Nuvoco Vistas Corp Ltd (NUVOCO) Q2 FY22 Earnings Concall Transcript

Nuvoco Vistas Corporation Ltd (NSE:NUVOCO) Q2 FY22 Earnings Concall dated Nov. 11, 2021.

Corporate Participants:

Gavin Desa — Senior Partner & Account Head at CDR India

Jayakumar Krishnaswamy — Managing Director

Maneesh Agrawal — Chief Financial Officer

Analysts:

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Shubhra Dwivedi — SBI Life — Analyst

Amit Murarka — Axis Capital — Analyst

Pinakin Parekh — JPMorgan — Analyst

Shravan Shah — Dolat Capital — Analyst

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Rajesh Ravi — HDFC Securities — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’22 Earnings Conference Call of Nuvoco Vistas Corporation Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you.

Gavin Desa — Senior Partner & Account Head at CDR India

Thank you. Good day, everyone, and thank you for joining us for Nuvoco Vistas Corporation Limited’s Q2 FY ’22 earnings call. We have with us today the Managing Director, Mr. Jayakumar Krishnaswamy; the CFO, Mr. Maneesh Agrawal; and the Chief of Strategy and Marketing, Ms. Madhumita Basu, who will represent the Company on this call.

Before we begin, I would like to point out that some statements made or discussed on the call may be forward looking in nature and must be viewed in conjunction with the risks that the company faces. The Company does not undertake to update them. A statement in this regard is available for reference in the presentation shared with you earlier.

We will begin the call with opening remarks from Mr. Jayakumar Krishnaswamy who will share perspective of the business model and strategy for the company. Post this, we will have the floor open for interactive Q&A session.

I would now like to invite Mr. Jayakumar Krishnaswamy, to share his views. Over to you, sir.

Jayakumar Krishnaswamy — Managing Director

Thank you very much, Gavin. Good afternoon, good evening to all the participants in this Nuvoco Vistas’ Investor Call. I’m joined by — with me Maneesh Agrawal, our CFO; and also Madhumita Basu, who is the Chief of Strategy and Marketing. And she is also the Chief Investor Relations Head for the Company. And I’m pleased to introduce her to all of you. She will be the single point contact for all the interactions with the investors and analysts with our company.

Of course, myself and Maneesh are always there to support her. But just want to assure you that we have a full-fledged department now. And Madhumita has been working in this company for over 12 years, handled a variety of functions in sales, marketing, R&D, innovation, and now strategy, along with the Investor Relations. So she is Exco member for the company. And that’s how we have places the Investor Relation department as a very important function for the company.

Now coming to the quarter call, I would start by recapping the vision for our company. The vision for our company is to build a safer, smarter and sustainable world, and the mission for Nuvoco is to become a leading building materials company delivering superior performance. The values for our company are very core to our heart, integrity, entrepreneurship, collaboration, care and operational excellence. The vision, mission, values are the guiding post for the company.

Let me start with an overall demand review of the cement industry in the country. While overall demand in the country improved over last year, for some unique reasons, which I’ll explain later, the East region witnessed a decline in demand. The following of the principal reasons. We had above heavy monsoon in the state of West Bengal for a number of weeks in quarter two. We also had a cyclone impact in Orissa during the month of August. And then, above all, our principal market Bihar, where there was a sustained sand availability issue due to ban on sand mining, and to cap it all, in the State of Chhattisgarh, there has been a 40-day transporter strike, which hampered the entire industry.

All this severely impacted the regions demand. While every region in the country had some kind of a growth in quarter two, East was the only region which had a de-growth of close to 9%. However, post Diwali, Dussehra and now yesterday Chhath Puja, which is an important function of East India, we are optimistic that the improved demand numbers will happen for the balance period of this fiscal.

Coming to the outlook for those industries, all of us know the push by government for infrastructure and it’s going to be focused on express way construction, the DFC implementation, metro projects, airports, [Indecipherable] all of you would know there is a big airport project coming up in UP which got inaugurated a few weeks ago. And then of course, there’s going to be significant pickup in the infrastructure activity backed by the National Infrastructure Pipeline, would like people see the healthy traction in terms of new projects and execution in medium term.

And furthermore, the rural housing demand is going to be robust in the coming quarters backed up by the robust kharif harvest. All of you know the agricultural income has improved significantly in this quarter. It’s contributed well to the GDP growth of the country. And with the healthy procurement program by the Government of India, supporting the farm prices, we would see heightened housing demand in the rural and semi-urban areas of India. And also with the vaccination happening and more and more people are getting vaccinated and more and more offices and economy growing, we see an improved demand off take in the coming five months.

Moving onto the prices, while in the earlier call, I spoke to all of you about the price increase, which happened across the board in Q1 vis-a-vis Q4, however in Q2, price has reduced significantly in the east to the tuned of about 5% over Q1 actuals. Last but not the least, which is a big problem globally and, of course, India is also linked with globe very much is the fuel prices. All of you would know last quarter had marked fuel crisis. We have seen in all the televisions and newspaper about the impending oil prices in the country, where coal was not available for a significant period and then there was a panic button pressed in the month of September, October, which I think things are improving, right now.

But at a global level, China shutting down its coal mines, Russia curtailing its supply, so overall coal supply was severely impacted. And more importantly, with the flooding and monsoon, most of the coal mines in Chhattisgarh, Jharkhand, Bokaro region were all flooded and coal extraction became a serious problem in this quarter. As a result of this, most of the company’s steel, cement and other infrastructure companies had to go to the imported model of coal, which resulted in inflation of coal prices to about 70% in the pet coke prices as well as 40% in other coal over the September ’21 actuals or April ’21 levels. Coal supply in India was impacted, as I spoke about, low production extended monsoon and priority to power sector.

I think things are improving. Coal stocks which reached to about two, three days of availability about four, five weeks ago, I think slowly is back to six, seven days and all of us know coals plants — the coal stock in India is typically 16 days to 17 days with the monsoons ending and by end of November and December, the stocks of the — coal stocks in the country will be towards 16, 17 days and things will come to normalcy.

So that’s our [Technical Issues]

Operator

Excuse me. This is the operator. Participants, the line for the management has dropped. We request you to please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Jayakumar Krishnaswamy — Managing Director

Apologies, the line got dropped off. So we’re just back. So I was talking at the last line when the line got disconnected about resumption of proper coal supply by middle and end of December should help the Industry as well as the economy.

The third one which I’m going to talk about the transport strike. So Chhattisgarh had been a little bit of a problem for the last six, seven months. We had a problem late last year, then in March there was a transporter strike and again it happened in the month of August and September. This time around the strike went for a long period of 40 days, and with this kind of strike in the state, it’s severely impacted the cement industry because all the big players were operating out of Chhattisgarh, and most of the clinker went out of road for many of the companies.

So while the rail transport of clinker happened, but the road transport of cement was severely impacted. Finally the strike got resolved sometime in middle — 20th of October, we’d to agree for a 12% increase in freight costs. This is over and above the 13% increase in freight cost in the month of March. Overall, it’s about 25% increase in the freight cost, which typically is going to impact industry anywhere between INR70 to INR100 per ton, only for that market, not in the entire region.

However dispatches could not be made, we continued to operate the kilns, because it was also a low demand season as well as we did a little bit of strategic planning of operating the kilns and also some of the kilns had to be refurbished as part of the annual maintenance. So happy to report that at the end of the quarter as well as currently, as we stand today, we have over 7.5 lakh tonnes of clinker in stock with the company, which is sufficient for nearly 1.5 million tons of cement. And when the demand is going to kick start, it is going to really help the company.

During the last call, I reported that in Q4 of last year, we could not supply the market because of the clinker shortage because of 100% capacity utilization. With this kind of clinker stock, which we have, as well as the production resuming from now on till the March of next year, we really expect adequate clinker available for Nuvoco to capture the market growth, which is lucky to have.

Coming on to the cost platform — the cost pressures of coal, transport and other cost lines cannot be sustained with the industry. And in October, we had a price increase of INR15 to INR20 per bag in East and INR10 to INR15 per bag in North over September. With the maximum impact of fuel cost increase going to happen in Q3, even this kind of price increase, which we have taken in October is not sufficient. And in my view, we need to further increase prices to offset the impact of fuel inflation.

I move on to the Project SPRINT. We spoke about the synergies between the two companies. We have named this project as Project SPRINT. And this flagship project is to build synergies between NVCL and NU Vista and has been yielding results under various buckets of logistics cost, clinker transportation cost, procurement synergies and adopting the best practices between the companies.

Other than this, there are two other projects, which I spoke to all of you in the previous call. One was launch of Double Bull in markets in North India other than Rajasthan. It has been a super hit for us. And this product has been very well received in all the markets of Gujarat, Haryana, Western UP and Western MP without cannibalizing the sales of the original product Duraguard. And it’s going to really help us move from the non-trade into trade, that was one of our goals in North India.

The second one was to console clinker venture into the markets of East in the composite cement, I spoke about the inability of NVCL in the past to make composite cement. And with the acquisition of NU Vista, we now have plants in Jajipur, Panagarh and the expansion in Jojobera, all these three plants are now capable of making composite cement.

I spoke about the target last time of achieving 1 million tons of composite cement in this fiscal. Happy to report that the transformation of composite cement has already happened in these three plants and the market has received product with the thumbs up, and we hope to achieve the goal set for us in the balance five months.

Nuvoco really priced on the innovation capability, our vision says “Safe, Smarter and Sustainable World.” As part of offering smart solutions, we launched three new products in this quarter. One was the Zero M Water Shield 2K portfolio in the MBM range; the second was the Speedex Tile Grout, and the last was again in the putty segment with this problem of COVID and rest of all this stuff, we brought out a very innovative product in the putty segment, called the antimicrobial wall putty, which has got the ability to fight bacteria and that’s doing very well in the market. That’s about the innovation agenda for the company and the performance in quarter two.

I now move on to the overall financial performance of the company. In terms of revenue, sequentially from Q1, to Q2, volume declined and this was anticipated, Q2 is always the monsoon quarter and volumes in Q2 is always lower than the Q1. But more importantly with the East being significantly impacted and Nuvoco has got an exposure of close to 70% of sales from East, so volume had an impact. Overall if you see, the East markets dropped by nearly 9%, but we stayed flat vis-a-vis last year’s Q2 numbers.

One of the important things for us in — for building revenue has been getting the pricing acceleration program going for the company. I spoke about the thrust on premium products, improving geo mix in key states. Happy to report that we improved the premium share of the Company from 31% to 34% in this quarter and really helped us kind of offset the impact of price drop in Q2 versus Q1.

When the market drop prices were about 5%, the impact on pricing in Nuvoco is only 3%. The benefit coming out of the focus on premium products, getting the Double Bull right in North, getting composite cement and also focusing on Geo mix.

Coming to the cost elements of Q2 performance, the first one is about the raw material cost. We clocked INR551 per ton in Q2, lower than Q1 by buy which was INR555. So more or less been kind of maintained even though the inflation was pretty high, our teams did a wonderful job to work on the raw mix optimization and delivered the raw material cost target for the company.

Coming to distribution costs, the Q1 number was INR1,343 per ton. In Q2, we achieved INR1,298 per ton aided by the Project SPRINT savings. I spoke about the cross-sourcing, I spoke about the home market, I spoke about the clinker rerouting via Sonadih; all these really helped the company to contain the distribution cost of INR1,298. Not to mention the strike impact in Chhattisgarh. With all this uncertainties, we were able to deliver a distribution cost of INR1,292 per ton.

On the power and fuel cost, obviously, it’s a runaway train. Q4 of last year, our company did INR854 per ton; Q1, it went to INR917; Q2 we did INR1,008; in Q3, it’s likely to increase another INR150. One of the things which I hope and believe is after the coal scenario in India improves, the linkage coal will increase in India. And you are all aware that we have a unique advantage of 27% of linkage coal for the company as against that in Q2, we did only 12% of linkage coal. And that should improve in Q3.

With this linkage coal if and when it gets restored in Q3, our teams are working with SECL to get the supplies right for us. And my current view is, by the time we hit end of November and middle of December, we should get coal from SECL quickly. And if that happens, Q4 should be a better quarter for us, but I foresee Q3 to have inflated coal prices.

Coming to the capex for the company. In this quarter, we spent about INR120 crores of capex. The projects in Arasmeta have been commissioned, Jojobera trial production has happened on CPP, the grinding unit in Jojobera is commissioned. Also happy to report two key projects for the company was a debottlenecking of clinker in Risda from the last year’s 10,500 numbers target of 11,500 numbers. During the shutdown, we did most of the modifications on the kiln. And the kiln is already delivering 11,000 tons per day. I think once the market opens up and we are able to get the demand picking up, we plan to operate the kiln at 11,500 TPD, a small debottlenecking — small modification that will happen in this quarter.

The other one is the debottlenecking of the Nimbol kiln from 4,500 tons per day to 5,500 tons per day. Very pleased to report that earlier this week we did the Bhumi Puja. The equipment has been ordered the mill is ordered and the technical studies have been done. So this project is not started this month, and it will take about 15 to 18 months for the kiln to be operational.

Another kilns which were debottlenecked in the last year are all giving full capacity. Chittor is operating at 6,000 TPD; Sonadih line towards 6,000 TPD and Arasmeta 5,250 TPD. As regards the deleveraging and IPO proceeds deployment, we’ve been able to deleverage the company by about 0.6 times in this quarter. And currently the net debt to EBITDA stands at about 3.1 times end of September.

In terms of IPO proceeds deployment, in this quarter we deployed INR6,500 crores to pair off the — some of the borrowings. And then the balance INR700 crores-odd will be paid in H2 of this year, and that’s part of our objects clause in the IPO. Some of these loans mature in February, March, and then that’s the time when we will prepay, because earlier prepayment would lead to some penalty. And that’s already disclosed in IPO document. We’re following what we have mentioned during — to the regulatory authorities.

Coming to the sustainability. Sustainability continues to be a key agenda for the company. Currently we are in the process of validating our carbon emission by external agency. A detailed roadmap to reduce carbon emissions is in the process. However, I would like to reiterate we are on an accelerated ramp up on carbon footprint reduction actions.

Number one, all of us know, all our kilns are equipped at WHR. And we are one of the best in the industry that’s close to 2:1 waste heat recovery vis-a-vis the capacity. In terms of alternate fuels, Chittor plant is running at 16% alternate fuel. And happy to the report we just signed a capex for the Risda, Nimbol to start work on alternate fuel.

On the green footprint, we are committed to tree plantation in all over sites. And on the CO2 reduction, our company is one of the best blended cement ratios. The CK ratio at 1.7 is better than the industry.

On the CSR front, we continue to operate in all the plants work with the stakeholders and the local communities to demonstrate our commitment to the agenda there.

With this, I end my opening remarks. I open this floor for Q&A. And we will answer all your questions, which you have.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Shalini Vasanta from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Hi, this is Vivek Ramakrishnan. Sir, I wanted to know about your debt and deleveraging plans well into the future. You’ve given guidance in March. You had taken a lot of debt and you’ve kind of taken it out via a liquidity event. But going forward, what is the kind of leverage that we can expect in the company in terms of — we can say it in terms of debt to EBITDA or whatever ratio that is convenient for you? And how much capex do you see in terms of going into 2023 — FY ’23? Thank you.

Jayakumar Krishnaswamy — Managing Director

I think you’re consistent with what we have spoken in the IPO. We are more or less in track to whatever we committed doing at IPO. Our debt for the company at the end of September is INR5,718 crores. And the net debt-to-EBITDA ratio as I spoke little while ago is 3.08. Our target is, by March 31 this fiscal, our debt should come to about 2.2 times the EBITDA. On a long-term basis, we are looking at FY ’25 where we become a debt-free company.

In terms of the capex, which we were deploying for the company, in FY ’22 our target is INR550 crores, out of which about INR200 crore-odd — INR230 crores we have already spent in H1, the balance ones will happen in H2. The next year FY ’23, we’re looking at a capex of INR1,750 crores. That’s what we spoke during the IPO. That involves the ground-breaking of Gulbarga and starting our work 18 months post the listing is what we said. We’re sticking to the plan which we — target which we took for ourselves.

Along with that, the debottlenecking of Risda and Nimbol as well as Sonadih line 2 will happen. One of the things which we spoke during the IPO was the Babua expansion from 1.8 million tons to 2 million tons. There we are in consultation with the state government. The entire project is dependent on whether the government is able to give fiscal benefits and VAT benefits to us.

And I guess we will take a decision on starting work in the state only after we get a formal go ahead in terms of fiscal benefit. As it stands today, the fiscal benefit window for the current scheme is ending and the government has not announced the next scheme. I think, if and when they announce, we will start work. So till then, we will not kind of start expansion in the state of Bihar in Bhabua plant.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Thank you, sir. That was very good and good luck.

Jayakumar Krishnaswamy — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Shubhra Dwivedi from SBI Life. Please go ahead.

Shubhra Dwivedi — SBI Life — Analyst

Yeah. Hi, sir. Thanks for taking my question. Sir, out of the INR1,750 crore capex you mentioned lined up for FY ’23, how much would be for the Gulbarga project and how much would be for the debottlenecking projects?

Jayakumar Krishnaswamy — Managing Director

Okay. In the next five years we had mentioned that we have a capex of close to about INR3,750 crore — INR5,500 crores, out of which the Gulbarga project was close to about INR3,500 crores-odd. And in that, we had a sustaining capex, which is to take care of the program in the company to run the existing facilities as well as the INR3,000 crore capex of Gulbarga. About INR150 crores per year for the sustaining capex.

And that’s the plan, which we had — okay, I’ll just explain to you I’ve got the chart in front of me. The — overall, the capex target for the company was there is a full number here. Just show the mouse. No, no, you just give me the chart which gives the full capex, total capex. Now why don’t you say? Come Maneesh, you go ahead, you take the question.

Maneesh Agrawal — Chief Financial Officer

The overall capex for the next five years that was talked about during the IPO roadshows was INR4,750 crores, out of which, what Jay mentioned is that around INR550 crores will be spent this year and around INR1,700 crores would be spent next year. Out of which, the major portion would be towards the Gulbarga expansion line of around INR3,500 crores.

Jayakumar Krishnaswamy — Managing Director

No. No. He wants the FY ’23 numbers. FY ’23 numbers is INR1,750, out of this INR1,750 crores, expansion in Gulbarga, we are looking at close to INR1,000 crores.

Shubhra Dwivedi — SBI Life — Analyst

Okay. Okay. Sure.

Jayakumar Krishnaswamy — Managing Director

Sorry, we were not in a presentation format, so I think I had to use — I had to ask my guys to put the chart in front of me. Apologies.

Shubhra Dwivedi — SBI Life — Analyst

No problem sir. And my second question was, so at the parent level, Niyogi level, is it now completely debt-free?

Jayakumar Krishnaswamy — Managing Director

Niyogi level is completely debt-free after getting the prepayment INR3,500 crores went into Niyogi. INR15,00 crores — INR1,350 crores, plus charges for the — that’s how the proceeds to INR5,000 was there. The INR3,500 crores has been repatriated to Niyogi and then Niyogi has [Indecipherable].

Shubhra Dwivedi — SBI Life — Analyst

Okay. And it would have given some loans to Nirma or it would have passed the surplus through dividends.

Jayakumar Krishnaswamy — Managing Director

Niyogi, neither lends synergy to Nirma, it was just a vehicle for Nuvoco. And it doesn’t transact any other business, so all the loans were retired with Niyogi.

Shubhra Dwivedi — SBI Life — Analyst

Thank you, sir. That’s all from my side.

Operator

Thank you. The next question is from the line of Amit Murarka from Axis Capital. Please go ahead.

Amit Murarka — Axis Capital — Analyst

Yeah. Hi. Good afternoon. Sir, I wanted to understand your cost and margins. So there seems to have been a sharp jump in costs in the Q-o-Q basis. While I understand the increase in [Indecipherable] those line items, but even then the increase is much higher than what we see for Niyogi [Phonetic]. So is it little more with regional sales mix, why the costs are looking so different compared to 1Q?

Jayakumar Krishnaswamy — Managing Director

Let me just take all the cost elements one at a time. The first one, which really impacted the company was obviously the fuel price impact. During my opening remarks, I spoke about the fuel — power and fuel costs which moved Q4 of last year, we were one of the best in the industry at INR854 rupees per ton.

That was my benchmark in terms of comparison to all the peer group companies. However, in Q1, this INR854 crores became INR917 crores due to slow escalation of the coal cost. We used to operate at close to about INR0.8 [Phonetic] per million cal for the linkage coal and it went to — while rest of the whole combination of coal used to be about INR1 to per million cal.

However, as the quarter progressed, we went into, in Q2, it became INR1,008 per ton would INR100 increase over Q1. So Q4 was INR850, Q1 INR917, INR70 increase from Q4 to Q1, and Q1 to Q2, it became INR1,008. That’s the kind of impact which we are having. And in October, the fuel prices further increased to over INR1,100 — INR1,200 per ton. And the rates at which the inflation of coal is happening, it might even touch a good INR200 more than Q2 actuals.

The reason being Pet Coke which used to be about INR1.25 per million cal is even trending at INR3 rupees per million cal and important coal it used to be at a higher calorific value about INR1.3 per million cal trending at INR2.4 to INR2.5 per million cal, namely the Australian coal, or Indonesian coal or the South Africa coal. All these prices have either doubled or even tripled in some cases and added to the fact is the non-availability of coal internationally and ocean freight rates being very high these days.

And right now, there is a mad rush by all the companies to book materials at any cost because if the industry has to run, we need coal to run kiln. So the objective for all of us is, get kiln running, make the clinker so that when the season comes we are not caught with no clinker. So hence we have taken a decision to buy coal even though it is expensive.

Fortunately in the last two to three weeks, there is some softening of pet coke as well as international coal be about $20 per ton. How nominal and how far it is going to sustain; anybody’s guess? I am only hoping this will get moderated in the coming six to eight weeks. But the biggest thing our company is banking is the linkage coal which I spoke a little while ago. We were uniquely placed at about 27% of our coal requirements in the East form the linkage coal, which came to 12% in Q2 because the collieries never supply coal to us. But our team is not sitting as we speak with SECL management to supply coal to us.

We already have about INR100 crores of advance deposited with SECL to — as and when they open the collieries, they will have to give first benefit to our company, so that by end of this month, beginning of December, we’ll start getting coal form SECL. That was first reason of fuel impact. The second was the diesel price increase, which used to be INR76 per ton. And it went — all of us know diesel reached INR100 in the last one month. Little bit of softening has happened in the last 10 days, but it increased the distribution costs in Q4 from INR12.89 to INR13.43.

We’re very happy to report that our company guys did a wonderful job to raise the distribution costs from INR13.43 to INR12.98, namely by getting the synergy benefit between the two companies. So these are two important.

The third important is the fixed cost increase. Here again, it’s a very strategic tactical point which we did in Q2. When the demand had dropped in the market and also with the strike in Chhattisgarh, we took two decisions. One to run all the kilns, second to get the annual shutdown going for all the kilns because when the demand was not happening, we kind of took a decision to fix all the kilns.

We have six kilns in the country, five out of six kilns have already been reconditioned or annual maintenance done for this year. We don’t expect any further shutdown in the balance five months. Hence this quarter had higher fixed cost impact due to this higher shutdown cost. So this was basically fixed cost impact from shutdowns, diesel impacting the distribution costs and the coal impacting the power and fuel costs. That’s the basic reason for inflated cost numbers in Q2.

Amit Murarka — Axis Capital — Analyst

Thanks for the elaborate reply. Just a quick question again there. So now that the government has reduced the duties on diesel and the prices have come down by almost 18%, 20%. Will the Chhattisgarh negotiated tariff with the truckers stay or will that now be reduced again?

Jayakumar Krishnaswamy — Managing Director

That’s a wonderful question. So it’s going to be anybody’s guess. I’m not going to stick my neck out and say whether we will get this thing or not, but when we did the agreement with the transporters, it was very clear that a particular component of that [Technical Issues]

Operator

Excuse me. This is the operator. Participants, the line for the management has dropped. We request you to please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Jayakumar Krishnaswamy — Managing Director

Okay. Sorry again, I think we are having more than one occasion of line drops. But then, let me come back to what I was speaking about on Chhattisgarh. So I guess as I said, it’s anybody’s guess. When we did the — when we resolved the strike, we are in need for a particular component of diesel part of the lower inflation. I think Nuvoco believes and hopefully other companies also on the same wavelength that whatever we are freed in terms of percentage diesel linkage to overall freight increase, diesel cost comes down, the freight cost has to come down.

That’s going to be a line of discussion in the coming one week. But we will have to take it in an escalated manner with the trucking companies in Chhattisgarh. However outside of Chhattisgarh and rest of the states, I think it’s straight forward formula for diesel cost around 30% odd of the overall distribution cost, diesel prices have to come down by some percentage, the diesel component will come down. So that’s what we will do in the coming days. Chhattisgarh, we’ll wait for a few days even when we protracted conversation, but I hope we get it right.

Amit Murarka — Axis Capital — Analyst

Thank you very much. And just a last question, what was the clinker production in the quarter?

Jayakumar Krishnaswamy — Managing Director

Clinker production in the quarter? You got to give some time. We will not be able to fish out in the next one minute. We will probably send an email to you by end of the day, if you’re okay with that.

Amit Murarka — Axis Capital — Analyst

Yeah, sure. Thank you very much.

Operator

Thank you. The next question is from the line of Pinakin from JP Morgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yeah. Thank you very much sir. So my first question is basically trying to understand prices and margins. You said that there was a price hike in the month of October. So can you give us a sense what was the quantum of the price hike vis-a-vis the September average cement prices?

Jayakumar Krishnaswamy — Managing Director

Okay. So what has happened Pinakin is the prices started getting corrected from about 5th October and all the way at multiple times during the month. If you really look at the overall price per bag, it can be to the tune of different states has different prices. So wholesale prices got corrected and in Bengal to the tune of about INR23, Bihar it was about INR30, Orissa INR16, Jharkhand INR30, Chhattisgarh INR24.

But you would know all this did not happen on one day. It happened from 1st of October all the way to the 31st of October. So the net impact of price for that month was close to about INR10 to INR15 per bag correction, which happened in East and about INR10 to INR12 correction happened in North. So that’s the kind of impact on the volumes in that month. But now — after the festivities have ended and the markets have opened, we will get the full benefit of all the price increases, which have happened during the month.

Pinakin Parekh — JPMorgan — Analyst

Sure, sir. Sir, now just putting those price increases in the context of the second half, you said that coal cost will be higher, but you would have some price improvements, you would have some volumes. So, sir, can we expect the EBITDA per ton, which fell very sharply in the second quarter versus first quarter to go back to the — to go back above INR1,000 a ton in the third and fourth quarters or you think that the cost inflation is just too high and the price increases will not be able to offset it?

Jayakumar Krishnaswamy — Managing Director

It’s going to be very difficult for me to put a number at this point of time because of the dynamic situation in the market in terms of fuel cost. But that’s only one part of the answer. All of you would have listened to every company’s results call and you would have seen that every company, the EBITDA erosion form quarter-on-quarter is almost the kind of numbers, which we have faced. We faced little bit more because we are East focused company and pricing also really played a negative part for us in Q2 when compared to Q1.

Having said that the correction in prices will certainly reinstate the profitability of company to a much higher level than what we achieved in Q2. But I’m going to keep my fingers crossed at this stage. If the coal prices are going to continue to be at October levels, then I think the numbers which you indicated will happen.

But if the coal prices are going to be further inflated — that’s why in my opening remarks, I said if the coal prices are going to further corrected by INR200 odd, then certainly it demands further price correction in the month of November. And I think as a company, we have to really focus on getting the prices right in November to ensure or restore profitability in quarter three. Quarter four, I see much better quarter in terms of demand uplift and as well as more stability in the market and things should improve much, much better in Q4.

Pinakin Parekh — JPMorgan — Analyst

Understood sir. And sir my last question is, you mentioned FY ’23 capex target of INR1,750 crores. Does this mean that the company is not looking to de lever next year because INR1,750 crores essentially will eat up all your operating cash flows even if you assume INR1,100 of EBITDA per ton?

Jayakumar Krishnaswamy — Managing Director

Maneesh, you want kind of answer this question.

Maneesh Agrawal — Chief Financial Officer

So, basically, the operating cash flows would be significantly higher than what the capex requirement would be there. So obviously it’s going to help us deleverage going forward in FY ’23 from the FY ’22 levels.

Pinakin Parekh — JPMorgan — Analyst

But the operating cash flow being higher, what is the underlying assumption of EBITDA? I mean at INR1,000 EBITDA per ton, it will not be high enough to do both the capex and deleveraging, right. Then the assumption is that the EBITDA per ton is much higher than this?

Jayakumar Krishnaswamy — Managing Director

Pinakin, we have spoken in the past on the — during the IPO time as well as the quarter one results, one of the things is we are not looking at [Technical Issues]

Operator

Excuse me, this is the operator. Participants, the line for the management has dropped. We request you to please stay connected. Apologies, ladies and gentlemen, we have the line from the management reconnected. You may go ahead, sir.

Jayakumar Krishnaswamy — Managing Director

It’s been a very unstable line. I’m sorry. So Pinakin, let me just start off again. One of the — there are a number of aspects which we consider at the start of the company’s strategy and business plan for the next few years. The number one was getting volume leverage for the company and fixed cost rationalization as we move from the last years actual of 17.3 million to this year’s target of close to about 20 million. And then next year, we’re looking at close to about 23 million tons. That’s the kind of numbers, which we got. And hence one of the big impact is going to be the volume impact.

The second one which we also discussed during the IPO was the cost inflation will be neutralized by this price increase which the industry will get albeit there was a lot of conversation about whether we’ll take it straight away, whether the industry will benefit or not. But I think whatever we say, that time has come through, industry certainly will take production brief albeit quarter later.

So our assumption at the time was INR475 rupees of price increase and INR350 rupees of cost increase and we said the impact of pricing should be about INR75 to INR100 per ton. That was one big assumption which we had made. Second one was the volume impact. The most important thing for Nuvoco is the internal levers and the synergies coming out our NU Vista and Nuvoco. There we had a clear target because internal levers for the company will give anywhere between INR150 to INR250 rupees per tonne in terms of getting synergies going between the companies. And what was the agenda we spoke about? One was to get composite cement, second was to get premium extension; third was to get [Indecipherable] which gives INR70 per ton due to premiumization. The second thing we said was INR55 per ton will come through logistics savings, INR50 through fixed cost impact, INR25 through clinker transportations and another INR50 will come through incentive.

Currently, as we speak, we are not able to get the fixed cost impact because of volume has not got build up during the weak quarter in Q2. I mean as a company under management, we are confident the demand will come back very soon in the coming one, two months and certainly will get sustained in Q4 and beyond.

Last but not the least with the human infrastructure and well as rural housing improvement, which I spoke about in the original — in the initial remarks, the demand is going to go over the industry from 6% to 8% is being the fastest demand growth in the region, in the country at 9% to 10% followed by Center and North. No corporate will ease Center and North and we are looking at a sustained volume growth.

So with the volume growth happening cost impact neutralized by the price increases, scale benefit and unlocking the internal levers for the company, we were targeting to move from INR975 actual last year, all the way to about INR1,200 is what our business plan make. We continue to have similar assumptions, give or take little bit here and there. But as we speak today, this quarter is not going to decide the agenda for the company going forward. We still have a robust and a challenging agenda which the company is focus to deliver.

Pinakin Parekh — JPMorgan — Analyst

Understood, sir. This is very helpful. Thank you very much for this sir.

Operator

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

Shravan Shah — Dolat Capital — Analyst

Yeah. Thank you, sir. So just continuing the previous question, so when we are saying that we are looking at 20 odd million tonnes for this year, so in the past, we have done 8 million. So we are looking at 12 million odd in the second half, so close to 6 million-odd per quarter. So till now whatever the October and November, 11 days, so are we going to track in terms of achieving that number?

Jayakumar Krishnaswamy — Managing Director

Well, I’ve to come back on the rear side actually. I’m not going to kind of make a number where will be hit there. But certainly, I’ll be able to tell few points, which are very important. One is, after the monsoon and this — first thing is I spoke about sand mining ban, which impacted the state of Bihar, the entire industry was crippled. So happy to report yesterday or today morning the Supreme Court Judgment has come to reopen the sand mining and Bihar will open up.

Monsoon are over in Bengal and Bengal is opening up after Durga Puja and Diwali. Strike is over in Chhattisgarh, Chhattisgarh demand get reinstated, Jharkhand post Chhath Puja will get reinstated and Orissa will certainly get reinstated as we speak. Last but not the least, the markets in Gujarat, Rajasthan, Delhi, Haryana, Western UP all are opening up as we speak. With this kind of numbers, last year in Q4, we did 5.8 million tons. And as I spoken in the past also that we were having a clinker shortage and most of the companies is in need to get clinker from other states.

As we speak, we have close to about 7.5 tons of clinker in stock because in the weak quarter, we continue to run the kilns and stock up clinker in all our plants. 7.5 million tons of clinker would mean about 7 lakh tons of clinker would be 1.5 lakh tons of cement roughly, little bit higher 1.4 or 1.5 roughly around that number. Our CK ratio in each is very high at 1.9. North is little bit low. With this this kind of head start which we have, what we will not have is what we faced in Q4 last year. So delivering — over delivering Q4 vis-a-vis Q4 of last year is 100% assured as far as we are concerned.

Coming back to what we would do in Q3, of course, October ended and November with this Puja going away and then markets opening up two days ago. The next 30 plus 20, 50 days is going to be very critical for Nuvoco as well as for the industry. And I really hope and expect that the demand is going to get full momentum going forward. As regards, whether we’ll hit 20 million or not, I guess, delivering 2 million tons every month for six months, one month has already gone, so I guess will be a little bit lower than the original numbers, but our aim will be to get maximize December till March.

Shravan Shah — Dolat Capital — Analyst

Okay. Sir, second question is on the working capital front. So in the first half, if I look at the cash flow, close to INR674 crores odd has been went into the working capital. So the thing what I’m trying to understand, so the capex that we are looking at. Second is in terms of the — we are planning also the deleveraging and here the working capital is increasing. So combining, put together, just trying to understand what — how are we looking at to actually go for a deleveraging?

Jayakumar Krishnaswamy — Managing Director

Okay, I’ll make the first two comments and Maneesh will give you the granular details. The current working capital level is a very tactical move by the company to block all coal available wherever it is available to stock up coal. The second one was, we also took a tactical decision to buy slag. All of you would know that the slag prices have gone up to as high as INR1,900 per ton and INR1,800 rupees per ton. As this quarter was happening, we took a call — we have a strategic tie-up with Tata Steel at a preferred price.

And when the steel industry was moving on, we decided to get all the slag which is being made even though we were not consuming, which is going to help us in Q3 and Q4. So we built up slag inventories, we built up coal inventory. As I spoke to you, we built up clinker inventory to the tune of 7.5 lakh tons.

And last but not the least, in the last three to four weeks, we also built up cement inventory to the tune of 3.5 lakh, 4 lakh tons of cement. All this is resulting into high working capital, which will all vanish in the next five to six months. From April 1, we will have very low working capital and we’ll have the right leveraging to payback all the loans as well as the investment capex next year.

Shravan Shah — Dolat Capital — Analyst

Yeah. Sir, just get what you said in terms of the building up the inventory, but if I look at trade receivables, there also around INR321 crores odd has increased. So, can you explain that?

Jayakumar Krishnaswamy — Managing Director

That will happen because last two months, if you see the trade is also struggling. So I guess we have to be very considerate and work with the channel partners because we’re all in it together. So I guess it’s been a conscious call not to kind of push them this way. But I think the channel partners really work well in the industry and I think we’ve got a wonderful relationship with them.

I think once the market opens, all these things will come back. Because we operate close to about 10, 11 days receivables in the East and about three to four days renewables in North, slightly increased by two days, but as all of it vanish. I think the [Indecipherable] to all this is, once the sales happen everything will become product [Phonetic].

Shravan Shah — Dolat Capital — Analyst

Okay.

Maneesh Agrawal — Chief Financial Officer

And also [Speech Overlap] all our receivables are backed by security deposits in the cement type. So it is in the normal course of the business. And in Q3 and Q4 whatever inventory that we have built up as a strategic call coupled with increase in the receivables front that will get liquidated as a part of the second factor.

Shravan Shah — Dolat Capital — Analyst

Okay. That’s great. And the third thing is on the RMC front. So this quarter, our RMC revenue has increased on Q-o-Q from INR131 crore odd to INR182 crore. But if I look at the EBIT level loss, it has increased from second half for up to INR9.3 crores. So two to three things just wanted to understand. First, in terms of, what was the volume for this quarter in RMC? How do we see — so what is the EBITDA margin that was there? So maybe if you help me in terms of the depreciation for RMC that would be great. And how do we now see in terms of the RMC revenue picking up and when can we see the RMC turning into the positive?

Jayakumar Krishnaswamy — Managing Director

I’ll give you part answer right now. But in terms of granular details of number, if you’re okay, if I can drop an email to you giving all the numbers which you asked. But certainly, I’ll give you the high level stuff of RMC. In Q2 of last year, FY ’21, we did 159,000 cubic liter of sales. Q1, this year, we did 323, in Q2, it became 424.

So every quarter, RMC business is doing better than the previous quarter in terms of revenue. And overall, revenue was INR71 crores in Q2 last year, INR131 crores in Q1 this year, INR180 crores in Q2 this year. So we had an EBITDA loss of INR12 crores same quarter last year. We’ve come into an EBITDA positive of INR3 crores in Q2 this year.

As I mentioned before in the earlier calls, it’s going to be little bit of a gradual process for us to get the RMC business going. But we have totally restructured the business, wound up some of the plants which were not economically feasible. But we also got into new businesses like we are now a big supplier for the bullet train SSR project in Surat. We also signed contract with Oil India in Numaligarh to supply to them. We’re also going to supply concrete to Chennai Metro out of the Chennai plants. So we’re all getting into long-term strategic contracts where the inflection of raw material will not be to the company, but to the person or the companies which are getting into contract with us.

We also bought about 35% of the business on cash and carry. And there is a huge thrust on getting premium products going. Last year, we used to trend at about 20%, 21% of premium products. But this year, we are already trending at 25%. Our goal in Q3, Q4 is to go to 28% and 30%. We’re able to get the premium product going, supply to the long-term contracts, focus on cash and carry business. Our goal for this business in Q4 is to hit 200 per month, which will be 600,000 cubic meter in Q4.

And the aim is, once we sort this out, the scale will basically improve the EBITDA for this business and resulting EBIT will come automatically. As regards depreciation and other numbers, I think I don’t have it right away in front of me. We will drop an email to you giving all details and have a subsequent phone call with you.

Shravan Shah — Dolat Capital — Analyst

Okay. The last question is a data point.

Operator

I’m sorry to interrupt. Mr. Shravan, please [Speech overlap] Thank you.

Shravan Shah — Dolat Capital — Analyst

No issues. No issues, yeah. Thank you.

Operator

Thank you. The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher. Please go ahead.

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Yeah. Thanks for the opportunity. So one question on the side of — on the strategic side like we are looking to put up a Greenfield plant in the — like Karnataka. But if you see our land portfolio, I do know that in East we are a much bigger player and we are among the Top 3. So in case of North, we are — our market share is between around 3.5% odd. Rather than looking at the North market, we are going to set up a Greenfield plant, and in a crowded market like South. So what is thought process there other than expanding in the North market where like say we would be at the top — lowest bottom, is among the lowest top three players, like at par with Mangalam Cement or India Cement, which is not a focused player in that particular market, but we are going to Karnataka?

Jayakumar Krishnaswamy — Managing Director

Let me try — let me just explain to you, fully. I think we made previous calls in the quarter calls as well as during the build-up to the IPO, we had a very clear cut plan of how Nuvoco is going to grow and try and become a 25 million ton company in the coming few years. That’s been the ambition for the company and we’ve laid a roadmap for this journey.

First we said was, at this point of time whatever capacity we have in East we will only debottleneck and not kind of put up anymore capex for the — in the short to medium term. The next one was, Gulbarga technically can be called in Karnataka; we all know Gulbarga is on the tip of Karnataka and Maharashtra. The ambition of the company is to enter the Maharashtra and Gujarat markets out of IU or a split GIU Gulbarga so that the number is not — the plant is not to serve the South market. The plant is to serve the center and Maharashtra as well as western market where all of us know pricing and realization is pretty good.

The last one you asked about why not north. Of course North is very much in our plan. Our first foray is going to be an expansion in Gulbarga backed up by further expansion in North India. Why are we taking North as step two and not step one is for the following reason.

In North India, we have a capacity utilization till last year of only 70%-odd. We still have — in East, we have a capacity utilization of 90% to 95%. In North India our capacity utilization is 70% odd. What we did was to get Double Bull brand in North India and put a second brand along with Duraguard to get that additional capacity utilized by selling in a new brand, which I spoke a little while ago, it’s been a wonderful entry for us in markets other than Rajasthan, where we have not yet launched, every market Double Bull is galloping.

Secondly, to get the additional requirement in North, we are debottlenecking the Nimbol plant about 1,000 tons per day additional capacity which I spoke about ground-breaking and in the next 15 to 18 months Nimbol will come. So with this kind of 6,000 TPD Nimbol plant and 6,000 TPD Chittor plant in terms of clinker, we’re looking around 12,000 TPD of clinker availability in North and our ambition is to move from OPC to PPC, like the strong strength of Nuvoco is to have OPC to PPC — OPC was only 10% for us in NVCL, whereas in North is about 35-65. Our aim is to move from OPC to PPC, move from non-trade to trade, yet Double Bull going in North. And that would take the overall capacity of the company from current 4.8 million tons, all the way to 6 million tons in the next one year to 1.5 years.

By the time we get this growth and capacity utilization done, our sequential expansion in North will start. So the first one is, get Gulbarga right, launch in Maharashtra, Gujarat and through a split grinding IU model and expand in West followed, as kept to, by North expansion.

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Would you be putting up the grinding unit or [Indecipherable] to service the Gujarat market? I haven’t seen any of the Company like — taking the clinker right from Gulbarga to service the market of Gujarat?

Jayakumar Krishnaswamy — Managing Director

No. No. I didn’t say that we are going to put up a grinding unit in Gujarat. We will put up a grinding unit in appropriate location, which might — which will have physical benefits in Maharashtra. And hence if you really look at cement industry, you get the radius of 180 to 250 km at the clinker through railway siding and then get GU up. And that GU will have another 150 kilometer radius to transport the material. With this model of having GU somewhere in Aurangabad and Ahmednagar or such kind of areas, work is happening right now, too early for me to say where it will come.

Certainly, we have mines in Gulbarga, so we’ll have to put the site there. The site is environmental clearance approved, mining plan approved, railway siting model work is happening, compound wall done, mines are opened. So it’s more or less ready for us to inswing. Then on we get into North, Maharashtra, Vidarbha are area and East Gujarat towards Surat, Baroda and that’s the area we are looking at.

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Okay. Thanks a lot, sir.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah, good evening. I just missed a few detail. So which year do we plan to complete the Gulbarga Greenfield project, if you could just share that again?

Jayakumar Krishnaswamy — Managing Director

In our business plan, we have said, we will start construction in Gulbarga 18 months post the listing. So if you really look at, listing happened in August, 18 months would be end of next year, which is fiscal ’23 third quarter. And then on, we are looking at 24 months for the plant to come up.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. Understood. And second on some other cost items say slag buys. Is this possible to share some recent trends?

Jayakumar Krishnaswamy — Managing Director

I guess we will — we had shared details last time around as well. But in terms of slag details let me just give you some indication — some information which is useful. We have a slag tie-up of close to about 2.1 million tons with Tata Steel, another 0.4 million tons of potential [Phonetic] buying at different rates. Overall, we have a long-term 20-year contract of 2.5 million tons with Tata Steels till 2039. I won’t be able to divulge the exact price because of commercial consideration which we have with Tata Steel.

But suffice to say, it comes with a substantial reduction to the current slag price in the market. The average price currently trending in the market is — best price trending in the market is INR1,200 rupees per ton, and the worst price trending in the market is INR1,600 to INR1,800 per ton. We have pricing which is much, much better than the best price trending in the market in terms of slag for 20 years and that’s a great relationship which we have with that company.

The second one is fly ash in two sites, namely Mejia plant as well as Tata Jojobera plant. We have pipe fly ash coming from Tata Power as well as Damodar River Valley Corporation. And there are the cost of fly ash is much, much lower than what anymore would buy from open market. Likewise in the [Indecipherable] plant, we have a tie-up with the [Indecipherable] as well as the CLP plan to get differential fly ash rates. Other than that, rest of the fly ash is as much as what others buy from the open market.

Sumangal Nevatia — Kotak Securities — Analyst

Got it. Sir, I understand the security of the raw material, but in terms of price trend, at least if the market price trend, if you can suggest per slag, which you said is INR1,200, how has that moved in the last few months?

Jayakumar Krishnaswamy — Managing Director

Okay. I think if you really look at the slag price trends for the industry, I think it is all moved from INR1,600, INR1,800 to INR1,900. But for our company with the blended rate of what we get from Tata Steel and what we buy from open market, trending price is close to about INR1,100 is what in the Q1 and Q2 of this year.

But you would know that the slag prices are little bit exorbitant in the last six to eight months, I think, already the prices are softening as we speak. In fact, in number of options we have kind of renegotiated with some of the slag suppliers and not going to book at the prices, which they are offering. I think because the demand was also a little bit low for cement in Q2 because of monsoon. I think slag price was already softened. Our review is maybe by the end of November, December, it should come to reasonable levels. And not certainly at INR1,900 per ton level where it’s not worth it to buy slag.

Sumangal Nevatia — Kotak Securities — Analyst

Understand. So there is some deflation with West…

Operator

Sir, this is the operator. Mr. Nevatia, we may request you to come back in the queue, please.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Thank you and all the best, sir. Thanks.

Jayakumar Krishnaswamy — Managing Director

Thank you.

Operator

The next question will come from the line of Rajesh Ravi from HDFC Securities. Please go ahead.

Rajesh Ravi — HDFC Securities — Analyst

Yeah. Hi, sir. Good evening. My questions pertain to first on the Chhattisgarh strike impact on sales volume for the second quarter and how has been the impact in Q3 because we understand a similar number of days the strike impacted in third quarter also.

Jayakumar Krishnaswamy — Managing Director

Yeah. I’ll talk about Q2, certainly, because in Q2, certainly, Chhattisgarh strike impacted the industry and certainly companies like ours and two, three other companies like Shri or JK, we’re all basically road based companies bore the full attack other than probably UPCL or LH Group, which still had rail connectivity from as the other states into this.

Even though we have Arasmeta and Sonadih, which have rail connectivity, which we managed as well partly, but then, Risda, which is a big plant for us, which produces close to about 10,000 tons of cement every day had to be crippled for many days during the month of September.

Our estimate is, we’d have lost close to about 1 lakh tons of sale in the month of September alone and backed up similar kind of number in October. But October is not big, too much of an impact because the entire industry was crippled by huge monsoons and sand mining in states like Bihar and thing like that. But certainly, in September we got impacted and it had, what we call, negative impact in the overall top line.

Rajesh Ravi — HDFC Securities — Analyst

Okay. And secondly, you talked about that you took clean shutdown across almost all the locations. What we see is that the per-ton other expense cost number for this quarter has jumped to almost INR800 versus average of INR600 in the preceding four, five quarters. So any thought on that? Is it all because of the clinker, this kiln shutdowns or something else went into it? What we are trying to understand?

Jayakumar Krishnaswamy — Managing Director

Two big reasons. One, as you said, I think shutdown is a big one. In fact, the shutdown cost of similar quarter last year, Q2 FY ’21 was about INR37 crores, INR38 crores, whereas shutdown cost in Q2, FY ’22 is INR62 crores, so about INR25 crores, INR26 crores increased in this cost versus last year. The second one was, we also commissioned Arasmeta and CCP as well as GCP Jio.

The depreciation cost increase will be about INR6 crores to INR7 crores in this quarter. Last but not the least, the parking cost went up significantly versus last year to this year. Last year it used to be at about INR140 per ton, it went as high as INR220 per ton and currently trending at INR205 per ton. So these are the big-ticket items which impacted the various cost lines.

Rajesh Ravi — HDFC Securities — Analyst

So some of these, only INR75, INR80 will come off in the second — in third quarter versus second quarter. Is that understanding right?

Jayakumar Krishnaswamy — Managing Director

Shutdown will go away. Parking cost, I can’t say, because granular prices again taking the same direction as fuel prices globally. Hopefully if that comes down, granular prices will also come down. But certainly shutdown cost will go away in Q3.

Rajesh Ravi — HDFC Securities — Analyst

Okay. Two more questions sir. On the debt reduction, what is the target for FY ’22 now that H1 is done?

Jayakumar Krishnaswamy — Managing Director

I spoke to you. It’s — target is 2.2 is the net debt to EBITDA ratio end of March [Phonetic].

Rajesh Ravi — HDFC Securities — Analyst

Sorry. Debt to EBITDA ratio of 2.2 at the end of FY ’22.

Jayakumar Krishnaswamy — Managing Director

End of FY ’22. That’s the target we are working on.

Rajesh Ravi — HDFC Securities — Analyst

This is on net debt level, you’re talking about.

Jayakumar Krishnaswamy — Managing Director

Yeah. That’s right. Net debt level.

Rajesh Ravi — HDFC Securities — Analyst

Okay. And the synergy INR150 for this year. And [Speech Overlap] yeah, I’ll just complete this question and leave. This INR150 per ton for this year and INR100 synergy benefit for next year, if you could elaborate how much of these have been achieved?

Jayakumar Krishnaswamy — Managing Director

Yeah. I think we — thank you for asking this question. I was waiting somebody would ask this question. In fact, one of the most satisfying things for us is how our teams have been able to get the synergies going between the two companies as soon as the — we said about INR150 this year and INR100 next year. I think in Q1 of this year, the logistics was INR24 per ton in Q2 of this year it was INR28 per ton. And in clinker rerouting, we got INR6 in Q1, INR9 in Q2; procurement INR4 in Q1, INR7 in Q2; manufacturing INR4 in Q1, INR11 in Q2. So Q2 if you see 28 plus 9, 37 plus 1, 44 plus 1, INR55 per ton of synergy benefits, which we have got. I think, it’s only going to increase once the volumes come and then we are able to push a lot of material through the factories. I guess this number of INR150 is still achievable. And I think the teams are committed to exploiting the benefit which will come out of the combination.

Rajesh Ravi — HDFC Securities — Analyst

Great, sir. Thank you. I’ll come back in queue.

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 on the volumes that seeing Nuvoco outperformed the entire softness in East in the quarter. Was it taking market share in this region or was it diverting some volumes to maybe — higher volume two Central compared to normal run rate? And the company has also built significant inventory. And if there is a debt deleveraging target, there is working capital that the company would want to release.

If the demand doesn’t play out as expected, would the Company like to take some market share, be aggressive in taking some market share or maybe look to divert some volumes to Central India market just for the working capital release also and taking the debt target that we have in mind? That’s the first question.

Jayakumar Krishnaswamy — Managing Director

I think the first thing I’ll say about — you asked about Q2, how did we get the volume? Certainly, I think we are very mindful of distribution cost and lead distance and getting the EBITDA per ton right. At no point of time, we will move cement to long distance, which is not attractive and spoil the EBITDA for the company. That’s the core assumption and target for the company, not to sell cement for the sake of selling.

We have home markets in Chhattisgarh, Jharkhand, Bihar, Bengal, Orissa. All these states also — we have a strategy call BBJRM. We have to maximize sales in Bengal, Bihar, Jharkhand, Rajasthan and Western MP. And these are the markets that company consistently works to get the maximum throughput going. And that’s what we adopted in Q2. And I think the teams did a wonderful job to buck the trend in this market and still achieve the volumes, which we achieved in this market.

There is no way we will go and sell in states which are not close to us and enter additional cost just to get some market share in other places. Suffice to say, this was a temporary quarter where the number is 3.8, but if you see Nuvoco always operated at close to 95% capacity utilization. And then, when the markets are going to open up, there is no case for us even to take material away from even the home markets of the Chhattisgarh plant or a Jharkhand plant. We focus very close about 150 to 200 kilometer radius around the plants to maximize sale.

As regards to your second question of with higher working capital with so much of cement and clinker, will we be tempted to move material to non-core markets to deleverage the company? I have to say that at this point of time, as a senior leadership of our company, I’m pretty confident that going forward markets will grow, everybody in the cement industry believe that the market — not believe, it’s confident that the market will grow 6% to 8% going forward and Q4 is going to be a bonanza quarter. I think all the stocks will vanish in the next five months.

Satyadeep Jain — Ambit Capital — Analyst

Thank you. Second question is on the projects. On the Gulbarga, first of all is — has the management taken some decision around whether it’s going to start with 6,000 ton per day initially and another 4,000 ton per day later on or is it going to be 10,000 tons per day. And is there capital cost inflation because earlier we talked about INR3,000 crores for 10,000 ton per day line? And is that number the same?

Jayakumar Krishnaswamy — Managing Director

Yeah, during the IPO time, we did speak about 10,000 TPD line. But I think from then to now, we’ve not made any shift in terms of whether go from 10,000 to 6,000 ton or not. But if you had participated in those calls, certainly similar questions were posted to us at that time. And our answer at that time was very clearly that we need to add capacity in this place. But closer to the time when we embark on a technical study and the business model going which will happen in the next one or two months, we’ll come to a decision whether a 10,000 TPD Gulbarga is right for the company or a 6,000 TPD to start with, with the ability to expand to 10,000 TPD. Maybe two cycles from now when we meet, we will be able to give you better clarity on whether we are going to zero on a 10,000 TPD or 6,000 TPD.

Satyadeep Jain — Ambit Capital — Analyst

Is there capital cost inflation right now where you said for a 10,000 ton per day that you initially expected 3,000 ton?

Jayakumar Krishnaswamy — Managing Director

No. It has nothing to do with capital cost which is going to decide whether we will do over a 10,000 TPD or 6,000 TPD. Certainly, I think we have started working on the modeling of markets, the ability to get EBITDA per ton, what’s the contribution we will get, what is going to be distribution costs. The teams are currently working on the business model and the target markets, whether it’s an IU or IU plus split GU, which are our core markets. I think as I said, literally in another three to six months, I think by the time we move onto the next cycle or the next cycle we will be able to give you better thought because we would have zeroed onto what is the plan for Gulbarga. But suffice to say that we are going to expand in Gulbarga.

Satyadeep Jain — Ambit Capital — Analyst

Okay. Thank you. I’ll come back in the queue for different questions. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the call to the management for closing comments.

Jayakumar Krishnaswamy — Managing Director

Thank you all for participating in this call. As I said the vision for our Company is to build a safer, smarter and sustainable world. And the mission for Nuvoco is to become a leading building materials company delivering superior performance. The values being integrity, operational excellence, entrepreneurship, collaboration and care. These are the cornerstones for our company.

And few months ago, we listed Nuvoco and became the fifth largest company in India and the largest company in East India there with the acquisition of Nuvoco and NU Vista. But for this short temporary dip in the market because of external conditions, I think as a company we are well on your way to unlock value between the two companies, get the synergies going and then aggressively developing the market by launching new products, launching composite cement, getting Double Bull in North and also moving our non-trade to trade share to higher trade share and also moving from OPC to other blended cement with a strong focus on sustainability to reduce the carbon footprint year-on-year.

That in short is our presentation to all of you. If there are any further questions you may have, do reach out to our Chief of Investor Relations, Madhumita Basu and her team. We’ll be happy to answer all your queries. And myself and Maneesh will always be there to work with Madhumita to answer every question of yours. Thank you so much. And look forward to meeting you again later. Thanks.

Operator

[Operator Closing Remarks]