UltraTech Cement Ltd (ULTRACEMCO) Q2 FY22 Earnings Concall Transcript

UltraTech Cement Ltd  (NSE:ULTRACEMCO) Q2 2022 Earnings Concall dated Oct. 18, 2021 

Corporate Participants:

Atul Daga — Business Head, Executive Director & CFO

K. C. Jhanwar — Managing Director

Analysts:

Sumangal Nevatia — Kotak Securities — Analyst

Raashi Chopra — Citigroup — Analyst

Pinakin Parekh — J.P. Morgan — Analyst

Ashish Jain — Macquarie — Analyst

Amit Murarka — Axis Capital — Analyst

Ritesh Shah — Investec — Analyst

Madhav Marda — Fidelity International — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Naveen Sahadev — Edelweiss — Analyst

Girish Choudhary — Spark Capital Advisors — Analyst

Rajesh Ravi — HDFC Securities — Analyst

Prateek Kumar — Antique Stock Broking — Analyst

Mihir Jhaveri — Avendus Capital — Analyst

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Sanjeev Kumar Singh — Motilal Oswal Financial Services — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the UltraTech Cement Limited Q2 FY’22 Earnings Conference Call. We must remind you that the discussion on today’s call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events, or otherwise. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company. Thank you, and over to you Mr. Daga.

Atul Daga — Business Head, Executive Director & CFO

Thank you, Steven, and good evening, ladies and gentlemen. Once again, thank you for joining our earnings call for quarter two FY’22, today, the 18th of October 2021. First and foremost, greetings to all of you for the festive season in India. I hope that all of you and your dependence have already been vaccinated for COVID and are able to kill the boredom off work from home by returning back to your respective workspaces and enjoying meeting your colleagues and associates in person.

At UltraTech. We believe that work form home is here to stay and we are enabling roster services, leasing office leases wherever possible, redesigning our larger offices to suit the new normal to “new normal is never normal”. Yes, that is what we are seeing in the cement industry as well. Every now and then we are waking with the news of a new cyclone, Idai, Tauktae, Yaas, and whatnot. Cyclones generally would give a shore the miss, but now are hitting our shores every now and then. Monsoon have continued in the country in the month of October as well, and have only started receding in the last few days.

World is just recovering from the aftermath of COVID and now fuel is creating roadblocks for the economic growth. Shortages in gas market is pushing demand of electricity generation from coal-based power plants. The surge in demand for coal is largely from recovering economies. China, first shut down its coal mines and now is stockpiling domestic coal and gases and on the other side, Russia is curtailing it’s supplies. China was not importing coal from Australia, but of late, I guess that is getting resolved and they’re started importing from Australia.

Fuel prices have seen an unprecedented rally, who could forecast more than a $50 jump in less than a month. Added to that, the stock built up requirements of few West and North Asia for their winters. In India also all the coal supplies were being diverted to the thermal power plants. But only today’s newspaper was some relief that inventory at Coal India has been improving and the power rates have corrected on the exchange. With this kind of pricing in the coal market, petcoke again becomes favorable in terms of energy costs at the current levels of — current price levels of course. So I guess switching back to petcoke makes more economic sense.

Using alternate sources of coal from wherever the most economical source of coal is available is the order of the day. Increasing alternate fuel is slow in India. This quarter, we have reached 4.4% of our total fuel consumption as alternative fuel and our efforts will be to continuously increase the sourcing of alternate churn from wherever possible. However, something needs to be done to protect our margins too. Industries like coal and other commodities are raking in the [Indecipherable] that with price increases and artificial shortages. Cement cannot keep on just growing efficiency to protect and generate margins. We have taken a call at UltraTech to increase prices of cement to help manage the rising cost of production.

Current spot prices of coal have already gone up 3 times from June 21 and pet coke is up nearly 2 times. Sometime during the month of October, we have increased the prices in almost all the regions. The prices are now back to where they were pre-monsoons. This is certainly not enough to cover the cost pressures. Needless to mention, you must have already got the information from your famous [Indecipherable] infamous channel checks. On other costs, you would have noticed an increase in UltraTech, but I would urge you not to annualize these numbers. At the beginning of COVID, we had told you about a reduction in our overhead plan of about 10% over FY’20. Yes, we are at it. FY’22 we’ll see our overhead around the same numbers as FY’20, thus having absorbed the inflation of two years.

Let me now talk about the brighter side, demand. It seems to be robust. As monsoon have been receding, volumes are going up. In spite of heavy rains that hit — that the country witnessed, UltraTech has recorded a domestic gray cement volume growth of 8%, 17% in white cement. Could we have done better. Yes, most certainly, but we were at the mercy of rain gods. In the lighter vein, a farmer from — he would always urge for rains, a pharma company manufacturing anti-malarial drugs would have urged for rains, and cement company would pray otherwise. Q2 was substantially impacted by monsoons, which were above normal in most parts of the country. And in fact till yesterday some parts of Northern India and Kerala were facing heavy showers.

On the infrastructure side, the thrust by the government continues to be very high as part of implementation of its INR1.1 trillion project under NIB to be completed by 2025. If you were to deep dive briefly on the various subsets of infrastructure; roads, fastest growing sector with a massive plan to connect entire length of the country under the Bharatmala Pariyojana project. There are 20 Expressways already operational and 30 are under construction. Highway construction is almost at par with last year with 3,824 km completed till September. Ordering was that slower, but we expect it to catch up this quarter.

Railways, Q3 onwards the speed of implementation at DFC is picking up and most of the work is expected to be completed by the end of fiscal ’22. Metro rails, 18 existing metro rail systems have already started increasing the length of their existing metro lines and 27 new metro lines are being added in the country. Irrigation projects are also back on track. Airports, two major airports, which is New Bombay and Jewar are likely to commence this fiscal year. Airports in the major districts are being implemented as part of Udaan scheme to improve the regional connectivity.

On the commercial real estate side, it’s a mixed trend. The IT infrastructure space demand is again booming, giving rise to the commercial space and we are also seeing good traction in the urban housing market in the Tier 2 and Tier 3 markets. Infrastructure expense continue to lead the demand boost with the increase in execution speed across all projects.

To quickly touch upon our expansion plans, we have commissioned 1.2 metric ton brownfield expansion of our Bengal and Bihar unit. This is part of the 3.2 million tons scheduled for this financial year. The 1.2 million ton is additional grinding capacity for which clinker it sourced from our existing units in Chhattisgarh, East MP and East UP. These expansions are focused on composite cement and in the overall capacity, though less than 1%, but certainly a tiny contribution towards increasing the share of blended cement in our endeavor to continuously improve our CO2 emission norms. The next in line for this fiscal year the 2 million ton Phase 2 of our Bara grinding unit, small delays, but its own course now and we expect to commission it before the end of this fiscal year. All other projects of the 19.5 million ton expansion are on track for a small — except for small delays of a month or two here and there.

In these coal crisis time, happy to share with you that our Bicharpur coal block will also start coal mining operations from Q3 FY ’22. The coal will be used in our Satna cluster plants. During this quarter, we have also commissioned 12 megawatts of WHRS capacity and added 21 megawatts of solar capacity target. With the expansion of — with these expansion, our Green Power share has increased to 15% of our total requirements.

Before I conclude. Let me talk about the cash flows. Working capital has been increased in value terms due to the rising purchase size of purchase cost. However, we continue to maintain a negative working capital of around eight to nine days on this quarter sales. This negative working capital will further improve in the second half with reduction in inventories post monsoon.

We generated an operating cash flow of INR1,750 crores, a large part of this was used on the ongoing capex plans. In the first half of this year, we have spent INR2,300 crores on capex and should end the year with nearly INR4,000 crores to INR5,000 crores of capex, all being funded from internal accruals, and yet deleveraging further. During this quarter, we trimmed our treasury surplus to INR7,600 crores and retired INR5,200 crores of long-term debt. At the end of this quarter we are 0.47 times net debt to EBITDA at consolidated level and will only improve going forward quarter-on-quarter. With rising sales volumes and expansions coming on stream, the reduction in net debt will certainly pick up pace as we move forward.

And to conclude, I believe cement demand seems to be on a stronger. There is a pressure on fuel supplies and costs, but rising costs will be compensated by increase in cement prices. So, ladies and gentlemen, let’s sit back and enjoy the right. Thank you, and over to you for questions. I also have with me our Managing Director, Mr. K. C. Jhanwar, to take on any questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities, please go ahead.

Yeah, good evening, and festive greetings everyone. Mr. Daga, the first question is on the cost, if you can elaborate a little bit more on the fuel cost specifically? I mean, we currently have a very changing, I mean a very dynamic situation for the economics of pet coke and thermal coal and also with the inventory in hand, I mean how are we looking at coal cost in coming quarters? It’s hit the spot price, has changed for a couple of more months. And also there is a spike in the employee cost, is this a new run rate to work with?

Atul Daga — Business Head, Executive Director & CFO

So on fuel cost, your guess is as good as mine. We don’t know where the peak is, when will it start switching gears. But the general feedback that we’re getting is at least there is a few more months of pain in the cost on fuel. But more importantly, we are passing on all these cost increases in selling prices. As far as availability is concerned, I don’t see a challenge as of now in availability of imported coal. We were in any case very newly dependent on domestic coal, a shade under 15% or maybe 12% of domestic coal is our part of our fuel mix, but the balance is all imported.

As for employee cost, this year — last year there were no increments which were given as you are all aware, as part of our COVID plan. So this year the increments were given, which came into effect in this quarter and will rationalize as we go forward in the future years.

Sumangal Nevatia — Kotak Securities — Analyst

Understood, understood. Second, sir, with respect to the demand front, you shared a very strong commentary in your opening remarks. Any ballpark number for second half for the industry demand growth which you all are working with internally your expecting, any quantification or guidance on that front?

Atul Daga — Business Head, Executive Director & CFO

I would the very safe in estimating it anywhere within 6% to 8% in the next six months, which could be conservative. Would like to add, Jhanwar?

K. C. Jhanwar — Managing Director

Oh, Yes. As Atul said rightly because now it’s a very challenging time because such a increase or fuel prices, which will obviously result into increase in the cement prices and all we know that the steel prices have also doubled actually in last few months. So there may be some impact on the demand side, but yes, we can still assume assume about 6% to 8%, to our understanding the demand should be there. And all of you know that these months are the peak months from the cement demand point of view.

Atul Daga — Business Head, Executive Director & CFO

Now as the festive season gets over, November, Chhath pooja, I don’t remember when is it, Chhath pooja in India. But typically from there onwards we start falling short of capacity. That’s what we saw, last year January margin I think it will repeat.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. And just one last thing, this European loan assets which we have we have classified that as discontinued, so any progress on the recovery of that?

Atul Daga — Business Head, Executive Director & CFO

We are fairly advanced in our negotiations and my sense is by end of December we would be reporting a closure on that transaction as well.

Sumangal Nevatia — Kotak Securities — Analyst

Got it. Okay, thank you so much, and I’ll get back in the queue. Thank you and all the best.

Operator

Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.

Raashi Chopra — Citigroup — Analyst

Thank you. So just a few questions on cost. One is, last quarter I think coal consumption was still about $123, so do you have a blend for this cost for this quarter.

Atul Daga — Business Head, Executive Director & CFO

This quarter is, shade under 110 [Speech Overlap], sorry, sorry, 120, not 110, 120.

Raashi Chopra — Citigroup — Analyst

So it’s flattish.

Atul Daga — Business Head, Executive Director & CFO

Its flattish, yes.

Raashi Chopra — Citigroup — Analyst

Okay. So you had the excess because you had inventory or what?

Atul Daga — Business Head, Executive Director & CFO

We had inventories and we had done some smart contracts which is enabling us, which enabled us to procure fuel at lower costs.

Raashi Chopra — Citigroup — Analyst

What do we expect this to be in the third quarter.

Atul Daga — Business Head, Executive Director & CFO

It’s bound to go up. I would expect, $120 could go up by, may be $10, $20 more it could go up.

Raashi Chopra — Citigroup — Analyst

This $10, $20 is in the third quarter. But I would imagine if we’re taking about some inventory in the this quarter or this is like the peak given current pricing, will the fourth quarter be higher.

Atul Daga — Business Head, Executive Director & CFO

Raashi, peak I cannot guarantee. I don’t know how long the prices will keep on going up. But yeah, we will see an increase in our fuel costs going forward.

Raashi Chopra — Citigroup — Analyst

Okay. So again on the price increases that you are referring to, those sort of absorb the cost inflation. So when we think about that, is it — you want to kind of maintain that EBITDA level versus 1Q or versus last year? So when say cost inflation or the option, I mean what kind of — I mean, what is [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

I will want to reach the best in class EBITDA margin that we would have achieved. So our endeavor will be not to be buckled under the pressure of rising fuel costs and on a steady state, if I were to look at 345, 35% is a very high number, but on a steady state 27% to 28% or 26% to 28% would be a good range to benchmark performance.

Raashi Chopra — Citigroup — Analyst

So October, what has been the — you said October you took price increases, so what is that? What is the quantum roughly?.

Atul Daga — Business Head, Executive Director & CFO

Varies from market to market and average I would say INR10 to INR15 has already gone up.

K. C. Jhanwar — Managing Director

Yes, yeah INR10 to INR15 the price has gone up, but as you know it varies from market to market and sometime the discount structures in the different markets, sot that may be, but the prices…

Atul Daga — Business Head, Executive Director & CFO

So INR10 to INR15, Raashi, across the country and the good part is all the regions have absorbed these price hikes. Other thing is, there is a general expectation amongst the infra players, amongst the dealer community that price rises are imminent, so there is very little resistance.

Raashi Chopra — Citigroup — Analyst

Got it. Okay, one more thing, on your dischargeable coal in [Indecipherable] coal will be used [Speech Overlap] in the power brands or…

Atul Daga — Business Head, Executive Director & CFO

Yeah, yeah. It will be — we can blend it also in the kiln as well as in the power plant.

Raashi Chopra — Citigroup — Analyst

So how much, and what proportion of the coal will you be able to substitute.

Atul Daga — Business Head, Executive Director & CFO

So that’s, Raashi, its a very small portion. I think on today’s capacity we need [Technical Issues] plus, minus 12 million tons of fuel and this mine — coal blocks annual mining plan is to 750,000, less than 1 million tons per annum.

Raashi Chopra — Citigroup — Analyst

Okay, so my last question what is the lead distance this quarter?

Atul Daga — Business Head, Executive Director & CFO

I’m sorry, what.

Raashi Chopra — Citigroup — Analyst

What is the lead distance that you’ve made a comment that the geographical [Indecipherable] the freight cost. So just, you know, number one, what does that mean. Number two is what is the lead distance.

Atul Daga — Business Head, Executive Director & CFO

Lead distance. Sorry, I heard freight, around 425 kilometers.

Raashi Chopra — Citigroup — Analyst

Okay, got it. Okay, thank you.

Atul Daga — Business Head, Executive Director & CFO

Thanks, Raashi.

Operator

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

Pinakin Parekh — J.P. Morgan — Analyst

Thank you very much, sir. Sir, my first question is just trying to understand this energy cost trend issue better. If you look at Slide number 17 where there is the green line which is the index of pet coke prices versus the black line which is the energy cost index, it’s nearly half of where the spot petcoke prices are. Now when we look at spot prices of thermal coal pet coke and if they were no inventory benefit, how much would have been the energy cost been higher by? I mean, assuming there is no change in spot prices from here, this roughly INR1,100 a ton should be at INR1,500, INR1,800, INR1,300. How should we look at the total cost inflation from here, sir?

Atul Daga — Business Head, Executive Director & CFO

Sure. So Pinakin there — one is carried forward inventory, the other is efficiency improvement. We have been continuously improving our power consumption, heat consumption. Power consumption has gone down by 4% Y-o-Y, that is one. And if, so that is where the big difference, delta between 240 and 126 lies. Of course, this is only a schematic reference because I have taken only pet coke price index, I haven’t taken the coal price index and the blending ratios will continue to change. So to answer your question, INR1,100 could be INR1,300 but not INR1,500. Hello. Sorry, spot thermal coal and spot pet coke prices.

Pinakin Parekh — J.P. Morgan — Analyst

Yeah. Understood, sir. Sir, my second question is that if I look at the broader — moving beyond energy cost there is a cascading impact of inflation coming through in other line items also because Brent is moving higher, diesel prices have started moving higher, you mentioned packaging cost is also higher. So when we are looking at total cost over the next two quarters, if we take the starting point as the 2Q realization, if we were to go back to the first quarter EBITDA margins, EBITDA per ton, what kind of price hikes would the industry need to see? Would the industry be okay with the 5% price hike to absorb all the cost and revert back to margin or we’re talking about 10% to 15%.

Atul Daga — Business Head, Executive Director & CFO

I were to assume INR350 as a base price, 10% minimum is required.

Pinakin Parekh — J.P. Morgan — Analyst

To cover all the costs and you go back to the first quarter.

Atul Daga — Business Head, Executive Director & CFO

Go back to Q1 margin because Q1 you’re referring to is a very high margin level.

Pinakin Parekh — J.P. Morgan — Analyst

Yes, sir. Okay, understood. That is very clear, thank you.

Atul Daga — Business Head, Executive Director & CFO

And it will happen, it will happen.

Pinakin Parekh — J.P. Morgan — Analyst

Understood, sir. Thank you very much.

Operator

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

Atul Daga — Business Head, Executive Director & CFO

Hi, Ashish.

Ashish Jain — Macquarie — Analyst

Hi, sir, hi, good evening. Sir, again, my question goes back to the earlier questions. One is on power it will cost. So if I understood your comment right, if — versus the $20 that you said was the blended consumption cost versus that if I peg to $220 to $230, we are seeing the energy cost will go up only by INR200?

Atul Daga — Business Head, Executive Director & CFO

It’s give or take, yes.

Ashish Jain — Macquarie — Analyst

Okay. Okay. And sir, like this $10 number that you said could be the impact in Q3 on the fuel cost side, but this is good for whole of Q3 based upon reasonable production assumption or?

Atul Daga — Business Head, Executive Director & CFO

Yeah.

Ashish Jain — Macquarie — Analyst

Okay, so the $210, to $220 is not going to hit us even in Q4 you think based upon the contract we have?

Atul Daga — Business Head, Executive Director & CFO

Whether Q4 will be $220 or higher is yet to be seen. We’ll try and keep the various expertise that the team has, various levels of expertise that the team has in sourcing and planning will come to its play and we will try and keep our prices — energy costs as control as possible.

Ashish Jain — Macquarie — Analyst

Sir, my apologies. But just to persist on this, what I want to understand is that either due to our contracts or based upon some of the sourcing mechanism, is it possible for us to source cool even if the spot is 220, are we sourcing that 160, 170.

Atul Daga — Business Head, Executive Director & CFO

I wish I could, I wish I could.

Ashish Jain — Macquarie — Analyst

Okay, okay. So at some level the market price will, should reflect.

Atul Daga — Business Head, Executive Director & CFO

Yes, it will catch up. It will catch up.

Ashish Jain — Macquarie — Analyst

Okay, okay, great.

Atul Daga — Business Head, Executive Director & CFO

I’m not able to say. Ashish, I’m not able to say whether it will happen in Q4 or Q5, which is Q1 ’23.

Ashish Jain — Macquarie — Analyst

Right, right, sir. Okay. And sir secondly just on the, on the capex plans, means you said that we are seeing some delays, I understand one or two months is what you indicated, but are we seeing these delays across locations or one or two locations.

Atul Daga — Business Head, Executive Director & CFO

No, one or two locations. Odisha, we saw some delays. That was the only, that’s the only delay, everything there has been a catch-up in fact, like Chhattisgarh was delayed, they have caught up brilliantly. Pali, they have quarter brilliantly. We are the larger ones, others are smaller ones. So Cuttack was the maximum [Speech Overlap]

So, out of the 19.5, 3.2 million will get commission this year and next year every quarter we will have out of the remaining 16 million tons, I had given the schedule in the earlier presentation. One of the I think quarter or the capex plan presentation, we will be able to meet that schedule, a month here or a month there. Hello, Ashish.

Operator

Mr. Ashish Jain, If you are able to hear.

Atul Daga — Business Head, Executive Director & CFO

I think he has disconnected or lost the signal.

Operator

Yeah, seems like we’ll hold the connection for Mr. Jain. We move to the next question from the line of Amit Murarka from Axis Capital. Please go ahead.

Amit Murarka — Axis Capital — Analyst

Yeah, hi. Good evening, Mr. Daga. Yeah — so like first question was on mix. Sort of what would have been the trade mix in this quarter?

Atul Daga — Business Head, Executive Director & CFO

67% is trade mix.

Amit Murarka — Axis Capital — Analyst

Okay, so broadly stable then. And also like on other operating income I see that it has jumped quite sharply this quarter. So any reason for that?

Atul Daga — Business Head, Executive Director & CFO

So you know, incentives keep coming in and out. This quarter we had our Dhar incentive coming in, some incentive expired and there could be some other miscellaneous income kicking in. So this would be a one-off, and I would have a stability at the way we have been around INR60 crores to INR70 crores per ton.

Amit Murarka — Axis Capital — Analyst

Right. Okay, so this quarter its almost double of your usual run rate and that?

Atul Daga — Business Head, Executive Director & CFO

Yeah, yeah.

Amit Murarka — Axis Capital — Analyst

Okay, and also in terms of the capacities, like obviously you’ve highlighted about the ongoing expansions which are on track, which should be done, let’s say by March 23. But given that we know that it takes, let’s say 18 months or two years or more also if it’s a greenfield to do, like are you thinking around further expansions more from FY’24 and further pipeline point of view?

Atul Daga — Business Head, Executive Director & CFO

Yeah, we cannot stop growing. India is the only market as you very well know, which is expected to see a growth of 6% to 7%. If I look at the CAGAR of 10 years, 6% to 7% is a very confident number to go by. If we don’t grow, then we will start losing market share.

Amit Murarka — Axis Capital — Analyst

Okay, so we should assume, let’s say, that kind of a capacity growth so it can on a usual [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

Inorganic or organic.

Amit Murarka — Axis Capital — Analyst

Okay, okay. And also in terms of capital allocation now that like you’re quite fast working towards the net cash balance sheet, what is the — what is going to be the capital allocation plan or inorganic is back on the radar or how is it?

Atul Daga — Business Head, Executive Director & CFO

It’s always there on the radar. The right opportunity is what we would look for. And capital allocation, as you know that the return to shareholders will increase. We had stepped it up in last financial year and I’m sure, I think this was already well thought out decision taken by the Board after looking at a long-term cash flow plans that we will be able to step up returns to shareholders after taking into account our requirements for growth, which will not be leveraged.

Amit Murarka — Axis Capital — Analyst

Okay, so then like, is it fair to say that the balance sheet will not turn into a net debt balance sheet maybe or maybe even if there is acquisition or something?

Atul Daga — Business Head, Executive Director & CFO

No, if there is an acquisition there will be one year of leverage because, you see, acquisition has a front ended payment. So, it depends on the size also. If it is a small ton then you will not even realize that the balance sheet has absorbed it. But if it’s a 10 million ton or a 13 million ton acquisition, then bump up for a year will take place.

K. C. Jhanwar — Managing Director

It all depends on the kind of opportunity we get, and obviously opportunity is quite big then. As Atul said rightly, it may have some impact year on.

Atul Daga — Business Head, Executive Director & CFO

So you know, I think I have stated — mentioned this earlier also in some forum. Your financial models will tell you what is the size of the EBITDA that Ultratech will be in FY’24. FY’23 all capacity, 20 million tons of new capacity coming on stream, stabilizing in ’24. ’24 is the new normal EBITDA for UltraTech. Its the thumb rule of whatever leveraging you want to do on that and it’s a one-year reduction.

Amit Murarka — Axis Capital — Analyst

Got it. And lastly on [Indecipherable] like I guess there is some more delays, could you just throw some light on that as.

Atul Daga — Business Head, Executive Director & CFO

Quite unforeseen, unfortunate instances keep taking place at the bureaucracy level, We were scheduled to fast track, then PM visit happened. So everybody went into the PM visit more. No meetings taking place or somebody not there, etc., etc. Having said that, March ’22 is a very realistic number that we will have our plant cleared up to start work, March ’22, yes.

Amit Murarka — Axis Capital — Analyst

Okay, but you also…

Atul Daga — Business Head, Executive Director & CFO

We’ll not bother you with the nitty gritties, there are so many different things that we have to deal with.

Amit Murarka — Axis Capital — Analyst

But I remember there is some work also that needs to be done once you get the plant because its been shut for a long time.

Atul Daga — Business Head, Executive Director & CFO

Yes, but you see, that we have clearly identified the capex plan. If I am able to wrap it up by December, we’ll start work in January, touch and go March. April, we’ll start generating clinker from there. Its a 2.3 million ton clinker.

Amit Murarka — Axis Capital — Analyst

Got it. This is all. Thank you very much.

Atul Daga — Business Head, Executive Director & CFO

Thanks.

Operator

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

Ritesh Shah — Investec — Analyst

Hi, sir. Thanks for the opportunity. Couple of questions. Sir, first, is it possible if you can break up the INR286 crore number? You did indicate that incentives related to the argument. Related to this I wanted a wider answer from you regarding what are the sort of incentives that we’re expecting, from say Dhar or Pali or from the incremental announcements that you already made? So that’s the first question.

Atul Daga — Business Head, Executive Director & CFO

So let me first before I forget, your questions are long and most complex. So incentives are not standard anywhere. So you have to approach the authorities, the regulatory body and see whatever is best possible under the ongoing schemes, suddenly a new scheme gets announced. So whether you are eligible or not eligible, it all is a mix bag. So we don’t count — don’t depend on incentives at all for our project returns. Incentives are always a top up. And Pali — let’s say Pali, I expect to commission by September ’23. When will I get in the incentive application is fairly advanced stage. When will I get it, I don’t know. Practically, all the projects are — they are in different stages of consideration at the state authority levels. Remains to be seen when we get it.

Ritesh Shah — Investec — Analyst

Sir, specific coming back to Dhar, I understand that under earlier government Cement was a negative list for MP, after that it was taken off. So, I’m sure like we would have got some benefits over here, sir. If you can compare just to understand the IRR of the project better that would be useful, if possible?

Atul Daga — Business Head, Executive Director & CFO

There is. I will give you details offline. But now, earlier the incentives used to be directly linked to VAT, now they cannot be linked to GST because it’s very difficult to track. From these state extra acres perspective how much material is sold within the state and how much material has gone out, so they keep structuring different packages to incentivize investments. We haven’t got a completely different incentive package for Dhar, and completely different hypothesis which we are pursuing at Pali, so it’s completely different.

Ritesh Shah — Investec — Analyst

Sure. Sir, second question, just coming back to the cost inflation part. Sir, what is the procurement strategy. So basically when we procure fuel, we have optionality for pet coke, which you indicated will increase in pie going forward. But when it comes to pet coke or coal, there will be spot contracts, medium, long-term contracts. But just wanted to understand what is our sourcing strategy when we say that our cost will only increase by $20 to $30 next quarter? So is it like we already have booked something at low cost, so just wanted to have some sense and thought process behind that?

Atul Daga — Business Head, Executive Director & CFO

So I’ll give you a bigger picture instead of giving exact details being confidential from competition perspective. We in cement, obviously, we are the largest consumer of fuel 12 to 13 million tons. So we cannot depend on spot alone. We do a blend. We do long-term contracts at fixed prices. We are — we do long-term contracts on index-linked prices, discount to index, different sources to try and manage the average cost. We do blending of fuel within as a kiln fee to reduce the outage fuel cost. We are trying to increase a small number, but we are trying to increase our alternate fuel so that dependence on fuel goes down. We are increasing are WHRS capacity, which is helping me reduce my fuel consumption for power. We are…

K. C. Jhanwar — Managing Director

And there are also number of initiatives — ongoing initiatives in terms a fuel and power efficiency [Speech Overlap] So it’s a combination of multiple things actually. And of course, the blended part of it.

Atul Daga — Business Head, Executive Director & CFO

Continuously trying to improve our conversion ratio, so that is also helping improve the fuel consumption.

Ritesh Shah — Investec — Analyst

Sure sir. This is quite helpful. I’ll join back the queue. Thank you so much.

Atul Daga — Business Head, Executive Director & CFO

Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Madhav Marda from Fidelity International. Please go ahead.

Madhav Marda — Fidelity International — Analyst

Yeah, hi, sir. Good evening, and thank you so much for your time. I just had a quick question, so basically given that you know, UltraTech, like you mentioned, is the largest consumer in the Indian cement space and we have all these long-term contracts. If you think about some of the smaller players in the industry, they also have access to such long-term contracts which would be at sort of more fixed prices and more favorable prices or contacts will be be more limited to the larger players in the industry.

Atul Daga — Business Head, Executive Director & CFO

Would you like to add them instead of asking me about them.

Madhav Marda — Fidelity International — Analyst

They might reverse it, then [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

Rather there are benefits of scale and size, which UltraTech certainly enjoys. I wouldn’t want to about what others are doing on a public forum.

Madhav Marda — Fidelity International — Analyst

And then, the second question was that we would like you said price hikes should happen considering how heavily coal and petrol costs have gone up. Should we broadly basically expect this to come through January on that once the peak season kicks in or it could be even earlier.

Atul Daga — Business Head, Executive Director & CFO

Sorry, can you repeat your question, Madhav.

Madhav Marda — Fidelity International — Analyst

The price hikes, basically would they come in usually as it happens January onwards when the peak takes if over?

Atul Daga — Business Head, Executive Director & CFO

October onwards. October 7th onwards.

Madhav Marda — Fidelity International — Analyst

Okay. Okay. So, will people passing ahead through the quarter.

Atul Daga — Business Head, Executive Director & CFO

Yes, absolutely, absolutely. I mean, you can’t do a lag effect over here, otherwise the damage would be done in this quarter.

Madhav Marda — Fidelity International — Analyst

Okay, that’s it, understood. All right, okay. Thank you, sir.

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. First on the — on capital cost inflation given where steel prices are, cement prices are. Are you seeing any capital cost inflation on your existing project or if you had to start the new project, could you elaborate on that?

Atul Daga — Business Head, Executive Director & CFO

So let me take the latter part of the question first. A new project, obviously, will cost much more. A greenfield project would go above $100 a ton very easily. As for our ongoing projects, there are some cost overruns, but there are cost reductions and optimizations. Again, thanks to bulk buying, longer-term contracts that we have been able to largely weather the storm of increase in steel prices, I mean steel work becomes a major component for capex costs. Jhanwar Ji, would you like to add something.

K. C. Jhanwar — Managing Director

Yeah, yeah, just to further add upon, because our — the major contracts for the technology supply and steel part was reasonably well covered before this. The steel price increase started in Q3, and other metals. So I don’t think there would be a major surprises in terms of the cost. There will be, yes, some minor here and there, very marginal increase maybe there, but we are putting all efforts so that by better efficiency or whether other improvement initiatives we can contain it — the cost within the budgete4d cost.

Atul Daga — Business Head, Executive Director & CFO

Total project cost for the [Indecipherable] is INR6,800 crores. A shade under INR7,000 crores, I think INR6,800 is the number to my memory, we will remain at that.

Satyadeep Jain — Ambit Capital — Analyst

Okay. But if you had to say you’re well covered on the existing projects, if you had to start a new project, obviously there you’ll see some capital costs?

Atul Daga — Business Head, Executive Director & CFO

Yes, there the cost will go up.

K. C. Jhanwar — Managing Director

Yeah, obviously, because it’s — the overall interest and then the impact of the exchange rate and so many other. And it’s not on the cement, but I think all metal prices, right from copper, aluminum everything is up. And the contractor cost is also now increasing substantially.

Atul Daga — Business Head, Executive Director & CFO

So if you were to look at average greenfield cost of, let’s say $90, it would go up to $110 for sure.

Satyadeep Jain — Ambit Capital — Analyst

Okay. Secondly, you did talk about imported coal, but coming to domestic coal also for your CPP, what kind of long-term FSAs we have with Coal India for a coal requirement?

Atul Daga — Business Head, Executive Director & CFO

As you now, Coal India is canceling the shipments.

K. C. Jhanwar — Managing Director

Because they have totally stopped for the time being allocation of coal to the non-power sector. But yes, obviously it’s the combination of FSA, the auction coal.

Satyadeep Jain — Ambit Capital — Analyst

Mow much percentage domestic coal?

K. C. Jhanwar — Managing Director

70% combined.

Atul Daga — Business Head, Executive Director & CFO

So between kiln and power cuts, total fuels 17% is domestic, which was being met out of auction coal or FSA. What is happening today or yesterday as of now because that I believe is temporary. Coal India will get its reserves in back on track. There were delays because of heavy monsoons, movement was not taking place, so on and sort forth. With the season improving, things will come back to normalcy in Indian domestic supplies.

Satyadeep Jain — Ambit Capital — Analyst

Okay, but as you do your planning and you look at different scenario analysis, typically the power situation would improve in and winter and stock prices will improve, but in case they don’t, what’s your fallback option that you’re looking for your CPP.

Atul Daga — Business Head, Executive Director & CFO

Well, we’ll have to depend on grid power also and imported coal.

Satyadeep Jain — Ambit Capital — Analyst

Okay, thank you so much.

Operator

Thank you. The next question is from the line of Naveen Sahadev from Edelweiss. Please go ahead.

Naveen Sahadev — Edelweiss — Analyst

Yeah, good evening, sir. Hello, am I audible.

Atul Daga — Business Head, Executive Director & CFO

Yes, Naveen, how are you.

Naveen Sahadev — Edelweiss — Analyst

I’m good, I’m good, thank you. Thank you, sir. And thank you for the opportunity. Two questions. One is first of all clarification and sorry if its a repeat. You said Q2 the average fuel cost was about $120, which in the current spot terms is over INR200 and for that increase the max hit that will come to us in terms of average fuel cost increase will be just about INR200 or roughly $3, is that understanding correct?

Atul Daga — Business Head, Executive Director & CFO

Okay. Yes, in Q3.

Naveen Sahadev — Edelweiss — Analyst

In Q3, okay. So in Q3 we are expecting a fuel cost increase of roughly INR200 per ton and thereafter another impact in Q4 because of cost.

Atul Daga — Business Head, Executive Director & CFO

We’ll see, we’ll see, because the way spot is, has been.

Naveen Sahadev — Edelweiss — Analyst

Right, so if I were to just ask from, let’s take Q2, the current quarter as the base at which is about 120 and the spot off 240 to 250, I really hope that it spirals down as quickly as it went up. But assuming at the current rate, what is the cost delta?

Atul Daga — Business Head, Executive Director & CFO

Sorry for what period, we didn’t discussed now. Yeah, but you said its Q3. Fuel cost goes up by INR200, INR300 — INR200 rupees.

Naveen Sahadev — Edelweiss — Analyst

In Q3.

Atul Daga — Business Head, Executive Director & CFO

Yeah.

Naveen Sahadev — Edelweiss — Analyst

But at current spot it goes up to how much?

Atul Daga — Business Head, Executive Director & CFO

Current spot, it will, should go up by maybe INR500 more. If I have to consume everything at $225, $230 to $240. But I am I am very peaceful and sleeping at night because we are passing it on to you if you’re constructing your house.

Naveen Sahadev — Edelweiss — Analyst

No, I already did last year. Thank you.

Atul Daga — Business Head, Executive Director & CFO

Your second house and your villa in Alibaug, I know Naveen.

Naveen Sahadev — Edelweiss — Analyst

Right. Thank you so much for the head. Then the second question is about the fuel mix, so petcoke from Q4 has been falling, I think it was 28%, 30% in Q4. Previous quarter we were at about 17%, 18%. Currently, there is this fuel mix in terms of broadly petcoke imported coal, how should one look at it?

Atul Daga — Business Head, Executive Director & CFO

Petcoke was how much 18%.

K. C. Jhanwar — Managing Director

19%

Atul Daga — Business Head, Executive Director & CFO

Petcoke was was 19%.

K. C. Jhanwar — Managing Director

And just to add upon, see the fuel mix is very dynamic actually because at one quarter the coal was very competitive and petcoke had become expense. Now the petcoke is equally competitive. And the second is now the major challenge is not the price. If you ask me honestly it’s [Speech Overlap] and the fuel security. So, but we have developed a reasonably very good skill to switch over from one fuel to another very quickly without losing much of time. So it all depends what kind of prices of the petcoke and coal.

Naveen Sahadev — Edelweiss — Analyst

No, precisely, sir. I asked this question precisely for that reason, that it’s not about the price, it’s about the availability. On a kcal basis you’re — as we speak I think the imported coal is much costlier as compared to petcoke, but the petcoke availability is a challenge. Yeah. So with that in mind as we speak, as you said petcoke has again become the favorable fuel. So how much can it go to in terms of percentage?

Atul Daga — Business Head, Executive Director & CFO

You would know it better. You ask a coal analysts, not as cement.

K. C. Jhanwar — Managing Director

It’s very difficult, very honestly to predicate. You said very rightly the availability of petcoke is not such a huge the way the coal is available. So it all depends actually what kind of scenario will get them from different part of the world, not only from India.

Atul Daga — Business Head, Executive Director & CFO

Naveen to to give you comfort, two things. As of now, the pipeline is not choked. So there is a continuous flow and we are ensuring that none of our operations, not a single plant will suffer a shut down because of non-availability of fuel.

Naveen Sahadev — Edelweiss — Analyst

Of course, that must be certainly the trust of UltraTech.

Atul Daga — Business Head, Executive Director & CFO

Yeah, I think that’s the beauty off being a large player, you have the reach practically everywhere to get resources and secondly I’m sleeping peacefully because the cost is being pushed on to the consumer.

Naveen Sahadev — Edelweiss — Analyst

Great, that’s really nice. Just one last question if I may slip in. Staff cost sequentially is higher. I know other expense is higher because of maintenance. The staff cost sequentially is higher, so that’s for the increment, so is it that… I had already told you. The increment got factored in, in this quarter. Correct. Can that be taken as a normalized base to be annualized? You cannot annualize the other expenses [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

There were some one-time bonuses also factored into, it will be lower, not same level.

Naveen Sahadev — Edelweiss — Analyst

Understood. Thank you. Thank you so much, that’s really helpful.

Atul Daga — Business Head, Executive Director & CFO

Thanks, Naveen.

Operator

Thank you. [Operator Instructions] The next question is from the line of Girish Choudhary from Spark Capital Advisors. Please go ahead.

Girish Choudhary — Spark Capital Advisors — Analyst

Yeah, good evening, and thanks for the opportunity. Most of my questions have been answered, but one thing. If you can share the regional pricing trends like [Indecipherable] on a sequential basis, that will be great?

Atul Daga — Business Head, Executive Director & CFO

Regional pricing trend for what?

Girish Choudhary — Spark Capital Advisors — Analyst

During the quarter, yeah. During the quarter 2Q.

Atul Daga — Business Head, Executive Director & CFO

For the last quarter.

Girish Choudhary — Spark Capital Advisors — Analyst

Yeah, yeah, or for UltraTech.

Atul Daga — Business Head, Executive Director & CFO

Well, the, you have some numbers guys. One is the average prices were up about 4% to 5% or an all India basis. There was an increase of 2%, 3% in North and East, Central Wards flat, or West was 5% to 7%, South was flat.

Girish Choudhary — Spark Capital Advisors — Analyst

So these were on Y-o-Y basis, right?

Atul Daga — Business Head, Executive Director & CFO

This is Y-o-Y.

Girish Choudhary — Spark Capital Advisors — Analyst

Yeah, can you share the sequential numbers?

Atul Daga — Business Head, Executive Director & CFO

Sequential, the prices were marginally down about 3%, the biggest drop was in the Eastern market, closer to 10%. But otherwise, average 3%, plus-minus prices were down.

Girish Choudhary — Spark Capital Advisors — Analyst

Well, got it. Thank you.

Operator

Thank you. The next question is from the line of Rajesh Ravi from HDFC Securities. Please go ahead. Mr. Ravi, your line is…

Rajesh Ravi — HDFC Securities — Analyst

Yeah, hi, sir, good evening. Yeah, on the — in the earlier part of the call, you mentioned that the second half your looking at 6% to 8% volume growth. So if we do the math, for the full year it works out to around 13%, around 97 odd million ton gray cement sales. So is this what you’re looking at?

Atul Daga — Business Head, Executive Director & CFO

I guess so.

Rajesh Ravi — HDFC Securities — Analyst

Great. And second is, if I look at the gray cement performance on a Q-on-Q, this is adjusted for the other two businesses. Realization is down just 1%. So any specific reason here because markets, we understand their prices were down 3% to 4% across markets, but in North and Central that the things were slightly flattish. So is there any change in sales strategy which helped you clock lower decline sequentially?

Atul Daga — Business Head, Executive Director & CFO

Are you shareholder, Rajesh. Yes or no.

Rajesh Ravi — HDFC Securities — Analyst

No, no, I’m not.

Atul Daga — Business Head, Executive Director & CFO

Well, you should be holding UltraTech then. I think UltraTech as a leader in the industry always command respect in pricing as compared to the other players.

Rajesh Ravi — HDFC Securities — Analyst

Okay. And on the cost side, if I look at the cost line items which you mentioned in the Q3 fees and if I take that with the gray cement realization, we clear on INR330 odd rupees decline Q-on-Q in your EBITDA margin. So is this all because of these power and fuel cost or…

Atul Daga — Business Head, Executive Director & CFO

Its, cost, cost, cost, cost.

Rajesh Ravi — HDFC Securities — Analyst

Okay. And this is what you are looking to the realization increase from this month onwards.

Atul Daga — Business Head, Executive Director & CFO

Yes, because monsoons, its very difficult. As it is there is a pressure on volumes and in spite of the heavy monsoons I think nobody complemented us, but I take the compliment from you that we did 7.5%, 8% growth in volumes. The moment monsoons have started subsiding, we have taken the opportunity of increasing the prices.

Rajesh Ravi — HDFC Securities — Analyst

Okay, okay. And on the costing side, WHRS, which you installed 13 megawatts, what is the total installed capacity post that.

Atul Daga — Business Head, Executive Director & CFO

It’s mentioned in the presentation, 160 something right, 137 megawatts WHRS.

Rajesh Ravi — HDFC Securities — Analyst

Okay, 137 megawatts.

Atul Daga — Business Head, Executive Director & CFO

For a non-shareholder you asked too many questions.

Rajesh Ravi — HDFC Securities — Analyst

And lastly, on the capacity, which is.

Atul Daga — Business Head, Executive Director & CFO

I don’t have time, Rajesh, let me take on some other questions.

Rajesh Ravi — HDFC Securities — Analyst

Okay, sir, I will come back in queue. Thank you.

Atul Daga — Business Head, Executive Director & CFO

Thank you.

Operator

Thank you. The next question is from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.

Prateek Kumar — Antique Stock Broking — Analyst

Yeah, good evening, sir, and thanks for the opportunity. My first question is on the truckers issue in Eastern market. So is this something which impact us also? There was a strike which resulted into close down in some plants in Chhattisgarh, and has that issue been resolved?

K. C. Jhanwar — Managing Director

Yeah, no, the truckers issue is there in Chhattisgarh. But the good part is we are not too much impacted obviously because our all plants have the railway setting actually. So, yes, definitely there may be some marginal impact on the road movement actually from the plant. And as of now I understand it is getting resolved tonight or by tomorrow morning, almost understanding has been reached. But let’s see there because this development of negotiation and discussions is happening since last three days. But yes, we are near to — reached to some understanding.

Prateek Kumar — Antique Stock Broking — Analyst

Thanks, sir. And second question is on this demand trend chart which we generally give on a presentation, this is also very useful, which mentioned that central region has a flat growth during the quarter. Is this early reflection of monsoons so or…

Atul Daga — Business Head, Executive Director & CFO

Very monsoons, yeah cities like Bhopal and Madhya Pradesh, fierce torrential rain this time.

Prateek Kumar — Antique Stock Broking — Analyst

Okay, so like something like elections related demand coming in UP is something which we, which is seen on the ground or it is also sort of impacted by monsoons.

Atul Daga — Business Head, Executive Director & CFO

No, no, now you will have the benefit of election demand, ’22, ’23, will be all election driven demand. General elections are there in ’24. So you would’ve seen what happened in ’19.

Prateek Kumar — Antique Stock Broking — Analyst

I was talking about state elections in UP.

Atul Daga — Business Head, Executive Director & CFO

I was referring besides state elections, I’m referring to general elections also coming in. So ’22, ’23 you will see very robust demand momentum.

Prateek Kumar — Antique Stock Broking — Analyst

Thanks, sir. These are my questions. I’ll get back to the queue.

Operator

Thank you. The next question is from the line of Mihir Jhaveri from Avendus Capital. Please go ahead.

Mihir Jhaveri — Avendus Capital — Analyst

Yeah, thank you for the opportunity. Just wanted to ask you this demand thing which you said in second half, which is going to be 6% to 8%. If I look at purely from an math angle, the base is pretty high in Q3 and Q4 last year was phenomenal given the COVID situation, even Q1 was very strong. So how should we look at it? Is there a risk to this guidance [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

No, there is a huge, huge — I went in a long detail in my commentary on the infra space. See, let me give you the basics. What is now happening is post COVID the housing sector has also been — urban housing sector has also been reviving. Monsoons have been good, crops have been good, so rural demand will continue to have a party time. Infrastructure was continuously growing. Earlier pre-COVID, rural markets and infrastructure were the torch bearers for demand. Now you are seeing the urban housing also coming in. I also touched upon the IT related commercial demand, which is coming up in Karnataka, in Andhra big time, in Tamil Nadu in a big way. So you will see huge amount of cement consumption going forward.

Mihir Jhaveri — Avendus Capital — Analyst

Okay, sir. And just a clarification on the cost part, sir. So the cost impact probably what you highlighted from the fact that Q3 will have a less impact, so the cost impact clearly will continue given at current spot prices in Q4 and Q1 as well, right? I mean, the okay.

Atul Daga — Business Head, Executive Director & CFO

The cost will be northbound.

Mihir Jhaveri — Avendus Capital — Analyst

Okay, okay, thanks a lot. That’s it from my side. Thank you, very much.

Atul Daga — Business Head, Executive Director & CFO

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

Sir, just one question for — for, likely related to your Middle East and overseas operations. I believe this quarter had been one of the worst in last like say around 18 odd quarters. Our derived or imputed EBITDA has been hardly around INR8 crore. So what has been the reason behind that? Has there been some one-time cost that [Speech Overlap]

Atul Daga — Business Head, Executive Director & CFO

No, no, this was a temporary setback. One is cost going up in the UAE market and export markets into Sri Lanka, from India suffering. We had a bit of a slowdown from our Gujarat plant into Sri Lanka. But now I think there will be a catch-up because Sri Lanka, which we sell close to 1.5 million tons per annum. It was a controlled price regime, now its going to — prices are decontrol, price increases have already been taken in Sri Lanka. So I expect it to come back, its a one-off bad quarters for our overseas operation.

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

So, lastly, sir. We know that Q2 — Q2 is a mix of maintenance cost and lower efficiency. So, but like say given the Q3 where we could have a fee quantity, a very strong quantity of cement and on top of that better efficiency and secondly we will have a higher energy cost. So taking that into consideration, like say for Q3 and Q4, fixed cost element is also there. So how do we see the cost? I know that a lot of questions have been asked, like I believe most of the part have been discussed on that thing, but taking fixed cost, shut down cost all that in consideration, Q3, Q4 or combine H2 over Q2, how the cost would span out in terms of overall trajectory?

Atul Daga — Business Head, Executive Director & CFO

I will give you some homework. You do the calculation of our operating leverage over the last three or four quarters and it’ll answer you.

Kamlesh Bagmar — Prabhudas Lilladher — Analyst

Okay, okay. Great, sir. Thanks a lot.

Operator

Thank you. We are taking one last question from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services. Please go ahead.

Sanjeev Kumar Singh — Motilal Oswal Financial Services — Analyst

Yeah, thanks for the opportunity, sir. I wanted to understand what sort of capacity additions are you foreseeing in the industry? And secondly, in terms of inorganic acquisition, I believe that in one of the presentation you have written that 50 million, 60 million ton of inorganic admission [Phonetic] opportunities are available. So any comment on that? Are there good assets available and when the profitability is higher, there will be [Indecipherable] available.

Atul Daga — Business Head, Executive Director & CFO

So, first point, I think this year 20 million to 25 million tons is what I would expect, slowing down next year. And on a longer term basis, I still believe as auctioned mines come into play. Recently somebody took a small mine in Chhattisgarh at INR660 bucks. So it’s quite unrealistic to generate a return on these kind of highly expensive resources. So you won’t see too many capex, besides you need to also to look at what are the mining resources each player has at what location, the data is easily available. If somebody wants to run a plant with just five years or 10 years of life, god save them and god save the investor who is putting money in that company. So expansion is 20 million tons coming up next year. Again, we have a large chunk of our expansion, 16 million tons coming up next year. Beyond that, there is, I would say slowdown in investments.

As for acquisitions, we are always open to a target which helps us — gives us a profitable growth opportunity, so growth as an increase in my market share and profitable, obviously it has to generate a return on my investment. As of now, there are a couple of transactions which I’m examining, small ones, not — very small ones, but I’m sure there will be people who will want to cash out at some point or the other and we will be there to have a discussion.

Sanjeev Kumar Singh — Motilal Oswal Financial Services — Analyst

Okay, okay, sir. Second, sir, just a clarification, what gray cement realization down 2.5% Q-on-Q because if I go by the presentation it looks like it was down 2.5%, am I correct or it was lower than that?

Atul Daga — Business Head, Executive Director & CFO

Realization is down Q-o-Q, about 2.5%, 3%.

Sanjeev Kumar Singh — Motilal Oswal Financial Services — Analyst

Okay, thanks a lot, sir. Thank you.

Atul Daga — Business Head, Executive Director & CFO

Thank you. [Operator Closing Remarks]