Shree Cement Limited (SHREECEM) Q3 FY23 Earnings Concall Transcript

Shree Cement Limited (NSE:SHREECEM) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Subhash Jajoo — Deputy General Manager Finance

Neeraj Akhoury — Managing Director

Analysts:

Harsh Mittal — ICICI Securities — Analyst

Shravan Shah — Dolat Capital — Analyst

Vishal Periwal — IDBI Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and to the Shree Cement Q3 FY23 Earnings Conference Call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions. [Operator Instructions]. I now hand the conference over to Mr. Harsh Mittal from ICICI securities. Thank you and over to you sir.

Harsh Mittal — ICICI Securities — Analyst

Yes, thank you Tikku, good afternoon and warm welcome to everyone. On behalf of ICICI Securities, we welcome you to this Third Quarter FY 23 Earnings call of Shree Cement Limited. On the call, we have with us Mr. Neeraj Akhoury, our Managing Director and Mr. Subhash Jajoo, Chief Financial Officer of the company. Now at this point of time I will hand over the floor from Mr. Subhash Jajoo, for his remarks, which will be followed by an interactive Q&A session. Thank you and over to you sir.

Subhash Jajoo — Deputy General Manager Finance

Thank you Harsh. Good evening, ladies and gentleman. I welcome you to the earnings call of Shree Cement for the quarter-ending December 2022. I have along with me is our Managing Director, Mr. Neeraj Akhoury who has recently joined us either. Mr. Akhoury needs no introduction, he is a veteran of the industry. I know you have interacted with all of you have interacted with him on several times and most of you would like to hear from him so without wasting much time I’m handing over to him to give his opening remarks.

Neeraj Akhoury — Managing Director

Thank you Subhash and good evening ladies and gentlement, an extreme honor to be here and to be able to discuss and talk to you today evening on our quarter three results for 2022, 2023. I’ll just make some will be opening comments, we had. I would say that it was a good quarter and the company did — we achieved cement and clinker sale of roughly about 8.03 million tons and this is showing a growth of about 23%, up from 6.55 million ton in the last year same quarter. Given our realizations, we have stopped by about 2% from INR4739 to INR4854 in the current quarter. And based on this, the total EBITDA excluding other income was down by about 14% to INR708 crores as against INR826 crores in this December 21.

EBITDA per ton also stood at about INR881 per ton against INR1260 of last year. Sequentially, volume has gone up by about 8% from 7.46 million ton September 22 quarter to about 8.03 million tons in last quarter. And the ratio was up by 1% from last quarter from INR4805 to INR4854. We have shown a healthy increase in total EBITDA. We’re increasing by about 35% probably INR523 crores last quarter to INR708 crores in December 22. Whereas the EBITDA per ton also showed an increase from 701 last quarter to 881 in December 2022 it. So overall we are seeing a sequential improvement in our performance and we hope that this trend will continue showing better numbers than what we have been able to show in the in the last year, calendar year 2022, largely the reduction has been based on fuel prices, yes. As you know, this has impacted many parts of the economy, including cement industry. But as fuel prices continued to soften we believe that we will be able to repeat this kind of numbers in the next quarter as well.

Subhash Jajoo — Deputy General Manager Finance

In fact, there has been a huge increase in fuel price as compared to last year in December 21, our cost per calorific value was INR1.69, whereas in the last quarter, it shot up to INR2.53. However despite the nominal increase in cement prices during the quarter did little to negate the impact of fuel prices. However, on a sequential basis, as Neeraj ji said, the cost is coming down for fuel. So on a sequential basis, it has come down from 2.83 registered in Q2 to 2.53.

On a capacity since sales was good this time — the capacity utilization given the quarter improved on a year-on year basis from 61% to 72%, the strong volume growth is due to rise in construction activities which we are witnessing across all regions. Government-led infrastructure spending has increased significantly, Urban Housing is also seeing number of new projects being launched across all and other top tower cities, even corporate India is doing lot of capex nowadays.

We expect to end this year already — the — our total sale for nine months is around up by 17% and we expect to close this year at somewhere close to 32 million tons. The company has been actively working on achieving its goal of having 80 million tons capacity by 2030, we have also shared this vision with you earlier. In fact, it was there in our annual report also. The status of the project under implementation is as follows. As you all know, we are right now, we are working on three projects, the 3 million [Technical Issues] West Bengal is nearing completion and we expect that in another quarter, maybe by June quarter it should get commissioned.

Apart from this, the work on integrated cement unit of at Nawalgarh, Rajasthan is on full swing and progressing well, it is likely to be completed by Q3 of financial year 2023, 2024 which is one quarter ahead of our earlier scheduled completion of earlier given of Q4 in 2023/2024. Our third unit, which is the integrated cement unit of 3 million ton in Guntur, Andhra Pradesh is also progressing well. We expect completion of the project also to be advanced by one quarter, to Q2 financial year 2024, 2025. No discussion would be complete today without talking about ESG and now I would request Neeraj ji to share his views on the same and what we have done.

Neeraj Akhoury — Managing Director

As you know ladies and gentlemen. ESG remains one of the top priorities for the group and we are absolutely determined that we would like to make Shree one of the greenest cement company in the country. One of the big focus for us has been renewable energy and to increase the share of the Green Power, the share of green power consumption to total power of consumption during the quarter increased up to 53% against 47% in the corresponding period last year.

We also added about 84 MW of solar power plants in different states during the current financial year. Another 42 MW would be added in the next few months. In the addition of the company is working in a very focused way to in terms of increasing the use of agriculture and industrial waste to improve our cover substitution rate as replacement of possible deals state-of-the art technologies. The cities are being installed. In most of the largest, and then the base utilization capabilities of the of the company.

Of water for our operations, while being cognizant of the needs of the community by adopting the best available technologies in the plant as well as implementing an appropriate rainwater harvesting and recharging structures have become very proud to say we are now five times water positive in our operations. We also proud to share very-very proud to share that we achieved a score of minus as part of the carbon disclosure project the CDP for climate change related disclosures. In 2022, which do. Our view is one of the best-in the industry, both in the domestic levels as well as global levels. I would like to complete by sharing our outlook for the next fiscal. With similar state elections do shortly at the general elections next year, we expect cement demand momentum to continue.

The order would have been administered in the Union budget has given a median for major to the infrastructure growth by providing the highest-ever allocation of almost 10 lakh crores for the sector. The allocation to railways road construction but Alma GLS Georgina have also been increased significantly. We believe cement sector is poised for a robust. Demand growth in the coming years and we actually use demand we are appropriately positioned to perform in this very exciting times in India.

With this, I would now like to handover to Q&A.

Over to you.

Questions and Answers:

Neeraj Akhoury — Managing Director

[Operator Instructions] The first question is from the line of Shravan Shah, with Dolat Capital, please go-ahead.

Shravan Shah — Dolat Capital — Analyst

Hi sir, a couple of data points first before asking the question. So, first, could you again repeat the in terms of the price increase 2%, when we say, is it a QoQ, the number what you mentioned because we have a power revenue so the 2% increase. Just wanted to understand that and also the trade said our lead distance, the all mix for this quarter and also the capex in the nine month, how much we did and what what’s the remaining for this fourth quarter, and for next year and then the net and the gross?

Subhash Jajoo — Deputy General Manager Finance

Yes Shravan, you have asked quite a lot of data points. Let me just to start one-by-one. we are up by 2% on year-on year basis. And in sequentially basis the realization is up by 1% on the fuel mix. In this last quarter, almost 58% was the use of pet coke and 28% was use of coal balance was alternative-fuel. On-trade mix since last two-three quarters. We are having almost 78% to 80% of trade sales, and we believe the same trend is going to continue in future also.

The average lead distance for this quarter was 40, 50 kilometers as some. In mind in second-quarter and 455 kilometers was there last year, so lead distance has slightly increased by five kilometers as on a year basis I believe we have already. I’ll say it, but the fuel cost for the last quarter, as compared to 1.69 a year back and 2.83 September, 22, now coming to capex in the first-nine months, we have spent close to INR2,200 crores, this is including the capex done actually cement as well as the subsidiaries because now for some of our grinding units are coming up in subsidiary.

So total INR2,200 crores is what we have spent and in the balance three months, we expect to spend close to INR700 crore to INR800 crore more taking the total capex to around INR2,900 crores. Yes please.

Shravan Shah — Dolat Capital — Analyst

For the next year, how much are we looking at in terms of the capex and current, what’s the gross and our gross debt and net-debt?

Subhash Jajoo — Deputy General Manager Finance

Okay, next year, we expect total capex to be in the range of INR3,300 to between — anything between INR3,300 crore to INR3,500 crores around INR8,300 crores and the net-debt is INR5,700 crores.

Shravan Shah — Dolat Capital — Analyst

Okay, got it. So post the December in terms of this January and till now, have we seen any increase or decrease in the prices in the regions where we are operating this is first part. Second, in terms of the fuel cost, how much more reduction are we looking at in this quarter?

Subhash Jajoo — Deputy General Manager Finance

First of all-in terms of pricing, as compared to December, prices, we have not seen any till now the pricing is more or less flat the December and now in February. And on the pet coke prices. Yes, obviously as and when the high-cost inventory is coming down, so the construction cost will come down. We expect the current cost of pet coke is around like L December quarter it was 2.53 and currently it is around 2.35… [Technical Issues] I mean, when do you see that number coming back for the business. The but they’ve been getting pricing environment. But. I think what somebody will EBITDA per ton of what you said. Well, one day-to 1,500. Well, let’s see in a commodity business, it is very difficult to give you a take a call on cement prices in totally depend on the cement prices so actual prices. So there are two things which we cannot comment upon, so it may be very difficult when we are going to if what I can say is that maybe in the coming in the current quarter, we should be close to a put the four-digit figure, that much I can say, [Technical Issues]

Shravan Shah — Dolat Capital — Analyst

Okay and sir second was a bookkeeping question. So you will say that our realization has increased by 2% on a year actually, a year-on year basis, but if. I do the calculations, my. And average realization per ton is decreasing by 7%, so I did net revenue divided by the number of shares volumes. So that’s coming around 51 largest FT500 previous year so am I missing?

Subhash Jajoo — Deputy General Manager Finance

Oh, yes, yes, you are missing one point, we have two segments, cement as well as power. So maybe in some core last quarter, there has been more of power sale that is. That is why. Got it, but power is forms a very small part of our segment, that is why we are not giving the numbers separately. So once you exclude the power numbers, then you will come to this number. So what was the revenue in this to take orders which you have mentioned. Revenue port from power, yes. For Q3, current quarter unfortunately, we will not be able to share the power numbers because we have. About two-three years back, we have discontinued the giving the power number separately, if you want the realization number that item share.

So, we have like the net realization was up by 2%, it was INR4854 and on a sequential basis, it was 48-year or five last quarter.

Shravan Shah — Dolat Capital — Analyst

Okay, understood. Thank you Neeraj and Subhash ji.

Operator

Thank you. Our last question is from Vishal Periwal with IDBI Capital, please go-ahead.

Vishal Periwal — IDBI Capital — Analyst

Yes, sir, thanks a lot for the opportunity. Sir on the costing front, I think if you look at 9-month basis above EBITDA we have done costing of around INR4400 a ton. And a couple of initiatives that will happen over the next 12 to 18 months, rail siding maybe TSR increase renewable mix increase, so on a like-to-like basis, what could be the reduction in the costing keeping like the power and fuel cost where exactly it is?

Subhash Jajoo — Deputy General Manager Finance

It will be difficult to quantify the number right now because this TSR is a new thing which we started two, three quarters back. So, how it’s going to scale-up our target is from 3% to reach to 15%, so giving you a number will not be possible right now, but yes on a kcal basis as compared to pet coke, which is something like INR2.35 the cost of agricultural [Technical Issues] will be close to INR1.50 so that sort of a gain, maybe there.

Now, how much quantity we will be able to increase that is to be seen. We have invested into certain technologies in order to increase its usage. These plant and machinery has been imported from Europe and these may get installed maybe by March-end this year, so next year, we believe we should be able to — our throughput for this agricultural waste and industrial waste will increase significantly and that is why we are targeting 15% over there.

Vishal Periwal — IDBI Capital — Analyst

Okay, and then one data point on the raw material cost, which has been quite volatile I mean historically and again in this year again, on a full-year basis, how exactly we see them and what is the reason of this volatility? And for the full-year this is how we see this numbers on per ton basis?

Subhash Jajoo — Deputy General Manager Finance

So, the raw-material price is not that volatile, but yes the reason why the raw-material price you are seeing, has come down slightly. If you would recall in Q3 last year, there were certain disturbance in East India where because of transport strike we are unable to move clinker. So we have to buy a lot of clinker from outside in order to feed our grinding unit, and that is why the cost is high last year whereas — another thing is that the fly ash price has also increased, so these are two reasons which because of there is volatility in raw-material prices.

Vishal Periwal — IDBI Capital — Analyst

Okay, and will be possible to give for a full-year basis, how things probably could pan-out for maybe fourth quarter?

Subhash Jajoo — Deputy General Manager Finance

For a full-year basis, it will be difficult to give on the pricing front.

Vishal Periwal — IDBI Capital — Analyst

Okay, sure. That’s all from my side. Thank you.

Operator

Thank you. That was the end of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Neeraj Akhoury — Managing Director

Again, thank you very much ladies and gentlemen for attending this call and an absolute pleasure to be able to answer to some of your questions. We did try to be as accurate as possible. I hope, if there are some remaining questions you can always feel free to connect with us again and anything to do with the results, if you want to ask, you can always.

I would reiterate that Shree is a strong company and most of the steps that now we are taking is with the sole objective of how do we further strengthen it. We have a reputation to protect, we have a reputation to protect as the fastest-growing company, as the greenest company, as the lowest-cost company as a company that goes on for innovations in core manufacturing to core supply chain in a very strong way and these are some the reputations that this company has achieved over the last several decades — last two decades and that’s something that the current team would continue to work very hard to predict and to further strengthen.

So again, thank you very much gentlemen. Have a good evening, everybody. Thanks again. Bye-bye.

Subhash Jajoo — Deputy General Manager Finance

Thank you.

Operator

[Operator Closing Remarks]