Key highlights from Ambuja Cements Ltd (AMBUJACEM) Q4 CY21 Earnings Concall
Management Update:
- The company believes it should focus on the blended cement and not on the OPC, that does not add too much of bottom line to the company. Currently, AMBUJACEM is at about 89% of blended, and expect to remain at the same levels in the coming years as well.
Q&A Highlights:
- Pulkit Patni from Goldman Sachs asked about Bhatapara expansion. Neeraj Akhoury MD said it’s going to be one of the more modern lines. The company confirmed that it is doing a Waste Heat Recovery Systems (WHRS) for the existing operations of Bhatapara. The new line of Bhatapara of 10,000 ppb will also have WHRS of 17 megawatts. So it will be largely independent plant and the balance power will be taken from surplus capacity of existing CPP.
- Pulkit Patni from Goldman Sachs also enquired about the pressure of profitability in East, like Chhattisgarh where pricing of cement if one of the lowest. Neeraj Akhoury MD replied that company’s internal calculation says that by 2025, given the current extent of capacity expansions announced, the East utilization levels will move to 85%, which is strong enough for driving the business goals. Also, East is a 90 million tonnes market, which is about 26% of the national market.
- Ritesh Shah from Investec asked about carbon internal pricing, how the company is looking at it and why is it at $31, $33. Rajani Kesari CFO answered that the company does not consider it for calculation of the project. The company does calculate it for the purpose of group as it needs to be balanced for what the company as a whole generate in terms of CO2.
- Ritesh Shah from Investec also asked about capital allocation on Bhatapara versus Jamul. Neeraj Akhoury MD said the delivered cost of Bhatapara to East market is lower compared to Jamul. Also while putting up a mega unit like Bhatapara, typically 6 million tonnes of clinker of limestone every year will be required, which also requires a stronger mine deposits, which Bhatapara assures the company. In terms of cost structure, Bhatapara is ahead of Jamul, Chaibasa or Bargarh.
- Ashish Jain with Macquarie asked about the benefits of ICAN and roadmap for the next 12-18 months. Rajani Kesari CFO replied that ICAN plan is split largely into two heading; operational efficiency savings and savings that will unlock through productivity capex. Compared to a baseline of 2019, the savings that have come from ICAN are on the upwards of INR300 per tonne. For future, the fuel cost energy savings will come through the full execution of wastage recovery and will be commercialized in end of 1Q22 or beginning of 2Q22.
- Naveen Sahadeo from Edelweiss asked that sequentially logistics costs was reduced and in that how much is the MSA contribution. Neeraj Akhoury MD replied that it’s not the quantity of good purchased, it’s where it is purchased and how does it lead in terms of cost reduction. The company has reduced its primary lead by almost 40 km versus last quarter and also reduced secondary lead and improved direct dispatches. Therefore, these three things along with the MSA volumes have contributed quite significantly to the CDC cost per tonne.
- Madhav Marda of FIL enquired the reason for other expenses in 4Q21 shooting up. Rajani Kesari CFO said that it has brand promotion expenses within it. And it has also got the packing bag increase in these accounts, which was a lot in the quarter. And thirdly, maintenance costs were higher.
- Madhav Marda of FIL also asked that in terms of the power and fuel cost, given how volatile the movement has been, does the company thinks in the next 6 months, if it’s at the peakest level or there can be some more inflation going into March and June quarter. Neeraj Akhoury MD said that it’s very difficult to say, given extreme conditions in many parts of the globe.
- Ritesh Shah from Investec also asked about the incentives if the company is getting it for grinding units or for the Bhatapara facility. Rajani Kesari CFO said that while there are incentives available for Bhatapara as well as for grinding units, the company has taken it only partially, for one of the grinding units, but for whole of Bhatapara, it’s not taken. In the internal modeling, the company now tends to do modeling with and without incentives to see the business case.