Orient Cement Ltd
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Earnings Call Transcript

Earnings Call Transcript
2024-Q1

from 0
Operator

Good day, and welcome to Q1 FY '24 Earnings Conference Call of Orient Cement Limited, hosted by ICICI Securities. [Operator Instructions]. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you, and over to you.

N
Navin Sahadeo
analyst

Thank you. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you to the Q1 FY '24 Earnings Call of Orient Cement. From the management, we have with us MD and CEO; Mr. Deepak Khetrapal. So without any further ado, I hand over the call to Mr. Khetrapal for his opening comments followed by interactive Q&A. Over to you, sir.

D
Desh Khetrapal
executive

Thank you. Thank you, Navin, and good afternoon to all the participants who have already joined in. I'm told the number is going up, but I think we don't want to keep the people who joined in time waiting. So a very warm welcome to this earnings call. I'm happy to have you here and thankful to all of you to take time out and listen to us.

In terms of the, I think the Q1 FY '24 performance, the most important thing that I'd like to start with which was actually towards the end of my call that I did on Q4, we had already indicated that this Q1 on the surface is likely to look soft. I have sort of made the disclosure 3 months ago itself. And this is how it pans out. And I'm using the word carefully, it will look like it's softer. And I think the numbers that you've seen, you would have actually seen that while we are reporting a very strong growth in volumes in terms of EBITDA, we are -- obviously, the numbers look a little soft. So here is the perspective, which I started building last quarter itself. So we actually went through the planned shutdown of the kiln at Chittapur and Gulbarga where we have -- that's the only kiln and that plan is very far away from [ the business ]. So the maintenance shutdown of that kiln actually has a lot more impact on our operations compared to anything else. And in this particular here, we have done the maintenance of the pill and the supporting equipment after nearly 23 months ago, the last shutdown of that kiln in April 1921. Which is unheard of in the cement industry, including the suppliers of the equipment are surprised how we managed to sort of keep working with the same kiln without doing the shutdown and replacement of refractory for that long. But I think that's something that we take a great amount of price in. But at the same time, what happened was by the time we decided to take the shutdown, it was also a time in the market. Q1 typically happens to be [ burnt ] quarter. And -- but we were left with no option having run it for nearly 23 months, I don't think we could have taken any further risk with it. So we finally took the maintenance shutdown in April.

Like I said, the impact of that on our books, obviously, is the one the -- what is euphemistically called annual shutdown. Actually, most of the industry does in about 270 days of [ funding ]. So -- but since it's done on an average, once in a year, it's called annual. I can't call it annual because we actually done it up for nearly 2 years.

So it has a bunch of costs that happened in that [ reflect ] get replaced, all the other equipment are overall. So it's a fairly large cost that hits the books of the company in 1 particular month, whereas the benefits of that obviously flow into the rest of the year. That's why it's called the annual shutdown.

So that's one, I think part of the framework that we have to remember. For us, the other challenge was because not only did we have, for example, if we do the same maintenance [ at ] give up or we don't have other complications because we have 3 kilns and we can plan the inventories of both clinker and cement, so that we don't see much of a problem in availability of cement. But we around the Chittapur plant, we have -- earlier also I mentioned last quarter, I had told you that we had actually worked at a capacity, which was higher than the capacity, which was given under the consent to operate document that we have.

So where -- the demands are buoyant and more importantly, some of the customers who have become very heavily dependent on our cement because their processes are run with other quality of cement, we did not have the option to let them down. And as a result of that, we didn't regret any of our large loyal customers. We actually -- every single bag of cement that they needed every single -- tonne of cement of the needed, we made sure that we make available to them. That we could do when we call [ attached ] only by transporting clinker from our other plant, which is in [Operator Instructions]., as we keep calling it. So obviously, there's a huge amount of, I would say, movement of clinker that we had to totally nearly 72,000 tonnes of clinker was used at Chittapur, which is actually produced in the month of April. Besides the inventory that we've already built up by Chittapur.

No, it's -- I mean it's a matter of [ time ] for us that our customers who depend on us, we managed to meet their entire demand. And we took the costs as a part of remaining in the market, maintaining our relationship with the customer. So those relationships have even become stronger book every customer was aware that our kiln was not there and clinker was not available.

But they know that no matter what it cost it to us, we like the entire demand, which I'm sure goes towards strengthening our relationship with those customers even further. And they also saw -- we keep -- if you read our annual report, we keep talking about responsibility. We keep up on agility. So all those things, we actually demonstrate not just talking within ourselves in the company, but our customers get to see it all the time. So which is something that we do take a great amount of pride in.

At the same time, some of the markets, which in the overall process falls somewhere between our [ Kerendan, Pantene ] Gulbarga, Karnataka plant, we also decided to service those markets directly from the [ Karnataka ] plant, although they are closer to the [indiscernible] plant, which means our logistics cost per tonne also gets a little distorted for the time that we made these rearrangements.

So with all these challenges, we have reported, as you've already noticed, the volume growth over last 3% or 15%. Sequentially, yes, there is a legal over 7%, but that I believe all of us do expect the Q4 numbers are always the highest in Q4, while it trails Q4, but it does not become a Q4. So 7% degrowth there. And I would say, people largely -- we obviously haven't seen the industry numbers, some of the players have reported higher growth. But I believe those higher growths are being reported to see the new capacity that has got added during the year. I don't think from the same facilities, same capacities, people are achieving the kind of growth that we've reported. Subject to correction, that's our impression.

Now the part which I think the investors would certainly not be happy because we are also not happy that despite such strong demand. The prices in the market actually have stayed flattish with a little bit, I would say, a softer virus. As a result of that, some of the, let's say, initiatives that I've been talking about in the past, in terms of repositioning of our brand in terms of also moving up the sales of our premium products, both strongly and [ range ] now. But you see of all of that Y-o-Y we have managed to maintain our [ realization ] almost there. I mean, we are a share under [ 5,200 ] per tonne, which is flat over last year. But what I understand some people have actually taken the surprise that Q-on-Q, we have reported a higher realization than we had in the preceding quarter, that is Q4.

Now this obviously has enabled us to report also a revenue growth of 15%. And the sequential shrinkage in rupee terms into our turnover, we managed to contain the [ 6% ] against the loss of revenue or decrease in revenue over 7%. So that's on the -- on the sales and the volume side, but on the maintenance of trade costs, I've already mentioned the impact that is there. The EBITDA for the quarter, which has shown, I think, it was INR 103 crores, it's flat over last year. While on the surface, as I said, this might look a little soft, but if you actually account for the fact and make a more apple-to-apple comparison, I think there -- I'm not saying it's cost side normal, please don't misunderstand me. These costs are not abnormal. Kiln maintenance costs are normally part of the operations of the company. It's just that in the book get booked in 1 month or quarter. And for us, that 1 quarter happens to be rather big, I'm highlighting that part. But typically, I would say, if I was to look at total costs of maintenance and transportation of clinker and the impact of realigning some of the customers with the Telangana plant instead of Chittapur plant, which is closer. Our total cost for the quarter would be just on that about INR 20 crores and for the quarter. And also the other thing that we had mentioned that we had actually engaged with services in [indiscernible] to do a certain amount of validation of our investment hypothesis doing a little bit of more market research in terms of how we are faring with competition in those individual markets. So that cost also has been booked the same quarter. So the INR 20-odd crores -- INR 20-plus crores actually a month, INR 23 crores, INR 24 crores of -- a little bit distortion. Please don't take that negative cost is a one-off cost for sure. The transportation cost increase, into transport from Devapur to Chittapur is a one-off cost. That's not going to be repeated -- but the maintenance costs are part of the cycle of the cement industries. So I'm just reminding people that we need to remember, despite taking nearly INR 25 crores in additional costs over last year same quarter, we still have reported [indiscernible]. So that's something that I thought I'll just highlight here.

What would surprise you? And I know because typically, the commentary in the market by all the investors and all of you [ in the stall ] has been around the fact that the international fuel prices are low and so we should benefit. And that would surprise you when you see that our fuel prices over let's say, sequentially, they are not that much down or even early June 22, that means Y-o-Y also, they're not looking as low as we should have expected, right? Given the softening of international fuel prices. [ Advertising ] about international because while the international flow prices both coal and pet coke have definitely dropped, what we have to remember is in the meantime, the domestic coal prices have actually gone up. And the fact of the matter is, I'm sure there are many plants in the industry in India are still using dependent on coal, which is being supplied by coal India and [ sign ] qualities and other companies.

In our case, as most of you who have been attending our calls, we've been informing you that our plant in Telangana because of its proximity to Singareni coal mines, depends almost entirely on domestic coal. Whereas the [ Kanata ] Chittapur plant, that runs more or less entirely on the pet coke. So this mix of different fuels, the 2 different plants, is the reason behind the improvement in fuel costs not being visible. Please remember, in April, our Chittapur plant was shut. So the overall pet coke consume there was lower. So savings at Chittapur became lower because nearly 1 month out of 3, we did not use pet coke.

On top of that, the additional clinker that we transported 72,000 tonnes a that are actually produced in Devapur, where we use more domestic and exclusive domestic coal. So the nuances are important to see behind the numbers, our proportion of domestic coal consumption went up in this particular quarter, which if you compare the domestic coal prices, they have actually gone up during the year by 17% to 18% over the same quarter last year. right?

And on -- let's say, if we make a similar comparison at Chittapur, obviously, the pet coke prices are lower by 14% over quarter. Now these are actual prices. Domestic [ rest ] was up 17%, 18%, coal prices and international pet coke prices as we received the are down about 14%. So which is a fact and which is evident not getting reflected in power and fuel cost, which should have been softer.

And the second reason, which is important also to remember is that this is a combination of power and fuel are 2 states during this particular quarter, [ Arastra and also Kanataka ] they have changed their prices on the grid part. And despite having solar power at [ Zelman ] and despite having our captive power plant in Chittapur, we do have some committed loads from the grid because just in case of any failure, we do not want to be completely powerless. So we obviously make a certain commitment to the government to the state electricity boards, and they keep people connected and they have fairly fixed charges, which we still have to incur even if we don't draw enough or any power from them. And those costs have actually been increased during this quarter. So power costs have gone up. Coal, including for CPP has gone up, that's all domestic coal. And as a result of that, the power and fuel number, I thought maybe a little bit of explanation so I've taken a few [ example ] just explain to you why that looks the way it looks.

The -- so the -- obviously, the impact of international fuel prices has got blunted with the plant mix in this particular quarter and with the coal fuel mix that we have had to use. I just want to sort of -- if you clear us about the number, at our Devapur plant, the overall fuel costs not counting for the fuel costs for the kiln. They're down to about 1925 per million [ kilocalorie ] down by [ 89% ] and at Chittapur, on landed cost million [ kilocalorie ] basis, they are down about [ 12% ]. The power and fuel costs put together is up despite this, and that is led by the fuel mix that we have had to use. In the raw materials side, the transportation cost for transport of clinker has been part, obviously, as accounting norms are in the raw materials because we use the landed cost of raw materials. So some costs are part in the raw material also. Besides there obviously some gypsum and fly ash costs also have gone up both on Y-o-Y and [ Q-Y-Q ] on quarter-on-quarter basis. Also, there's been a little bit of difficulty in improving our alternative fuels on which we are beginning to depend a lot more. But in the last quarter, we did not get as much supply of alternative fuels that we would have wanted to. As a result of that, what I reported 13% being the AFR percentage for us in the previous quarter have actually been a little less at 12%. And the renewal [ cars ] that we've used at Jalgaon is as high as 64% in this particular quarter.

The benefit that we are seeing in the solar power that we're buying at Jalgaon now obviously has encouraged us to invest more in the supply of captive solar power for which you would have seen you made an announcement a few weeks ago. We've signed a new agreement to add another 21-odd megawatts of solar power in a captive capacity basis on which we acquired about [ 88% ] of the SPV companies will be setting that. And that agreement is signed with a company called [ Ketek ] Solar, which is Singapore-based, it happens to be a joint venture of Shell, the oil company. And we've got very, very competitive rates when it comes to setting up and supply of solar power, which they have committed to start supplying to us in about 9 months from the time we signed the agreement.

So these are the, I would say, broad highlights for the quarter. Another highlight for the quarter, at least, we internally in the company feel very good about it because it's more about the kind of company we are, and we want to be. In this quarter, we also received the -- not this quarter, we received it a little while ago. The certification continuously for many years now, again, has a Great Place to Work. with the scores, which actually are surprisingly in the 90s already nearly every single employee working to the company participating in the survey process. So we are a Great Place to Work again certified. Noting that we've jumped , let's say, last year, we were just outside of the top 100 companies in India. This year, we have got the rank of 70th company in the ranking, which includes all companies which undertake this survey. And we are the only company from the cement industry in the top 100 list. We are delighted because we take a pride in our culture, in our -- the way we are as an organization and our annual reports every year that we send out. We do try and introduce a story of 47,000 organization beyond what we do as a business. And I'm sure all of you would have seen this year's annual report as well. And we'll continue with the theme of being responsible and we've been agile. The team of responsibility actually is further amplification of I would say, our effort that we made in terms of launching another premium brand Orient Green, as all of you know, we launched that a few months ago. And that cement is called the responsible cement for the responsible consumer. And the sense of responsibility, we wanted to link it to what else we do and that's why the annual report theme is completely aligned with who we are and what we do. Including being a Great Place to Work for people. And that's the reason, as a result we are having perhaps an excellent collection of top talent from the cement industry, who is proud to be working here.

On the customer mix side, there's always a curiosity and the very [indiscernible]. So I may give you the answer before I get asked the question gets asked. In this quarter also, the B2C demand has remained soft. If we have received a large amount of growth has actually come from the B2B demand and again, largely to large infrastructure projects where we continue to be a preferred customer and also a fairly large number of the [ reading ] plant operators who want our cement more and more. As a result, the good news here is that in the past, OPC in terms of contribution wise, it was not as accretive as PPC, the blending cement. But fortunately, with the good quality and the good demand, good relationship with the customers, we are transparent with them on our costing. And we're making sure that the contributions on the OPC that we sell from Chittapur actually has in no way less than the PPC contribution. So that's the reason why we'll encourage to keep meeting OPC. Most of the time, we were earlier not selling [indiscernible] simply because the contribution there used [ to fall ] to PPC. But for us now, last few quarters consecutively including this quarter, our contributions of [ Devapur ] at Chittapur higher than PPC.

So we continue to sort of accept those orders keep selling. In terms of the B2C sales, obviously inversely saying B2B sales with last year around this time was 56% with only 44% being B2B. This year, this quarter, we've seen the B2C actually have fallen to 47% with 53% being B2B, which is, like I said, beyond 50% that we never expect it to go. But if the contributions keep coming in, I think we are okay. It still has one side effect and that side effect is that it consumes more of clinker, and we have a consent to operate limitation on the clinker that we can produce. So we are very well aware of that pressure. And hopefully, we'll have solutions for that like we had last year also. But in terms of contributions, we are fine there.

The OPC as a percentage customer mix have already given you, it's 47% B2C or rather trade sales and 50% B2B. On the product mix, the OPC is 45% in this quarter, which was 41% last year. So some B2B sales also happened with PPC indication. So it's not exactly equivalent of the B2B demand.

In the B2C market, as I mentioned, despite the fact it keeps remaining slow, we are happy about 1 aspect that is in the lower B2C demand also, our premium products put together, strongly [ kiln ] actually have a 34% year-on-year growth. If we add volumes of strong fleet and Orient Green in this quarter over the same quarter last year, we are up by 34% and the premium products today are forming 20% and over. We just started crossing 20% overall in premium product sales of our B2C volumes. This is despite the fact that our B2C volumes sequentially actually have dropped 7.5%. It basically means that our value proposition of premium products continues to be attractive to our customers. And we expect our revenues and volumes from the [ kiln ] products to keep pricing keep helping us overcome the challenge of market prices, which remain under pressure most of the time.

And obviously, for that, maintaining our positioning well if there are some compromises, I call them investments or sacrifices to be made in the volume -- of the volume that we sell because we still refuse many orders, which do not give us a certain price that we demand and a certain contribution that we give in. So that strategy is unwavering.

The net-net, I think the implication of what I've told you about OPC/PPC mix, it basically means that Chittapur, once again, will be under pressure towards the end of the year to lead the OPC demand given the consent to operate. We are hopeful that with the new applications that we have moved for additional capacity creation. If those approvals are in hand, then we consent to operate limitation of Chittapur will not apply because the new approval will come with a higher permission to us to do more mining and more production of clinker. So we're trying to solve that problem on a proactive basis. But it does mean that we need to get those commissions and we also -- the moment we get the commissions, as you know, we also want to start the construction activity at Chittapur the second line that we have been -- we planned already.

Other important, I would say, update, which I must share with you our FC recovery plant, which quite honestly, we were expecting that we'll get the [ par ] by before end of June. It has suffered a few more weeks of delay because of some additional problem that cropped up when we started the commissioning it. But the good news is it is now in the final stages of commissioning, on what they call the scheme growing, which has to happen for 50, 60 times every day we are trying that. So hopefully we assume expecting now that within the next couple of weeks, within the month of August, [ waste ] every plant, we will start giving us power, a large amount of power. But actually, the [ base plants ] have 2 different segments to it. The major power comes from the heat which we take from the cooler to the kiln and some part also from the [ Pilipida ]. So [ Pilida ] part which is nearly 20%, maybe [indiscernible] 4 weeks, but within August, we should get the power from it, at least the cooler with heat. And as we always anticipate the savings from [ August ] are going to be about INR 3 crores plus per month. So they will be important project for us to commission at this stage. The [ fly ash plant ] system that we had said earlier is operational. We have tried bringing in fly ash by base, even from far off plants, and we've seen that it's working well. As long as the fly ash is available from nearby plants, we are okay to transport it by trucks. But at the moment, we run into a [ problem ] industry risk mitigation measure that we have taken. So that also is ready and has already been commissioned, they're using it.

Region-wise, our exposure to West has gone up even further in this particular quarter. Our total sales to West are [ 62% ] which was 55% last year. So anybody who still believes we are a Southwest company. This is a [ related ] call. We have 62% invest, and we have 10% in Central. So 72% of sales of volume cement actually comes from [ markets ]. I just thought I'd call it out because many people still call to you out this company. I say with 72% sales in [ nonfossil ]. Our fuel mix, as I mentioned in this quarter has actually been 53% domestic coal which was 43% last year, and the reason behind that I've already explained. And as a quarterly, the pet coke is down to 36% from [ 40% ] last year in this quarter.

Our cost management, like I said, has not suffered any setback although in the quarterly results, it will appear as if we've incurred a lot more cost than you people expect us to do, but there are absolutely clear reasons for them. And as things are normalizing now. Get back to the same efficiency cost. Efficiencies have always been intact, the cost has changed because of, like I said, the plant mix changing and the fuel mix changing there.

I really -- at the end, I think another update, which all of you do look for is Borrowing status, our bank borrowings are now down to -- I talk about the project borrowings against CapEx borrowings, they are at INR 203 crores as on June. And another, I think, 3 quarters left in that old one will be done. And now the new borrowings that we have against the [ wastage ] recovery plant and the flyer handling system, those -- I think around INR 100 crores will be paid over a longer period of time.

Net working capital from the bank's net of cash in hand was down to INR 55 crores. So if you take a debt in that sense, it was INR 250 crores at the end of the year June. Prospects looking forward, I do believe the prospects remain strong, although the extremely heavy rains that most of you, yourself, experience in city like Bombay. They have had a dampening impact on the project work all around. So July has obviously had a setback from the very heavy rains that happened all across our markets. I'm not giving you the numbers, but yes, the demand is as not as given as it should have been given the momentum in the previous quarter.

Early August still, we are beginning to see some relief from the rains. And as a result, some pickup in demand, obviously, is happening with the projects we keep waiting, they won't be seen to be consumed further. So I stay very positive about that. The energy prices have been softening and the full impact of that softening as all of our now would start emerging as the year progresses as we consume the old inventory. Our pet coke [ large ] ship load that we have, we've already started consuming out of that, and we are well covered for given -- from today, it depends on how much is the demand in the market. I think from minimum 2 to about 3 months petcoke fuel we already have. Now as a result of that, we obviously have not been able to avail of the window when the petcoke prices are down to very, very close to 100 a tonne because we just didn't have the need to book that. And in the meantime, we started looking up at about [ $102 ] a tonne, we haven't seen any transactions happening from India.

And nor are we in a position to book. And I think that's why because there's no [ bar ] in the market, the prices came down, as we returned to the market, a little bit of uptick will happen in the petcoke prices that are reading but they'll still be much lower than our last purchase petcoke, and that should help going forward.

The railroad mix wise, I think we -- we've been facing some policies from railways, which have not been very friendly towards using them. As a result of that, the cement transport using the railway has gone down to 15%. At one point in time, we were doing 20% prices down to 15%. That broadly would be my commentary. The CapEx schedule that we had given, we continue to sort of face slower response from the government departments to our people that have been moved for approvals, pushing them hard, but it's still taking time, I'm still hopeful that we'll be able to start the work in the third quarter as we are consuming, maybe not roughly third quarter but towards the end of third quarter. Assuming approvals come in hand, we do want to start to report very, very quickly. And the last piece on the project, which was very contingent until the last time. It's now firmed up a lot of the new grinding unit that we've been talking about in [ Matapatesh ] area to be able to cater to the central market and there from there 2 parts of the North India market. I think that site is more or less sort of closed in the sense that we already have had meetings, with international meetings have been fine. And the other party to the agreement on whose premises we'll be putting up the branding unit, they are now in the process of seeking an approval from their Board of Directors.

Subject to that proposal coming in, we'll sign up an agreement very, very quickly as start applying for the clearances. I'm talking about that grinding unit more from the perspective of one getting with much like diversification in our market exposure and also to start the work on line [indiscernible] -- sorry -- Telangana, which will be feeding the grinding unit. So that is that interlink I thought I'll start with the update on the grinding unit getting closer to sign up is now -- the process is only going on for the Board approvals. And hopefully, the board will see [ Merian ] allowing us to come in and put up the [indiscernible] there. And that will trigger the need for Line 4 immediately.

Rajasthan project, again, the update is that the -- all the mines -- although the mining lease has been restored by the government, but unfortunately, this mining lease, given the coordinates that used to be there when these mining deals are given to us more than 30 years ago. And now everything is digital. And so when they the digital measurement of that, they found that in the plot of land only the mining lease, the mining lease is there with all the coordinate area that they had granted to us. India comes to be about 5 hectares more than what the mining lease was, and for the 5 hectares, they need to go back to -- all the way to the State Minister of Mines to get the coal, which hopefully, in fact, 5% is still even today is [ sitting in the pot ], and we're trying to get that out so that at least that part is -- because when the coordinates are finally frozen in the form of a mining, we only then we want to start acquisition of land because in the meantime, will end a complicating matters. The small little -- it looks like a small detail, but when it comes to mining leases, even 1 meter of mining lease is critical for the government to have the details, absolutely right. And we'd rather sort that out now rather than do it at a later point in. So that's -- my opening remarks always happen to be a lot longer, but I try and obviate the need for questions coming up. I try and answer as many questions as I can think answers for. So I'll stop here, and I'll -- I'm open to the questions that will still be there. Thank you.

Operator

[Operator Instructions]. We have a first question from the line of Sumangal Nevatia from Kotak Securities.

S
Sumangal Nevatia
analyst

Firstly, I would like to compliment you on very impressive details in the annual report with regards to various new [ MSG ] initiatives and also your premiumization efforts. Sir, my first question is on the [indiscernible] plant. So this INR 3 crore per month saving, I mean, are we expected to get that at least for 16 months in this year? Or there is also a ramp-up schedule and you must also detail about some delays in a few parts of the plant. So what sort of say, FY '24 is available for that. And the INR 3 crores should be fully available per month in FY '25? Is that the right understanding?

D
Desh Khetrapal
executive

Yes. Absolutely. So on the delay part since you mentioned, assuming that in August, we start growing part, as I mentioned to you, that will be 80%. So maybe in the month of September or maybe early October, it may be slightly less -- but towards the end of the year when the entire 10 megawatts are becoming available, we will still be able to meet the targets on an average of INR 3 crores a month. And FY '25, you can certainly take it that way.

R
Ritesh Shah
analyst

Got it. Exactly from fourth quarter, January onwards, this should be the run rate of [ savings ].

D
Desh Khetrapal
executive

Yes.

S
Sumangal Nevatia
analyst

Got that. Got that. Sir, second question is on the sequencing of these various projects. It's -- I'm a bit confused. So one is we are starting or hoping to start it up expansion by 3Q, that's not my understanding, please, if you would like to confirm that. And also, land acquisition at [ MP ] is still not started, but we have kind of frozen the line. So are we -- I mean, planning to then parallelly invest growth in Chittapur and Devapur mining? Or is it going to be sequenced on after the other?

D
Desh Khetrapal
executive

Okay. Let me sort of provide maybe clarity on that. So Chittapur is something where we only are awaiting some approvals, which have all been applied for, right? So that's simpler and that the need for more [indiscernible] is much higher at Chittapur. So Chittapur will be in the sequence, it will be the number 1, okay? When it comes to land for the grinding unit [ motifs ] that I spoke about. We don't have to acquire that line. We are talking to a counterparty who has the land who are agreeing to give the land to us. But as I have said, they are in the process of gaining the approval on their board. The moment the Board gives the approval to sign the agreement, we already have the land with us because that company is going to give us the land, have that land in their control. So we don't have to acquire anything for that. In fact, we may not be even acquiring a land on ownership basis, they're actually going to give the [ Manton ] right-to-use agreement, okay? Which is a long-term agreement. And we can apply for the environment players for that branding it only when we have the agreement of right-to-use. So I can't even start applying for that [indiscernible]. And once I apply and get the clearance and start the activity for grinding unit is only then I need Line 4 in Devapur. Is sequencing now getting understood?

S
Sumangal Nevatia
analyst

Yes. Got that. Got that. And sir, with grinding also is coming, right? So it's [indiscernible] [ 2 million ] tonnes.

D
Desh Khetrapal
executive

That's right. So expansion at Chittapur is absolutely right, [ 2 million ] tonnes line, [ million tonne -- sorry, million ].

S
Sumangal Nevatia
analyst

Okay. Okay. So I mean, from a 3- to 5-year point of view, I mean, say, next 2 years, we're looking to close Chittapur then Devapur should start and then eventually the Rajasthan mining asset will be in place to start with Rajasthan, right? So that should be the pecking order, right?

D
Desh Khetrapal
executive

Accepting that, there will be some parallel costs, which will be incurred even for the grinding in Devapur as a combination, as I explained in the last quarter's call, which basically, I would just sort of tell you why I'm saying. So one, the [ CapEx ] need to incur for the -- I did explain, and I guess most of you are aware that the mines in Devapur are the forest area, where the forest area is in the process. The moment we get statement in clearance for forest, we have to actually deposit the significant some of money in INR 140 crores, INR 150 crores. With the forest department, we will use this money for [ forestation ] of the land elsewhere. So that CapEx obviously will happen in [ panels ]. Although we are not in construction activity, but CapEx, I need to do to get my [ stage 2 harvest ] levels, right? So that will be capitalized with Devapur, although you might say technically, there are no, let's say, no commercial activity or [indiscernible] activity on. So similarly, there will be some expenses to start getting incurred for Devapur and the [indiscernible] combination. But that also, to my mind, will happen only on a major activity of major investment in setup is getting [ orders ]. Sequencing-wise, the environment approvals all do take time.

S
Sumangal Nevatia
analyst

Got it. Got it. Sir, for full year, would you like to give any number, any range of CapEx for FY '24 and '25?

D
Desh Khetrapal
executive

See, FY '24, in fact, I had also sort of in the last quarter, so I don't think I'm going back. We had said total about INR 1,000 crores in FY '24 is what our ambition has been because only then we meet our requirement for clinker in time, which largely we had said about under multiple projects, we talked about INR 600 crores at Chittapur, we talked about INR 150-odd crores. So [indiscernible]. We talked about saying we might spend close to INR 100 crores towards acquisition of land in Rajasthan. And there are already some maintenance [indiscernible] So the multiple projects, all put together, we have said FY '24, we were saying INR 1,000 crores. Now whether that INR 1,000 crores that becomes INR 750 crores, INR 800 crores is a matter of when we receive the clearances. But our intention, our effort would be that we start spending CapEx soon because that will in how quickly we can the additional capacities.

Operator

We have our next question from the line of Rajesh Shulawi from HDFC Securities.

U
Unknown Analyst

First question pertains to you explained on the fuel cost, why it went up. Could you share the fuel cost in [ 1 million can number ] for the quarter if you want.

D
Desh Khetrapal
executive

How did that help you? You need to know my cost of how I'm sort of doing it. But anyway, [indiscernible] relate to the reality. I'll give you a number, if you wish. And I have the number which is readily available with me for 2 individual plants. I'm just looking through. At Devapur in the last quarter, we had [ 19 25 ], and at Chittapur [2.40 ].

U
Unknown Analyst

Sorry, okay. This is [ 19 25 ] okay 1.92, something like that, okay?

D
Desh Khetrapal
executive

And Chittapur 2.40, which is imported, petcoke.

U
Unknown Analyst

[ point 0 ] okay. And sir, the setup for [ costing ] is higher, right, compared to Devapur.

D
Desh Khetrapal
executive

Yes, because Devapur as mines nearby. Devapur has no mines near, right? [indiscernible].

U
Unknown Analyst

Yes, understood. Because you have the linkage coal there, the costing is [indiscernible].

D
Desh Khetrapal
executive

More than linkage is the transportation on the coal.

U
Unknown Analyst

Transportation, okay. and this Devapur, and sir, what is the trend you're looking at for these numbers in Q2 or maybe in Q3? Do you see -- you mentioned that the domestic coal prices are rather gone up, whereas you there's some expectations of cost savings to flow through in the imported coal and petcoke. So what is the trend you are looking at?

D
Desh Khetrapal
executive

The same -- I personally do not think the domestic oil prices will increase again in the next 2 quarters. I don't expect them to. There's no reason for them to increase them. And petcoke prices actually should stay soft compared to when we purchased last, right? Because the price even today, we're talking about in the range of more [indiscernible] right, which is a lot cheaper than what we were buying a petcoke earlier. So I do expect petcoke prices to our next procurement to be at a cost which will perhaps be about 20% less than what we did last time. And domestic oil prices, I don't expect them to go up anymore.

U
Unknown Analyst

Okay. And so this next procurement would be coming up for consumption by when this 20%.

R
Ritesh Shah
analyst

Towards November, October and November?

R
Rajesh Ravi
analyst

Okay. And sir, this AFR cost, how are they currently? Because I remember earlier, they used to be less than INR 1, and then it shot up to INR 1.5 odd. So what is the current cost trend that you're looking at?

D
Desh Khetrapal
executive

My own -- we say, reading of always is -- we have to remember the AFR is not 1 fuel. We have 5, 6 different kinds of fuel coming. Some of them fairly -- if you look at, let's say, carbon black, which happens to the most expensive, right? People who buy carbon black like they will still imply more than 1.5. People who buy rice us and if they are around the rice mills who are doing it, that comes cheaper. We are far away, it becomes more expensive. If you are using hazardous waste, we actually make it at a negative cost also. So it's only a combination of multiple mark. For us, it will be more in the of 1.2.

R
Rajesh Ravi
analyst

Okay. Okay. And sir, your annual target of 6.3 million, 6.4 million tonnes, this remains?

D
Desh Khetrapal
executive

We are keeping that absolutely impact. I'm not letting my sales effort going soft to there.

R
Rajesh Ravi
analyst

And lastly, on this CapEx guide, INR 1,000 crores, where you mentioned INR 600 crores that will only start once you get the stage [indiscernible]

D
Desh Khetrapal
executive

Don't confuse everybody. [indiscernible]. Chittapur.

U
Unknown Analyst

This is for INR 600 crores will start only when the Stage 1 is received. So do you see some...

D
Desh Khetrapal
executive

You are completely confused. Phase 1 is for Devapur forest clearance. Chittapur is [indiscernible]. Clearance being awaited, Devapur's forest clearance being awaited along with the grinding unit lead. So Stage 1, Stage 2 is only for forests.

U
Unknown Analyst

Okay. So it up for the INR 600 crores, there is no major deviation you're looking at for this financial year.

D
Desh Khetrapal
executive

I wish we don't have a variation because I need that capacity to start coming up soon.

R
Rajesh Ravi
analyst

And sir, lastly, on this lead distance, which you mentioned 300 kilometers, if you could give a sense, is it a primary lead or second lead when you mention 300 kilometers?

D
Desh Khetrapal
executive

Secondary remains more or less constant. If the primary lead go up depending on the market mix. For example, if in the -- as I told you in the Q1, if I sold a customer which was closer to Chittapur, have sold in cement from Devapur because I did have that. Obviously, the lead has gone up, right, because I'm supplying the cement from a faraway plant. I would say it's always a primary -- when we dump the material in that market, from their secondary all they short hauls all around it. We use small vehicles and things like that [ is ordinary ] then around 300, a little over 300 is always our primary.

R
Rajesh Ravi
analyst

Okay. And so can you [ would be ] less than 50 kilometers? Is that understanding right?

D
Desh Khetrapal
executive

Otherwise, we look new to consider, no.

Operator

We have a next question from the line of Keshav Lahoti from HDFC Securities.

U
Unknown Analyst

It's great to see the premium cement sale is picking up. Can you give some sense about how are the margins in premium versus other cement? Also, there is a margin differential between the strong creed which you have been selling from long years and between and Orient Green, most of recently launched cement?

D
Desh Khetrapal
executive

Yes. Our Orient Green which we introduced just a few months ago. That is midway between our PPC cement and a strong creed. Strong creed, we sell at INR 45 higher than our PPC. And Orient Green is priced at INR 25 plus. So it's a premium product, but not as high. So now today, we strongly to the super premium product and the premium Orient Green.

U
Unknown Analyst

Okay. Understood. And what was the fuel mix for the quarter?

R
Ritesh Shah
analyst

Back to the same question again. Okay. Never seen something never changed. What did I say that you?

Fuel mix for the quarter. Once again, I'm repeating for everybody else. Please don't ask me again. 53% domestic coal in this year -- this quarter and petcoke 36%, and balance is AFR, if you will. So this is the -- sorry, excluding it part. This is [ 33 54 ] is the [ fossil heat ] we're in 33% and 36%.

U
Unknown Analyst

One last question from my side. The SPV, which you will get the power, what would be the cost of that power?

D
Desh Khetrapal
executive

This is contractual retail right now. It will be on significant savings from the grade price. It's linked to what the great price will be and what will be the margin for us. I can't reveal that at this stage. But they definitely -- I've given you savings that we have in Jalgaon already, and that's what encourages us to go more for it.

Operator

We have a next question from the line of Raghav from Asian Market Securities.

R
Raghav Maheshwari
analyst

I wanted to understand primarily the Maharashtra market because our key prime market because according to my understanding, we are selling almost 50% plus and volume into the Maharashtra the last 2 capacity additions which have done into the Maharashtra almost at a level of 35%, 40% utilizing at industry level. Now again, [ Ambuja ] is adding almost 6 million tonne in the Maharashtra other than the Mumbai market, which is primarily the core reason of Maharashtra, [ Kandian the Pune ] So how will you see further 2 years down the line, the Maharashtra, particularly in market in the profitability term in the pricing term rest of the Mumbai.

D
Desh Khetrapal
executive

Well, it's -- you're talking to the supply side, you also have to remember that the demand side to the equation is a bit. So the way the demand has been growing in these markets, obviously, have encouraged people to put up more capacity in the demand was not that high, who would want to put up capacity. So while we very quickly are able to calculate the new capacity coming in, we are not adding, and Maharashtra, as it is the largest market in India. If it is keeps growing as a percentage of growing today. Obviously, the demand in Maharashtra will be far higher than the other places and the capacity for us to be catering to that. So I'm -- while it's a matter of concern for sure, in short term, new people coming in, they obviously want to utilize their capacity faster. But as things settle down over a period of time, the market has absorbed the capacity. That's how we see every time and new capacity has come up in a neighborhood, exactly the same story pans out. Few months, few quarters, you see the impact and then it's like back to normal because they are also there to do the business only.

U
Unknown Analyst

So you will see Maharashtra as a safe market for a future term also?

D
Desh Khetrapal
executive

Yes, I would. Because I personally don't see the growth in Maharashtra disappearing anytime soon. So it's a demand growth, which keeps me hopeful, while the capacity is coming in, always look like threats. But everybody is finally looking when they're making a CapEx in their own calculation and their own hypothesis. And they know that we already exist with lower costs. So they're also coming there to make a return on the investment. And that's why things over a period of time, no matter how -- I mean I always keep reminding people about the time that we were putting our [ Cahaba ] plant in Gulbarga. Everyone used to tell me if it is actually next to you, the way next to you, 3 cement is coming next door. What [indiscernible] there? How will it survive? And I'm telling you we need more clinker than we are now. How did that happen? So this is a story how businesses go.

U
Unknown Analyst

Got it, sir. And sir, what is the, just last question from my side, what is your estimation for a commissioning side for the Chittapur in the fourth line of the Devapur in the [indiscernible] in the product?

D
Desh Khetrapal
executive

Sorry, I didn't get your question.

U
Unknown Analyst

Sir, what is the estimated deadline to completion for the Chittapur line 2 and the Devapur line 4?

D
Desh Khetrapal
executive

Typically speaking, the brownfield project, we want to commission within 15 months from the date of start of construction, okay? So assuming, let's assume for the moment that we are starting that on first of January 2024, 15 months from there, we should commission to Devapur. 15 months is what will take action time for us, also a brownfield expansion. For a greenfield grinding unit because grinding unit, that also can be achieved in about 15 to 18 months because there's still utilities are in the [ rail siding ] to get built in a grinding unit. So at places [indiscernible] don't even have to build a [ rail siding ]. It's already there. So I would consider the other one to be more like 18 months to 15, but 15 to 18 months there also would be a target from the latest start of [ construction ].

U
Unknown Analyst

We can take our volume assumptions since [indiscernible].

D
Desh Khetrapal
executive

Volume assumption, obviously, you can't say that we commission the capacity in next month itself will be selling the full capacity. It doesn't happen, right? So that buildup we have to take typically in the first year of commissioning, 12 months, we think if we are doing 50% to 60% utilization, we feel good because by third or fourth, we started aiming for about 75%, 80%.

U
Unknown Analyst

Sir, that's why I asked this question regarding to Maharashtra because the last 2 players we commissioned, the one is commissioned, [indiscernible] acquired capacity, they are done operating 43%. Since last 15 months. That's why I asked that question for the Maharashtra because that...

D
Desh Khetrapal
executive

That's why, I'm not adding capacity, Maharashtra.

Operator

We have a next question from the line of Amit Murarka from Axis Capital.

A
Amit Murarka
analyst

Just a couple of basic questions. If you have to go back a year or 2, like we were prioritizing Devapur expansion with the [ Terra ] lending unit. I know that the [ Rota ] got called off. But why now Chittapur given priority over Devapur, I just wanted to understand what's the change, which is compared to that?

D
Desh Khetrapal
executive

See, the change came in, 1 -- we do not have a grinding unit that we were setting a little that sent us all over again on a wild good case to look at another site where we can put the grinding unit. And without the grinding unit, I don't need more to incur in Devapur, right?

So that got delayed because we didn't have a grinding unit site, right? In the meantime, at Chittapur, the demand changed more towards OPC from some very good customers because of which overall capacity of the plant, which 3 million tonnes that we speak about, 3 million tonnes is a certain assumption of PPC.

In FY '23 itself, I ran short of clinker, I've been mentioning that last quarter today also, I mentioned. So we go -- we can't get [ stated ] with any decision taken. That's the definition of being agile. The moment we realize that Chittapur opening up an opportunity, Devapur have got delayed because they don't have that [indiscernible]. So what do we do? We still talk about Devapur first or do we go and do business where it's available first?

A
Amit Murarka
analyst

Got it. So that's a perfect understanding I wanted. And also just another basic question, like, so you took this planned shutdown in Chittapur in Q1, which impacted cost generally, like just to understand improve my understanding, generally, is it monsoon consider a better month to take these kind of shutdowns these are lower demand periods. Why plan shutdown taken in Q1?

D
Desh Khetrapal
executive

Because we did not take the shutdown in last monsoon. We saved money on that. We continue to use the same refractory without incurring the cost till this year, April. After that, I mean even 9, 10, 11 months is just about the maximum people use a kind [ maintain as ] we use to 23 months, it couldn't have gone to 26 months. Very simple. Really fundamental.

A
Amit Murarka
analyst

Got it. So in this situation, like this time when you take a maintenance, will this be a longer maintenance because you skipped 1 [ second ] and will the cost also be higher?

D
Desh Khetrapal
executive

Somewhat. Not too much. I mean the costs would not change by more than 10%, 12% of the overall cost. But the utility is [ in start of ] spending once in 9 months and 21 to 23 months, just see that.

A
Amit Murarka
analyst

Yes, of course. Yes, then I understand here, there's -- you can't stretch it, risk the kiln itself. I understand that.

Operator

Thank you. Ladies and gentlemen, we'll take the last 2 questions now. We have a question from the line of Vibha Jan, an independent investor.

U
Unknown Shareholder

Yes. My questions are mostly answered previous. Just 1 suggestion regarding your opening remarks, I would just you put this in our investor presentation rather than a safe view energy as well and we can be prepared beforehand to ask questions. Otherwise, my questions have been answered.

D
Desh Khetrapal
executive

Thank you so much in presentation, the reason I do it is twofold. One is the nuances that I can bring out in my delivery, I can't put that in the presentation. Because then the presentation will be far too long, right? Because there's a lot of nuances that I explained when I'm giving the information, right? And but I do get the hint that you don't like my voice will [indiscernible].

Operator

We have our next question from the line of Navin Sahadeo ICICI Securities.

N
Navin Sahadeo
analyst

Thank you for the opportunity. And of course, as always, the great initial introduction or the comments of most of the question. So a really request you to continue with that. Having said that, just a couple of questions. Sir, the CapEx you guided as of now for FY '24 more like INR 1,000 crores, in the same way, assuming everything falls as per plan, what should we pencil in for '25?

D
Desh Khetrapal
executive

'25, I'm sort of still struggling to get to INR 1,000 crores doing, that's my worry. But typically speaking, now if we go by the fact that we have such a [indiscernible] I say, INR 600 in mid financial years. So obviously, we want to complete that during the next financial year around INR 900 is, right? Let's take a stake forward calculations. So on the project we're on, [indiscernible] INR 900 to be spent, and I want the project to be ready before the end of next financial year.

N
Navin Sahadeo
analyst

So INR 900?

D
Desh Khetrapal
executive

Maybe another INR 150 crores of investment in just in the meantime probably to making all the preparations. But my own guess is there will be another INR 300 crores to INR 400 crores at least that you might need for the grinding unit in [indiscernible] even before we start spending money as they [indiscernible]. So I would perhaps consider INR 1,500 to [ INR 1,700 ] in the next year all tools, including grinding unit in [indiscernible], including Devapur further plans to and INR 900 crores in Devapur.

N
Navin Sahadeo
analyst

Understood. Understood. And sir, just staying on this capacity, while we are looking at Chittapur line 2, an entire 3 million coming up there. Are you also looking or exploring some possibility of grinding unit more near since West is now such a big market for us, as you just mentioned in the initial comments, so new grinding units near [ parters ] or Solapur where other peers have also, I think, had some grinding units. Is there an option to explore there? Or you will you sure that Chittapur is where you want the entire [ medium term ] to get commissioned?

D
Desh Khetrapal
executive

Look, in life, there's nothing [ by view ] forever. At the time that we are taking the -- addition has continued [indiscernible] this area that you're talking about, we've actually gone and done an in-depth study of the availability of [ inflation ] the cost of fly ash, which is available from now onwards, given all the existing capacities. And that's been look really promising. So unless one of those assets come up for sale at a price, which is reasonable, the Chittapur plan is the only plan we have because there's no more space for any more grinding unit to keep getting fly ash in the quantum that we need, right?

So there's some things pointing or some fingers or some of the grinding, which might come up for it, if it does come up, we'll keep our eyes on years open, and then we might rethink. But as of now, we don't see that opportunity. And putting up a grinding unit there didn't get us despite availability of higher incentives in Maharashtra, the differential in the fly ash cost and the CapEx that has supply grinding unit needs compared to the CapEx that we do when we do on-site is very different, right?

So while we considered the incentives in Maharashtra, we can that was looking at the additional CapEx, which may be that the additional CapEx can be recovered from the incentives that the Maharashtra [indiscernible]. But the definition in the fly ash cost is sort of taking away a lot of that production.

N
Navin Sahadeo
analyst

Got it. Got it. Just 1 last question. Will Devapur now go for maintenance shutdown in the current quarter, like typically Q2 maintenance shutdown or that could be using...

D
Desh Khetrapal
executive

That you asked the question on the 1 line in Devapur we already done the shutdown in the month of July. We just completed it. And there's 1 more line to be done at Devapur that will do in the next quarter. But then the impact may not [ as stark as ] here because we don't need to move [ online ]. We just need to sort of utilize more -- the 3 lines in Devapur, right? So that makes it a lot easier. And those skills are smaller, so the maintenance cost also is also in the function of high [indiscernible]. So [indiscernible] is the biggest [ scale ] that we have there [indiscernible] but the biggest is [ 400 DPD ]. So it's size-wise and in terms of availability of clinker. We have done the maintenance in July, we'll do one more in October. So they will come, but the impact will not be as dramatic as we have in Devapur.

Operator

Thank you. I would now like to hand the conference over to management for closing comments. Over to you, sir.

D
Desh Khetrapal
executive

Thank you. I personally make all my comments, as opening comments themselves. So my closing comment only is to thank all the participants once again for sparing the time and listen to my long introduction that I gave and asking questions which are intelligent and which push our thinking even further. The granted new markets question is [indiscernible] earlier, we worked on that and today, we will give a response to that. And I really appreciate the engagement that all of you show in our business. Thank you very much.

Operator

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

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