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UltraTech Cement Ltd
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Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q4 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 therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent development, information or event or otherwise. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company. Thank you and over to you, sir.
Thank you. Good afternoon and welcome all of you for our fourth quarter FY '18 earnings call. I want to start by saying we are one step ahead and will always be ahead. Let me elaborate by -- what I mean by saying this. First one would be the acquisition of 21.2 mtpa capacity that we did in June '18. Ramp-up of all the plant is ahead of its schedule. Commodity industry normally projects the finance with 40% debt I would imagine although we have financed this acquisition with 80% debt and I'm delighted to share with you that we should have achieved -- we would have achieved a cash breakeven on these assets for the quarter ended Jan-March '18, 1 quarter ahead of schedule. The capacity ramp-up has been improving month-after-month. We achieved nearly 74%, 75% capacity utilization for this quarter. Some of the plants in the north and central markets are consistently operating about 80%, 85% capacity utilization.We have committed and incurred a CapEx of about INR 109 crores only for recovering these plants to our standards and going forward we'll have -- these plants will fall in line with our normal maintenance CapEx standard. Operating cost for these plants have been dropping down as planned and some of the plants have already achieved our benchmark cost. Distribution network for these plants is being further strengthened over what we had acquired in June '17 with a view to enable the network to achieve the position UltraTech deserves in the marketplace in these markets. Logistics cost has been our prime focus as part of the integration program. In spite of rising cost, the efficiency improvement has been as planned. Manufacturing costs, we have -- as I mentioned earlier, we have reached almost INR 20 crores to the targeted cost in terms of efficiency in operation.The capital investments made and being incurred will help us fill the overall gap. Today, we are about INR 125 per tonne away from our targeted operating cost excluding the structured -- structural cost differences, which is essentially on the MMDR royalty. The next target for us on the acquired asset is to achieve a PBT breakeven by April-June '19, which will be as promised the eighth -- at the end of the eighth quarter of operations. Second point I want to tell you about, you would have read it in the media, about our greenfield expansion. I think we would have created a world record of sorts, completion of a greenfield cement plant -- integrated cement plant from the groundbreaking to commercial production stabilization in less than a year. Our 3.5 million tonne capacity greenfield cement plant has been commissioned in April '18 and has already achieved a clinkerization capacity utilization in excess of 60%.This plant will cater to the high growth markets of southwest MP and north MP and also help us reorganize the logistics network within the mass market further enhancing the market share in those regions. Limestone, limestone is becoming an important factor to focus on in the cement industry ever since limestone mines are being auctioned. In an auction in the Chhattisgarh state we participated in March '18, we have acquired a mine for our future expansion. East as a market has become the fastest growing and the largest market for cement and this mine will -- it will give us a strategic advantage to gain market share. Of course the mine will start its operations somewhere in 2025 only not in the immediate future. We will be actively exploring opportunities for securing limestone for future growth.Pet coke, which is a worry for all cement players, I'll say it's become black gold now; cost -- pet coke procurement cost has been going up continuously. It is currently trading somewhere around $115 per tonne and has already gone up I guess $10 from the last quarter. Next quarter should be same -- April-June quarter also we will feel the impact of rising costs. Imported coal also has become dearer currently trading at around $110 per tonne. Last year the pet coke was around $85 to $87 per tonne only and imported coal was also at a similar level of $85. Given the levels at which pet coke is operating, some of the plants in our network have become amenable to switch over from pet coke to imported coal or domestic coal and we are looking at those opportunities. Few of the one-off impacts in our P&L, which you should take note of. We have reported a PAT of INR 488 crores, which actually according to us is INR 677 crores before the impact of one-time exceptional items.At INR 677 crores PAT, it would look like a drop of 1.6% only over the previous year in spite of interest cost increasing by nearly INR 182 crores. The 2 or 3 items which had impacted this year, essentially stamp duty on the acquisition. We have made a provision of INR 226 crores on account of stamp duty for the acquisition that we had done last year. This has been charged to the P&L as per the new accounting standard. Had we done the acquisition somewhere in 2015, this amount would have got capitalized. But under the current accounting standards, we have had to charge it off to the P&L, which becomes a one-time cost. Deferred tax provisions have gone up because of the change in tax rate from 3% -- the effect going up from 3% to 4%, there is an additional impact of INR 41 crores on account of deferred tax charge to the P&L. Other one-time impacts to our performance, the yield curve.M2M gain on treasury incomes was lower as compared to the last year by about INR 64 crores due to the yield being lower by about 1.5%. [inaudible] 170 basis points from 6.69% as on 31st March, 2017 to 7.4% on 31st March, 2018. This is of course a notional impact, but it impacts the P&L. In our foreign subsidiaries we have taken 2 impairments, which would naturally impact the consolidated accounts. First one is the WHRS plant, which was installed in the Dubai unit, has been impaired at a value of INR 75 crores. This reflects in the consolidated P&L account for the quarter. Second, we also had made – some time back we had made an investment in gypsum mining in Oman. We have reduced our investment in that company to a minority stake and that result one-time impairment loss of INR 14 crores has been accounted in this quarter.Leverage position, let me talk about it. I think we don't like leverage situation and are focused on rapid reduction of debt, which was taken for the acquisition. We have ended the year with a net debt of INR 12,007 crores in our standalone financials. Having reduced our net debt position by INR 1,600 crores since the acquisition, INR 1,000 crores of this reduction coming in from -- in the quarter 4 itself. We have closed this year with a net debt-EBITDA of 1.85x, down from about 2.4x at the time of acquisition of -- at the time of acquisition. Mind you, the EBITDA this year is not representative of a full year performance since the acquired unit had a matured performance of only 1 quarter, which was January-March quarter. The acquisition also had a life of only 9 months in this year. Let me now talk about demand the way we see it. This year the industry will surely surpass the GDP growth rate of the country coming out of its longest downcycle.There are some mega projects getting launched; the bullet train, there is a Mumbai-Delhi expressway coming up very soon, Delhi international airport and there are other metro organized work which are being done. These are some big projects to count amongst a few. I believe that infrastructure will continue to drive demand for the near future. Eastern markets are fast becoming the bellwether for cement demand as it appears from the capacity utilization in that region and overall demand, which is largely being driven by government spending on low income housing program and roads. northern markets continue to break records every quarter showing a huge appetite for growth. Housing market has started improving a bit, but again infrastructure demand is what continues to pull weight. In the central markets, of course there the new infrastructure projects are generating big demand.Maharashtra, affordable housing segment witnessed high demand coupled with good demand coming in from infrastructure activities in Mumbai and other parts of the state. Gujarat is still witnessing a weak housing demand because of Vera. However, with DST entering the state, there's some expectation of demand available in Gujarat as well. Andhra Pradesh and Telangana have been driving demand in southern region with various government projects and Karnataka has also witnessed improvement in demand from commercial and housing segment. Despite political instability, cement has shown signs of recovery in Tamil Nadu also, the demand coming from the IHB segment. As far as road construction is concerned, which has been the biggest driver within the infrastructure segment. During fiscal year '18, NHAI has constructed about 9,829 kilometers of road at a pace of 27 kilometers per day, which is an improvement of 20% in its pace of last year which was at 22 kilometers a day.Road contracts which have been awarded during the year are -- is also at a higher more than 17,000 kilometers. Social housing, again the government had sanctioned 7.7 million units till now, out of which 3.5 million units have already been constructed. It's a long way to go in the 6-year program which the government has announced. The Prime Minister [inaudible] the urban area is having a similar traction. Sand mining is -- sand mining ban and the problem that sand mining was imposing on the industry is almost over. In most of the states, it is coming back to normalcy. Except in Rajasthan, the ban continues as per Supreme Court and is impacting the construction activities to some extent over there. The next hearing of Supreme Court I believe is in the first week of May '18 and we are hopeful that very soon or this quarter will see the end of sand availability from the construction point of view.We believe that the last quarters are the lowest of EBITDA margins due to increasing input costs and the muted price change. With the capacity utilization improving significantly across the country, we believe that the industry will be able to pass on the cost increases as part of the prices and we should see better price setting in this financial year. At UltraTech we saw capacity utilization of 80% in north, 88% in central regions, 76% -- central was 76%, west at 82%, south and east being 70% and 90% respectively. East continues to face pressure of non-availability of rail network because of which there is some restriction on supplies. We have seen a YoY improvement in realization of 5% and 2% on quarter-on-quarter basis. If I were to look at the zonal trends, we saw price improvement about 1% in north, west improved 11%, east improved 16% and south was flattish or a marginal decline of 1%. [inaudible] have seen further improvement as we have stepped in the -- this financial year.That's all from my side. I will be happy to take questions now.
[Operator Instructions] The first question is from the line of Navin Sahadeo from Edelweiss Securities.
So congratulations first of all on posting great set of numbers despite a challenging environment. Two questions. Sir, first is you mentioned about prices so other regions while like on year-on-year basis there is some price -- some bit of improvement. What is leading to low prices in the north region in particular because that remains a laggard and as you in the initial comments said that your capacity utilization including others are operating at a fairly healthy level there?
I guess it's a matter of time only when you will start seeing improvement in prices because the only reason whether the demand is temporary, that could be one phenomena playing the minds of the players wanting to capture market share instead of worrying about prices. I don't see any other logic.
Okay. So, we'll look forward to some nice prices there. My second question was with respect to your greenfield capacity, which you said it's a record time. So there we just wanted to understand what there -- if you can just -- is it the construction period, is it the faster delivery of equipment? What really led to this and is it then like something -- I mean just trying to understand if something like this can be emulated by other players as well as in the lead time for a new plant from a 2 years typical period can just come down to the year or so? Some color will be helpful there.
It all depends upon individual capabilities and efficiency. There is a lot of learning, which will be available from our example. So if people were to act at a similar pace and similar strategy, then obviously a plant can come up in 365 days.
So, you're saying it can be a new norm that a new -- any greenfield project can commission in a year period.
Yes. We will repeat it. I don't know about others, but we will definitely repeat it.
The next question is from the line of Vivek Maheshwari from CLSA.
Few things. First, what is your estimate of fourth quarter as well as full year demand growth in FY '18 for the industry?
I would imagine it will be a double-digit growth.
For fourth quarter?
Yes.
And for full year, what is your estimate, sir?
Around 8%.
Okay. Second, on your own volumes, could you indicate how much would be JPA in the total [ 17.5 million tonnes ]?
It is very difficult, Vivek, because the material moves criss-cross. Lots of people and my board is also asking this question, I'm not able to exactly quantify it. Only detail that you can -- only way you can analyze it is that capacity utilization of these plants has gone up to 74%, 75% in this quarter. So, that is the sales volume out of 21 million tonnes capacity, 75% capacity utilization is for this quarter.
74%, 75% for -- was the average through the quarter, is it?
Yes.
That will make it around 4 million tonnes during the quarter. Correct?
Yes. So, 4 million tonne is under implementation as of now. So you have to...
No. What I'm saying is -- okay, that way.
[inaudible] at your end.
Other thing you said on the -- in your opening remarks is if you adjust for one-off, the profit is INR 677 crores. That's standalone, right?
Yes.
So, this INR 226 crores of one-time stamp duty -- sorry, one-time, is that tax deductible or no?
Yes. So there's a tax impact, tax benefit of that. INR 78 crore is the tax impact, net impact being further around INR 140 crores because of that.
Okay. So, that is tax deductible?
Yes. And INR 41 crore is increase in MAT on opening balance because of surcharge rates going up from 3% to 4%.
Okay. Which is part of the tax -- the deferred tax line, right?
Yes.
Okay. And lastly on the foreign subsidiary where you mentioned about, what exactly went wrong with wastage recovery and investment?
That plant was on a different technology because we have got 5, 7 plants already operational in India. That was an ammonia gas based plant and what was expected to be good technology, the technology was not successful. There were frequent breakdowns, gas leakage, it was a very high risk area; might as well we have -- actually we have scrapped that plant.
Okay. So, the residual value is nothing. INR 75 crore is the net impact and you will not recover anything at all, right?
INR 75 crore is net of residual value.
A small one, but investment in this gypsum mining, what exactly happened over there?
So it's -- it was a small mine about 600,000 tonnes per annum mining capacity and there are much larger mines operational. Due to its own operating capabilities, we saw that the operating costs are much higher than the selling prices and that's why it does not make strategic sense to remain -- put -- remaining stake put in those mines because we are able to procure gypsum directly also at lower price.
Okay. I have just one more bit, if I may. This pet coke, what will be the average consumption cost during --?
$104 during the quarter against -- now it must be anywhere between $110 to $115 per tonne now.
So, that 10% plus hit will be there in first quarter?
First quarter, yes.
Can you do much about it in terms of efficiency over there or that is something we have to factor in?
Overall like this quarter also, we have seen about 3% improvement in power consumption. So, that will definitely help in mitigating the impact of rising pet coke prices.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
I just have one question on the just INR sensitivity to our overall cost because we see certain items like pet coke, imported coal, diesel, et cetera which links with INR depreciation. Would -- I mean would you have a very simple number like 1% INR depreciation leads to what increase in our cost?
No. Largely if I look at it, pet coke as part of cost would come somewhere around 10% of total costs -- 15% of total cost. So, that is the biggest cost driver. Sorry, again I stand corrected, imported pet coke would be 7% to 10% only. That is where the maximum impact on operating costs come from as far as foreign exchange is concerned.
And if we include diesel as well so total impact we would say is -- cost will be 15% to 20%, which will be impacted by INR depreciation?
10% to 12% maybe because diesel impacts directly our road freight. 40% of road freight is linked to diesel prices, others are non-diesel linked prices. So, the logistics cost variation takes place only 40% to the extent of diesel.
Okay. And one clarity on the employee cost. Employee cost in this quarter has declined 9% sequentially. I've always seen that in March quarter it declines, but this time the decline was significantly higher than the past times.
There is a reduction in retiral benefits because of interest rate is [ hardening ].
So, the pension --.
The gratuity accounting or [inaudible] accounting.
The next question is from the line of [ Sneha Banerjee ] from Credit Capital.
So sir, my question is what would the annual demand requirement in Central India be and is there any incremental capacity that is expected to come onstream in that region?
So there is no incremental capacity. The last capacity which came was our own capacity of 3.5 million tonnes. And we -- to answer your other question, just one second. Central India total capacity -- we have about 17.6 million tonne of capacity accounting for 20% so roughly 85 million tonnes market size.
Okay. 85 million tonne market size in Central India and UltraTech caters to about 20%. Am I correct?
Yes.
Okay. Another question that I have is that you said some of your plants are shifting from imported pet coke to imported coal, right? You said some of the plants are being able to switch from pet coke usage to imported coal.
Imported coal or domestic coal.
Yes. So how would -- what would the cost savings be from this shift?
Right now the way we look at it is whichever fuel is cheaper, we need to go in for that fuel. Again prices are moving and there used to be a time when pet coke would be 10% or 15% beneficial in energy terms. That benefit has got eroded so might as well shift into alternate sources.
The next question is from the line of Gunjan Prithyani from JP Morgan.
Two questions. Firstly on the JPA asset, did you say that 74%, 75% is for the -- the average for the quarter or is it the exit?
Average for the quarter, exit was much higher.
And can you share the exit number?
It was 84% or 85%.
Okay. And in the comment you mentioned that the cost difference now is about INR 125 and there's of course the MMDR that you need to -- [inaudible] that you need to pay. So the EBITDA per tonne difference between JPA and the UltraTech standalone asset should be close to about INR 200 a tonne, is that --?
Yes. INR 125 towards its cost and INR 60 towards that MMDR royalty. You put that together, it's ballpark INR 200.
INR 200, okay. And second question, sir, I had was on the addition. Now clearly this has ramped up fairly well and you yourself mentioned that you're looking at M&A, you're accelerating your capacity additions. Could you just give some sense on what are we targeting in terms of where do we want to get to in terms of capacity market share and which are the regions where we are open to exploring more opportunities for additions? And just related question to that, what is the leverage level we'll be comfortable with while exploring these inorganic and organic opportunities?
So, there we will obviously be key in terms of assets through the inorganic route. Obviously we have to be cognizant of compliance with CGI. Having said that, we want to grow in line with the market or at a pace higher than the market. Today -- mother as in the industry. Today, our capacity utilization for the quarter was about 82% all put together. With markets growing at 8% to 10% in the next financial year, we would want to capture our market share of that growth also either by way of acquisition or organic expansion.
Okay. And any geography -- any regional...
East is our focus area; east, north. Within south, extreme south remains our focus area. There's a bit of room from our perspective to expand further in the central market and also northeast.
Northeast, okay. And the leverage that you will be open to while evaluating these opportunities. What is the [inaudible]?
Having done that large acquisition of INR 2,000 crores, I don't think there'll be any similar ticket size of acquisition and we were bit -- that acquisition we had reached about 2.4x debt to EBITDA. So internally, we are prepared to go up to 2.4x, 2.5x for sure. But I don't foresee a possibility of debt levels rising to that higher level because the ticket size of growth -- acquisition will not be so big.
Okay. And on the new capacity additions, can you share the timelines for the JPA the assets under implementation, when do they come onstream and also the Pali project?
So the Bara project, which is a 4 million tonne grinding unit, will come onstream by April-June '19. By April-June '19, that should be the Bara commissioning. And Pali, we are targeting somewhere around anytime in FY '20.
And the 4 million tonne completely comes onstream in April-June quarter for the Bara?
Next financial year, yes.
Okay. And just last question. On this limestone bid that you mentioned, what would be the operating cost that works out at your bid?
So, effective cost or the royalty commitment is INR 537 per tonne.
INR 537 per tonne.
That limestone mine will get commissioned somewhere around 2025 only.
The next question is from the line of Indrajit Agarwal from Goldman Sachs.
I have 3 questions. First, in light of the capacity additions in the industry and of course for FY '19, how do you see prices moving in that? Do you think that there will be enough demand to absorb that and then have a bit of profitability in the year?
Yes. As I mentioned in the opening commentary that last quarter was the lowest in terms of EBITDA per tonne because the cost had been continuously going up and prices had not risen. So, there's only that much of resilience which they should have not to throw back the cost increases into prices. So with capacity utilizations now hitting 75% up -- upwards of 75% for the industry as a whole, I believe that prices correction could happen, prices improvement could happen.
On pet coke you mentioned the trajectory of imported pet coke prices. How do you see domestic pet coke prices?
Unfortunately, domestic has gone up slightly higher than imported pet coke. Domestic pet coke has gone up over 38%, 39% in the same period. That's – one second. Yes, 39% is what we saw in improvement -- increase in domestic prices as compared to 20% increase in imported pet coke. It depends on logic, that's all.
And after Reliance comes in the refinery, do you think there is further upside to those numbers?
Difficult to say. Of course there will be shortage of domestic pet coke, people will switch over to imported pet coke. There's a lot of pet coke available outside India.
One last question from my side, one housekeeping question. Can you give us the white cement and wall care putty volume numbers and the revenue number for RMC and white cement?
4 lakh tonne was the volume for white cement and RMC was about INR 535 crores of turnover was RMC.
And white cement turnover?
White cement turnover is almost identical at INR 536 crores.
Sir, just one question. This is Pulkit from Goldman. Sir, regarding this release of working capital about INR 500 crores that you talk about compared to Q3. Can you tell what are the key drivers for this? Has it got something to do with readjustment of logistics or anything?
No, not related to logistics. It's inventory management essentially and when you're tightening your procurement efficiency so you're able to realize the higher credit.
[Operator Instructions] The next question is from the line of Krithika Subramanian from IIFL.
Sir, Radhakrishnan here. Congrats for good set of numbers and for commissioning Dhar plant in record time. I have just a slight different question what Navin asked so this is on the cost side. So it is mentioned that the cost of setting up the plant is less than $90 per tonne. Is this cost including facilities like CPP, WHR, railway siding, et cetera? Whether this low cost is only for this plant or at industry level also the cost has gone down?
So in our configuration, yes, we don't a WHRS -- sorry, don't have a railway siding in this plant. We have WHRS instead of a bar plant so that equates the cost. Other than railway siding, I think it is a like-for-like comparison for any full blooded integrated capital -- integrated cement plant of this size, 3.5 million tonnes.
So can we largely assume that at industry level also for a greenfield plant, it will be ranging between $90 to $100 now, sir?
It depends upon individual efficiency. I'm not able to comment on the capability of other...
For us also going forward, at least you can say temporarily.
Yes. From UltraTech's point of view, this is our benchmark.
Sir, just a follow-up on that. So if it is going to be like this, whether our expectation of profitability on per tonne basis for calculation of IRR would have come down?
Theoretically yes.
Okay. Sir, just if I can squeeze one more question, which is based on the presentation you have used for the month of March. Sir, in that you have mentioned that the southern region market share is 34%. Is that based on the volumes or capacity?
It's always on capacity. Don't know volumes [inaudible]. There's no data available.
The next question is from the line of Ritesh Shah from Investec Capital.
Sir, my first question is on the trade and non-trade mix for us. How have the numbers moved on a sequential basis and if you could provide some color on the pricing as well, how it has changed?
So in this quarter our trade share has increased by 1% compared to Q3.
Okay. And sir, on the pricing basis between trade and non-trade, how should one look at that?
So, generally non-trade billing prices are lower because we don't have to pay the dealer commissions and discount. But if you see it late realization level to the company, there is only marginal difference in case of non-trade, it is more or less similar.
Okay. Sir, secondly the industry where in the last conference call we had indicated we are expecting 35 million tonnes of capacity addition. Can you provide some color on how the number will look like in FY '19, FY '20?
I'm looking at 20 million tonnes to 25 million tonnes.
That is in FY '20?
Both years, '19 as well as '20.
Okay. And sir, for our expansion at Dhar clinker facility, what is the status like?
It should start clinkerization from September.
Okay and this 2.3 right, clinker?
2.2.
Okay. And sir, last question on pet coke, how much is the mix currently in the power plants and specifically with the....
Power plants don't have pet coke now, zero.
Okay. So, we already moved to 0%?
Yes.
The next question is from the line of Antariksha Banerjee from ICICI Prudential.
Congrats on your good set of numbers especially...
Excuse me, this is the operator. Mr. Banerjee, can you speak closer to the phone, please?
Yes, is it better now?
Thank you, sir.
So I just wanted to ask regarding your cost efficiency, how much has the lead distance reduced by? So Slide 11 mentions 3% and 6% that you mentioned in Slide 16 is what you aspire to achieve? Is that what I'm reading?
No, it's quarter versus annual. So 3% is a quarter-over-quarter improvement while the 6% is YoY improvement for the full year.
Okay. And the other thing is you've already achieved an 85% exit utilization in the acquired asset, but you've -- I mean the PBT breakeven target still remains 5 quarters from now. So, are you not seeing any bullish momentum in realization or...?
I want to surprise you guys.
Okay. And the last one thing is something interesting you just mentioned is you're also looking at northeast. So is that an organic process or I mean what you have on your mind?
We'll let you know as we are ready to disclose the plans at an opportune time.
The next question is from the line of Ashish Jain from Morgan Stanley.
Sir, firstly on other expenses --
Ashish, you didn't like our numbers. Carry on, sorry.
The numbers are great, sir, no doubt. Sir, on other expenses, why is the growth so low relative to our volume growth? So, what's helping other expenses?
It's higher capacity, volume's absorbing the cost I would say.
All the expenses are not grown proportionately.
No, sir, I understand, But if I see on a per tonne basis, they are down like 6%, 7% and I would believe this would include stuff like packing material, repair and maintenance, which would have seen growth because of either crude or because of the increase...
Ashish, cement industry there's no operating leverage. 75%, 80% is variable cost. So fixed cost component is so small and higher the volumes, the fixed cost remaining same, per tonne you will see an improvement.
So, there is no one-off here?
No one-off.
One-off I spoke about on the call.
Okay. And sir, also in employee costs, what is the impact of the reversal on the future payables, gratuity and all?
INR 20 crores, INR 25 crores.
Okay. That's about right. Secondly, on the Dhar acquisition, you spoke about the cost, now does it include the land acquisition cost or...?
Yes, all inclusive.
That's all inclusive.
It's not the acquisition, it's a greenfield.
Yes, sorry, I meant the expansion. And then lastly on the Pali expansion, with your earlier comment on [inaudible] probably being the new norm for you. Then why are we so -- why Pali commissioning is more...
From the start of groundbreaking, it'll be, I'm sure we can do it within 365 days. We haven't yet started serious work on that.
The next question is from the line of Anshuman Atri from Haitong Securities.
Congratulation on a strong performance. My question is regarding the new channels. You mentioned that the channels are helping you to grow faster than the industry. Example in RMC, you've increased the share, UBS contribution is [inaudible]. So. how do we see it going forward and to what kind of growth we'll see about the industry forward-looking?
So, RMCs will continue to grow not only for us. Whoever is operating an RMC will continue to grow because it's being led by the infrastructure industry, which is demanding volume bulk or RMC. And from our perspective, our trade channel which is -- our retail channel which is UBS, we continue to expand the network across the country which is helping our sales volumes. There is no target number because India is a large network and our presence wherever we are present, we will continue to expand in and around our marketing networks.
Okay. The second question is regarding the limestone auction. Sir, we are seeing increase in prices with every auction. How do you see the trend going forward as to is there a dearth of material or is it expecting demand people are getting...?
It is the importance of the mine that each relevant player might attach to. We found this mine very strategic. It is very close to our Hirmi Rawan plant, which will help us in our future greenfield expansion. Limestone quality being good, good quantity of limestone available, very close to our plant is all -- drove our decision.
The next question is from the line of the [Vijay Johan ] from Jefferies Equity Research.
Can you just tell me volume detail regarding RMC and cement and white cement?
White cement was about 4 lakh tonne, RMC rupee value was about INR 535 crores.
The next question is from the line of Mohit Jain from Deutsche Bank.
Amit Murarka here. Just on the fuel side, just wanted to understand now that generally we've seen such a large inflation in pet coke and coal and now fuel. So what is the thought on industry moving gradually into more of AFR usage and what are the constraints there just to understand?
Constraints on AFR is largely availability in the country and the distance that the AFR has to travel. In some of our plants, one particular plant which is down south, we are 14% or 20% -- I don't remember the number, 20% now of our overall fuel mix we have already reached AFR. So, it's more about access to AFR and there is -- the industry will have to do some capital investment, which UltraTech has already done with, for the kiln to be able to consume alternate fuel.
Okay. And on JPA, so just to understand pricing for all the JPA production is now at par with UltraTech, right?
Yes.
The next question is from the line of Vaibhav Agarwal from PhillipCapital.
Can you just share the consolidated volume numbers, please?
It is 19.45 million tonne. This includes all white cement and putty also.
Okay. 19.45 million tonne, right?
Yes.
The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher.
Sir, just wanted to know about the increase in realizations quarter-on-quarter. Sir, it would be very helpful if you can say it region wise.
Realizations by quarter-on-quarter?
Yes.
Quarter-on-quarter, roughly 2% improvement in realization.
No sir, I mean to say region wise.
Region wise? I don't have it readily on region wise basis.
And like region wise, the improvement like the quarter-on-quarter improvement realization which we have seen. So is it primarily because of the increase in share of regions or it is simply because of the market movement?
There was definitely an impact of central markets coming into our whole firm -- within our market share from 1% going up to more than 20%, 25%. Barring that, I think it is no different. Every market has its own pricing behavior.
But in terms of regions, let's say, the mix which was there in this quarter, I know that exit trade has been much higher compared to the quarter average. But let's say the month average the exit trade which is there, so is it more or less stabilized or we are going to see further change in the mix going forward?
So, you're asking about trade mix?
No, I I'm asking about the region mix.
Region mix is to my mind stabilized now. So central plants, central markets are operating at good capacity, small movement will not be too material.
Okay. So like say prior to the JPA acquisition, you never used to have the central region, you used to have only the northern region. Now I believe you would be having the central region alone. So, the central region is entirely UP or you mean to say that UP and --.
UP and MP is constituting our central region.
The next question is from the line of Saumil Mehta from BNP Paribas Mutual Fund.
My question is on the record timeline for less than 365 days and a very attractive $90. So should we believe that going forward our acquisition strategy will take a back seat since you can set up plants in a much more cost efficient and a timely manner?
No. Acquisition will play an important role. Being a greenfield, as we go along will become a little more complex because you do have to wait for a mines auction, acquire mine and land acquisition becomes a slower process. So, therefore the route is obviously inorganic over organic.
What is in for Binani acquisition as in what can be the potential IRR target at the revised bid which we have offered to them?
I don't look at the standalone assets in terms of their returns because they form part of an overall network and how the overall network of UltraTech is, it's difficult to quantify it on a standalone basis.
So even if I look at the entire region wise, it's not a particular asset, the north region because that would have benefited some of that capacity in that region. Does it still sit in our overall IRR objective?
Yes, it does.
And that I assume would be on a much expanded capacity than what....
Close expansion.
The next question is from the line of Sumangal Nevatia from Macquarie.
Most of the questions are answered, just 2 left. I joined the call late so please excuse if this is discussed. One, on the cost difference between JPA and our organic asset, you said it's around INR 150 --.
INR 125.
Okay, INR 125, all right. So I mean do we expect this to narrow down going forward?
Yes, I guess I would give April-June quarter for it to narrow down to normalized levels.
And when we said we exited at around 84%, 85% utilization, can we assume FY '19 we might exit closer to 90%, 92% and average somewhere in between?
Difficulty to say, but yes, I think our ambition will be to be above 80% for the acquired assets.
And closer to 90% will be the peak where we can achieve, right?
I don't know that.
The next question is from the line of Abhishek Ghosh from Motilal Oswal.
Congratulations on a great set of numbers. Just if you could help me with the regional utilizations that -- I don't know if you've already given in the call the regional utilization numbers?
Regional utilization I didn't mention; but north we were somewhere around 88%, central about 76%, east 90%, west 82% and south about 70%.
Okay. So just coming to one thing. Given that now we are talking about the acquired assets at about 85% utilization in which south is almost about 30% where the utilizations are much lower. So, would that constrain us from going beyond 85% on a consistent basis?
When we have achieved 85%, I think that becomes surely a base line number and you rightly said south is the lowest in terms of capacity utilization. However, south is improving. I think 3 of the states or almost everywhere; Andhra, Telangana are growing very fast, Karnataka we are seeing some action and last quarter was pleasant surprise from Tamil Nadu also where the housing segment demand has been improving. So, south is growing.
Okay. So, you think that can catch-up now in terms of....
Yes. I don't expect it to go the 80%s, but 70% that we have achieved should be able to stay.
Okay. And the Dhar and the Bara grinding units which are going to get commissioned over the next 12 months, do you expect them to achieve utilization or achieve the regional trend in about 12 months from the commissioning?
I'm sorry, I missed you. What?
So I'm saying in terms of our central capacity addition, we're adding Dhar and the Bara units in terms of 4 million tonnes and 3.5 million tonnes which is getting added now to about next 12 months and they should achieve -- so regional utilization levels of the central region from about 12 months from the time of when they're commissioned?
Yes, absolutely.
The next question is from the line of Alok Ramachandran from Future Generali.
Can I have the clinker volume?
I don't have it, it was very insignificant. So, if we look at cement as a consolidated number.
The next question is from the line of Raj Gandhi from SBI Mutual Fund.
On this INR 125 cost differential, that is the INR 125 difference versus your targeted cost for JPA or your own UltraTech cost?
Targeted cost for JPA. So there will be one statutory difference, which is about INR 64 a tonne, and there are some structural differences because of hilly terrain, one of the plants is high up in the hills so there the cost of moving raw material is higher or some plants are land locked and cost of moving material becomes higher. So, it's our targeted cost difference.
So, how much would be our targeted cost, let's say, ex of that INR 60 royalty differential? How much is the difference between the targeted cost of JPA and UltraTech, structural difference?
Structural difference, that's not too high. One is INR 64 of royalty. On a cement converted basis, it comes somewhere around INR 70 and there could be INR 10 or INR 20 of other differences.
Okay. Just INR 10 or INR 20 of other differences.
Yes, not too high.
Okay. And sir, just on northeast plants, I didn't see any specific comment on the PPT or anything. So any specific comment as of now for northeast?
I just said we are looking at opportunities.
Okay. Is it related to the mining auctions coming up there? We have some limestone auctions coming up there?
I haven't heard of any auction date announcement as yet.
The next question is from the line of [ Pradeep Maheshwari ] from Ambit Capital.
Sir, just one question regarding what would be the clinker to cement ratio right now -- cement to clinker right now?
1.34 -- 1.32 exactly actually.
1.32. Sir, could you just tell me what it was last year?
We always are between 1.32 to 1.34 depending upon the blended cement ratio change.
Okay. It didn't reduce because of the infrastructure demand?
No, not too much.
The next question is from the line of Akshit Gandhi from Kotak Mutual Fund.
Congratulations on a good set of numbers. First question, how much would be the fiscal incentives for FY '18 which we would have booked?
For full year, right?
Yes, full year.
About INR 300 crores.
About INR 300 crores, which I believe last year was INR 141 crores, right.
Yes.
Okay. And second, while you commented on the pricing scenario. Just wanted to reconfirm whether in the northern region the trade and the non-trade, both the segments have seen a price improvement post March. Is that correct?
Very marginal, but yes, both the segments have seen improvement. So it's not something great but yes, it's in the positive direction.
We take the last question from the line of Vivek Maheshwari from CLSA.
Sir, one follow-up and I know a couple of questions have been asked around it. But you are saying USD 90 is the new greenfield cost and in the past that number used to be $130. So, how has there been such a big delta? What has reduced essentially in this greenfield?
Can we keep our secrets?
Yes, you can. But my point is does that -- on one hand you are saying that in a record time you are able to put up a plant in a year, on another hand you're saying greenfield is going down. So, the entire theory that was there that entry barriers are rising in the sector. I mean isn't -- aren't both arguments....
Let me decipher it for you. One is this mine is not under auction, the Dhar plant. So, land acquisition we completed long time back. If you were to start a greenfield today on the basis of an acquired mine, my guess is it will go above $100.
Okay. Because again acquired mine doesn't have a big CapEx, right. The point is in this $90, essentially only the land...
The acquired mine has the land CapEx, which shoots up, the price goes up.
That is right. That is what I'm saying. So essentially, land will be the delta, right?
Yes. From the capital cost point of view, land will become our delta could add $10 to $15 per tonne.
So, you are saying even on an acquired mine the CapEx will be $100, $105 as against $130?
Somewhere around that, yes, going by our experience.
I see. Against $130 that you used to say a couple of years back?
Yes.
Okay. In that context again, why should you...
This time could improve, right.
No, that's great. But I'm saying why should you then be aggressively pursuing the Binani acquisition if that is the case?
It all depends upon strategic value of the asset. Now I don't have enough limestone there in Rajasthan. This asset comes with high quality limestone and ample limestone. So for doing an expansion, it's a good asset. All inorganic will not be at the same price, mind you.
No, I understand. But I'm saying if let's say $100 is the new benchmark, you will require a particular -- or let's say industry requires a particular EBITDA or profitability for generating enough returns. Does that mean that Binani will then be -- will be definitely dilute or decisively dilutive then? Because the benchmark itself is $100 as in will not generate enough IRRs or returns?
No, it will. It will generate enough IRR. We know ways and means of how we will go about it.
Thank you. Ladies and gentlemen, I would now like to hand the conference over to Mr. Daga for his closing comments. Over to you, sir.
Thank you, everybody, for joining us on this call. I realize we -- our board meeting got extended and the results were available to you for a very short period of time, but I've had some interesting questions. I think the financial year has begun on a promising note for the cement industry with high volumes going up, the industry coming back into the up cycle and UltraTech is very well poised and will surge ahead full throttle. In the end, I'll say that we do what we promise and promise only what we do. Thank you and have a good evening.
Thank you very much, sir. 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.