Ambuja Cements Ltd (AMBUJACEM) Q3 FY23 Earnings Concall Transcript

Ambuja Cements Ltd (NSE:AMBUJACEM) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Vinod Bahety — Chief Financial Officer

Ajay Kapur — Chief Executive Officer

Analysts:

Ritesh Shah — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Pinakin Parekh — JPMorgan — Analyst

Navin Sahadeo — Nuvama Institutional Equities — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Girish Choudhary — Avendus Spark — Analyst

Ashish Jain — Macquarie — Analyst

Hiren Dasani — Goldman Sachs — Analyst

Rakesh Vyas — HDFC AMCXLRI — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to Ambuja Cements ACC Limited Q3 FY23 Earnings Conference Call hosted by Investec Capital Services. Please note, this call is only for buy-side and sell-side analyst.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ritesh Shah, analyst [Indecipherable], Head, Mid-Market Coverage, ESG from Investec Capital Services. Thank you, and over to you sir.

Ritesh Shah — Analyst

Thank you, Lisan. I on behalf of Investec thank you for joining Ambuja Cements ACC Limited Q3 FY23 conference call. We shall have a detailed business update from the management and the way forward. Today we have with us Mr. Karan Adani, Chairman, ACC, and Director, Ambuja Cements. We also have Mr. Ajay Kapur, CEO of Cement Business; and Mr. Vinod Bahety, CFO of Cement Business.

I would hand over the call for the prepared remarks, post which we will have a Q&A session. Over to you, Vinodji.

Vinod Bahety — Chief Financial Officer

Yeah, thank you very much Ritesh; thanks Lisan. Good morning, all of you. On behalf of Mr. Karan Adani, Mr. Ajay Kapur, myself and on behalf of the management team, I welcome all of you. Thank you for joining us today for the analyst call.

Let me provide some highlights of the performance of December quarter, and I will right now discuss on a consol basis. This has been our first full-fledged quarter under the new promoter, Adani Group. The Company has in real sense embarked on a transformational journey, which has resulted in sizable operational efficiencies across all the business parameters and which has resulted into a good jump in the financial performance quarter-on-quarter.

On the industry level, the cement industry saw higher capacity production with a good pickup in demand during the quarter. We have seen a healthy increase in our topline of around 11% coupled with a good reduction in the overall cost. The cost optimization is led by reduction in the overall fuel cost. [Indecipherable] I will speak a little more in detail and the other operational efficiencies. This has helped us to improve the EBITDA margins, which has expanded be 8% from 6.1% to 14.4%. A notable point here is also the synergies between both the companies, the parent company Ambuja and its subsidiary ACC, as well as with Adani Group.

On the EBITDA level, EBITDA has jumped by 161% at an absolute amount of INR1,138 quarter-on-quarter. This is led by a higher revenue base of INR8,036 crores. And we expect this trend to continue in the coming quarters when we will see a full impact of our performance improvement levers.

Net revenue was sequentially up by 11% and year-on year 4%. We, with our new capacity of Ameta, which we are targeting, it will be commissioning somewhere in March and the commercial production will start somewhere in Q2, and this includes 3.3 million tons of the clinker capacity and 1 million tons of the grinding unit, and also debottlenecking of additional capacity and asset sweating, we expect our topline to be moving healthy going forward. We have a strong product portfolio, a strong brand legacy with strong brands along with premium products in our core markets, and we continue to have market leadership on those core markets.

Overall, an important factor, on per metric ton my cost has come down by INR283, which itself we a bump to the EBITDA by INR220 crores. And as I said in my earlier remarks, fuel cost has been a mover in this factor. We expect to optimize further our cost by leveraging the synergies from the adjacency businesses of Adani Group apart from our initiatives on improving overall efficiency factors.

On the volume front, we achieved growth of 7%, and as I mentioned, the trend continues to be positive on back of the increased capex on the housing, on the infrastructure. Budget has been also very positive for this sector.

On the cost front, some of the key achievements, and these are likely operational factors quarter-on-quarter, kiln fuel cost has substantially reduced from INR2.84 per 1,000 kilocalories to INR2.45 per 1,000 kilocalories, thereby resulting into an overall decline of, say, 14%. Logistics cost reduced by almost 6% and it is now residing at INR1,339 per ton. And we have furthermore initiatives planned here to bring it down. The raw material cost has come down 5% from INR703 per ton to INR667 per ton.

On a standalone basis, for Ambuja Cements, it has also recorded a substantial jump in the sequential EBITDA by 103% at INR715 crores. The net revenue subsequent — sequentially up by 13% and year-on year-by 11%. It stands at INR4,218 crores and volume is up by 11%, the robust sequential PAT growth by 166% and Y-on-Y PAT growth by 46% to INR369 crores, which in real sense the momentum has begun for all the initiatives being taken.

EBITDA margin expanded, both sequentially and Y-on-Y, at 17.5%, while on a consol basis we were at 14.4% but Ambuja standalone is on a higher side at 17.5%. The Company [Technical Issues] zero debt, debt free, with a healthy position of cash and cash equivalents close to INR9,500 crores, to be precise INR9454 crores. This augurs very well for the journey to achieve scale, market leadership apart from — the whole idea is to serve on a cost basis in the national markets.

Working capital remains a key focus area for us and we have seen a good improvement in the overall inventory as well as the trade receivables, which have come down, what we say, the DSO which has come down from 10 days to 8 days.

Ambuja Cements remains committed to achieving significant size, scale and market leadership, with strong emphasis on margin expansion. The base has been created in December and it is — quarter-on-quarter we are expecting to be better from here and adhering to the world-class ESG standards. And we’ll discuss more about the ESG achievements both the companies have achieved.

On the growth part, we remain committed to increase our waste heat recovery system capacity to almost 190 megawatts by March 2025 from the existing close to 65 megawatts as of December 2022, so which is almost 125-megawatt plans to increase this spectrum.

We have relaunched our green initiatives of using the waste management under Geoclean. We plan to accelerate higher consumption of waste material. This quarter we saw the highest ever AFR consumption, which we will continue and improve it further so that the thermal substitution rate of the plants we achieve to our target of 30% by 2027.

To further strengthen our ESG leadership, Ambuja’s sustainability strategy is led by its Sustainable Development Plan of 2030, which we have covered in detail in our analyst presentation which was released yesterday. Our ESG highlights make us proud. If I just have to give one example or two examples, ECOMaxX green [Phonetic] concrete, which has been launched to augment green solutions in RMC business. And you see a good growth in the RMC. So, ECOMaxX will help us to have green solutions there.

Significant firsts, I highlighted about WHRS, I mentioned about AFR and of course we are going to also use Group’s strength on the renewable power. This will help us to improve substantially on our objective of circular and green economy. What is [Indecipherable] a key factor, Ambuja is by far the leader because we are 8 times water positive, and on the sustainable livelihood, women empowerment, rural infrastructure, the social inclusion, we have a very robust CSR initiative led by Adani Foundation, also Ambuja Foundation, and the teams all of them are collaborating very, very well.

The Company has won several awards, recognitions for its outstanding work in ESG, the water positivity, the circular economy and CSR, which I won’t repeat because that has been shared in detail in the investor presentation.

So, let me conclude by saying that our business fundamentals remain very strong. We are well positioned to continue with our growth trajectory and remain market leader in the segment. Now, I request Mr. Ajay Kapurji also to give a broad overview on the strategy and the way forward. Over to Ajayji.

Ajay Kapur — Chief Executive Officer

Thank you, Vinod. Good morning to everyone. Very happy to address all of you on our first investor call post Adani Group’s acquisition of ACC and Ambuja. As already highlighted by Vinod and as already — you would have seen our investor deck, what we are trying to achieve is largely a three-step approach. First is here and now, we want to improve our operational performance. We had engaged, even before we had acquired, consultants to work with us.

We are very happy to say that all the efficiency improvement projects are now underway and we expect to start seeing the benefits of improved waste heat recovery, alternate fuels, our flash drying investments, improved clinker factor, product mix. Playing on the power of ACC Ambuja brands are also premium products. We have started re-looking at the logistics, which we believe we have a very strong fundamental position in Ambuja with our Western Coast service through railway mode.

We were one of the pioneers in starting the hub-and-spoke model of cement grinding unit way back, 20 years. We are bringing it back with full force. We’re taking full advantage of the adjacencies within our Adani Group. We will be looking at own wagons. We’ll be looking at terminals, grinding station in time to come as part of our vision to become the lowest cost to serve, and I repeat cost to serve, because not just cost of production, it’s also how you reach the market. And then I would also relay our plan to double our capacity from 67.5 to 140. And we have already initiated actions in all these areas.

As we say this, we are also aware that ESG remains a fundamental focus and the pillar on which the entire working and strategy rests. We are mindful of the customer excellence. Therefore, we are launching in this leg now a next set of initiatives to service our customers. We have taken some initiatives in improving direct from factory dispatches. These numbers are already reflected in our last quarter results. We have improved by 5% or 6% share of direct dispatches from most of our plants and grinding stations.

We are also focusing a lot on improving our limestone reserves as well as strengthening our resources. Lot of work is going on. We are re-looking at the entire mining strategy. We are re-looking at our coal mine and also going forward adjacencies with the growth on coal and coal basket, what we call it the solid fuel.

You would have already seen a larger and a more focused thrust under Geoclean which was earlier Geocycle, we have re-branded it as Geoclean. We want to actually accelerate our alternate fuel by 2027, not so much in future, to 30%. And I believe that will be a game changer. And we will take our waste heat recovery to about 190 megawatts to 200 megawatts, which would basically mean 40% of our power will be green power. So, I would say, those would be some of the fundamental shifts which will allow us to emerge as lowest cost and also one of the largest and the most well branded cement companies in the country.

Ritesh Shah — Analyst

So, with these remarks — I thank you, Ajayji. And now, I would request the operator [Phonetic] to further proceed.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah, good morning, everyone, and thanks to the management for conducting this call. We hope such interactions become a regular affair. My first question is on the growth vision. I mean, initially we had articulated a 5-year target of doubling capacity 140 million tons. We don’t see that in the latest presentation. So, if you could just share and articulate what is the medium and long-term capacity goals and also what could be the likely mix of organic and inorganic?

Ajay Kapur — Chief Executive Officer

Yeah, hi. This is Ajay here. I’ll take this question. Number one, we remain committed on doubling the capacity goal, which is a 5-year goal we had set in September 2016 on the day of the takeover and looking at all greenfield, brownfield expansions within the Group, number one. Number two, we believe there is still potential within our assets to sweat them more, so we’re actually looking at releasing some clinker from debottlenecking and we’ve already started some work on that direction. Today, I will not be able to share that with you. Maybe in the next analyst call, we will have a separate discussion around our growth plans.

However, on the efficiency we have started whole lot of projects, as I already mentioned to you. We have a roadmap for waste heat recovery. We already have roadmap on AFR improvement further. The first set of investments were made by Ambuja SEC 5 years back. We have now started the second leg of investments. Most of our plants have now fly ash dryers. Wherever they are not, we’re investing in those because we believe that will help us going forward.

Each of this, we are also looking at and very mindful, what does it bring on the efficiency side, on the opex improvement side. So — and these are all mid-term and now in here, so all these investments have already started. In terms of new clinker line, I will come back to you, as I mentioned, in the next call.

And on the M&A side, we are constantly evaluating opportunities as and when they remain attractive. We obviously have become far more strategic in looking at new limestone mines and you will keep hearing from time to time. However, we want to be mindful that we don’t also want to acquire an asset where it [Indecipherable]. So, you will see that also in our strategy. Thank you.

Sumangal Nevatia — Kotak Securities — Analyst

Got it. That’s very reassuring. Any particular number we are looking at, say, next 3 years, 5 years?

Ajay Kapur — Chief Executive Officer

I rather not hazard a guess here. When we come back, we’ll give you exact details, which plants ordered and what is the commissioning date. So, I think that will be a much more better way to address this.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah, got it. That’s very helpful. My second question is on this related-party transaction. I just want to understand, is this payment for coal contracts to a related party, and is it a one-time thing or something, which could continue? Also — I mean as per our assessment, what could be the quantum and areas of related party transaction as far as the cement company is concerned with other Group companies on a steady-state basis?

Vinod Bahety — Chief Financial Officer

Yeah, thanks Mangal, I will take that. Sumangal, first of all, in terms of — I will answer the second question. In terms of the related party, for example, between Ambuja and ACC, we are winning lots of synergies in both the companies, doing the erstwhile promoters, they had the approved RPT of almost 500 CR [Phonetic] till December, which we increased it to 3,000 CR between parent and subsidiary up to March. And prospectively also for next year, we see a more healthy working between both the companies. So, that is one component of, say, a related party, which will be properly — will come to the shareholders and with the approvals of the requisite boards and all. That is one part.

So on the other part, in terms of the Adani Group related party, we have not seen any significance for December quarter except few crores here and there. And that is very much within the fare enhancement pricing basis. So, I can just assure you, this has — this goes through all the musters [Phonetic]. I want to just highlight that we have almost like 11 committees, Mangal, and a robust framework. So, we have almost like seven committees which are purely governance committees, and these are not statutory committees. So therefore, I would say that the emphasis on the RPT is more between ACC and Ambuja, which — prospectively they will be working more synergistically.

On the coal part, Mangal again I think, I would say, and allay any fears. There is no related party here. It is a proper trade and I can get into little more detail. So, we have entered into a contract, which is unique, wherein we have contractual agreement for supplies of almost 16 lakh metric ton of, say, coal. This has to be supplied over a period of, say, 6 months. And we expect that this will be completed between March to June quarter.

Over here, we have put a cap on the overall price for the supplies. This is a CIF agreement on the port of discharge, like say Gangavaram, Goa or Mundra. So there is a cap on the overall CIF price, which is $157. And any fall in the global benchmark — and here we have used the benchmark, which is the RB1 benchmark. So any fall over there will also get passed on to us.

I will just give a simple synopsis that this import of coal, actually has helped me — help the Company to bring down the overall cost of fuel in terms of rupees per kilo calories because effectively this comes to me as a ballpark as of now, 4th of December if I do an analysis close to about, say, INR2 or INR2.1 per kilo calorie, which is actually resulted when I said that 14% of the cost has run down on the fuel, this is a major, also a component. Also I can in the same gist say that out of this 15 lakhs almost 3 lakhs have been delivered already and the shipments are there.

So, I think that summarizes my overall point on the — on this particular trade. And going forward also, we will be evaluating opportunities to — how to bring down our overall coal cost because that also, as you know, in September — our companies were significantly affected, both ACC and Ambuja, and it is important to do some kind of hedge here for some partial quantity.

So Mangal, this is where I would stand to.

Sumangal Nevatia — Kotak Securities — Analyst

This is a very elaborate and very reassuring. Thank you so much. If in the same breath I can just…

Operator

Sorry to interrupt, Mr. Sumangal. May we request that you return to the question. There are participants waiting for their turn.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, thank you and all the best to the team.

Operator

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you limit your questions to two per participant only. The next question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yeah, thank you very much. Sir, just to clarify, I assume that the counterparty for the coal transaction was a Group Company. And going forward, the adjacencies that we are talking about, which should lead to synergy benefits and OpEx savings can follow a similar transaction model where there is an upfront cash payment from ACC Ambuja and in return there is effectively synergy benefits and OpEx cuts that we get. Would the model be replicated when we are talking about the various adjacencies at a Group level?

Vinod Bahety — Chief Financial Officer

So first to clarify again, which I responded to Mangal, to there is no RPT in this particular trade. There is proper — all the opinions and all are properly taken. So, that is one part. But whether we will be aspirational for the Group sales synergies on the coal and the fly ash and the logistics parts to bring synergies, absolutely we will be very much looking at it. We have been harping on this point time and again that the Group has this adjacencies businesses which brings lots of advantage to our cement business. So, we will be looking to those opportunities going forward.

And of course, on — without — so on arm’s length basis those principles remains there on the RPT transactions and it will pass through the muster also. And I mentioned that there is a robust governance framework here.

Pinakin Parekh — JPMorgan — Analyst

Thank you. My second question is that when you are looking at the presentation, we talk about Adani cement, we talk about the consolidated level, and we have a growth plan at the consol entity. Is the current structure of having do list because, ACC and Ambuja, separately the optimum one or should we look at a collapse into one single listed entity at some point of time over the coming quarters?

Ajay Kapur — Chief Executive Officer

Yeah, hi, this is Ajay here. So, first thing we did on the day of acquisition, we have — while we have 2 independent Boards with independent governance, we have unified the management team, which runs the cement business end-to-end. So I as a CEO, I’m responsible for the entire cement business. Vinod as the CFO is responsible — as a CFO for the entire event business. Likewise, all function heads and even up to the regions, the regional cement manufacturing officers, sales and marketing officers, logistics officers, HR, everybody looks at end-to-end for both the companies. So, that’s the first thing we have done.

And also, the MSA framework which was rolled out by the previous management, we’ve almost made it like way of life on a day-to-day basis. It works seamlessly. And so, whatever advantages to be taken out on scale and size we’re already squeezing the level, I would say, to the last ounce, number one.

Regarding your question on structure and whether merger or not, I do not think today that is on our table. If and when it comes on the table, we’ll certainly discuss about it.

Pinakin Parekh — JPMorgan — Analyst

Understood. So, you’re effectively running it as one company internally, but externally we have two listed entities?

Ajay Kapur — Chief Executive Officer

Yes.

Vinod Bahety — Chief Financial Officer

That is true and that is where these synergies are coming.

Pinakin Parekh — JPMorgan — Analyst

Understood. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Navin Sahadeo from Nuvama Institutional Equities. Please go ahead.

Ritesh Shah — Analyst

Lisan, be a little louder, unable to hear. What’s the name, please?

Operator

Sir, this is Navin from Nuvama.

Ritesh Shah — Analyst

Okay.

Operator

Navin, you may please proceed.

Navin Sahadeo — Nuvama Institutional Equities — Analyst

Right. So, thank you for the opportunity. This is Navin from Nuvama, formerly known as Edelweiss Securities. Sir, two questions; one is, when we look at Ambuja’s balance sheet, there is a very sizable increase in the capital advances to the tune of almost over INR1,700 odd crores. Now, in the previous question I think Kapurji — Ajayji said that like those plans of expansions specifically detailing clinker-wise or location-wise or exact capacity-wise, you will reveal in the next quarter. So, they are — I’m assuming they are in the works as we speak. So, just wanted to understand, because of the total INR2,600 crores plus amount that has been spent towards CapEx by Ambuja, the sizable portion lies in capital advances, so if you could just help us understand what exactly is the nature and what is the CapEx under consideration? Thank you.

Ajay Kapur — Chief Executive Officer

Yeah, good. So, I’ll take it. First of all, about INR600 crores is lying in inventories, which I think is the normal business. We have a plan, as I laid out in my opening, to look at three levers, one is now and here, second was logistics and supply chain related and third was growth and expansion. Within growth and expansion again, one is going out, setting up a new brownfield kiln and new greenfield clinker grinding units.

For the second way — optimum way in between is to start getting out a little more clinker from your old kilns. In the process, you also make them more competitive, you reduce the thermal energy, you improve the coolers, you make investments in your mills, you put — we are — you put grinding expansions, packers, buying new rigs, all that we believe in the short term — in the short, mid-term, I would say. Around INR10,000 crores is what we have envisaged. And this is what’s the work in progress you’re already seeing in the balance sheet.

We’ll obviously give you more details in time to come. Each of them is highly accretive and also fastest bang on our buck. So, I think that’s where we are.

Navin Sahadeo — Nuvama Institutional Equities — Analyst

I appreciate it. You said INR10,000 crores being envisaged towards this capex is really heartening, and those benefits I’m sure will come. My question still remains, why not under CWIP, if I may just try to understand this a little better in the interest of everybody, and why in capital advances?

Vinod Bahety — Chief Financial Officer

So just to address on that point, this moves from capital advances to WIP with the ongoing progress. So, this is the milestones. This will keep on adding to the CWIP. For example, as you see, the Ameta project also which is on the overall [Indecipherable] part, all of that — for example, with the milestones it keeps only to the CWIP part. So, I would just say that this is a factor of completion of the milestones, then the — accounting-wise it moves from advances to CWIP. And this — the overall CapEx plan which Mr. Kapur highlighted, that is a program over, say, 18 months across the various segments which he mentioned.

Navin Sahadeo — Nuvama Institutional Equities — Analyst

Okay, appreciate it. Thank you so much. My second question is, of course [Speech Overlap]…

Operator

Sorry to interrupt, Mr. Navin, sir, may we request that you return to the question queue. These are participants waiting for their turn.

Navin Sahadeo — Nuvama Institutional Equities — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.

Satyadeep Jain — Ambit Capital — Analyst

Hi, thank you for the opportunity. Couple of questions, first on capital allocation. We do understand that there is no debt on the balance sheet of ACC and Ambuja, but there was debt taken at the promoter entity for these acquisitions. Would there be — as you look at capital allocation, would there been need to abstain some of the cash for debt payments at all or would the entire cash flow for ACC and Ambuja would go towards CapEx? And tied to that some of the previous questions, has there been any equipment ordering at all yet? That’s the first question.

Vinod Bahety — Chief Financial Officer

Yes, thanks Satyadeep. So, Satyadeep, there is a proper dividend distribution policy the company — both the companies have, and at a appropriate stage, if there is any development, it will be properly informed. So, that should suffice because it is a decision to be taken in, if at all. So, as of now, this will go with the dividend distribution policy which is there.

Satyadeep Jain — Ambit Capital — Analyst

Okay. And secondly…

Vinod Bahety — Chief Financial Officer

[Speech Overlap] relation questions, I would only request that there is a — there will be a proper forum, which can be addressed over — in that forum because here me and Ajayji will discuss more on the operational performance of the Company of last quarter and that is our first full-placed quarter. So my request is to all of you to respect to this point, please, yeah.

Satyadeep Jain — Ambit Capital — Analyst

And secondly, on the entire synergies on the logistics front on the port front, we heard from some of the companies previously looking to transport cement, let’s say, from south to east that the charges become prohibitive, paying port charges in both outbound and inbound and given there is Adani Ports also that the Company can leverage. But if the charges going to be what are charged for other companies, how can that entire sea-based logistics model generate some synergies? Can you maybe throw some light on how much — how that model could generate synergies for ACC and Ambuja?

Vinod Bahety — Chief Financial Officer

So, good question. First is, yes, there is a lot of opportunity because the entire coastline, we do have our ports of the Group, and we will certainly — and we are certainly looking at a complete coastal sea transportation strategy. Little early in the day for me to comment, and I will keep this position going forward. When we have something firm will talk about it, but in the planning stage it doesn’t make sense to talk about it.

To answer your second question, it also goes back to some previous people who asked the same question on RPT. End of the day Adani APSEZ is a related party. So, whatever transaction we do, we’ll obviously we keeping in the spirit of the RPT and obviously pricing framework will be back on that, on both the sides, from their side as well as on our side. Okay, thank you.

Operator

Thank you. The next question is from the line of Girish Choudhary from Avendus Spark. Please go ahead.

Girish Choudhary — Avendus Spark — Analyst

Hi, thanks for taking my questions, two questions. Firstly on the fly ash, if you can throw some light on the long-term contract, which you’ve mentioned, assigning with — our companies to bring down the cost? What percentage of your requirement will this cater to? And is this an RPT and will there be advanced payment for this as well?

Ajay Kapur — Chief Executive Officer

Advance payment for fly ash to the government power stations, advance payments to Coal India for the coal procurement, advance payment for the pet coke for the refineries of the government, advanced payment to the GBs [Phonetic] for the power we buy is something of a bone of contention all the time and not going away anywhere.

As far as your second question is on fly ash contracting, we certainly have a very strong, good adjacencies here within our Group and we are examining it and we’re going to take full advantage of it. Again, all the scenes will be based on RPT. If, let’s say, Group has a power plant patient and it’s offering fly ash at, say, Y rupees, we will also be offered the fly ash at Y rupees because end of the day there is a separate CEO sitting and running the power business, as I run the cement business and he also has the same set of stakeholders as I have.

So I think, having said that, it obviously makes life easier when you have your own Group Company. So, the risk of payment for them is zero and the risk of delivery for me is also zero. So, I think to that extent, it becomes a fantastic opportunity. I can only tell you that we are looking at exploring each and every — more. But I — actually exploring a lot on our own wagons and taking advantage also of the railways’ scheme which is open to everybody. But we’re going to exploit it to the hilt and in the process reduce our raw material costs.

Vinod Bahety — Chief Financial Officer

And therefore, fly ash drivers also which — to install it [Speech Overlap] to take the benefit.

Ajay Kapur — Chief Executive Officer

Yeah.

Girish Choudhary — Avendus Spark — Analyst

Got it. Ambuja…

Ajay Kapur — Chief Executive Officer

I hope that answered your question.

Girish Choudhary — Avendus Spark — Analyst

Yeah. My second question is more at a broader industry level, your thoughts on pricing from a medium to long term trajectory, while we know if your goal to achieve capacity scale and also to be the lowest cost producer, so given your adjacencies and all those things, but in the medium term to long term, would you like to retain those in your markets or to pass on some of the benefits? I just wanted to know your strategy on pricing.

Vinod Bahety — Chief Financial Officer

I understood your question, you’re saying, will this lead to drop in prices? Is that what you’re saying?

Girish Choudhary — Avendus Spark — Analyst

As in, given you have multiple Group level adjacencies, right, that will lead to you being the lowest cost producer, so how would you want to sort of play with this, as in, would you want to sort of expand your margins or maybe pass on some of the benefits to the market?

Ajay Kapur — Chief Executive Officer

That is a very tricky question. End of the day, what would — I mean basically the core essence of both the companies is known to you. ACC, strongest brand, one of the highest proportion of premium products, very premium in many markets in India. Ambuja, again a very strong brand, one of the strongest I would say in many markets in India, again a good portfolio of premium products. Both the country — both the companies are largely trade focused, I would say upwards of 85% of its total production. Both the companies are largely blended cement focused, that also allows it fantastic opportunity. Now, on top of it, if you replace high cost fly ash with an optimized fly ash and raw materials, you can see what shift is going to happen on the bottom line. However, if I let it go through the topline, I think I will not be doing justice.

So, we will obviously try to strengthen the brand. We will like to enter newer geographies where we expand. We will like to enter newer and emerging segments including, and I repeat, this time so far we have not spoken about B2B, large buyer segment. We have 78 plus RMX plants. We will expand them to over 250 in the mid-term and that will be our entry into the large buyer market, India’s — the infrastructure market and we pay the full game there. And whatever products are needed for that market, we will develop and supply. So, I think we’d rather play that game by reduced cost, then dropping the price for doing that, but whatever — we will do whatever it takes to win in the market.

Vinod Bahety — Chief Financial Officer

[Speech Overlap] many market factors, so it will be taken at that point of time. So it is suffice to say, the focus is on cost and I think you will also appreciate and rest is, it’s a very competitive industry, so it will be driven by the various market factors.

Girish Choudhary — Avendus Spark — Analyst

Got it, thanks. That was very helpful.

Ajay Kapur — Chief Executive Officer

Thank you, Girish.

Operator

Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.

Ashish Jain — Macquarie — Analyst

Hi, sir, good afternoon. Sir, my first question was, you alluded earlier in the — earlier in the call that ACC Ambuja are practically operating as one entity to the extent that even at on the ground the team is kind of same. Now, given these are two listed entities with different minority investors, how are we kind of ensuring the optimization of profits for both companies in this case?

Vinod Bahety — Chief Financial Officer

So, good question. As I mentioned, while we run the management as one management, we still operate the companies as independent entities for the statutory and all legal and regulatory purpose. We have an approved plan of MSA, which is the master share — shareholder agreement approved by the shareholders, and we are governed within the guidelines of that, which allows the selling of products of each other, which go through the sieve of audit committee independent review. And I’m very happy that our governance is top-class.

So within that — and that’s why in time to come we also focus — while we focus on individual entities, we also focus on the entire combined entity because when the entire combined entity wins, both the shareholders and both the value creation is taken care of, but it’s never one at the cost of the other, to answer your question.

Ashish Jain — Macquarie — Analyst

Sir, don’t you think, if the fleet on the ground is common there is a chance of conflict of interest here? Do you think — did we run that risk because some of those…

Vinod Bahety — Chief Financial Officer

[Speech Overlap] yeah, I understood where you’re coming. We have 35 locations, more or less, let’s say, 50-50 of Ambuja and ACC. At the location, the people who are running the site, they are totally focused on improving the efficiency of that site. So, I don’t see any conflict there.

Then we have procurement organizations who buy coal, who buy fly ash, who buy slag, who buy gypsum, when you go on scale of 67 million or 70 million entity and time to come, 140 million entity, you can imagine what benefits accrue. And the benefits which accrue to both entities.

When we look at our Group as a synergy, again Group looks at both of them as same and they try and pass on the benefits to the — both the entities similarly. That’s one part. On the IT side, for example, today a lot of spend happens in making the new digital strategy, IT, SAP, etc. Again, as you go and talk of one set of negotiations, the cost is far better where in the market, our front-line salespeople are still separate, the front-line sales managers are still separate, however the leader shop is same because end of the day, we are selling cement, right, and we are not selling apples and oranges. To that extent, I think we are very well aligned.

Ashish Jain — Macquarie — Analyst

Sir, secondly — sir, my second question is on this [Speech Overlap]…

Operator

Sorry to interrupt, Mr. Jain, may we request that you return to the question queue. There are participants waiting for their turn. Thank you. The next question is from the line of Amit Murarka from Axis Capital. Please go ahead. Amit, your line is in the talk mode. Please go ahead. Mr. Amit Murarka, we are unable to hear you.

As there’s no response from the current participant, we’ll move onto the next, that is from the line of Hiren Dasani from Goldman Sachs. Please go ahead.

Hiren Dasani — Goldman Sachs — Analyst

Yeah, hi this is Hiren from Goldman Sachs Asset Management. I just wanted a clarification on this coal transaction, so categorically asking you that there is no Adani Group entity as the counterparty at the first, second and third levels, whichever way you want to think about it?

Ritesh Shah — Analyst

Hello?

Hiren Dasani — Goldman Sachs — Analyst

Hello?

Operator

Members of the management team? Ladies and gentlemen, we seem to have lost the audio from the management’s line. Please stay connected while we try to regain the audio. Members of the management team, are you all able to hear us? [Technical Issues]

Okay, ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir. Mr. Dasani…

Ajay Kapur — Chief Executive Officer

Sorry, friends, some technical on this net phone. But now, Amit, you were on your question, please.

Hiren Dasani — Goldman Sachs — Analyst

Can you hear me?

Ajay Kapur — Chief Executive Officer

Yes, we can.

Hiren Dasani — Goldman Sachs — Analyst

Yeah, so this is Hiren from Goldman Sachs Asset Management.

Ajay Kapur — Chief Executive Officer

Hi Hiren.

Hiren Dasani — Goldman Sachs — Analyst

Just wanted to go back to this coal transaction of long-term purchase agreement, so just wanted to categorically ask you that even at the indirect level or at whichever level you want to think about, there is no Adani Group entity as a counterparty there?

Ajay Kapur — Chief Executive Officer

No Hiren, I’m clearly highlighting it again, no counterparty of Adani entity and [Speech Overlap] also beneficial for the Company.

Hiren Dasani — Goldman Sachs — Analyst

Sure. You explained that quite in detail. So, thanks for that. And just quickly on that, I mean, I’m just curious that the Group has so much of coal-related businesses, whether it is trading or whether it is handling and all, so why did we have to go outside of the Group to enter into such long-term coal agreement?

Ajay Kapur — Chief Executive Officer

Yeah, that’s a good question Hiren. In fact, the Group only has helped us to properly negotiate this. Each trader has its own position, Hiren, and therefore you — one would assume depending on the provision of the trader how and what course one can provide.

So, I think when we found that the Group offer has been relatively higher on that point of time, and this was somewhere in October after the results of September when we found we bled completely on the coal in October mid, then we quickly geared up and with support of Group only then we have negotiated this hard. So, it is suffice to say as traders have their own unique positions and this is true in many transactions. It’s not that every time you will have a Group to offer it.

Vinod Bahety — Chief Financial Officer

[Technical Issues] fly ash, I have Group companies having fly ash, do I compulsorily buy it from them, answer is no. It’s a factor of what as [Indecipherable] mentioned, for example, that we will be very — on an arm’s length basis, fair pricing basis, we’ll evaluate which is in the interest of the cement business and each year we’ll be responsible to answer to the Board also. So I think — yeah.

Hiren Dasani — Goldman Sachs — Analyst

Sure, and just a final question on this. I mean compared to the ACC agreement in terms of quantum, both value and volume, for Ambuja it is substantially lower. So — I mean how do we kind of think about that?

Vinod Bahety — Chief Financial Officer

Yeah, good question again, Hiren. See, if Ambuja has a captive coal mine which is, you know that, Gare Palma, this mine caters to almost 20% to 25% of the overall, say — or maybe the [Phonetic] higher requirement of the Ambuja. In case of ACC, it is completely based on supplies from third party and hence, therefore the volume of ACC import on this trade is higher as compared to Ambuja.

Hiren Dasani — Goldman Sachs — Analyst

Got it. Thank you so much and wish you all the very best.

Operator

Thank you. The next question is from the line of Rakesh Vyas from HDFC AMC. Please go ahead.

Rakesh Vyas — HDFC AMCXLRI — Analyst

Yeah, hi. Thank you so much for this opportunity and welcome back, Mr. Kapur. I have two questions and I’ll just quickly run through them. First one is on the cost savings, so both ACC and Ambuja through project Parvat and I CAN has embarked on cost saving initiatives in the last 3 years or so and they have seen reasonable success. So beyond this, what is the quantum of cost saving ceteris paribus that you think we will be able to achieve through either the OpEx that we are doing on the Group’s synergies, if you can highlight that?

The second question is on the capacity expansion itself. Assuming that we are planning to double our capacity through organic growth, it essentially means around 15%, 16% CAGR on capacity addition. I just want to understand how flexible this could be because although we remain fairly hopeful as an industry on demand growth, but if demand does not have conducive growth environment going forward, how flexible are we to scale down our growth ambition out there? Thank you so much.

Ritesh Shah — Analyst

Hello?

Operator

Members of the management team, are you all able to hear us? Hello? Ladies and gentlemen, we seem to have lost the audio from the management’s line, Please stay connected while we try to regain the audio. [Technical Issues]

Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.

Ajay Kapur — Chief Executive Officer

Friends, sorry. Now, we have connected through mobile. There is some problem on the landline, sorry about that. Yes? Please go on.

Operator

Mr. Vyas, may we request you to repeat your question for the benefit of the management team.

Ajay Kapur — Chief Executive Officer

No, I think it was very clear on this cost side, it was coming on the second part, so let him only cover the second part.

Rakesh Vyas — HDFC AMCXLRI — Analyst

Sorry, yeah, so my second question essentially was around the capacity growth plans that we have, doubling of capacity in 5 years. Essentially if all is organic means 15% capacity growth CAGR, and although as an industry we remain always very hopeful, our demand environment, I’m just trying to understand how flexible we would be in our capacity ambition if demand does not — seems very conducive in that sense?

Ajay Kapur — Chief Executive Officer

Okay, great. So, let me answer the first one on [Technical Issues] efficiency programs which both the companies, ACC Ambuja were running. Obviously, to join a — take over a company, keep doing whatever you were doing good. However, we believe that we can certainly bring in focus, for example, from where we were on waste heat recovery to where we ought to be and what is the gold standard. It is to be second to none. So clearly, we will expand 100% waste heat.

Clearly, I’m not highlighting it today, but as you understand, our experience rests within the group on RE, solar, etc. So, we are still on a think stage and I’ll talk about it on the time, how we will use that adjacency to become more green and also more competitive.

Again, we run a large part of our business with our own PPPs. Here again, we have a very big opportunity to work with our colleagues on the power side and see how best we can run our power plants more efficiently. Are there are advantages of — where again we have [Technical Issues] agile, the trading on the exchange.

So just to lay out on one set of KPIs, the second set of KPIs is coal, coal mining, coal focus and more domestic coal. So, I think that’s another area where we’ve got to work very closely. I believe we can certainly bring more value addition here.

The third set of KPIs are around logistics, like somebody already asked before and I also mentioned, own your wagon schemes, the GPWS. Understanding of Adani Logistics colleagues on this area can certainly help us. You know, setting up a vast network cement terminals and branch units in near short term, which I believe is value accretive day one. Not only it allows you to take positions closer to the customer, you all move in a more cost effective manner, [Technical Issues] baggage our own wagons, or through railways or through ships as we have done in Ambuja way back. And then, when you move out in the market, go direct so you avoid warehousing and you go to the end users. So, it allows both better quality, less seepages and lower logistics costs. So, these are three areas.

On top, we are already doing alternate fuels. We have embarked on it and we said how we can accelerate it. So, we have actually taken a target of going as high as 30%, which I believe is possible because some of the plants, even now as I speak to you, within our Group at about 20% plus, so if they can do it why not [Indecipherable]. So for that, we are also making set of investments. So, I think what perhaps was not done in the past was spending money and also debottlenecking existing assets, putting lot of money on AFR, alternate fuel. So, I think those things are going to go in a big manner.

Then of course, we do have a lot of reserves of limestone at our existing sites. So brownfield obviously looks as a very attractive proposition. You can do it at a very cost effective manner. And I think here again, a more domestic way of looking, more Indian standards, more in market, I think those are the areas which will immediately help us set up these capacities at a reasonable cost and within a time.

Now to answer your question on the demand side, typically 8% to 10% is what we believe will be the demand on the back of GDP of about 6% to 8%. There will be a good year, there’ll be a bumper year, then there will be not so great year. I think that will not deter us from our growth ambition because we are building India for a longer term. Our per capita consumption still remains in mid-200s and I believe there is an opportunity to go to 500. Even if you look at Thailand, on a per capita income basis India at about…

Operator

Sorry to interrupt, sir, we are unable to hear you. Members of the management team?

Ajay Kapur — Chief Executive Officer

We are unable to hear you, Lisan. Weren’t you able to hear us?

Operator

Sir, we had lost your audio for the last few seconds.

Ajay Kapur — Chief Executive Officer

Okay, then I’ll just complete my — but more or less I finished my response. So, if there is anything more I can add…

Rakesh Vyas — HDFC AMCXLRI — Analyst

Got it. Just — I understood your point regarding your ambition around growth. Just one clarification if I may seek on my first question. At this point of time, would you be in a position to highlight to us on the quantum of cost saving that you are targeting as a Group or we will also discuss at a later stage? Thank you so much.

Ajay Kapur — Chief Executive Officer

I think let the numbers look talking. I think that will be the better thing to do.

Vinod Bahety — Chief Financial Officer

But to also highlight to you that in terms of EBITDA margin expansions in rupees per ton basis, we do look forward to achieve, say, four digits on the EBITDA in coming quarters, which will be essentially driven by the overall improvement on the cost structures. So, Rakesh, I hope that answers your question.

Rakesh Vyas — HDFC AMCXLRI — Analyst

Yeah, that is very clear, Vinod. Thank you so much.

Ritesh Shah — Analyst

Yeah, hi sir. Quickly two questions, one is, sir, you did indicate on the dividend policy that we have already in place. Sir, can you please put across your thoughts on the royalty payments? I think it has been taken off. Will that continue to be the case going forward? How should we understand this variable?

Vinod Bahety — Chief Financial Officer

So the erstwhile technical know-how fee or the royalty, which was being charged by the erstwhile promoter, that has been — no more going to be there as we progress. So, that was basically around, say, mid of September and all the payments [Technical Issues] to the erstwhile promoters were made and including if I — also to add that they were also supporting us on the IT transition, so there was also this element of the TSA, which you have disclosed, this transactional services agreement which we had [Indecipherable] for 3 months, they’ve actually provided us the services and which is coming in from off the exceptional items.

Prospectively, for the March quarter there is not going to be any payment. So, that will be value equation in terms of cash flows close to INR170 [Phonetic] odd crores, which will be saving — by saving on this outbound on the TSA, That is how I think — and actually I should complement to my team, and it is important to highlight that the entire transition of the IT from the erstwhile promoter server to the new promoter server, it was done in a record, say, 4 months in terms of deliberation. But the actual positioning or the live transition happening, say, 7 days time and it was like a 17-TB data.

So, this is like one of the highest successful transition of IT basically platform. And this has also [Technical Issues] the Group or the Company going forward, dependency will not be there on the erstwhile promoter.

Ritesh Shah — Analyst

So sir, no royalties, right? Will that be a fair assessment?

Vinod Bahety — Chief Financial Officer

As of now, we have no — not having any royalty item in our P&L and also there is nothing on the cards as of now.

Ritesh Shah — Analyst

Sure. Very helpful. Sir, the second question was more on growth. It was pertaining to Ambuja’s ongoing expansion plans. I see in slide number 24 we have a mention of that but there is no timeline corresponding to it. Is it possible if you could please quantify that, given these were already announced projects?

Vinod Bahety — Chief Financial Officer

Ajayji mentioned to you earlier — in the earlier — decision that we are looking for this CapEx program in a time horizon of around say 18 months’ time. But see, more detail, for example, Ritesh, as we’ve highlighted that the capex program can be [Technical Issues] the next fall because 18 months [Technical Issues] is what we are looking at, which would mean that from here somewhere like around June 24 or say September 24, we should be able to complete all the WHRS initiatives, all the AFR initiatives, all the growth on some of the deals and so on and so forth. So I think the debottlenecking, the efficient capex, the green circular seen as spend capex, all of that we are targeting to expedite and achieve.

Ameta I highlighted in the previous call also that — sorry, in the previous discussion also that we are targeting that by end of March and the pre trials will start happening and the commercial production will start somewhere like June or July, but maybe we may see a good [Indecipherable] in May itself. So that is how, for example, we are looking at the timelines.

Ritesh Shah — Analyst

Sure. Sir, just a clarification. So I think Ambuja had around 6 million, 7 million tons, which was still pending. So what we are calling out as in 18 months, so that is something that stands commissioned? Am I reading that right?

Ajay Kapur — Chief Executive Officer

Yes, I think on [Technical Issues] but let’s go back and talk about it in a separate call where we actually disclose the entire strategy because there’s lot what more to and I don’t want to — this is purely last quarter results, I want to focus on that.

Vinod Bahety — Chief Financial Officer

So this in a confirms — so as of now, on the cost structure, Ritesh, I think the journey of 67 to 140 will come in a more elaborate manner. But as of now what we have in hand is what we discussed with you.

Ritesh Shah — Analyst

Sir, that’s perfect. And sir, just last question, can you please reconfirm the commitment from the promoters on the incremental warrant infusion? I think INR5,000 crores has already come in. What are the timelines over here, I think that’s the point I think that’s important, if you would please touch upon that. Thanks.

Vinod Bahety — Chief Financial Officer

Yes, thanks Ritesh. I think as of now, Ritesh, it’s like warrants within which we have this 18 months’ time window and so they remain there unlike the time [Indecipherable] for them. I won’t be able to comment on their timing specifically, but I can just suffice to add that Company is sitting on — both the companies on a consol basis is sitting on INR9,500 crores of cash. On top it, we are generating on our operating cash flows almost like INR3,500 to INR5,000 crores. So, there is a substantial amount of equity and the net profit lying there. We are [Technical Issues] company, so I think I am looking more from a — what is capex program on this amount and of course promoters for the parent company will take their call. I cannot comment on that as of now.

Ritesh Shah — Analyst

Sure. Thank you so much for the answers. Lisan, over — back to you.

Operator

Thank you. Ladies and gentlemen, due to time constraint that was the last question. I now hand the conference over to Mr. Ritesh Shah for his closing comments.

Ritesh Shah — Analyst

Thank you, Lisan. I’d like to thank the management for a detailed call and the remarks. I’ll again hand it back to Vinodji. Sir, if you have any closing remarks. Thank you so much.

Vinod Bahety — Chief Financial Officer

No, I again thank you on — from my side and also from Ajayji and Karan bhai’s side. Thank you to all of you, and do excuse for those couple of technical glitches. We would love to engage now more often with you. And if you have any other questions, we can always offline connect on the subject. Thank you very much, Ritesh’ thank you, Lisan; and thanks everyone.

Operator

[Operator Closing Remarks]