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Shree Cement Ltd
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Ladies and gentlemen, good day and welcome to the Shree Cement's Q1 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Navin Sahadeo from ICICI Securities. Thank you and over to you, sir.
Thank you, Karen. Good morning, everyone. On behalf of ICICI Securities, I welcome you all to the Q1 FY '24 earnings call of Shree Cement. From the management, we have with us Managing Director, Mr. Neeraj Akhoury; and CFO, Mr. Subhash Jajoo on the call.Without any further ado, I hand over the call to management for their opening comments followed by interactive Q&A. Over to you, Akhoury-ji.
Thank you, Navin. And good morning, everyone, and thank you for joining this call. I welcome all of you to the earning call for Shree Cement for the quarter ending June '23. To begin with, I think Q1 was a challenging quarter for Shree not for the operational performance, but for some other reasons. The income tax department conducted survey operations at few of the company's locations from 21st June until 26th June. During the survey, the income tax officials were extremely cordial with all our employees and like to highlight that in this survey; no mobile, laptop or computers were freezed or scanned when the survey was going on. The company has extended its fullest cooperation with the income tax department and we have supplied all information that has been desired by them. We would like to reiterate on this platform that Shree is a tax compliant company and has never been charged any penal interest or penalized by the income tax department since its inception.The company has also received a notice from the Ministry of Corporate Affairs for the new section, the Section 206(5) of the Companies Act 2013. We will be complying with the directions given. As the matter are still in inquiry stage, we would not be able to share further details and my request would be to respect this position of ours today. We are happy to share that during the last quarter, we successfully commissioned the trial production of our grinding unit at Purulia, West Bengal in line with the timeline committed by us. With commission of the Purulia project, cement capacity has reached almost like 50 million tons, 49.9 million to be precise. The current macroeconomic environment in the country combined with government's focus is supporting growth in the cement sector. Accordingly, we are accelerating our growth plans to ensure that we seize the opportunity to the maximum.The Board meeting held yesterday has approved additional capacity addition program involving the total CapEx of INR 7,000 crores. In this phase, we will be adding about 3.65 million tons of clinker in Pali in Rajasthan and which will also give us a -- and also cement capacity of about 6 million tons both in Pali as well as in Etah district of Uttar Pradesh. In addition to that, we'll be adding another 6.5 million tons at Kodla in Karnataka and cement capacity of 6 million tons in both Kodla and Bangalore, which will -- with this, we should be very close to a 68 million ton capacity at an India level. Both these plants are extremely modern, designed on world-class technologies. For example, both will have the waste heat recovery based power plants attached to them. Very happy to inform all of you that the company is also planning to diversify into ready-mix concrete business and we have already constituted an organization for ready-mix business as well as plans to set up 5 units of ready-mix in this year.Also would like to inform that the work at the existing projects locations is going on very well. The Nawalgarh integrated unit is nearing completion now and we should be able to see this commissioning as per schedule in quarter 3 of this year. Guntur is also progressing strongly with a commissioning target of Q2 '24-'25 will be compliant with. We are very much on track to reach our ambitious goals of taking on capacity beyond 80 million tons in the coming years and are aggressively charting out action plans to implement the same. Many locations are being continuously surveyed. We are in the process of now finalizing our next phase of growth beyond 68 million tons that has already been announced. We shared with you during the last call that Shree has started a new journey of remaining the greenest technology and most advanced cement company.The company is continuously investing in renewables in order to increase the share of green power. The share increased from 46% last year to about 56% during Q1 '23-'24. I believe this is not only highest in the cement industry, but most probably even globally. We would be adding significant capacity of green power in next 12 months, which would further increase this percentage. The company's focus on decarbonization remains solid. We have been able to reduce our Scope 1 emission to 502 kg of CO2 per ton of cementitious material representing a reduction of around 4% compared to last year. The company is also steadily increasing its usage of alternate tools with an aim to take our company at an average of 15% of substitution levels. Work is also progressing strongly on the technology side with our CRM at Uran already undergoing trials.The migration from Oracle to ERP business with SAP S4 HANA is also as per schedule. We are deploying various advantaged solutions as well as manufacturing, logistics and sales operations. On the operational front, Q1 was again a healthy quarter with sales growing by about 19% from 7.5 million tons to 8.9 million tons. Utilization level, very happy to share has also moved close to 80% now, 79% to be precise. Despite lower demand, the industry was not able to increase the price valuation. The sale decreased by 4% on Y-o-Y basis. Fuel cost of course is the rainbow, we have seen about 12% reduction of fuel cost in this quarter compared to last year. The softening of fuel prices coupled with increased volumes and higher use of alternate fuels led to [ EBIDTA ] increasing by 14% from INR 819 crores last year to INR 933 crores in the quarter ending June '23.EBITDA per ton is more or less stable standing at about INR 1,046 per ton and again INR 1,092 last year. On a sequential basis, sales were almost flat at 8.9 million tons in the last quarter against 8.8 million tons in the quarter 4 of last year. Realizations were down 2% during this period. Total EBITDA increased from INR 892 crores to INR 933 crores due to decline in fuel prices. With the current pet coke prices around 1.80 per CD, we expect a downward trend to expenses unless some untoward thing happens globally. Given the overall volatile economy and government's strong focus on infrastructure and housing, cement demand is expected to remain very strong, Higher spending by central government ahead of the general elections in 2024 along with good rainfall leading to healthy pace of plant production is expected to boost cement demand, which we expect to be in double digits for the financial year.With this, I would now open the floor for Q&A. Thank you very much for supporting us in the last quarter.
[Operator Instructions] The first question is from the line of Shyam Sundar Sriram from Franklin Templeton.
Very strong volume performance. Congratulations on that for the entire team, sir. My first question is on the CapEx announcement. Even in our annual report, we had spoken about reaching the target 80 million tons earlier than F '30. The latest announcements are on those lines. What has changed in the industry or the competitive landscape that we are accelerating our CapEx plans and therefore, do we now revise our F '30 aspiration upwards? How do we think of that?
So a large part of acceleration of our CapEx is due to a very strong cement demand evolution that we see not only in this year, but the years to come. We see that India has started firmly investing in infrastructure, but also in housing and also there is a resurgence of CapEx that is for industries and commercial buildings. So we are little more optimistic now on the demand evolution in the next few years and that is giving us confidence that we should be able to accelerate and preclose the monthly CapEx program that we've announced earlier.
Understood. So therefore, does that also move up our F '30 aspirations?
At this moment, we have said we will go beyond the 80 million tons and as I said, we continue to identify various locations, various places where we should be growing. For example there are certain markets where we would be seeing like Uttar Pradesh. So that's how we see it that currently the aspiration will be to reach beyond 80 million tons. In due course of time with more visibility on how the demand has moved, we will of course revise that target. But India is a growing country, growing cement demand so I think 80 million tons is only the first step. We will as we reach there again review our situation and accordingly plan for growth.
Understood. Sir, so the next phase of growth will be more in the central region, U.P. in that region and the West as well that we are seeing now from the Gulbarga site? That is how we should think about it, sir?
So we should be looking at West as well, which includes Gujarat market for example. We should also be looking at some of the locations in Central zone, including Madhya Pradesh. As we said, we are already going to be building a plant in Bangalore. So Shree will continue to become a pan India with presence across regions and that is how we are tracking our plans.
Sure. Sir, just 1 question on our latest announcement. The Pali and Etah are quite far off in that sense from a freight cost perspective. This would be because Pali would be a greenfield I would presume and the reason for that is because of the deposits available in Pali for further expansion, sir?
Yes, yes, absolutely. So Rajasthan will remain the country's one of the largest centers for limestone so for any clinker product, we'll need to look at those states where we have limestone and we have the limestone in Rajasthan. Etah despite the distance, it is a very attractive market and sourcing clinker from Pali, it should be able to give a good realization for us.
Understood. Sir, the other point, our utilization levels have been nicely going up over the last few quarters. You have also spoken about it as one of the key strategic priorities for us. If you can share some regional flavor as in which regions we have gained share, some perspective would greatly help understand the evolution of our business per se.
So the improvement has been seen across India. I would be wrong to say it is reduced specific demand in the sales growth that we have seen. Having said that, utilization in East, we are almost gearing to the full utilization level now. We moved from 66% last year same quarter to 92% now. In North also we have moved closer at 80%. And in South, we have moved closer to 68%, 70%. So as you see, we have kind of movement across India, the growth is across India.
Wonderful. Just 1 housekeeping question. Our purchase of stock in trade has sharply increased sequentially. Did we resort to buying some finished cement to aid the demand or is there something else? And if you can also help with the cement revenues alone for this quarter?
Sriram-ji, In terms of the stock in trade, that has increased because 1 coal shipment which we have pursued that has been sold in normal course and that is why you are seeing that figure. The same amount is also included on the revenue side.
And the cement revenues alone for the quarter?
Cement revenue, I can give you a ballpark figure. It is INR 4,771 crore for this quarter as against INR 4,989 crore for last year.
The next question is from the line of Amit Murarka from Axis Capital.
So my question is on the expansion. So while you have mentioned the units of 3.65 million tons each, is it like 10,000 TPD or could you specify how much TPD is that?
Yes, it's 10,000 TPD.
Okay. 365 factor is taken for the 3.65 million tons?
Yes, yes.
Okay. And also like is there any incentive tied to any of these units, any of these 4 grinding units and the clinker unit?
So we are approaching the government. At this moment we are not able to confirm it. But I'm sure once we have an agreement with the governments, be it in Rajasthan or be it in U.P. or be it in other states, we should be able to give these details.
Okay. And also I was just wondering in South like the Guntur expansion, which you did like had only 1.5 million ton clinker for 3 million ton grinding. And here also in this unit, you have like 6 million ton grinding for, let's say, 3.5 million ton in clinker. Usually South what we understand is like a lower blending market like 1.3x to maybe at best 1.4x. So how do you think you will manage this 1.75x blending based on this expansion or is there some further clinker that is supposed to come on this?
So the South plants will get clinker of course from U.P., but we also have plans to bring clinker from other units and be able to utilize the capacity to the fullest.
So is the understanding correct that the blending of these plants will be 1.3x, 1.4x in line with market?
Yes, 1.4x looks to be reasonable. Yes, you can make that assumption.
Okay. And also like any of these units coming in subsidiaries like how the Purulia unit is?
I did not understand. Can you ask the question again?
Like the Purulia grinding in West Bengal subsidiary, are any of these units will come in subsidiary or are they are all in stand-alone?
No. All the units that we have just declared, they are all coming in the main company except for Bangalore grinding unit, that may come up in one of our subsidiaries. Grinding units at Bangalore that may come up in the subsidiary. The remaining all synchronization units are going to come up in the main company.
Okay. Understood. And just lastly on RMC, like you're getting into RMC after a long, long time now. So what's the strategy here? Like you are looking to kind of -- like generally where we have seen Ultratech has been very aggressive in the RMC business, anyway established players like ACC, Nuvoco. So would you be like fighting with these guys or would we be getting more share from the unorganized market? What's our strategy here?
The strategy would be more to go into probably high performance concrete, but also in what I would call the mass market concrete. It's not right for me to say who I will be fighting with. There's enough market room for everybody to grow in ready-mix market especially in the urban towns of India. But with the high performance concrete, of course there are not many suppliers and therefore the competition is somewhat limited in that segment.
The next question is from the line of Satyadeep Jain from AMBIT Capital.
Just a couple of questions. Mr. Akhoury, first on the strategy. In the last few months the strategy has been to raise market share, raise utilization levels. The company is now adding almost 20 million ton capacity [Technical Difficulty]. Given this large capacity increase, would the intent remain the same to increase utilization levels compared to historical levels? Even if let's say the demand scenario were not to play out as we've seen in this year, would the company continue to look at market share gain as a strategy or a utilization strategy?
So the market share is resultant of the capacity issues that [indiscernible]. And their ability to supply to those places where the demand acceleration that's better. So I think on supply chain and distribution, Shree is quite strong. We have those markets, including the long relationships with many of these partners, these transporters or these dealers and distributors. So what we expect is more of a stable market share strategy, but with somewhat increased due to new capacity additions that Shree has announced including Nawalgarh in North or Purulia in East or Guntur in South. So that's how I see it. It's not going to disturb the market, but at the same time the capacity share to market share ratio will be very high.
Secondly, on the expansion in the regions you're looking at starting with Bangalore, any thought? From Gulbarga usually the national market is maybe Maharashtra, but you're looking going 600 kilometers south to Bangalore. What's the strategy behind looking at some of these markets? And Madhya Pradesh also had historically been a challenge for Shree Cement in Satna. So what is the strategy now that you're talking about Madhya Pradesh also, how do you plan to expand in that particular market?
The strategy is based on our stated assumptions of which local market is positioned to grow at what pace. For example we believe Bangalore as a market is still growing and will continue to grow very fast in the coming years and coming decades due to the fact that many investments around Bangalore will be coming here. We also look at the historical trends of those markets. What we also see is our company's advantage in terms of delivery cost and what is our position in terms of delivery cost given the specific location. Wherever such things are found favorable is what we select for our growth footprint. So be it Bangalore or be it Gujarat or bet it M.P. tomorrow, it is all based on a well-structured strategy which takes us closer to the market, closer to the high consumption centers, but also those consumption centers which have reasonable rationale that they will also grow in the long term.
For market share, there is no asset position Shree has I believe right now. Would that be through inorganic you're looking at for Madhya Pradesh?
No, not at all. Currently our scope of discussion is mostly around organic growth plans that we have and through our organic growth plans, we believe we can reach this beyond 80 million tons ambition.
The next question is from the line of Pinakin Parekh from JPMorgan.
Sir, my first question is can you give us a sense of the CapEx that was announced? Where are we in terms of the particular modules, equipment ordering, power plant ordering? Has already been everything achieved or it will be done over the coming months?
Just after this call, I will be signing orders for the total supply. So we are well positioned, all the formalities including the valuations and engineering has been done. So by tomorrow you should be seeing that we are well on the way to start ordering at these sites.
Sure, sir. Sir, my second question is so far in the results season we have seen very different volume growth trajectories from different companies. Sir, regarding Shree's volume growth of 19% seen in this quarter, can you give us some color of the regional volume? Was it higher in 1 particular region? And within that, can you also give us a sense of pricing? Which markets have seen pricing corrections in the month of July and the outlook for the same over the coming months?
So as the first question also. Shree's growth has been more or less consistent across regions. When I look at North or East or South, we have grown in all these places in double digits and higher double digits. North it is closer to 12%, 14%, growth, 12% growth whereas East with our footprint, we have been able to grow at a little higher than 25%. South also is closer to 20%. So overall 19% is equally distributed amongst the entire India and is not focused on 1 specific location.
Sure, sir. Sir, last question from my side. Very strong volume growth, the industry demand is very good, but the pricing has been weak. Now all the large players are bringing on new capacity and ramping up new capacity and we had 1 of your peers last week comment that they lost market share in Eastern India and they want to focus on regaining volumes and market share. In this industry background, how does Shree look at the trade-off between prices and volumes? Would it cede market share in order to keep pricing or does it want to gain market share or at least grow faster than the industry even if it comes at the cost of pricing?
No, I think Shree has thus far followed a very rational and logical approach, pricing and volumes both need to be balanced very well. It is wrong to save price over volume or volume over price. This is not the strategy. This is what we are doing. What we are doing indeed, and as I said in the last call as well, is now really focusing on the special products of our company. What we are doing is to make sure that Shree's presence is not only in 1 segment or 1 price segment, but also in the other price segments and that is something that we are executing strongly. Our premium products, as we said, in this 19%, a much higher share has also come from premium products. The growth has been quite strong in the premium product segment option. So that's the strategy that we are following. We would fully respect this thought that for the sake of volumes, we should not sacrifice prices and that's what we will continue to follow.
The next question is from the line of Ritesh Shah from Investec.
Sir, my first question is pertaining to how do we look water as a commodity specifically given the expansion announcement at Pali? What is the source of water and how do we take a call, say, 25, 30 years of plant life? So that's the first question, sir.
So I think we're not able to give you full details, but I'm very happy to write to you separately. But Pali has a confirmed initial source of water as well and that's what we have been using in our other units. So water source. but more specific answer to this is something that I would need some time to give it to you. My colleagues are not with me. I'm sure they should be able to respond to this adequately.
Sure, sir, I'll circle back on this later. Sir, second is, I missed out on the point on incentives, I think somebody did ask, for the incremental announcements, do we have incentives from the state government? Has it already been [ locked up ]?
No, no what I said that we are under discussion with the different [indiscernible], and very soon, we should be able to agree on the incentives that all they are available in those states.
Right. And sir, third and last bookkeeping question, would it be possible for you to give the pure mix coal and thermal coal for FY '23 and FY '22? I think these [ vestiges ] were done in the annual report before, but now, we couldn't locate it.
Yes. The coal mix for the current quarter is around 81% is pet coke and balance is our alternative fuel. Whereas last year, it was around 60% pet coke, 30% coal and balance alternative fuel.
The next question is from the line of Rajesh Ravi from HDFC Securities.
First question is, when you say the non-cement revenues, if you exclude the incentives and other operating income, which was on EBIT level on comparison with other cement companies. And as I see for last year, FY '23, your merchant power sales have more than doubled to INR 800 crores, and have grown considerably over the last 2, 3 years. So how should we look at this? Because in this quarter, when you saying INR 4771 crores, this is just the cement revenues. Should we not be clubbing the incentives and other operating income and just exclude the power revenues?
So looking at the cement revenue, obviously, those things have to be excluded. But right now, we'll not be in a position to give you the power revenue separately. However, more or less, it is uniform, spread across all quarters.
No. So last year, you...
For power sales last year.
So last year, the power sales number have doubled. So how do we look at it, because we generally want to exclude only the power revenues when you're talking about cement, because others are part of your ongoing cement business, other operating income, incentives and all. So that is one. And second, could you talk on the -- in terms of 2 questions, first is incentives for the currently ongoing expansion, Purulia, Rajasthan and the Andhra plant, what sort of incentive structures are there in place for these 3 plants, which are about to get commissioned?
No, we will not be able to share the incentive structure for the existing plants, which are still not yet being commissioned. But yes, because once the commissioning starts, then only we'll be able to share the details. And for the power revenue, it will be difficult for us right now to give it separately. But yes, we are in discussion with our management, maybe some -- once we get a go ahead, we will give further guidance on -- maybe give you the revenue separately. so it is better for you to understand this...
We understand this question, a gentleman previously asked this question, and we are making some changes in the way we present our figures. So from next quarter, you will see little better levels of transparency, so that such questions are avoided.
Great. Great, sir. And also, we see that now your Purulia will be in a subsidiary and even 2 more branding units will come up in a subsidiary structure, and because they will all be sizable from the company perspective. Should we not talk of consolidated volume numbers to make a more rational analysis Q2 onwards?
Yes. We will definitely -- we appreciate the point, and we will definitely take it into consideration. Until now the -- even consolidated numbers are not that materially different, that is why the focus was only on the standalone. But going forward, more and more grinding units comes under the subsidiary, then we should start talking on the basis of consolidated.
Okay. And sir, you talked about the coal mix. Could you give us a per kilo cal costing in this quarter, and how did they fare versus Q4 and what is the status in Q2?
Yes. In the second quarter, the per kg cost for coal was around 2.37 as compared to 2.56 in the March quarter. And last year, it was 2.64. This current -- the current cost is around 1.8, 1.85. So going forward, we will see the benefit of the lower cost in the coming quarters also.
So this is your blended cost 2.37, which you mentioned, or it is just the thermal coal costing?
It is the fuel costs only...
Fuel costs only. Okay. Pet coke is which is 80%, 81% in this quarter, okay. And sir, you are 55%, 56% on green power. So just wanted to understand what is the average cost of your green power?
Cost of green power? Around [ INR 45 lakhs ].
Okay. So all is from WHR?
It is a mix of WHR, Kodla, as well as [indiscernible].
Okay. No, I just wanted to say, is it like on the total basis average you've increased INR 0.50 type of electricity cost on this?
On the total earning power, yes.
The next question is from the line of Jashdeep Singh from Nomura.
Sir, I have couple of questions on the current quarter. I wanted to understand that this quarter, Shree Cement has reported strong realization growth, 3% up sequentially, whereas your peers who have reported so far, have reported a 4% decline. So wanted to understand whether this realization growth is coming largely from the product mix and higher basis, or this has some structural changes, because we know that you guys are working on upgrading the realization. So can we consider this as going forward or it happened only in this quarter? So first question is on that.
[Technical Difficulty] Sir, we have the question on line.
Got disconnected. So can you just repeat the question again?
Sure, sir. Sure. Sir, I wanted to understand that this quarter, we have -- Shree Cement has reported strong realization growth, 3% up sequentially, whereas other peers are reporting 4% decline. I wanted to understand, whether this is just because you have a better product mix and a higher trade sale, or has something structurally changed with the realization policies? And can we expect such strong growth in the year going ahead?
I think you have joined late, because at the beginning of the call only we have clarified, that the realizations are down by 4% as compared to last year and 2% as compared to last quarter.
Okay. I might have missed that. And second the capacity, sir, what sort of internal IRR we're building for the brownfield Kodla and greenfield Pali [ plants ], and how much WHR should be in these?
WHR capacities are yet to be worked out, but both the units will be coming up with WHRs. But more or less, it will go out around 40 to 50 megawatts, something like that.
[Technical Difficulty] On the project financials, we will come back to you. We are not carrying [ that with us ] now. You asked a question on the IRR, right?
Yes, sir. and I'll get back to you offline later. And lastly, sir, I wanted to understand, Mr. Ashok Bhandari joined as Senior Advisor. So what sort of role will he be playing in the management? Just wanted to get clarity on that, sir.
Mr. Bhandari has been a very old associate, very old colleague in the industry. What we have gotten is, as we now go from a company with very modern technologies, also including SAP/HANA. There are topics on which his expertise will be of help, including the topics around the CapEx funding, on topics around developing with our existing CFO and account hedge on the accounting norms and principles. So there are many topics which we are working together, as I said just now that, we will come up with a better format for your presentation from next quarter, when we'll be able to give you different segment growth analysis, from power, also cement.So all this is where Mr. Bhandari's expertise will be important to us, and that's why we have got him as a Senior Advisor.
The next question is from the line of Hrishikesh Chandrakant Bhagat from Kotak AMC.
So last few calls, we spoke about the journey on brand consolidation. So if you can help us understand where are we on that? And second question is, there were future -- we -- I think on the movement to trade side the journey, what kind of investments do we envisage say, probably -- when I mean investment, need not be CapEx front, but broadly on probably A&P or to some extent, technical staff to ground staff or on that front, how much do we envisage over the next 2, 3 years?
As I said in my last call as well, is future clearly, is how to become a multi-segment player in India. When I say multi-segment, it is just to make sure that you are able to bring a sharper value proposition products for each requirement in each [indiscernible] markets. That is where I said about special products, and that our focus on special products continues. In fact, last quarter, we have seen healthy growth of special products in our company. This has not been done without any effort, a strong force of about a little more than 500 people, has been put in the field now, which will be working on our -- how can we help our consumers in construction, we call technical services. This force is going across markets, meeting influencers, meeting end users, the consumers and other actors in our markets, to make sure that free equity and product quality is well managed, and is well accepted is -- and it is -- there is room for improvement. That is where we also improve.So all in all, a lot of efforts are going on to create a stronger brand equity for the company and for the products. We have engaged with some of the world renowned groups, including [ McKinsey ] to work on our communication strategy. You should be able to see some -- the campaigns getting launched sometime in the third quarter. We are very clear on the new brands and our new product extensions that we will be launching in the market.So in all -- on the marketing front, on the market front, significant work is being done both for supply chain, as well as for improving our brand equity scores and thank you for your support, you will see that we should be able to become -- from a single segment player to a multiple segment player in times to come.
The next question is from the line of Navin Sahadeo from ICICI Securities.
So sir, in response to the endeavor to like overall brand, improving the brand premiumization and in general, the brand equity, are we also looking at reducing the blending or -- in general form? Because I believe we also launched OPC53-grade sometime back in the North market. And as you said, if you are focusing more on premium or high-strength products. Is there a possibility that the fly ash or the blending ratio will tend to go down here on a little bit, because of overall premiumization aspect as such?
No, I don't think so. I don't think so. The word I use is not premium. The word we always use is a sharper value proposition or special products, right? And each special product has its own market, has its own set of consumers and that is what we want to cater. And that those products, because of the sharper value proposition are more expensive, is because of the nature of those products. So that's part #1.Part #2, will it impact the clinker ratio? I don't think so, because at the moment, it is also growing and the percentage of -- percentage of lower [indiscernible] product including OPC as a percentage will remain positive going forward as well. So at a company level, it should not adversely impact our clinker ratio. What it will do is to make some of these products highly specialized, OPC [ degree ] as an example. Incidentally, we have not yet launched OPC 53. It will be launched in the coming months. We are still formulating the mix. We are still working on how do you create a much better product, which is not only the minimum standard for 53, but goes beyond it. And that is something that we are working on with our R&D and the quality department. And that's how I see it. So no, it will not adversely impact our clinker sector.Having said this, this is the current situation. Please note that the Indian market is expanding rapidly, and most of the expansions are -- most of the new projects and large projects, vast projects, and they have a specific requirement of the product type. So we talk about dams or roads or bridges or if there is a large construction, there will be specific requirement of the product diagnostics, which is what we are trying to meet.And therefore, as the market evolves in the future, it becomes much more in terms of the infrastructure and all, as a percentage of total cement demand, then most likely, there will be an impact on the clinker sector as well.
Sir, second question was on the specific heat consumption, which you report in the annual report, in terms of kcals per kg of clinker. So I see there is a very steady increase in trends. In FY '19, if we consume, let's say, 719 kcals per kg. Latest annual report suggested it's going to 751. So I believe in general, our energy requirement at clinkerization, while conversion ratio, of course, has been increasing based on that. I mean the income factor has been going down. But with respect to heat consumption of clinker is rising steadily. Is there any specific reason for it, is there any quality [ of life ] or how should one look at it?
We will just check with you. For the current quarter, I don't think it is around 750. This quarter, it's -- the number is around 740 kcals.
No, no. I was talking about on an annual basis, not quarterly basis. In the annual report, FY '23, it says 751, whereas in FY '19 annual report, it was 719. I'm saying it has been going -- increasing steadily, so is there any specific reason?
We will just check why is the reason for this increase and get back to you.
So one of the very likely causes for such increase is also higher usage of alternate fuels. So currently, we have not come to those levels at which or we should see some impact. But over the years, we've also added new capacities, be it in Raipur, be it in Kodla. But assuring all of you, there is a very high focus on heat consumption and how do we manage it, how do we control it. We have launched a campaign called [ We Need ]. We need lot of these specific topics for us to improve on, is heat consumption. But with this [indiscernible] introduction, this is largely because we have also being simultaneously increasing the alternate fuel use.
The next question is from the line of Prateek Kumar from Jefferies.
A couple of bookkeeping questions. There was this drop in depreciation during Q1. What was specific reason for this? And what is the annual number we are looking at for depreciation?
The depreciation for -- the total annual depreciation for this year should be close to INR 2,000 crores. However, whenever -- because of the accelerated depreciation that we follow with the WDD network, whenever there is a capitalization in the quarter, the depreciation is higher. And then correspondingly for next year onwards, it is gradually reducing. And that is why the depreciation number for this quarter is down. But as and when the new unit comes for [ billing day ], a number that is going to come up maybe in Q3, then the depreciation figure will increase. But for full year, it should be close to INR 2,000 crores.
And on second question, on incentives, your last year's incentive number was INR 120 crores in the annual report versus INR 160 crores, INR 170 crores in the previous year, INR 50 crores range prior to that. So is there -- I mean, I know that you booked incentive based on [ this ]. So is there a general decrease in expectation of annual incentive now or for some reason we don't receive it, and we should receive it later, the second...
No, incentive numbers will remain around this level only, INR 130 crores, INR 140 crores. Because as we go ahead, the incentives for some of the older plant gets over. But again, because of new commissioning, some of the states have an incentive policy and we get it. But overall, for current year, we believe the number should be around INR 140 crores.
For the ongoing set of expansion, we should expect that number to remain in this range for '25, '26 also?
For the next set of incentives, as Neerajji has said, that we are still in negotiation with the government. So what the final incentive will be, it is difficult for us to commit right now.
And the last question on premium segments, which moved to like 9% of your trade mix this quarter. So firstly, what was the trade mix for the quarter, and what is the target for this number of 9% by end of financial year '22?
So as we said, we are working to get closer to 15%. So far, we have reached somewhere around 9%, somewhere about 9.7%, yes. So we have reached there. Last year, we had about 6%-odd, that means we have traveled from 6% to 9%, and this will continue in the coming months also. I expect in the coming year, which is FY '24, '25, we should be somewhere around 15% of the special products.
And trade mix is 79% for this quarter.
[Operator Instructions]. The next question is from the line of Devesh Agarwal from IIFL Securities.
Just in terms of your capacity addition and expansions, I wanted to understand, in last 5 years, a significant capacity addition happened in the east, and you're talking about a very high utilization level as well. While over the next 2, 3 years, you are not looking to add anything on the east side. So what could be your strategy for the east? And would that be taking a priority over say other region like west and central?
So Purulia has just been commissioned. As I said, it will take some months. So several months before we are able to fully utilize our Purulia capacity. But the east is one of the priority market for us. As you see, even in last quarter, our growth in east has been a little over 30%. So this will remain a priority market for us. As I speak, we are also looking at some more sites. Now in East, we have capacity in Chhattisgarh, in Odisha, in Jharkhand, and in Bihar and now in Bengal as well. So more or less, we have covered the entire east lease market. But depending on how Purulia stabilizes, we will also look at more options for these markets.
Understood. And sir, any trends on the July pricing? How the prices have been in different regions?
So prices in cement are always under pressure, so that's how I see it. But we are seeing -- we had -- we have been able to implement some price improvements we did in certain regions in India, including north. By month end, we'll be able to see how much we are able to successfully pass to the market. This is a little too early to comment on it. But yes, there will be [indiscernible] opportunities, wherever it is possible, to [ increase price ].
We'll move on to the next question, that is from the line of Shravan Shah from Dolat Capital.
Before the question just a request, previous participant has also requested in terms of the consol numbers, and which we mentioned, what are [ we selling ]. Also requesting if possible to share the -- at least last couple of quarters, consol volume and maybe a couple of years consol volume to understand and which will help the historical trend. So that was the one request.Second in terms of the question of firstly...
Shravan, you can send in a mail, and we will send you the consol volumes.
Sure, sir. Sir, thank you very much for that. The first question is, if you can help us in terms of the overall CapEx for this year, FY '24, '25, including the INR 7,000 crores that additionally we need to spend. And how much that will come in the -- and consol, if possible. So that is one. And also the breakup of this 66 million tonne grinding. So will it be a 3 million, 3 million tonne across 4 locations?
Yes. So the intention is to have grinding capacities of 3 million tonnes in most of our markets, as a standard size. So there are some markets where we will be going bigger or in future, it's a [ good reach ] for us. But standard for us would be around 3 million tonnes of new grinding capacities.The second question, I understand is what is the CapEx plan for 2024, we should look at report, we should look at a cash outflow of about INR 3,500 crores.
And for '25, sir, FY '25?
Almost similar amount.
Okay. Okay. Same amount. Okay. Okay. That is great. Second, in terms of the -- previously, we mentioned that 36 million tonne kind of volume we are looking at for '24. Definitely, this quarter, we have done much better. So will this -- #1 can look at 37 tonnes, 38 tonnes for this year, so that is one. And some data points on the lead distance for this -- blended cement share for this product?
So on the target -- thank you very much. But we'll still continue to remain at 36 million tonne target. We are hoping we should do slightly better. But for guidance, I would still believe 36 million tonnes is the right volumes for [indiscernible].On lead distance, there has been a reduction compared last year, though very minor, just about 7 kilometers, 8 kilometers for channel reduction. This is one topic on which we as a company has to achieve more, both through internal work, but also by putting up -- just as an example, barrier unit will of course reduce our lead distance to that extent, because we will be closer the [ market ]. So we will continue to do that.For the last quarter, we have gone down precisely by 14 kilometers, by 14 kilometers.
Yes. That was the last question. I would now like to hand the conference back to the management for any closing remarks.
So thank you very much, everybody. As always, it was a great pleasure to interact with you. Hopefully, we have been able to answer and give clarity to most of the questions that were asked today. Do not hesitate to contact us in case we need any further clarification.As I said in my opening remarks, and I conclude with it, that be rest assured that we, as a company, we manage very professionally, and we are following the highest standards of [ quality ]. So we will continue do that, and we continue to respect the fact that Shree has a long journey ahead, and therefore, every step, we will be looking to improve our image, our reputation and our brand equity and our leadership in cost, as well as leadership on sustainability criteria.So thanks a lot, everyone, and look forward to see you at the end of the next quarter. Bye-bye.
Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.