Ambuja Cements Ltd

NSE:AMBUJACEM

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to Ambuja Cements ACC Limited Q3 FY '23 Earnings Conference Call hosted by Investec Capital Services. Please note this call is only for buy-side and sell-side analysts. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ritesh Shah, Analyst Materials, Head Mid-Market Coverage, EFG from Investec Capital Services. Thank you, and over to you, sir.

[Ritesh Shah, analyst]

Thank you, Lusan. I, on behalf of Investec, thank you for joining Ambuja Cements ACC Limited Q3 FY '23 Conference Call. We shall have a detailed business update from the management and the way forward.

Today, we have with us Mr. Karan Adani, Chairman, ACC and Director of [ Cements ]. We also have Mr. Ajay Kapur, CEO of Cement business; and Mr. Vinod Bahety, CFO, Cement Business.

I would hand over the call for the prepared remarks. Post which, we will have a Q&A session. Over to you, Vinod.

[Vinod Bahety, executive]

Yes. Thank you very much, Ritesh. Thanks, Lusan. Good morning, all of you. On behalf of Mr. Karan Adani, Ajay Kapur, myself and on behalf of the management team, I welcome all of you. Thank you for joining us today for the analyst call.

Let me provide some highlights of the performance of December quarter, and I will right now discuss on a consolidated basis. This has been our first full flat quarter under the new promoter, Adani Group. The company has, in real sense, embarked on a transformational journey, which has resulted in sizable operational efficiencies across all the business parameters and which has resulted into a good jump in the financial performance quarter-on-quarter.

On the industry level, the cement industry saw higher capacity production with a good pickup in demand during the quarter. We have seen a healthy increase in our top line of around 11%, coupled with a good reduction in the overall cost. The cost optimization is led by production in the overall fuel cost and take more in detail and the other operational efficiencies. This has helped us to improve the EBITDA margin, which has expanded by 8% from 6.1% to 14.4%.

A notable point here is also the synergies within both the companies, the parent company, Ambuja, and its subsidiary, ACC, as well as with Avani Group. On the EBITDA level, EBITDA has jumped by 161% at an absolute amount of INR 1,138 crores quarter-on-quarter. This is led by a higher revenue base of INR 8,036 crores, and we expect this trend to continue in the coming quarters, then we will see a full impact of our performance improvement levers.

Net revenue was sequentially up by 11% and year-on-year, 4%. We -- with our new capacity of Ametha, which we are targeting, it will be commissioning somewhere in March, and the commercial work will start somewhere in Q2. And this did include the 3.3 million tonnes of, say, clinker capacity and 1 million tonnes of regaining unit. And also debottlenecking of additional capacity and asset sitting, we expect our top line to be moving healthy going forward.

We have a strong product portfolio, a strong brand -- legacy strong brand along with premium product in our core markets, and we continue to have market leadership on those core markets. Overall, an important factor on a per metric tonne, my cost has come down by INR 283, which itself give a bump to the EBITDA by INR 220 crores. And as I said in my earlier remarks, fuel cost, as you now, are lower in this factor.

We expect to optimize further our cost by leveraging the synergies from the adjacency businesses of Adani Group apart from our initiatives on improving overall efficiency factors.

On the volume front, we achieved a growth of 7%. And as I mentioned, the trend continues to be positive on back of the increased CapEx on the housing, on the infrastructure. Budget has been also very positive for this sector.

On the cost front, some of the key achievements, and these are like the operational factors quarter-on-quarter, kiln fuel cost has substantially reduced from INR 2.84 per 1,000 kilocalories to INR 2.45 per 1,000 kilocalories, thereby resulting into an overall decline of 14%.

Logistics costs reduced by almost 6%, and it is now residing at INR 1,339 per tonne, and we have further more initiatives planned here to bring it down. The raw material cost has come down 5% from INR 703 per tonne to INR 667 per tonne.

On a stand-alone basis, for Ambuja Cement, it has also recorded a substantial jump in the sequential EBITDA by 103% at INR 715 crores. The net revenue sequentially up by 13% and year-on-year by 11% at it stands at INR 4,218 crores and volume is up by 11%.

The robust sequential PAT growth by 166% and Y-o-Y PAT growth by 46% to INR 369 crores. Within real sense, the momentum has begun for all the initiatives being taken. EBITDA margin expanded both sequentially and Y-on-Y at 17.5%. While on a consolidated basis, we were at 14.4%, but Ambuja stand-alone is on a higher side at 17.5%.

The company remains 0 debt, debt-free with a healthy position of cash and cash equivalents close to INR 9,500 crores, to be precise INR 9,454 crores. This augurs very well for the journey to achieve a market leadership apart from the whole [indiscernible] on the lowest cost basis in the natural markets.

Working capital remains a key focus area for us, and we have seen a good improvement in the overall inventory as well as the trade receivables, which have come down, what we say, the DSO, it has come down from 10 days to 8 days.

Ambuja Cement remains committed to achieving significant size, scale and market leadership with strong emphasis on margin expansion. The base has been created in December, and it is -- quarter-on-quarter, we are expecting to be better from here, and adhering to the world-class ESG standards. And we'll discuss more about the ESG achievements both the companies have achieved.

On the growth part, we remain committed to increase our waste heat recovery system capacity to almost 190 megawatts by March 2025 from the existing close to 65 megawatts as of December 22, so which is almost 125 megawatts plans to increase this factor. We have relaunched our green initiatives of using the waste management under Geoclean. We plan to accelerate higher consumption of waste material. This quarter, we saw the highest ever AFR consumption, which we will continue and improve it further so that the thermal substitution rate of the plant, we achieved to our target of 30% by 2027.

To further strengthen our ESG leadership, Ambuja's sustainability strategy is led by its sustainable development plan of 2020, which we have covered in detail in our analyst presentation, which was released yesterday. Our ESG highlights make us proud. If I just have to give 1 or 2 examples, ECOMaxX and concrete, which has been launched to augment the solution in R&C business, and we see a good growth in the R&C. So it will likely help us to have the solutions there.

Significant first, I highlighted about WHRS. I mentioned about AFR, and of course, we are going to also use the group's strength on the renewable power. This will help us to improve substantially on our objective of circular and great economy.

Water governance, a key factor. Ambuja is, by far, the leader because we are 8x water positive. And on the sustainable livelihood, women empowerment, the rural infrastructure, the social inclusion, we have a very robust CSR initiatives, led by Adani Foundation, also Ambuja Foundation. And the teams, all of them are collaborating very, very well. The company has won several awards recognition for its outstanding work in ESG, the water positivity, the secular economy and CSR, which I won't repeat because that has been shared in detail in the investor presentation.

So let me conclude by saying that our business fundamentals remain very strong. We are well positioned to continue with our growth trajectory and remain market leader in the segment. Now I request Mr. Ajay Kapur also to give a broad overview on the strategy and the way forward. Over to Ajay.

[Ajay Kapur, executive]

Thank you, Vinod. Good morning to everyone. Very happy to address all of you on our first investor call post Adani Group's acquisition of ACC and Ambuja.

As already highlighted by Vinod and as already -- you would have seen our investor deck, what we are trying to achieve is largely a 3-step approach. First is, here and now, we want to improve our operational performance. We had engaged even before we have acquired consultants to work with us. We are very happy to say that all the efficiency improvement projects are now underway, and we expect to start seeing the benefits of improved waste heat recovery, alternate fuels, our flash drying investments, improved clinker factor, product mix, playing on the power of ACC Ambuja brands and also premium products.

We have started relooking at the logistics, which we believe we have a very strong fundamental position in Ambuja with our Western Coast serviced through railway. We were one of the pioneers in starting the hub and spoke model of cement grinding units way back 20 years. We are bringing it back with full force. We're taking full advantage of the adjacencies within our Adani Group.

We will be looking at home wagons. We'll be looking at terminals, grinding stations in time to come as part of our vision to become the lowest cost to serve. And I repeat cost to serve because it's not just cost of production, it's also how you reach the market. And then I would also relay our plan to double our capacity from 67.5 million to 140 million, and we have already initiated actions in all these areas.

As we said this, we are also aware that ESG remains a fundamental focus and the pillar on which the entire working and strategy there. We are mindful of the customer excellence. Therefore, we are launching in this leg now a next set of initiatives to service our customers. We have taken some initiatives in improving direct from factory dispatches. These numbers are already reflected in our last quarter results. We have improved by 5% or 6% share of direct dispatch from most of our plants and grinding station.

We are also focusing a lot on improving our limestone reserves as well as strengthening our resources. A lot of work is going on. We are relooking at the entire mining strategy. We are relooking at our coal mine and also going forward, adjacencies with the group on coal and coal basket, what we call it the solid fuel.

You would have already seen a larger and a more focused thrust under Geoclean, which was earlier Geocycle. We have rebranded it as Geoclean. We want to actually accelerate our alternate fuel by 2027, not so much in the future to 30%. And I believe that will be a game changer. And we will take our waste recovery to about 190 to 200 megawatts, which would basically mean 40% of our power will be green power.

So I would say those would be some of the fundamental shifts, which will allow us to emerge at lower cost and also one of the largest and the most well-branded cement company in the country. Vinod?

[Vinod Bahety, executive]

So with these remarks, I thank you, Ajay. And now I would request Ritesh further proceed.

[Operator]

[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, analyst]

We hope such interaction become a regular affair. My first question is on our growth vision. I mean, initially, we had articulated a 5-year target of doubling capacity to 140 million tonnes. We don't see that in the latest presentation. So if you could just share and articulate what is our medium and long-term capacity goals and also what could be the likely mix of organic and inorganic.

[Ajay Kapur, executive]

Yes. This is Ajay here. I'll take this question. Number one, we remain committed on doubling the capacity goal, which is a 5-year goal we had set in September '16 on the day of the takeover. As of now, we are looking at all greenfield, brownfield expansions within the group, number one. Number two, we believe there is still potential within our assets to strengthen more. So we're actually looking at releasing some clinker from debottlenecking, and we already started some work on that direction. Today, I will not be able to share that with you. Maybe in the next analyst call, we will have a separate discussion around our growth plan.

However, on the efficiency, we have started a whole lot of projects, as I. Already mentioned to you. We have a road map for waste heat recovery. We already have road map on AFR improvement further. The first set of investments were made by Ambuja ACC 5 years back. We have now started the second leg of investments. Most of our plants have now fly ash dryers, however, they are not investing in both because we believe that will help us going forward. Each of this, we are also looking at and very mindful what does it bring on the efficiency side, on the OpEx improvement side. So -- and these are all mid-term and now in here. So all these investments have already started.

In terms of new clinker line, I will come back to you, as I mentioned, in the next call. And on the M&A side, we are constantly evaluating for opportunities as and when they remain attractive. We obviously have become far more strategic in looking at new limestone mines, and you will keep hearing from time to time. However, we want to be mindful that we don't also want to acquire an asset where it is [indiscernible]. So you will see that also in our strategies.

[Sumangal Nevatia, analyst]

That's very reassuring. Any particular number we are looking at the next 3 years, 5 years?

[Vinod Bahety, executive]

I'd rather not have a guess here. When we come back, we'll give you exact details, which plants ordered and what is the commissioning date. So I think that will be a much more better way to address this.

[Sumangal Nevatia, analyst]

Yes. Got it. Got it. That's very helpful. My second question is on the related party transactions. Just want to understand, is this payment for coal contracts to a related party? And is it a onetime thing or something which could continue? Also, I mean, as per assessment, what would be the quantum and areas of related party transaction as far as the cement company is concerned with other group companies on a steady-state basis?

[Vinod Bahety, executive]

Yes. Thanks, Sumangal. Sumangal, first of all, in terms of -- I will answer the second question. In terms of the related parties, for example, between Ambuja and ACC, we are bidding lots of synergies between both the companies. During the earth promoters, they had the approved RPT of almost [indiscernible] in December, which we have increased it to [ 3,000 ] in subsidiary to March. And prospectively also for next year, we see more healthy working between both the companies. So that is one component of, say, a related party, which will be properly will come to the shareholders and with the approval of the requisite Board and all. That is one part.

So on the other part, in terms of the Adani Group related party. We have not seen any significance for December quarter, except few crores here and there, and that is very much within the fair announcement back in basis. So I can just rest assure you because we will go through all the meters. I want to just highlight that we have almost like almost 11 committees, Sumangal, and a robust framework. So we have almost like 7 committees, which are purely governance committee and these are not structural committees. So therefore, I would say that the emphasis on the RPT is more between ACC and Ambuja, which prospectively they will be working more synergistically.

On the coal part, Sumangal, again, I think I would say, and again this year, there is no related party here. It is a proper trade, and I can go in more detail. So we have entered into contract, which is unique, where we have a contractual agreement for supplies of almost 16 lakh metric ton of stake coal. This has to be supplied over a period of, say, 6 months, and we expect that this will be completed between March to June quarter.

Over here, we have put a cap on the overall price for the supplies, which is a CIF agreement on the port of Bargar like [indiscernible]. So there's a cap on the oral ship price, which is $157, and any fall in the global benchmark. And here, we have used the benchmark, which is the RB1 benchmark. So any fall over there will also get passed on to us. I will just give simple synopsis that this import of coal actually has helped me -- helped the country to bring down the overall cost of fuel in terms of [indiscernible] kilokelvin because, effectively, this comes to me as a ballpark as of now, 1st of December, if I do an analysis, close to about INR 2 or INR 2.10 per kilo calorie, which is actually resulted when I said that 14% of the cost has run down on the fuel. This is a major also component.

Also, I can, in the same risk, say that out of this INR 15 lakhs, almost INR 3 lakhs have been delivered already and the shipments are there. So I think that summarizes my overall point on this particular trade. And going forward also, we will be evaluating opportunities to how to bring down our overall coal cost because that's also, as you know, in September, our companies were significantly affected both ACC and Ambuja. And it is important to do some kind of hedge here for some partial quantity. So Sumangal, this is where I would attend to.

[Sumangal Nevatia, analyst]

So this is very elaborate and very reassuring. If in the same breathe, I can just....

[Operator]

Sorry to interrupt, Mr. Sumangal. May we request that you return to the question queue. Participants are waiting for their turn. Thank you.

[Operator Instructions] The next question is from the line of Pinakin Parekh from JPMorgan.

[Pinakin Parekh, analyst]

Sir, just to clarify, I assume that the counterparty for the coal transaction was a group company. And going forward, the adjacencies that we are talking about, which should lead to synergy benefits and OpEx savings can follow a similar transaction model where there is an upfront cash payment from ACC Ambuja and in return, there is effectively synergy benefits and OpEx cuts that we get. Would the coal model be replicated when we are talking about the various adjacencies at a group level?

[Vinod Bahety, executive]

So first, to clarify again, if I responded to Mangal, so there is no RPT in this particular trade. There is proper -- all the [indiscernible] are properly treated, so that is one point. But whether it will be aspirational for the good service synergies on the coal and the flyers and the logistics parts to bring synergies, absolutely. We will be very much looking at it, even harping on this point in time, and again that the group has this advances businesses, which brings lots of advantage to our main business. So we will be looking to those opportunities going forward.

And of course, without -- so on [indiscernible] principles remains there on the RPT transactions. And it is part to be natural, so -- and I mentioned that there is a robust governance framework here.

[Pinakin Parekh, analyst]

My second question is that when you're looking at the presentation, we talk about Adani Cement. We talk about the consolidated level, and we have a growth plan at the consol entity. Is the current structure of having 2 list cos, ACC and Ambuja separately, the optimum one? Or should we look at the collapse into one single listed entity at some point of time over the coming quarters?

[Ajay Kapur, executive]

This is Ajay here. So first thing we did on the day of acquisition, we have -- while we have 2 independent boards with independent governments, we have unified the management team, which runs the cement business end to end. So I, as a CEO, am responsible for the entire cement business. Vinod, as a CFO, is responsible as a CFO for the entire cement business. Likewise, all function heads and even up to the regions, the regional cement manufacturing officers, sales and marketing officers, logistic officers, HR, Finance, everybody looks at end-to-end for both. So that's the first thing we have done.

And also the NSA framework, which was rolled out by the previous management, we've almost made it like way of life on a day-to-day basis. It was seamlessly and so whatever advantages to be taken out on scale and size, we're already squeezing the lemon, I would say, to the last tons, number one. Regarding your question on structure and whether a merger or not, I do not think today that is on our table. It depends when it comes on the table, we'll certainly discuss about it.

[Pinakin Parekh, analyst]

Understood. So you're effectively running it as a one company internally. But externally, we have 2 listed entities.

[Ajay Kapur, executive]

Yes. Yes, please.

[Vinod Bahety, executive]

That is true. And that is where the synergies are coming.

[Operator]

The next question is from the line of Navin Sahadeo from Nuvama Institutional Equities.

[Vinod Bahety, executive]

Please be louder, I'm unable to hear. What's the name, please?

[Operator]

Sir, this is Navin from Nuvama.

[Vinod Bahety, executive]

Okay.

[Navin Sahadeo, analyst]

Right. This is Navin from Nuvama, formerly known as Edelweiss Securities. Sir, two questions. One is when we look at Ambuja's balance sheet, there is a very sizable increase in the capital advances to the tune of almost over INR 1,700-odd crore. Now in the previous question, I think [indiscernible] said that like those plans of expansion, specifically detailing clinical-wise or location-wise or exact capacity-wise, you will reveal in the next quarter. So they are -- I'm assuming they are in the works as we speak. So just wanted to understand because of the total INR 2,600 crore plus amount that has been spent towards CapEx by Ambuja, the sizable portion lies in capital advances. So if you could just help us understand what exactly is the nature and what is the CapEx under consideration.

[Ajay Kapur, executive]

Yes. Good. So I'll take it. First of all, about 600 is lying in inventories, which I think is a normal business. We have a plan, as I laid out in my opening to look at 3 levers. One is now in here. Second was logistics and supply chain related. And third was growth and expansion. Within growth and expansion, again, one is going out, setting up a new brownfield kiln and new greenfield clinker grinding units.

But the second way, an optimal way in between is to start getting out a little more clinker from your old kilns. In the process, you also make them more competitive. You reduce the server energy. You improve the coolers. You make investments in your mills. You put -- we are -- you put grinding expansions, packers, buying new rigs, all that. We believe in a short term and a sharp midterm, I would say, around INR 10,000 crores is what we have envisaged. And this is what the work and progress you're already seeing in the balance sheet. We'll obviously give you more details in time to come. Each of them is highly accretive and also fastest bank on our buck. So I think that's where we are.

[Navin Sahadeo, analyst]

I appreciate it. And as you said, INR 10,000 crores being envisage towards this CapEx is actually heartening, and those benefits I'm sure will come. My question still remains why not under CWIP, if I may, just trying to understand this a little better in the interest of everybody? And why in capital advances?

[Vinod Bahety, executive]

So just to -- I guess on that point, this moves from capital advances to CWIP will be ongoing progress. So this is the milestones. We will keep on adding to the CWIP. For example, as you see, the Ametha project also, which is on the overall sales and [indiscernible] part, all of that, for example, with the milestone, it keeps adding to the CWIP part. So I will just say that this is a factor of completion of the milestone than the accounting-wise, it moves from advances to CWIP. And this overall CapEx plan, which Mr. Kapur, that is the program over, say, 18 months across the various segments, which he mentioned.

[Navin Sahadeo, analyst]

Okay. I appreciate it. My second question is...

[Operator]

Sorry, Mr. Navin. Sir, may we request that you return to the question queue. There are participants waiting for their turn.

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

[Satyadeep Jain, analyst]

A couple of questions. First, on capital allocation. We do understand that there is no debt on the balance sheet of ACC and Ambuja, but there was data in the promoter entity for these acquisitions. Would there be -- as you look at capital allocation, would there need to obtain some of the cash for debt payments at all? Or would the entire cash flow for ACC and Ambuja would go towards CapEx? And tied to that, some of the previous questions, has there been any equipment ordering at all yet? That's the first question.

[Vinod Bahety, executive]

Yes. Thanks, Satyadeep. So Satyadeep, there is a proper dividend distribution policy the company -- what the company have. And at an appropriate stage, if there's any development, it will be properly informed. So that's a surprise because it is to be taken in, if at all. So as of now, this will go with the dividend distribution policy, which is there.

From the second question, I would only request that there's a proper forum that of can be addressed over -- in that program because here, we will discuss more on the operational performance of the company of the last quarter, and that is our first full [indiscernible] quarter. So my request is to all of you to respect to this point, please. Yes.

[Satyadeep Jain, analyst]

And secondly, on the entire synergies, on the logistics strength on the port front, you've heard from some of the companies previously looking to transport cement, let's say, from South [indiscernible] or charges become prohibitive paying for charges in both outbound and inbound. And given there is Adani also that the company can trace, but the charges are going to be what are charged for other companies. How can the entire sea-based logistics model can rate some synergy? Can you maybe throw some light on how much -- how that model could generate synergies [indiscernible]?

[Ajay Kapur, executive]

So good question. First is, yes, there's a lot of opportunity because the entire post line, we do have our ports of the group. And we will certainly -- and we are certainly looking at a complete postal -- sea transportation strategy. A little early in the day for me to comment, and I will keep this position going forward. When we have something firm, we'll talk about it. But in the planning stage, it doesn't make sense to talk about it.

To answer your second question, it also goes back to some previous -- people who ask the same question on RPT. End of the day, [indiscernible] is a related party. So whatever transaction we do, we'll obviously be keeping in the spirit of the RPT. And obviously, pricing came [indiscernible] on both the sites from their side as well as on our side.

[Operator]

The next question is from the line of Girish Choudhary from Spark.

[Girish Choudhary, analyst]

Two questions. Firstly, on the fly ash, if you can throw some light on the long-term contract, which you mentioned signing with our companies to bring down the cost. What percentage of your requirement will this cater to? And is this RPT? And will there be advanced payment for this as well?

[Ajay Kapur, executive]

Advanced payment for fly ash to the government power stations. Advance payments to Coal India for the coal procurement. Advance payment for the pet coke for the refineries of the government. Advance payment to the DB for the part of Dubai is something one of contention all the time and not going away anywhere.

As far as your second question is on fly ash contracting, we certainly have a very strong group adjacencies here within our group. And we are examining it, and we're going to take full advantage of it. Again, all the sales will be based on RPT. If, let's say, group has a power plant in x location and it's offering playa share, say, by rupees. We will also be offered the playa share by rupees because end of the day, there is a separate CEO sitting and running the power business as I run the cement business. And he also has the same set of stakeholders as I have.

So I think having said that, it obviously makes life more easier when you have your own good company. So the risk of payment for them is zero and the risk of delivery for me is also zero. So I think to that extent, it becomes a fantastic opportunity. I can only tell you that we are looking at excluding each and every mode, but are actually exploring a lot on our own wagons and taking advantage also of the railways scheme, which is open to everybody. But we are going to exploit it to the hilt. And in the process, reduce our raw material costs.

[Vinod Bahety, executive]

And the suppliers there will also [indiscernible] solid entities who take the benefit.

[Ajay Kapur, executive]

Yes, yes. I hope that answers your question.

[Girish Choudhary, analyst]

Yes, yes. My second question is this more at a broader industry level, your thoughts on pricing from a medium to long-term trajectory. While we know of your goal to achieve capacity scale and also to be the lowest cost producer, so given your adjacencies and all those things. But in the medium term to long term, do you like to retain those in your margins or to pass on some of the benefits? I just wanted to know your strategy.

[Ajay Kapur, executive]

I don't understood your question. You're saying will this lead to drop in prices, is that what you're saying?

[Girish Choudhary, analyst]

No, I think given you have multiple group level in addition that will lead to you being a lowest cost producer. So how would you want to sort of play in this sizing? Would you want to sort of expand your margins or maybe pass on some of the benefits to the market?

[Ajay Kapur, executive]

That is a very tricky question. End of the day, what would a component, basically, the core essence of what the companies is known to you. ACC, strongest brand, one of the highest proportion of premium products, very premier in many markets in India. Ambuja, again, a very strong brand, one of the strongest, I would say, in many markets in India. Again, a good portfolio of premium products. Both the country -- both the companies are largely trade focused, I would say, upwards of 85% of its total production. Both the companies are largely blended cement focused. That also allows a fantastic opportunity.

Now on top of it, if you replace high-cost fly ash with an optimized fly ash and raw materials, you can see what shift is going to happen on the bottom line. However, if I let it go through the top line, I think I'll not be doing this. So we will obviously try to strengthen the brand. We would like to enter new geographies where we expand. We would like to enter new and emerging segments, including -- and I repeat this time so far, we have not spoken about B2B, large wire segment. We have 78 plus RMX plants. We will expand them to over 250 in the mid-term. And that will be our entry into the large buyer market, India's -- the infrastructure market, and we'll pay the full game there. And whatever products are needed for that market, we will develop and supply. So I think we'd rather play that game by reduced cost then dropping the price or doing that. But however, we will do whatever it takes to win in the market.

[Vinod Bahety, executive]

Many market factors, so it will be taken that point of time. So it is suffice to say the focus is on cost, and I think you will also appreciate. And this is a very competitive industry. So it will be driven by the various market factors.

[Operator]

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

[Ashish Jain, analyst]

Sir, my first question was, you alluded earlier in the call that ACC and Ambuja is practically operating as one entity to the extent that were not on the ground, the team is kind of seeing -- now given these are 2 listed entities with different minority investors, how are we kind of ensuring the optimization of profits for both companies in this case?

[Ajay Kapur, executive]

So a good question. As I mentioned, while we run the management as one management, we still operate the companies as independent entities for the statutory and all legal and regulatory purpose. We have approved plan of MSA, which is the master share shareholder agreement approved by the shareholders. And we are governed within the guidelines of that, which allows the selling of products of each other, which goes to the C audit committee, independent review. And I'm very happy that our governance is top class.

So within that -- and that's why, in time to come, we also focus -- while we focus on individual entities, we also focus on the entire combined entity because when the entire combined entity will -- both the shareholders and both the value creation is taken care of. But it's never one of the cost of the other to answer your question.

[Ashish Jain, analyst]

Sir, don't you think if the fleet on the ground is common, there is a chance of conflict of interest here? Do you think -- do we run that risk? Because sir, those...

[Ajay Kapur, executive]

Yes, yes. I understood where you're coming. We have 35 locations, more or less, let's say, 50-50 of Ambuja and ACC. At the location, the people who are running the site, they are totally focused on improving the efficiency of that site. So I don't see any conflict there. Then we have procurement organizations who buy coal, who buy fly ash, who buy slag, who buy [ gibsons ]. When you go on scale of 67 million or 70 million entity and time to come 140 million entity, you can imagine what benefits that go and the benefits which have accrued to both the entities. When we look at our growth as a synergy, again, group looks at both of them as same and they try and pass on the benefits to the -- to both the entity similarly. That's one part.

On the IT side, for example, today, a lot of spend happens in making a new digital strategy, IT, SAP, et cetera, et cetera. Again, as you go and talk of one set of negotiation, the cost is far better. Then in the market, our frontline salespeople are still separate. The frontline sales managers are still separate. However, the leadership on top is same because end of the day, we are selling cement, right? We are not selling apples and oranges. So to that extent, very well aligned.

[Ashish Jain, analyst]

Sir, second -- sir, my second question is on this...

[Operator]

Mr. Jain, may we request that you return to the question queue. There are participants waiting for their turn.

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

As there is no response from the current participant, we'll move on to the next. That is from the line of Hiren Dasani from Goldman Sachs.

[Hiren Dasani, analyst]

Yes. This is Hiren from Goldman Sachs Asset Management. I just wanted a clarification on this coal transaction. So categorically asking you that there is no Adani group entity as a counterparty at the first, second, third level, whichever way you want to think about it. Hello?

[Operator]

Members of the management?

Ladies and gentlemen, we seem to lose the audio from the management's line. Please stay connected while we try to rejoin the audio.

[Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding. We now have the lines of the management reconnected. Over to you, sir.

[Vinod Bahety, executive]

Sorry, friends. Some technical on this -- Amit's phone. But now, Amit, you were -- on your question, please?

[Hiren Dasani, analyst]

Can you hear me?

[Vinod Bahety, executive]

Yes, we can. We can.

[Hiren Dasani, analyst]

Yes, this is Hiren from Goldman Sachs Asset Management. I just wanted to go back to the coal transaction of a long-term process agreement. So just wanted to categorically ask you that even at the indirect level or at whichever level you want to think about, there is no organic group entity as a counterparty there?

[Vinod Bahety, executive]

No, Hiren, I'm clearly highlighting it again. No counterparty of Adani entity. And this is beneficial for the company.

[Hiren Dasani, analyst]

Sure. you've explained it quite in detail. And just quickly on that. I mean, I'm just curious that the group has so much of coal-related businesses, whether it is trading or whether it is handling and all. So why did we have to go outside of the group to enter into such long-term coal agreement?

[Vinod Bahety, executive]

Yes. That's a good question, Hiren. In fact, the group only has helped us to properly negotiate this. Each data has its on position [indiscernible]. And therefore, you -- one would assume, depending on the position of the trailers, how and what course one can provide. So I think when we found that the group offers has been relatively higher on that point of time, and this was somewhere in October results of September when we found we've led completely on the coal in October mid, then we quickly geared up and with support of group only then we have negotiated this hard.

So it is suffice to say traders have their own unique position, and this is true in many [ objections ]. I mean it's not that every time, we will have a group to offer it. So about fliers, I have group of companies having fliers. Do I comfortably buy from them? Answer is no. It's a factor of what at current [indiscernible], for example, that will be very on an arm's and basis -- fair pricing basis will evaluate, which is in the interest of the cement business. And each here will be responsible to enter to the Board also. So I think -- yes.

[Hiren Dasani, analyst]

Sure. And just a final question on this. I mean compared to the ACC agreement in terms of quantum both value-added volume. For Ambuja, it is substantially lower. So I mean, how do we kind of think about that?

[Vinod Bahety, executive]

Yes. Good question again, Hiren. See, Ambuja had captive coal mine, which is you know that are [indiscernible]. This mine caters to almost 20% to 25% of the overall sales or maybe one higher requirement of the Ambuja. In case of ACC, it is completely based on supply from third party. And hence, therefore, the volume of ACC imports on this trade is higher as compared to Ambuja.

[Operator]

The next question is from the line of Rakesh Vyas from HDFC AMC.

[Rakesh Vyas, analyst]

Welcome back to Mr. Kapur. I have 2 questions, and I'll just quickly run through them. First one is on the cost savings. So both ACC and Ambuja are through projects [indiscernible] has embarked on cost saving initiative in the last 3 years or so, and they have seen reasonable success. So beyond this, what is the quantum of cost savings [ strategies ] that you think we will be able to achieve through either the OpEx that we are doing on the group synergies, if you can highlight that?

The second question is on the capacity expansion itself, assuming that we are planning to double our capacity through organic growth, it essentially means around 15%, 16% CAGR on capacity addition. I just want to understand how flexible this crude plant could be because although we remain fairly helpful as an industry on demand growth, but if demand does not have conducive growth environment going forward, how flexible are you to scale down our growth ambition out there?

[Operator]

Members of the management team, are you able to hear us? Hello?

Ladies and gentlemen, we loss the audio from the management's line. Please stay connected while we try to rejoin the audio.

[Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.

[Vinod Bahety, executive]

Sorry, now we have connected through mobile. There is some problem on the landline. Sorry about that. Yes, please go ahead.

[Operator]

Yes. Mr. Vyas, may we request you to repeat your question for the benefit of the management team.

[Ajay Kapur, executive]

No, I think we are clear on the cost side. Those coming on the second part, so repeat only the second part.

[Rakesh Vyas, analyst]

Yes. So my second question essentially was around the capacity growth plans that we have, doubling of capacity in 5 years. Essentially, if all is organic NIM, 15% capacity growth CAGR. And although as a industry, we remain always very hopeful on demand environment. I'm just trying to understand how flexible we would be in our capacity ambition if demand does not seem very conducive in that sense.

[Ajay Kapur, executive]

Okay. Great. So let me answer the first one on the -- to unveil efficiency programs, which both the companies, ACC and Ambuja were running. Obviously, to join or take over a company, keep going or what you are doing good. However, we believe that we can certainly bring in focus. For example, from where we were on the street recovery to where we are to be. And what is the gold standard to be second to none. So clearly, we'll expand 100% waste. Clearly, I'm not highlighting it today. But as you understand, our experience rest growth on RE, solar, et cetera? So we are still on a pending stage, and I'll talk about it on the time or we will use that adjacency to become more green and also more competitive.

Again, we run a large part of our business, the old CPPs. Here, again, we have a very big opportunity to work with our colleagues on the power side and see how best we can run our power plants more efficiently. And there are advantages of where again, we have [indiscernible] trading on the exchange. So just to lay out on one set of KPIs, the second set of KPI is coal, coal mining, coal focus, more and more the [indiscernible] coal. So I think that's another area where we're going to work very closely. And I believe we can certainly bring more value addition here.

The third set of KPIs are around logistics, like somebody already asked before for and I also mentioned. On your managed schemes, the GPWS, understanding of our Adani Logistics colleagues on this area can certainly help us. Setting up a vast network of cement terminals and brand units in near short term, which I believe is very accurate since day 1, not only it allows you to take positions closer to the customer, you also move in a more cost-effective manner through your own wagons or through railways or through ships as we have done in Ambuja way back.

And then when you move out in the market, you go direct, so you avoid warehousing and you go sit to the end users. So it allows both better quality, less seepages and lower logistics costs. So these are 3 areas. On top, we are already doing alternate fuels. We have embarked on it and this is how we can accelerate it. So we have actually taken a target of going as high as 30%, which I believe is possible because some of the plants, even now, as I speak to you, within our group at about 20% plus. So they can do it, why not the rest. So for that, we are also making a set of investments.

So I think what perhaps was not done in the past was spending money and also debottlenecking existing assets, putting a lot of money on AFR, alternate fuels. So I think those things are going to go in a big manner. Then of course, we do have a lot of results of limestone at our existing sites. So brownfield obviously looks at a very attractive proposition. You can do it in a very cost-effective manner. And I think here, again, a more domestic way of looking more Indian standards, more in market. I think those are the areas, which will immediately help us set up these capacities at a reasonable cost and within the time.

Now to answer your question on the demand side. Typically, 8% to 10% is what we believe will be the certain demand on the back of EDP of about 6% to 8%. There will be a good year, there'll be a bumper year then there'll be not so great year. I think that will not deter us from our growth ambition because we are building India for a longer term. Our per capita consumption still remains in mid-200s, and I believe there's an opportunity to go to 500. Even if you look at Thailand on a per capita income basis...

[Operator]

Sorry to interrupt, sir, we are I'm unable to hear you. Members of the management team?

[Vinod Bahety, executive]

We are able to hear you, Lusan.

[Ajay Kapur, executive]

Were you able to hear us?

[Operator]

Sir, we had lost your audio for the last few seconds.

[Ajay Kapur, executive]

Okay. Then I'll just complete my -- but more or less I finished my response. If there's anything more I can...

[Rakesh Vyas, analyst]

Got it. Got it. I understood your point regarding your ambition around growth, sir. Just one clarification, if I may seek on my first question. At this point of time, would you be in a position to highlight to us on the quantum of cost savings that you are targeting as a group? Or we will also discuss it at a later stage?

[Ajay Kapur, executive]

I think that's the numbers do the talking, I think that will be the better thing to do.

[Vinod Bahety, executive]

But just to also highlight to you that in terms of EBITDA margin expansions in [indiscernible], we do look forward to achieve, say, 4 digits on the EBITDA in coming quarters, which will be essentially driven by the overall, say, improvement on the cost factors. So Rakesh, I hope that answers your question.

[Operator]

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

[Ritesh Shah, analyst]

Quickly, two questions. One is, sir, you did indicate on the dividend policy that we have already in place. Sir, can you please put across your thoughts on the royalty payments? I think it has been taken off. Will that continue to be the case going forward? How should we understand this variable?

[Vinod Bahety, executive]

So the technical know-how fee or the royalty, which was in charged by the [indiscernible] promoter, that has been almost going to be there as in portfolios. So that was basically around the mid of September that all the payments submitted to the [indiscernible] promoters are made. And including -- if I also add a factor, they are also supporting us on the IT transition. So there was also this element of TSA, which we have disclosed additional services agreement, which we had with [indiscernible] 3 months, they have actually provided us good services and which is coming in some of the exceptional items.

Prospectively, for the last quarter, there is not going to be any payment. So that will be value accretion in terms of cash flows close to INR 20-odd crores, which will be having the -- by saving on this outbound of the TSA. That is how I think and I should complement my team. And it's important to highlight that the entire transition of the IT from the house well commuter server to the new promoter server. It was done in a record, say, 4 months in terms of deliberation, but the actual [ listening ] or the live transition happening, say, 7 days time, it was like a [indiscernible] data. So these are one of the highest successful transition of IT basically platform. And this has also saved the group of the company going forward. Dependency will not be there on [indiscernible].

[Ritesh Shah, analyst]

So sir, no royalties, right? Will that be a fair assessment?

[Vinod Bahety, executive]

As of now, we have no -- not having any royalty item in our P&L. And also, there is nothing on the cards as of now.

[Ritesh Shah, analyst]

Sure. That is helpful. Sir, the second question was more on growth. It was pertaining to Ambuja's ongoing expansion plans. I see in Slide #24, you have a mention of that but there is no time line corresponding to it. Is it possible if you could please qualify that given these were already announced projects?

[Vinod Bahety, executive]

Ajay already mentioned to you in the earlier discussion that we are looking for this CapEx program in a time horizon of around, say, 18 months' time. But in more detail, for example, Rakesh, as you highlighted, the CapEx program can be discussed in the next call because. About 18 months is what we are looking at, which would mean that, for the year, somewhere like around June '24 or September '24, we should be able to complete all the initiatives on the AFR [indiscernible] of the [ EU ] and so on and so forth.

So I think the debottlenecking, the CapEx, the main [indiscernible] CapEx, all of that, we are targeting to expedite and achieve. Amit highlighted in the previous call also that -- sorry, in the previous discussion also that we are targeting that by end of March, the pre-trials will start happening and the commercial production will start from the like June or July, but maybe we may see a good income in, say, May itself. So that is how, for example, we are looking at the time lines.

[Ritesh Shah, analyst]

Sure. Sir, just a clarification. So I think Ambuja had around 6 million, 7 million tonnes, which was still pending. So what we are calling out is in 18 months, so that is something that stands commission, would that reading be right?

[Ajay Kapur, executive]

Yes. I think on -- you are on track. But let's come back and talk about it in the second call. We'll surely actually disclose that strategy because there's a lot more to it, and I don't know how to do this. Purely, last quarter results, we're focused on that.

[Vinod Bahety, executive]

[indiscernible] as of now on the first factors in phase, I think the journey of 67 million to 140 million will come in a more elaborate manner. But as of now, what we have had is what we discussed with you.

[Ritesh Shah, analyst]

Sir, that's perfect. And sir, just last question. Can you please reconfirm the commitment from the promoters on the incremental warrant infusion? I think INR 5,000 crores has already come in. What are the time lines over here? I think that point, I think, it's important to please touch upon that.

[Vinod Bahety, executive]

Thanks, Ritesh. I think as of now, they decide [indiscernible] which they have this 18-month time window. And so they remain there, unlike the [indiscernible]. I won't be able to comment on their timing specifically. But I can just suffice to add that continue sitting on both the companies on [indiscernible] minimum INR 9,500 crores of cash. On top of it, we are limiting on our operating cash flows almost like INR 4,400 crores to INR 5,000 crores. So there is a substantial amount of equity and network line there. We are [indiscernible]. So I think I'm looking more from what was the CapEx program on these amounts. And of course, promoters or the parent, we will take their call. I cannot comment on that as of now.

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Ritesh Shah for his closing comments.

[Ritesh Shah, analyst]

Thank you, Lusan. I'd like to thank the management for a detailed call and the remarks. And again, I'll hand it back to Vinod if you have any closing remarks.

[Vinod Bahety, executive]

No, again, thank you on -- from my side and also from Ajay [indiscernible]. Thank you to all of you and do excuse for those couple of technical glitches. We would love to engage now more often with you. And if you have any other questions, we can always offline connect on the subject. Thank you very much, Ritesh. Thank you, Lusan. And thanks, everyone. I rest myself on this.

[Operator]

Thank you, members of the management team. Ladies and gentlemen, on behalf of Investec Capital Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.

[Vinod Bahety, executive]

Thank you very much all of you again. Have a great day time. Bye.