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UltraTech Cement Ltd
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Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q3 FY '18 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be viewed therefore in conjunction with the risks 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. And good morning, good afternoon and good evening to all the friends joining me on this call. I welcome you to our quarter 3 earnings analysis. I don't know where to start, but let me give you the bad news first about the industry. Cement industry is always in the news raising unwarranted concerns. There were a spate of structural issues this year beginning with RERA, then the launch of GST, followed by the ongoing crisis on sand availability. The dust has not settled yet on the issue of ban on usage of pet -- that the ban on usage of pet coke surfaced. Thankfully cement industry will be allowed to use pet coke. That is already ruled positively by the government and the Supreme Courts. Clearly it has been a yo-yo ride for the industry this quarter.Let me now get into a few specific elements the way we read at UltraTech. One is on the cost, then demand, prices and maybe sand availability also I could update you people on before getting into specifics on UltraTech's performance. On the cost front first. Since last 8 quarters, the cost has been on a north bound journey than the cost that -- than what we saw till March '16. Pet coke, coal, raw materials, freight have all been moving up. Pet coke has been banned for usage in captive power plants and import duty has been raised on pet coke in the country. The latest one is domestic coal price hike. This will universally increase the input cost. At UltraTech, what we have tried to do is counter the impact of rising input costs with sustainable efficiency improvements.This quarter yet again we saw a 4% increase in efficiency, which will help us mitigate the impact of rising input costs. On the prices front, this quarter we saw a muted display on prices. Prices have dropped in most parts of the country especially in south where we saw a drop of nearly 10%, western markets we saw a drop of 3% to 4%, northern markets in fact increased over the previous quarter by about 2% and the eastern markets also increased by about 5%. Overall from our perspective on a pan-India basis, we have seen price correction of 4% to 5%. Looking at the demand segment. During the quarter, industry is expected to achieve double-digit growth in volumes. This is of course a benefit of a low base year. However, consistently improving demand from the infrastructure and pickup in rural housing demand, government's low cost and affordable housing programs will definitely surpass expectations during this quarter and we will see much better volumes going ahead.If you were to see this year's growth, it seems alright with the first quarter around 4% to 5%, second quarter around 10% and the third quarter also expected for the industry to do a double-digit growth. And remember that the Jan-March period supposedly runs full steam for the industry and always does better than Q3. There is an increase in new capacities coming into the market, but the saving grace is on an annualized basis, the demand growth seems to be on a higher run rate than the new capacity addition. Let me get into the specific segments. Roads: national highways continue to remain healthy at an execution pace of 23 kilometers to 24 kilometers a day for the first 8 months of this year. Government has taken up various projects, specific worth mentioning is the $5 billion for Delhi and NCR region. Work has already commenced on projects of eastern periphery, the Delhi-Meerut highway to ARCA Expressways under bidding stage.Execution of the PM's -- the Prime Minister's Village Road program continues to be at fast pace at 130 kilometers a day. Mumbai coastal roads, the process for awarding the contract is underway and we expect the construction work and thus cement consumption to begin in April '18. You would have already seen the news that spending on roads is set to increase 3x in the current government's regime. Mumbai Metro, which is a much talked about project, work for 2 elevated lines about 35 kilometer long is already progressing very well. 30% of pier erection work and casting of 25% on the girder has already been completed. Tunneling work on the 33.5 kilometer route is underway. Bullet train, that is the other project we are waiting for, the 500-plus kilometer long Mumbai-Ahmedabad bullet train project. The ground survey has already been completed and the construction work is expected to begin in the second half of 2018.This itself will require about 6 million to 7 million tonnes of cement generating an incremental demand of 1% for the Gujarat region. Low-cost housing project, it's making rapid progress. 5.8 million houses have been sanctioned till now, out of which we believe more than 1.51 million houses have already been completed and handed over. The program is gaining momentum since almost 1 million houses were completed during this quarter. Government has disbursed first installment for more than 95% houses and second installment for more than 65% houses sanctioned till now. The states which are making the most of this program are the states in the South and East and to a large extent the North Eastern corridor of the country. Overall, the rural markets have been seeing an improved demand sentiment. On the urban, affordable housing projects are gradually surfacing in the country.Amravati City , Andhra Pradesh has started seeing these projects on a big scale followed by the states of Maharashtra, MP, Tamil Nadu, UP, Karnataka among others. 3.74 million units have been sanctioned till date, out of which 1 million were sanctioned in Q3 for a total investment of about more than INR 2 lakh crores. The speed of execution is yet to pick up. The corresponding 3 million houses have been completed out of the 1.65 million houses where groundwork has begun. DFC, another interesting aspect to watch out for is as the Haryana-Rajasthan sector work has got completed and the work starts in the Gujarat-Maharashtra belt. Hopefully there will be an improvement in the ancillary areas in the Western region thanks to DFC and the long -- this will give a long awaited boost to economic activity in these markets. Airports, there are new airport projects on the horizon.Bangalore modernization; New Bombay, the financial courier has been done; Goa International Airport; Pune International Airport are amongst the big names that come to my mind about the airport projects. Of course Delhi's second new airport is about to start work. Irrigation projects, major work has started in Andhra and Telangana as well as Southern Maharashtra where it's consuming a lot of cement. If I were to do a regional split on demand, how demand has been shaping up in the country, let me talk about the Northern regions first. Infrastructure projects are contributing to improving demand sentiment. Government spending in Rajasthan and in MP will continue its buildup and support demand. Haryana and Punjab, demand has been subdued due to severe cold and brick and sand availability in these markets. However, rural housing and small contractor purchases have generated reasonable demand in these markets.Jammu and Kashmir; the roads and bridges, hydropower, railways and defense are key demand drivers. Central market; rural demand is picking up in MP, stalled government projects are getting revived, affordable housing program where MP's in the forefront seems to be coming together to pull demand. Investment in power projects is also drawing cement consumption. UP, several highway projects are taking off, however, sand and aggregates availability continues to be a challenge in the state. Government spending through demand for small rural roads and schools and rural housing is primary driver. Initially the sand mining ban was getting resolved, but we have heard that some parts of UP the NGT order is coming back into force and sand mining will not get resolved very soon. Eastern markets, rural demand is expected to boom with the construction of 10 million rural homes in the states.State governments are promoting rural projects and supporting rural demand. Getting into the Eastern corridor, if I look at the state of West Bengal, they are triggering their Green Building concept which is usage of the AAC or the autoclaved aerated concrete blocks. Increased infrastructure development should prompt an increase in demand. Government aided infrastructure and low-cost housing are also adding to the demand growth. Odisha, rural demand increased marginally primarily through the IHB segment. State government housing projects continue to be the key drivers. Central government allocation of funds through NABARD for irrigation projects, dams, canal lining, et cetera have been the primary driver for growth in the state of Odisha. Smart City development has taken off in -- as a pilot project in the city of Shantipally near Bhubaneshwar, which is expected to drive demand for the state.Chhattisgarh, the government-funded rural development and road projects, rural housing and urban demand is supported by road projects again, infrastructure and airport development work is also picking up. However, paucity of labor in November and through till December is what saw a bit of a crisis I would say in Chhattisgarh in terms of execution of projects, which had a slowdown. But I guess this is a normal process or normal phenomena in the state in November-December, things are coming back to normalcy. In the state of Bihar, non-availability of sand continued to impact demand. In the Western states of Maharashtra and Gujarat the DFC beginning work, urban housing seems to be picking up after the price correction that took place in the real estate markets and the Metro Rail project in the state of Mumbai -- in the City of Mumbai are generating demand.South, nothing new has been happening. Government spending is continuing in Karnataka, in Andhra Pradesh and Telangana. The projects around irrigation and a few commercial areas. Sand mining, sand mining ban in Bihar. Sand supply remained weak during the last quarter due to various protests from truckers and masons against the government's new mining policies. The next hearing of the High Court is scheduled on 23rd of January against the new mining policy. We are waiting to hear the outcome. Government has planned to commence E-auction of sand mining in this month in the state of Bihar. We expect that sand should pick up from next month or perhaps the month after. In the state of Rajasthan, the Supreme Court mining ban on 82 mines continues. The next hearing on the case in Rajasthan is scheduled after 6 weeks from now. Construction work accordingly was impacted in the State of Rajasthan.UP, as I already mentioned earlier on the call, the NGT ban on major sites continues regarding sand usage. In the state of Madhya Pradesh, the government has dropped the plan for online sale of sand and allowing license owners to sell sand. Hopefully, this will start improving as we progress. In the state of Tamil Nadu, river sand mining ban continues as per the last order and we are seeing some shift towards the mechanized sand. Now let me talk about what has been happening at UltraTech. First and foremost about the acquisition. This was the acquisition of 21.1 million tonnes of capacity covering 11 plants spread across 5 states, marking of a long overdue entry into the Central India markets, Coastal Andhra and strengthening our presence in the Northern markets. I would say success of an acquisition can be found in 4 stages; acquire, assess, advance and achieve.The first quarter of operations went in the assessment mode for us completing the formalities of transfer and a physical inspection assessment of what needs to be done to improve the performance of these assets and the markets. We focus on understanding the people, assessing the retrofit requirements, planning shutdowns, building our systems, quality upgradation, building our market network and the launch of the brand. We got into the advancing mode in the October-December quarter. Month after month, we have improved the performance of these operations. Major maintenance shutdown were taken as were required in the month of November and which could have spilled by a few days in the month of December across all the 5 integrated plants. We have achieved a capacity utilization of 51% for the quarter. But more important to note is December exited with a capacity utilization of 60% mark and January will be higher.We are well ahead of our target of achieving a 60% capacity utilization, which we were planning earlier for April-June '18 quarter. We are now very confidently poised on -- and on course on turning around these assets. On the cost front, today, there is a gap of maybe INR 200 per tonne between the old assets and the new assets. However, as we progress along in the next financial year, there will be no gap left in the cost of operations except for the extra royalty, which is attached for these -- for the acquired assets as also there could be concerns on how the assets have been performing in this quarter. This quarter, I believe we had an additional cost of INR 100 per tonne on the acquired assets because of the extra work that was undertaken simultaneously across all 5 plants -- all 5 integrated plants. Such a cost will not be a recurring cost month-after-month. Next and most important aspect is on deleveraging.We have reduced INR 629 crores of net debt in the last 3 quarters -- last 3 months, my apologies. Peak investment on the acquired assets is now behind us, and we should be looking at a progressive reduction of debt going forward. We have optimized our project cost significantly on the ongoing greenfield expansion at Dhar in Southwestern MP. This will further help us in reducing debt. RMC business. The RMC business has been gaining volumes with infrastructure projects gaining momentum in the country, which is clearly reflective of the growth in the infra sector. Today, we are operating a network of 103 plants and the volumes being generated through RMC are going in a very high double digit. This will also reflect in a shift to some extent towards the non-trade or the institutional markets. Historically, we have been a very high -- we have had a very high concentration on trade markets.There's a slight shift towards non-trade market, but this is expected as the country sees an overdrive in terms of infrastructure execution. Let me talk about the cost front within UltraTech. The rising procurement costs were a dampener, but we have done tremendous work this quarter also and the work goes on. We saw efficiency improvements to the extent of 4%. We have improved efficiency of our WHRS system. We are planning to invest in 2 more WHRS plants next financial year and increasing alternate fuel becomes a big focus area for us. Cost of captive power might go up marginally because pet coke is not being allowed for use in the captive power plants. However, we have improved the efficiency of our captive power plants, which has helped reduce the overall costs. Logistics. With the addition of this 21 million tonnes of capacity in the North and Central markets, we have undertaken an exercise to reduce our logistics cost.The benefits of which has started unfolding and will be visible in the next 4 quarters. E-waybills, which the government will introduce, if I'm not mistaken, from 1st of February, will be a challenge on managing interstate movements. We are waiting and watching and preparing for managing this transition into the e-waybill environment. Going forward I think that the worst on cost is behind us, unless there is again any structural change in the country, whether a duty structure or norms regarding consumption of material. I believe that costs should remain stable or benign in the next financial year. And with capacity utilizations going up, we should see much better performance than what we have seen in this quarter. This quarter was focused on achieving faster capacity utilization on the acquired assets and our team has proven their progress yet again where we achieved a phenomenal performance on the acquired assets.That's all I wanted to talk about from my side and I am open for questions now.
[Operator Instructions] We have the first question from the line of Anshuman Atri from Haitong Securities.
Congratulations on a very strong performance. My question is regarding the sand as to -- since it's an essential for cement usage and so do we see any opportunity on the similar lines of global majors which also sell sand and aggregate along with cement? Is UltraTech looking at this as an opportunity?
No, I think we are focused on cement and aggregates as an industry is highly unorganized in the country and not the best place for a corporate player.
Okay, sir. And second question is on all these waste -- usage of waste. Recently, I think you tied up with railways for procuring waste to be used in kilns and it's only 3% of total fuel which is being used. So what opportunities there? Can it go to 10% in next 2, 3 years of the total?
No. That's too high a number, but we would touch certainly the 5% mark very soon maybe in a couple of years.
We have the next question from the line of Nitin Bhasin from Ambit Capital.
A few questions. One on the energy side. When you mentioned that the captive power plant have been banned to use pet coke, was it for the entire quarter last year or is it for January, February this year onwards?
This happened in November '17, somewhere around then the Supreme Court ban on pet coke came in. So first, the ban was only in the 3 states adjoining NCR, and then subsequently after the ban on usage of pet coke was lifted for kilns, the ban on power plant has been maintained.
Okay. So this means that the P&S cost -- the P&F cost for you will structurally go up till the time this ban goes off?
I'm sorry.
So the structural cost goes up by roughly how much for you because of the captive power cost bans till the time ban goes off?
Very marginal. Very marginal because you see pet coke we were 50%, 60% only in captive power plants. And ultimately, the power cost is what will go up by [ fuel ] pricing. In effect on the cement -- on cement cost it will be a marginal effect.
Okay. And the import duty is yet to play out because it started only in January somewhere?
Yes.
Yes. So because you mentioned in the presentation that there are multiple headwinds in the P&F cost more than the only fuel cost. So anything else that you're witnessing beyond this ban et cetera like do you have to structurally change the source of your pet coke?
So till now the U.S. supplies have not stabilized, which is we are waiting for that stabilization to happen, which will bring about a little more predictability around pet coke.
Okay. And you mentioned in the call earlier that the cost difference between JP capacities or the production today is roughly about INR 200 and it increased by another INR 100 because of onetime. So roughly for this quarter, the INR 300 cost difference between JP production...
No. So INR 200 would include this INR 100 cost.
Okay. This INR 200 would include. So does it mean that we are roughly at about INR 3,200 or INR 3,100 cost for JP?
Yes, you can do the math for yourself.
Okay. And last one from me was, is that extra royalty also part of this one only?
Yes.
Okay. So the last one was RMC sales, you said it's growing in double digits. So should we assume like a 15%, 16% or a 20%?
Yes, it's INR 500 crores.
INR 500 crore, okay.
[Operator Instructions] We have the next question from the line of Vivek Maheshwari from CLSA.
Sir, first on the demand bit, the numbers that you've given for let's say first quarter, second quarter, third quarter and your expectation for fourth quarter that makes -- this year's strong demand growth, will you just attribute to base or you think that the underlying trend because last year was a slight negative or you think that there is -- beyond the base also there is an improvement?
There is a structural improvement, Vivek. Entire growth cannot be attributed. You should give credit to the cement industry also, must be attributed to low base only. There is an absolute amount of volume growth that we are seeing. If I were to look at RMC volumes, RMC is shooting up and is more than 30%. Clearly shows this is just a indicator of where the country's shift is happening, it's infrastructure, infrastructure and infrastructure.
Okay. And your past comments about Tier 2 housing. Those remain under pressure even now?
We are still not seeing big activities in the Tier 2 cities in the housing space. What we are seeing is the new launches, which are affordable housing program taking shape, but best is yet to come.
Okay. Second, on the sand mining and I remember you had put out a very detailed presentation last month. I mean at that point of time, I think the outlook was a bit more positive after whatever you mentioned now be it Bihar, Uttar Pradesh. Are you a bit more concerned compared to let's say when you had put out that presentation that this may take a little longer?
Could take little longer and what has happened is Rajasthan and UP. UP, the ban has come back in the few cities again, which was opening up. Bihar, where we saw that the government would frame rules, still there is a bit of a confusion. Rajasthan, the ban was enforced the last. Tamil Nadu, when they started importing sand from Malaysia, that was also restricted. So these are the further developments which are raising concern in our mind how much time it will take to solve the issue on sand. What we are doing from our side is educating, guiding contractors on mechanized sand because there's always a concern in the minds of a mason or an architect that the quality of construction, time or cost required will be different if they are using mechanized sand compared to river sand, but there's not too much of a difference. That is where our technical services are out on the field guiding and educating people.
Okay. And last question, if I may, on prices. One, the number that you gave on price changes was quarter-on-quarter, December versus September, Is that correct?
Yes, quarter-on-quarter.
And second, all the issues that you mentioned about be it pet coke or linkage coal or diesel prices or freight, whatever it may be; end of the day it's an industry wide issue, right?
It's an industry wide issue.
So why is it that cement prices have not reacted as much as they should have in let's say December quarter?
Packaging utilization still continues to remain subdued, it's still not crossing 70% for the industry. So the movement as demand uptick continues in the January-March quarter, I believe it will be a historic quarter. I hope I'm right on that and this will be a game changer quarter for the industry.
We have the next question from the line of Raashi Chopra from Citigroup.
Just first question, Atul. On your -- on the pricing data that you gave, just to be clear; North you said was positive 2% and East was a positive 5%, right?
Yes.
And this North when you say, you say cumulatively with the Central?
Yes. North -- I have not kept Central separately, North and Central combined.
And what was the capacity utilization across these regions?
Capacity utilization, I would say North was 80% plus, Central we reached 60% plus, East 80% plus, West 70% plus, South 53%.
Okay. And if I take JP capacity utilization at 51% as you mentioned, that means your own growth was somewhere in the mid-teens. Is that correct?
Yes. Own growth you've got to look at, we have grown 13% to 14%.
And which regions have you seen the maximum growth in?
North and Central. Central largely is new so North is where we have seen a big growth followed by East.
All the regions will be positive, right?
I'm sorry.
All the regions -- on your organic growth, all of those are --.
Yes, organic it was a fabulous growth.
Okay. And then just one industry wide question. I mean you mentioned that the first quarter was 4% to 5%, second quarter was 10%, right and the third quarter also 10%.
Yes. Third quarter will be double-digit. I'm expecting more than 10% for sure.
So is the sand mining ban really making an impact? What I mean is that if the ban were not there then how much --?
It could have been much higher.
When you say much, I mean how much?
Don't ask me to -- I don't know the exact number. But yes, because the issue on sand mining is restricting the construction activity. That is a fact which we cannot deny. In spite of that -- and sand mining did start opening up. Let me go back again on sand mining. UP, lots of districts have started opening up on sand mining which saw good traction in this quarter. However, I think in the month of December or early Jan. some more districts came back into the sand mining ban. In Bihar, the mining ban was lifted from various mine -- various pits, but again they have come back on clearing up the process or laying down the process. Orissa, there is no problem, the state is growing at a breakneck pace. MP, a bit of a crisis in the state of MP. Maharashtra and Gujarat, there is possibly no problem per se on sand. Karnataka, Andhra luckily are already well into mechanized sand. Tamil Nadu is a problem state. Tamil Nadu in any case was not growing.
Okay. And just lastly, you said that the new capacity announcements are going up. So what in your view is roughly a growth rate we can expect over the next couple of years?
Next year -- I would expect by the end of next year, the -- I look at the industry being about 440 million tonnes. Next year anywhere between 30 million to 35 million tonnes will get commissioned, out of which how many is ours? 11 million tonnes is ours.
We have the next question from the line of Anubhav Agarwal from Credit Suisse.
Sir, one clarity on other expenses. This INR 100 per tonne cost that you mentioned in JPA basically that translates to about INR 20 crore, INR 25 crore impact. Is that the only one-off in other expenses or is there something more than that?
I also -- presentation talks about the DMF credit.
That's in other income, right?
That's in other income. From that perspective on one-off, I don't see anything else. Stay on the call, Anubhav, if I have something, I will clarify midway. But I don't think there was anything -- any other one-off.
So this INR 20 crore, INR 25 crore is the only one we need to take up.
More than INR 30 crores.
More than INR 30 crores, okay. And this other income, you can help that if you adjust for the DMF reversal, other income declined more than INR 100 crore sequentially. What is the reason for that?
So other income includes treasury income. Last quarter let's say we had 123-- INR 129 crores of treasury income. This quarter we had a treasury income of INR 43 crores and this is largely accounting issue M2M. Because of the yield curves going up, the M2M accounting resulted into a low treasury income accounting -- treasury credit.
Okay. And sir, just last question one clarity on the fuel cost. Because of the pet coke ban in between, how much was the impact because of that? So I could see that your imported coal consumption has gone up, pet coke usage has gone down; but if you were to just quantify if the pet coke ban was not there, our power cost would have been how much?
Difficult to quantify, but let me get back to you offline or later on to give you the calculation on that because this was a very brief period as also only in 3 states; which is the Rajasthan, Haryana we don't have any coal consuming operation. So from our perspective, Rajasthan which has how much -- 11 million tonnes? Out of our total capacity, 16 million to 17 million tonnes were impacted because of that pet coke ban.
See I was asking because our imported coal usage went up significantly from last quarter, 11% to 17%. So how much -- is large part because of this pet coke ban or was that driven by some other reason?
No. One is pet coke ban as also the effective landed price. If we are getting better deal on pet coke we have -- on imported coal, we have taken advantage of that.
So our net fuel costs was not worse off because of this --?
Impact of pet coke was about INR 13 crores. So that is also a one-time one-off is what we could count.
We have the next question from the line of Navin Sahadeo from Edelweiss.
Sir, 2 questions. One is you mentioned that incrementally there will be a shift more towards non-trade. So if you could just explain what is the current or what was it in the previous quarter, where are we now and how do we see it?
Trade was 68% last quarter, which has come down to 65%.
And when we say it will be incrementally more toward that, are this --?
This is what the shift is. Now quarter-on-quarter if you see, it might go up or down 1%.
Yes. But since like you also mentioned we are way ahead in terms of achieving our volume targets for the JPA acquired facility, I'm trying to see it in sync of this that will then this lead to a 60%-40% or a higher [ percentage ]?
No. I think 65%, 64%, 66%; these kind of numbers would be great.
Sir, my second question was you mentioned JP Associates operating at about a 51% utilization and doing the simple arithmetic with the numbers that you've given on domestic sales, the organic growth works out to over about 17%, 18%. Now given that sand continued to remain an issue and there is some shift to non-trade as well, are we saying that we have gained market share significantly or it is got to do only with the base?
No, we have gained significant market share. We are growing in volume terms in totality 35%. So I'm sure this will definitely give a benefit of higher market share.
We have the next question from the line of Gunjan Prithyani from JPMorgan.
Firstly, just wanted to hear your thoughts on pricing because the ASP decline seems to be far steep if I take into account that this was the quarter we also were supposed to see the benefit of that JPA rebranding impact. So wasn't there a flowthrough in this quarter because of this entire rebranding exercise?
No. Rebranding had happened in the last quarter and we had taken a price improvement on the -- in all the markets before the end of September.
So from what I remember last call you'd mentioned that that exercise is done in September, which essentially means that September was the month where you took those price increases because of the rebranding. So that by itself meant about INR 200 to INR 300 positive impact on the JPA capacities flowing through in Q3 at least. So it just seems that ASP decline is far steep than what the market pricing suggests so I'm just trying to understand. Do you think there was some kind of a volume portion, which led to the lower realizations in this quarter?
No. As a matter of fact from our perspective, let's say 10 million tonnes of capacity is in the Central and the Northern markets where we have seen a price improvement quarter-on-quarter. Southern markets is what saw a price decline and Western markets saw a price decline. So from the acquired capacities, 5 million tonnes is in South but whether -- but still we are operating at about 53%, 55% in the Southern markets. That is the same level of capacity utilization that existed pre-acquisition. So there's no push phenomena from our side.
Okay. And this INR 200 difference which you mentioned between UltraTech and JPA capacities, this just to clarify includes the INR 100 a tonne one-off cost that was incurred in this quarter for the maintenance?
Yes.
So essentially the difference is now only INR 100 between the JPA and the UltraTech capacity?
Absolutely. And if I were to do a rough calculation on the royalty cost which should be INR 64, INR 65 difference left; INR 30, INR 40 is the efficiency improvement that we will see in the following months.
So this INR 100 also includes the royalty?
Absolutely.
Which is essentially going to stay? So you will...
That INR 60, INR 65 will stay.
So in terms of cost improvement on JPA capacities, the --
Gunjan, one second. I think I need to be --. Apologies. The royalty cost is separate, there is this INR 200 difference which will come down.
INR 200 difference will come down on INR 100?
Yes.
On INR 100, we know it's definitely going because that was a one-time maintenance spend which is kind of done now. The remaining INR 100 is basically a lot of initiatives essentially you're taking on the fuel mix. So are we confident that on the cost side this INR 100 will flow through in the next 2 quarters given you've taken a lot of initiatives in terms of fuel mix and lot of --?
It's guaranteed because my -- if I were to look at my December cost vis-a-vis, the quarter cost, I'm much lower already.
Okay, got it. And there is no other one-off spends which are pending on the JPA assets now besides what's being done of INR 25 crores which --?
No. INR 30 crores to be precise and the one-off. See this was all the 5 plants we had taken the major shutdown for kiln brick relining and other maintenance jobs. Everything is behind us now so it's all routine maintenance going forward.
Okay. Sorry to drag on this because I think the last quarter, we did have other expenses which were very low around -- I mean which were very low and this quarter we -- the maintenance shutdowns impact even if we remove that the other expenditure has increased a lot. So do you think that Q2 is -- Q3 is the number, which is a more stable state number for the other expenditure if I just remove this INR 30 crore impact?
If you reduce the INR 30 crore, some of the expenditure linked with the productions like maintenance, like packing charges, sales promotion expenses. So you see the 37% is growth in the sales while other expenses have increased total 31%. If I remove 30% -- INR 30 crores, it will be around 20%, 25%.
Okay, got it. Just last on the fuel mix, clearly alternate fuels and lot of other initiative you are taking just 2 targets. If you can give on WHR , what are you looking at in terms of mix and also alternate fuel how realistic is to get to the target of 10%? I mean how can -- how long can it take?
So we are looking at adding 26 megawatt of additional WHRS from current 58 megawatt, 59 megawatt. And alternate fuel, there we are at about 2% to 3%. Next year could see a rise to anywhere between 4% to 5%.
[Operator Instructions] We have the next from the line of Indrajit Agarwal from Goldman Sachs.
First, sir, can you give us some color on what the current ASPs are compared to third quarter average? Have they trended up, down, how are you seeing that going forward?
No, I think nothing great to talk about. They must be more or less the same levels. 1 or 2 cities might have seen up or down, but they are generally around the same level that we exited the quarter.
That's helpful. And sir, second, a housekeeping question. Can you give us the white cement and RMC sales in rupees crores?
White cement?
And RMC sales in rupees crores?
White cement sales, INR 447 crores. RMC, INR 489 crores.
We have the next question from the line of Ritesh Shah of Investec.
Sir, my first question is if you could please detail on the fiscal benefits. So post JPA, there were fiscal benefits also which were to accrue to us. So based on the current utilization levels, basically we can't share probably region wise. So if we had to go further from 50% to 80% or 90%, how should we look at that number based on what it is right now and how it can go going forward?
Sorry. What you're saying is how the capacity ramp up will take place?
No, sir. I'm asking specifically with respect to fiscal benefits, which came along with the JPA transaction. So how should one look at it from a numbers point of view given currently we are at 51% and if this number had to go to say 100%, tax benefits in specific regions would be higher than certain other states. So I want to understand this.
Most of them are linked to VAT or which is otherwise getting converted to GST. The higher the volume, the higher the amount will be. Is there anything else my colleague will want to add?
No doubt around INR 40 crore we have a benefit of incentive, which proportionally will increase if the quantity increase.
And so in other words the answer for you is at 51% capacity utilization, it was INR 40 crore fiscal incentive. So you can do the math.
Sir, what I'm hinting to is that something like South it might remain steady at 50% utilization; but Central India, Northern India if it increases at a higher rate, probably those states might be having incentives, I'm not very sure of that. So I'm asking the extent if you can provide some color on if we have incentives in states of Himachal?
The South doesn't have any incentive.
Okay. That helps, Sir, my second question --.
This is the third or fourth question, yes.
Sir, my second question is on expansion plans both organic and inorganic, how are we looking at it?
So we are already in the midst of 1 organic expansion in MP and we have also announced the greenfield expansion at Pali in Rajasthan. At the moment we are participating in the bid for Binani Industries plant in Rajasthan. That is the inorganic.
We have the next question from the line of Madhav Marda from Fidelity Investments.
You mentioned that the capacities that you're expecting about 30 million to 35 million tonnes. I mean this is by when are you expecting by end of 2018 because that seems a little high compared to I think what we understand?
FY '19. Yes, March '19.
March '19, okay.
If the commissioning is delayed by some players, then it could stretch to June '19.
We have the next question from the line of Antariksha Banerjee from ICICI Prudential Asset Management.
My first question is respect to this affordable housing data that you have provided in your presentation. So if I were to look at it, you have states like Punjab, Haryana and some states in East like Chattisgarh, Jharkhand and Odisha in green. Whereas in your comments you mentioned Haryana and Punjab demands are subdued. So how am I to read that? Does it mean that affordable housing does not constitute a substantial portion of your demand or are they based on --?
No. The subdued demand was because of severe cold in that part of the country not because affordable housing projects not coming through. So you have large number of projects practically across the country. However, in relative terms, Punjab, Haryana are in the lower rung in terms of biting the benefits of affordable housing. Punjab, Haryana as you know are very rich agri states and there you will not find too much of affordable housing program.
But in that case, how do you classify this metric? So what is the green? Green is a percentage of total national or is green is a percentage of its previous I mean whatever its base was?
So it's pick up from previous year.
Okay. It is a base effect. And the other question is with regard to your Central region. So in last quarter obviously you did not share the utilization number, but if I were to compare 15% and 60% that you were talking about today, you have roughly added something around 5 million tonnes of volume in 6 months in the region. Am I right in that?
Central region capacity utilization was 60%.
Yes, which was around 15% is what you told us 2 quarters back of the acquired asset.
Yes.
So if I do the math, that comes to around 5 million tonnes of volume in 6 months.
Yes.
Could you tell us what the addressable market is like, what the market size is like? I'm trying to see what the market share is.
Addressable market, I'm afraid I don't have that number with me.
Okay. But are we selling primarily non-trade in these markets?
MP is more of non-trade, but trade is picking up.
Okay. And given that we have already achieved 60%, would you like to revise your target guidance for June FY '19 upwards from what you had said earlier?
I will sit back and relax if I were to achieve my target. So jokes apart, the improvement will be higher because January to June is the peak season for cement so we will see a higher capacity utilization in April, June.
Okay. So where actually I was coming from is for the year we have seen -- I mean for the quarter we have seen a dip in realizations whereas you have mentioned that Central has actually grown in terms of pricing sequentially and South has dropped. But volume share from the Central is much larger than the South and you have East picking up as well, then how did we lose realization and what will it take to increase realization going forward?
As I was mentioning on the call, the overall 1 company alone cannot increase the prices and without everybody else.
So you're saying people are spoiling prices in the market.
No. The overall capacity utilization has to improve further. We are -- I think my guess is we will be touching 70% for the industry. We have to go up as an industry on capacity utilization. This demand uptick which we have seen in October-December will continue and you will see price improvements accordingly falling in place in future quarters.
Okay. If it were to just push a little bit, you would see that happening in all regions other than South by the end of this year by capacity improving?
South has improved after the fall that you saw, South has started coming back. So I would expect price improvement generally across the country because from my reading, the weakest markets were the Western markets. Not too much of demand uptick and the big projects which we are seeing are generating demand. So Western markets were the last ones were the laggards will start catching up on prices soon.
Okay. And you're also on track with your Dhar expansion timeline.
Yes.
And so you see the Central region growing at that much pace so it can absorb so much of capacity even with all these sand issues pertaining which you've just said.
So sand issues are not a permanent damage to the industry. I'm sure all the governments -- state governments are working at breakneck speed to find a solution. It will get resolved. I'm obviously not an authority on what -- how it will happen, but common sense prevails that a solution will be found to --.
But that doesn't cause you to go slow on that?
No, doesn't cause us to go slow. We will capture market share.
We have the next question from the line of Abhishek Ghosh from Motilal Oswal Securities.
In terms of what will be a CapEx for FY '19-'20?
CapEx for FY '19-'20 will be about INR 2,500 crores.
And that would include Dhar, Pali and some amount for the JPA left over.
Yes. So whilst I see some savings on Dhar coming in so I will take it down to about INR 2,000 crores not INR 2,500 crores. There's Pali, then there is Bara which is happening as part of the acquisition. That's a 4 million tonnes plant. These are the big ticket projects other than the maintenance projects.
Okay. And sir, just to come back to this Bara which you're adding about 4 million tonne which should come in by -- I think first phase will come in by September and the second by March '19. Any sense on the expected kind of utilization that you would look at by say the first half of FY '20? Any sense there?
I would go up to 60% mark on launch.
Okay. And sir, just 1 last thing. In the Pali one which you've recently announced, you have lowered down your CapEx in terms of on a per tonne basis fairly to a lower number and are also revising down that Dhar number as well. So does it mean it is a new norm for us going forward wherein we can see because of the efficiencies that a project team or --?
Yes.
Okay. So this $80, $85 per tonne kind of is a new norm?
Sub-$100 is what I can tell you as of now.
We have the next question from the line of Alok Ramachandran from Future Generali India life insurance.
I just wanted the pure grey cement volumes including clinker.
I'm sorry?
Pure grey cement volumes including clinker?
[ 15.52 ].
Okay. So and pure grey cement is?
Pure grey cement is -- we make only pure cement.
This [ 15.52 ] is including clinker, right?
Yes.
Alright. And even white putty and the other volume will be [ 15.85 ] ?
3.33 million tonnes -- 3.33 lakh tonnes.
Okay. So is it inclusive in the [ 15.85 ] or is it not?
No, above that.
Okay. It is above that. So it is -- how much you mentioned just now?
Total [ 15.85 ] including white cement and putty 3 lakh tonnes so 0.33.
We have the next question from the line of Amit Murarka from Deutsche Bank.
So just on the volume front, I just wanted to understand this better. What we understand is that the volume has revived double-digit growth, but mostly led by infrastructure. So would you be able to give us a understanding as to how much will be the trade segment growing at so let's say institutional?
I don't have that breakup, Amit. Let me see if it is captured separately.
But based on the anecdote, are your interactions -- would it also have revived the 2 like --?
Trade is revising because trade for us, let me give you another surrogate. Our rural market penetration has been growing continuously and rural market is all trade and all retail. Rural growth clearly shows that trade market is also growing. So between the 2 segments, obviously the non-trade has grown at a faster pace than trade but trade is also growing.
And so I believe the individual house building segment would largely be tiered to a rural side. So is it also seeing a recovery?
So rural individual housing is seeing a recovery. The Tier 2, Tier 3 cities are still very slow.
Okay. So basically the demand growth as of now is being led by infrastructure, roads and whatever, irrigation and all that.
Yes, that's again infrastructure. So out of the total demand basket, 55% of the demand basket which is Infra plus rural, these segments are clearly growing.
We have the next question from the line of Vivek Maheshwari from CLSA.
First on the capacity, the 35 million tonnes number that you have given on the base and this is for F '19 on a base of 440 million tonnes, that makes it 8% increase in supply, right? So unless demand is significantly ahead F '19, then utilization rates can't move up, right?
No. One is this 8% is not available from April 1, 2018. It will get staggered and it will not be available in full 100% capacity because ramp up clearly takes time. So by the end of March '19, let's say we are at 475 million tonnes, that is point #1, but 35 million tonnes assuming -- doing simple log averages that 17 million tonne is available for full year. That also if you want to count for your working, I would put a 40% to 50% capacity utilization not more than that for this new capacity.
Okay, got it. But in that context let's say Binani and obviously we don't want to speculate who gets it, but let's say Binani, Murli; the assets which will change hands, some of these are not operating at all or operating at very low utilization. Does that also worry you as these plants start to ramp up? Will there be some turbulence in the market at least at a regional level?
Minor, yes. There will be a shift in market share of -- for the stronger players.
Okay. Second on pet coke, just a few things. So as of now, my understanding is pet coke imports are banned and Feb. there will be a call on that. Is that understanding correct?
No, pet coke imports are not banned. The case is still pending if I remember it right. As of now you're right, first week of February when the final call will be taken on banning import of pet coke. However, as of now, the duty on pet coke is already revised to 10%.
But as of now, you can't import. Even if you want to pay 10%, you can't import right as of now?
We are importing.
So there is no ban at this moment you're saying if you pay 10% custom duty.
Yes.
I thought first week of Feb there will be a call taken on whether imports can be allowed or not, but you are saying that's not the case.
Banned not --
Okay. As of now, it is allowed. And second bit is that impact we will see in Jan to March quarter, right, the higher customs duty?
Yes.
Okay. Which will be another additional headwind from this quarter?
Yes.
Okay. And lastly this INR 200 per tonne, I know this has been asked quite a lot of times on this call. But INR 200 delta, when you say INR 100, you are saying it's easy to fix. The remaining INR 100, will it be a function of basically operating leverage and therefore as the plant ramp up, that number will start coming down? Is that how we should think about that remaining INR 100?
Yes. And also part of it will get fixed because of the shutdown that was taken, all the improvement that have been brought about. We are seeing an improvement already in December and Jan.
That INR 100 I understand because that was related to maintenance shutdown. The other INR 100 remaining one is basically --?
I 'm referring to the second INR 100. One is towards the annual shutdown that was taken that is roughly INR 100 a tonne. That INR 100 a tonne helps us reduce the second part also, luckily both are INR 100. So because of maintenance having been undertaken, there is definitely an efficiency improvement.
I see. And for these assets in let's say MP, are your prices let's say for this market because it's a newer one for you, is it like let's say comparable to the rest of the country adjusting for regional dynamics or because you're newer in these markets, the realization side also could be weaker?
We have pegged our prices at our benchmark prices in the country so we are not compromising on our price positioning.
Except to the extent of non-trade mix which may be higher as you ramp up?
Yes, that's the dynamics of the business in any case.
Okay. My point is basically as you ramp up your trade segment in MP automatically or your Central India, the realization from P&L perspective will keep getting better.
Yes.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Atul Daga for closing comments. Please go ahead.
Thank you, everyone, for being with us today and asking some very interesting questions. All I would want to say in the end is that the best is yet to come for the industry and for UltraTech. Thank you and wishing you a pleasant evening. Good day.
Thank you, Mr. Daga. Ladies and gentlemen, on behalf of UltraTech Cement, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.