India Cements Ltd (INDIACEM) Q2 FY23 Earnings Concall Transcript

India Cements Ltd (NSE:INDIACEM) Q2 FY23 Earnings Concall dated Nov. 07, 2022

Corporate Participants:

N. Srinivasan — Vice Chairman & Managing Director

Analysts:

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

Manish Ostwal — Nirmal Bang Securities — Analyst

Amit Murarka — Axis Capital — Analyst

Krishna Kumar — Lion Hill Capital — Analyst

Ritesh Shah — Investec — Analyst

Sourav Chakraborty — Dolat Capital — Analyst

Pratik Kumar — Jefferies — Analyst

Ravi — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to The India Cements Q2 & H1 FY ’23 Earnings Conference Call hosted by PhillipCapital India Private Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital India Private Limited. Thank you and over to you sir.

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

Thank you Thanvi. Good afternoon everyone. On behalf of PhillipCapital India Private Limited, we welcome you to the H1 FY ’23 call of the India Cements Limited. On the call we have with us the entire senior management team of the India Cements.

I would like to mention on behalf of the India Cements Limited and its management, that certain statements that we may be made or discussed on this conference call may be forward-looking statements related to future developments and the current performance. These statements are subject to a number of risks, uncertainties and other important factors that may cause the actual developments and results to differ materially from the statements. The India Cements Limited and the management of the company assumes no obligation to publicly update or alter the forward-looking statements whether as a result of new information or future events or otherwise.

I will now hand over the floor to Mr. N. Srinivasan, Vice Chairman and Managing Director of the company for his opening remarks, which will be followed by interactive Q&A. Thank you and over to you, Srinivasan sir.

N. Srinivasan — Vice Chairman & Managing Director

Thanks Vaibhav. Good afternoon ladies and gentlemen. The second quarter India Cement Limited posted a loss, which is the highest in its history so far. What caused this? An unprecedented rise in the cost of coal, which naturally increased the cost of production, which could not be compensated by an immediate price increase. As a result of which — the cost increased because of direct fuel cost, it increased because of the cost of power, coal for power also went up. And packing materials. As a result of this, it was impossible at that time to immediately pass on the increase in cost to the consumer, so we had to bear it. There is no other reason, except that the material cost of coal shot through the roof [Indecipherable] the factories were okay. We really did not have any other reason for the increase in cost and consequent variable costs going up amid what was 2,300, 2,100 went up to 3,600, 3,700 and it was not possible to —

What happens now? We have now — the cement industry as a whole I think as seen the cost increase and as a whole I think there is a general feeling that all prices must go up. We are seeing signs of it with last month we had there was an increase and this month there will be a further increase. So I expect that by the end of this month the prices of cement — cement prices would have gone up to such extent that they will — for all companies it will be close to breakeven. Next month, the increase contemplated will push cement industry into the black. This is the plan. Hopefully it [Indecipherable] and If you ask me, I have no doubt that it will [Indecipherable].

I’m happy to take any questions that members have.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang Securities. Please go ahead.

Manish Ostwal — Nirmal Bang Securities — Analyst

Yes sir, thank you for the opportunity. My first question on the — our average coal cost per ton in this quarter compared to quarter one FY ’23?

N. Srinivasan — Vice Chairman & Managing Director

[Speech Overlap] Just a minute, I’ll get the –. 50,552 [Phonetic]. 20,552 [Phonetic]

Manish Ostwal — Nirmal Bang Securities — Analyst

Versus last quarter sir?

N. Srinivasan — Vice Chairman & Managing Director

17,285 [Phonetic].

Manish Ostwal — Nirmal Bang Securities — Analyst

Secondly, sir, you comment about the industry turning into black in the next quarter. So how is the pricing after the festive season in the market?

N. Srinivasan — Vice Chairman & Managing Director

I’m not talking of the industry as a whole it is possible that the industry will turn into the black provided people increase the prices. After the festive season the demand is brisk. Demand is showing signs of picking-up after Diwali.

Manish Ostwal — Nirmal Bang Securities — Analyst

Right sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amit Murarka from Axis Capital. Please go-ahead.

Amit Murarka — Axis Capital — Analyst

Hey, hi good afternoon, thanks for the opportunity. So on the — continuing on the power and fuel costs so, what kind of decline are we expecting in the third quarter and that number?

N. Srinivasan — Vice Chairman & Managing Director

You see I’m not expecting decline in the cost of coal. Coal — for example, if you were to import American coal, the lead-time is two and half months. So I should have booked coal now. The coal I have booked is at current prices which will land — so for two and half months there will be no effective increase, decrease in the cost of coal. What I meant was that the price of cement will go up. The margins will reappear not because the coal cost is going down, it is because the cement price is going up, which is what we expect.

Amit Murarka — Axis Capital — Analyst

Okay, understood. Also on the volumes, like can you please share the number or break-up in terms of what was cement sales and clinker sales?

Unidentified Speaker —

22.23 lakh tons was cement sales and clinker was [Indecipherable] sorry, 22.54 lakh tons was the sale of cement and 0.04 lakh tons was sale of clinker.

Amit Murarka — Axis Capital — Analyst

22.54 lakh tons and 0.4 lakh tons.

Unidentified Speaker —

Right. 22.54 in total clinker and cement put together.

Amit Murarka — Axis Capital — Analyst

So 22.54 lakh tons which includes 0.4 lakh tons of clinker.

Unidentified Speaker —

[Indecipherable]

Amit Murarka — Axis Capital — Analyst

Sorry.

Unidentified Speaker —

[Indecipherable] in terms of clinker sales. 0.04 lakh tons.

Amit Murarka — Axis Capital — Analyst

0.04 lakh tons. Okay, got it. And also like generally after the entry of Adani like generally there is an expectation of consolidation in the sector and all that so what are your views on that like do you also think that there could be a lot of consolidation here?

N. Srinivasan — Vice Chairman & Managing Director

I’m busy trying to increase the price of cement. See the consolidation if it happens, it happens. But I have no view.

Amit Murarka — Axis Capital — Analyst

Okay. So far I mean as a service business-as-usual as of now even though [Speech Overlap]

N. Srinivasan — Vice Chairman & Managing Director

Yeah, it is business-as-usual.

Amit Murarka — Axis Capital — Analyst

Okay. And the last question is also there was some change in the discounting structure and pricing structure that was being attempted after the change of ownership. So how do you think this will impact the price realizations generally for the industry?

N. Srinivasan — Vice Chairman & Managing Director

People do not — they wanted the invoice price to be respected and you sell that the invoice price. Don’t allow the sales at a lower-price and then compensate the dealer later. This is what was suggested by the Adani. Some companies have accepted and adopted it although everyone accepted it. It is followed by some — by not — by some not.

Amit Murarka — Axis Capital — Analyst

Okay. So it is not — it’s not industry-wide that this has happened then?

N. Srinivasan — Vice Chairman & Managing Director

You see the attempt is industry wide.

Manish Ostwal — Nirmal Bang Securities — Analyst

Okay. Fine but does the does not reduce the price flexibility and ability to kind of react to demand patterns and all that in case this happens?

N. Srinivasan — Vice Chairman & Managing Director

So which you say is the — are you saying that the new system is better than the old system?

Amit Murarka — Axis Capital — Analyst

No, I’m saying in the new system doesn’t it reduce the flexibility to react to changes in-demand and that if you follow the invoice pricing.

N. Srinivasan — Vice Chairman & Managing Director

Ultimately in any product [Technical Issues] can you buy it less than the invoice price. So it is a — it’s a good system, but It needs a lot of concentration and lot of effort to make it happen. Some companies are doing it very well. Some are halfway, but I think ultimately it is a good system for the industry.

Amit Murarka — Axis Capital — Analyst

Sure. Got it thank you.

Operator

Thank you. [Operator Instructions] Krishna Kumar from Lion Hill Capital. Please go-ahead.

Krishna Kumar — Lion Hill Capital — Analyst

Good afternoon sir. Congrats on a set of numbers which are reasonably good given the environment that we have been operating in. Sir, just a question on the pricing that’s happening in the industry, we have also other players in south which have commission capacities and also on the branding side also added capacity so. Given the current environment of supply etc. is it reasonable to expect pricing to be stronger sir in the next six months to one year at least given that so much supply also coming to the market sir?

N. Srinivasan — Vice Chairman & Managing Director

Cement is a product where if one, I mean you can choose volume, you can choose price. If you chose volume over price, you will have a problem because our experience shows. That even though more capacity can — I don’t know what — the integrated capacity in south is coming. In South, I’m talk in Tamil Nadu. The other grinding units they need clinkers from some source. But to answer your question I expect pricing to be strong.

Krishna Kumar — Lion Hill Capital — Analyst

So the other question is on this — on the transaction we have been early October. So we have about another INR100 crores to be received basically so is it the correct understanding sir on the transaction —

N. Srinivasan — Vice Chairman & Managing Director

You mean transaction of India Cements? [Speech Overlap] we have received INR500 crores, we are yet to receive INR100 crores.

Krishna Kumar — Lion Hill Capital — Analyst

And this completely goes towards balance sheet reduction in terms of debt sir, the consideration?

N. Srinivasan — Vice Chairman & Managing Director

See what we have done is about INR200 crores has gone for correcting the current ratio. Balance money is sitting as a reserve. We will repay all our obligations, the debt obligations without touching this cash hold.

Krishna Kumar — Lion Hill Capital — Analyst

Okay, sir. Thank you sir, thank you, very much sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Yeah hi sir thanks for the opportunity. Sir couple of questions. First is on power and fuel cost, can you indicate on a rupees per kcal basis, how much was it for the quarter and in the prior quarter?

Unidentified Speaker —

INR3.26 per quarter — per kcal.

Ritesh Shah — Investec — Analyst

So that was in Q2 and in Q1?

Unidentified Speaker —

INR2.69 per kcal.

Ritesh Shah — Investec — Analyst

INR2.69 per kcal. And sir can you give directional basically some commentary on how it could actually fell into Q3 or Q4 based on the inventory that we have or the bookings that we have done?

N. Srinivasan — Vice Chairman & Managing Director

The expectation is that coal will be closer to three and maybe just a shade under INR3 per kilo cal.

Ritesh Shah — Investec — Analyst

Okay. So this looks higher than what we had in this quarter so is on back of — are we carrying some high cost inventory or is it on the back of the trend line that we are looking at when it comes to the fuel prices?

Unidentified Speaker —

It will be lower than quarter two. Quarter two 3.26 [Phonetic] quarter one [Indecipherable] So we are expecting third quarter to be around hovering around INR3.

Ritesh Shah — Investec — Analyst

INR3. Perfect, Perfect that helps. Sir my, second question was on pricing. Srinivasan, you said you indicated that few mills are actually going hard on reducing the price between the invoice [Indecipherable] wanted to understand broader at industry level, why would a few mills actually not to do this because it is in the benefit for everyone right. If you could broadly explain at industrial level that would be very useful?

N. Srinivasan — Vice Chairman & Managing Director

I cannot answer for the other what they do because, all I can say is suggestion made that why not have greater importance to the invoice price, I agreed. I hold the same view. So slowly people will change to it.

Ritesh Shah — Investec — Analyst

Sure, Sir. I had related — not exactly a related question, but more on taxation. Recently government came up with a notification wherein if it comes to gold coins, or overseas trips that we do it for the dealers there will be an additional tax also on that. Sir what will be our stance over here how should we look at it so if you’re giving gold coins to dealers how should we look at it like [Indecipherable] math stage. How should we understand this sir?

Unidentified Speaker —

Most of our discounts are only through credit notes. Only a fraction of discount is given at gold coin. Wherever gold coins are issued [Indecipherable] the new section, 194R came into effect. We are deducting tax and remitting to the government.

Ritesh Shah — Investec — Analyst

Okay, that’s quite helpful. And sir lastly, question on Springway. Sir, when we — so we got pretty decent valuations over that. I just had a clarification did we have any incentives on that particular asset from the state government?

N. Srinivasan — Vice Chairman & Managing Director

No, we did not start producing [Speech Overlap] separate company so there is nothing to comment. [Indecipherable] one of the investors here.

Ritesh Shah — Investec — Analyst

Okay. That helps sir, thank you so much for the sir. Wish you a good luck.

Operator

Thank you. [Operator Instructions] The next question is from the line of with Sourav [Phonetic] Chakraborty from Dolat Capital. Please go ahead.

Sourav Chakraborty — Dolat Capital — Analyst

I think first on the [Indecipherable] facility. I would like to know [Indecipherable] for this quarter.

Operator

Your voice is not very audible. If you are wearing any hear phones please remove it.

Unidentified Speaker —

[Indecipherable] 7% pet coke.

Sourav Chakraborty — Dolat Capital — Analyst

Sir can you please repeat that. I was not able to hear it. You said 7% pet coke right?

Unidentified Speaker —

Pet coke is 11%.

Sourav Chakraborty — Dolat Capital — Analyst

Okay, got it sir. Sir, then also can you please — I like to know the consumption cost per kcal in Q2 FY ’22? Consumption cost per kcal in Q2 FY ’22?

Unidentified Speaker —

1.67 [Phonetic].

Sourav Chakraborty — Dolat Capital — Analyst

1.67, okay. Got it sir. Sir and also last question on the pricing front, so you said that you saw price hike both in October and in November. Can you quantify that number, I mean by how much did you see that increase in October and also in November starting whatever you saw?

N. Srinivasan — Vice Chairman & Managing Director

The full invoice price we did not get. But we got an increase for [Indecipherable] way it is, that was different — in different states we got different prices For example, Maharashtra, Gujarat, MP, Rajasthan East, we got nothing, there no increase at all whatsoever, whereas in, Tamil Nadu, Kerala, Karnataka, Andhra, Telangana we got between 30 to 40 rupees so you are looking at the average of total sales, that is a price increase. INR15-20 rupees is being attempted from third of November.

Sourav Chakraborty — Dolat Capital — Analyst

Okay, thank you sir. Sir and also this last question on the volume front, can you please share the volume for Q2 FY ’22, I mean last year quarter two.

Unidentified Speaker —

22.53 lakh tons of cement and 1.07 lakh tons of clinker.

Sourav Chakraborty — Dolat Capital — Analyst

Okay. That’s all sir. Thank you so much, yeah wish you all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pratik Kumar from Jefferies. Please go ahead.

Pratik Kumar — Jefferies — Analyst

Yeah good afternoon sir. My first question is on the segmental data, which you didn’t make give shipping windmill and RMP revenue and EBITDA?

Unidentified Speaker —

[Speech Overlap] Shipping revenue for the quarter 14.43. And EBITDA is 3.92 crores. Windmill is 8.02 crores of total revenue, EBITDA of [Indecipherable] RMP is 29.16 revenue and EBITDA of 2.28 crores.

Pratik Kumar — Jefferies — Analyst

Sir how much was the windmill EBITDA you mentioned? [Technical Issues] You mentioned windmill revenue and INR8.02 crores, EBITDA was how much?

Unidentified Speaker —

6.61[Phonetic]

Pratik Kumar — Jefferies — Analyst

6.61[Phonetic]

Unidentified Speaker —

Revenue was 8.0 to 0.22 [Phonetic] and EBITDA of 6.61[Phonetic].

Pratik Kumar — Jefferies — Analyst

Okay. And one of the net-debt position as of first half FY ’23? Net-debt position as off 1H23?

Unidentified Speaker —

Total debt as of September 30 — not much of difference. Total debt is INR22.37 crores. INR2937 crores as of September 30.

Pratik Kumar — Jefferies — Analyst

And they should go down by 500 crores effect [Indecipherable] money from the sale of MP business?

Unidentified Speaker —

Not INR500 crores, INR300 crores.

Pratik Kumar — Jefferies — Analyst

INR300 crores, okay. And just one question on last quarter call we mentioned about — there was some queries from CCIA from various companies in South and in other regions has that thing be settled now or it has like being pushed to later periods?

N. Srinivasan — Vice Chairman & Managing Director

There is no action on that.

Unidentified Speaker —

We have not heard anything about it. We have filed our replies and waiting for response from [Indecipherable]

Pratik Kumar — Jefferies — Analyst

Sure sir. These are my questions thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ravi, Individual Investor. Please go ahead.

Ravi — Individual Investor — Analyst

My question is can you please provide the RMC and shipping windmill segment-wise data quarter-on-quarter as well?

Unidentified Speaker —

RMC, Q1 total revenue was INR26.04 crores and EBITDA was INR0.46 [Phonetic] crores. Windmill, total revenue of INR5.66 crores and EBITDA of INR4.04 crores. Shipping INR3.32 crores is total revenue and negative of INR1.39 crores.

Unidentified Speaker —

RMC for current quarter was?

Unidentified Speaker —

RMC for current quarter was INR29.16 crores of total revenue and INR2.38 [Phonetic] crores of EBITDA.

Ravi — Individual Investor — Analyst

Okay sir. Thank you so much all the best for your future.

Operator

Thank you. [Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Vaibhav Agarwal for closing comments.

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

Yeah, thank you. On behalf of PhillipCapital India Private Limited, I would like to thank the management of India Cements for the call and many thanks for participants joining the call. Thank you very much sir. You may now conclude the call Thanvi, thank you.

Operator

[Operator Closing Remarks]