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UltraTech Cement Ltd
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Ladies and gentlemen, good day. And welcome to the UltraTech Cement Limited Q1 FY '21 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events or otherwise.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company. Thank you, and over to you, sir.
Thank you. Good evening, ladies and gentlemen. First and foremost, I hope and wish that your family, friends and colleagues have been safe from COVID, and I pray that all of us get out of this crisis safely and quickly.There's a big unpredictability and uncertainty about what will happen tomorrow, and surprisingly, the world is united in its stand on dealing with COVID, which is irrational and is utterly a bane to the self-preservation and well-being of a society. Lockdowns are lifted by the regulators and the masses start celebrating, and what happens after that, well you all know it. The scariest news article that I have read is from MIT on the 9th of July. It said India will have 2.87 lakh COVID cases a day by winter '21 if there are no remedies found before that.In these challenging times, this quarter has been quite unique. Companies who did their business continuity plans well have weathered the storm so far and with work panache. Numbers speak for themselves.For the cement industry, demand has been buoyant since late April and the industry side operations. The industry witnessed demand pick-up in East, Central, North, Tamil Nadu and Kerala markets, while weak demand persisted in Western India, Andhra, Telangana and Karnataka markets. Cement consumption has found its way into the rural and retail markets since the heat of the pandemic was felt much more in the urban markets at that point in time. Rural markets, we believe, will continue to thrive in future months as well. Our retail share in overall sales for the quarter has increased to an all-time high at about 78%. Orissa is picking up development activities as part of the typhoon rehabilitation program. West Bengal, with elections approaching, will keep the momentum on project execution and thus consuming cement.We are also seeing large projects unfolding in the Northern markets. The growth segment is gradually improving. It has gone up 3x in April, but it's not at its peak. Fingers crossed that things could stabilize or could finally with the return of migrant labor.Talking about UltraTech. We recorded an effective degrowth of only to 78%, which in current COVID times, we are not so unhappy about. The restated numbers for the period up to 1 October 2019 will reflect a higher degrowth. This is purely on account of the appointed date of merger of Century Cement being fixed at 20 May 2018 compared to the effective date of takeover being 1 October 2019, clearly reflecting the strong equity of our brand and its market potential, the strength that we derive from a network of more than 95,000 channel partners. Yes, that is what differentiates men versus lies.Cement prices remained resilient during the quarter, before witnessing the realizations during the end of the month of June, but entered the monsoon with head held high on prices. Average prices increased about 7% over the March quarter. As were expected, most of the expansion plans across the industry are moving cautiously. We have not seen any additional capacity going on soon this quarter across the industry.As for UltraTech, work on our 1.2 million tons in brownfield expansion in Bihar and West Bengal is going on. There will be delays. There are challenges in terms of labor availability and material supplies. We are now targeting to commission these plants sometime in the early next financial year. We also expect to commission the 2.3 million-ton Dalla Super clinker plant in Uttar Pradesh in the next fiscal year. I'm glad to tell you that we are on track in getting agreements from the government.Total cash flow on CapEx this year will not be more than INR 1,500 crores. The bulk of the investment is towards return-based CapEx projects which include the 66-megawatt WHRS projects spread across 7 plant locations. There are ongoing 1.2 million ton brownfield expansion, Phase 2 of the Bara grinding unit, Bicharpur coal block. There is a bulk packaging terminal that we are doing near Mumbai, ready-mixed concrete plants and other normal maintenance and modernization CapEx.I have mentioned in the past about our endeavor to dispose of noncore assets, and to that effect, we have completed our transaction to sell the 19.5% share in a cement subsidiary. We held these assets in our books as assets held for disposal, and hence, its P&L or capacity has not been part of our operating performance. The sale proceeds, which we expect to be received in August, will help reduce the net debt of the company further. We're working on other noncore assets, but at this moment, I don't have anything concrete to tell you.Cash flow management is a must to talk about. It has been a hallmark of our company. We have shrunk our working capital by over INR 600 crores this quarter. This excludes the onetime provision that we have had to make for prior period adjustments. We will continue to maintain a tight hand on our overall cash flows. However, don't expect this reduction to repeat in future months.Sustainability. UltraTech joins the growing list of companies adopting Science-Based Target initiatives, otherwise called SBTi, as part of its climate commitment. We are committed to build our business in line with "below 2 degrees world" under the Paris agreement. To talk a little more about sustainability, we have achieved 19.14% reduction in CO2 emission level in FY '20 over the base of 2006. Water positive score has increased 2.8x in FY '20, and we are targeting to reach about 4x this year or early next year.All of you are watching the industrial costs very closely. The cement industry from India and also coking coal and pet coke, which has caused a run-up in the spot prices of fuel. We are not expecting any future -- further benefit in terms of a reduction in fuel costs. The costs seem to have tightened for now. What we continue to work on is improving our internal efficiency on a sustainable basis. Adding to that, our green power share into the power mix base for the quarter has increased to 14% from 12% last quarter. Diesel prices have been continuously increasing since May '20. Average volume in our June -- June end prices are higher over 15% as compared to the prices in the beginning of April. However, the average for the year remained more or less at the same level as March was. Hence, it would not have any adverse impact on logistics cost during this quarter. But the increased diesel prices will have an impact on the industry in the coming periods.Overheads control is another important aspect, which I should talk to you about. As we have mentioned in the last call, last quarter, the efforts in cost reduction has gone full-stop in and it is evident in the numbers of Q1. It enhances our confidence on the ability to generate a 10% reduction in overheads over the last year for sure. This quarter, the total fixed costs were down 21% over the previous year, reducing the -- thus reducing the impact on our P&L of lower capacity utilization.Century assets. The integration efforts have continued in spite of the slowdown this quarter. Capacity utilization has been robust. I mean in -- and we have also tried about 70%-plus in phases when lockdowns were getting lifted. EBITDA per ton profile is almost reaching the INR 1,000 mark. We have reduced our net debt further by about INR 2,200 crores this quarter to INR 12,950 crores in India. We expect to receive the fund from the sale of China units in China in this quarter, which will help reduce our leverage further. In addition to that, we have a loan of INR 1,700 crores in our overseas company at a cost of about 1.5%. Our India net debt-to-EBITDA on the basis of 12 months' performance is at 1.44x as compared to 1.55x in previous quarter.Let me just clarify on the onetime expense that we have had, and it happened only in India. State governments give incentives to invest in their state and then try and muscle their way out of their commitments. This quarter, we have recorded an exceptional expense of INR 157 crore. To give you the history, that incentive given in the year 2006 or 2007 has been reversed with interest. Unfortunately, we will end up with those approvals, but unfortunately, it will put also then in favor of state. We're moving ahead with an addition in making a full provision for this liability. It does not impact in any way the company's operating performance, where we have delivered 28% of operating EBITDA margin and an EBITDA per ton of INR 1,453. The impact of this reversal will not be during future quarters because the incentive which was given is no longer available. It has already been exhausted.In the end, let's discuss briefly about what lies ahead. Well your guess is as good as mine. The crisis brought about by this pandemic is far from over. And now the local lockdowns have thrown in an additional layer of uncertainty. On the positive side, rural markets have been good so far. The monsoon has been also pretty good in most parts of the country. Kharif crop has been favorable. Sowing was much higher, which will mean that the rural cash flows will continue to stay strong. And in a bid to revise the economy, the government will fast-track its spending on infrastructure. Most of the infrastructure projects are now operational, but operating at a much lower capacity due to labor availability issues.Keeping our fingers crossed, and in the end, I take this opportunity of thanking you for joining us today. Keep safe. Stay blessed. Thank you. Over to you for questions.
[Operator Instructions] The first question is from the line of Bhoomika Nair from IDFC.
And congratulations on a great set of numbers with the strong deleveraging that we have witnessed. Sir, I just wanted to understand the July volume trend and the market trend a little better. In your sense and interaction, how are you seeing the on-ground demand with monsoon setting in and the pent-up demand being largely exhausted? Is the demand trend still continuing to remain healthy? Or are you seeing rural coming off? If you can give some more color on by when do you expect institutional demand coming back? And that's question number one.And on debt, we've definitely seen a very strong deleveraging in the past 9 months to a year. A lot of it has also been a lot of working capital-driven. So is that now behind it? And incrementally, the debt leveraging will be more operational, and what kind of noncore asset sale can further help in terms of the entire deleveraging?
I'll take the second question first, Bhoomika. And before that, thank you for the compliments for our numbers. Looking at the leverage, we have squeezed it tight to the bone. And as I have mentioned in the commentary, don't expect further release in working capital. That's the math, I think, we can do. We might want to pump in some more working capital depending upon how the markets shape up.On the noncore assets, there is a unit in Dubai and a loan outstanding to this company in Europe, which is a noncement company, a company called 3B Fibreglass. So our intent is to down-sell the loan and realize whatever we can realize from that loan. On the fiberglass industry, whatever I have understood, that particular unit caters to the automobile sector and windows. Both the markets are down -- both the sectors are down, and COVID is also there. So it's -- we have not been able to find buyers as of now.The Dubai unit is also not able to find investors to buy the assets. We will try for some more time. Otherwise, maybe for this quarter, we will try and otherwise integrate it and start operating it as part of our own capacity. So that's as per the Dubai asset is concerned, and I think we can synergize because there are some multiples that we see in that Dubai unit. But we will wait for this quarter before we take the final call.On July -- today, if you see the rainclouds in Mumbai, it's very heavy rains. Last week, it was totally dry, and even it was raining here so badly today. The uncertainty is very high. Now what is happening is, which I know, July, all right, we're continuing the momentum that we got from June, in that sense. But as we are progressing, the monsoon -- it's a normal monsoon slowdown that would take place. Last quarter -- I'm sorry, last year, July-September period, we were operating under a new period in normal monsoons. We were operating at about 60% capacity utilization.So the monsoon is there to -- as a weak period, in any case, for the cement industry. The challenge that we are facing -- the industry is facing is the local lockdowns. That becomes a problem because a project which is going on in, let's say, Kolkata or Bangalore, naturally where the state government has a law on no movement allowed, it kind of puts a very urgent grip on the sales. This unpredictability is not in your hands nor in my hands. Otherwise, if this unpredictability was not there, things are doing fine.
Okay. So broadly, you're still at 60% utilization. As I said, that is what we were last year. Would it be a similar utilization? Would be -- we be lower or higher?
That would be a forward-looking number, and I don't want to comment on that. And I don't know. Honestly, I don't know because tomorrow, if there's a major lockdown, we are always shooting up to 50,000 cases a day in India. If there's a major lockdown happening, then things will go higher.
So -- and on pricing, sir, versus the average of 1Q '21, are they largely holding on, or are we seeing a correction?
Yes. Monsoon correction, 4% to 5% correction is normal.
The next question is from the line of Vivek Maheshwari from Jefferies.
Getting into this quarter -- June quarter, there was -- I mean, whatever interaction I had with the industry, the outlook was looking far weaker than what the outcome has been. Let's say, in your case, the decline is a restricted 22%, right, in terms of volumes. Now can you just elaborate on -- I understand the rural and the retail bit, which helped, but who is the end user, or where is the cement exactly going in your assessment and given that there has been such a huge surprise on the positive side, so to speak?
I can elaborate on that. It's -- when I said, our retail share has gone up 78% -- to 78%, not only ours, practically everybody else. Whatever else has been declared, everybody's retail share would have gone up dramatically. Blended cement shares have gone up dramatically because retail shares only blended. And where this material is going is to the individual homebuilder in the remote areas. What has happened is migrant labor normally goes back in batches. A family of 7, 10 people, few people will go back, few people will stay back in town, urban areas, and they keep on rotating in their home village. This time, everybody has landed back in the remote areas, in their hometowns, and are building their next room, next house or whatever work had to be done in the fear because COVID is playing heavily on everybody's mind, social distancing requirements are playing on the minds and the cost of doing construction is far lower -- or sorry, yes, the land cost is insignificant or not there. It's only the construction cost that one has to incur. So we've seen retail demand, which is what the cement industry calls IHD, Individual Home Builder Demand, drive bulk of the cement consumption and cement demand.We do not see a new thing in metro towns, Mumbai's and Delhi's, Bangalore, et cetera. I know real estate companies, they have started work towards -- they have got permissions. And I guess, April end, they started getting permissions like [ 15, 20 ] days later. They started to work on project sites and had to stop completely. What also happened, the moment the migrant labor got opportunity to move out, there was an exodus of labor. Companies like L&T, L&T had mentioned on their call, they were holding back n number of people, 1.5 or 1.3 lakh laborers, across all their work sites. But the moment the opportunity was available, people left these sites and went back to remote areas, to their hometowns. One weekly is not enough. The government paycheck is not enough. So they went on wanting to -- whatever project work is available in remote areas, which is not a road or a bridge or a station or a metro construction in remote areas, but these are individual houses.
Sure. 2 points from here, Atul, sir. One is the fact that these, let's say, workers have moved from urban to rural. Does that worry you from an urban market perspective given that these projects, which they build on here in urban, are far more cement-intensive compared to, let's say, the rural piece? And the second thing is, when they have built these IHDs, some part of this is pent-up from, let's say, April and whatever happened end of March, and the other part would be some advancement from later part of the year. So on the demand side, do you worry or you think that, leave aside what -- the comment you made about the localized lockdown, let's assume that if that were to, kind of, to go pass, would you think that things will get incrementally better as we move into the -- over the next -- during the course of the year?
Yes, Vivek. So for a split second, let's leave COVID aside, okay? And suppose things are not moving in a normal manner, the pent-up demand that we talk about or preponing demand that we talk about will continue because we -- it all is linked to the rural cash flows. Tractor sales are going up. 2-wheeler sales are going up. People will invest in 2-wheelers or individual 2-wheelers or a multi-level 4-wheeler for the purpose of social distancing instead of traveling in public transport. Tractor sales are going up. Agri incomes are going up. Government has also increased the MSP. So there's a huge amount of support which is going in, in the -- towards improving the rural cash flows. Our -- since check -- our dipstick tells us that rural demand will continue.There will be these hiccups. Now let me bring COVID into play. There will be these hiccups. There are small, small towns where I've heard that markets which will open 7 days a week have had to start operating in smaller towns, very remote towns, which are operating only until afternoon, Saturday and Sunday closed, because they're having some cases. And they don't have as good facilities as whatever level of, whatever you may say, that cities like Mumbai or metro towns have. If a COVID spike keeps happening, there will be blips of slowdown, and then demand will be there. Another positive sign is that people are realizing COVID is not so bad after all, not so difficult, because staying at home and getting cured is also a very good possibility and that's what people are resorting to. But what it does is, if there's a patient in a family or in a remote area, that family is into a lockdown; there is a social boycott; because of which work suffers.Talking about urban markets, we believe that -- and we are also reading in the newspapers that labor is coming back. And yes, we are seeing labor come back. The big labor comeback will happen only after Diwali and all the agri work is over. They have to now go back again somewhere around February, March for the April harvest and then in the monsoons. So November onwards, we will start seeing nontrade demand come back. The institutional projects will start stabilizing with whatever level of project site, which was working with 100 people, and if they are an organized real estate player or large contractors, they will continue the project site with social distancing or whatever else they have to do, with slightly lesser number of people, growth will continue.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
My first question is more on the core real estate sales. I remember, in the last call, you talked about a proportion. And I'm talking more from the perspective of, let's say, a client like L&T, Shapoorji, more on the real estate side. Has that volume started to picking -- has started to pick up? Or how do you see that? And as a percentage, I'm talking on a very rough basis, let's say, the -- in a normal scenario, sells about 80 million, 90 million tons of volumes, I think the hard core real estate as such would be around 20 million, 30 million tons. Is that the right number to look at it, sir?
I normally look at the urban real estate, and that's what you are alluding to, to be about 30 million to 40 million -- I'll give a, by the way, 30 million to 50 million tons, not more than that. And that's what we are seeing. And as of now, it has suffered because of labor availability -- essentially because of labor availability and local lockdowns, if they hit them.
Okay. Good. So once, if I understand you, if let's say, it's -- I mean it's difficult to tie in the time line when the urban markets really open up in full way. But that's where the existing -- the project developers who are still rich on their balance sheet and still not declining, being our large customers, that pent-up will eventually come once this market starts opening up, if they are not taking too much volume right now or it's on-and-off situation. Is that the right way to conclude?
Yes. Absolutely because the developers, there is a -- whoever -- whichever developer has a strong balance sheet can tap into the projects or very good deals, I should say. So this will -- this is also helping, and I'm speaking with some real estate experience. This is helping the larger developers consolidate further. This is helping them strike good the landowners or the developers which had -- who have had bad volume sheets, building upon projects more rapidly. The deals are more higher -- available in numbers. But it all depends on how many deals would one want to sign up until the uncertainty on this pandemic is not dying down.
Got it. And just last question on the debt reduction part -- on the direction side. Given that capital expenditure still remains on the lower side versus what you used to do on an average, even for this year and I think next year also, if this pandemic is assuming to be continuing for the next 2, 3 months will almost reach towards FY '22, directionally, should we look at more -- I understand you said that working capital is something which you need to infuse also at some point in time to generate more sales and support dealers and distributors. But directionally, if you look at from a 2-year point of view given whatever the CapEx level you have been envisaging, do you see the debt reduction to the tune of about INR 2,000 crores to INR 3,000 crores on a minimum side? Is that the right way to conclude it?
I think it's running towards [ 1x ]. And I think that is accurate. We will go at breakneck speed. I don't want to give any forward-looking numbers, but we are clearly running at breakneck speed to reduce leverage. It really is an opportunity, and as I said, this INR 700 crore liquidation, which is not yet reflected in the cash flows, there is more from the other nonoperating assets. The new capacity, which will come up, the 1.2 million tons, will start delivering cash flows from day 1. The 2.3 million-ton, which was part of the JP deal, by the way, was what we consciously bought as a unit stock in NGT, has 2.3 million tons of clinker sitting in the hot bed of the market, which is in rupee. It will start generating a good amount of cash flows. So we'll run towards 1x or lower very fast.
Just last, if I can, if I can press one more. We saw you -- and that's purely on our channel indication. We saw in MP, you're really growing very high in Madhya Pradesh. I understand because of Bara as well which has got commissioned and all. It's more of market share gain, which grew very fast. I mean what we get from a channel, you're growing almost 30%, 40% in that market in June, maybe higher than that. Is it more of market share gain, or is it more of increasing dealer and distributor, which is getting more volumes in? If you would like not to answer it, but I just thought I'll try.
No, very strong in a low base. These are not present in Madhya Pradesh at all because we are supplying from growth segment, which is more closer to the North. So we were not a Central player for a really long time. And it's only after the JP acquisition, we have -- broadly, JP and Century acquisitions have added to our capacity. And yes, dealer addition, dealer network creation is an important element of any B2B play. And I alluded to you the number of 95,000 channel partners, which is all India, which is no mean achievement.
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Great execution, sir. So 2 questions. Firstly, what would be the like-for-like...[Technical Difficulty]
Sorry, Gaurav. We have lost you.
We lost you.
Gaurav, you're not audible, Gaurav. So it seems that there is no response from the line of Gaurav. We will move to the next -- yes, we will move to the next question, that is from the line of Gunjan Prithyani from JPMorgan.
Really commendable delivery, sir. On the -- I had a question specifically on the cost side, and I don't note that in the presentation, you've marked out 10% reduction on the overhead side. Now when I look at the expenses, on the other expenses, it's been a very material reduction. Is it -- and is it -- there's definitely a combination of some deferment of OpEx, like ad spend, which would have been high in this quarter, and some of the cost programs that you're working on. Is it possible for you to give us some sense in terms of absolute savings that we are targeting and what we've achieved on that overhead cost control program?
So we have achieved a 21% reduction in this quarter over last year on fixed overheads, which was something around INR 989 crores, if I remember it right, as compared to INR 1,231 crores, same period last year. Now deferment, advertisement is not necessarily a deferment, but yes, it was not required. So we did not curtail any expense. Travel, for example, is not a deferment. It's -- it was just forced. So today, when we have achieved a 20%, 21% reduction, I'm sure that we will continue to maintain a minimum of [ 10 percentage ]. Other expenditures, since we do various elements variable in like packing bag, packing cost is part of any other expenses. And selling overhead consumables is also part of other expense. So we are -- with volumes down, we are actually going to get that now, and that's why I'm not going to repeat the 20%, 21% overhead reduction in the future quarters, but the reduction plan that we have put in place for a sustainable longer term, minimum 10% is guaranteed.
Which would be almost about, going by the number, INR 1,200 crores of quarter kind of a fixed expense. It can be close to about INR 120-odd crores a quarter. It includes staff cost? Just a clarification on that.
For 12/31 full year numbers, you need to see instead of a 1-year number. And I think last year, our full year overheads were close to INR 5,000 crores. Ramesh, is that correct?
Yes. Yes.
Yes. So close to INR 5,000 crores. I would do to the amount of minimum INR 500 crores on an annual basis.
Okay. Got it. That's great. And on the fixed -- on the cost side, the other question was on the variable now. And when I look at the comments on the power and fuel, I sense that, directionally, you're not expecting very meaningful savings on that cost item. And on the freight side as well, given where we are -- where the diesel price has been moving, are there any significant savings that you're expecting there or anything from the M&A or logistic optimization?
So optimization will continue because when capacity utilization goes up, we will get the benefit of logistics optimization. And as I mentioned, our green power investment, which today has reached 14%, that must be costing maybe 15% or less than 20% of the current cost of Bara. That green power contribution, because of the investment in WHRS and solar, will go up to about 22% to 23%. So that will help us reduce the fuel cost. Added to that, there is a continuous effort of reducing the per ton consumption of -- power consumption -- power and fuel consumption of cement. Now as we move forward, the incremental reduction is not in big chunks, but smaller units, smaller denomination, but those are the efforts which will lead to a sustainable reduction in costs.
Okay. Got it. But lastly, if I can just put one question on the transaction, which you mentioned, which has been concluded in last quarter. Are there any outstanding liabilities to meet? Or the -- it's the net cash flow that comes to UltraTech, that $120 million?
So $120 million was the EV, that would make it INR 900 crores. We have to pay withholding tax in China, and they -- that asset had a local also. Net of everything, including after taxes, we should get INR 700 crores in India.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
Sir, a couple of questions. Firstly, few clarifications, so the INR 500 crore cost reduction which we are aiming from the overhead cost, roughly, so that's -- one should expect that to be achieved in FY '21 or it's over a 1 to 2 years kind of thing?
FY '21.
Okay. Okay. Got it. Sir, second, with respect to the INR 700 crores, which you just mentioned, is what we get in India. So this is net of the loan which is there against that asset or is it just net of withholding tax itself?
No no, no, net of everything, INR 700 crore cash in India.
Okay. Okay. So then, it looked like, overall when we were talking about INR 1,000 crores from divestment, it's only INR 700 crores from one asset itself. So it looks like we've -- I mean, crossed our overall expectation in terms of divestment revenue, right?
No. This INR 700 crores does not necessarily mean that I will get -- I'm not really hopeful on how much I can get from Dubai. And I'm still working on -- it's been a long time already, still not been able to crack a deal on the European loans. So we will -- I'm sure we will cross INR 1,000 crore number for sure. We have 2 more assets to grow and really is not know the number.
Okay. Understand. Okay. Sir, second question with respect to the overall maintenance CapEx. This year, the guidance is around INR 1,000 crores. But we also have growth CapEx with respect to the grinding units, WHRS and something with respect to the coal block here?
Guidance is INR 1,500 crores, not INR 1,000 crores. That is one. With -- this INR 1,500 crores, obviously includes my balance spent on the $1.2 million, Bicharpur is coming to a close should get commissioned in March '21. $1.2 million expansion also, lot of spending has already happened. So we have bulk of that and WHRS. So modernization CapEx requirement is INR 700 crores, INR 800 crores, give or take, not more than that.
Okay. And this run rate is -- I mean, this is a normalized run rate given the vintage of our plants? So without any growth CapEx, INR 700 crores, INR 800 crores per year is what we should build in, in future?
On our current capacity, we are INR 800 crores -- INR 750 crores to INR 800 crores is a reasonable modernization or maintenance CapEx because we spend on a regular basis. That's fine.
[Operator Instructions] The next question is from the line of Gaurav Rateria from Morgan Stanley.
Am I audible, sir?
Yes, you are now.
Loud and clear.
Sir, just a question on the retail volume on a like for like. For the period you were operational during the quarter, what would have been the growth compared to the same period last year? Because we can't compare the whole quarter. One month was completely lockdown. So it doesn't make us to compare the -- on a quarter-on-quarter for last year?
Yes, you are right. Effectively, we had 68 days of operation and then 23rd April permission started coming in. They were also full of controversies that they would put people -- management team behind bars if there was a COVID case in any of the plants. So we did not start the plants ASAP. I have not computed the number of 60 days or sale of same period last year. And obviously, if you were to do that, it's a classic case of correcting the base. Right now, you are using a 90-day base and comparing a 60-day performance, which is showing a 22% degrowth. And if you were to correct that, the numbers will look more rosy. The other way to give you some perspective while the average capacity utilization for the quarter was 46%, Nilesh, correct? Ankit, 46%?
Yes, 46%.
Yes. So the -- I was looking at these 60-odd days of capacity utilization, the capacity utilization went upwards of 70% for those 2 months. Other than that, I haven't computed the data for the last year, 2 months.
No, sir. Actually, I was specifically asking this for the retail volume just to understand how much of the retail can actually offset any weakness in the institutional demand during the current year. But that's fine. I mean, I'm good for the answer. Just the other question on the other expenses, sir. The overall overhead reduction is INR 500 crores. This is something which one should build for on a sustainable basis going forward beyond FY '21 also?
Yes, please. On a current capacity, INR 500 crores. If the capacity grows, then obviously expenses will have to grow.
The next question is from the line of Ritesh Shah from Investec.
Sir, my first question is, if you could provide some detail on this INR 157 crore of exceptional. For what asset was this? And for what duration was that?
It was for expansion in Aditya Cement line 3 expansion. We had got the incentive at -- I don't know whether I spoke in my commentary in detail, the incentive at that point in time was 75% of that, in case the investment size -- ticket size is more than INR 100 crores. Clearly, the investment on the brownfield expansion and the greenfield probably was way higher than INR 100 crores. And that's why -- so there was a special committee in Rajasthan, which approved the 75% incentive for these 2 projects. 75 -- that incentive of 75%. The incentive was exhausted, I think, by 2012. Because both the units were doing very well -- continue to do very well. Incentive was exhausted by 2012. And now in 2019, the state government said, no, you should have taken only 50% for whatever their analysis, I don't want to -- I know what happened, but long story short, their rule is that 75% they gave by oversight and it should be restricted to 50%. We challenged the matter in High Court, lost. Been to Supreme Court. Supreme Court ruled in their favor. But the only saving grace is that they're reducing interest rate to 12%. I hope that answers.
That's useful, sir. Sir, my second question is on pricing and discounts. I think we've done a wonderful job on the cost side. But specifically, if one looks at the pricing, what should one make of this? Looking at pricing and discounts both in tandem? So other managements, which have come on the call, basically what we hear is there will be a reduction in price differentials between the invoice price and the selling price. They are also talking about stricter working capital when it comes to dealers, more of cash and carry. Sir, your commentary on that side will be quite useful.
No, I -- what's the question, and I don't understand the question.
Sir, the question is regarding discounts. Basically the key differential which was a practice which was in the market, I think a few companies which have already reported they have indicated that this is something which is a good lever and we are playing on it, and it actually helps margins. And can we, as of terms, which the companies have with the dealers, it's now more on cash and carry, and there are no more margins which are there at the dealer level. So sir, if one looks at the results overall, we have done a wonderful job on the cost side. But honestly, I was expecting something...
And we have done an excellent job on sales price also, which you're not nagging anyway...
Right. Sir, some clarity...
So what happened -- actually, I haven't understood your question. But what is this rate difference? What happens is, you can -- we do not keep on changing the price on a daily basis, the invoice that is getting generated. So the -- in the market practices, you would issue an invoice at X per brand. And if the dealer is not able to sell in the retail market, X plus his margin, then the dealer gets compensated with that rate difference. That is what is called the rate difference discount. Of course, there's a new amount of rate initially and then slowly it works, et cetera, et cetera. Might be making some extra money also. I can't rule that out. But this is prevalent maximum in southern markets. Northern markets virtually stopped it. West, some once in a while it happens. East doesn't have it. It's -- I think, it's predominant in South only.
The next question is from the line of Navin Sahadeo from Edelweiss.
Hello. Am I audible?
Yes, you are.
Yes, please.
So Atul, sir, the last time when we spoke on the call, I think sometime in May, after your Q4 results, you had mentioned around the call time that the capacity utilizations for UltraTech stood around 65-odd percent with East operating at a much higher level of 85% and 90%. So if you -- can I just request like a similar commentary of the current status as to how do you see your capacity utilization for the company, let's say, July or as we speak? And then some color on the region by utilization fee?
Navin, I think talking about capacity utilization for 2 months period and spreading it on 3 months period, that itself is a fallacy. Second, we have an average of 46% capacity utilization for the full period. The low would be maybe 40% and high would be about 70% ranging from market to market. Obviously, high 70% would be the eastern markets. This is on a 90-day operations. But if I were to look at on a 68 days or 65 days of operations, the overall numbers will jump up. I don't know how you want to...
No. Okay. Let me put it simply this way. June would have been like -- or maybe July, as we speak, what could be the capacity utilization, so to say? Because Q2 last year was 64% or around that level. So if...
July, right now, as of today, is running very well. And I would imagine it is between 60% and 65% already of the month of July. But don't multiply it by 3 or average it to 3, because we don't know how August -- the remaining 2 days of July and August and September will pan out.
Yes, yes, sure. That's clear dynamic, and I'm not getting into that. That's anybody's guess, and I'm not here in time to guess it. Second, sir, if I may just ask, how has been the utilizations at Century Textiles? Are they similar to what we have done at a company level, which is around 46%, 47%? Or are they materially different?
Yes. So the eastern plant would have gone higher. The western plant would have done bad. For us, it is becoming very difficult, especially in the Century acquisition as compared to the JP acquisition because each plant was a stand-alone in that geography which we entered. Let me again give details on the Century acquisition. The management plant is within 20 kilometers of our existing Awarpur plant. Maihar plant has 2 other plants within 40, 50 kilometers, which is Bela and Sidhi. The Chhattisgarh Baikunth plant is -- it also close to 2 other plants that we have. It's only a Sonar Bangla plant, which is kind of, stand-alone by itself. So what happens is, my customer is the same. Our objective is to deliver same quality of cement from any plant. The moment I have achieved the quality equilibrium, the individual plants move their sanctity. I hope I'm able to explain this. So my customer and L&T doing -- which is doing the Mumbai-Nagpur Expressway or some of the Expressway, both the plants are supplying. Wherever I have materials, it's supplying that. So it is very difficult to segregate between them. And hence, I think now we are segregating optimally on a regional basis. If my East is operating at 70% or 80%, all my plants will operate at the same level. Does that explain?
What is the revenue from the white segment and RMC business in the quarter?
RMC business was about INR 148 crores and...
White, INR 250 crores.
White was INR 250 crores.
The next question is from the line of Indrajit Agarwal from CLSA.
Sir, I had just one question. Can you give us some blended cement ratio or percentage in this quarter?
I'm sorry?
The blended cement percentage?
Blended, blended, blended, 78% or...
Sir, just to understand...
Mukesh, Nilesh, can you give an exact number?
78%.
78%, yes, it's correct, 78%.
Sure. So we had been at about 68% last year. So one, the trade sales or the non-trade or institutional sales come back, it will have some impact on the raw material cost as well as the blending goes down? Is that the correct understanding?
Yes, absolutely right.
The next question is from the line of Kamlesh Jain from Prabhudas Liladher.
Congratulations on a good set of numbers. Sir, just one question on the CapEx side. Like -- I know that given the performance we have, we can have the, like say, excuse for that as well. Sir, but, like say, last quarter we were having a CapEx guidance of around INR 1,000 crores. So this quarter, we have increased it to like, say, INR 1,500 crores. Is it only because of the project CapEx guidance in the last quarter? Or like, say, the guidance has increased?
Yes. So I feel this pessimism has reduced. In the beginning of April, we were looking at a very grim future. We are now wanting to expedite our -- so we have increased our cash flow requirements on return-based CapEx, which we were going to do in any case, and -- like our WHRS. And as I mentioned, 66 megawatts of WHRS work has started, and that's why we have increased certain more fast-tracking on some CapEx. Not going full blast, but fast-tracking on some CapEx.
Okay. And sir, how much potential do we have for this WHRS? Because some of the peers, I know you would be very well able to case that, are having 40% -- like a 40% share of WHRS, so are we looking at the same level of share as well from current levels?
We have reached about 15%. My guess is, after the current phase of expansion, we will go up to about 20%. I'm not very sure. I'll ask Mukesh or Nilesh to confirm.
Yes, 20%. More than 20%.
Somewhere around 20%. We will then examine. See, we have wanted some players who are -- whom you are referring to sees all the advantage that they have, and they have done an incredible job also about new routes, single location, where they could plan very well. And we are living in a place like, Rajashri Cement, which has 4 lines, a single location, 6.5 million tonne capacity. Your budget -- so you have to do the regular role of identifying space, where to put additional WHRS capacity because of the large turbine and a boiler which has to be put in place. And we'll keep on adding till that technical team sees there are no more juice left to put up WHRS. I don't have an end-game number in plan or the end-game opportunity that exists. But there is still room to expand our WHRS network on our current capacity.
The next question is from the line of Raashi Chopra from Citigroup.
Atul, just wanted to check in where does the India demand growth -- demand decline for the quarter stand in context of your 22% organic decline? That was one question.
India -- I didn't get the question, decline as in?
As in India -- All India volumes? I mean, I'm just trying to understand where you stand in respect of the all India volumes for the first quarter? I do have a 22% decline if I exclude Century. So what is all India, I mean, the industry data?
Industry data?
Yes.
So we are looking at the industry doing about 33% or 35% decline this quarter.
Okay. And this -- you've explained this in some of the prior questions. But essentially, when we look at the -- when we look at this 30%, 35% decline in India right now, or if you want to talk about UltraTech specifically, if anecdotally we had to kind of ascribe some percentages to the end new segment. So -- or just maybe I'll ask more straightforward, the low-cost housing data or the IHB, what is the rate of decline there? So just trying to figure out like what segments are likely to see some sort of recovery? And how we can extrapolate that to the second half?
IHB is growing today. And when we talk about IHB, we talk about retail demand, which is smaller towns. It is -- there is no IHB in Mumbai, okay? So in my hypothesis, the housing demand is give or take 50%, excluding the Tier 1 towns, which is another 10%. So 60% is the total housing demand. In that 50% demand, 35% is rural demand. Rural demand we -- internally, and this is our internal definition, we classify any town with a population of less than 30,000 people as a rural town. Those markets are growing. And you won't believe, but Central India has grown for us this quarter over the same period last year in spite of doing only 60 days of -- or whatever, 65 days of operations in this quarter. So the base is not correct. But on that base also, we have grown. Central India is a rural market, and it's not in an institutional market. It's an IHB D market, the MP, UP market.Going forward, I'm giving you all kinds of analogies and explanations, and I think you will be able to derive a conclusion. As I mentioned, Orissa, now Orissa we are seeing a big spending coming up. Government support is happening. It is not on the -- their government program of low income housing, but it is because of that typhoon, which had hit. There's a huge amount of rehab work which is going on. Bengal, the movement they lift lockdown and they get the situation under control, they are going all out for development. There will be institutional spend happening till elections. I think the elections are just a few months away, if I -- I don't remember the exact period. But 5, 6 months away, if I'm right, you'll have a huge amount of spending happening in Bengal. These are the 2 big chunks in the eastern markets. West, unfortunately, continues to struggle. West, whatever demand we are seeing, let's say, a 40% or 42% capacity utilization that we're seeing in the western markets, is largely institutional or largely government spending on the big projects. Metro, you will see still some work happening in Mumbai, wherever they have sites open. The road project is still happening. So institutional demand is going up, continuing. Now the base is so volatile that the percentages will look totally different. They look -- if the overall all India demand basket shrinks and IHB continues to grow, then IHB will occupy a higher share this year. Does that answer a bit?
Yes. So just to -- if I've understood this right, so IHB is roughly about 35% of India's demand and that you're saying is up on a year-on-year basis. All India demand on a whole is down about 30%, 35%. Is that okay to -- like a fair summary?
Yes.
The next question is from the line of Rajesh Lachhani from HSBC.
So 2 questions from my side. One, earlier during the call, I heard that in July, the realizations are down by 4% to 5%. Can you please confirm that? That would be question number one.
Yes, confirmed. You just ask.
Okay. Yes. And secondly, Atul, we have also seen employee cost decline during this quarter. Even quarter-on-quarter, we have seen a 14% employee cost decline. So just wanted to understand how much of this is sustainable and how much would reverse in Q2 and going forward?
[Technical Difficulty] succession dividend.
Okay. So these are successive numbers, okay.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Basically, if I understand correctly, it is obviously the trade segment that has actually driven the demand. Now what I'm unable to understand, why this apprehension about strong growth continuing? Because project work will only get better from where it is. So far, if projects are operating at 50%, they will only get to 60% or 70%. And given the monsoon and, as you said, that rural crop has been good, that momentum should also continue. So what I'm unable to relate to is that why should there be an apprehension in terms of positivity on demand because whatever has happened in terms of a month lockdown across the country is probably the worst, even if there are pockets of the country that would see sporadic lockdowns, why should the momentum not stay positive? Is your concern that project work, et cetera, could not begin for a long time or new project awards could not happen? Because it seems the worst is over. From here, why should there not be a positive momentum is what I'm trying to understand?
Pulkit, I'm very positive. We have increased our CapEx by INR 500 crores. We are going ahead with our capacity expansion plans. The only uncertainty which we are worried about is a classic example of Kolkata lockdown. I was just alluding to the election -- preelection spending, which everybody is aware of what happens. Government hands are tied. They can't move an inch. What happens is if I have an RMC plant sitting out there, can't bring raw material in, can't move trucks to the site, don't keep casual labor with you, they'll will just ban the casual labor. And to mobilize all resources, again, takes time, to mobilize, demobilize again. This is the uncertainty which we are struggling with. Otherwise -- and in the last quarter, I think I had already mentioned that this financial year could be the best ever in terms of profitability for cement industry. Volumes, we are in the current pandemic times. For the month of July, we are doing 60% to 65% capacity utilization. The month is already coming to an end. So this is under the belt. Monsoon is doing pretty well in the country. Generally everywhere, we are seeing wet spells or floods also for that matter. In that scenario, if July we have done 65%, there's no reason why we cannot keep on the same momentum. And if that happens, well, it's payback time. I hope you read that message. It's a deep message which was given.
Fair point. And state finances also do not worry you in a big way?
No, not at all, they don't. There are -- we can have an off-line discussion, and I have heard this. I don't have my own resources, but I've heard this from prominent economists and bankers, where is the government cash surplus, cash pool lying. There is huge amount of cash available in the county. Don't worry about it.
The next question is from the line of Saurabh Dugar from HDFC.
This is Rajesh here from HDFC. Sir, on -- first on the Pali expansion. What is your status on that project, sir, North Pali expansion?
Pali, we will start work in the next financial year positively. So that project is going on stream for sure, because the candid mines -- we have to commission it, otherwise, we'll lose the mines in December '22. So we will start work on it next financial year.
Okay. So by '22 end, do you expect that to be commissioned or it may extend into '23 -- FY '23?
No. It's in FY '23. October-December '22...
Sorry, okay, '22 means...
That's '23, yes. Calendar '23, commissioned by October-December '22.
Okay. And sir, on the volume front, when you say that like-to-like 22% volume decline, would you please explain how that works? Because I would assume that your -- the Century last year, when it -- from the record date, when you're checking the modern impact, you would have taken only proportionate volumes of Century in the reported numbers that we have?
Now from May 20, 2018 -- No April -- the like-for-like period is April-June '19. So that has full 90 days volume. But this quarter you have only 20 -- 60 days of volume. That's another dimension. See any acquisition that takes place, in case of Binani Cement that we acquired. We acquired Binani Cement in November 2018. And when we reported -- when we analyzed our performance for October-December '18, there was no impact of Binani that you calculated for October-December '17 in the base. Any acquisition that takes place, any inorganic, not just cement, anyway, when a capacity addition takes place, you start counting the benefits from that period. Why will you debit or credit me for the performance of the previous management and the previous team. That doesn't happen.
We'll take the next question, that is from the line of Amit Murarka from Motilal Oswal.
My question is on costs. So what I understand is the cost reduction has been quite phenomenal. But some of the spends, like repairs, which you have curtailed this quarter, by when can this come back? Because I believe now we are in the maintenance season anyways. So can we expect normalization of the repairs and maintenance costs in this quarter? And secondly, on the power and fuel side, if I gathered it correctly, you mentioned that the power and fuel cost will not fall further from 1Q FY '21 levels. While my understanding has been that the low point in pet coke was about $60 and the last quarter average for us was $70. So shouldn't there be some follow-through benefits of that $60 pet coke into 2Q?
It could be there. But if you look at the quarter because current purchases which are happening for $75 -- $70, $75, also will hit the next quarter. And bulk weightage of $70, $75 will be higher. It's too early to say unless prices suddenly crash. But as of now, the prices are stable around $75 as compared to a low of $55 or $60. The other thing that happens in pet coke prices, this is a landed price. Ocean freight is a very high component. At times, it becomes 50% also. Currently, I think it is -- Mukesh, it is around 50%? Ocean freight?
Ocean freight is 50% around.
Yes. So the FOB price might still be $35. But ocean freight, when April -- ocean freight had fallen dramatically because there was no movement. Now ocean freight is picking up, they have backing up the price, the freight rates also.
In fact, there was a hardly transaction happening between the 55% to 60%, it was a rate only.
Yes.
And there are hardly buyer available in the market.
Yes. Hence to be seen, Amit, the $70 becoming $60, which is $10 might impact $50 or $70 becomes $75. But -- so it's a swing of, let's say, INR 50 a tonne either ways, either sides.
Okay. And also like this quarter was also kind of hampered by the lower working run rates or the utilization rates, which would have hampered efficiency. Could you quantify what could be that impact? Or let's say, was it 2% to 3% additional consumption -- energy consumption because of that?
Yes. I think we've mentioned it in the presentation also that what is called a frequent start-stop causes a higher consumption. But I don't have a separate number for that. Maybe Ankit or Nilesh can give it to you off-line. We have to work it out. We haven't noted out that number.
Okay. And on the repairs and maintenance, that would largely normalize this quarter, right?
Amit, important point to note is that power consumption per tonne of cement, which we had put down in the presentation is down only, if I remember it right, I'm trying to...
It is down only.
It is down. So -- it's not mentioned here, but power consumption per tonne of cement is down as of now, yes. There will be a benefit in case the plants run smoothly.
[Technical Difficulty] is slightly down. But if you compare it to Q4, it is higher because of the interruption in the...
Okay. Okay.
Yes. So could you quantify like what will be the impact of that interruption, I mean, in those 2 who hit the context?
Nilesh between Q4 and Q1, how much higher power consumption?
About 1.5 unit.
1.5 unit.
1 unit cost less than around INR 5 a unit into 75.
So INR 5 per tonne maybe the cost.
Yes.
Ladies and gentlemen, we will be taking up the last question from the line of Deepak Mehta from MetLife Insurance.
No, I think he's dropped off.
In that case, that was the last question. Ladies and gentlemen, on behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, everybody. Be safe.