinding unit projects for which land acquisitions and statutory approvals are under progress, which shall enable us to reach 140 million tonnes by FY '28. For the new facilities of 4 million tonne clinker line at Bhatapara, 80% of civil work is now complete and major equipment has been received at the site, expected commissioning is by quarter 4 FY '25.

For its corresponding grinding unit in Sankrail and Farakka, West Bengal, civil work of 66% and 60% respectively, have been completed and major equipment has been received at the site. Expected completion of these units is quarter 3 FY '25.

For the new facility of 4 million tonne clinker line in Maratha in Chandrapur, contract has been awarded on EPC vendor, 25% major equipment ordering done by the EPC partner, project execution work started, expected commissioning is by quarter 2 FY '26. These kiln lines will have 42 megawatts of waste-heat recovery. and provision for utilizing 30% alternate fuels in these kilns.

The new facilities of 2.4 million tonne grinding unit at Salai Banwa in Uttar Pradesh, 11% of civil work is now complete and delivery of major equipment commenced at side, expected completion is quarter 1 FY '26. Major equipment ordering for roller press at Bhatinda grinding unit and fly ash grinding unit lending system at Kalamboli has also been completed.

Now I will share some of the key initiatives being undertaken for becoming a cost leader in the cement business. Securing major raw materials at cost competitive prices and efficiency and productivity improvement CapEx will further help in cost optimization by 8% to 10%.

First, let me discuss the steps we have taken to lower our energy cost. Our waste heat recovery capacity at the time of takeover, around September '22 was 40 megawatts, which we are now targeting to increase to 186 megawatts by March '25. Currently, the WHRS capacity is at 165 megawatts.

We have earlier announced our investments of 1,000 megawatts in RE which is expected to be commissioned by FY '26 and would ensure that 60% of our power requirements would be through green power. This would help in reducing the power cost by INR 90 per tonne by FY '28. The first phase of 200-megawatt is getting commissioned as I speak to you in quarter 2 FY '25.

As previously explained, to meet our requirements we aim to have captive coal mines. As a result we are bidding for coal mines in auctions being conducted by the Government of India of higher share of coal from captive mines and the opportunity to buy imported pet coke will further lower our cost of fuel.

Driven by better fuel management and structural initiatives undertaken, our power and fuel costs have decreased 13% to INR 1,304 per tonne in quarter 1 FY '25 from INR 1,501 per tonne in quarter 1 FY '24. These initiatives include an increase in the share of AFR and WHRS. The share of AFR in fuel mix has improved to 9.3% from 7%. The share of WHRS in power mix has increased to 15.1% from 11.5%.

The second cost item is freight and forwarding cost. There are 3 focus areas of cost reduction here, reduction in lead distance, warehouse optimization and rail road mix optimization. We are targeting to reduce the average primary road lead distance by about 100 kilometers over a period of time.

Primary lead distance in the current quarter was 270 versus 275 and secondary lead was 46 versus 55. To further optimize our cost in logistics, we have ordered 11 GPWIS rigs of which 9 have already been delivered and the rest are expected to be delivered by the end of quarter 2 FY '25.

These rigs should level cost-efficient clinker movement from the mother plants. In addition to these, we have also ordered 26 BCFC rigs for safe and cost-efficient transportation of fly ash from thermal power plants to our facilities. We expect 10 rigs to be delivered in the current fiscal year.

We will also introduce EV trucks in a few select routes, which will be started by quarter 2 FY '25. Because of these initiatives, our logistics costs have reduced by 8% to INR 1,323 per tonne in quarter 1 FY '25 from INR 1,436 per tonne in quarter 1 FY '24.

To secure our licensed supplies in quarter 1 FY '25, we have won bids for another 2 mines having reserves of 275 million tonnes. On ESG, we have submitted -- we are committed to net zero by 2050 for Ambuja and ACC with near-term targets validated by SBTi. 60% power sourced will be from green power by FY '28, which will help us to reduce carbon footprint.

Ambuja is 11x water positives, establishing leadership in water governance reached an impressive 8x plastic negativity for Ambuja through coprocessing of plastic waste in cement kilns. Ambuja and ACC put together used more than 5.7 million tons of waste-derived resources in quarter 1 FY '25, embracing circular economy.

We have pledged to plant 8.3 million trees by 2030. Ambuja and ACC created societal values for more than 4.6 million people by contributing to fields like health care, education, employment and sustainable livelihoods. We are optimizing the infrastructure at Sanghi that will enable efficient transportation of cement from the plant to the jetty and through mechanized conveyer belts and then using the marine and sea route.

On the industry side, cement demand during FY '24 stood higher by 7% to 8% at 422 million tonnes and is likely to grow at 7% to 9% in FY '25 to around 450 million tonnes driven by strong correlation with GDP growth and rising demand from housing and infrastructure sectors.

The government aims to invest USD 3 trillion in infrastructure and housing development through ongoing housing for all schemes, National Infrastructure Plan, PM Gatishakti National Master Plan and others. An outlay of 11.11 lakh crores for capital expenditure has been allotted and budget FY '25 which represents 3.4% of GDP. Phase 4 of Pradhan Mantri Gram Sadak Yojana will be launched to provide all weather connectivity to 25,000 rural habitations.

We believe all these measures are expected to bring buoyancy in the cement demand.

To conclude, as I mentioned earlier, at multiple occasions, Adani Cement will benefit from accelerated growth, lower costs and group synergies,` all of which will contribute to lead the market and achieve sustainable performance in the near future. The pace of CapEx has increased, which will help to achieve targeted growth ahead of time.

With this, I now hand over to my colleague, my CFO, Vinod Bahety.

[Vinod Bahety, executive]

Thank you Ajay jee. I think Ajay Jee has already covered in detail, but a few points from my side, another sustainable quarter and sustainable EBITDA in an otherwise subdued industry condition. And I strongly believe this has been possible on the back of the strength of cost leadership, which last 8 quarters we have been working on.

Better fuel management is reflected in the results and in the coming quarters, the benefit of wind power, we will see, which will start from August onwards, and that will further accentuate our position of strength in terms of cost optimization.

Our focus on digitalization, ESG and productivity, both machines and manpower will give commendable results in coming quarters. Ongoing expansions in parallel at almost more than 10 sites, which Ajay Jee has referred to, as which are at various different levels, will see commendable progress in our organic growth plans, while the integration of Penna this quarter will give us immediate results as part of our inorganic growth. So with this, I will pass on to Deepak and to the coordinator in terms of Q&A, please.

[Operator]

[Operator Instructions] The first question is from the line of Rishi Kothari from PI Square Investments.

[Rishi Kothari, analyst]

My first question was regarding the current bifurcation of private and public infrastructure investment that we did, for example, what is the bifurcation of private sector as well as the public sector?

[Ajay Kapur, executive]

I didn't understand.

[Vinod Bahety, executive]

Could you please elaborate your question again?

[Rishi Kothari, analyst]

So what's the bifurcation of our cement supply to private sector and public sector?

[Ajay Kapur, executive]

Sure. Okay. Okay. So Rishi, at an industry level, we consume about 64%, 65% cement for housing, all kinds of housing. Large component is individual housing and then it goes into commercial/residential. About 23%, 24% of cement gets consumed by Infra. In this segment, it is largely government, but also in some cases, you have private players who are doing BOT projects. So I think large part of your question gets answered in this section.

And the last [indiscernible] is about 15%, which is commercial institutions I think this is largely private sectors, because government seldom is here in this area. So I think to answer your question, the infra segment is 24%. In this, a large part of it is also government but also some big companies who are also doing BOT projects, road projects, bridge projects, et cetera. I hope I have answered your question.

[Rishi Kothari, analyst]

So in terms of around 70%, 75%, overall, we have a public infrastructure supply and rest is on a private sector supply. Is it?

[Ajay Kapur, executive]

Of the 24% of the total demand, which is for the Infra segment, a large part of it is government, but also a lot of it is done by private companies.

[Vinod Bahety, executive]

Rishi that is the reverse, what you have stored. So it is like actually 75%, 80% is private and 20%, 25% is actually public. When you say public, it is like Government driven infrastructure and all.

[Operator]

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

[Navin Sahadeo, analyst]

So two quick questions. Sir, first, on the green power bit, you said that first phase of that 200-megawatt is a little delayed in my view, and I think it's coming now in Q2, so wanted to understand how -- is there -- I mean does this mean that the entire 1,000 megawatt project gets delayed because the earlier guidance for that was Q1 FY '26.

And just related to this, how much should the CapEx distribution -- I mean I would rather request Vinod Jee to give the breakup on entire CapEx through green power and others for '25 and '26.

[Vinod Bahety, executive]

Sure. Thanks, Navin. So in terms of your first question, our June '25, which is Q1 of FY '26, remains very much firm there. In terms of the first 200 megawatts, which is now coming in August and the almost 650 megawatts, we are targeting by March '25 and another, say 150 megawatts by May '25, which will actually complete to almost 1,000 megawatt by first quarter of FY '26.

In terms of the CapEx, as you would recall, close to INR 6,000 crores is the overall outlay for this 1,000 megawatt initiative and out of which close to INR 1,500 crores already has been invested and balance INR 4,500 crores will be coming -- will be incurred in the coming -- next 12 months, out of which another INR 500 crores share is expected by September and so and so forth. But as we move in the coming quarters, lots of this completion will be happening, as I mentioned, and therefore, the CapEx will be incurred as well, let us by, say, June '26.

Also, do you want insight so that you are aware of this that out of the 1,000 megawatts, close to 160-megawatt is wind and close to 840-megawatt is actually solar and -- which also, if I have to give you further details and to the larger analysts and all, 300-megawatt is actually in Rajasthan. And out of the solar 840-megawatt and rest 540-megawatt is in Gujarat and also the 160-megawatt of wind is also in Gujarat. [ Thara ] is the one where we are putting up this large investment.

[Navin Sahadeo, analyst]

Appreciate, sir. Sir, my second question then was about the Penna acquisition. So I would want to understand because from the presentation, I see there is some delay in the time line for the Jodhpur unit. I think we were targeting around May, June next year, but there seems to be some delay both in Krishnapatnam and the Jodhpur units, so to say.

And also in the same breath want to understand how should one look at getting these Penna acquisition in our numbers. In the sense, you said it will complete by Q2. So just wanted to understand, will second half then should see full benefit of the acquisitions for us. And will Ambuja Cement as a brand be launched in South India?

[Vinod Bahety, executive]

Okay. So I will cover on the equation part and then Ajay Jee can chip in on the rollout of the brand. So far as the setup of acquisition is concerned, it is in very fairly advanced stages, so I would say that in our fortnight kind of thing, we are targeting to achieve full closing.

And therefore, you will definitely get the benefit of integration in Q2 and Q3 will be -- it will be 100% available for the quarter. So that is on the status of the acquisition. Now so far as the brand strategy is concerned, over to Ajay Jee.

[Ajay Kapur, executive]

Yes. So what we are going to do is clearly once this integration is done, we believe there is a synergy between our Adani group plants, especially ACC plants in South and the Penna units. I think in our earlier call, which we've done at the time of acquisition, we also laid out the rationale for the investment and also the uptick, we will get it both on volume and cost. And as part of the strategy to enter south, we will be playing with our Ambuja and ACC brands. We will also be using Penna wherever we feel that can add value for us to penetrate the market. So we'll be using all the 3 brands, Ambuja, ACC and Penna.

[Vinod Bahety, executive]

And Navin, I missed to answer your question on the CapEx part, both Krishnapatnam and the Marwar project of Penna very much remains intact on the time lines, and therefore, no concerns from our side on any delay over there.

[Navin Sahadeo, analyst]

Understood. So just one bit here, Penna as a brand continues to stay with us to continue to use that?

[Vinod Bahety, executive]

Yes. As a brand, that in the company which we have acquired.

[Ajay Kapur, executive]

So we will use this to the extent of our sales requirements. But as you know, we have strong brands of Ambuja and ACC. ACC has a very strong positioning in large parts of South. Ambuja also has a very good presence in especially AP region. So we'll play on our strength and ensure that the fastest ramp-up and capacity utilization is enabled at the highest price and also at the lowest cost. That we were [indiscernible].

[Operator]

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

[Ritesh Shah, analyst]

Couple of questions. First one is, sir, what do you make of consolidation in the space. Also, would you like to highlight the underlying levers which are driving this frenzy, say, for Ambuja or for the wider industry that is the first question?

[Ajay Kapur, executive]

Okay. So I think it's a very interesting question. We're looking at quarter 1 demand and sales. The share of top 5 companies has come to 60% versus some 45-odd percent in 2018, so I think just by the size and scale, we're already seeing consolidation happening. I think it's always good as we mature as an industry that you can either have an organic growth or inorganic. We are doing both. I can speak more for Adani Group.

We have seen we rolled out a program of 140 million, and that program did not have any acquisitions. However, having said that, whenever a good opportunity has come in, whether it is Sanghi, whether it is Asian, whether it is the Tuticorin grinding unit we acquired from My Home or whether it is Penna, which we are acquiring, which on top of cement assets of 10 million operating 4 million to be built, we also have 2.5 million of bulk cement terminals, 5 terminals and a position in Sri Lanka and a shipping infrastructure in the entire eastern corridor.

If you look at all this, I think what we have done is we have used very widely our resources, they acquire good assets in the markets which are fitting perfectly well with our growth strategy, and we have not at all gone in a rampant expansion, but we have gone in a very structured expansion. I think you used the word frenzy.

I don't think there's any frenzy. All businesses use the money very carefully. And whatever money we use, we have to ensure we get the returns for that. So maybe Vinod, do you want to add something?

[Vinod Bahety, executive]

No, I think sort is also preempting in terms of and which I couldn't actually highlight for our acquisition of Sanghi and Penna, I'm sure they also have their own math, which is actually coming below $90 a tonne. Therefore, in terms of [indiscernible], I think we have been very, very careful, methodical and in a structured manner that we are doing. And I think both organic and inorganic is going very, very good for us.

[Ajay Kapur, executive]

Our internal target for new growth is less than $80. In fact, the target given to operating team is to further drive it down by another $5, $10. Therefore, acquisition also for us has to meet some tough internal checks. And whenever we feel that it makes sense build versus buy, we apply that very, very diligently. And so far, we have been very responsible.

You have seen we have grown 35%, but we have grown profitably. We have reduced our costs substantially. We have committed to reduce the cost by about INR 550. We are well on track.

All initiatives are structural initiatives, be it green power, be it waste-heat recovery, be it own coal mines, be it long-term contracting, be it structural -- restructuring of logistics, be it taking some very bold steps in the market, which included warehouse optimization, which included more going direct, I think we have taken all those brave steps and I'm very happy that my team in Adani Cement business is diligently working towards this.

And on top of it, now we are driving a very big initiative, which is digitization. Whatever we do, we want to do it in a digital manner because the company will become so big. There is no other way we can have strong performance other than through digital means.

[Ritesh Shah, analyst]

My second question is what do you make of limestone lease expiries come 2030 with respect to Ambuja, ACC and wider industry? And how do you think will this have a bearing on consolidation and profit pool overall for the industry?

[Ajay Kapur, executive]

Very good question, Ritesh. So I can -- let me answer first for Adani Group because then I'll jump on the industry, larger industry. So for us, we have about 19 leases, which will come up for renewal by 2030. Most of them are in ACC. However, out of those 19, by the time we hit 2030, we'll have only 11 of them left because the remaining would have already lived their life. So our strategy would be to use the limestone from them during this period. Of the 11, there are only 3 sites we have alternate plans in place. And I think as per the law, the right of first refusal rests with the current player.

Other than that, I think we are in the same ship as anybody else because this is a rule of law, and we have to all abide as per the Government of India's mining laws. On a larger issue, a lot of representations have been made by [ FIMI ] by [ SOCHAM, ] CII, I believe also from the cement industry. Individually, all of us have also made in various foras and forums. I believe in some cases for public sector enterprises, government has relaxed some norms.

So this is something to be discussed. I think we also made an appeal to the [ PTI ] and I think people are seized of it. We'll have to find a way to how best we can comply with the requirement at the same time, not have a disruption. But you can see for us, it's not too much. we have today with Penna coming in 50 operating sites in Adani Cement of which only 4 sites will have leases, which are coming in 2030. So not a major concern for us.

[Vinod Bahety, executive]

So just to reemphasize, a, for Ambuja, nil leases for 2030 expiring. Industry level, it is 25%. ACC, the percentage is much lesser. So therefore, at Adani Cement level, we are well-fledged compared to the others.

[Ritesh Shah, analyst]

This is very useful. Thanks for giving the numbers of 0% and 23% as well. Sir, so the question is, say, for Ambuja, the lease expiry is lower, the cost of inflation even with ROFR is likely to be lower, so that is where I asked a question specifically on the profit pool besides the cost saving initiatives. Do you think there will be a substantial shift in profit pool, how are you looking at it?

[Ajay Kapur, executive]

Come again, what do you mean the substantial shift of profit pool? I didn't follow.

[Ritesh Shah, analyst]

Sir, you indicated that the -- at Ambuja level, there's not much of lease expiries, which are there as compared to the industry which was at 23%. What this would essentially mean that the cross curve inflation for the rest of the industry will be significantly high as compared to Ambuja. Now if the cost curve for the industry increase is more than us, the pricing will increase and hence, our profitability pool technically should move up.

[Ajay Kapur, executive]

So I think Ritesh I have to thank you, you have already given the answer to your own question. Do I have to answer anything.

[Ritesh Shah, analyst]

Right. Sir, the idea was to understand how are you looking at this particular scenario? Like is this something which will drive consolidation?

[Ajay Kapur, executive]

I don't think this will drive consolidation. This is known to the whole industry, and some leases are coming for renewal in 2030, but there's a law that after 50 years, all leases have to come back for renewal. So this journey will continue as India moves forward. The cement capacity in India according to me will hit 1 billion tonnes, if it's not in too distant a future, I can see it already by next 7 to 8 years. We already had 420 million, 430 million and to double it itself to 900 million or 1 billion is not such a big time. It will double very fast. And for that, we need limestone.

We will certainly be making representations to the government. And I'm sure there will be some way out. There's still some couple of years time we have for that. But what happens, it happens with the whole industry, yes?.

[Operator]

[Operator Instructions] The next question is from the line of Jyoti from Nirmal Bang Equities.

[Jyoti Gupta, analyst]

I have two questions. One is when do we see Sanghi completely optimizing in terms of -- or rather ramping up in terms of capacity? by when? And when can we expect, I mean, like 85% or 90% from Sanghi cement happening?

Second is, with the Ultratech becoming almost like 180 million tonnes, and they're focused only on being -- taking the capacity minimum at 70% utilization will actually keep the prices muted and that will be a drag on the industry for the entire FY '25. FY '26, things could even don't know how it is going to pan out. What is your view on that?

[Ajay Kapur, executive]

So let me first answer your question on Sanghi. We are progressing very well on Sanghi. As of now, we are also seeing a substantial improvement in our volumes that we sell in the Gujarat state. This is almost like double the volumes we are doing because of Sanghi, number one.

Number two, Sanghi has 2 kilns. One was the earlier kiln and second one, they only set up 3, 4 years back. Both the kilns and the plants we have put on the major refurbishment program. This was part of our acquisition strategy. It was budgeted in our acquisition cost. I believe this whole program will come to an end by end of October or at the most mid of November. After that, I believe the last quarter of current FY, we should be hitting more or less full utilization of the clinker.

And then the next level of investments in Sanghi would be at our jetty and the shipping infrastructure, which also we have done first level dredging. I believe we have to watch this monsoon immediately after monsoon, the next set of investments will be made. So that's the question one off.

Also, we are considering connecting some wind investment into Sanghi because it is very, very -- in a very right region, we have a lot of land. I think in time to come, we'll come back and talk to you more once we have signed that contract.

[Vinod Bahety, executive]

And this will be over a number of the 1,000 megawatts.

[Ajay Kapur, executive]

Yes, yes. So we are already running 1 program of 1,000 megawatts. At Sanghi, we might make further investments so that, that plant becomes very cost efficient. Wind, as you know, comes at around less than INR 4 and the current cost over there is more than INR 7, INR 7.5. So there is a clear INR 3, INR 3.5 upside on the power cost.

So your second question is a more important one. I don't want to comment on my competition. That's not right. I can comment on cement industry at large. Prices had taken a toll on this quarter. multiple reasons. One, the industry growth was a little tepid largely on account of elections and then, of course, overall drag almost for 2 months in multiple elections and rain started early June.

So that had an impact. We have seen that all over, but you don't have -- you have not seen a very healthy increase. And on top of the volumes and some new plants which have come in, I think it's clearly added on some competitive pressures in the market.

You're right. As we speak to you, July has again had a very high rainfall. So -- but I think post Diwali again this year and with all the budgetary branch and also announcements, I read immediately post budget, a lot of analyst reports came out and people are saying at least 4% to 5% additional demand growth in cement can happen once these projects see a fruition.

So I think the good news is, on the demand side, we will again be back to 7%, 8% growth. There is always an overhang of about 100 million, 150 million tonnes of cement capacity in India. So no one player can be responsible for too much. I think it's there at the large country level.

What is important is to see if we have 8%, 9% demand growth every year, we will add about 40 million tonnes of additional demand. I think over a period of time, and then if you go geography wise, you will still find some geographies which are about 78%, 79% utilized and some geographies which may be 65% like I'm saying South India. So you have to basically cut and paste and look at India in pieces, not as one piece.

[Jyoti Gupta, analyst]

Sir, subsequent to that question, again, two things. One is, do we see high maintenance costs being built up in the second quarter because you usually monsoon is a time where most other topline prefer maintenance.

So obviously, there will be a new inventory buildup and therefore, again, a higher cost of raw material in the second quarter as well, which will again take a beating on the EBITDA better?

And second thing is first quarter was not such a great quarter. Still, ACC has done 10.2 million tonnes in terms of volume, which I believe is a significant number.

[Ajay Kapur, executive]

So basically, you see when you see our presentation, which is loaded on our website, you have ACC numbers, you have Ambuja Cement numbers, you have Sanghi numbers. We have an MSA under which both ACC and Ambuja, we use each other's facilities and try and optimize our distribution and cost to serve under which you have seen ACC has a high growth, but if you see at consol Ambuja level, the growth is with CLC, as we call it Cement & Clinker, 3% and cement stand-alone is about 1%.

So I think basically more the market has been below. As I mentioned, the industry demand also I'm not looking at more than 1%, 1.5% for this quarter. So we are more or less in line with the industry demand, prices have taken a knock and that knock is straight away reflected in the EBITDA per tonne. Some part of it we have been mitigated with our power and fuel cost with our freight cost.

You have seen raw material costs slightly higher. This is on account of clinker purchases. I believe, as part of the Penna acquisition, a lot of the reasons of that is also Penna will give us very good quality and low-cost clinker to our grinding units in South, including Tuticorin, including Thondebhavi , including Madukkarai of ACC and I think that you will see uptick coming in once Penna comes to play. And therefore, the cost of this quarter will get mitigated.

[Jyoti Gupta, analyst]

And sir, the other one which I asked in terms of this quarter for maintenance costs, do we expect plants shutting down. So again, we'll have a inventory buildup.

[Ajay Kapur, executive]

We have 14 plus kilns. Each kiln has to take its scheduled 20-day shutdown. Some of them have happened in the previous quarter. One of them was not to happen, and therefore, you have seen a little bit extra. Rest of that will happen from now till December, but I don't see any worry on that count.

[Operator]

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

[Prateek Kumar, analyst]

My first question is on your cash position. So you mentioned out of INR 60 billion drop in cash position, INR 33 billion was towards expansion and related initiatives. Penna related payment, is it done already on the balance sheet in the first quarter?

[Vinod Bahety, executive]

So Prateek, in terms of Penna, in June quarter, Penna is not on the cash outflow. But as you also covered, a major part of the outgo is on account of the CapExs. And on top of it, you have a payment of dividend, which is for the year but gets paid out, which is close to INR 600-odd crores. than you have healthy tax outgo. And on top of the Tuticorin acquisition proposal to INR 150-odd crores, which has actually gone over there.

And what we've also seen that, while as I mentioned, a little subdued quarter from an overall industry perspective, it also results into buildup of inventory and also buildup of receivables and therefore, you have seen some uptick in the overall working capital. But good part is a heavy outflow on the CapEx.

Actually, it is a positive thing given that the organic growth is now getting good full momentum. In my initial answers to the questions I highlighted how now speedily, things are moving on the green power, which will see a good outflow of almost like 4,500 share in next 12 months. So that is overall from an outlook perspective. As of now, we are sitting on close to INR 18,300 crores of cash and cash equivalent on Ambuja consol.

[Prateek Kumar, analyst]

Okay. And generally, what is the expectation for full year CapEx ex of around INR 3,500 crore outflow for [indiscernible]

[Vinod Bahety, executive]

Full year CapEx, Prateek, we have a target of closer to INR 10,000 crores, both the growth CapEx as well as maintenance CapEx and after factoring in the Penna outflow and after factoring in the CapEx outflow and with the overall cash -- operating cash flows our expected end year cash and cash equivalent will be closer to INR 10,000-odd crores.

And as I mentioned that this will actually -- after the outflow for the Penna and the CapEx. So there will be still a healthy cash and cash equivalent of closer to INR 10,000 crores.

[Operator]

The next question is from the line of Rahul Gupta from Morgan Stanley.

[Rahul Gupta, analyst]

A couple of questions. So just taking the previous participant's question forward. So we saw around INR 20 billion sequential decline in cash position for ACC as well. is it more driven by a buildup of inventory and higher working capital outflow? Or can you just please help us give a breakdown of this INR 20 billion. And my next question is.

[Ajay Kapur, executive]

If I answer your first question or do you want to put your second question. Okay. Same again, like both ACC and Ambuja and of course, Sanghi as well. On a consol when I've highlighted, the factors are the same, more or less. Even in ACC, we have seen a good build up on CapEx as well as, of course, on the working capital as well and dividend and tax.

These are like key components, which also reflects for ACC, it reflects more on the CapEx part for Sanghi and also more on the CapEx part for Ambuja as well as the working capital. So these are the key factors which actually has seen the outflow.

[Rahul Gupta, analyst]

No, I understand that. So the reason I asked this question is, we are not seeing any material CapEx plan for ACC at least in the near term. So what specifically is driving this large INR 2,000 crores.

[Ajay Kapur, executive]

Earlier we had highlighted ACC is building up an office building in Ahmedabad and we are also putting up an office in Delhi. So that is like one CapEx that is coming in the books of ACC. And on top of it, some of the investments when we acquired the Rajpura unit.

And when we also are modernizing the Wadi unit, you will see line items there in terms of the CapExs. So in September, when you will actually see the balance sheet of ACC, you will actually be able to see those numbers.

[Rahul Gupta, analyst]

Okay. Great. My second question is more on your strategy. We have ACC as a listed subsidiary, we have Sanghi as listed subsidiary, now Penna could come under Ambuja as well. So can you just help us understand what the management strategy is from here on with respect to consolidating everything into one entity? How should we look at all these companies going from here?

[Ajay Kapur, executive]

As far as we had some subsidiaries -- not subsidiaries, sister concerns in the group that we already rolled plan to merger with Adani cementation and Adani industry, which basically has limestone leases in Gujarat. It has a cement branding unit and a land parcel for a jetty in Mumbai, Raigad, and it also has a branding unit of Dahej and also an expansion going on at the same. So that is Phase 1 that cleans up and brings into one pocket.

As far as Penna is concerned, it's acquired through Ambuja and at end of the completion, it will become a wholly-owned subsidiary of Ambuja. It won't be a listed entity. So to that extent, we have to deal with it differently. Today, we don't have a mandate to speak about that since it's currently under acquisition.

As far as Ambuja and ACC is concerned, I repeated time and again that as of now, we run our cement business as one management organization. All the advantages, synergies we are driving through the MSA. And MSA has now reached a level where we are far higher than what we were 2 years back. And I'm very happy that teams are working together. One procurement, on sales, on operations, on finance, one digital, so on and so forth.

So I think to that extent, and yet we have brands in the market, which are separate. As of now, we have no such plans. Whenever we have something to announce, we will sub -- certainly come out and talk about it.

[Rahul Gupta, analyst]

Got it. Sir, just to understand this clearly. So right now, the company does not have any plan to take ACC and/or Sanghi private and these -- the company will have 3 different listed companies as of now, and we don't have any clarity on that right now, correct?

[Vinod Bahety, executive]

No, no, actually. As Ajay Jee highlighted, when the clarity emerges, it will be also informed to you. So obviously, when things fructify, you are the first person to be informed, rest be assured. So yes, I think we'll just move on this point now and at the right when things move, we will inform markets.

[Operator]

The next question is from the line of Pulkit Patni from Goldman Sachs.

[Pulkit Patni, analyst]

So my first question is on capital allocation. Given the fact that you have a stated policy that your growth is going to be either internal accrual funded, there will be no debt involved. The fact that we are putting in quite a large sum of money behind these solar power plants and the fact that we are talking about the industry also growing quite meaningfully, and I'm sure we are going to want to match for that market share. .

Why is it that the focus is to install green power when you can actually get it from multiple sources, including our group company. So just wanted to understand what's the thought behind putting so much money in renewable power when we can actually buy it from outside. That's question number one.

[Ajay Kapur, executive]

Pulkit, very good question. When we took over the business and we laid out a certain road map, one of the strategic lever, see cement is one of the highest CO2 emitters. On one hand, we have 2050 zero emission target. 2030, we have a target to reduce our CO2 emissions. I think for the entire cement business to about sub 400 or around 400. We have to mitigate those as part of our ESG responsibility.

Globally, in Europe and all, there's carbon tax, it is not there here today, but someday it can also come. So we have to be very aware that as a responsible company, we do things which are not only environment compliant but also cost effective.

With the strategy and with this investment of INR 6,000 crores, which my colleague just explained, we are going to also get a benefit of close to INR 100 per tonne on the cost of production, thereby improving the EBITDA and thereby improving performance.

Now as far as our expansion CapEx and growth CapEx is concerned, the company over a period of time, targets a reduction of cost by about INR 550. Green is about INR 100 of that INR 550. There are other initiatives also which includes waste-heat recovery, which I spoke in my opening.

We are obviously hitting by the end of this year, 180, which we started was only 40 and our end state would be more closer to 300 by the time we hit FY '28 on wasted alone. So it's not just the solar we're also working on waste.

Solar is something which pays by itself. The return on investment is sharper, improves the performance. And then on an average, the run rate at which we estimate we are going to deliver our EBITDA and bottom line. At the same time, the cash burn we'll have for our new expansion, we believe over the next 5 years, we would have adequate cash this year after acquiring INR 14 million of assets and building another INR 10 million, INR 24 million would still have a cash left of about INR 10,000 crores to INR 11,000 crores because next year, we'll also be adding from our operating and thereby, we still have a healthy cash flow as we move around.

So we have done that math, Pulkit, as it makes perfect sense for us that to turn green, to turn lowest cost and I think to turn lowest cost is the only license to expand your capacity, and we want to deliver on both the comps .

[Pulkit Patni, analyst]

Sure, sir. Sir, that's clear. Sir, my second question is we've done about INR 800, INR 810 EBITDA per tonne this quarter. And based on the target we have to get to INR 300 -- INR 3,650 cost. We are looking at about INR 800 EBITDA per tonne improvement from here on. Any sense on whether this is based on some assumption on pricing? Because I think while you're doing a lot on cost, I think pricing is something that has been disappointing in general. So I'm just trying to get to the ask which could look a little steeper based on where the industry stands as we speak.

[Ajay Kapur, executive]

So clearly, you picked up the right question. What has happened is prices today for most of the companies have fallen anywhere between 5% to 6%. And the same has been the trend for us as well. So for this quarter, the price has fallen more like INR 370, INR 380 a tonne versus that, EBITDA has fallen by INR 200. So part of it, we have mitigated through volume and cost, and part of it is directly reflected in the EBITDA decline.

Now this price is the lowest price, I believe, in the last 36 months in most of the markets, especially in some of the markets where there is extra capacity. I believe going forward, the trend will change again after Diwali, which happens every year because right now, we're in monsoon. And then we should again go back to the normal pricing.

Our estimate of INR 550 cost is independent of price because cost is something it's in my hand. Price is something which is more discovered in the marketplace. Like you have seen in this quarter, it has taken a beating. It's also taken a beating because of tepid demand, which I mentioned, largely on account of elections and early monsoon.

[Operator]

[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie.

[Ashish Jain, analyst]

Sir, my first question was on this on the INR 500...

[Operator]

Sorry to interrupt you, sir. May I request you to please use your handset?

[Ashish Jain, analyst]

Yes, am I audible now?

[Operator]

Yes, sir.

[Ashish Jain, analyst]

Sir, on this INR 550 cost savings that we have been talking about, how much of it is already there. Is it possible to quantify that?

[Ajay Kapur, executive]

So Ashish, when we started the journey way back in September, our cost was more like INR 4,800-odd which was brought down in the first year to INR 4,400. And currently, as you can see, we were still at INR 4,400-odd. So I think some part of it has already come in, but some part of it is currently projects under play. So what is under play is full utilization of our waste-heat recovery.

And so the number was September, we were at INR 4,844. FY '23, we were at 4,740 and FY '24, we were at 4,184. So from that 4,184, we are targeting of INR 550. It will come from basically freight. It will come from power and fuel, it will come from raw material and it will also come from optimizing our other fixed costs and other expenses. So I think that's the journey. You have the numbers with you all the 3 years.

[Ashish Jain, analyst]

Sir, just two clarifications on that. One, earlier in the call, did you say that the secondary lead distance, you plan to reduce by 100 kilometers?

[Ajay Kapur, executive]

Yes, I said that, but that will happen by FY '28, '29. When I have a full play of 140 million. And also when we started, we were at about 34 units -- 35 locations. We will end this year by 50-plus locations as the number of locations increase, especially in the grinding and you ship your clinker by railway wagons, some of which are owned by us, thereby giving us also advantage on, on-time service and also savings because of this initiative.

We then distribute cement at a radius of about 100 kilometers, and that's how this number was calculated and we are very much tracking that. Plus the sea transportation, which we'll enter, this will really increase us. And this is sort of primary, not for the secondary. Primarily lead, I'm saying will get reduced.

[Operator]

The next question is from the line of Sumangal from Kotak Securities.

[Sumangal Nevatia, analyst]

First question is on the volume growth. So if you look at a growth around 6.6% at consol level is still much lower than the peers who have reported could be the case of higher utilization. So I just want to understand by when do we expect these losses to kind of reverse given the capacity expansion is more back-ended in FY '25. Should we expect market share gains starting from '26 only?

[Vinod Bahety, executive]

Sumangal, last quarter, if you saw we had a 17% growth in volume, which I think was pretty much in line or better than the industry. In this quarter, we had 2 markets where we suffered volume losses. You will also find from our investor deck that we have loaded because we give now a breakup even region-wise.

Basically, East region and South region is the two areas where we were losing out on volume growth. We gained market in North. We gained market in -- we maintained market in center, and we gained market share in West. In East and South, we had a little bit of a capacity constraint this quarter.

As I mentioned, there was one unscheduled shutdown. And therefore, even though our utilization was higher in East, we were still not able to recover fully. So I believe this should get corrected from the current quarter.

[Sumangal Nevatia, analyst]

Understood. And just one clarification. This office building CapEx, can you share detail what is the exact amount? And is it being shared by other group companies, some details on this?

[Vinod Bahety, executive]

No. So like we are constructing a full-fledged cement house in Ahmedabad. And this will be almost closer to INR 600 crores to INR 700 crores. and other offices which we are constructing as a regional office is in Delhi, and that would be also a tad below INR 500-odd crores. So together, a little bit of say INR 1,000-odd crores will be the 2 buildings coming up, both in Ahmedabad and Delhi.

[Operator]

The next question is from the line of Prateek Maheshwari from HSBC.

[Prateek Maheshwari, analyst]

Sir, first question, I'd had on new prices. If I look at the 2 quarters, in prices or your realization itself is down about 11%. So my question was, sir, now in the quarters ahead, you will be looking to ramp up on your Sanghi industries asset and also on the Penna. So would you see that the prices could ramp over such as the prices could also further see some pressure? Or are you seeing the bottom is there now in these prices?

[Ajay Kapur, executive]

So Prateek from my perspective, I think our prices were down about 5% to 6%, not 11%. You can separately correct and see where it is coming from. That's what we have reported, and that's what it is. Prices today, as I mentioned, for all companies, you've seen sequential declines. It's also, as I said, largely because of this year, we had elections and for multiple phases, so the entire month, we saw challenges on that.

Prices generally tend to recover after the monsoon season. So I believe post monsoon, we should -- like normal trend, prices should follow the normal trajectory because demand supply tends to match more in the quarters of December and March. And as I mentioned in the budget, there are very good initiatives which should also help us give that extra respite of demand, which should also help improve market sentiments.

[Prateek Maheshwari, analyst]

Okay. Sir, got it. Sir, actually, I meant from the December quarter to June quarter, the prices are falling by that much.

[Ajay Kapur, executive]

Last year Y-o-Y. About 2%, 2.5%, and Y-o-Y, it's gone up by about 6% to 7%. [ 6.5% ] decline in prices sequentially.

[Prateek Maheshwari, analyst]

Sir, I wanted to check about -- again, the comment on the cost front, right? So INR 3,650 of operating cost target by FY '28. I think the ask now has become much higher about INR 800 per tonne as well, right? And while you have given us across these segments, you have given us what is the potential of reduction. .

Just again, sir, on that thought, just wanted to understand, sir, is this -- this target of INR 3,650 regardless of the inflation that we see because everywhere and which we are seeing for the last 7, 8 years, we have seen 1% to 2% of inflation. And that would itself make this number much higher versus INR 3,650. So just wanted to understand, is there a margin of safety or this is just on the current prices and the inflation would play its role.

[Ajay Kapur, executive]

So Prateek, basically, as I said, I'll repeat again four numbers. INR 4,844 was the cost in September '22, INR 4,740 was a cost in '23, INR 4,184 was the cost in FY '24. From the INR 4,184 costs we want to achieve at least INR 500 to INR 550 reduction. We are firmly on track. Yes, this is the way things stand today. All other costs, we are very clear. it's the energy cost, which generally gets adjusted because today, coal is -- there is an index which gets adjusted every few years.

If the index gets adjusted, this cost gets adjusted. But our target is to get to this cost but if there's a general inflation, it will also still give me a relative benefit of my own number versus this number. So I think net-net, it will directly show in the EBITDA.

[Vinod Bahety, executive]

Yes. Yes. But there are also some basically other offsetting items Prateek, like this number which we had given was in [indiscernible] right? Now Penna with all the logistics trends, I'm not even right now factoring in. So some of this, for example, when you see inflation and then there are some of the other measures which will offset on an overall basis, I think it's what we have considered that we should achieve INR 3,650.

[Operator]

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Deepak Balwani, for closing comments.

[Deepak Balwani, executive]

So thank you for your time. I hope most of the questions have been answered. If you have any unresolved queries, please contact us, and we look forward to the next quarterly call before Diwali. Thank you, Nomura, for organizing this. Thank you.

[Operator]

On behalf of Ambuja Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.