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UltraTech Cement Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of UltraTech Cement Limited.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 statement 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, Mr. Daga.
Thank you so much, Raymond. Good evening, everybody. Thanks for joining us today and hope that all of you are staying healthy and safe in these times.Unbelievable but true, office space seems so redundant. I visit office just to keep the memory alive of what it looks like. And hopefully, it will be a monument about which I will narrate story someday to my grandchildren. I wish and pray that all of you and your near and dear ones have been safe and are doing well.I'll try and focus today on the key parameters governing the industry and UltraTech, namely demand, prices, costs and CapEx. In the early days of the pandemic, there was a marked shift in concentration of demand from the rural markets for reasons which we are already aware of.What was thought to be a pent-up demand actually has sustained and strengthened over the past few months. Migrant labor is coming back and -- still not coming back. Good monsoons are all helping the rural markets grow. Over 50% of the rural districts have shown a growth over their past few performances. The impact of COVID-19 has been lesser in rural markets as compared to Tier 1 markets.Districts having rural demand of 25% impacted as compared to 50% in rural -- in urban areas. Farmer welfare expenditure is up nearly 100%. Other rural industries are also generating a good growth like fertilizers, seeds, et cetera. Both state and central government are increasing their focus, allocation and release of funds on rural housing. MSPs have been increased. Second consecutive good monsoon this year.To sum it up, our expectation is that there will be an overall improvement in rural aka retail aka trade markets over a sustainable longer period of time. The uncertainty in the crowded urban markets will give a further boost to the trade ratios. Urban demand also is, however, slowly and surprisingly coming back as the company goes through its unlock program.So here we are where initial thoughts were that the economy will come to a grinding halt. We saw rural markets with a pent-up demand doing good for cement industry. In came the government spending program, gaining momentum, payments being released on time, and we are seeing infrastructure growth also happening.Tier 1 towns are seeing opening up of real estate markets. People are wanting to buy their own space or a larger space, and we are seeing good traction in urban real estate also, albeit it's very slow. It will take time to show some real growth. All these factors put together are, in any case, very good for the industry.Government thrust and spend on infrastructure is one of the key drivers, as I mentioned. Housing demand is definitely showing green shoots. Cheap housing loans and the need for space is [ driving the ] demand. Gujarat, which was amongst the bottom few states in terms of demand, has also started showing signs of recovery towards the end of this quarter.Maharashtra is still to pick up, though the large projects like coastal roads, Metro, Mumbai Airport extension, Expressways continue to keep our manufacturing plants busy, but that is not enough because of the high base which Maharashtra as a state has, because of its fairly developed state of economy as compared to the other states.Eastern and Central markets have literally brushed aside the COVID impact and running full capacity with solid demand. North markets have started picking up largely, driven by -- more by infra projects by the government in the road project, except the NCR market where we are starting to see housing market picking up. It is generally the rural retail demand that has shown big traction as compared to the other markets.South looks promising with Andhra getting into good demand from the state capital city, the irrigation projects. And the remaining South states also, Tamil Nadu, Karnataka, are starting to see positive movement in demand. As I mentioned earlier, Gujarat, which has been one of the slowest states, has also started growing. So demand seems to be playing very well along for the industry.Costs. If I were to talk about the costs, pet coke is no longer flavor of the season. With crude production down, aviation -- demand for aviation fuel down, demand for automobile fuel down, pet coke production has also come down. And added to that, cement industry went all out to buy pet coke, which has shown increase in prices of pet coke. Today, as in October, the prices have almost reached $100 if one were to buy for deliveries of January. However, as I mentioned, pet coke is no longer flavor of the season because cement industry is switching to alternate high calorific value coal, which is today cheaper. Diesel, have you -- you've all seen, it's up 13% this quarter, which does impact our logistics costs.At UltraTech, our journey on overhead reduction continues. In first half of this financial year, we have seen an overall reduction of 14%, which is roughly INR 450 crores. And we are very confident of our mission to reach a sustainable reduction of INR 500 crores for a year-on-year basis.You might say that INR 450 crores has already been achieved in first half, then I am telling you a smaller number for a sustainable basis. But this INR 450 crores is not necessarily sustainable. That's what I had mentioned last quarter also. As things start opening up, as economy starts opening up, spending will definitely increase.Let me now touch upon prices. Cement prices have come off marginally over the last quarter, but that is so normal about seasonality, seasonal trends, so normal about the monsoon quarter. I've also heard about prices hardening in some of the markets as monsoons have started receding. But I strongly suggest not to read too much into these price movements. It will not be prudent to annualize every price increase into profits because price movements are like your stock market prices. Today up, tomorrow down.To talk about our last acquisition, Century, it has been fully integrated. The assets have achieved an operating EBITDA per tonne of over INR 700 this quarter, which is a maintenance quarter. Brand transition has been slow because movement of people has been restricted. We are hopeful to complete the brand transition during the -- before the end of this financial year. We are now investing in 20 megawatts of WHRS at Maihar and Manikgarh, 2 of the units of Century, which will result into further cost reduction and improvement -- thus an improvement in EBITDA per tonne. These projects will -- are scheduled to get commissioned by March '22.At UltraTech, we remain focused on deleveraging, integration of our acquired assets. We have pared down our debt -- net debt by about INR 2,500 crores this quarter on the back of INR 2,200 crores that was reduced last quarter. I'm referring to net debt because we are carrying a treasury surplus on our balance sheet of over INR 10,000 crores as of now. Keeping liquidity is always helpful in these times, just in case some sweet opportunity knocks the door. Yes, of course, the treasury surplus in our company generates a positive carryover borrowing costs. Otherwise, it would not make any sense of carrying the treasury.This brings me to the point of ROI and ROCE, which is quite often investors have asked me about our performance. So if we were to exclude the treasury surplus of INR 10,000 crores, noncore assets which have been held for sale, the annualized ROCE that we are generating today is about 12%, and ROE is improving to -- has reached about 10% and will continue to improve going forward.This will further improve when the assets like the 2.3 million tonne Dalla Super clinker plant and the line 2 Bara plant get commissioned and start generating revenues and profits. All these -- both these assets have already been paid for. We expect to commission Dalla Super clinker line sometime during the next financial year. The legal clearances and work on Phase 2 Bara is in progress, a bit slow but on track, on course.On our CapEx plans, there are delays on the 3.5 -- 3.4 million tonne brownfield expansions in West Bengal, Bihar and the greenfield Cuttack plant, largely due to the COVID impact. But I'm sure we will be able to complete these projects in FY '22. Eastern markets are expected to continue to generate strong demand. And hence, we are very focused on executing these projects at the earliest. All these CapEx plans are being funded with internal accruals, and we are on course to reach a net debt-to-EBITDA between -- around 1x by the end of this financial year. We're already at 1.22x at the end of H1.Let me now talk about what we are doing on environment sustainability. We at UltraTech are very conscious of our commitment to build the country's infrastructure as well as reducing CO2 emissions. Somehow both these goals get conflicted since good infrastructure needs good quality of cement and good quality of cement -- to manufacture good quality of cement, there is a lot of CO2 emission. And UltraTech will not compromise on the strength and durability of the products -- of its products. High purity -- as I mentioned, high purity OPC cement consumes more limestone and result into more emissions.How is UltraTech balancing both hats? The benefit of cement we make ultimately helps reduce other fuel consumption, reduce the number of automobiles [indiscernible] the metro network, the expressway, the bridges that are built with our cement are definitely helping reduce CO2 and also helping building the economy. We are working for the future in the present.In these COVID times, we were able to complete work on one of the WHRS projects, taking our total capacity to 125 megawatts. We expect to commission additional 60 megawatts by FY '22, taking our total tally to 185 megawatts of WHRS. Then there's the expansion plan of another 60 megawatts to reach our peak capacity of 245 megawatts, forming 24% of our total power consumption. Added to that, we expect to commission solar power of 350 megawatts. And along with the alternate fuel that we consume, by the end of FY '22, green power will constitute 30% of our current energy consumption. And that is what is our contribution to Mother Nature.UltraTech is a firm believer of delivering our product to customers in markets with lowest impact to environment. To manufacture and deliver our product, there is involvement of large-scale logistics movement. Last time when I had taken stock, we were moving 28,000 trucks on a daily basis. This number I'm referring to somewhere in FY '20. Things are much slower in the current pandemic times.We look at all options to transport raw material and cement and prefer to adopt low carbon transport options. Last year, a significant portion of our material and product was moved using railways. As you know, rail is less carbon emitting mode of transport as compared to road. So if we had moved the entire quantum by road instead of by rail, it would have emitted additional 3 million tonnes of carbon dioxide into the atmosphere. That is what we saved last year, by not moving material by road. This year, we have kept predominantly using rail and already resulted into carbon savings of more than 1.25 million CO2 -- tCO2.The first half of the year, we have scaled up our ambitions and actions in climate change. I would, therefore, like to highlight 2 key actions in this area. Our company, a founding member of GCCA, Global Cement and Concrete Association, has committed to the 2050 Climate Ambition announced by GCCA on behalf of all its members. UltraTech is also committed to Science Based Target initiative, SBTi. This will enable the company to set climate targets aligned to the Paris Agreement.Before I conclude, let me share with you how we have been dealing with the pandemic. No doubt the impact of COVID-19 is unprecedented beyond imagination. It is affecting everyone worldwide and every aspect of the daily lives. UltraTech has emerged stronger and well prepared in the wake of the ongoing COVID pandemic, managed the crisis with sharp focus on operational efficiencies, given the response with timely precautions and creating business continuity plans, focused first and foremost on ensuring the safety of our people.We are adapting to newer ways of working in every sphere. The company has laid down very strong SOPs for the safety of people and efficient running of our operations. As of today, we have just about 108 active cases across the company, having a strength of nearly 16,000 people. Sadly, we also lost 4 members of our team out of the 16,000 due to the damn virus.We have been increasingly working with digital technologies to help us calibrate our ways of working and collaborate more effectively. We recognize the need to ensure business as usual and are working with experts to achieve this for our customers, our people and partners in the value chain.Thank you very much, ladies and gentlemen, for sparing time from your busy schedules and joining us today. With this, I end my commentary, and I'm happy to take on any questions. Over to you, Raymond.
[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.
Firstly, congratulations to Mr. Daga on a great set of numbers. Sir, my first question is on the volumes. It has been 8% on like-for-like basis, which appears much better than industry. So if we could start with just sharing what are thoughts on our performance versus the industry in 2Q?And then if you look at last few quarters trend, it appeared that we are growing tad lower than the industry, which appears to have changed this quarter. So is there, I mean, a deliberate change of course or any change in strategy? Your thoughts, sir, please.
I think pandemic has helped us in a way to increase our growth, better coordination amongst everybody. This is a network of 50 plants and I don't even know the head count of marketing people who are there out in the field. The coordination is going up, and no order is being left unserviced. If plant 1 -- depot 1 is not able to service, immediately the order is picked up from -- by depot 2 and serviced. So that is the only benefit or -- I don't want to call it a strategy, but that is how things are moving right now.And no, I don't really agree whether we've been degrowing the market in the prior periods. We have been growing because we've added new -- acquisitions don't often start ramping up at the same pace from day 1, it takes time. And if you look at the consolidated numbers, obviously, it does not reflect properly. Why is it that you should look at counting Century into my base when I just was not operating that asset? When I put up tomorrow the 3.4 million tonne of East capacity, there is no base effect. Consider this acquisition also as -- or -- any organic or inorganic capacity, why should it get counted in the base? There are several players. When they announce their results, they'll show you a double-digit growth. But if you analyze it properly, in the base, the volume was not there. Similarly, if I were to exclude Century volume which has been included in our numbers because of NCLT orders, UltraTech has grown 20% this quarter. UltraTech brand, that is far more compelling reason to be happy about, UltraTech brand has grown 15%, and that's not a joke. At a size of [Technical Difficulty] million tonnes, if we are able to grow that [Technical Difficulty] let's see who can achieve it.
Got it. And sir, with respect to industry, I mean how the industry fared? Any sense on that in 2Q?
We will outgrow the industry, for sure.
Understood. Sir, second question is with respect to the costs, so we had a target of around 10% reduction in overhead costs. And looks like from the run rate, our cost control is much more tighter and we are well above that target. So any latest thoughts you would share as to how we are doing on this overhead cost and other fixed cost reduction?
As I said, today, H1, we are at 14% reduction. By the end of March, we will be at that 10% because this extra 4% reduction which has happened in H1 is more about not being able to spend because there was no need to advertise in Q1 or Q2. It's later part of the Q2 only when ad spends have started happening. And ad spends will be regular in H2. So I will do a catch-up and we -- our target was, let's say, INR 500 crores per annum -- INR 500 crores to INR 550 crores, annualized numbers which we have done INR 450 crores, and I specifically mentioned in my commentary also, we should be doing INR 550 crores per annum on an annualized basis.
The next question is from the line of Ritesh Shah from Investec.
Congratulations on good set of numbers. Sir, would it be possible for you to provide some color on white cement and putty market? Specific [ counts ] on market share and profitability will be quite useful. And some color on the RMC margin, please? So that's the first question.
I think we have been gaining market share in white cement also after some setbacks that we had to face in the last few quarters, but without losing [ market share ] positioning. RMC is doing all right. Total revenues from RMC were about INR 434 crores. White cement was also around the same number. RMC is very fragmented and very difficult to measure market share in RMC because the organized -- the unorganized players are far higher than the organized players.I don't have any other comment on white cement and RMC unless you have any specific question.
Sir, would it be possible for you to quantify the market share or the volume that we have lost this quarter or in first half? So the sense that I have is basically, we have lost some market share over here. Please correct me if I'm wrong. And if that was the case...
White cement, we have gained market...
Hello?
White cement, we have gained -- we have performed very well.
And sir, putty?
When I'm saying white cement, I'm talking about white cement, putty combined.
Putty together, okay. Okay. And sir, in the initial comment, you did indicate a sweeter opportunity knocks the door, and we are holding a good sense of treasury. What is the thought process, sir, over here? Like we have done a phenomenal job on balance sheet side. You did indicate year-end leverage ratio that we would end up on net debt-to-EBITDA. But from a capital allocation point of view, how should one look at it? Is it like we are saving growth or should one expect a higher dividend payout going forward?
Dividend payout is -- higher dividend payout is still long way away for UltraTech because cement if we expect to grow at a 7%, 8% CAGR over a longer period of time, we will have to invest a lot of [ price ]. So all the cash flows that get generated will be deployed back in the business, whether organic or inorganic. And in my earlier commentaries I have told you that we are geared up for about 50 million tonnes of expansion till 2030, first of which is Pali, will be rolled out -- we will start work on Pali in the next calendar year, depending upon -- now we get into order placement and finalizing all the details, we will start getting into that. And then we are putting up our expansion proposals to the Board. Once the Board approves, I will come back to you.
The next question is from Gunjan Prithyani from JPMorgan.
Just 2 questions from my side. Firstly, just trying to understand this volume outperformance a bit better. Is it that you saw the nontrade markets also recovering in this quarter and that could position us in a better position? Is there anything to read in terms of trade, nontrade market share out here? And if you can just give the mix also, what is it now for UltraTech?
So yes, nontrade market has started picking up, as I was mentioning a lot of infrastructure projects coming back into stream. And I think our trade, nontrade share, correct me guys, Mukesh, 71% would be trade?
70%, sir.
70 -- sorry, 70% is trade. It is down from [Technical Difficulty], nontrade has started picking up momentum.
Sorry, sir, I missed that remark. It is versus last quarter, how is it?
It's come down to about 70%. Last quarter, it was about 78% -- 77%, 78%.
Okay. So it could be that...
But it is better than last year.
Yes. It's still higher than last year. Last year, we would be around 66%, 67% on trade. We are now at about 70%, 71%.
Okay. Got it. But looking at the outperformance, it could also be that nontrade has come back, which is, in a way we were kind of ready for any demand that came to the market?
Yes, absolutely.
Okay. The second question I had was on the cost side. Now clearly, there are some pressures building up on the fuel -- on the diesel and the pet coke. I just want to understand, is there any inflation that reflected in quarter 2? If not, what kind of increase we should work with for second half, both on a pet coke and the freight side?
So Q2, yes, no inflation has yet impacted. And we did have a consumption of about $71. Current prevailing prices on pet coke are $100. But other coal, the imported coal is still cheaper. So at max, if you have to look at, not more than 10% inflation in energy costs in the H2, not more than that.
Okay. So the shift would happen towards international coal?
Yes, it is already happening. So the way one manages the international coal [Technical Difficulty] international coal at a high calorific value is available, which is cheaper than pet coke. Pet coke is no longer the darling for cement industry.
Okay. So 10% on power and fuel, and on the freight?
Freight, it's difficult. It all depends on how diesel goes up.
But the diesel may...
Diesel has already gone up 13%, 14% in this first half. I don't know how much it will go up. This 13%, 14% has been largely absorbed in our efficiency improvements. Remains to be seen how diesel performs because diesel would contribute 3% to total cost. Diesel as a percentage of total costs, not logistics costs, contributes about 2.5% to 3%.
Okay. Got it. Okay. Just last clarification on the pricing adjusted. On the pure cement business, can you give a sense on a Q-on-Q basis how much was your realization down for the cement business?
Realization was down...
You are talking about Y-o-Y or quarter-on-quarter?
Quarter-on-quarter, sir.
Quarter-on-quarter, roughly 2%, 3%.
It is 2% to 3% down?
Yes, all India numbers. So don't compare us with regional players and get misguided.
The next question is from the line of Vivek Maheshwari from Jefferies.
Sir, first, on the industry slide that you have put out, on the South one, you had a comment, September '20 saw a sharp increase in demand. So basically, you are saying exit numbers are far better than what the quarter average was?
Absolutely. Absolutely.
Because our understanding is that South was a sharp double-digit decline through the course of the quarter, so that is like a big change. Is there a base effect to it? Or there was a, let's say, decisive change on the ground...
I would say the volumes have started picking up in South.
Okay. Okay. And your comment -- similar comment is in Maharashtra also, infra segment recovery in September '20. So you think both these markets will become growth market as we head into second half [ given the type ] of base?
In spite of these infra projects taking off in Maharashtra, because of a high base, they are still very small numbers. The interesting market is Gujarat where we are seeing improvement in demand for a very long time.
Okay. Okay. But to me, South and Maharashtra, your comments are more like change in trend because Gujarat, whatever we picked up in our checks, was doing okay for the last 3, 4 months, right? But Maharashtra, South, if you're saying there is a big [indiscernible] particularly in South, that's an interesting one then?
Yes, absolutely.
And do you -- I mean how do you reconcile IIP number versus industry demand because the numbers are looking very different, right, in -- I mean do you think there is some disconnect over there?
Big disconnect. The way you do your channels on industry, you should check on how these numbers are computed. We'll have a separate discussion on how the computations are done.
Right, I look forward to that. And the other bit is on the energy cost. You mentioned about moving from pet coke to international coal. I mean after long, we are hearing about coal from you. So have you already moved there or it is something that you will see in case if pet coke prices further move up? Also there -- the inflation has been quite a bit.
We are not consuming pet coke now. The high-cost pet coke, whatever inventory we had is what consumption is happening. Otherwise, we are more into international coal at the moment till the time pet coke starts softening.
So basically, you're using at your plants international coal already?
Yes.
Yes.
I see, I see. And sir, last bit, the previous participant asked. So on a sequential basis, you are saying realizations are down up to around 3% -- 2% to 3%, right?
Correct.
The next question is from the line of Amit Murarka from Motilal Oswal.
Congratulations for a blockbuster result, if I can say. Just a few questions. Firstly, on the capacity ramp-up. So while you said that East now will happen in FY '22, so will it be like early FY '22, like 1Q? And secondly, also like in the Super Dalla now, what would be the time line for that?
So Dalla Super should go definitely to Jan-March '22 quarter. That is for sure. And the 1.2 million tonne, which is West Bengal and Bihar, will be Q2 or Q3, depending upon how things progress. Cuttack will be again Q4 '22.
Okay. And for the Dalla, has the issue been settled on the environmental front?
Yes. That has been settled. There's a lot of procedural work, a lot of red tape -- or I shouldn't say red tape, but a lot of procedures that have to be complied with. We are complying with that. The biggest thing is that NGT matter has been resolved. And to explain to you in simple terms, since the -- since they declared -- NGT declared that the plant and mine was on forest land, we have to identify alternate forest land and give it to the government or to the forest authority so that we can use this forest land for mining and plant operations.That has been done. Handing over to the government is in process. Formalities have to be completed at MoEF Delhi. I guess by end of November, the MoEF formalities for the plant will be completed. And by June, the MoEF formalities for mine will be completed -- June '22, MoEF formalities for mines will be completed.
Okay. Okay. Understood. And just on the working capital front, like in 1H, we can see that there has been a very strong working capital release and which has come from both payables increase as well as receivables. But if I think of the September month of this year versus September last year, there must have been a very strong growth Y-o-Y for the month of September, but receivables are still down. So like has the payment terms or the credit terms still remain tight in the market?
We are not reducing our credit period but we are not allowing anything extra.
Okay. So the second half then the working capital will still be strong then?
Yes, it will remain strong. I'm not guaranteeing that I will still have this INR 1,700 crores negative. It could be INR 1,500 crores, but it will remain a big negative working capital.
Sure. And lastly, on the Northeast, you've opened a zonal office now, I think, for the first time. Earlier, you used to cater through, I think, C&F agent. So what is the plan there? I think even for Sonar Bangla, there has been an application for expansion of capacity there?
Have you been to that office? I have not seen that office yet.
Sir, I just heard from people that you opened some zonal office in Northeast.
Now because we have a significant capacity available to the Northeast markets, we can manage it. Instead of depending upon an agent, we can do things our way better. Instead of leaving the benefit of price to the agent, we should get that price benefit. That's the whole hypothesis.
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Great execution, sir. Sir, 2 questions. Firstly, on the nontrade side, how to get some visibility about the next 3 months sequentially? Next quarter should be better than this quarter because labor is coming back. Is that how one should look at or there are other elements or moving parts in it?
No. I think essentially, labor is coming back and government is opening its purse strings and pushing for execution. They are cracking the whip on all the contracting companies for increasing the pace of execution. And road -- now the classic case is road, which I always tell people that road projects are the easiest ones for the unskilled labor to get employed. You come in today and tomorrow you could start working. That's where the good amount of employment generation and revenue -- income generation takes place for the laborers. So there's a huge amount of focus on road work that is happening.
So sequentially, the number should look better, right, for the nontrade segment as a whole?
Sequentially as in Q2 over Q1?
Q3 over Q2, the numbers should look better for nontrade segment in volume terms?
We've already reached -- we are down from 78% to 71% on trade, which is -- I think that is where the numbers will be now. We used to be 66% trade and 34% nontrade. As compared to that, we are now at 70%, 71% trade.
Okay. Second question, sir, at what point we may need additional clinker in the East given that East is showing very, very strong growth?
We are today bringing material from Central plants and Coastal Andhra plant. So as of -- and Maharashtra plant also. Manikgarh also is taking material to the Eastern markets. Today, we don't have any shortage. In the peak time, yes, we [indiscernible] grinding capacity also. So we have enough clinker. We don't have grinding in peak period. Let's say, January-March '22, we will be transporting cement from South locations because if the market remains bouyant, there's no harm in transporting long distance provided there is contribution [ agreement ]. So at no point in time, UltraTech will be falling short of clinker.
Great. Sir, if I can squeeze 1 more, then you -- it looks like you increased your target for the green power from 22% to 30% by FY '22. What led you to do this?
No. It's -- now the investment in further WHRS into the Century plants, into Nathdwara Cement, which is increasing their percentage share.
Okay. And there is no CapEx implication? That's what I wanted to check.
No. For example, when we are doing WHRS, there is CapEx.
No. I meant from an outlook perspective. Whatever CapEx you have guided for, that CapEx stays intact?
Yes, yes, yes. It stays within that.
The next question is from the line of Indrajit Agarwal from CLSA.
Couple of questions. First, sir, can you shed some light on the exceptionals that you have on the consol level, mainly on the continued operations, for which entity it relates to the law?
Yes. So what we've done is -- sorry, I'll explain the full piece instead of continued and discontinued. All these [indiscernible] are towards the acquired assets from estimate of [Technical Difficulty] legacy. China asset when we sold off, we had a gain of INR 400-odd crores. We have tried to assess the carrying value of the UAE asset and impair it by INR 78 crores. We have looked at the realizable value of the loan that we inherited on account of -- which is a loan outstanding to this European company. We have impaired it down by INR 250-odd crores.Fourth, in one of the subsidiaries, there's a maze of subsidiaries which is attached to Binani -- Binani Cement -- erstwhile Binani Cement, which is now Nathdwara Cement. There were some advances outstanding to unknown people, not traceable people, which we have had to do an impairment. So these are the -- Mukesh, these are the main items?
These are the fourth items. And net, we are gaining INR 24 crores.
That's helpful. Second is you talked about the utilization getting stretched. Can you throw some light on what kind of utilization either you or the industry had as of September?
It will be misleading if you look at the quarter. Month-on-month, the capacity utilization has been going up. So if -- for us, if the capacity utilization for the quarter was [Technical Difficulty] but if I look at my September quarter, it was close to 75%. And October, [Technical Difficulty].
Okay. That's helpful. One last question for me, more broad-based, as you spoke at length about ESG, thermal substitution rate for India is significantly lower than global averages. So what do you think can be done to bring about a step change in that at a country level?
Globally, there is a huge amount of alternate fuel that gets consumed. Thermal power is not so high because they have gas available -- gas as a power available in the form of energy. India is dependent on coal-based energy only. These 2 -- and there are companies, global companies, where alternate fuel forms as high as 20% or 20% plus. I have only 1 plant in the entire network which does about 30% alternate fuel because we are able to source and get alternate fuel. Lots of other plants, they don't have anything nearby to supply alternate fuel.If you go and approach the municipal authority for municipal waste, which has energy, they ask us to do the sorting ourselves. I don't -- I can't deal with that s***, literally. So there are challenges in the country which do not exist overseas. Overseas, the awareness about disposal of waste is very high as compared to India.All the manufacturing facilities generating combustible waste should be more than happy to reach out to cement companies or any other manufacturing process where they can burn their waste, but the ways of working in India is different than overseas.
[Operator Instructions] The next question is from the line of Raashi Chopra from Citigroup.
Just some bookkeeping questions. One is what is the RMC and white cement volumes for the quarter?
White cement volume would be about 330,000 tonnes. And [ white cement ], very difficult to quantify volumes, value is about [indiscernible].
Okay. Okay. That's fine. Secondly, how much has been the CapEx spend in the first half?
First half, close to INR 450 crores.
Okay. And you're sticking to the INR 1,500 crores target for the year?
My guess is I will not be able to spend INR 1,500 crores. There might be some reduction. As of today, when I'm looking at the forecast, we could look at INR 1,200 crores or INR 1,300 crores. This is largely due to, Raashi, availability of labor is still a challenge at most project sites.
Okay. And the Bara completion is scheduled for December [indiscernible] left?
No. It will get pushed to March because cement mill has just been -- is in the moment of -- in the process of being moved. So I guess, it will go to March.
Okay. And for this year, basically, we have Bara coming and next year, we have the East capacity coming. That's what we are -- that's what's in the pipeline right at the moment?
Yes, at the moment. And next year, we will start work on the 3.5 million tonne Pali.
And that will take how long?
It will have to be commissioned before -- by October, December '22. And [indiscernible] less because land and boundary work, a lot of work has already been completed.
So when you say October, December '22, meaning the October-December quarter of fiscal '22 or October December calendar '22?
October, December '22 and calendar still remains the same.
As in October to -- what I mean is we're coming to fiscal '23 or fiscal '22, was my question.October-December '22. Got it.Okay. And just one, I mean at this time you've seen these price increases that have been announced in the South and prices seem to be generally resilient except for the East. So do you think that -- I mean can we expect some sort of changes with -- given that demand is quite strong in the pricing pattern in the East?
When people don't have capacity left, then how will the price hikes are immune?
Okay. Okay. So we should expect these after Diwali you think?
Very difficult. My standard question -- response to that kind of the question is you tell me what will be the stock price or index 10 days from now? Will you be able to predict that?
Unfortunately, no.
Very difficult to predict. [Technical Difficulty] opportunity, the moment the marketing team gets an opportunity, they will take the prices. If they don't have material to sell, what else to do?
The next question is from the line of Swagato Ghosh from Franklin Templeton.
So Daga, sir, I just wanted some help in reconciling your realization performance. So from what I know, the sequential realization was down about 4% to 5% for the industry. And we actually outgrew the market and also had an adverse mix impact because your trade mix came down this quarter. So -- and still you better -- you delivered better realization performance. So what were the reasons? Can you please help me with that?
Very difficult question. You see, it's a market mix. So what happens is when you do check in one particular market, it might be behaving differently, and one is the market mix and my share in each market out of my own portfolio. So depending if South is moving up and in total volume that I have done, let's say, 19 million tonnes, what volume I have sold in South vis-à-vis in North and so on and so forth. So it's a market mix game essentially.
Okay. So then, yes, then you have sold more in South and less in the weaker realization market. But can you continue to do that? Can you continue to optimize your mix in the coming quarters as well? That's the follow-up I have.
Yes. We will optimize our mix. We will not lose any opportunity to [indiscernible] on this opportunity. There are times when -- there are plants which have gone hand-to-mouth on clinker. So everything is fresh, baked today and sold today.
Okay. Okay. Okay. Second question is, because you are the market leader, I am asking you this. Investor profitability has taken a step-up in the last, say, 3 quarters, but the utilization levels are still pretty low on an absolute basis. Like if I heard you right, in September, it has improved quite a bit but still if it is 75%, there is still some room for like additional improvement. So do you think that some players now might go for maximizing absolute profit at the expense of slightly lower profitability, that can start happening? What's your stand, sir?
No. It doesn't happen that way. The moment somebody starts dumping, material prices will collapse. And today, I can -- as I also mentioned in the commentary during one of the questions, we are already reaching an 80%, 85% capacity utilization without any compromise on realizations. So this is a phenomena, I remember, we had last seen in Jan-March '19, where all India cement capacity utilization was going up. What happens is that -- let me try and explain it, it's important.If one region is seeing good demand and good prices -- and consequently good prices, the neighboring region infiltrates. So it's easy for Central to send to North or to East if -- depending upon where the market is good. Today, North is good, East is good, Central is very good. So they don't have to travel long distance and incur additional cost to -- for market. They are happy selling in their own home market and making more money. This we had seen in January-March '19 -- yes, January-March '19 pre-elections. This phenomena is coming back again.
[Operator Instructions] The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, my first question was actually the same that previous participant asked because realization, despite the fact that your trade mix has gone down, it's tough to fathom how your realizations have actually not fallen meaningfully. Nonetheless, I mean just 1 more question. Since you mentioned in the presentation, unprecedented growth in rural consumption, could you highlight what are the end markets where this is going? Is it like rural infrastructure or is it housing? If you could throw a little bit more light on rural consumption.Hello? Hello?
Can you hear me? Hello?
Yes, now I can.
Sorry, my mute button has got pressed, I have not realized it.When we talk about rural markets, infrastructure is not captured over there. Infrastructure is part of my infra spends. Rural market is largely retail market which is a housing and repair and modification market. This is what has been growing very well. [indiscernible] is spending time on local work [indiscernible] because job opportunities had dried up in the urban market. So the rural housing market has swollen up.
Sure. And sir, my last question would be on incremental capacity that is likely to come through. I mean when COVID hit, saw multiple players announced delays in their existing expansion plans. Do you see that changing now given that pretty much we are talking about normalcy within 5 months of COVID hitting us?
Yes. You see projects where work was deferred will come back on stream because one would be losing interest on the half capital employed on that project. So those projects will come back for completion as gangs of labor are available on project sites; delivery of equipment, parts, et cetera, start normalizing. Those projects will get completed.But going forward, as mines are starting to become expensive and costlier, new capacity -- and very limited players have got surplus mine, by the way. There are a few announcements that you hear right now. They will start drying up as mines become lesser in the hands of people or mines are expensive. Because unless they can forecast a profitability which will absorb the additional cost of limestone under the auction process, my belief has been in the last several years ever since MMDR came into being, that new capacity addition will slow down, and it has been actually slowing down.
The next question is from the line of Madhav Marda from Fidelity Investments.
Congratulations on a very good set of numbers. I just had 1 question that was given that we've seen good volume recovery in 2Q, if you could hazard a guess for full year, like can the volume decline for the full year despite 1Q being weak, can it just be flattish or maybe down with low- to mid-single digits or what would your thought be for the full year?
Annual -- as of now, I guess, the remaining quarters, the industry should show a growth Y-o-Y. So barring Q1, which was a massive degrowth, 30%, 31% or 32% degrowth, rest of the 3 quarters should show positive growth. So the 30% degrowth of that 1 quarter, which is, let's say, what -- will get reversed to a large extent on an annualized basis.
Yes. Because Q4 FY '20 was anyways hit by COVID, we already had decline in quarter 4. So the weak -- base is quite easy, which is why I was thinking, if we could end up with 0% to 5% decline for the full year, maybe, is that broadly like okay assumption to make?
Yes. It's a good assumption to make because I'm -- this year, I think, was already in our pocket. Now I'm looking forward to FY '22, which will be a blockbuster year for cement industry because of the low base that has got created.
[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie.
My first question is on pricing. Can you just share how your regional prices moved on a sequential basis?
That's very sensitive information. So in other words, I am not able to tell that.
Okay. And sir, on the cost front, so in the last quarter you had indicated like a decline of INR 500 crores, INR 550 crores and now like you indicated INR 450 crores of that has been achieved. So going ahead, will this start reflecting in other expenses in a material way?The context I'm asking this is also from a repair and maintenance cost point of view. How much of that have you actually done in first half? And could that be a big driver of how costs move in the second half?
Yes. So what happened actually was Q1 production was down, which helped us extend the life of rigs, which is less maintenance cost. So we've got the benefit of that in this financial year. Next financial year, it will come back to normal. So as of now, I think 20-odd -- Mukesh, you remember how many kilns were done for the planning this year -- this quarter?He wants to speak on mute, so I can't help it.
Sir, actually, that was the context of my question.
Some kilns will come back.
Yes, Mukesh?
Some kilns will come in quarter 3 also.
Yes. So we spread because of the 41 kilns that we have, we don't take all the kilns in 1 quarter. Q2, we have had some kilns. And Q3 also, we will do some kilns for maintenance shutdown. But maintenance shutdowns are planned so that the markets don't suffer after piling up clinker stock for the 20-odd days of kiln shutdown.But to answer your point, there will be shutdown costs which will come in Q3 also. And if you were to compare it with last year same quarter, we also had maintenance costs in Q3 last year. It's more or less -- if I remember it right, it is as high as INR 100 a tonne is the maintenance cost going towards -- in Q3 also. So Y-o-Y, you will not see too much of erosion in our numbers.
The next question is from the line of Navin Sachdev (sic) [ Sahadeo ] from Edelweiss Securities.
Hello? Am I audible? Hello?
Yes, Mr. Navin, you may go ahead.
Yes, Navin. You are audible.
Congrats on the great set of numbers. Sir, my first question basically was on your volumes. When you post like 8% growth on a like-to-like comparison basis, and with that South -- initial presentation slide, say, South was negative, does it mean we have grown positively in South as well or this 8% growth is contributed by a much higher double digit kind of growth in other regions? How should we look at it? And in the same breath, how is that in October?
October is much better than September. Firstly, as I mentioned, Navin, while the average capacity utilization for the quarter was 66%, September was 73% or 74% and October, currently, we might be running anywhere between 80%, 85%. And the growth, if I were to look at, West was the lowest growth market Y-o-Y. Otherwise, all markets have been doing very well.
So basically, just to clarify on this, when you say West was the lowest, which means in South, despite the industry being negative, we have been -- we have seen a positive growth there also. Is that correct?
Marginal, yes.
Great. So that's what I just wanted to confirm. So great achievement, I'll certainly say on that. And my second question then, if you could just run us through on this waste heat recovery?Sir, I'm losing you.
Navin, this is not [Technical Difficulty]. This is UltraTech [Technical Difficulty]. This is not great achievement. This is UltraTech's ultra performance.
Yes, congrats on -- certainly congrats on that. I'm sure market will also receive it very positively. My question second was on the waste heat recovery thing. You said we are going to take the total capacity to 240. If you could just help me understand this, where is it currently and how much are we adding with time lines to understand how these efficiencies will kick in both for waste heat and solar, sir?
You're misleading my comments. We are at 125 today. By end of March '22, 60 more gets added. By end of March '22, we will be at 185. And then we will launch the program for the remaining 60 megawatts. So '22, maybe '24 -- mid '24, we will reach there.
Mid '24 will be totally 240, right?
One second. FY '21 is 185. FY '22 -- yes, '24 -- '23, '24.
Yes, we'll reach this 240 number -- 240, 245 by mid of FY '24. And solar, where are we and how much are we adding?
Total, we are -- we have tied up for about 350 megawatts of solar, out of which -- how much is completed as of today?
[Technical Difficulty]
115 or 120 megawatt is already up and running.
The next question is from the line of Mangesh Bhadang from Nirmal Bang.
Sir, just one thing on this rural side. So how much of our total volumes would be contributed by this segment? Because you keep saying that it has been a good performer, and we are seeing unprecedented demand from this. How much percentage of your total volumes you would ascribe to this segment?
How much -- I didn't get you?
Sir, how much...
I didn't get your question.
Yes. So rural, how much you have [ consumed ], sir, in rural segment, out of the total?
71% of our volume is retail market. And give or take, 35% of that -- 35% or 40% of that is rural market. The definition of rural also needs to be understood. What we call rural is not a remote village. It can be a town which is a population of less than 30,000, becomes a rural market for us.
And so if I understand, sir, this demand better, so probably Tier 3, Tier 4 towns would also be included there. Is that right?
Tier 4, for sure. Yes, Tier 4, for sure. If I call Mumbai as Tier 1, Bangalore as Tier 2 and Raipur as Tier 3. Going in that analogy, then Tier 4 is part of my rural market.
Okay. So the reason I ask is that 70% of your retail and out of that, say, 40% when you say it goes to that market, then that has to grow by significantly large -- the growth in that segment has to be significantly large, overall growth. So that means this is a broad-based demand recovery and not only restricted to rural, right?
It's very broad-based. That's what I said. Practically, all states are generating growth, whether it's an advanced state. Except for Maharashtra, all the states are generating demand.India still is supposed to be rural economy.
We'll be able to take 1 last question. The last question is from the line of Milind Raginwar from Centrum Broking.
I have some -- initially to start with some bookkeeping questions. One is in September '19 quarter in the 17.77, we did something like 0.3 -- 0.32 of white. So what would be that number for 19.21 this time?
Sorry, I didn't get your question. I didn't get your question.
Yes, sir, in terms of...
Volume of white cement is 3.3 lakhs.
Okay. And so, in terms of the realization, what would be the incentive part for this quarter?
Mukesh, incentive in EBITDA per tonne?
Incentive per tonne. I did not work out.
Milind, I'll get my team to get back to you directly. About -- sorry, it's about INR 30 a tonne.
Okay. Yes. And sir, if I have heard it correctly, did you mention that the RMC and white cement numbers were 4.34 billion -- INR 434 crores, INR 435 crores each. Is that the right understanding?
Yes, it was -- both of them were at INR 430 crore levels.
Each, right?
Yes, each. And when we speak about white cement, it includes putty as well.
Correct. Correct. Okay. Right. Sir, I mean, just understanding despite the RMC business coming back strongly on a sequential basis, the logistic cost on a per tonne basis is still more or less same. So -- and the diesel prices also...
Input costs are going up, Milind, that's why.
Okay. Okay. Maybe for a better understanding, I may take this off-line. Right. Yes, sir, actually, this was 3, 4 line item question that I wanted to understand.
We'll take that as the last question. On behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.