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Dalmia Bharat Ltd
Earnings Call Analysis
Q2-2025 Analysis
Dalmia Bharat Ltd
In the second quarter of FY '25, Dalmia Bharat reported a volume growth of 8.4% year-over-year (YoY), reaching 6.7 million tonnes. However, despite this growth, revenues declined by 2% YoY to INR 3,087 crores, primarily due to a sharp decrease in cement prices. The company faced significant pricing pressures due to weak demand, particularly in South and Eastern markets, which experienced price declines ranging from 5% to 7% quarter-over-quarter (QoQ) and approximately 10% to 12% YoY.
Dalmia Bharat maintained a focus on cost control, with raw material costs rising slightly by 0.4% YoY. Power and fuel costs dropped by 11.3% YoY, lowering expenses to INR 1,012 per tonne. Despite these efforts, the overall earnings before interest, taxes, depreciation, and amortization (EBITDA) fell sharply by 27% YoY to INR 434 crores, translating to INR 650 per tonne. The company aims for future EBITDA per tonne between INR 900 to INR 1,000 as prices recover, contingent on demand conditions and competitive market dynamics.
Looking ahead, Dalmia Bharat is optimistic about H2 with expectations for industry volume growth to rebound to around 8% YoY, leading to a full-year growth estimate of around 6%. The management has identified potential factors for demand revival, including increased government infrastructure spending—currently at only 27% of budget allocations—as well as pent-up demand from H1, which was affected by election-related slowdowns and monsoons. Additionally, the private capital expenditure is anticipated to gain momentum, contributing to demand.
Dalmia Bharat is currently operating at a capacity of 46.6 million tonnes, with an expansion target of 49.5 million tonnes by the end of FY '25 and a longer-term goal of reaching 75 million tonnes by FY '28. The company plans to capitalize on market strength to diversify its capabilities, committing to significant capital expenditure (CapEx) plans, initially estimated at about INR 3,000 to INR 3,300 crores for FY '25. This spending will be directed primarily at capacity expansions and cost-reduction initiatives, including renewable energy projects.
Despite current operational challenges, Dalmia Bharat has a relatively robust balance sheet, with gross and net debt standing at INR 4,784 crores and INR 644 crores respectively, resulting in a low net debt-to-EBITDA ratio of 0.25x. The company has declared an interim dividend of INR 4 per share, consistent with its capital allocation policy, which stipulates returning up to 10% of free cash flow to shareholders, indicating confidence in sustained long-term profitability.
Puneet Dalmia, the CEO, emphasizes a strong belief in the long-term prospects of the cement industry as a proxy for India's growth. He indicates that, despite short-term headwinds, the underlying demand dynamics suggest a brighter future, driven by government initiatives and a recovering real estate sector. Consolidation within the industry is likely to enhance the competitive landscape, with the top four companies projected to account for 60% of the market by FY '27. This positioning could lead to better pricing power in the long run.
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Ladies and gentlemen, good day, and welcome to the earnings conference call of Dalmia Bharat Limited for the Quarter and Half Year Ended 30th September 2024. Please note that this conference call will be for 60 minutes. [Operator Instructions]
This conference call is being recorded, and the transcript may be put on the website of the company. [Operator Instructions]
Before I hand over the conference to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements. These statements are based on expectations and projections and may involve a number of risks and uncertainties such that the actual outcomes may differ materially from those suggested by such statements. On the call, we have with us Mr. Puneet Dalmia, Managing Director and CEO, Dalmia Bharat Limited; Mr. Dharmender Tuteja, CFO; and Mr. Rajiv Bansal, President and Chief Transformation Officer and the other management of the company.
I would now like to hand the conference call over to Ms. Aditi Mittal, Head of Investor Relations. Please go ahead.
Thank you so much. Good morning, everyone. Welcome to Dalmia Bharat's Earnings Call Quarter 2 and H1 FY '25. We declared our results on Saturday, and the presentation and the results have all been uploaded on our new website and can be downloaded from there. With this, I will now hand over the call to Mr. Dalmia for his opening remarks.
Thank you, Aditi. Good morning, everyone. Let me begin with an overview of the quarter and then Dharmender will take you through our operational and financial metrics.
India remains the fastest-growing economy in the world, and I'm confident that as India grows, cement sector being a proxy will continue to flourish. While the industry's long-term prospects are promising, there have been some short-term blips as the demand in the first half of this fiscal '25 has been quite muted and below our own internal estimation.
While H1 growth in the cement sector is expected to be around 2% to 3% based on analyst estimates, I believe that H2 will see a good bounce back and could grow around 8% Y-o-Y, with a full year growth of around 6%. The reason for the same, in my view, are as follows: Infrastructure spending of the government is only at 27% of the budgeted allocation till August 2024. This percentage in FY '24 was at 39% for the first 5 months. There is no reason to believe that the government will not spend the budgeted amount given the robust collections.
This would mean almost double the monthly run rate of infrastructure spending by the government as compared to the first 5 months. The pent-up demand because of slower-than-expected demand in H1 for reasons already discussed earlier are also likely to add to the demand growth being better in H2.
The real estate cycle is on a multiyear upswing, and we expect a strong pickup in the construction activity in H2. Private CapEx has also started to gain momentum and is expected to pick up further. I continue to believe that the larger outperform the other players in terms of growth as we have seen in the last many years. This will only accelerate further given that there is consolidation in the sector. We at Dalmia have laid a strong foundation to grow volumes by at least 1.5x of the sector.
Since the industry witnessed a weak demand environment in the first half of the year, it led to a decline in the overall industry utilization, which was already running at 67% in FY '24. As a result of this, the industry saw a weak pricing environment and saw prices come down. I believe that with the expectation of a strong demand revival in H2, prices should start moving up from here on, though the competitive intensity may not allow much gains on this front. On the cost side, we continue to be one of the lowest cost producers in the sector.
Coming to the quarterly performance of our company during Q2 of FY '25, I believe we have delivered a healthy volume growth of 8.4% Y-o-Y in spite of the discontinuation of the Jaypee tolling arrangement. On the capacity side, we are currently at 46.6 million tonnes and on track to reach 49.5 million tonnes by the end of financial year '25. Our 2.4 million tonnes of Northeast and 0.5 million tonnes of Bihar expansion should get commissioned in H2. .
With regards to our future expansion of reaching 75 million tonnes by FY '28, I committed in the last earnings call that we will detail out the plan in the next 12 months. We are actively working on several plans and would announce that within the next 9 months.
I will now request Dharmender to take you through the detailed financial performance of the quarter gone by. Thank you.
Thank you, PuneetJI. Good morning, everyone. Let me take you through the key aspects of our performance. As PuneetJi has mentioned, our volume grew by 8.4% Y-o-Y to 6.7 million tonnes during the quarter. However, revenues have declined by 2% Y-o-Y to INR 3,087 crores due to a sharp decline in cement prices. Our overall state mix stood at about 53% during the quarter.
The cement prices declined during Q2 due to weak demand scenario, particularly in South and Eastern markets. These markets saw a decline of 5% to 7% Q-o-Q and about 10% to 12% on Y-o-Y basis. Decreased trade mix also contributed to fall in NSR. As PuneetJi said, we expect these prices to improve in H2, the rebound of demand though the competitive intensity may cap any significant gains on this account.
Moving on to the cost items. Our raw material costs during Q2 increased marginally by 0.4% to INR 789 per tonne of cement production on a Y-o-Y basis. As we have discontinued the cement hauling operations at Jaypee, our overall cost now doesn't include any cost of purchase material. The power and fuel cost declined 11.3% Y-o-Y to INR 1,012 per tonne of cement production, mainly due to a $26 decline in the fuel consumption cost to about $101 on a Y-o-Y basis.
On a Q-o-Q basis, it declined by about $5 per tonne. Fuel costs during the quarter stood at INR 1.36 per kcal. Our share of renewable energy has also improved to 39% during the quarter. We are working to get additional cost savings of INR 150 to INR 200 per tonne from our different initiatives.
In line with this, we continue to put renewable power capacities across our various locations. We have commissioned 16-megawatt captive solar power plant at Sattur, taking our total RE capacity to 202-megawatt.
As we take some smaller captive RE capacities are also under execution. Besides this, we have entered into multiple renewable power agreements under the group captive arrangement, which will secure about 151-megawatt capacity of renewal power through solar and wind energy. This is in addition to 127-megawatt capacity signed earlier. And as already mentioned in our Q1 earnings call.
In total, we have signed 278 megawatts of long-term renewable power agreements under the group captive arrangement so far. The commissioning of these renewable power plants is expected to begin from next quarter onwards and by end of FY '25, we should have operational RE capacity of 341 megawatt, including 128 megawatts from group captive arrangements.
With this, we expect to exit FY '25 with about 45 power share in our overall power mix on a consumption basis. During the quarter, our logistic cost increased by about 7.6% Y-o-Y to INR 1,102 per tonne since we started servicing central markets from our Eastern plants.
The quarter also had only 1 month of busy season surcharge waiver as against 2 months in the same quarter last year. The employee cost during the quarter declined by 3% Y-o-Y to INR 219 crores. However, other expenses rose 15.7% Y-o-Y, to INR 546 crores, primarily due to higher number of shutdowns of plants and increase in packing and material handling costs linked to the increase in sales volume.
Our EBITDA during the quarter declined by 27% Y-o-Y to INR 434 crores, which works out to INR 650 on a per tonne basis. We accrued INR 61 crores of incentives during the quarter, while our collection during the quarter was INR 20 crores. However, in early October, we have received incentive of about INR 46 crores.
Our incentive outstanding on 30th September was INR 779 crores. For FY '25, we expect total incentive accruals and collections of INR 300 crores. The depreciation during the quarter declined by INR 65 crores to INR 336 crores on a Y-o-Y basis.
As previous year had additional depreciation of INR 40 crores pertaining to certain components of plant and equipment which were replaced as part of our overall debottlenecking projects.
The FY '25 depreciation is expected to be in the range of INR 1,300 crores to INR 1,350 crores. Our CapEx during H1 stood at about INR 1,386 crores. During the full year, we expect to spend about INR 3,000 crores to INR 3,300 crores, which is largely towards capacity expansion, including land for future projects and certain cost reduction projects, including renewable energy and coal blocks.
During the quarter, we have received a final tranche of INR 320 crores, along with interest from the divestment of DBRL shares. As of 30th September, our gross and net debt marginally increased to INR 4,784 crores and INR 644 crores, respectively. Hence, our net debt-to-EBITDA stood at 0.25x.
We believe that our strong balance sheet positions us well for the next phase of expansion. Lastly, the Board has declared an interim dividend of INR 4 per share. With this, I would now like to open the floor for questions. Thank you very much.
[Operator Instructions]
Our first question comes from the line of Shravan Shah from Dolat Capital.
Yes. Sir, in the opening remarks, we have said that in the second half, we are looking at 8% volume growth for industry. Just trying to understand for us in the 1H, we have done close to 7.2%. But for us, how we look at the second half in terms of the volume growth because if we now remove the Jaypee volume, which was there in last year in the second half. Is it fair to say that we will be just being a 1% or 2% kind of growth in the second half? So net-net for FY '25 we will be having a close to 3.5% to 4% max type of volume growth.
We have laid a strong foundation to grow at 1.5x the industry growth. And I think we stick to that kind.
Okay. And in terms of the pricing, sir, so currently the prices, if one looks at versus the Q2 average, how much they are out?
Dharmender?
Yes, the month-to-date October prices are on the same lines as the Q2 average.
Okay. Okay. And on the CapEx front, so particularly the capacity. So just trying to understand that we are sticking to 75 million tonnes by FY '28. So additionally, close to 25 million tonnes. So roughly, somebody looks like in terms of broadly, even if $60, $70, then also INR 14,000 crores, INR 15,000 crores kind of CapEx. So if you can help us, so from FY '25, you have already mentioned, '26, '27, '28 also, we will most likely to see the similar kind of CapEx of INR 3,500 crores and ultimately, that will keep on increasing our it. So is it a fair understanding?
See, we are planning that our net debt to EBITDA should not cross 2:1. As we detail out the plan for the 75 million location by location will also give clear guidance on the and debt levels. But I don't think that should be concerned as we have articulated our capital allocation policy that we'll try to keep our net debt to EBITDA up to 2:1 only.
Just last data point, if you can share, our premiums are blending ratio CC ratio reload mix and lead distance for Q2?
Okay. Our CC ratio is for this quarter of 1.64. The blended cement sale is 82.7%. The lead distance this quarter is 280 because we increased supplies from Eastern plants to Central region, and rail mix is 15% rail and 85% road.
And the premium, sir?
Yes, premium is 22.4%.
The next question is from the line of Amit Murarka from Axis Capital.
First question is on CapEx. I believe you have cut down your CapEx guidance from about INR 3,500 crores to INR 4,000 crores earlier to INR 300 crores now. I mean the 1H, you spent even lower than that run rate. Now my understanding is that in Northeast, the guided CapEx is about INR 3,600 crores with commissioning of Q4 FY '25. So are we running behind schedule on the Northeast project? And could you refresh the time line of both grinding and things and commissioning in Northeast?
Sir, clinker, as we said, will come in the FY '26, we expected around September of next year, and grinding also will be coming in this current financial year in H2, most likely around December or January. .
How much is already spent on the project?
So out of the current year, as I said, about 70% is towards this. So close to about INR 1,000 crores is already spent on the grinding side, impending as well as this in the current year. .
And nothing spent on clinker, is it?
Clinker is also in process. So both combined, I'm saying last year also we spend something and the current year is about 1,000. So it is on track in line with what we had planned. .
Okay. And on the expansion side, like debottlenecking projects of 0.9 million tonne on clinker, I think are still pending. I believe it was expected or guided that by Q2, I think the East will come in. So by when now can we expect that to come in by Q4 or something like that?
Yes, that is planned in H2. Work is already in process. .
Sure. Lastly, just on the central region, while the tolling is over, so I believe you've gained certain footprint already. So will you continue to service that market with the network you've built or what's the plan there?
Yes, we'll continue to serve this market because whatever network has been created that we'd like to maintain. And ultimately, in the medium term, we should have our own capacity even if the Jaypee plants are not there. .
How much would be sold in that region right now?
The regional data, we are not sharing. So please bear with us. .
All right. And there was no rolling of Jaypee, right? You rolling in Q2?
In this quarter, yes.
The next question is from the line of Sumangal Nevatia with Kotak Securities.
Sorry, I got disconnected, so I'm not sure if this is already asked. So I just want to know what was the fee cost in rupees per kal? And what is the guidance given pet coke coal prices are on a declining trend, how much of further reduction are we expecting in the coming quarters?
So Sumangal, this quarter, we had a consumption of about $101 per tonne and the purchase is also on the same levels. And as we speak, the spot levels are slightly down closer to about $93. So we expect a marginal reduction in the coming quarters. And blended fuel cost dropped out to 1.36 per kcal.
Understood. Understood. And on the overall renewable power mix, I read we will reach 39%. Is it possible to share? What sort of expectation do we have for say, FY '26, '27 individually? And what sort of cost savings should we build in given the higher share of renewable?
Currently, we are at 39%. By year-end, we expect it to reach closer to about 45%. And next year, and we should be about 50% or so. And about INR 150 to INR 200 savings which you are targeting from various cost initiatives. So that targets about what savings from the BC as well as logistics. And BC savings primarily come from renewal power as well as coal blocks. So we can expect about INR 50 per tonne savings in the current year, another INR 50 savings in FY '26 and another INR 20 or so in FY '27 by when all the coal blocks will be operational.
The next question is from the line of Ritesh Shah with Investec.
Couple of questions. First is, in the initial remarks, you indicated that we expect pricing to inch up in the second half, subject to competitive intensity. The question is, what is our strategy to combat competitive intensity?
See, basically, it's aligning our goals with the goals of the dealers. So it's all about relationship management with the dealers. Market continues to remain dynamic and competitive. So our response time to the market dynamics will be very fast so that we continue to do this. .
And also, we'll be continuing to increase our share in the premium segment as well as -- and we thought pricing the products to the customers will ensure that it takes into account the final nuances of the dealer mix as well as the incentive strategies. I think a just
I think long term, we want to maintain our cost leadership. We want to invest in our brand. We want to deepen our distribution and we want to improve our service. So I think there will be -- these things will be a continuous journey throughout no matter what happens because it will just improve the -- our ability to service our customers and add value to their businesses. So I would just say that there will be times when industry prioritizes market share over margins.
And there will be times when industry will prioritize margins over market share. This happens in every industry. Our industry is no exception. And I think this is the time to improve our efficiencies and just stay very, very focused on execution and improve our invest in brand and distribution. So I think that's just going to be our strategy market by market and just continue to execute to put our heads down and continue to execute well. That's it.
Just a related one. You indicated we will align ourselves with the dealers. I think it's probably visible given the discount increase that we have seen in FY '24 annual report of FY '23, it's a real steep bump almost 7%. And it stacks up in line with the highest in the industry. And if I look at the same variable it's like 13% CAGR over the last 5 years. So when we say basically, the focus will be on cost. How should we look at incentives and discounts because this number has been ballooning up very, very sharply, impacting profitability. So are we saying that we will scout for market share in the interim, if it means? Saying playing along with the dealers to ensure that we maintain our market foothold.
I think this strategy will be different market by market. And I think there are markets where our cost to serve is very low, and our market share is not very high. So I think in those markets, we will prioritize gain of market share. There are markets where we serve, but in the long term, we may not be that competitive. But in the short term, we may be serving those markets. In those markets, we may just look at optimizing prices a little bit more rather than just go all out for market share. So I think there will be a strategy which will be different market by market, micro market by micro market and I think we are looking at what's the best way to balance volume gains, while preserving our margins.
Sure. That's useful. And if I just take one more. Sir, you have included INR 150 to INR 200 per tonne. I think in Sumangal's question, you did dissect it broadly for renewable coal and logistics. Is it possible to give exact numbers over here?
Logistics will be about INR 50 and balance INR 100 to INR 250 will come from coal blocks as well as renewables.
The next question is from the line of Satyadeep Jain with AMBIT Capital.
Just first question would be on the medium-term growth. You've outlined 75 million tonnes by '28. Just wanted to see if you're going to announce the expansion in 9 months. In 9 months, can we assume that the entire land acquisition approvals all will be taken care of. So it's just wondering how are you thinking of derisking from here to ordering in the next 9 months?
I think I told on the last earnings call also, we are in the process of getting permissions and buying land. And this is a parallel process work is going on. And we will detail out the plan side-by-side location by location along with time lines within the next 9 months. So the work is on. I think that's the best way to derisk it, get permits by land and make sure that we prioritize our sites based on strategic attractiveness and long-term.
Okay. Just a second question on the central strategy you're catering to this market, I believe all the way to Odisha. Are there any particular pockets that you're catering to and the strategy would be to continue to incur marketing expense, look at building out the entire network there for the next 2, 3 years until you set up your own plant there. Is that fair to assume? And these markets have been catered to all the way from Odisha right now?
Yes, I think it's fair to assume that. Dharmender, do you want to add to this?
Yes. Earlier, we had price network in UP primarily, closer to Allahabad as well as Varanasi. So those markets are continuing to mix out. And of course, the expenditure of the marketing, brand building, et cetera, is in line with the volume of sales, which we are incurring there, so that it is the costs are in line with the revenue.
The next question is from the line of Pavas Pethia with Aditya Birla Mutual Fund.
Sir, I just wanted to understand how is the 75 million tonne number for you? And what will make you change this postponement of even the relation still remains of 70% for the entire.
I think I have already shared that we think that we are going to build 100 million tonnes by financial year '31. Our medium-term plan is to build 75 million tonnes by financial year '28. And if, let us say, there is some massive blip in the industry, either upside or downside, we will always review our plan and pace it along with how we see the industry shaping up. So these plans are more or less firm. But I think if there is a massive shock, macro shock, we'll have to adjust to those shocks and base the plan accordingly.
Sure. And secondly, on this INR 3,000 crores, the CapEx number for this year, should the similar trend continue in FY '26, '27 and beyond?
So with the announced expansion plans, the next year, CapEx should be about INR 2,500 or so. And of course, when we announced the next line of growth CapEx, then we'll give more visibility about next 2 years' CapEx guidelines.
And if I have to step out the maintenance part, what will be that number? .
It's close to about INR 250 crores to INR 300 crores per annum.
The next question is from the line of Prateek Kumar with Jefferies.
My first question is on pricing. So reported like around 5%, 5.5% drop in pricing quarter-on-quarter. Do you think is this worse than industry in your markets? Or like is it in line because as because your volume growth is faster than industry probably. So had the higher volumes come at the expense of much worse pricing?
I think it's hard for us to. Dharmender let me just handle this and you can add to.
Sure.
I think it's hard for us to say because there are areas where we've repositioned our brand, and we are able to charge a higher price. But this quarter, our non-trade mix has gone up, which typically sells at a lower price than the B2C business. So there is a definite impact because of volume because of the segment mix. But overall, I think in many markets, we have been able to reposition the brand and get a slightly higher price than what we were getting earlier in the trade segment. Dharmender, please, do you want to add to?
Yes. Our reading was that our decline is in line with the market decline of prices from South and Eastern markets have shown much bigger declines. That has concentrated into our overall decline.
Okay. Related question on non-trade mix on hire. So in a market environment where generally the government demand has gone down. We are trying to increase market share in non-trade segment. That is also probably weighing on prices. That would be right.
See quarter-to-quarter, it may have some changes, but we continue to remain focused on increasing our trade mix. And gradually, of course, you'll see that reduction rebuilding.
Okay. And one other question regarding like one of the remarks earlier, you said about market share over margins quarter-to-quarter or year-to-year. So I mean we have historic a few quarters back, we talked about EBITDA margin of around INR 1,100 crores to INR 1,200 crores. We're currently at 650 in this quarter. What are the kind of margins at least for near term when we talk about this market share versus margins. So this year, what kind of margins you might be looking at?
Quarter-to-quarter, it's very hard to predict. But if you look at H1, it's somewhere in the region of INR 750 crores to INR 800 crores and I personally believe that prices should move up a little bit gradually. So I would think that maybe this is sustainable -- Should be sustainable? .
Sorry, your voice is not audible.
I'm saying that if you look at H1 numbers, H1 EBITDA per tonne is somewhere around -- how much is it a exact?
INR 782 million.
So quarter-to-quarter numbers could be volatile, but we think the prices may be slightly better in H2. And I think INR 900 to INR 1,000 at least this year should be sustainable. And Again, it depends on how the demand also behaves. So we think that in the long term, the guidance that we've given of INR 1,100 to INR 1,200 should be doable unless there are some really macro shocks and there is like a very intense competition from market.
The next question is from the line of Rashi Chopra from Citigroup. Sorry, Rashi, there is too much a background noise on your end.
Is this better? I'm just taking on from some of the earlier questions. So what was the industry volume growth for this quarter, not the half just in the second quarter?
I think industries -- the numbers have not been reported, but we think it will be low single digit. And was 2.3%.
Yes. Okay. So similar.
Well, I don't know, I mean, low single digit is what we think.
All right. And you've managed to obviously grow at 3%, and you've also kind of indicated that your realizations given the regions, should be similar to the rest of the peer group. So what is -- and I would imagine that this will be 1 of the stronger growth rates within the industry at least for this quarter. So if it was not for pricing, what has been different for you?
Sorry, can you just repeat that question, please?
So you mentioned that the price decline in the South and the East is 5% to 7%, which is in line with the general peer group that everyone in the South and East should have seen similar price declines. And the industry growth is so muted. What have you done differently or not for kind of reducing prices for?
As I said, Yes. As I said, in many markets, we have repositioned our brand and we are able to charge higher prices. We are also focused on improving our premium mix. It will be a journey. And again, market by market, we are reviewing our strategy.
And I think we are also looking at which are the best markets that we should serve and just increase our share in those markets. These are the 3 things that we are looking at market by market.
Okay. And you also mentioned that Dalmia will grow at 1.5x the industry. So this year, so you are confident of getting to a 9% volume growth for the year, given the 6% growth. Okay. And just one last question. The EBITDA per tonne, like you said, quarter-to-quarter is hard to get, but you mentioned that this year, 1,000 should not be 1,000 should be doable. Was that for the second half? Or is that for the average for the year?
I'm saying the first half is 780. So we expect prices to move up a little bit in H2 compared to H1. So the blended number should be probably in the range of 900 to 1,000 is what I think, but it depends on how demand behaves and what is the competitive intensity in the market.
The next question is from the line of Pulkit Patni with Goldman Sachs.
Just one question in terms of the Central India expansion, whatever we had invested now that the tolling arrangement is off. Is there any possible write-offs that we may have to take in the future? Or because we are trying to expand that organically, we don't think there should be any need for us to make any of those adjustments to our books?
See, last quarter, we have done some impairment of exposure, which we had on Jaypee. That is, I think, about INR 113 crores. So we had taken the full impact, which we thought could have arisen. So I don't think anything further should come.
In terms of the manpower we hired there, et cetera, et cetera. So they'll all be used organically for us to grow in that region. Is that the right to understand? .
That is right.
The next question is from the line of Indrajit Agarwal with CLSA.
Sir, at 49-odd million tonnes, even if you grow 1.5x industry by FY '26, we will have closer to 66%, 67% utilization. So do we think the focus should be to get the utilization up first before focusing on the next leg of CapEx because of the industry anyway, we can still grow and half the industry with the current capacity at least for the next 3, 4 years or so? And secondly, on the , would we be a very high amount of money in Central region right now? I mean broadly, what proportion of your volumes would have been central in this quarter?
So I think there are markets in which our capacity is almost sold out, and I think we'll have to add new capacity. There is also a lead time in adding capacity and it could take around 2 years plus. And finally, I also think that there will be -- we have an ambition of being a pan-India player. So we might add capacity in new regions where we don't exist today. So I think this decision will be taken in keeping in mind where our utilizations are higher and our ambition to be a pan-India player. And I think secondly, in terms of regional volumes and how much we are selling in which market and what's the profitability, please bear with us. We don't share that data.
Sure. Makes sense. Sir, lastly, given the current expansion gets over, let's say, by mid-FY '26, would be sufficient to incur if we want to operate the entire at 100% utilization?
Yes, we do, and we'll have to increase our CC ratio in some markets, which we are already doing.
The next question is from the line of Rahul Gupta from Morgan Stanley.
So Puneet, sir, I have just one medium-term industry question for you. You have talked about industry prices being weak, not just now but for some time now. If industry prices don't move up steadily given competitive density does that risk capacity expansion for the industry? Or do you think that capacity expansion could come, but at the expense of ROICs? Any views over here?
Look, I think at current prices, no investments can be justified. And whether you look at organic or inorganic growth, if you believe that the prices are going to remain at this level, we can't just have any investment I think we all believe that structurally, the industry is very positive in the medium to long term and which we have outlined like we believe that India will grow. And if India grows, construction will grow and there will be demand for cement.
And I think the demand-supply equation, there are -- while there are short-term headwinds, I think long term, demand should grow at a higher CAGR than this capacity CAGR. So we think that demand could grow in the range of 7% to 8% in the longer end capacity probably will grow at 5% to 6%.
So therefore, there will be a slight uptick in capacity utilization over the longer term. We also think that the top players are expanding faster than the smaller players and with increased M&A in the sector. So the share of top 4 will go to 60% by financial year '27.
And I think just with increasing consolidation and a very good long-term demand supply scenario. I think the entry barriers are rising in this business, so we can expect better pricing. But it's very hard to predict what will happen in the short term.
And we've even seen if we look at our last 10 years, 20 years of history, there has been -- it's a cyclical business and prices are very volatile. But if you take a 5- to 7-year view, it all evens out. And this business requires patients -- this business requires not being disappointed when chips are down and not being too exuberant or arrogant when you are making too much money. So I think you can keep balance and you have to keep the conviction at least that's what we've benefited from in the past.
And we think that the structural positives in the sector are far better than what they were 10 years ago. We believe that is a very attractive one for the industry. And I think without stretching the balance sheet expansion is the right way to go, while keeping -- while using this opportunity to tighten your belt and become more efficient. -- while not losing sight of long-term investments in brand building and distribution.
So just to understand this better. So at what capacity utilization levels, do you think that pricing power comes back materially? Or how should we look at what prices it makes sense for the industry to add capacity, not thinking about near-term headwinds? Or do you just forget about near-term headwinds and think about medium-term and long-term outlook for the industry and not think about ROIC in the near term?
I think you can do the math yourself if like the capacity creation cost and M&A cost is in the range of, let's say, $90 to $120 per tonne, let's say, an average of $100. I think the EBITDA has been the range of, in my view, INR 1,500 per tonne in the long term.
The next question is from the line of Navin Sahadeo with ICICI Securities.
My question was in the earlier comps, you said there was an increase in the non-trade share in the quarter. So could you just give details as to how much was the sequential improvement I mean increase in non-trade over previous quarter?
Yes. Previous quarter, we had 64%. And this quarter, we are 63%. So there's a trade has gone down by 1%, and non-trade has gone up by 1%. On a Y-o-Y basis, this is about 5% because last year, we had 68% trade mix, mortgage is 63%. On a Y-o-Y basis 5% increase on a Q-on-Q basis, 1% increase in the non-trade portion.
Sure. The reason why I'm asking this is because in the second half, if the government demand is expected to come back, which is the infrastructure-led demand will bounce and lead to overall industry volume growth. Is it fair to assume that this shift or in favor of non-trade can only go up for you in the same rate -- is there a possibility or a rethink on our plan to venture into the OTC market of non-trade. If I'm not wrong, we are not telling -- I mean, in the East, I think we hardly sell in the OTC market at all and maybe in the South overall win being at around 87% odd. So is there an expectation that non-trade will go up and our share of OPC build rate?
So I think in the short term, it's hard to predict. We are running at low capacity utilization right now. And we will see whatever is best done to maximize our contribution. But I think in the long term, we are more committed to blended cements. And I think we are more committed to increasing our share of trade.
Understood. Helpful. My second and last question is when you're looking, I mean giving a target of 75% by '28. So roughly 25 million tonnes is what we are likely to add with the current expansion, which are on hand from 50 to 75. So is it fair to assume that from '26 to '28, I mean in 3 years, the CapEx because it's assuming it will be a mix of greenfield and brownfield. So our CapEx over these 3 years could be around INR 18,000 crores to INR 20,000 crores. Is that the way to look at it?
I think we don't want to give any numbers right now. We are still working on exact plans in which market, how much and what capacity. So I think you'll have to wait until we
announce the plans.
The next question is from the line of Saket Kapoor from Kapoor & Company.
Yes, sir, for the EBITDA pattern number, you mentioned the number of INR 650 also. 650 is for the second quarter? Or if you could just correct me there, INR 782 is for the H1. Yes.
Q2 Q3.
Okay. And the blend is -- blended average is 782. So that was significantly higher for the first quarter.?
SPEAKER01
That's right. First quarter is 900.
Okay. Sir, when we look at our other expenses line item, that has been steadily -- steady up for this quarter also. So can you explain the nature of this other expense line item of INR 546 crores?
So this has gone up from the last year or maybe from year to year also because of the higher number of shutdowns of the plants. So the repair cost or contractor costs, et cetera, comes in this line. And when I say last year-on-year, then until the volume has gone up. So there are some volume-linked cost like packing backing back costs, commissions, et cetera. So these costs also go up accordingly.
Okay. Can you quantify the one-off line item for the repair part that was included for this quarter? .
That will be about INR 40 crores, INR 50 crores or so, but there could be shutdowns in Q3 also, but a bulk comes in Q2, and then Q3 is the next one and comes down very significantly.
And sir, utilization level, sir, for the entire entity was about 65% for the first half?
Yes, sir.
And for the industry also, what was the number? And taking into account the anticipated CapEx spend from the government for H2. What should be likely ending H2 in terms of capacity utilization level? .
For this year -- for this quarter, we had a capital utilization of 58%, but we expect it to go up in the coming quarters, because was a seasonally weak quarter. Still also, I think, currently about 57% or so.
57% is for the industry?
67% or so.
Come again, sir. 57% 5-7?
67.
Sir, taking into account our -- the CapEx that we envisage and also the other aspect of the weak market it is always good that you share your -- the profit with your investors, but coming about -- coming out with dividend payout at this point of juncture when we are having extreme cash flow. Can you please explain what's the thought process to return cash right now when that could be for a much better use than returning that to our investor?
For the full year, we don't think that the outlook has diminished. That is why we have not changed the trajectory of the dividend payouts. Hope that the growth trajectory of the volume as profitability should continue. And accordingly, we have not downgraded the payout of the dividend.
Capital allocation policy says that we will -- up to 10% of our free cash flow, we will distribute as dividends. And I think we are -- it's in line with our capital allocation policy, which we have already outlined.
And lastly, sir, on the waste heat recovery and the alternate fuel part, what is our current fuel mix and going ahead for say, 1- to 2-year time line, how will this number shape up for waste heat recovery that is -- and the use of alternate fuel?
I think we don't share that data granularly, but we've given you our RE power mix, and we've also shared our overall fuel cost on the RE Power, I said that we are currently at 39% by year-end, we expect to go to about 45%. And by next year and by about 50%.
Right, right. And lastly, sir, on the 113 exceptional line item part. Can you explain the nature and any more amount that we need to classify under assessment going ahead? If you can explain the in a bit detail.
Since we have done the tolling operations in the last 1.5 years, so we had to give some advances to Jaypee for clearing the past defaults of taxes, et cetera, power payments, et cetera without which the plant could not have started. So since we could not recover that money was to be adjusted in the acquisition of the assets. So since the company has gone into IBC, considering the uncertainty of realization of this amount. We have taken impairment in the last quarter of INR 113 crores.
And that is the full and final for that?
Yes. We covered whatever exposure we had, so we don't expect any further increase in this.
And lastly, on the acquisition sir. So, if you could share your thoughts, how have the integration fees and that's all from my side.
So, we are continuing to improve our positioning in the market and successfully we'll ensure that this becomes a very profitable plant and already it has crossed the breakeven points.
The next question is from the line of Yash Darak with RSP Ventures.
So my question is that the other expenses has sort of increased at total revenue, which is generally a 15%. So are we expecting this run rate to continue? Or there would be decrease in other expenses?
See other expenses has 2 components. One is, of course, the fixed and second is on the variable part. So variable part goes up in line with the volume increase, which is the packing cost and some of the cost leading depot expenses or commission, et cetera, et cetera. But the fixed expenses had bumped up in the current quarter because of the higher plant shutdowns. So this should go down somewhat in Q3 and mainly in Q4. But other fixed expenses should remain the same.
And lastly, the CapEx is at around INR 2,000 crores will be CapEx for the entire year. So how much CapEx has been done by now, if you would see?
Yes, close to about INR 1,386 crores in the first half- in this quarter rather in this quarter and the other H1 is INR 1,386 crores here.
The next question is from the line of Amit Murarka from Axis Capital.
So I remember earlier you had mentioned that 1,000 dealers of Jaypee had shifted to Dalmia in the central market. So how many of them would still be associated with you?
I think most of them, but exact count, of course, I will not know, but most of them are still continuing when we are currently doing the operations through our Eastern plants.
And are you expanding the network further in Central or planning to maintain the dealer network?
Of course, we have to see the profitability as well as the market growth will try to increase, but considering the long distance, which you have to cover, so we have a limitation of all the markets which we can cover. So we'll gradually see how quarter-by-quarter we were able to improve on it.
Sure. Got it. And also, what would the cost of slag that you're incurring now?
There is a small increase over the previous quarter. I'll come back on that specific number.
How much would it be if you can ballpark also?
The range of about INR 1,000 to INR 1,500 keeps moving from quarter-to-quarter depending on the auction prices.
Ladies and gentlemen, we take the last question from the line of Shravan Shah from Dolat Capital.
Sir, just wanted to understand the 8% growth that we are looking at for industry in second half and so for us, we have already said that we are looking at 9% volume growth for FY '25. So broadly, is it fair to say that in the second half of South would be growing better than the East?
I don't think we can give renewal numbers. And I think we've already said that our estimates for industry growth are better in H2 because H1 -- Q1 was an election quarter and Q2 was a monsoon quarter.
So we think there is pent-up demand in housing, which could come back. We think government spend on infra will gather more momentum. We think real estate and private CapEx will also contribute to this. So our best estimate is that this can go to 7% to 8% in H2.
And we think that based on this, maybe prices could be marginally better, although it will depend on competitive intensity also. So given that, we think that than can continue to grow in the range that we have guided for.
And last, pet coke share and domestic coal share in the fuel mix in Q2 was how much?
I don't think we will give that data here right now.
Ladies and gentlemen, this concludes our question-and-answer session. I will now hand the conference over to Mr. Puneet Dalmia for his closing comments.
I think this was a weak quarter from a pricing standpoint, but our volume growth was quite healthy. We are still very bullish on the long-term prospects of the industry. given the great demand outlook and the consolidation that is happening. We will continue to build Dalmia to be more efficient. We will continue to look at our expansion plans in line with our long-term guidance of pan-India footprint as well as adding capacity where we think we are sold out, and we need more market share.
So I would just say that I still have great conviction and great belief in the long-term story and cement is a proxy growth for the India long-term story. Thank you for your interest in us, and wish you and your families a very happy Diwali. Look forward to seeing you in 2025. Take care, and have a great day. Bye-bye.
On behalf of Dalmia Bharat Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.