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Sagar Cements Ltd
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Good afternoon, ladies and gentlemen. Welcome you all to the 3Q FY '23 Results Conference Call of Sagar Cements Limited. We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; Mr. K. Prasad, Chief Financial Officer; and Mr. Soundararajan, the Company Secretary. I would now like to hand over the floor to Gavin Desa of CDR for his opening remarks, and then we will go to the management for his opening. Thank you.
Thank you, Manish, and thank you for introducing the management. I'd just like to add that most of the statements made -- some statements made in today's discussion may be forward-looking in nature, and a note to this effect was added in the con call invite sent to you earlier. I trust you've gone through the presentation and the result documents. I would now like to hand over to Mr. Sreekanth Reddy his open remarks. Over to you, Sreekanth.
Thank you, Gavin. Good afternoon, everyone, and welcome to Sagar Cements' earnings call for the quarter ended December 31, 2022. Yes, let me begin the discussion with the happy news that -- with regards to Andhra Cement acquisition, we would be very happy announcing that we received from the resolution professional of Andhra Cement as a successful bidder and the same has been admitted to the Amravati Bench of NCLT, that is the National Company Law Tribunal. And its final order is expected in due course of time.
Since it's in the NCLT, at this point of time, it is sub judice for us to discuss anything in detail. We would be very happy to come back to you pertaining to the Andhra Cement acquisition contours in due course of time.
Let me begin the discussion with a brief overview of the market. In terms of demand and pricing, post which I will be happy to move on to Sagar-specific developments. Overall, while we did witness demand improvements during the quarter, realizations though continue to remain fairly steady. Demand improvement was largely owing to pick up in construction activities post monsoon and festive season.
Raw material prices broadly have started to trend lower, which augurs well for the business, especially considering the realizations continue to trend sidewards. Going ahead, demand outlook continues to remain encouraging on the back of government's infrastructure push coupled with the demand from urban housing.
Moving on to Sagar-specific developments. Our revenue for the quarter stood at INR 576 crore as against INR 334 crores during the corresponding quarter in the previous year, higher by almost 73% on a Y-o-Y basis, largely driven by the volumes following the commission of the new capacities. Average realizations improved marginally on a sequential basis.
EBITDA for the quarter stood -- quarter 2, though remained fairly steady at INR 40 crores as against INR 47 crores generated during Q3 FY '22. Margins for the current period stood at 8% as against 14% reported during the corresponding period last year. While the margins are compressed on a Y-o-Y basis, the cooling off in raw material prices over the past few quarters bodes well for the business.
Furthermore, we are hopeful that our investments towards strengthening our operational infrastructure in recent times by setting up the waste heat recovery system, the railway siding, et cetera, should help us improve the margin profile and trajectory during the coming years.
Average fuel cost stood at INR 1,866 per ton as against INR 1,452 per ton reported during Q3 FY '22. Freight cost for the quarter stood at INR 785 (sic) [ INR 795 ] per ton as against INR 751 per ton during Q3 FY '22. On a sequential basis though, as mentioned earlier, we have seen a moderation in fuel and freight cost loss after profit for the quarter stood at INR 27 crores as against a profit of INR 10 crore reported during Q3 FY '22.
From an operational standpoint of view, Mattampally plant operated at 65% capacity utilization. While Gudipadu, Bayyavaram, Jeerabad and Jajpur operated at 95%, 68%, 57% and 15%, respectively, during the quarter. Overall capacity utilization at the group level stood at 60%.
As far as the key balance sheet items are concerned, the gross debt as on 31st of December 2022 stood at INR 1,391 crores, out of which INR 1,222 crores is long-term debt. The remaining construes the working capital. The net worth of the company on a consolidated basis as of 31st December 2022 stood at INR 1,554 crores. Debt equity ratio stands at 0.79:1. Cash and bank balances were INR 313 crore as on 31st December 2022.
In summary, we believe our efforts towards improving our operational efficiencies, product mix, presence across the established and fast-growing markets along with the scale following the completion of Andhra Cements acquisition shall position us well to cater long-term -- position us well to create long-term value for our shareholders. This concludes my opening remarks. I would now be glad to take any questions that you may have. Thank you.
[Operator Instructions]
Sir, can I go? I'm not able to raise hand...
Please go ahead. Please go ahead, Shah.
Sir, first, coming on the pricing part, how do we see -- have you seen any price increase in this January month? And do you expect some price increase attempt will be there as now we have a full construction season?
Yes. Good afternoon, Mr. Shravan. From a price perspective, the attempt was made a couple of times over the last few quarters. But unfortunately, the price more or less remained static with a slightly negative bias for the last few months, I think so is the case with January. Fortunately, in our case, realizations remained reasonably flat because of the overall kind of a product mix. But at the marketplace, it looks like the prices more or less remain steady. Unfortunately, with a lot of efforts being put did not fructify in any increase on the pricing front. Internally, our belief is that prices probably would remain very similar for this quarter. And we think that the prices are likely to start inching up only from the start of Q1 next year.
Sir, next, so I wanted to ask on the volume. But before that, if you get some clarity on the Andhra Cement, I understand though we haven't received a final approval. But broadly, just trying to understand, let's assume even if we do not want to disclose the valuation. But broadly, post the acquisition in terms of the net debt, what currently we have INR 1,080 crores how much increase we can see? And -- first part -- second is, when can we start seeing production and the sales coming from that part? And broadly, let's say, how much in terms of the utilization will it be at par with kind of 60% for the other plants that we have that we can achieve in 1 year.
Thank you, Shravan. I'm sure you'll appreciate and understand our position in terms of disclosing the details about the acquisition. But let me put it on the gross debt side. Let me speak of the net-debt that is more relevant. From the current position of around INR 1,100 crores gross debt, the likely increase is going to be around another INR 150-odd crores. So we think that net debt should not cost more than INR 250 crores on the higher side, post acquisition of Andhra Cement. Now going back to the -- we are expecting the NCLT order anytime soon. So if it is likely to happen before the February end we are hopeful to start during the Q1 -- middle of Q1 for the cement and end of Q1 for the clinker for restarting the operations of Andhra. And we believe that Andhra should get aligned itself with the other regional place in terms of the [ capacity ] inflation somewhere between 55% to 60% over the next couple of quarters once we restart, Mr. Shravan.
Got it. So now previously in terms of the -- our volume in terms of the 5 million tons for the full year that we were looking at so we need now close to 1.54 million tons in fourth quarter.
Yes, Mr. Shravan, we should be very close to this number. Likely that we might end up anywhere between 4.9 million to 4.95 million tons is what we think. Because now we are there halfway through this quarter we can keep our [indiscernible] to say that we should be very close to that number.
So next year, then how we see the Jeerabad and Jajpur in terms of...
Mr. Shravan, as indicated earlier, current 5 million tons -- what we have done the projection. [indiscernible] target is to achieve 5.5 million tons, Mr. Shravan. This excludes the Andhra Cement volumes. As is varies from the final year what we've indicated for the current year target, the next year target also we did indicate in the past, but yes, it is going to be in the range of 5.5 million tons. So we do expect [indiscernible] Jeerabad as well as Jajpur units, Mr. Shravan.
Got it, sir. So now coming to the fasting part. So first, do we still have the same 3-month fuel in [indiscernible] And broadly, how do we see the fourth quarter in terms of the costing? So overall...
Yes, there are 2 aspects, Mr. Shravan. We do believe in our case, the inventory has been very healthy. Now we can -- we would cross beyond the Q4 of -- the current Q4 and halfway through the Q1, we do have inventory. Given the situation and the ramp-up that has happened from stability that we have seen across all the assets, we think likely from the last quarter, that is Q3 to Q4, we do expect around INR 100 kind of cost saving. On 2 counts; 1, the overall fuel cost would come down for us purely because of the mix that we are likely to happen. And at the same time, as indicated, from a 1.3-odd million Yes, we are likely to achieve around 1.4 million to 1.45 million. So with that operating leverage also should help us cut the costs. So we are expecting around INR 100 to INR 125 per ton kind of a saving in the cost.
Got it. Sir, just one data point in terms of the trade there, what was for this quarter? And in terms of the state-wise, if you can help us in terms of the volume for this quarter, Q3.
Mr. Shravan, you will be happy to share it on the sideline because it would be difficult for me to read out each statement. But if you could email your request, we would be very happy to furnish that. Trade, nontrade mix, sir, we still remain around 60% to be trade and 40% to be the non-trade.
And previously, we were looking at in terms of increasing the blending cement to 70-odd percent. So this quarter...
I think we did indicate it is not 70%, we would be reaching to around 60%, 65% from 40-60 as OPC and 60 and blended at 40. Yes, this year, we are already at 50-50. So I think the next year target is to move to 55% to 60% blended and the remaining OPC, and we are on our way to achieve those numbers, Mr. Shravan. And I'm sure you would appreciate this is on an increased kind of volume. Like last year at 3.6 million itself, we were at 60-40. But with almost close to 4.9 million, we are almost at 50-50. So there has been a sharp increase in the overall kind of blended volumes in absolute numbers.
[Operator Instructions] So the next question is from Sanjay Nandi.
Congrats on the Andhra deal, sir.
I think we will celebrate once we get the NCLT order.
Yes, yes, sure. Sir, which bench is it pending in NCLT?
Amravati bench it is with the Amravati bench. That is the Andhra Pradesh bench of NCLT [indiscernible].
Okay. So were we expecting by this ruling to come by end of February, right, sir?
The due date is on 9th, as indicated, sir, but we don't know. The current due date is on 9th of February.
9th of February. And sir, post that deal, we are expecting our net debt to be INR 250-odd crores, right?
Yes, INR 250 crores is what we have indicated, sir.
On a consolidation?
On a consolidated basis, yes.
And what kind of invention we have, sir, for these pet coke, sir, like from the exit of Q3 and to the onset of this Q4?
See, we currently are running with almost close to -- stock levels up to 4 months -- 4.5 months, Mr. Sanjay of domestic coal. And we do have close to around 35,000 tons of pet coke across all the units that we have.
Sir, can you guide us regarding that current scenario of this pet coke pricing, like from the exit of Q3 as we are standing towards the end of -- the beginning of the Q4?
See, we did indicate in our presentation, which is on Slide 9. Yes. But let me just give you, it is a $170 pet coke, the spot prices of imported pet coke is at $170. What was worrying anywhere between $180 to $200 over the last few quarters. Right now, it started trending down and the spot prices is at around $170 per ton. The imported coal has come down by almost around $25 to $30 RB2, which is a benchmark kind of listing. What was it, $160 for the previous quarters. Right now, it is at $135. From -- as indicated, sir, still imported pet coke or per KL basis looks to be slightly more economical than -- and the imported coal as we speak. But in our case, as we have indicated to you, we are mostly using the domestic coal as well as the domestic pet coke.
Sir, which kind of imported coal do we use, sir?
We don't use imported coal at all.
Okay. And the pet coke, which we use, we import from which country?
No, it's all domestic, sir. At this point of time, we are only sourcing it from CTCL as well as the IOCL of Koyali, which is the Vadodara IOCL. These are the 2 sources of the pet coke that we...
The next question is a follow-up from Shravan Shah.
Sir, on the finance costs. So for the fourth quarter, still we likely to continue of INR 51 crores kind of run rate and other income at the same time, the INR 14-odd crores. So till what how next -- how many quarters can we see the same run rate?
Mr. Shravan, as indicated, we are hoping the Andhra Cement transaction to be closed in the current quarter itself. So with this current quarter transaction, I think the interest rate would get normalized to -- I would not say that the total INR 51 crores will go up, but it will come down a bit because right now, there is a structured debt which is where we are paying slightly higher interest rates. We will get rolled over into a term loan at Andhra Cement. At a consol level, the overall interest rate is likely to come down. But what I would like to highlight is during the current quarter, yes, the balance sheet will undergo a significant change in our case because the previous investments would get materialized. So we are expecting a significant kind of an upside on those investments. So with that, we hope that all the losses would get wiped out, Mr. Shravan.
Sorry, sir. So just wanted a further clarity. So in terms of the...
At this point of time, what I would like to indicate is for the current quarter, the interest rate probably would -- the interest cost would remain at 51%. It will come down once the transaction is done because the current hyping around INR 450 crores to INR 500 crores of structured debt, we are paying a higher interest rate, it would come down because it would become rolled over into term loan, okay? That's the first part. The second part is, yes, there is an investment that we have done, which you are aware. It's subscribed to certain NCDs in the past. So we are expecting the closure of all those investments to happen in the current quarter itself. And we definitely are expecting a significant kind of an upside on the NCDs that we have subscribed. So with those things getting materialized, we do expect the past losses to get wiped off in the current quarter, Mr. Shravan. The details of which we'll be very happy to share post the conclusion of the transaction.
So does that mean do we have -- can see an exceptional gain in this quarter? Or other income can see a significant increase in this quarter?
Yes. At this point of time, I can say, yes, sir. I think one of those 2 things will happen. But we will be very happy sharing the details post the completion of the transaction, Mr. Shravan.
We'll take the next question from Mangesh Bhadang.
Mangesh, here. Sir, my question was with regards to the demand in the regions that you operate. If you can just highlight how much growth as you have seen in South and Eastern markets in the first 9 months? And what is the outlook?
Yes. I think the -- let me talk about the South. AP and Telangana together have grown more than 25% over the last 9 months or over the last year. Karnataka is close to 24%. Tamil Nadu is close to 20%. Kerala is 25%. Maharashtra is flat to positive around 3%. Odisha also is very flat, sir. So.
Okay. And sir, if you can just highlight how the pricing has moved from the December exit. You mentioned that you expected it to be flat. Has there been any increase in the...
Yes, it has been flat. So there were certain small price hikes that have happened in between, but I think more or less the average remains that it has been flat early for the first 2.5 months over the last quarter.
I wanted to check if SCCL is having any issues with regards to the supply to the non-power sector? And what would be the e-auction premiums there?
Yes. Mr. Mangesh it is more a seasonal issue. For the last few months, we did not see any supply-related issues in our case. So supply has been very healthy. Now the auction is due. So we will only get known over probably a week's time as to how the overall e-auction [indiscernible] trending, Mangesh. Yes. In our case, we have FSA. So we are not as concerned with the premiums that we need to pay on the e-auctions, Mr. Mangesh.
Okay. And sir, just wanted to have your view on the outlook. You mentioned about the growth that we have seen in those regions. But do you expect, sir, in the remainder in as well as next year? Any ballpark figure would be helpful.
Mr. Mangesh, I think we are gearing up for the elections across some of the states that we operate. Our experience in the past, again, it's only with that experience that we believe that the markets are going to see a significant kind of increase in the overall kind of a demand outlook. We believe south -- what has grown close to 25% over the last 9 months should definitely grow at close to anywhere between 8% to 10% over next couple of years is what we strongly think. In anticipation for the election spend, which governments do a couple of years before the relevant state elections when they are due. Two years before that, we've always seen significant increase in the demand. So far, we are positively surprised that it has grown to 25%. But we have penciled close to around 8% to 10% for each year, for next 2 years, Mr. Mangesh.
Sir, I'll take the question from Mr. Sham Sundar's line. So his question is on pricing. On pricing, we are seeing some challenges or taking price increases. So in case if there are energy costs comes down, will there be any price cut if you would share your outlook on pricing region-wise.
See, I think from a price correlating with the cost, historically there has been. But what I would like to remind is that over the last 18 months, if you have seen the fuel price, what was the 18 months back to now, it is still almost 2x of what it was 1.5 years back to what it is right now. So any drop right now, what we have seen is only close to around 20%, 25%. So these drops should not influence the price to drop significantly from where we are.
But having said that, it's not just the fuel. The other material costs have also gone up quite significantly, keeping in line with the inflationary kind of trends that we have seen. So all the other blended materials or the sourcing of the material or the sourcing of the services have significantly gone up. We don't expect any of them to come down as fast as the fuel. So given that scenario, price should only go up, it should not come up -- come down in tandem with the fuel costs. Unless fuel cost really goes back and aligns itself with what it was 18 months back.
Now having said that, if you see some of the markets that we service to what it -- the prices that were there close to 18 months back to now, the drop is quite significant. We actually have seen around anywhere between INR 15 to INR 20 drop from the peak. So given that scenario, we believe and that's our wishlist that it should not come down. The prices should not come down any further than what they are. But we have to watch those trends. The price remaining very itself is very alarming. I think this year, we are already into the early part of the February month, and we are left with only a couple of more months for the current financial year. We don't expect any major changes to happen both upward and downward for the price.
And we strongly think that prices should start picking up from the early part of Q1. The only caveat is if price -- the fuel cost dropped quite significantly. Yes, the price may not move, but there could be a positive kind of increase in the overall kind of margins. That's what we think Mr. Sham.
So next question is from Amit Murarka.
A couple of questions. Firstly, on the cost side early. So like earlier in your comments in the previous quarter, you had mentioned that you're taking coal from Singareni Collieries and that contract could get reset at higher prices. But now with fuel prices having dropped like -- do you still see that risk? Or like...
Mr. Amit, we never mentioned that it is with the reset. It's written FSA. So they have not revised the prices so far. We believe that they might remain the way it has always been. We think that prices -- Singareni prices have never been tied to the imported coal prices. They actually are also independent of CIL prices. We have never seen any correlation with ACIL prices on Singareni. And at the same time, with the imported coal pricing on Singareni. It's very dynamically adjusted. So far, they have not indicated nor -- we are seeing any major changes, at least for another quarter from Singareni on the FSA-related coal supply. Yes, the -- there is an e-auction due. Those trends should help us try to predict, but it is due over the next 15 days to 20 days from now. So basis that we can take some [indiscernible]. But as we speak, they have not indicated of any increase in the -- in their coal prices so far.
And in your presentation, you mentioned imported coal, like is that South African benchmark or...
It's typically RB2 is what we generally indicate Mr. Amit, because there are too many variants, but RBI is the most popular one. So that's what we have chosen in our presentation.
All right. Right. And this recent drop in RB2 that, in fact, was quite a sharp drop that has happened in the last 1 month.
Yes, it's $175. So what was hovering anywhere between $160, $175 kind of prices have come down to $130. But even at $130, RB2 is relatively higher compared to the imported pet coke standards. So I think further coal drop only then it will start pushing the -- the current RB2 price is still higher than the imported pet coke per Kcal basis on a [ landed ] basis for us.
Okay. At least you should benefit the power element of cost where you don't take pet coke [indiscernible].
So in our case, any RB2, we don't use it for the power plant. It's still very, very expensive position because at $135, if I have to start making this coal for generating power, the power cost would be significantly higher to the grid costs, sir. So it doesn't make sense for us to use RB2 in our power generation either.
Understood. Understood. Okay. So basically, this as of now maybe just gives you the cushion that alternate to pet coke, but it doesn't really directly benefit the cost as of now.
In our case, anyhow, we did indicate we have not used any imported coal for over the last few quarters, and that still remains the stance because that said, the higher end of our cost. So we are significantly using domestic coal with the combination of domestic pet coke, Mr. Amit.
The next question is from Ankur Bansal.
Sir, my question is regarding Andhra Cement that we have already -- you have already given a resolution to acquire Andhra Cement to NCLT. Sir, what is your future plan regarding Andhra Cement? Are you going to delist it? Or are you going to do a capital reduction? Or how it will benefit the shareholders of Sagar Cements?
Mr. Ankur, as indicated in my opening remarks, we received an LOI, the letter of intent, and we have been declared as a successful bidder by the resolution professional. He did apply to NCLT, Amravati bench. The outcome of that, we would be -- after the outcome of that only, we would be in a position to disclose all the details. At this point of time, the issue is sub judice, so I'm not in a position to disclose beyond what I've already shared with you, Mr. Ankur. We will be very happy coming back to you. Once the NCLT order is out, we'll be very, very happy to disclose every detail associated with the Andhra Cement acquisition.
And how we can expect, sir, what is the time line? You said Q1?
Currently, the NCLT has given 9th as the hearing date. So we are hoping it should happen much before the end of February itself, Mr. Ankur.
The next question is from [indiscernible].
I had just one question, like where I want to understand the pricing. So as we can see that 9 months, every one of your pockets where you operate have reported good volume number or good growth in terms of demand. And also like going ahead, we enter Q4, which is usually a strong quarter, right? So what is like holding like cement mills to take any price hike and why are they not sustaining? And even the costs are very high like...
I wish I had the right answer. At this point of time, as mentioned, the demand has been reasonably good, or I would say it has been the worst [indiscernible] at the marketplace, though, we have put a lot of efforts from our side, yes, we could not get any price hike. The reasons could be multiple, but we don't have the exact solution why we could not increase the prices. So the margins have always been compressed by more than 50% and then what the sustainable margins have been. In spite of that, we are not in a situation to sustain the price hike, what we attempted. I wish I had a direct answer.
The next question is from Sachin Shetty.
Sir, my question is regarding to that Andhra Cement. Since we have already given the -- this one over to Andhra Cement and the capacity is around 2.5 million ton. So this plant is idle for last 3 years, I'm going to say, but how this plant can be operational in going forward? And how much fresh capital we have to infuse for Andhra Cement. So that we can see the foolproof results for the [indiscernible].
Yes. Mr. Sachin, you have to bear with me. As I mentioned again and again, I'm sorry, I'm repeating, but I have to repeat, the matter is sub judice, at this point of time, we are not in a position to disclose any details, but we will be very happy coming back to you with all the details and all the questions that you have asked. We would be very happy replying post the NCLT order. What I can tell you is you're right, it's a 2.6 million ton installed capacity. It has been not operational for the last 3 years. That's a fact. Our plans going forward pertaining to that and all, we'll be extremely happy disclosing and discussing those issues post NCLT order, Mr. Sachin.
And has there a further scope for exploration of Andhra Cement?
We'll be very happy to disclose those post the NCLT. It's a good effect. We are happy to have them. So -- but details we will be happy discussing post-NCLT order.
Okay. So last word for a congratulation for the acquisition.
Thank you, again. We will take that once the NCLT order is in.
The next question is from Keshav Lahoti.
I just want to understand what sort of volume are we looking from Jeerabad, Jajpur plant in this year and next financial year?
Yes. Mr. Keshav, we did indicate 5 million as we target at a consol level. Yes, we were expecting close to around 600,000 tons to 650,000 tons from Jeerabad unit. That is the [indiscernible]. But I think we should end up close to around 550,000 to 600,000 tons for that specific unit. We were expecting around 400 -- 400,000 tons from Jajpur, but we might end up close to around 250,000 to 300,000 tons for Jajpur unit for the current. With all of those numbers, we indicated 5 million tons for the current year. We should be very close to that number. Going forward, as indicated, as discussed earlier, [indiscernible] our target for the next year is 5.5 million tons. Out of 5.5 million tons, yes, we are expecting anywhere between 750,000 to 800,000 tons from Jeerabad. And close to 450,000 to 500,000 tons from Jajpur unit Mr. Keshav.
Okay. Got it. And what sort of EBITDA per ton they are doing and when it will be EBITDA breakeven? What is current status?
We are very happy that Jeerabad is already above that point. So it's only a matter of time at Jajpur. At this point of time, we are operating anywhere between 15% to 20% capacity utilization. The reason why we are operating in lower also because of the realizations being lower. So we were not in a hurry to really ramp up that capacity. But we do expect the prices in the East surprisingly have been a lot better compared to -- related to the other regions. So last couple of months have been fairly strong. So if the same trends continue, yes, we do expect by Q1 -- middle of Q1 for us to start break-evening even at Jajpur, Mr. Keshav.
Okay. And what is the region sales breakup for this quarter?
Yes, we'll be happy sharing it. If you can respond to an e-mail because it will be time consuming for me to read out each state-wise.
Got it. One last question from my side. I might be repetitive. As you highlighted, the quarter 4 also, you're not expecting any price hikes. So normally, the trend is we see good pricing in Feb and March are busy construction season. So why is your hypothesis of no price hike for this quarter? Like...
It's not no price hike. Given the trends what we have seen, the season actually starts picking up from middle of November. Historically, the price hikes keep happening in a small little way starting from middle of November all the way up to June, July. Since we could not successfully go for a price hikes during all these time Yes, we believe that doing it at the start of February and any prices from here may not be as sustainable as much as it could be with start of the Q1. So we strongly believe that it is likely that the price hikes might start happening from start of Q1 rather than from middle of Q4, Mr. Keshav.
This is all our historical experience. We wish we are wrong. And price hike keeps happening from now. Historically, it does not happen. So that's what the -- the internal thinking is that the likely price hike might happen from Q1 is from those historical facts, Mr. Keshav.
So there is a follow-up question from Sham Sunder. His question is, is there a technical limit to use lower GCV fuel such as domestic or pet coke or imported coal?
Yes, I think it is very specific to kiln. In our case, historically, we were losing, I would not say very bad quality coal, but a reasonably low grade call anywhere between 3,500 to 4,000 with almost 35% to 40% ash at 100% in our kiln, Sir. We definitely can use that. There is no technical limitation in our case. But again, it depends on the quality of the limestone each one of us would have at each of the assets. But in our case, for all our kilns, I don't think there is any limitation in terms of the grade of the coal. Of course, there is a limitation in the lowest grade coal, yes. Typically, we don't go below 40% ash. We don't want to use higher than 40% ash as well as [indiscernible], which is less than 3,500.
We avoid using it because yes, it would have its impact on the end product. So our set point is we don't want to cross 35% ash, and we don't want to use the fuel, which is less than 3,500 caloric value of coal. So that's what is the limit. Again, same would be the case with the pet coke, again, the GI. If it is very hard, it would stress your branding system. Sulfur sometimes also creates a lot of issues. In our case, we have used 100% pet coke to 100% domestic coal, which is of the quality which I mentioned. So the band in our case for utilizing in all the assets is fairly wide. But that should be the case with most of the industry. At some places, some plants have a limitation, purely basis the limestone quality or the technical assets that they would have. It's a case to case. It is not something which is across the industry kind of a phenomenon. Hope I could address Mr. Sham's question. Mr. Manish.
The next question is from Abhisar Jain.
Yes, sir, on Andhra Cement, you mentioned in your opening comments that the net debt would go up by around INR 150 crores from current level and also that you can hopefully start from the middle of Q1. So sir, this net debt number that you're indicating, does this include only the acquisition-related cost or it includes part of...
This includes the working capital requirements even at Andhra Cements.
And also the start-up that you -- start up project that you want to do in Q1, right?
Yes. Yes. Yes.
Only the debottlenecking, et cetera, you will figure out once you get the order in your favor.
We'll be very happy discussing those details post the order, Mr. Abhisar. No, but we would be very happy discussing because the [indiscernible] of the structure, the resolution plan once the NCLT confirms, we would be very happy in discussing each of it in very practical detail.
Right, sir. Sir, also on the cost side, you mentioned that sequentially, you were looking at around INR 100 to INR 120 per ton of reduction from Q3 to Q4. But given that the raw material and the fuel costs have been coming down month on month at least in the last few months, could you also give some ballpark indication because there is a lag effect that how much fall can further happen into Q1?
Yes, I think we can take this once quarter-on-quarter number, Mr. Abhisar, at this point of time, we are reasonably sure because it's a weighted average kind of a number. So we are sure of INR 100 to INR 125 drop from last quarter to this quarter. I think with the Q4 quarterly results, we would be in a much better shape to address this issue rather than at this point of time.
Yes. But sir, can you -- I understand that. But I'm just trying to understand...
[indiscernible] the drop in the fuel at this point of time is not lower than our average fuel cost, Mr. Abhisar. Because we are not expecting any major drop in the domestic coal nor the case with the domestic pet coke significantly. Yes, there has been a significant drop in imported coal, which we are not using. So in our case, it could be flattish to some [ listing ]. That said, only the major shift is going to be the ramp up and the other 2 assets, which are start up should give us that additional push which we'll be very happy discussing that with the Q4 results into the -- the Q1 into the next year.
Understood, sir. And sir, last question on the CapEx outlook for FY '24. Without Andhra, what kind of CapEx are you...
We are only planning for the maintenance CapEx, sir. It should not be more than INR 30 crores across the entire group spread over all the assets, Mr. Abhisar. These are maintenance CapEx.
Sure, sir. And sir, since your goal of this going above 10 million tons is already achieved if Andhra comes in. So then...
[indiscernible] double every 10 years. It indicate to be 10 million by 2025. We are happy that with this acquisition, we should be saving 1 year, 1.5 years from a targeted kind of a number.
Yes. Sir, so my question is that...
We show double every 10 years so. So the 10 years could be from when we are concluding this. And 10 years from then, we should double, Mr. Abhisar.
Sir, so my question is that since then the CapEx will be limited in FY '24, would the cash flows be used for deleveraging?
Sir, we always believe that there should be a balance between equity and the debt. At this point of time, we are just about to absorb an asset, sir. So it's too soon for us to take any call on any of that. We always believe that there should be a balanced portfolio in the equity and the debt structure, and we have never crossed one on a debt-to-equity ratio. It doesn't mean that we would not like to deleverage, but it would be on a balanced kind of thing. Most of our debts are structured for a very, very long term. So it may not significantly delever but we probably might underuse the working capital to that extent. So we would still say I have savings on the interest cost pertaining to that stock, sir.
Sir, a couple of questions from the chat window. What is the CapEx guidance from FY '24 and '25?
Yes. We -- at this point of time, excluding Andhra Cement, Mr. Manish, the acquisition and this further upgrade, we do have around INR 30 crores of maintenance CapEx for each year across all the assets that are operating at this point of time. So same would be the case for FY '24 as well as FY '25.
Okay. And the second question is from Chirag Sidhwa. It's -- proportion of pet coke in fuel mix has increased to 76% from 66%. Any particular reason for the same? And how do you see this mix in Q4? And the second question is on weighted average Kcal stood at 2.1 with the current inventory, what is the Kcal expected in Q4?
See, I think the weighted -- the overall kind of a mix that we are looking at is 40% pet coke and 60% domestic coal. From an indicator of 2.17, I think we should be more or less be very close to that number, maybe 3 to 5 paisa should come down. We should be close to that number itself, Mr. Manish.
The next question is from Prateek Kumar.
Sir, my first question is, would you have any ballpark like indication of what will be the utilizations of South region, including volumes going to Eastern markets for the industry?
Yes, Mr. Prateek, in the past, it was close to around 2.5 million to 3 million that was moving from south to east. I think those numbers more or less remain the same. From last quarter to this quarter, we have seen a significant increase in the overall kind of capacity utilization, which is in line with the 25% growth that we have seen over last year to this year across all the south markets on an average. So that should be the case. But what we have to be mindful is there were some new suppliers that have come into the market. So that needs to be factored too. So there has not been a significant change in the overall kind of an operating rate. That's what we believe because different kind of volumes also have started getting ramped up from the assets that got commissioned over last year to 1.5 years period, Mr. Prateek.
But it's fair to say it would be operating at like now 70% instead of -- like for 3Q versus like normally 50%, 55% [indiscernible]?
Quarter-on-quarter number is always a challenge. If you look at the year, I think there is a small improvement in the overall kind of an operating debt. Quarter-to-quarter, we have always seen that significance because from an offseason to season itself, it moves anywhere between 45% to 70%. So that should not in a big way influence any of the decision making, right? So from an offseason to season itself, there is a big variation. If you look at the operating rate anywhere between Q2 and Q3 and compare with either Q1 or Q4, that shift itself is almost quite high because in an off season the capacity utilization remains anywhere between 35% to 45%. And in the peak season, we have seen it moving all the way up to 65% to 70%. The average still remains at 55% to 60% kind of a number. That's what is likely for the going forward because there is a significant supply that is that has happened, and that is going to happen over the next couple of quarters, especially for the southern markets, Prateek.
And then you say it's a ramp-up of new capacity. So it would be only Ramco cement, right?
If you look at Chettinad grinding plant in Vizag, got commissioned over last year. I'm sure the current capacity utilization may be lower and it's likely that they might want to ramp up. So would be the case with Ramco. So would be the case with some of those assets, which are due for commissioning over the next few quarters, Mr. Prateek.
And one thing for future like commissioning. So we have like probably UltraTech and Dalmia Bharat commissioning. Any major commissioning do you expect to...
We are expecting a [indiscernible] commission to happen over the next few quarters. Steel likely to happen over next 3 quarters Mr. Prateek. Cement is going to [indiscernible] I said.
So one more question from the chat window. So the question is, how are the exit cement prices versus December quarter average? Was it lower or similar?
Flat, sir. I think they were flat with slightly negative bias.
[Operator Instructions] As we have no further questions, sir, we would like to now hand over to you for your closing remarks.
Yes. Thank you. We would like to, once again, thank you all for joining the call. I hope you got all the answers you are looking for. Please feel free to connect our team at Sagar or CDR should you need any further information or you have any further queries, and we will be more than happy to discuss them with you. Thank you again, and have a good day. Thank you, Manish.
Thank you, sir. That concludes the call for today. Thank you, everyone.