Birla Corporation Ltd

NSE:BIRLACORPN

Earnings Call Analysis

Birla Corporation reports mixed Q1 results amid market challenges

In their recent earnings call, Birla Corporation disclosed that Q1 results fell short of market expectations due to a 0.7% decline in volume and higher-than-anticipated price drops. The market mix shift, particularly the addition of Mukutban, influenced the overall realization. The company refrained from updating guidance on volume and profitability, citing market uncertainties. Highlights include a reported fuel cost of INR 1.48 per million kilo calories with a slight expected reduction, and ongoing CapEx plans aimed at achieving a capacity of 25 million tons by 2027.

Q1 FY '25 Performance Overview

Birla Corporation's Q1 FY '25 results demonstrated some underlying challenges. Despite a solid management strategy, the financial outcomes didn't align with market expectations, resulting in a notable decline in key performance metrics. The company's EBITDA per ton fell to INR 603, creating a gap from the previously targeted range of INR 880-900. Factors influencing performance included changing market dynamics, particularly in Uttar Pradesh and Rajasthan, where heavy discounting and intensified competition impacted pricing and realized volumes.

Market Dynamics and Pricing Strategies

The current market situation is complex, with competitive pressures leading to aggressive pricing behaviors that have not been fully justified by market volume changes. Management noted a defense mechanism among market leaders hesitant to yield market share, leading to price reductions that adversely affected profitability. In particular, the UP market, previously characterized by stable pricing, has shifted dramatically post-elections, with prices decreasing significantly, which has directly impacted Birla Corporation's operations.

Volume and Capacity Guidance

Looking ahead, management anticipates market volume growth of 6% to 7%, contingent on economic recovery and improved demand post-monsoon. However, the company remains cautious and refrains from firm revenue guidance given current uncertainties. Notably, Q1 saw a volume decline of 0.7%, prompting discussions around revised growth expectations for FY '25. The Mukutban plant has shown promise, contributing substantially to volume but at lower realized prices.

CapEx and Strategic Developments

Birla Corporation is maintaining its capital expenditure guidance, balancing growth objectives with strategic investments in capacity expansion. The projected CapEx for FY '25 is expected to be slightly lower than initially planned, but essential projects like the Kundanganj expansion, aiming for operational readiness by mid-FY '26, remain on track. Additionally, a new grinding unit in Gaya is back on a fast track following positive governmental investments in Bihar.

Focus on Cost Reduction and Future Outlook

Management emphasized ongoing initiatives focused on cost reduction through operational efficiencies, targeting a continuous improvement in operating costs. The results of Project Shikhar and Project Unnati, aimed at optimizing supply chain costs and enhancing market strategies, appear to show positive potential. While no major capacity increases are anticipated until 2027, Birla Corporation is committed to sustaining operational excellence and market presence during this period.

Cautious Optimism Amidst Challenges

Despite facing challenges in the short term, management remains cautiously optimistic about market stabilization and recovery. The focus remains on maintaining brand integrity and market positioning without resorting to dilutive pricing strategies. As the company prepares for anticipated demand growth, leadership underlines the importance of strategic patience and adaptability in navigating an evolving market landscape. Investors should pay close attention to how specific regional dynamics and macroeconomic conditions influence future performance.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Birla Corporation Q1 FY '25 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Rajesh Ravi Kumar from HDFC Securities. Thank you, and over to you, sir.

[Rajesh Kumar Ravi, analyst]

Thank you, Dan. Good afternoon, everyone. On behalf of HDFC Securities, we welcome you all to Q1 FY '25 Earnings Call of Birla Corporation. From the management side, we have Mr. Sandip Ghose, MD and CEO; and Mr. Aditya Saraogi, Group CFO.

I will now hand over the call to the management for the opening remarks, which will be followed by Q&A. Over to you, Sandip, sir.

[Sandip Ghose, executive]

Very good afternoon to everyone. Thank you so much for joining this call. I see a very large attendance already, and it's encouraging that there is so much interest in the results of Birla Corporation, support we have been receiving from all of you. I have with me, as mentioned, Mr. Aditya Saraogi, our CFO. I have Mr. Rajat Prusty, who is our Chief Manufacturing and Projects Officer. We have Mr. Kalidas Pramanik. Who is our Chief Marketing Officer. And we also have Mr. Arun Agarwal, who is the CFO for our Reliance Cement business, the RCCPL.

Now I know that our -- you have a lot of questions, a lot of queries. I've been receiving some of them since our press release last evening. So I will keep our presentation short and give more time for all of you to ask and clarify whatever doubts, queries you have, and we'll try our best to answer those. But as a preamble, I will address a few issues at which I have already received questions and I think they are a special area of interest for all of you. And subsequently, when we opened up for questions. If your answers on those issues have been met, I would request to avoid repetition and move on to additional topic, and we'll be very open to answering whatever clarifying, whatever doubts or whatever queries you have.

So to begin with, I know many of you from your consensus estimates as well as your own brokerage house estimates. The results which we have declared this quarter may have fallen below your expectations, particularly seen in the light of the last quarter of previous year. And overall, our exit rates on various accounts, including our EBITDA per ton.

And one -- the repeated query I've been receiving is on realization, why our realization drop has been probably higher than expected or some peer group companies you have been comparing with. Though if you really look at also some of your colleagues have shared with me comparative companies who operate in similar geographies, in that, if you were to compare, but I don't see the -- where I'm [indiscernible] very high. But be that as it may, we would like to state what is our position on the matter.

First of all, when you look at realization, you shouldn't look at it in an absolute term because the previous period and current period are not always comparable. If you were to look at the regional mix, the market-wise mix. And in our case, the market-wise mix has changed considerably. It's a weighted average of the various regions. And so in our case, the market -- weighted average of the marketplace composition has changed considerably due to addition of Mukutban, where we have had not only the maximum capacity utilization but also ramp up. So much of the volume growth which you have seen for us has come from Mukutban. And that will change our overall mix in the realization. But that's one aspect. I'll dwell on that later on because I would like to discuss with you our views of how the realization of the markets have moved in each of our addressable market -- our relevant markets.

But overall, what I'd like to add, everybody has spoken of and what is there, all of you in your commentaries have spoken about two factors which affected Q1 of this year. One was the elections. And secondly, the extended heat wave, which resulted in nonavailability of workers. A lot of workers also went home for the voting and the rest of it, which affected the market. But our third element, which, for some reason, everybody has not spoken of is the pricing behavior of the leaders. Despite the volumes, whatever volumes you have seen, especially the volume you've seen in June, we don't think that, that kind of a softening of prices or aggression in pricing was really warranted or called for. And that was something I don't think many of us factored in.

And that -- there are reasons for it, which we can only conjecture. One is because of the consolidation in the market, people were worry about losing market share. So there was a defensive pricing strategy. Nobody wanted to yield market share to their other larger competitors. So they tried to hold and therefore, there were less, I think, bullish on pricing. And not only less bullish on pricing, the pricing situation diluted, and I'll dwell on that also a little bit more.

But more importantly, due to lower capacity utilization in the units, many new units have come up and all those units, which have come up, the newer units are all incentivized. Because they are the grinding units, they have incentives in the key markets. And so there was a double benefit with many -- enjoyed one with a lower input cost. And on top of that, the benefit of the incentive, which came and so the quick -- the more they ramped up the grinding units, et cetera, they had a bigger cushion. These two things probably facilitated a soft pricing strategy, especially by the leaders and some of the bigger new entrants.

And this was particularly relevant for some of our core market areas which primarily, I would say, first of all, which is of great importance to us is Central India, which is UP and Madhya Pradesh. UP had another factor. UP for having -- if you see in every way, whether it's in terms of volume growth or whether in terms of pricing, if you -- all of you have the statistics, if you see pricing pattern of UP for almost 2 years, till, I would say, the third quarter of the previous fiscal, UP pricing held on. And in fact, there was a marginal increase from time to time, but certainly, there was no slide down. But UP, the scenario has changed during and post elections. And UP, therefore, you'll see a lot of dilution of prices in the UP region and consequently also parts of Madhya Pradesh.

And this is a phenomena, which I said affected people like us because we operate in this area with practically at 100% capacity utilization. So our strategy here was, we certainly didn't want to dilute our price positioning, we try to hold on to our price positioning, and in our price positioning, something we have worked and built upon over the years is our entire premium brand positioning, which is there. So we were very clear that we don't want to use either market share or dilute our price position.

To our surprise, we saw some market leaders who were at one point in time enjoying almost INR 20 or INR 30 premium even within the A category, other players, today, their pricing levels have come down to -- they have actually wiped out their entire premium and they're operating at a much lower premium.

And secondly, another very interesting new phenomena, which we saw, though there were a lot of talks a year back about people withdrawing all price equalization discount or RDs from the thing. If you go back to these markets, some of you who do channel checks, you will find that the PE and the RD levels have actually not only shot up, but they were shot up very, very exponentially. And by our estimates, in some places, markets operate in our relevant geographies to INR 30 to INR 40 PE, which has resulted in the WSP position that the wholesale price position significantly coming down, whereas retail doesn't fall in the same way. So the margin between WSP and retail has gone up.

And that has changed -- caused certain aberrations in the market because also the dealers, their investment gets stuck in the market because what they pay for and then subsequently what they receive back in PE and RD, which is after a lag, requires greater investment. So these have caused certain distortions in the market. So this is just in terms of background.

So what's relevant is what has been our strategy. Our strategy, as we mentioned to you, was, first of all, we are very clear that we do not want to dilute our price and our brand positioning. We, as a company, have believed always that investment in cement contrary to popular belief or counterintuitively, doesn't mean investment only in plant and machinery, or setting up new units. Investment also, what you make investment in the go-to-market assets, which includes logistics, your entire distribution network channel, therefore. And then finally, obviously, your brand pull for us, that is equally important. And we have invested in this consciously in the last 7, 8 years, which you are aware, from being primarily a Birla Corporation, which is to operate at a B- or a lower thing. Today, we operate with more than 55% of our trade volumes in the premium category.

And I can say with some degree of pride as I told you, if we today go into the retail segment in these markets, some of our key markets, you will find us to be at par or in some cases, maybe a slightly higher than some of the market leaders. So we think this strategy has paid off for us. Equally, if I were to look at if you see Mukutban, where we have been an entrant in just about a year back, even today, we are selling more than 40% of our volumes in the premium category despite being a new entrant.

And our ramping up there has been also some of you would see in terms of the percentages, what we have ramped up, it has been much higher and that too within the premium category in the trade channel. And even during this period, we have succeeded in further ramping up Mukutban, that's why we have a 91% weighted average capacity utilization and also maintain prices there. So we will continue. As a strategy, we have done it now. We'll continue to maintain our brand strategy, invest in the market because we do believe that this market situation is temporary. It is not going to last forever. There will be sanity prevailing and market correction. And at that point in time, we don't want to be relegated to a lower pricing point and we will, therefore, continue to do that.

Secondly, what we have done is our geo-mix optimization. When we talk about geo-mix, we don't talk of it in the larger context, we talk about within our core markets. So our core market, for example, is Eastern UP. So we would like to focus there, defend our market and grow there. That's why our investment is now coming up in Kundanganj, which is going to start operations early next fiscal. And then also, we will also get the advantage of the incentives in the new plant, which is now the old Kundanganj plant, half the incentive has dried out -- has stopped, but we will get it, and that will increase our competitiveness and again, therefore, when we get back there, we do not want to dilute our the price positioning. So our focus and strategy that will remain.

Secondly, what we have tried to do, we try to also expand our footprint position in the secondary markets, which are there for us. So Mukutban, we tried to increase our footprint. As we increase our footprint from Mukutban, since our plant is located in Vidarbha, we will see some amount of dilution also in realization, the further we do. And it's the same thing with Bihar is a market, which has been growing on volume. There also, we have been consciously working on our brand strategy to upgrade our volumes get more quality volumes over there, more premium volumes, that will also affect. And Bihar, again, is a market where prices, as you know, in Eastern India were very, very depressed, and there, we have lost on realization. So I'm giving you this granular detail of regions, so that will give you a picture.

But where we have -- honestly, where we have been hurt most is in Rajasthan. Rajasthan, we have been hurt because the price levels crashed, people have been discounting heavily, but there was a salvation for everybody in Gujarat until the previous quarter. Gujarat was doing extremely well. Gujarat pricing was higher. So a lot of people, a lot of other companies also you'll see a lot of their profitability was coming from Gujarat. But in the last quarter, Gujarat tanked. And Gujarat having tanked, for a company like ours, which has got a high cost of production that's no secret, everybody knows, we have been rendered uncompetitive in many places, including, there's been a huge shift because of capacity utilization. People have shifted to non-trade that's institutional sales and OPC. And we found ourselves to be quite outpriced in many cases. And in some cases, we had to actually choose not to compete. And it's been crazy out there.

Our customers within 50 kilometers of our plant, we found our prices were undercut. So we have lost a chunk of our premium, our volumes and our realization in our Chanderia plant. Chanderia plant, again, is where we do not have a very high component of premium products. And we have got just about 25% of our product sales at the premium. And while we have held on to that volume or improve that volume marginally, certainly our base product, popular product Chetak has been quite hurt. And as I mentioned again, our realization that has a higher component of OPC and institutional, we have lost there as well.

So it's the combination of all these factors, which has -- if you see brought down, it is not that any places where there is a dilution, which is overall reduced our realization. We are conscious of this situation. What has happened but we have decided consciously also to ride this through because we genuinely believe, as I repeated earlier, our situation stabilized as equilibrium sets in, people -- there is greater sanity. Markets have to improve with the demand. The demand improves, pricing will improve. And at that point in time, we want to be in a position of strength. Because one, again, a reality for us, we know that we are not going to add very major capacity going forward in the next 2 years till '27 when we are -- our plan is to go to 25 million tons.

So during this period, our objective is that we will play at the position where we have chosen not dilute, not get relegated to -- back to A- or B category player. We want to continue our -- in this thing and whatever we sell. Our company's vision is that we may not be the biggest but we want to be the best in class. That is something which we say and that is what we want to practice. So hopefully, this has given you some broad overview on the marketing and the pricing front.

And we will take on the other elements. Subsequently, my colleagues will talk. Only two other things we like to continue to add is, like everybody else, our investments in terms of cost reduction, has happened. Some of you have even commented in your commentary that about the reduction in operating costs, which we have reported. I recall reading somebody said that that's the only silver lining they have seen in the results, but it's not a surprise. We have been doing this. We've been doing an excellent work on Project Shikhar. We've been doing great work on Project Unnati, which is related. A lot of it is related to logistics improvement, while those are happening and also as renewable energy, thrust, our own captive coal mines on which we will deal, I mean, progress of it, in a bit we'll talk about that as well. So while those will do. But there are many more strategic other things in the [ envelope ] and pipelines, which we will talk about it in due course. Some of them are -- we cannot talk about it now, which will happen. And so our thrust and cost will remain.

Equally, we will try to tactically increase our, as I said, our geographic footprint. So we have plans, which was discussed many quarters ago, we may not have, I mean, some of you may not recall, we had plans in setting up a grinding unit in Bihar, in Gaya, which for a variety of reasons was earlier put on a, shall we say, on a slightly slow track. But now it's back on fast track. Bihar situations improve, the new government is very, very receptive to investment. They have become proactive. So we are almost completing our land acquisition there.

There are a couple of other also grinding units or extension we are -- we have in plan on which we should be in a position to talk to you by the next quarterly call. So those things will go on. So that is business as usual. There is no letup in focus. That will happen. So this is the mix of strategy on which we are going. At the moment, we are not really doing any crystal ball gazing beyond what is there in public domain from all of you in terms of how the market will behave going forward.

Everybody is projecting that, okay, if GDP growth is 7%, the year, we are supposed to end cement also in 6% or 7%. How that will pan out, things can go in various directions, post a good monsoon with a lag, there can be a great demand surge. The -- but to get to 6% to 7%, one will need a hockey stick effect in the second half. So we will hold our horses till, for talking about those things till there is greater visibility in the current scenario, economic, political as well as industry scenario, so we are not really sticking our neck out to say too much about it. So with that, I will open -- with that, I'm opening the call for the questions. And I said, we will try to best to answer our queries. let's not repeat things which we have already addressed anything more, please feel free to come across. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

[Shravan Shah, analyst]

Yes. Sir, two questions. So one is on the volume front. So last time we said 8% to 10% growth that we are looking at in FY '25, so already a 0.7% decline this quarter. So -- and given if you also can share what was Mukutban volume in this current and for full year? How much we are looking at? So what's the revised guidance on the volume growth front? And second, on the profitability last time we had talked about 8% to 10% growth on EBITDA per ton, so that close to INR 880-odd per ton. But given the INR 603 EBITDA per ton, the ask rate is now significantly higher INR 950, INR 970, and given the pricing pressure is already there, and we are seeing -- so even second quarter, it is also a muted than the -- for second half, we need a significant close to INR 1,200 kind of EBITDA per ton, if we want to have a INR 880, what's the revised guidance on volume and EBITDA per ton?

[Sandip Ghose, executive]

As I mentioned, we are not giving any guidance just now because the market is very, very nebulous the situation. So I think it would be imprudent for us not just from our side, but even from a market standpoint to stick out and mention any numbers. We would go by what all of you are predicting in terms of the market growth. As I just said, that people are talking about a 6% to 7% volume growth. If the market grows that way, we have that much of a cushion and headroom because especially of our Mukutban upside as well as we've got upside in Chanderia. And then even in our existing units, we've got upside. So we don't see a problem if the market picks up to be at par or slightly ahead of the market over there.

In terms of profitability, again, we would not comment just now. We, of course, have our emissions or what we have stated. We will still try to do that, but we will not either revise or give a firm guidance at this juncture. Mukutban question you asked, we have done [ 5.93 KT ] in Mukutban in the last quarter, which given the market conditions, and the usual dip on [ fees ], we are personally very happy with that number and especially since the number has come a large amount from premium and a lot of it has come from core areas of our -- approximate area of the plant. And that gives us -- and we have been in our strategy. We have been focused more on blended cement, even that has been kept though we are open to revising some of the product mix if the market show demands, but so far, we have been on track and strategy. So we'll leave it at that.

[Shravan Shah, analyst]

Sir, the last one is I just wanted to lead distance for this quarter, 1Q and what was the CapEx in Q1 and for full year, how much we are looking at?

[Aditya Saraogi, executive]

So the lead distance was around 350 kilometers. We are maintaining our guidance for CapEx for this year. It may be slightly less, but we are maintaining our guidance on that.

[Sandip Ghose, executive]

Again, on lead, I'd like to clarify. We are not making it granular to compare our lead with our older markets and newer market, obviously, because of Mukutban, where we are trying to increase our reach and footprint, there will be some increase of lead there, which might compensate for the reductions which we are achieving in other areas for our geo-mix optimization. So we are doing a lot of optimization elsewhere so that our overall lead doesn't change, but there is a certain -- we could have probably dropped it further if we just exist -- and looked at our existing units, but Mukutban is going to add some more lead distance to our overall weighted average need.

[Shravan Shah, analyst]

Last, if you squeeze in terms of the from '20 to '25, 1.4 Kundanganj, 1.4 Prayagraj, and how much we are planning to add at Gaya? And if time line possible when this -- all these plants will come up?

[Sandip Ghose, executive]

So we have -- whatever we have share about the expansion that is contained in our declaration, we are not going to make any more specific comments on actual thing, that will be contrary to our disclosures. Thank you.

We should move away not any more supplementary on that, please. The next person Jyoti Gupta, please go ahead.

[Operator]

The next question is from the line of Jyoti Gupta from Nirmal Bang.

[Jyoti Gupta, analyst]

My question is, while you're saying that the trade mix has actually improved by 59% of the total sales. So one is, what is the breakup of trade, non-trade? Second is, if it has increased and how has it impacted? Why has it actually impacted? Or why has it not stabilized the realization? Further, could you give us -- could you provide us numbers on the regional mix in terms of north, south? And what has been the shift in terms of the ratio mix?

[Sandip Ghose, executive]

See, first of all, as I said, our trade channel, we have tried to maintain trade has not increased in this quarter.

[Unknown Executive]

Premium -- it was premium...

[Sandip Ghose, executive]

We have talked about premium in 59%. Trade we have kept it same as previous quarters because, in fact, there is a this 1% decline, you might say, marginally, and that's how the market has behaved. As we said that a lot of people because of lower capacity utilization, they have been focusing more on OPC, et cetera. So in the general market. So trade has not -- we have not increased trade in terms of percentage.

Premium, we have increased 55% to 59%. But again, you'll see, Jyoti, you have to keep in mind that weighted average things. So while I'm selling more premium, say, in Maharashtra now as a total component, my Maharashtra premium prices are obviously lower than what I get in UP. So you are not going to get in the weighted average. That's sort of an impact. So you have to look at the entire -- in totality, how might -- so that what I say is when you're comparing realization for us year-on-year or even quarter-on-quarter. Our thing is not like-to-like because it is not in the same markets where we are expanding.

[Jyoti Gupta, analyst]

Okay. My next question is, I understand that a lot of companies which have put up new plants are actually running it by new lines and that all. There's been a significant improvement that they're able to show on their EBITDA per ton. But I thought we will see some incentive gains or some improvement -- something coming from Mukutban because for me, this decline in EBITDA per ton should be significant, I'm not able to understand why such a steep decline, even if I take -- even consider the way Birla Corp. is actually operating in the last 3, 4 quarters.

[Sandip Ghose, executive]

I tried to explain that Jyoti in a fair amount of detail because a, as I am -- again repeating, it's a weighted average. I think all regions have moved. I told you about UP, which is a...

[Jyoti Gupta, analyst]

Sir, can you share regional mix numbers? Is it possible to do that?

[Sandip Ghose, executive]

We have not -- I'll come to that. But first of all, let me answer your first question. On Mukutban incentive.

Yes, Mukutban incentive, we have booked. We have booked Mukutban incentive this time, and it is in line with whatever guidance we have given. But at the same time, Kundanganj incentive has gone out of the system. So that it doesn't fully compensate for what Kundanganj was -- Kundanganj you will understand is a plant which produced over 2 million tons. And just about the same is coming about Mukutban. We are around the same level, but at a lower price level, at a lower, therefore, GSE level. So obviously, the incentive levels will not be the same.

And in terms of regional sales, we have given you a broad indication, I think giving specific ones will be correct on our part because we have not declared that in the results we don't give. But you know broadly how we operate unlike I was seeing some other companies, it's not there. Given the statewide percentages, we don't declare it in that manner, either annually or here, so I wouldn't get into those specifics. But people have a broad idea because of our plants, our location in the plants, et cetera, what is our broad pattern across regions. And I have also given away to you what is my Mukutban volume. So obviously, you can do very simple back of the envelope calculation to get them.

[Operator]

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

[Mangesh Bhadang, analyst]

A couple of questions. So thank you very much for giving a detailed explanation on realization in your opening remarks. So my question is on the industry pricing, and as you said that industry leaders are actually keeping the pricing lower in the markets. Where do you see the revival coming? Is it only because demand has been weak now and after demand recovers, it will come back. What do you think that it can sustain that weakness can sustain for a longer term? That's the first question.

[Sandip Ghose, executive]

See, I can't read other people's mind. And they are -- the leaders are part to big people for somebody of our size to try and read and predict their mind. So as I said, we were wrong in terms of our -- I don't have no qualms in admitting what we expected the kind of behavior. In the first quarter, I repeat that we don't think the volumes, the kind of volume change or drop and if you see the kind of volumes, especially people have done in the month of June, warranted this kind of price correction.

So difficult for me to predict how the competitive scenario will pan out because as you see, every second day, there is some new announcement happening in the industry. So you all are much more informed about companies would probably be in a better -- we are price takers we have to plan our strategy as for how the market goes. We are smaller players. We have no issuance about that. And so we'll have to protect our turf, protect our thing, and we will do what we can. We are not going into acquisitions, as I said.

So therefore, our investment has been -- a lot of investment has been in brands. So that is where our assets lie, not just brand, it's the entire go-to-market assets which is distribution asset, which is our people on the ground, the feet on street, which we have got, the investments we have made in software for customer relations and logistics, we are continuing to make things in our ILMS system, all of that we are doing. And we can't just fritter it away and getting into a pricing game with the big brothers.

[Mangesh Bhadang, analyst]

Okay. So on -- sir, secondly was on CapEx. You have maintained CapEx of, I think, INR 800 crores this year. So I just wanted to understand the time lines for the 2 units that we are planning? When they would be operational. So then actually should we take the additional capacity in our numbers.

[Sandip Ghose, executive]

We have mentioned Kundanganj. Bihar, I said that is in the pipeline, but we are not giving any firm date, anything for it because we have to make a formal announcement on that. And overall, we have said that 25 million ton by 2027, we stand by that.

[Operator]

The next question is from the line of Saket Kapoor from Kapoor and Co..

[Unknown Analyst]

[indiscernible] and thank you for the opportunity...

[Sandip Ghose, executive]

Mr. Saket, I have missed you at the AGM, normally you are one social [indiscernible] the question on the AGM, instead you are coming on a virtual call. Your are closest to our office and still you have come through a telephone line -- using your queue. Anyway, go ahead.

[Unknown Analyst]

Thank you, sir for enlighting me. Sir, firstly, sir, Aditya, can you give me the current maturities for the year? And about the NCD issuance, what are the rationales for going ahead? And what kind of cost of funds are we looking to price the issue?

[Aditya Saraogi, executive]

See NCD is just an engaging acquisition in case there comes some more competition, then only we will go for the NCD, I mean we are flexible whether it is for the NCD. And today, we are not seeing any kind of obligation on the point of [indiscernible]. [Technical Difficulty]

[Operator]

Ladies and gentlemen, the management line has been disconnected.

[Operator Instructions].

[Aditya Saraogi, executive]

So yes, I was mentioning. So it is just an [ enabling ] resolution. And if we sign the terms of NCD more companies will genuinely will go for it. Our cost of -- average cost of borrowing [ 7.9 ]%. And any price point that as we understand is also expected to be south of 8%. And in terms of the size, majority in this year, it is INR 375 crores, including INR [ 135 ] crores of NCD.

[Unknown Analyst]

And sir, what are the receivable due from the government incentives?

[Aditya Saraogi, executive]

Ither than [indiscernible], it is about INR 500 crores.

[Unknown Analyst]

Okay. And last year, how much you have received?

[Aditya Saraogi, executive]

You mean in this orlast year.

[Unknown Analyst]

Last full year, I mean, I just wanted to understand what are the receivable general inflow from the incentives.

[Aditya Saraogi, executive]

You can't project that as trend because last year, we did not get any amount from UP government where most of our incentives is usual for UP government whereas this year, we are expecting a large amount to be issued from UP Government.

[Sandip Ghose, executive]

It doesn't happen in a pro rata basis, Saket, you know how governments work.

[Aditya Saraogi, executive]

There where some possible issue, which have got resolved. So much of the amount we expect to receive from UP government.

[Sandip Ghose, executive]

Government's budget, everything else. So that's not in our hands. We can't really predict that.

[Unknown Analyst]

Okay. As of now, you mentioned INR 500 crores as the closing receivable balance?

[Aditya Saraogi, executive]

Yes, other than [indiscernible].

[Unknown Analyst]

Other than [indiscernible]. so that is from the state of UP only, the INR 500 crores?

[Aditya Saraogi, executive]

See, mostly. Small part of maybe INR 40-odd crores from MP [indiscernible].

[Sandip Ghose, executive]

And then we'll have Maharashtra also adding up now [ 21 ].

[Aditya Saraogi, executive]

Yes. It not clear.

[Unknown Analyst]

So sir, exit of June, also, we have been witnessing the correction in cement prices or the realizations are down. So can you give some more color, 5% to 6% or further correction we have seen as you were alluding that these prices are not commensurate for the market. But even exit of June. Can you give some color on the same?

[Sandip Ghose, executive]

You're seeing the change from exit of June and now it is [indiscernible].

[Unknown Analyst]

Yes.

[Sandip Ghose, executive]

No, I don't think it's a 5% to 6% -- it is not a 5% to 6% change than the market, everybody will have [indiscernible] not to be feared down.

[Unknown Analyst]

But can you give some color, sir, how the market is behaving since this is a monsoon quarter.

[Sandip Ghose, executive]

Market has weakened. Market has definitely weakened. It's different in different regions, but there is no change in behavior. We have seen people in every -- variation between some areas it's 3%, 4% or that's the kind of [indiscernible].

[Unknown Analyst]

And two small points. Firstly, on the coal addition that, that will be self mining activity, how are those going to improve?

[Sandip Ghose, executive]

Just to clarify -- a recall. As I said, it's a range. So we would -- if you see our impact, we look at it between 1.5% to 2%. We don't -- as I told you some areas, it could be more where there is a slide and then you see the composite between trade and nontrade and all of that. But it's not 5% across the board. I would like to reiterate that.

[Unknown Analyst]

Right, sir. Sir, I was seeking some additional information about the availability of other coal which will be mining. What is the status of the additional coal volume? And when will that kick in and other efficiency steps also, which are in the annual that will further lower our variable cost. And last point is on the Supreme Court ruling on allowing states to impose [indiscernible] imposing them more power on for further states also on the minerals from the lime. So does limestone also falls under that. So what's the thought process the management on the sales? These are my two questions.

[Sandip Ghose, executive]

Last one, I would react that we can't be, again, conjecturing what the government is. In each government, there are several governments with different kind of stakes in minerals. So how they are going to do. And that will be an industry-wide effect, so we don't see that be specific to us over there. So that is not something which is -- we would like to comment just now.

[Aditya Saraogi, executive]

And on the coal, I had indicated earlier, we expect the term 4 job to be the operational by the end of this year. So we will see the perks and privileges [indiscernible] from the next year. And the other one, [indiscernible], we had indicated that we expect it to commence in FY '27. So that is what we are expecting right now.

And apart from that as Mr. Ghose indicated in his initial opening remarks, across the board, whether it is manufacturing, whether it is sales, marketing, logistics, across the board there are multiple programs, which have been undertaken for cost rationalization. So basically, there is no particular area or no particular scheme. They are multiple [ numerous ] schemes on which work is going on.

[Sandip Ghose, executive]

Two major initiatives, we have always indicated is Project Shekhar and project [ Unnati ]. Unnati is to do with the go-to-market side. Project Shekhar is the supplement -- supply chain and actually manufacturing plant costs and overheads.

[Aditya Saraogi, executive]

So first reaction you will see on a continuos basis, you will find a cost improvement. And also renewable energy, et cetera, which is by [indiscernible] renewable energy, all that is part of -- some of them are part of our CapEx and the rest of it that continue. And -- as I said, we are really absolutely focused while we don't see a huge difference between us and somebody else doing, but we are not going to lag behind as a [indiscernible].

[Unknown Analyst]

And also, do you provide us some comment on the Jute Division. And you did not alluded to the fact that Jute being a small part also. But this time, I think there were some extraordinary factors that resulted into poor numbers. So if you could just enlighten us on...

[Sandip Ghose, executive]

We have mentioned that Saket, in a fair amount of detail in the press release. You live in Calcutta and you know the Jute industry is in doldrums. There are statements in vain, including by Mr. Irfan Pathan, who has given a statement. So right now, Jute is in a totally topsy-turvy thing, good for us is that we are not totally dependent on government order. We have a large chunk of our private orders as well as we have an export of business. That's why while many units have shut down just now, there are big plants which have declared shutdowns for 45 days, 2 months and the rest of it. We are running though albeit with a slightly lower number of ships but our plant is operational, that is going on.

And we are committed to this business. We are not here in an opportunistic way. As you know, Birla Corporation started with Jute. This is the first enterprise. So that's why we are a 104 year old Company. Here, that was our first unit, to there is both sentimental emotional and management attachment to it, we will persist. And if there are these kind of INR 5 crore loss in Jute here, those things we will have to take in our stride because it's really speaking it off, it is like the mother of our company.

[Operator]

The next question is from the line of Rajesh Kumar from HDFC Securities.

[Rajesh Kumar Ravi, analyst]

My question pertains to first one, could you share the fuel cost, both in Q1? And what is the current convention cost you're looking at in Q2?

[Aditya Saraogi, executive]

So in Q1, the fuel cost was INR 1.48 per million kilo calories. And going forward, we expect some -- maybe about INR 0.05 or further reduction as of now.

[Rajesh Kumar Ravi, analyst]

Okay. And sir, incentives, you mentioned, you are booked in Q1. What was the amount in Q1 and same number in Q4 on a total basis?

[Aditya Saraogi, executive]

Q1, it was INR 21 crores, and we are maintaining our guidance that we provide earlier for a whole year.

[Rajesh Kumar Ravi, analyst]

And Q4 is how much, sir?

[Aditya Saraogi, executive]

Q4, it was around INR 44 crore.

[Sandip Ghose, executive]

That is because Q4, we also have [indiscernible]. So you can say right now between quarter-on-quarter, it is less than half.

[Rajesh Kumar Ravi, analyst]

Okay. And sir, this coal, how is this -- the percentage, I think last year was close to 18% of the total coal requirement was captive. How will this number be in [indiscernible] our current ramp-up plans in FY '25 and FY '26?

[Aditya Saraogi, executive]

That we can't share this now, maybe in the next call we can share it with you.

[Rajesh Kumar Ravi, analyst]

Okay. And lastly, on the progress on the Prayagraj and Kundanganj expansions.

[Sandip Ghose, executive]

Kundanganj, we mentioned that we are looking at early next year by second quarter next year, we hope to start from Kundanganj. Prayagraj, we have not started work as yet. It's in a state of getting it ready. So it will follow after Kundanganj and we'll give you an indication later.

[Rajesh Kumar Ravi, analyst]

So Kundanganj all equipment ordering would have been already done?

[Sandip Ghose, executive]

Kundanganj, a lot of work has already happened. A lot of work has happened even earlier. Kundanganj, we're moving on a fast click.

[Rajesh Kumar Ravi, analyst]

On this measure clinker any thought by when that plant you're looking at to incur expansion at [ measure ].

[Sandip Ghose, executive]

We told overall, Rajesh, we will not speak exactly where, but we are committed to our 25 million tonnes by '27.

[Operator]

The next question is from the line of Raj Mahadevia from [indiscernible].

[Unknown Analyst]

Just a quick question. What are the plans either organic growth-wise or unconventional out-of-the-box steps for deleveraging the balance sheet because your interest coverage is pretty weak, given the leverage.

[Aditya Saraogi, executive]

I think our leverage is not high. In fact, as of 31st March, our debt to EBITDA was less than 2. So on what basis you say that we have high leverage? In terms of debt service side and [indiscernible] side, our rating went up based on our last year's performance, also, this was turned to negative. Those are also being reversible back to stable by the rating agency.

[Unknown Analyst]

Yes. So from a servicing perspective, I guess, you're okay, but your interest coverage ratio, if I look at it this quarter, it's not very strong.

[Aditya Saraogi, executive]

You can't look at quarter-to-quarter. You have to look at from a long-term perspective.

[Unknown Analyst]

Understood. But even if I look at FY '24 the entire financial year, your PBT was INR 573 crores, whereas the interest finance cost was INR 371 crores. So that's a lot of leakage.

[Aditya Saraogi, executive]

See, we have always maintained that we said our debt in terms of debt to EBITDA. And as long as it is 3, we are okay. As of 31 March, it was less than 2. And this is what we have always maintained, refer to all the forums with the rating agency, with the bankers and with the media, with the investors [indiscernible]. And we continue to maintain that, we continue to track our leverage in terms of debt-to-EBITDA and -- which we continue to do so as long as debt-to-EBITDA is comfortable because EBITDA is a indication of profitability as long as debt-to-EBITDA is within the specific range, we are okay with -- we will definitely be okay in terms of FX, survey and other ratios of.

[Unknown Analyst]

Understood. And given that your plans that presumably now you will go slower on CapEx, as mentioned, will the priority be to pay down debt on the balance sheet over the next year?

[Aditya Saraogi, executive]

No, no, no. We are not going slow on CapEx. We are maintaining our guidance of reaching 25 million tonnes by '27. So there is going to be CapEx. But at the same time, we are not digressing from our philosophy of maintaining the debt within the range of 3 in terms of debt-to-EBITDA.

[Operator]

The next question is from the line of Shravan Shah from Dolat Capital.

[Shravan Shah, analyst]

Yes. Sir, last time you said that we are...

[Sandip Ghose, executive]

Shravan, you're playing a second inning now. There is a ODI, you don't play a second innings anyway.

[Shravan Shah, analyst]

Sir, if I allowed, the first guy has actually played the test, Mr. kapoor, he asked so many questions. So in that sense, I thought I can also play test.

[Sandip Ghose, executive]

Okay.

[Shravan Shah, analyst]

Last time, we said that net debt for this year by FY '20 and we are looking at net debt would be lower than INR 3,000-odd crores. So there we are maintaining that spend or that also we are having...

[Aditya Saraogi, executive]

We are maintaining that.

[Shravan Shah, analyst]

Okay. Okay. And sir, we mentioned about the cost reduction. So if you can help us in terms of any quantum that we are looking at now onwards by end of this year, how much more of -- driven by FY '26, how much more cost reduction can happen?

[Rajat Prusty, executive]

This is Rajat here. The way our MD has already briefed about the [indiscernible], this is manufacturing transformation project, which we are working in all the areas of operations, including the efficiency. And if I see 3, 4 areas, which are the key areas. One is the [indiscernible] increase in the renewal percentage even in last quarter was -- it was 27% and gradually, it will be improved.

And second one is the AFR. Of course, the AFR is again, a delta between the [indiscernible] which is also we are working on to improve further on the AFR. And the third one is the efficiency improvement, both electrical and thermal in our all plants. So all together, it is [indiscernible] this year, we have taken a fixed target of [indiscernible] reduction and similar will be there for the next year also.

[Shravan Shah, analyst]

Sorry. You said INR 30, INR 40, sir?

[Sandip Ghose, executive]

Yes, we'll close it here. And thank you very much for participating. I will only close with quoting something we have written in the press release. The company has invested a lot in the last 8 years in building our organizational capacity. Today, our depth of management, leadership, our -- as I said, our assets in every front, not just in manufacturing or marketing, but how we are managing our HR, how we are managing our other capabilities and competencies that have increased, and therefore, we say with a lot of conviction that we are -- we will stay the course of our strategy. We don't want to move major. We don't want -- we will not do flip clubs.

And that's why what you have seen, we have not hesitated in putting upfront the actual thing without any way to dress it up or say beat around the bush because we are confident of our strategy. It can be temporary blips one can go through. But the way we have tried to do work on things for the last so many years, and in the last 1.5 years, in particular, we stay committed to that. And that's the confidence with which I would like to leave all of you. You see our -- if there is something requires a course correction, we will come back to you and state it upfront. Otherwise, you will see a consistency and approach of Birla Corporation, the kind of consistency you've seen.

And also, along with that two more important things you will see from us. One is total transparency. Secondly, highest standard of governance because our thing is to be not only the, as I said, best-in-class, but also the most respected in our category. So we will work towards that. And that is something which you can take from me as long as I at the helm and the current leadership and our Chairman, you can expect us to be [indiscernible] in that, okay. Thank you very much. Pleasure.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Rajesh Kumar for closing comments.

[Rajesh Ravi, analyst]

Thanks, everyone, for joining this call on HDFC Securities. Thank you all again. And with this, we conclude the call. Please, [indiscernible], you can conclude the call.

[Operator]

Thank you. On behalf of HDFC Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.