Heidelberg Cement India Ltd (HEIDELBERG) Q2 FY23 Earnings Concall Transcript

Heidelberg Cement India Ltd. (NSE:HEIDELBERG) Q2 FY23 Earnings Concall dated Oct. 18, 2022

Corporate Participants:

Jamshed Naval Cooper — Managing Director

Anil Sharma — Chief Financial Officer

Analysts:

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

Rajesh Kumar Ravi — HDFC Securities — Analyst

Ritesh Shah — Investec — Analyst

Sandesh Barmecha — Haitong — Analyst

Aman Agrawal — Equirus Securities — Analyst

Prateek Kumar — Jefferies — Analyst

Hiten Boricha — Joindre Capital — Analyst

Navin Sahadeo — Muhama — Analyst

Parth Bousa — Investec India — Analyst

Sriram — India Ratings & Research — Analyst

Debotro Sinha — ICICI Securities Limited — Analyst

Uttam Kumar Srimal — Axis Securities — Analyst

Shravan Shah — Dolat Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the HeidelbergCement India Limited Q2 FY ’23 and 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 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. Vaibhav Agarwal from PhillipCapital India Private Limited. Thank you and over to you, sir.

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

Yeah, thank you, Stephen. Good afternoon everyone. On behalf of PhillipCapital India Private Limited we welcome you to the Q2 FY ’23 and H1 FY ’23 call of HeidelbergCement India Limited. On the call we have with us Mr. Jamshed Naval Cooper, Managing Director; and Mr. Anil Sharma, Chief Financial Officer of HeidelbergCement India Limited.

I would like to mention on behalf of HeidelbergCement India Limited and its management that certain statements that may be made or discussed on this conference call may be forward-looking statements related to future developments and the current performance. These statements may be subject to a number of risks, uncertainties, and other important factors which may cause the actual developments and results to differ materially from the statements made.

HeidelbergCement India Limited and the management of the company assumes no obligation to update or alter these forward-looking statements whether as a result of new information or future events or otherwise. Also, HeidelbergCement India Limited has uploaded a copy of the Q2 FY ’23 presentation on the stock exchanges and its website. Participants are requested to download a copy of the presentation from these websites. I will now hand over the floor to the management of HeidelbergCement India Limited for their opening remarks followed by an interactive Q&A. Thank you and over to you, Cooper sir.

Jamshed Naval Cooper — Managing Director

Thank you, Vaibhav for this organization and thank you all the people who have attended this for our investors call. Taking you — I suppose you would have received all the presentations, the entire presentation and you have gone through it. I’ll run through it. So for us the September quarter has some of the highlights which I express to you and mention to you.

For the first time, our share of green power has increased to greater than 34% and in the future we are trying to see that this is maintained and increase further. So in terms of our future security on power, we are working on this so that the company remains on a strong foothold on power because nowadays power and fuel is a very high element of as a share of the total variable cost, it is one of the highest today.

We continue to produce 100% blended cement, which is one again a very clear message that we want to win in green and we want to remain clean. In terms of volume, yes, we have slipped on the volume by 19% on year-on year basis and 10% on quarter-on-quarter basis. This is mainly — it should not have happened, but we were unfortunate that in Central India in the month of July, we had problems in the weather — related to weather-related conditions in once in — once one month in UP and one month in MP, when there was again incessant rains and the crop has got spoiled because of flood-like situation.

So it is unfortunate that we had to suffer because we are focused more on Central India. At this point of time, we possibly think that had we had some market share in Bihar, probably we would not have done better, but anyway, these are one-off effects, nothing to — which are not going to have a permanent impact on our results. We suffered because of this.

Prices have increased by 8% and a little bit down on the quarter-on-quarter basis, but the trend seems to be now that the prices will increase and there are reasons for it to increase. We can discuss this later on. There is a significant increase in fuel cost. We all know that the fuel has gone through the roof. Power has not gone so much.

In fact, we have been able to save on our power cost because we are now sourcing third-party power and green power. So that makes us little cost efficient on power, but fuel is something which we have to source from outside and we are little disturbed because of the fuel also, but anyway, the future, we see that the prices of fuel may come down.

We delivered an EBITDA of INR476 per tonne, which is 50% lower. So I think this is the bottom what we would have touched and quarter going forward we should be able to recover back, bounce back and the prices seem to be supporting that in the months to come. We paid a dividend of INR9 per share, which has already been distributed and another highlight is that we continue to operate on negative net operating working capital and our net debt stands at about INR109 million as on date.

Taking you to the next slide, as we show you the old chart, today, we are at 34% as on September quarter and you can see the graph, which is there, which is moving in the positive direction. The trajectory is good and I think this we can continue and as time passes, and I think at this is some were sustainable, we try to sustain it at this level. So very happy to inform you that Ammasandra plant operates mostly on green power, which is more than 90% of the greater green power and it has worked out very well in our favor at Ammasandra. So similarly, we put up a power plant — solar power plant in our Narsingarh plant, which we have already informed to you in the past.

Coming to the next slide, while we also make cement, we also continuously engaged with the local society because we believe that corporates cannot succeed where societies fail. So believing in this, we do a lot of CSR activities and this CSR activity, the glimpse of that is shown here we are doing classrooms, okay, for children development of Aganwadi, then we are digitizing the classrooms of government schools and we are also trying to see that we can provide an additional income, generate additional income because the cattle breeding and cattle farming and a little bit of helping the villages to improve their tertiary or a third income or a secondary income to support them. So this is what we are trying to do.

Coming to the results, which is on Slide number 6. You can see the results. The biggest impact for us is the volume, which is negative and the impact of it is — significant impact of that happens on the EBITDA also. On the cost side, we are not so bad, but it is basically the fuel which has killed us at this point of time. Despite the efforts what we made to reduce our steel consumption, today, we are quite low on fuel, but yes, now this gives us one more thought process that there is further room for improvement, which we’ll have to really take up and reduce our fuel consumption further and for that, we are working on little bit of debottlenecking of our plants, which will happen in the next year. We will do a debottlenecking of Line 2 and Line 3, both starting with Line 3 first and then go to Line 2. So that is what we’ll call for that and we have taken it on our cards.

The waterfall bridge, what you can see on Slide 7 compared with the September quarter of last year, we delivered EBITDA per tonne of INR946. This time, we add INR381 per tonne in terms of GSR is concerned, but you can see the entire — whole benefit is taken away by the INR670, 50% increase in the power and fuel cost, which really takes us downhill and lands us at INR476. Other costs and freight costs are okay, but I think this is one of the elements we have to really work on.

Next is our, as we said, we are operating on a negative working capital, but if you look at our balance sheet size, it is hovering now around INR26,677 [Phonetic] and I think this is a more reasonable place where we will stay. We will hover around this place until such time we start doing some investments, which will come in the next year.

Some of you people might want to know what is our working capital situation and the cash and bank balances. So we have provided this slide on Slide number 9. You can see that INR2.37 [Phonetic] billion as on September ’22, out of which the debt is INR2,346 million. So there is a minor net debt, lower [Phonetic] of INR109 million, which I mentioned it on the first slide. The repayment schedule, how it will happen and this would have not occurred had we not paid the dividend, okay?

So there’s a dividend flow out has taken us the net debt to a little lower level, but this is a very temporary phenomenon. This will again pull up on the positive side and as we make the payments, by that time, we would have a significant amount of cash surplus also sitting on the books.

Going to Slide 10. Happy to inform you that 55% of our premium product sales is now in the trade segment and this is a significant improvement. We were hovering around 20% to 25%. We introduced another brand, which is called mycem Primo, which is the mix between the power and the basic bag and that has got good traction. So the market is accepting it very well. Coming to our sales volumes in terms of rail and road, it is 50:50. Coal is 31%, close to 69%, 70% is our petcoke consumption and this blend of petcoke consumption has changed because the petcoke now is cheaper — was cheaper than as compared to coal. So we have switched over.

In the previous quarter in the last September, you would have found the reverse of it. So now the situation is reversed. Thanks to our technical team, which is adept at changing the fuel mix at a very rapid state. So they respond to these changes very frequently. 83% of our trade sales is there. So that continues between 80% and 85%, it remains. When the markets are soft, we go more a little bit non-trade, we can pump, but non-trade also this time, we were not able to push because the sites of the monsoon — because of the unseasonal monsoon, sites have also closed, many places. So our traditional loyal parties were also not taking cement.

So the feather in the cap is on the Slide number 11, where again, time and again, we have been given the five-star rating and this time, it was for our mines development by Honorable Minister, Shri Pralhad Joshi. He has given us this award. And in Jhansi, again, on the second consecutive Apex India Safety Award because we believe safety is our foremost priority.

We want every person who comes to Heidelberg to work goes back smiling home because someone is waiting for them at home and this slogan drives us to ensure that we achieve the highest level of safety and move towards zero harm and we are happy to announce that as of date in last two years, we are almost there at the zero harm level, excepting for some dispensary minor injuries, which don’t require, but they require first-aid. We want to ensure that even the first-aid part is totally eliminated. So people go absolutely scratchless in our company while working.

Now the outlook, how does the outlook look like. So the GDP, the forecast, which have been made is 6.8% and I don’t know, but as of now, it seems to be still a good rate of GDP because if you compare it with any where part of the international arena, this is one of the best GDP country, which has the highest growth rate. So we should be proud that our India is delivering this sort of growth in an environment which is geopolitically very sensitive and it is in turbulent state where many countries are under a recession. The heart of India continues to throb [Phonetic] and move forward in a positive manner.

Rising inflation, yes, we were concerned. You can see the repo rates going up and the government is trying to contain inflation, but it seems to be a little difficult at this point of time. It affects consumer sentiment and we will see this impact with the coming onset of Diwali, how the Diwali pans out. If the market for other — the demand for other products does not seem to be low or the footfall in the retail counter then the retail malls are going to be strong.

We are not too much of a concern to worry that people are worried about recession. That means we have enough cash flow to continue and housing being one of the important segments where [Foreign Speech]. So this should give continuously good traction to the housing construction needs also of the rural India and the Tier 2 and Tier 3 cities. Tier 1 may be a little surplus, but Tier 2 and Tier 3 cities is the engines for demand growth.

The recession fears are there. I think this will remain. We cannot do too much about it. Government, this is another part where I’m a little bit concerned — we are concerned about is we don’t sell so much to government under infrastructure, we are only very low under non-trade, but yes, those companies who are supplying to government departments, their share could be as high as 40% in the non-trade segment.

Once they find that the demand is not there in the government segment, okay? And the government demand is pushing down. I can tell you from the figures of government investments in infrastructure, we can see it tapering down very steeply. And if that happens, then this other material, which is our competitors, which was going into the market will find its way into the retail segment and that could be a little bit of a pushback, but to enter retail market is not easy.

Your company has got a very strong foothold in the retail segment. So we will be able to safeguard our shelf space and continue to deliver positive results. Mentioned about uneven rainfall has affected Kharif crop, so this is a concern for us because in Central India, it is more of an agriculture economy and we are dependent quite a lot on this, but we will come to know just after Diwali how the market pans out in the coming 15 days and then we will be able to figure out how the October and November and December look like.

I’m not too much worried about this because there is spending happening in the rural area. So people will continue to put money on to the housing sector and another thing is post Diwali, we always expect some good demand. October month, we saw both festivals fall in the month of October — Chhath is also there on the 30th. So there is three festivals almost in one month. Starting with Dussehra in the beginning first week, then now coming Diwali the third week and then the fourth week, we are into Chhath Puja. So labor is a problem at the construction site, but let us see how things move forward. This is all from my side.

We have sent you this soft copy of our presentation alongwith is our next also our digital annual report, which you can have a look at it. These are some of the rare occasions — I don’t think anybody is producing a digital annual report, which is a snapshot, which is a summary of it. So you can have a look at it. This is the second digital annual report which we have sent. I hope you appreciate and if there are any comments, we are happy to take and we can improve on this further. Thank you very much for your support and any questions on that, I’d be happy to answer.

Questions and Answers:

 

Operator

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital. [Operator Instructions] As there is no response from the current participant, we move to the next question from the line of Rajesh Kumar Ravi from HDFC Securities.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Sir, am I audible?

Jamshed Naval Cooper — Managing Director

Yes.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Yeah, thanks for a detailed presentation. Sir, I have a few housekeeping numbers first. I see that the last year trade share number has been restated from 83% declared earlier to 86% for last year Q2. And also, you mentioned that the premium share — cement share has gone up. So what exactly went into increasing this — almost doubling the premium [Phonetic] share number? And third, landed fuel costs, can you talk on a per kilocal [Phonetic] basis, the pricing — the commission cost in Q2 and how it changed versus Q1?

Jamshed Naval Cooper — Managing Director

Let me put it the non-trade component. You were talking about it has dropped from 86%. So there is a little bit of change here. What we did is earlier what we were doing when we were doing sold rate of cement whole full sold rate, that time we were capturing it as non-trade supplies. Now what we have done is we have regularized it because we are supplying MRP bags, okay? Non-trade material by nomenclature is a bag which is not for resale. It goes in a separate type of a bag. It is a very distinct bag. So that does not penetrate into the local market. So we have a system of giving non-trade bags as a separate bag and this trade bags is a total separate bag. Now we have reclassified this and corrected in our system that any material which is undergoing under an MRP bag will be considered as trade sales. So whether it goes in bulk or whether it goes with anything which is not for resale, it is not in resale and it is going to be resold, it will be classified. So that is why the difference is coming there, number one.

Number two is premium segment, so you are saying the premium sales has gone up. Yes, as I mentioned to you that we have launched a new product, which is called mycem Primo. That has caught up very well in the market because of its pricing status segment also because mycem Power is close to about INR40 to INR45 higher than the normal bag and this bag is close to about INR15 higher or INR15 to INR20 higher. So it is priced in between. So there was an aspiration of many a customer who wanted a box bottom bag, but they did not want to pay this INR40 a bag higher for a better quality packaging and better quality product or much more which was managed better. So they are now more going for this. So this intermediatory segment combined together has helped us push this volume into this segment.

Gradually, this medium segment will keep moving towards the top segment and the top ones — the Power will keep moving up. So our target is to increase the price of these each of these bags by INR5 to INR7 every year, minimum INR5 every year this price should go up. So we started with a very low base of INR20. Today, we are at INR40 in four years. Now we will — next year, it will go to INR45 and this will go from INR15 to INR20 and INR25 and then forward. So this is the strategy for us to put our premium. And another thing which you asked, fuel consumption — the cost for us is INR714, about INR700-odd is the cost of fuel per gigajoule for us.

Anil Sharma — Chief Financial Officer

Per kilocal it is INR3.13 per cal. As compared to June quarter, there is a slightly reduction of softening of the coal costs as well as the petcoke prices. We can see that it’s a little bit now stable and we are hopeful that fuel cost should reduce in the coming months.

Rajesh Kumar Ravi — HDFC Securities — Analyst

So do we expect this to fall much below INR3 in Q3? Are we seeing that trend because petcoke prices have cooled off considerably?

Anil Sharma — Chief Financial Officer

Petcoke prices, yes, a little bit reduced during this quarter, but of late last one month, we have seen further it is becoming little bit increase by the domestic players. We will see. We are hopeful that there should be a little bit softening in the coming months.

Operator

The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Three questions. First is, sir, at the parent level, the name has moved from HeidelbergCement to Heidelberg Materials. How should we read what it means for the India operations? So that’s the first question.

Jamshed Naval Cooper — Managing Director

Okay, So Ritesh, this is a global thought process, which the group is pursuing that we were HeidelbergCement. Basically, we’re not only into cement, we are into building materials and we are into concrete and every sort of possible so you can name it under the sun it is there. So the group decided that it is high time that we are — we are pushing the agenda of green. So they said, let us make it more consumer-oriented company in group name and that is why they are — right now also the HeidelbergCement as a group remains. There is no change in the name of the company at the group level also.

But Heidelberg Materials is one of the umbrella which they have created for future and to promote an image of a green company and a green product. So when you see the logo itself, there is an element of green which has been brought into it, our niche [Phonetic] has been brought into it. So it is a way of altering our, I should say, perception and image and to build an image of a clean and green company and more to do with materials and our slogan, one of the slogan is also Material to Build Our Future, which we brought in last year, 1.5 years back almost two years it is now. So it is in line with that.

In terms of our India operations, we continue as HeidelbergCement India Limited. There is no change and I don’t think there is any plans to change it, but maybe our logo on top, which you see HeidelbergCement, we will start putting from 2023 onwards we may bring in this logo for India also, but as a company, answer is that it will continue to remain as HeidelbergCement India Limited.

Ritesh Shah — Investec — Analyst

Right. sir, my question was more from an angle that the promoters or the parent’s commitment to India remains very much given we are cement and we are the greenest of cement mills in the country. So that focus, that commitment is very much there, right?

Jamshed Naval Cooper — Managing Director

Yes.

Ritesh Shah — Investec — Analyst

Okay. And sir, over here, is diversification, something that we are looking at given moving from cement to materials, should we expect that the company will spread its wings under different product categories or is it we stick with cement, what is core to us?

Jamshed Naval Cooper — Managing Director

So Ritesh, this is already on discussions that we will have to look at not only this, but yes, there are avenues, but again, like a country where aggregates, RMC, it’s a low entry barrier and there is a high level of competition. Nobody understands the technology of aggregation. Nobody understands — for people, it is here, it is which is cheaper to buy. Nobody buys things on a scientific basis. So this makes one of the reasons, you know, pushes us back that in a country where people are not buying cement or aggregate or materials on an engineered concept. So they buy more of as a commodity. Then it does not really make sense for the company to start that business at the moment.

But yes, I would say that, yes, the time will get matured soon because this will enable — there is nobody and there is no standard for these materials in our country also today. Today, you can produce an RMC without any BIS specifications of anything. It is a performance-based product, which delivers and the customer accepts it. Aggregates, there is no specification on aggregates. So there is a time that India has to start thinking on bringing specifications and then it will be the right time for Heidelberg to enter these markets or maybe Heidelberg enters, I can say that I can create a standard for India to follow because we are the number one worldwide on aggregates, it makes sense, but I think right now, let us focus on cement and expansion on cement.

Ritesh Shah — Investec — Analyst

Right. Perfect. Sir, quickly, a few more questions. One is update on Gujarat expansion plans. Secondly, we have Gulbarga opportunity under are we doing anything about it? And third, simplification of structure between Heidelberg and Zuari. So that’s the second question in three parts. And the third question, sir, are there any changes to the discount structure in the marketplace given the conditions that we are in right now? Thank you, sir.

Jamshed Naval Cooper — Managing Director

Okay. So three things you’ve asked. One is Gujarat, okay? So the Gujarat, now people have moved and we are in the process of getting environmental. Work has started on this. So this will take another, I think, at least till next May, May-June, it will take next May, June. By the time we have the environmental report. So this is on Gujarat is concerned and then we take this further the next steps after that.

Coming to, you asked about Gulbarga, which is in Zuari. Yes, the Zuari working on that particular thing of putting up a plant there. So the Zuari is working on that. Coming to you said — the third point you said between the unification of these two companies is concerned. Yes, that is also on the cards. We are working on it with the group.

And the last thing you said was about the discount structure. Let me stress here that we have a very, very, very, very transparent discount structure. Probably you won’t find this with anyone in the country. We, on 1st of January issued a discount policy giving each and every discount in writing to the dealer and the dealer acknowledges, signs a copy of it and hands it to us, which is put into our system for future. So it is fully compliant. We don’t change these discount structures once fixed for one year, it stays there till 31st of December, it is no change in that scheme. So we have a very, very transparent discount structure. So I can only say that much.

Ritesh Shah — Investec — Analyst

Sure, sir. Thank you so much. I have more questions. I will join back. Thank you so much.

Jamshed Naval Cooper — Managing Director

At this moment, there is no change. So there is nothing to think about it that we are — yes, I understand that you’re referring to some news in the market about some PD given or some discounts given. That is not on our cards. We don’t believe in that. Absolutely don’t believe in this. giving PD. Our pricing is whatever we tell today is the price to the dealer. If there is any discount today, if suppose tomorrow some discount is to be given for a — suppose a seasonal discount is to be given in case if it is to boost the demand, that also circular will go to the dealer, proper communication will go to a dealer in writing. It will be acknowledged by the dealer and kept in our records.

Operator

The next question is from the line of Sandesh Barmecha from Haitong. Please go ahead.

Sandesh Barmecha — Haitong — Analyst

Thank you sir. I have two questions for you, sir. Given the demand in Central [Phonetic] region got impacted by heavy monsoon in Q2, whether pent-up demand is expected in Q3, sir?

Jamshed Naval Cooper — Managing Director

Okay, so Sandesh, the message is clearly that cement industry always sees a pent-up demand and then it comes all of a sudden and blasts into the market. If that has happened in the past, on several locations, I would say that there is no reason why it should not repeat in the months of November and December and I am expecting that November and December should be really good months for cement because we have seen July bad, August bad, September lot of holidays, I think October, November — November, December, it should be better.

Sandesh Barmecha — Haitong — Analyst

Great, sir. Sir, how much SGST incentive amount have been booked in Q2, sir?

Jamshed Naval Cooper — Managing Director

GST incentive in Q2, one second.

Anil Sharma — Chief Financial Officer

Every quarter, we have around INR50 [Phonetic] million GST incentive as it is in normal amount in this quarter. It’s about INR5 crores.

Sandesh Barmecha — Haitong — Analyst

Around INR5 crores, sir?

Anil Sharma — Chief Financial Officer

Yes.

Sandesh Barmecha — Haitong — Analyst

Okay, sir and what is our capex outlook for FY ’23 and ’24, sir?

Jamshed Naval Cooper — Managing Director

The same thing we always say replacement capex is 50% of our costs and our depreciation and it is about INR50 crores. And then we will take up another capex for Line 2 and then Line 3, I would say, Line 3 debottlenecking that will be there in this and I think that this is very normal for us.

Sandesh Barmecha — Haitong — Analyst

So around INR50 crores in FY ’23 and FY ’24 will depend upon the cost for the line. That’s right, sir?

Jamshed Naval Cooper — Managing Director

Yes.

Sandesh Barmecha — Haitong — Analyst

Okay. Sir, any approach or you can get to FY ’24, sir?

Jamshed Naval Cooper — Managing Director

Same thing, you can consider [Foreign Speech].

Sandesh Barmecha — Haitong — Analyst

Got it, sir. Thank you so much, sir. Good day.

Operator

The next question is from the line of Aman Agrawal from Equirus Securities. Please go ahead.

Aman Agrawal — Equirus Securities — Analyst

Thanks for the opportunity sir. Sir, firstly on the quarterly performance, I just want to ensure that my understanding is correct. Our realization has dropped around 3.3% on a sequential basis, so how does it stand versus the other peers in the Central market? Are we far better because of premium product share has drastically increased during the quarter. Is this understanding correct, sir?

Jamshed Naval Cooper — Managing Director

No. I think let me clarify here. We were about 25%, 30% — close to 30%, — 25%, 30% previously also under premium products, okay? The premium products, the blend, it has nothing to do with the premium products, okay? The price what we are getting, this will continue, this premium product, the premiums will continue. I don’t think that the whole benefit which has come to us is because of the premium products only [Phonetic]. There is a price increase we have taken from time to time. There is a branding exercise what we did. We have taken little bit of premiumization in terms of pushing the prices other than for even the lower-end products also. So it is not purely because of premium products.

Aman Agrawal — Equirus Securities — Analyst

Okay. Okay, sir.

Anil Sharma — Chief Financial Officer

Yes, same thing. Actually, his question was also with respect to completion of realization quarter-on-quarter basis. So quarter-on-quarter basis, I think, Aman, you should also appreciate this is the quarter where the impact is coming on account of monsoon. And then a monsoon we see a little bit dip and during this quarter, the dip is not to that extent which we have seen last year September. So we can say that the company has done a good a fairly good job with respect to pricing during this quarter, despite all, I think maybe the problem on account of floor and heavy monsoon in the state of MP and UP.

Aman Agrawal — Equirus Securities — Analyst

Yes, sir, definitely, that was our understanding, too. And sir, secondly, if you see RM cost, we see a good price or a healthy rise of around 11% on a per tonne basis sequentially, so is it because of operating deleverage that we faced because of suppressed volumes or was there any pressure point that we witnessed during the quarter in RM cost?

Anil Sharma — Chief Financial Officer

I think, Aman, when you see the RM cost, I think you should also factor this increase and decrease in the inventory. In the June quarter, the inventory increase was good because during that quarter, we tried to built up more inventory of clinker and cement as preparation of pre-monsoon work and during the September quarter, the inventory increase is not for that [Phonetic] account, it is only [Indecipherable]. So if you factor those two, I think inventory increase decrease in these two quarters, there should not be a significant increase in the raw material. That is my understanding.

Aman Agrawal — Equirus Securities — Analyst

Okay, but sir, essentially, the effect of inventory increase or decrease is already capturing the cost of materials consumed. Anyways, not a issue with that. And lastly, sir, on a broad company level question, if we see volumes for Heidelberg we have not essentially grown much since FY ’15 at a time where industry has grown at around a minimum 4% to 5% CAGR. So if you can maybe define where have we lost the market share in the overall scenario, sir?

Jamshed Naval Cooper — Managing Director

It’s not a market share loss, I would say. It is a temporary phase. As I said, this quarter is a temporary phase. We will come back on this. See what has happened over a period of time, we have tried to sell a little bit of premium products, try to bring up the brand. As I said, sometimes you have to you have to settle for certain things on a long-term strategic basis. So if you have created a premium at a point of time and some volume has been lost, this volume is not going to be lost forever. It can be got back because the customers prefer nowadays certain behavior of customer behavior is inclining towards a certain method. So we know that we are moving with the consumer trends and I think the volume will come back, not a problem at all for me. I think in the next quarter, we will be able to get these volumes back.

Aman Agrawal — Equirus Securities — Analyst

But sir, actually, more from a multi-year perspective, it was not on a quarterly basis. We see from FY ’15 through ’22 there’s not much of a volume growth.

Jamshed Naval Cooper — Managing Director

I agree with you. For us, it was a question of that for some time we agreed that market share is not lost. Let me tell you, the market is also large in 2020, the market had de-growth [Phonetic]. So we have to take that also into consideration. It’s not — the market has not been a standard growth rate. We have tried to beat the market growth rate. Markets have also been a little sluggish and another, yes, a little bit of volume displacement has also taken place because another two, three brands from outside have started coming in. So everybody has got the pinch of it, but we will get it back.

Aman Agrawal — Equirus Securities — Analyst

Sure, sir. Sure. And sir, lastly, just to again clicking on another question in terms of powering fuel cost, it was very heartening to see that we have not registered much of a hike during this quarter on a per tonne basis. Going forward, based on the current inventory levels and current fuel prices, where do we see fuel costs moving for Heidelberg in second half of this year, sir?

Jamshed Naval Cooper — Managing Director

So we expect a little bit of tapering down on — a little bit, I don’t know, but even if it does not taper down, at least it will not seem to be shooting up sharply. We forecast that it should come down marginally or it should stay at least at this level. That’s my reading about it, but now today, you are going to see the results of corporate, which coming on after the other, you will see that which we are already seeing and I’m sure with the drop of EBITDA with this type of thing, the industry will have lost its absorption ability to continue with selling at these prices. Cost has to go down to the customer.

This has been the biggest pitfall of the industry for not having paid attention to the price and continue to sell volumes. The volume here is fine, okay. Ultimately, it is the profit which you earn out of the business, sustainability of the cash flow. Today, we are not understanding this very simple thing that compliances will grow, okay? And compliances will require capexs and these capexs when you will have totally dried out on your cash reserves, then where will you go for this? It is high time the industry wakes up to this call.

Anil Sharma — Chief Financial Officer

And Aman, just to add two specific features for our company, especially on power and fuel. One is that we are now less dependency on the outside power, 34%, 35%, we are our in-house organic power. So we can say that any price hike in the power has not had much impact on us. And second thing, with respect to fuel, we don’t carry significant inventory. So whenever price increases, we impacted a lot and whenever the price softenening we will get the benefit. So we are hopeful that maybe the price will slightly reduced. And since we don’t carry significant inventory on account of coal and petcoke, so we should get some benefit in the coming two quarters.

Aman Agrawal — Equirus Securities — Analyst

Sure, that’s great to hear. Thanks for the opportunity.

Operator

The next question is from the line of Prateek Kumar from Jefferies. Please go ahead.

Prateek Kumar — Jefferies — Analyst

Yeah, good afternoon. Sir, my first question is on pricing, as you mentioned about it, but like some of the other regions have seen some improvement in pricing since September and October. How are the prices changed like since bottoming out in October, September in your region, Central?

Jamshed Naval Cooper — Managing Director

So, if you look at it on the GFR side, there is a dip over the previous quarter of June, okay? And we are back to our March quarter prices, GFR. So I don’t think in Central India, there was a movement which really helped with the pricing improvement. I doubt very much the Central India players who have been playing in this market have seen any betterment on prices.

Maybe on all-India basis, maybe I don’t know some players from South, yes, little bit of improvement, but I’m not very sure that the market has given us an opportunity to increase prices significantly high. Not in October, but yes, after Diwali we’ll definitely look up. The prices have already — we have increased the prices last Sunday also. We have increased the prices on 22nd of last month. We took up to INR1 or INR2 increase on 1st also.

So INR4, INR5 has come into the kitty today as of now, okay, in these last 10, 15 days, 20 days. I think more will come, I think, in the near future, I am expecting that after Diwali, there should be some good price increases we should be able to push through. Then it all depends on the order books. When we see the order books getting little overflowing, we’ll immediately increase the prices.

Prateek Kumar — Jefferies — Analyst

And sir, a follow-up question there. Some of the new capacities might be commissioning towards second half of FY ’23. Have they started to have an impact on pricing in your region?

Jamshed Naval Cooper — Managing Director

Yes, definitely, they will impact the pricing in whatever manner they are there, any new company comes into the market, it causes disturbance. It rocks the boat. So we should expect that we should not close our eye and say that nothing will happen to it. So we should be prepared for that and we are prepared for that, not a problem, but I always say that let us not be apprehensive that the competitor is always wanting to burn money, okay? Competitor has put up a plant to earn money.

So I’m sure they saw that Central India was a lucrative market and that’s why we have come here and they definitely want to make money out of it. They will not be that aggressive or funny or stupid to bring down the prices, okay? Everybody will lose, if that’s the approach, but I think — let me say that as seasoned players of the market, the responsibility is more on the shoulders of the players who have been present and with a good foothold in the market to hold the market rather than get swayed away by chasing a dream of somebody else at your cost.

Anil Sharma — Chief Financial Officer

I think, sir, we should also appreciate one more point. In Central India, the total demand or market size is not less than maybe 55 million [Speech Overlap] and Prateek, our assessment that next year, there should not be demand growth less than 8% or 8.5%. So if you go by that thing and one more thing that 2023 is maybe the last year before the election in ’24 first half. So we are hopeful that there should be some good demand growth and even if you take the 8%, we are talking about 5 million growth in the cement in rental India alone. So that 5 million is sufficient to appetite the whatever the new capacity coming as well as to consider the reasonable growth for our company.

Prateek Kumar — Jefferies — Analyst

Thank you, sir. These are my questions.

Operator

The next question is from the line of Hiten Boricha from Joindre Capital. Please go ahead.

Hiten Boricha — Joindre Capital — Analyst

Thank you for the opportunity. So my question is more on the longer-term view. So as we are seeing in our cement industry, most of the players made — larger players are into expansion mode for, let’s say, five to seven years or 10 years. So do you have any plans to expand capacity, let’s say, from 6 million tonne currently to 10 million or 12 million tonnes in next seven to 10 years or five to seven years. Anything on that, sir?

Jamshed Naval Cooper — Managing Director

So yes, you are right that people are expanding. We also are working on the debottlenecking and other things. Today also our capacity utilization is close to about 80%, 78%, 79% and we are working towards to see that first let us consume, but also the debottlenecking project when it comes in, it will add some good amount of cement and clinker to our kitty plus it will reduce our fuel consumption analysis. So we are operating also working on both sides. Another site is the Gujarat project, which we are working on. So the Gujarat project will be there in the longer run.

We are looking at also possible acquisitions if they come our way and in the future, we want to merge these two companies to make a bigger capacity and a bigger force and that financial fungibility also occurs with us the benefits which come into that. So we are looking at that. All options are in front of us. We are looking at whatever possible, even when there is a mines auction, we are present in those mine auction, and we try to see that we can get some new mines also. In different regions also we would participate and try to put our foot there.

Hiten Boricha — Joindre Capital — Analyst

Okay. Sir, just a clarity on this. We are expanding in Gujarat, so what is the capacity there and how much we are spending there?

Anil Sharma — Chief Financial Officer

That will be about to 3.5 million tonnes of capacity in the first phase.

Hiten Boricha — Joindre Capital — Analyst

First phase. And what about phase two, sir?

Anil Sharma — Chief Financial Officer

And it will add another 3 million, it is always in the multiples of three.

Hiten Boricha — Joindre Capital — Analyst

Okay, okay. 3 million in phase two and what would be the capex, like total spending?

Anil Sharma — Chief Financial Officer

About EUR200 [Phonetic] million, a little more than that.

Hiten Boricha — Joindre Capital — Analyst

For this total 6.5 capacity, right?

Anil Sharma — Chief Financial Officer

No, no, no. Only for two — for three.

Hiten Boricha — Joindre Capital — Analyst

Okay, the EUR200 [Phonetic] million only for phase one?

Anil Sharma — Chief Financial Officer

Yes, yes.

Hiten Boricha — Joindre Capital — Analyst

Okay. Okay, sir. I have questions, I’ll get back in the queue, sir. Thank you.

Operator

[Operator Instructions] The next question is from the line of Navin Sahadeo from Muhama [Phonetic]. Please go ahead.

Navin Sahadeo — Muhama — Analyst

Good afternoon, sir.

Jamshed Naval Cooper — Managing Director

Yes, Navin. Good afternoon.

Navin Sahadeo — Muhama — Analyst

Good afternoon. Sir, just one follow-up question to the one which was previously asked about the outlook for the pricing in the region. So will the dynamics tend to change if JP assets were to be acquired or like the deal around the JP assets tend to happen because as I see it, all these plants are really close to each other, largely in and around the Panna district. So with, I think, two capacities, ACC and JK coming up and then if JP Associates plant also like gets sold for some reason, do you think the dynamics will change or it would still largely remain the same?

Jamshed Naval Cooper — Managing Director

Cement availability, Navin, it is same. So even JP goes into transaction, the operator has changed. Cement availability remains the same, clinker availability remains the same. Maybe a different brand will come and that’s it. [Speech Overlap] Again, they have limitations of their mines and things like that. I cannot say how much of the difference will it make. What Mr. Sharma told you — Anil told you earlier that if you look at the market of about 60 million tonnes and grow at a rate of 8%, 5 million tonnes of capacity, it will absorb every year. So not to worry about it.

I would say for me competition is not a question of worry, okay? For me, the worry is that how the competition sell its products in the market and does it sell it at a throwaway price or does it believe in competing or does it believe in the brand creation, does it believe in value creation for me, my neighbor’s mentality is more important than the market size.

Navin Sahadeo — Muhama — Analyst

Understood. Understood. And would we also be interested because there is obviously this news of those assets being on the block. So would we also be interested, of course, at a price, but you think prima facie because we have been looking to expand in the central region for a long time and that’s where I think there was no opportunity, we are now focusing on Gujarat, but will we be interested at the price for these assets?

Jamshed Naval Cooper — Managing Director

Gujarat JP assets?

Navin Sahadeo — Muhama — Analyst

Yes.

Jamshed Naval Cooper — Managing Director

No, I don’t think so.

Navin Sahadeo — Muhama — Analyst

Okay, as in any specific reason that you want to say that these assets are not good quality, limestone is not there or…

Jamshed Naval Cooper — Managing Director

I will refrain from saying anything there.

Navin Sahadeo — Muhama — Analyst

Okay. Okay. And second then, just a question just on the deals because suddenly, the Central region is buzzing with deals. So there was this deal about Springway Mine been acquired by JSW. Again, is it — because I’m sure since it’s part of the same region that, that mine being on the block could have been come to us as a deal. So you think you could have bought it and looked at as a growth opportunity?

Jamshed Naval Cooper — Managing Director

Navin, your questions are a little sensitive in nature and I seek pardon to not being able to answer to that, but I can talk to you on one-to-one basis.

Navin Sahadeo — Muhama — Analyst

Okay, right sir. Thank you, thank you so much. Bye.

Operator

The next question is from the line of Parth Bousa [Phonetic] from Investec India. Please go ahead.

Parth Bousa — Investec India — Analyst

Hi, am I audible?

Operator

No, sir. If you can change your — to answer to…

Parth Bousa — Investec India — Analyst

This is good? Hello, yeah. This is better now?

Operator

Yes, sir. If you can speak a little closer to the device?

Parth Bousa — Investec India — Analyst

Yeah, so thank you for the opportunity. So wanted to understand this Zuari, Gulbarga plant, so what would be the size of the expansion? And also, what would be the cost of the same?

Jamshed Naval Cooper — Managing Director

I don’t think we should discuss Gulbarga and Zuari here because it is not a part of HCIL.

Parth Bousa — Investec India — Analyst

Okay. Okay. And just one other question. So basically, sir, wanted to like have your take on LC3 cement? And how far — like is it before it sees light of the day, like where is it stuck, like when can we expect LC3 to like materialize?

Jamshed Naval Cooper — Managing Director

So LC3 is a product where you require calcined clay or a clay of a certain nature. Now these clay reserves are not available easily, okay? They are available in places at a very different location and bringing these clay here into such a long distances and processing and LC3 is not a viable solution to me. At least, I can say that it does not make commercial sense. If you want to put up with these clay mounds, then somebody puts up a kiln or anything and wants to make calcined clay cement fine. LC3, you can make but you’ll have to put up a plant closer to those clay reserves.

You cannot, unless if you bring it to long distances, again, on a calcined place in LC3, you have to have a lot of customer education where it can be used, the product can be used. Otherwise, you will — in a country like us where the mason takes the call, they will put something or the other and then they will reap the disasters of that later on, which will be a disaster. LC3 cement has its application also differently.

Parth Bousa — Investec India — Analyst

Right, perfect sir. Thank you so much for your take on this. Thank you.

Operator

The next question is from the line of Sriram [Phonetic] from India Ratings & Research. Please go ahead.

Sriram — India Ratings & Research — Analyst

First of all, congratulations on a good set of numbers despite the global headwinds are put in place. I just want to understand a couple of things. With respect to the interest expenses, which has been quite in the numbers, okay? It was almost close to as much INR20.6 crores, right, as against INR8.2 crores. If there is provisions provided against MINR [Phonetic]. If you can provide some colors on that, it will be helpful for us to take it forward.

Anil Sharma — Chief Financial Officer

So Sriram, we have also given one note in our published results because there is a significant increase in interest expenses during this quarter as compared to last year as well as the June quarter. We have taken a provision of around INR10 crores during this quarter on account of one-off litigation and this is the provision and we will also appropriate account for this interest amount depending upon the outcome of such method in the court of appeal.

Sriram — India Ratings & Research — Analyst

Okay. So whether do we expect that this provision is likely to continue for the upcoming quarters or when does the judgment held up on, sir?

Anil Sharma — Chief Financial Officer

Judgment came during this quarter. So that’s why we have taken the provision and this has been going on for many years. This is a old case.

Sriram — India Ratings & Research — Analyst

Okay. Fine sir. Fine sir. So with respect to demand, okay, here we have reported [Indecipherable] for H1 FY ’23. So for coming next half of the year, shall we expect that you then should cross above that is about 2.5 million to 2.7 million tonne of sales volume, can we expect?

Jamshed Naval Cooper — Managing Director

Do you want to say the total [Speech Overlap].

Anil Sharma — Chief Financial Officer

Right now, I would prefer not to give you any guidance on this.

Sriram — India Ratings & Research — Analyst

Okay, okay. It’s fine sir. Fine sir. Thanks. That’s all from my side.

Operator

The next question is from the line of Debotro Sinha from ICICI Securities Limited. Please go ahead.

Debotro Sinha — ICICI Securities Limited — Analyst

Sir, what would be the lead distance for this quarter?

Jamshed Naval Cooper — Managing Director

Distance is close to about 350 [Phonetic] only. It remains inconsistent.

Debotro Sinha — ICICI Securities Limited — Analyst

Thank you, sir.

Operator

The next question is from the line of Uttam Kumar Srimal from Axis Securities. Please go ahead.

Uttam Kumar Srimal — Axis Securities — Analyst

Yes, sir. Thanks for the opportunity. Sir, you talked about debottlenecking of Line 2 first. So what would be the capacity that will be debottlenecked?

Anil Sharma — Chief Financial Officer

It will be around about 3 lakh tonnes of clinker.

Uttam Kumar Srimal — Axis Securities — Analyst

Okay and how much cement that we’ll be able to produce from this [Indecipherable].

Anil Sharma — Chief Financial Officer

Factor of clinker, factor [Speech Overlap] around 4.5 lakhs.

Uttam Kumar Srimal — Axis Securities — Analyst

4.5 lakhs. Okay, okay. Okay, sir. That’s all from my side.

Operator

The next question is from the line of Rajesh Kumar Ravi from HDFC Securities. Please go ahead.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Yeah, hi, sir. I have a follow-up question. If you look at the central region, you mentioned that we — the current demand size is close to 60 million tonne. This year alone, you would be seeing Ultratec 2.7 million tonnes clinker in Brar [Phonetic]. JK Cement [Indecipherable] capacity in that market. So don’t you think that would have an impact for companies like you on volume growth or will it impact your volume growth in addition to the regional pricing?

Jamshed Naval Cooper — Managing Director

I don’t think there is so much of a concern because with all these capacities, you take it at one stage, somebody says 3 million tonne, 3 million tonne does not come on the first day, okay? First year, the capacity comes is about 40%. Next time, it comes to 60%, 65%, 70% and then it goes to 70%, 80%, okay? At best, you can’t operate a cement plant unless the market is really gone in more than 80% normally, under normal circumstances. It would be not correct to assume that all these capacities will stand in our face from day one.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Even if I take 40% utilization, there would be close to 4 million to 5 million, so all of the incremental demand even it grows 7%, 8% would be consumed by these three capacities.

Jamshed Naval Cooper — Managing Director

They will consume the same this vacuum which is created by the demand, they will fill up that vacuum.

Rajesh Kumar Ravi — HDFC Securities — Analyst

And second, JP assets, while they are — what we understand currently is they’re operating at 25% utilization. If it were to be acquired by some of the big names, would it be that the ramp-up would create surplus capacity and hence further pressure in the central market?

Jamshed Naval Cooper — Managing Director

Why are we operating first? I will ask why are they operating at 25%? So I don’t think they are operating at 25%. It could be a total misnomer. I don’t believe that anybody can operate a plant at 25% when the breakeven of the best plant in this country is 34%.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. So what is your understanding for to what level they can ramp up if it is well funded in terms of working capital and other financial constraints are removed for these assets?

Jamshed Naval Cooper — Managing Director

I see — you can’t make a cash loss breakeven below you operate data 25%, you will keep making — it is better to close down the plant. I don’t think somebody talkies about this. No plant is able to operate less than 50% utilization.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay, and lastly in terms of…

Jamshed Naval Cooper — Managing Director

Rajesh, absolutely, somebody some in the market, these type of rumors go on without even thought thinking that people say that they are operating at 20%. I can’t believe it.

Rajesh Kumar Ravi — HDFC Securities — Analyst

No, no. So from the annual report of FY ’22 JP Assets, 2.5 million tonne volume on what we understand is having a 10 million tonne capacity. So that is our basis of saying that the plants are operating at 25%. Sorry, I missed your last statement.

Jamshed Naval Cooper — Managing Director

I said capacity could be wrong [Technical Issues] are not capable of doing that.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. Okay. No issues, sir. Last question, Mr. Adani’s entry and aggressive expansion plan and even the other majors and big companies announcing large expansions. How does Heidelberg look forward to protect its market share, particularly in the central market — central regions?

Jamshed Naval Cooper — Managing Director

Without saying too much on this, I would say that it’s just only a change of entrepreneur from moving from a multinational to a local entrepreneur and I would say that it will add value to the country. I can only say that much that knowing the business locally and doing things locally. The amount of money they have given and shelled out — Adani Enterprises have shelled out for this is a significant money, it’s not small money and they would like to — while they are — their volumes will stay there, but I’m sure they are — with the results once they come in the market they would like to make some money out of it.

I think at the current method for working will change significantly. It’s my feeling about it because they are entrepreneurs Adani family is totally pure B2B business, most of the business is the DNA, as I understand, I may be wrong totally. The DNA in most of their businesses, their margins, they are operating on products where the margins are more than 50%. How will they be satisfied with margins of 16% and 18% here? I don’t think they would like to be in such a state.

[Speech Overlap] I can only say this much as of now. I don’t know the organization, I don’t know their behavior in other industries. So I prefer that — I’m just making a small understanding of my own thought process and placing before you, but I’m sure that the Adani Group would look at really stepping up steam to make money here. It’s a very big price they are paying.

Operator

The next question is from the line of Shravan Shah from Dolat Capital. Please go ahead.

Shravan Shah — Dolat Capital — Analyst

Sir, just to clarify, we said — last time we said that for FY ’23, we were expecting 6% to 7% volume growth, but this first half, we have already declined by 12.5%. So for the full FY ’23, can we see a 2% to 4% kind of volume declines?

Jamshed Naval Cooper — Managing Director

Let us wait and watch for the full year financial year. I have not yet clear how the demand pans from October, November onwards. So I think there is upside, we will be able to pull up volumes in these another coming two quarters significantly well. That’s my belief. So not ending on a negative note.

Shravan Shah — Dolat Capital — Analyst

Okay. Secondly, just to clarify on the debottlenecking, you said the 3 lakh clinker and 4.5 lakh cement we can add. So this is just from the one line or you mentioned to Line 2 and 3. So both put together, this is the extra capacity that we will get?

Jamshed Naval Cooper — Managing Director

Both put together.

Shravan Shah — Dolat Capital — Analyst

And this will be done in FY ’24?

Jamshed Naval Cooper — Managing Director

Yes, you can say that.

Anil Sharma — Chief Financial Officer

It will be done in two phases. So we will start with the first phase in this FY ’24 and then followed by the second phase in FY ’25.

Shravan Shah — Dolat Capital — Analyst

Okay and for the Gujarat plant, you said by May, we will have environmental clearance. So just to clarify, last time, we said it will take one, 1.5 year and post that, we will order the plant. So just to simple from here on, if things move as what we are expecting, when the plant will start in FY ’26 or FY ’27?

Jamshed Naval Cooper — Managing Director

’27, you can say.

Shravan Shah — Dolat Capital — Analyst

Okay, thank you sir.

Operator

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vaibhav Agarwal for closing comments. Over to you, sir.

Vaibhav Agarwal — PhillipCapital India Private Limited — Analyst

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

Jamshed Naval Cooper — Managing Director

Thank you.

Anil Sharma — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]