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UltraTech Cement Ltd
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Ladies and gentlemen, good day, and welcome to UltraTech Cement Limited Q3 FY '19 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, 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, Aman. Good evening, good afternoon to everybody and welcome to this call to discuss UltraTech's Q3 results.Let me straight get into the burning point and that is on pricing as in cement prices have not risen as expected during the quarter, and I really don't have the magic wand to tell you when the prices will move. It is -- for me, it is similar to stargazing or you forecasting the Nifty level 5 or 6 days from now. Pricing, ultimately, is a pure demand and supply game. As you know, there are more than 60 named players in the country, and look up any micro market, there is aggressive competition since supply is in excess of demand. Average capacity in the country -- capacity utilization in the country is hovering around 70%, which is definitely a significant and meaningful improvement over the last 2 years since -- from the bottom of about 65% that we have seen. But is this 70% capacity utilization good enough for natural pricing? I don't think so. We have seen in Indian markets companies generating very high margins when national capacity utilizations were upwards of 85%. This was seen last in 2012, 2010, 2008 as well as 2003. Markets like Central India, where the demand is very robust, capacity utilization is hitting all-time high. We are seeing significant improvement in profitability and pricing.To refer to the exact numbers for this quarter, prices have corrected on an average 1% or lesser in Central, East and West. South saw the maximum amount of correction, which was about 3%, and North markets have registered around 1% increase in prices.Talking about new capacity additions, as it stands today at 17.3 million tons of capacity will get added in this financial year, taking the industry total to about 478 million tons. Demand has been growing at much more than this new capacity, which will thus reduce the surplus capacity as compared to previous years. Similarly, we expect another 18 million tons to be added in FY '20 and perhaps 16 million tons in FY '21. Two points to note over here. These capacities will never have a full ramp in their first year of operations. And secondly, it takes time to ramp up these capacities -- any new capacity. Hence, the annual increase in demand, which is expected to be in excess of 25 metric tons year-on-year, should be good for improving the capacity utilization in the country and, thus, profitability for the cement sector.At UltraTech, we have led from the front in our attempt at consolidating the industry. You all know the way we have been acquiring assets. Yet this is also -- and will lead to an increase in supply in terms of overall capacity, but obviously, we are not acquiring an asset to run it at substandard or suboptimal capacity. In fact, nobody would do that.Next, let me touch about demand. As we have told you in the past and we have observed -- everybody has observed, demand has been strong. It has come back with a very strong gusto. It's only the headwinds of high growth last year, which is reflected in the reported quarter's performance. Otherwise, you could be seeing higher numbers. This is obviously on the back of nearly 15% growth every quarter that we saw in the last few quarters, except this quarter, where we expect the demand growth to be somewhere around 9% to 10%. One important point to note is that infrastructure in low-income housing segment has -- eating into the share of rural and urban housing. Clearly, cement industry in India in institutionalizing. We now see the housing segment share at 53% to 55% as compared to what we use to record it at 65%. But of course, this is splitting the segment into 2 parts, looking at rural and urban housing at around 55% -- 53%, 55%, and the remaining 8%, 10% being brought up by low-income housing program, which is growing at a very rapid pace. Bear in mind with improvement in infrastructure quality, distance has become shorter and housing demand is bound to spring back in the next 3 to 4 years.During this quarter, there was a minor setback in demand due to 15 days construction ban in the NCR region, besides the usual phenomena of slow pace of construction activities during the festive period. Elections in big states like Rajasthan, MP and Chhattisgarh, obviously, had an impact on slowing down the demand. Despite this, the overall demand growth in the -- for the industry for this quarter is expected around 9% to 10%.Let me now talk about costs. I think there is some relief. Diesel prices have not been going up so sharply. However, comparing crude and diesel prices in India from 1 April 2018, crude has corrected nearly 25% and diesel has not moved down in parallel till the end of December 2018. Though in the past, crude and diesel prices in India have mirrored each other with a lag of 15 days. Q3 FY '19 average diesel prices increased around 3% over Q2. Y-o-Y also, diesel prices are up 21%, which impact logistics costs. Secondly, the busy season surcharge of railways has altered an increase in cost in Q3 as compared to Q2, nearly 3.5%, amounting to an increase in costs for us to the extent of INR 40 per ton over the previous quarter. Actually, we should call this not as a busy season surcharge, but it was an offseason discount, which was given -- which the Railway Authorities give in the period of July to September. And through the 9 months, this busy season's -- busy season surcharge is applicable. It is worth mentioning about our logistics efficiency, which is where we have been continuously bringing down our lead distance, which would be down about 6% Y-o-Y and 2% quarter-on-quarter at the end of December '18, resulting in overall impact on logistics costs. Nonavailability of rail network is also a concern in the country and is adversely impacting our logistics costs since road movement is nearly 1.7x the -- that -- as compared to the cost of rail movement.Next important element is pet coke. Imported pet coke costs increased by around 8%. 35% of requirements of pet coke are from imports. Today, there is a 15% to 20% reduction in international pet coke prices from its peak coupled with rupee depreciation of 5% to 6% is still giving a 10% to 12% reduction in international pet coke prices. There is always a lead time of 2 months to -- roughly, give or take, 2 months for imported pet coke, and hence, whatever orders are being placed during this quarter will benefit the next quarter. Domestic supplies of pet coke has added shrinking. 65% of our requirements are met through domestic markets, which in fact still saw a 4% reduction in costs. Considering all implications that fuel cost have risen during the quarter, resulting in extra cost quarter-on-quarter of INR 6 per ton or Y-o-Y about INR 156 per ton. In our kiln fuel mix, pet coke is nearly 70% and, thus, should have a favorable impact in Q4 with the falling prices of pet coke.Another aspect which may be a onetime cost and that's why I should highlight it is about maintenance. In the quarter October-December, we had nearly 11 kilns under maintenance, out of which 1 kiln stand-alone accounted for nearly INR 26 crores of maintenance expense. This was one of the plants -- one of the last plants that we acquired in the JP network, which required major overhauling and major maintenance. I'm glad to inform you that the kiln work lit up somewhere around 17th of this month. After all the major overhauling expenditure has been incurred and completed, and it's firing full cylinders, we expect the cost to normalize going forward in the next quarter.Let me now brief you on our acquisitions. The 2017 acquisition of 21.2 million tons is now tracking at par with our existing operations in terms of quality and efficiency. But other plants, as I just mentioned, Bela in MP was under a long shutdown in Central India, and we expect its cost also to normalize from Q4 and boost the profitability in central markets further. Post shutdown, the costs have reduced significantly, and we should start seeing the benefits from next quarter itself. That is from Jan-March '19. There's one more small shutdown planned for this plant in February '19, after which the cost will be 100% aligned with our older operations. The -- this acquisition is now operating at about 75% capacity utilization.The next one, which was in 2018, Nathdwara Cement, which was formally called Binani Cement. We have completed the quality improvement work at the plant and launched UltraTech brand in the markets. We're now busy integrating the acquired dealers network with our network. The plant was operating at about 50% at the time of acquisition and generating an EBITDA of INR 100 per ton. It's just 40 days of operation in our hands, and I'm sure the capacity utilization and EBITDA profile of this plant will improve significantly. This is our brand premium as well as synergies with our existing network. The acquisition has been funded 40% with internal accruals and 60% with debt. This being a 100% subsidiary of UltraTech, let me explain the financials and the operating model going forward. UltraTech has infused an equity of INR 3,400 crores and borrowings of INR 4,500 crores for this acquisition. UNCL manufacture -- UNCL as in UltraTech Nathdwara Cement, Binani Cement has been renamed UltraTech Nathdwara Cement. UltraTech will market all the products manufactured by UltraTech Nathdwara, i.e., UltraTech Nathdwara will have just one single customer, that is UltraTech. Depreciation in the books of UNCL will continue on its book value of assets will be around INR 75 crores, whereas depreciation on consolidated books will be on the revalued assets. We are in the process of revaluing the assets. And however, you might want to note that depreciation will be significantly higher. Out of the debt of INR 4,500 crores, INR 1,800 crores of debt is in UTCL books, and INR 2,700 crores is in the books of UNCL. Interest accounting will be accordingly.UltraTech's stand-alone results that have been declared today include the UNCL cement purchase cost as part of our credit purchase with a contribution to EBITDA. And so on a stand-alone sales volume of UTCL, it includes the sales from UNCL to UTCL also with the effect from 10th December '18 when the -- that is the date of migration to UltraTech brand. Century Cement. As you know that the shareholders and traders approval process has already been completed. We have filed the petition with NCLT Mumbai and got a date of 13th February 2019 for the hearing of our petition -- for admission of the petition. After the petition gets admitted, it takes roughly a month for the hearing to take place, and we would expect the NCLT order somewhere closer to the end of March. It all depends upon the backlog of cases in NCLT. In parallel, we are working towards the mines transfer of the Century-acquired plants, which are located in the states of Chhattisgarh, MP and Maharashtra. Chhattisgarh and MP were going through elections, hence a bit slow. But we are hopeful to coincide the mines transfer process with the NCLT order. And we'll see the closure of transaction in Q1 FY '20. Very difficult to come with an exact date at this point in time. We have already started working on our transition plans for integrating this acquisition. The plants are currently operating at a capacity utilization of 75%. There is no more acquisition, hence there's nothing to talk about.With that, I would like to end this commentary and happy to take on any questions. Thank you.
[Operator Instructions] First question is from the line of Gunjan Prithyani from JPMorgan.
Two questions, firstly, on the industry. You spoke about the utilization levels being still at 70%. But if I just look at ex South, I would think that most of the markets are in the range of 75% to 80% utilization.
Correct.
Then what -- so just taking that forward, what is the issue on pricing? Do you think it's the demand profile of the industry? Or is it just way too high competitive intensity? What is really holding back the pricing in the market?
I think it's both the points put together. More important is the -- as I mentioned, the structure of demand is changing. It is institutionalizing, which has caused a bit of resistant and taking -- price increases are taking time, though we have seen price increases being done in the institutional or the nontrade segment also. Second point always remains that any regional market you go, there is minimum 5 or you go up to 10 players also in the market, so competition intensity is always there. In these 2 scenarios, it has been slow going on price improvement. However, if you were to look at a longer period of time, the prices have not gone down. They have remained stable. And it's now time that the prices should go up. It's anybody's guess. I have been -- I was very strongly hopeful that October-December was -- all logical conclusions, all fingers pointing towards price hike. But because post-festive season, the demand starts picking up. But you got hit with elections and NCR banned construction. So there were some bit of a pull-down on the demand also. We have seen price increases. We have seen price increases happening in Jan in the Northern markets, in the Southern markets as well. So let's -- I think, besides price increases are now happening.
Sir, just this -- just a follow-on on this. Now that the commodity or the pet coke prices are easing, there can always be an argument that we have the cost which is coming down. Is there a need to take price increases? Do you think that, that can be a risk to pricing action?
No, no, Gunjan. Because prices and costs have never moved in tandem for cement industry in India or for any industry where there is a supply-demand mismatch. When costs were going up -- and that is one reason why it has becomes -- it becomes difficult for the industry to pass on the impact of cost on people. Now is the opportunity for the industry to take the benefit of cost reduction. Having said that, when the capacity utilizations are going up and, as you mentioned rightly, that excluding South, the capacity utilizations are significantly higher. There is no reason why price increases should not happen. As I mentioned, January, we've already seen price hikes during the year.
And this low-cost housing which you mentioned in your slide of about 11% to 12%, does this pertain just to the Prime Minister Awas Yojana program?
Yes, yes. I thought it was important for everybody to know that it's a significant -- it's a good effort that the government has been doing, and it's gaining strength.
And -- I mean, almost 28 -- the 20 million ton of demand coming from this segment is fairly high. I mean, is this just the -- this program? Or you are including some other low costing also? Because I would thought it would be in the range of about 15 million-ton-odd from this program, but...
So this is the PMAY low-cost housing program. The affordable housing program is still not meaningful, and that's why it continues to be part of the housing demand in our analysis.
Okay, got it. And now just moving to the Binani...
How many questions are these?
Just last.
All right.
On the Binani transaction, you mentioned that the cement will eventually be sold from UNCL to UTCL.
Correct.
Does that mean the EBITDA that we capture on the sales that we do on Binani will be captured in the stand-alone financials?
Yes.
And the fixed cost expenses pertaining to the revalued assets of the depreciation and the debt taken on the subsidiary will be captured on the consol?
The revalued depreciation will appear on consol only, not on a -- not on stand-alone UTCL or stand-alone UNCL.
The next question from the line of Amit Murarka from Deutsche Bank.
Just couple of questions on the Binani kind of arrangement first. So you said it is costless margin. So what is the margin kind of that will be built in over here?
We are seeing a transfer pricing opinion and -- so it should be at an arm's length basis, not yet formed up. We just started off the transaction. The accounting firms are examining the norms to be laid down.
Okay. So basically, the sales volumes will be reflected in the stand-alone sales volumes? Or basically Binani volumes will be reflected in stand-alone sales volumes?
Yes.
But the margin that will be coming into the stand-alone books will be lower then, let's say, for our own production, right.
Very insignificant. You know for all intents and purposes, we should look at domestic market for -- from UltraTech's point of view, a consolidated structure. That only will make sense.
Got it. And the Binani will have a PBT loss, right.
Yes.
Which means that consol tax rates will be higher? So kind of -- what -- how...
I expect by end of Q4 FY '20 -- for the quarter FY '20, we should be PBT breakeven. So this first 9 months of operations could see a PBT loss.
Oh, okay. And this time around, the stand-alone tax rate has come down by about 300 basis points. Any specific reason for that?
Only the -- we have reduced our projections of profitability a little bit. That is the only point.
Okay, but -- okay, got it. And lastly, what is the status of Pali now and the Binani plant expansion?
So no decision taken yet. I think we are stabilizing and ramping up the Nathdwara plant, which is Binani plant in your parlance. We will take a decision, I think, by the next board meeting. Hopefully, we should have a decision on Pali expansion.
Okay. And so by the next board meeting, we will get to...
Next board meeting, I think so. Yes, yes. We should be...
Lastly, what was the trade, nontrade share this time around in volumes?
65% -- 64% is trade and the remaining being nontrade.
The next question is from the line of Rajesh Lachhani from HSBC.
Sir, I just wanted to ask what would be your estimate of return on capital employed on the Binani as well as the Century assets when we are integrated in the next 1 or 2 years? So I assume it will take time to ramp up and bring it to the UltraTech...
So I wouldn't want to look at the next 1-year or 2-year returns and depress myself. I would look at a third-year position from now where we will be inching towards 14% to 15% mark.
Right. And sir, other question is, what would be the volumes from Binani that you have recognized in the stand-alone?
1 lakh tons.
1 lakh tons, okay.
The next question is from the line of Jithin John from CLSA.
This is Vivek. Sir, 2 questions. First on the nontrade segment, your comment about demand profile shifting. I mean, I would imagine that the nontrade portion or, let's say, infrastructure demand can grow faster. Does that in any way impact the branding going ahead?
No, no, it doesn't because there is -- especially for the big players, big customers, there is very significant importance of the brand. Let's say the Metro network, which is happening in Mumbai, maximum will be UltraTech or any major project, or these are project-specific, location-specific preferences. So quality and strength which a particular company delivers becomes very important and, hence, brand stickiness prevails.
Okay, I see.
In fact, we have now been seeing improvement in pricing from the, what we call, key accounts on nontrade segment also.
So nontrade price differentiation is possible? If not that every brand will be procured at the same price then?
Within nontrade, yes, absolutely.
Okay. Basically, it doesn't impact the branding structurally if...
It does not. It does not. It does not.
Okay. Second, couple of things on Binani. One is -- sorry, I'm not fully -- I don't fully understand the depreciation bit. So the balancing figure will be intangible?
Let me explain that. The existing depreciation on the existing asset is somewhere around INR 75 crores.
INR 75 crores?
Yes, somewhere around INR 75 crores. Accounting standards require to revalue the assets. And revaluation since we have paid INR 8,000 crores, the asset value will stand at INR 8,000 crores. Within that INR 8,000 crores, whatever is attributable to land or mining rights to that extent that the depreciation rates will change. So the overall value of the asset, let's say, INR 8,000 crores only for a split second, and INR 8,000 crore needs to be depreciated, and hence, the depreciated charge on a consolidated basis only. When I am doing my accounting in UltraTech stand-alone books, there is no depreciation, of course, on account of UNCL. When UNCL is accounting, there is a INR 75 crore charge. And there is a third set of books will get created, which is consolidated books, which will have a higher depreciation.
But if you're revaluing, sir, that will be intangible.
No.
Not necessary.
No, no, not intangible. To correct...
Is it? Okay.
No, it will not be intangible because it will be linked to the valuation model that we have looked at. What we will be able to realize from noncore assets taking that off and then how we allocate the value. That value will be depreciated.
Okay, okay, okay. And 2 small bits, if I may, on Binani itself. First is, when you said cost-plus, would you include the interest charge also? Or is it just the operational costs?
No, no. Interest cost also. Because we have funded the acquisition 40-60. That's a norm which we would follow in a commodity sector for any new project, and it has to be able to bear its interest cost also.
So I believe transfer pricing will be their variable fixed cost plus interest cost?
Yes.
Okay, okay. And lastly, noncore asset, could you give some...
Vivek, my colleague just clarified the line. So reverse is any case is an intangible asset, yes.
Okay, okay, okay. Sure. And noncore asset, can you give any idea about the foreign assets? Does that include glass fiber unit also and...
Yes. We will get rid of the glass fiber unit within -- hopefully, within this FY '20.
[Operator Instructions] The next question is from the line of Bhoomika Nair from IDFC Securities.
Sir, just wanted some more color on this Binani thing. So what you are saying is the volumes will get reflected in stand-alone. These -- but the EBITDA in the stand-alone will really be very marginal because the UNCL will actually have to cover the variable cost plus the interest cost of INR 2,700 crores?
Yes, yes, yes. It will cover all its costs, and then there'll be a small margin on which it will sell to UltraTech India.
Right. So from our perspective, the -- actually the EBITDA from that volumes will be actually very low on a stand-alone basis, so on a consolidated basis, it will add up.
Yes, yes. In UTCL books, the EBITDA from those volumes will be insignificant.
Understood. And sir, if you can just explain how you will bridge the gap between INR 100 and, then on a higher end, take it closer to what UltraTech's EBITDA per ton is?
So within the -- within the 40 days, we have already gone up significantly. I don't want to still comment on the number individually. But you see, one big driver, of course, is pricing power. There used to be a gap of anywhere between INR 25 to INR 30 a bag between our brand and the erstwhile brand. Manufacturing cost, where we are seeing -- our efforts we are putting in for reduction in costs, that will also bring significant amount of savings. And then there are synergies -- logistics synergies. I don't know whether I'd explained to you in our one-on-one conversation. There are 2 plants which are located 600 kilometers away from each other, who are -- earlier they were transporting clinker from the mother unit to the grinding unit. Now we have our own unit located less than 75 kilometers from that grinding unit as compared to 600 kilometers, so it saves on significant amount of logistics cost. Procurement synergies. There were -- so there are huge amount of procurement synergies that -- I mean, there's a no-brainer. It's buying efficiency and economies of scale. Third one is, they were not using any pet coke. We are beginning to use pet coke, which, of course, will get built into my manufacturing cost reduction -- manufacturing cost -- yes, manufacturing cost reduction. So it's a multipronged attack. There is benefit because of price premium, cost reduction, which are directly linked to the plant and logistic synergies or synergies due to combining hands with a 50-plant network. You get synergy gains, and we should be able to see a significant improvement in costs.
So by when do we see the Binani...
As I was saying, by Q4 FY '20, we should become EPS accretive for this stand-alone asset.
Understood. And just lastly, if I can just squeeze in, in terms of -- some color on the international cement assets, what are the utilization like, profits like? What is our outlook on that assets? And lastly, the Bara status?
Yes. So China was under shutdown in the -- this quarter because of peak winters. The UAE plant is operating full capacity. It is very well located in the Jebel Ali export zone, that one thing that we are deriving is -- its customer base is 15 -- within 15 kilometers, so that is the lead distance that this plant has. It has got a huge potential. We are evaluating what we would want to do with these plants. As you know, we have a significant presence in the UAE already, and it's easy to manage that UAE plant. China plant, lesser keen to keep it. It's not our core market, and we might give it up. Our first focus right now is to consummate the Century deal, focus on integrating those assets and initializing from there, and then in parallel, we might start thinking about what is to be done with the China asset and the UAE asset. Sorry, you had also asked about capacity utilization. 40-day capacity utilization is meaningless to talk about, that's why I'm not commenting.
Sure. And sir, lastly on the Bara asset? What does it...
Yes, Bara line is delayed because -- as per contract, Jaiprakash Associates, their engineering firm was executing the contract for us. There have been challenges for them to complete it. As of now, we expect commissioning by June 20 only, not before that.
The next question is from the line of Pulkit Patni from Goldman Sachs.
My question is on demand. Since you break down the low-cost housing and infrastructure, which together is contributing to a significant portion of the demand and now, as we head into election, clearly, these are 2 government-funded and government-driven drivers, what would be your outlook for demand, say, for the next 6 to 9 months, keeping in mind that we've got election and keeping in mind that the 3 states which underwent election this quarter, all saw demand slow down since you mentioned about it in your opening remarks?
Pulkit, we are expecting an impact on demand and, obviously, election code kicks in maybe February or mid-Feb or March, I don't -- depending upon the election dates. In any case, it has to happen by May. So April-June quarter will be subdued, which is supposed to be the peak period or a good period for demand. And not commenting about 9 months, but if I were to look at the FY '20, we are still looking at our demand forecast of about 7% to 8%.
The next question is from the line of Sayantan Maji from Credit Suisse.
This is Anubhav here. Sir, just one clarity on this Binani. I have not understood this. When you say breakeven, do you mean to say at UNCL? Or do you mean to say like total assets when you take the total on the INR 4,500 crore, that's what you mean with breakeven?
No, UNCL.
So at INR 2,700 crore of debt and depreciation of INR 75 crore?
Yes.
Okay. That's clear. And then just couple of more questions. One of the maintenance expense you mentioned INR 26 crore as one number. But when you look at the -- other than the central plant, everything is a maintenance cost. How much was this in the other expense this quarter?
Sorry?
How much was the total maintenance cost in this quarter? You just mentioned about INR 26 crore just for central plant.
Roughly, INR 80 a ton is the maintenance cost.
INR 100 in last quarter.
Just speak loudly. One second, Mahesh will clarify.
INR 100 per ton was in last month and INR 80 -- let's say, in last quarter and INR 80 a ton in this quarter.
Yes. But there is a -- what is the tonnage there? Are you talking only about the 11 -- are you talking about total capacity here then...
Yes, total capacity.
Total of 11 kilns.
He is talking about total capacity only.
Okay, understood. One just last question. At the spot prices of pet coke and diesel, cost in the next quarter should be lower. If you just assume that if you're buying everything is spot, how much the cost could come down by at spot of diesel and pet coke?
Yes. On account of diesel then, which -- prices have not yet come off significant. As I mentioned, Q3 saw, in fact, increase in diesel prices -- average diesel price. So diesel price...
You said 5%, 6% lower. Spot is about 5%, 6% lower than Q3 average.
Now. So it's -- if that 5%, 6% lower -- give me a calculator. Just one second, Anubhav. Anubhav, sorry. So it would impact roughly 1.5% of costs. And pet coke, as I mentioned, costs have dropped about net of exchange impact, anywhere between 10% to 12%. 10% to 12%, right?
Yes.
10% to 12% pet coke cost have dropped -- into 0.3. So we could have -- and what is the percentage impact? Just one second.
16%
16%?
Yes. So about 2%.
Roughly, 2%.
In total cost.
In total costs, we could see an impact of 2% on account of pet coke and 1% to 1.5% on account of freight.
The next question is from the line of Jaspreet Arora from Systematix Shares.
Just continuing with the Binani acquisition, I understand you do not comment on the last quarter performance. Can you leave us with some guidance for the next financial year in terms of both EBITDA per ton and volumes? Are they utilization driven?
Normally, I don't want to give guidance numbers. And I don't want to comment on this quarter because it was not even a quarter. It was just 40 days of operation in our hands. And as I have mentioned that we are targeting a EPS accretive performance in January-March '20. All right. Capacity utilization, I can say, we will go up to about 80%.
Okay, okay, interesting. And on the cement prices, as it prevails, you mentioned there was some uptick, but what we hear from the channel is that, except North, all other regions, it was kind of rolled back. So can you just clarify?
I did not talk about other regions. I talked about North and South only, where improvements have happened.
In the month of January?
In the month of January.
Okay. And just lastly on -- what will be the fiscal incentive that was kind of booked in the revenue, which was part of the other income in last quarter -- versus INR 85 crores in last quarter?
Versus -- just one second, versus INR 85 crores, anybody guys?
INR 97 crores.
INR 97 crores.
The next question is from the line of Raj Gandhi from SBI Mutual Fund.
Just on Binani and Century, both not for the previous quarter, but let's say, as we speak, we are in the peak demand quarter. So what would be the utilizations currently, if you could mention it?
Currently -- I mean, it's first month of the quarter. It's upwards of 76%, that's all I can say.
76%. At your -- and your target, you mentioned, 75%. So it reached your target utilization in that sense?
Yes. Sorry, I missed your question, Raj. Can you repeat?
So -- I am not asking for the previous quarter. As you mentioned, it was just 40 days. But as we speak, current month is the peak -- currently what...
You know UNCL, as if -- sorry, it's somewhere around 60% as of now. If I were to annualize my Jan number, it's somewhere around 60%.
Okay, 60%. And Century?
It is already operating at 75% in the whole -- in the hands of the earlier management.
Okay, okay, okay. And just on the CapEx, while acquisition of Century, you were mentioning that few of the plants require some bit of overall CapEx. And also, in light of that, what would be the overall CapEx over next 2, 3 years as a company?
So we have an average CapEx of INR 1,000 crores to INR 1,200 crores on an annual basis, which includes Nathdwara Cement also. And when Century comes into fold, there'll be an initial CapEx of maybe INR 500 crores, which will take time because there are structural changes that has to be carried out at the Raichur plant. That INR 500 crores will get committed but get spent over a couple of years. The annual maintenance CapEx, which I would look at, will rise to maybe INR 1,300 crores or INR 1,400 crores per annum.
The next question is from the line of Madhav Marda from Fidelity Investments.
Just wanted to understand your outlook on the rural housing demand ex of the PMAY scheme because we keep reading about monsoons not doing too well in some parts of the country. Just how has it been so far? And in your also sort of understanding, how do you expect it to...
Rural markets have been buoyant till now. And yes, you are right, monsoons have been impacting negatively, again, back into the Karnataka, Maharashtra markets. However, in the Northern markets with the rains happening right now are sounding good fortunes for the crop this season. So as of now, the rural demand has not seen a setback yet. And the big thing which had happened, the farm loan waivers, the MSP -- small MSP hike that was given, is now holding good for overall rural demand.
Okay. And on the urban housing side, your outlook because all of us are aware of the high inventory situation, et cetera. But the Tier 2, Tier 3 cities, how are you seeing demand there for that data is not really available?
Margin Tier 2, Tier 3, on the contrary, the Tier 1 is Mumbai, Bangalore, Gurgaon, these kind of places have started seeing significant improvement in demand for new constructions. The new constructions in the price bracket of INR 1 crores to INR 1.5 crores are seeing big positive movement. New projects are getting launched. The luxury segment is not seeing pickup of demand. That -- the surplus inventory -- there is a huge surplus inventory in the luxury segment, and anywhere where you are launching a product for INR 1 crores to INR 1.5 crores, it's selling like hotcakes.
Okay. So just -- you're summing it up 7%, 8% demand growth on the base that we've seen with affordable housing, execution at such a high pace, roads at -- like probably the best India has seen, affordable housing at the best that India has seen in history that is available to us. Do you think on that base, we can still grow 7%, 8%, given...
Yes, the confidence level is very high because the roads, the kind of work that is happening, and we have looked at projects in pipeline, projects being announced and under execution or to be announced, there is massive amount of work in the country, which is unfolding. The big challenge is -- the big risk is general elections, what happens if there is a change of guard.
The next question is from the line of Ashish Jain from Morgan Stanley.
Sir, I had just one question. The point that you made that Binani will be PBT positive by Q4. So that implies if I add the INR 75 crores depreciation and interest cost on INR 2,700 crores...
Yes.
Comes to roughly INR 800, INR 850 kind of EBITDA per ton for Binani. Is that the right number?
I don't want to do a forward-looking number, Ashish. You can do your math.
Okay. No, but is that a number kind of...
Yes, it will be a high delivery number.
Yes. that's what...
We are aiming towards that side or even it is possible in those markets.
The next question is from the line of Abhinav Bhandari from Reliance Mutual Fund.
Just couple of questions. One is on both Binani and Century. On the overall EV, could you help us understand the breakup in terms of tangible, intangible and working capital takeover?
Very difficult to split that offhand. But if you have to look at EV per ton, all the acquisitions, and I'm looking at the EV per ton for the Binani acquisition net of the realization that we expect from noncore assets, and the potential expansion benefit, the EV per ton would range between INR 7,000 to INR 7,500 either for Century or for Binani, if that helps.
Okay, okay, okay. The other question was, sir, on -- so on Nathdwara Cement you explained in terms of positioning, but on Century, how would be the positioning of products? Would the existing brands and existing products continue? Or is there a change there as well once you...
It will get rebranded to UltraTech.
Okay. And the...
That's the strategy as of now. And we have -- as I mentioned, we have started working on the integration program. As it evolves, we'll figure out what to do. But I mean, there is no logic of having many separate brands.
Sure. And the structuring would be similar to what you have done in the case of Binani?
No, no. So we will be acquiring -- because we're not acquiring Century as a company.
Correct.
The assets are being acquired from there, and it will be folded in -- folded up into UltraTech only. Binani was different because we had to acquire the company.
Yes, yes. On the synergy and savings part, you explained on the procurement and the freight side. Any saving/rationalization can we expect on the employee cost and the other expenses once both these...
No, no, no impact on employee costs because we need the employees. The plant-level employees are definitely required. The marketing network, as we expand the market, because we're not going to sell in the, say, in the middle market only. As we acquire capacity, we expand our markets also. So marketing people are equally required.
Sure, got it. Just one last bookkeeping number, sir. On the consol side, if you could understand the volumes, UltraTech consol entity, including the overseas cement business as well as the usual white cement revenue volume and RMC revenues basically?
Sure. All in, the volumes are at about 19.3 million tons, an increase of 15%. White cement revenues would be somewhere around INR 500 crores, RMC would be about INR 521 crores.
And white cement volumes would be, sir?
[ 0.93 million ].
The next question is from the line of Navin Sahadeo from Edelweiss Securities.
Just 2 questions. One, so I'm looking at your investor presentation in this quarter and just also recollecting the previous 2 quarters, keeping the view positive on demand. But on the industry outlook, are we a little more cautious now incrementally, especially, you mentioned a surplus capacity and uncertainty around prices?
No. The reason I mentioned specifically about surplus capacity, because I keep sharing comments and that there is 25 million ton coming or 50 million tons coming in 1 year or 2 years. Where is that 50 million tons or 25 million tons? There is a 17 million tons. I was expecting 16 million tons for this year, and it is actually 17 million tons. And that is why it was important to clarify that the new addition, when it was announced, you had to peg it in a particular period [indiscernible]. Quite often, people miss timing of the new capacity. So I'm looking at 16 million tons now, 16 million tons 2 years down the road. Next year might be slightly higher. But bigger point is that the demand growth is in excess of 25 million tons every year, which will absorb the new capacity which is coming in and keep on inching up the capacity utilization. Capacity utilization, in my view, is not behaving in an expected progression, when the demand surge happens. We are today looking at -- excluding South, we're looking at 75% capacity utilization or even more than 75%. In my arithmetical progression, 75% would have been achieved much later on. So demand surge is all defining how the capacity utilization is going to behave.
And -- no, because I was just looking at it from incremental like conviction from management because past few quarters on con calls, the commentary was far too positive. Now it sounds a little too, like, cautious, especially from prices given your term elections. So I was just trying to say that pricing perspective, we are getting into a zone of neutral price hike kind of an expectation. Is that fair to expect?
Difficult for me to say. I think, January price hike have happened in some parts of the country. And it's a matter of -- it's like a play. If our agencies -- price hikes happening in one area, the other regions might follow suit. So we -- it's a game of wait and watch.
Okay. My second question is on the cost. So in that, you said, this quarter particularly had this maintenance cost related to Bela [indiscernible] around INR 26 crore. I'm looking at the total other expenses, which come in around like about INR 1,200-plus crore in the quarter, which in maintenance cost, as you said, is about INR 80 per ton and comparing it with the previous quarter, which is about INR 1,058 crore or even lower INR 980 crore in Q1. So I'm saying this component of other expenses seems to be sharply moving up. So what else is impacting this cost besides this maintenance?
No. It's only maintenance cost, which other maintenance cost, as I would -- I had mentioned, there are 11 kilns which were under shutdown. So besides that, there would be maintenance on account of those plants. Packing cost has gone up a bit. That's off...
In terms of volume...
Off absolute volumes. And one more thing which is I'm forgetting to add is like-for-like, Dhar plant was nonexistent last year. Now we've had the Dhar plant fully operational into the stream, which will increase the absolute quantum of expenditure.
I'm referring to, let's say, Q1, we did about 17-plus total volumes. And in Q3 also we have done 17-plus -- 17.5, little higher kind of volumes. With cost from INR 980 crore in Q1 is shooting up to almost INR 1,211 crores. So I'm just trying to understand, beside -- there seems to be more cost than the -- besides maintenance cost -- that rough cut numbers which you mentioned of INR 80...
So Navin, as we mentioned that maintenance cost in this quarter is about INR 80 a ton, which is not there in Q1 at all. So if you take with the volume of 18 million tons, it -- INR 80 a ton, it gives about INR 145 crores. And as we discussed earlier also, the other cost includes some variable component also, like -- we mentioned that packing, so which more in tandem with the volume.
Okay, fine. And last one is just on this purchase of finished goods, which is also sequentially up about INR 100 crore. So even if Binani volumes of 1 lakh ton come into this, it will have cost not more than, I think, INR 35 crore, INR 40 crore. So what extended the further increase there?
See, this is linked to the additional volume because, sequentially, our volume is up, so this has also increased.
Purchase of traded goods.
Yes, yes.
The next question is from the line of Ritesh Shah from Investec.
Sir, my first question, it's more philosophical. Sir, how do you see UltraTech in the current environment? Like, is it something market share is more dear to us? Or is it profitability? Because in the prior questions, you emphasized a lot on utilization levels, be it Century, Binani, at 80%, say, in FY '20. So how should one look at this?
So one is, we can't be operating -- as I had mentioned in my commentary also, we do consolidation but not for our operating at suboptimal capacity. There is no point in operating Binani plant at 40% only. It was because of working capital plans that the erstwhile owners were not able to operate our JP assets, which were operating at 18%. So an optimal capacity utilization has to be achieved to absorb your fixed overheads and deliver profitability. Century asset, that's why it was important to specify that it was already operating at 75% capacity utilization. It's almost optimal. There is nothing much to do on fixed cost absorption. It is more to -- what we'll have to do in Century assets is improve costs and take up our pricing. Pricing, whenever we have gone -- gone into, whether it was JP or the Binani acquisition or Century, we will expect the output from these plants at the prices at which UltraTech sells. There is no way, no chance that it will get discounted.
Okay. Sir, let me put this other way around. When we look at the regional profitability at UltraTech, is it like one region would subsidize the other when we acquire a new asset? So I don't know at what level is Dhar operating right now. Binani utilization levels will increase. So -- or let me put it the other way around. If you had the optionality to utilize Binani at 90% utilization at 450 kilometers of lead distance, would you prefer that? Or would you operate it at 70% utilization levels with 250 kilometers of lead distance?
The lead distance is -- sorry, logistics is our biggest cost, and 450 kilometers is something that we wouldn't want to do. As I mentioned in my address also that we have been reducing our lead distance. So we would look at operating closer to the plant and selling the output closer to the plant, not sending out further.
Okay, that helps. Sir, second question is, trade versus nontrade profitability. How has it changed, say, 1 year back? And how does it stack up right now, specifically, nontrade prices haven't been depressed?
Nontrade prices have been improving, in fact, at least in the markets that we have seen. And the margin difference, if I were to look at, would continue to be somewhere around INR 30, INR 40? INR 30, INR 40 a ton.
Okay. That's not much. Sir, last 2 questions. One is, any update on the Dalla clinker unit? It has been like -- it's quite some time we haven't commissioned it.
Yes. So -- no, there was a NGT process which is on -- just to explain, the land which has to be handed over to the forest department has been identified. We keep testing the plant, firing it up and testing all the rotors and stuff. So my expectation is in the next 2 or 3 months that clinker plant should be available. And March, maybe 1 quarter or 6 months of tiding it up and sprucing it up to start operations.
Ladies and gentlemen, due to paucity of time, we will take our last question from the line of Swagato Ghosh from Franklin Templeton.
Sir, quickly one clarification. The cost-saving numbers that you gave, I just want to confirm, 1.5% due to diesel and 2% due to pet coke. Those are 2% of total cost and 1.5% of total cost?
Yes.
Okay, okay. And sir, absolute norms, whatever had to come in has already come in. There is nothing incremental...
No. There are still negotiations going on. And I would expect January-March to -- internally, we have seen month-on-month improvements. And we would see January-March quarter showing maximum benefit.
Ladies and gentlemen, that was the last question. On behalf of UltraTech Cement Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.
Thank you.