UltraTech Cement Ltd (ULTRACEMCO) Q2 FY23 Earnings Concall Transcript

UltraTech Cement Ltd  (NSE: ULTRACEMCO) Q2 FY23 Earnings Concall dated Oct. 19, 2022

Corporate Participants:

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Analysts:

Sumangal Nevatia — Kotak Securities — Analyst

Amit Murarka — Axis Capital Limited — Analyst

Ritesh Shah — Investec Capital — Analyst

Prateek Kumar — Jefferies LLC — Analyst

Pinakin Parekh — JPMorgan — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Indrajit Agarwal — CLSA — Analyst

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Ashish Jain — Macquarie Group — Analyst

Girish Choudhary — Spark Capital — Analyst

Rajesh Kumar Ravi — HDFC Securities — Analyst

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Sanjay Nandi — Ratnabali Investment — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference Call of UltraTech Cement Limited.

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 statement on the basis of any subsequent development, information or events, or otherwise.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

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

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you so much. Good evening, and a very warm welcome to all of you to this earnings call of UltraTech Cement.

As was expected, this quarter has not been good for the industry as well as ourselves alike. Lots of things happened, which went not in favor of the industry, which are clearly reflected in our numbers as well.

Let me talk about all the negatives first, and there are lots of good things also to talk about. First is the monsoon. As you are already seeing everybody is aware, monsoons have been so erratic. It seems to be a dramatic ecological change that is taking place in the country, excessive monsoons have been there, almost all parts of the country except maybe some areas like Tamil Nadu or Assam and Meghalaya, which saw lesser rains. Delayed exit of monsoons has been causing some amount of pressure on cement consumption and construction activity. And it remains to be seen how these monsoons will be — delayed exit of monsoons will impact the crops. We’ll have to wait and watch.

Costs is the next item, which I would want to touch upon. And as I had mentioned in the call during the last quarter, the costs are still elevated, continue to remain high, primarily driven by the rising prices of fuel. There was a brief period of measurement [Phonetic] when pet coke prices dropped to INR170 and everybody thought that this reduction is permanent. I’m sure many players interested in pet coke would have booked some contracts between INR170, INR190, but today as of yesterday, in fact, the prices of pet coke are back to INR205 plus. There were some news about Venezuelan supplies as well. However, we were advised not to venture into Venezuela supplies due to the US sanctions. And coal is stuck around $300, $350, softened up a bit, but still very high, not yet worth buying for most of the seven players as there is a significant arbitrage in pet coke. Few years ago, it used to be opposite. Pet coke was expensive as compared to coal.

In our analysis, the geopolitical situation continues to be the driver for determining the costs or the trends or the direction in which the fuel costs will move. China is always the Sleeping Giant. Today, the Chinese economy is down, but I’m sure China will revive, open-up at some point or the other. Europe has started its coal fired engines because of the ongoing war in Europe in the Russia-Ukraine war, which is also sucking up lot of coal supplies. Our view is that fuel cost will remain high due to the ongoing geopolitical scenario, albeit we have seen the worst on coal and pet coke prices. Hopefully, they should not go up further. Crude has softened a bit, but we’ll have to wait till the government decides to pass on the benefit to industrial consumers, we’ll have to wait and see in the manner in which it is passed on and how much is passed on.

During this quarter, UltraTech has competed shutdown work on almost 19 of its skills [Phonetic] out of the total 43 skills. Maintenance costs have been higher because of inflationary pressure on refractory big costs and other maintenance costs. Prices were under pressure during towards the end of May ’22, and you saw a continuous slide, monsoons don’t see any opportunity in increasing prices. However, the first available opportunity that the industry saw, I believe in pockets of pockets where demand has been good, price increases have been attempted, some price increases have settled, some have not settled in the country. Typical of the Indian cyclical cement industry, the season for cement starts after the festive season is over, which is after Diwali. So Diwali ends 24th and maybe 25th of this month. And you should start seeing improvement in the market sentiment on all factors after that only.

One negative aspect about the rising prices of fuel is large cash flows are getting blocked in costlier working capital. After enjoying a long run of negative working capital, we had no choice, but to give up the gains with rising costs and identifying pockets of opportunities to buy cheaper fuel. Consciously, we have increased our inventories, which has resulted an increase in our working capital. However, I am confident that in the next six months, as volumes go up as the cost of purchase of fuel stabilizes, our working capital will go back into the negative working capital zone before the end of this fiscal year. There is no reason why the industry will not take prices up since the margins are continuously under pressure.

Let me now talk about the positive side. Demand has been good and that is the most important factor, most heartwarming factor from our perspective. We increased about 4.5 million tonnes of capacity Y-o-Y. On an increased capacity, our domestic volumes have grown about 10%. This could have been higher, but for the heavy monsoons. Improvement in capacities bodes well for profitability and cash flows. Good capacity utilization is the key, good capacity utilization would easily help increase prices. This year and the next year definitely can be delivering the double-digit growth. Why? Well, because the first half itself, as UltraTech, we have recorded about an average of 14% growth despite a weak monsoon quarter. And as you are all aware that demand starts picking up post November and March is a peak period. So definitely we should be able to do over double-digit growth this year and next year as well.

During the quarter, we have commissioned about 32 megawatts of renewable energy, taking the total 318 megawatts, which makes it to 5.6% of our total power consumption, an additional 5 megawatt WHRS was also commissioned. Birla White continues to strengthen its position in the industry. Putty expansion that we are undertaken from 6.8, water level capacity, 4 lakh tonnes of additional capacity has been commissioned. It’s under trial phase now. And yeah, 4 lakh tonnes has been commissioned. It’s under trial production and we hope to commercialize the plant before the end of this month or mid-November.

Imports from [Indecipherable] will further strengthen the brand presence in the country. I believe the first shipment will happen during this quarter. We have been steadily growing our construction chemicals business, which recorded revenues of about INR132 crores, up from INR82 crores last year.

On our growth plans, we are again ready to ride the high demand cycle with additional capacity getting commissioned. During the reported period, we commissioned Dalla Brownfield expansion of 1.3 million tons, ending this quarter at 115.85 million tons of capacity. Pali Greenfield plant and Dhar Brownfield expansion is almost ready to rollout production, and we should see commissioning of these plants in the October-December quarter.

So we are on course, on track to reach 131.25 million tons of capacity by the end of March ’22, which will be fully available for the next fiscal year to meet the rising demand and generate additional cash flows for the company and the shareholders. All this capacity expansion is being met out of internal accruals. And this year, we expect cash outflow on capex of anywhere between INR6,000 crores to INR7,000 crores. We have already done in the first half of — I think INR2,900 crores or INR3,000 crores of cash has already been spent on capex in the first half. The Phase 2 expansion of 22.6 million tons, which was announced last quarter, work has commenced, almost INR500 crores of spending has taken place on advanced payments, labor mobilization, some site civil work has already started. This is going to take us to our next milestone of 153 million tons of capacity by ’25-’26.

A quick update on ESG. We continue to focus on reducing CO2 emissions with several collaborations and global tie-ups. Four of our key cement products have been granted Environment Product Declaration called EPD. This is a key step in our endeavor to drive sustainability in our business with the lifecycle approach. With this, UltraTech green product portfolio includes more than 70 GreenPro certified products. We continue our focus on improving our blending ratios this quarter. Yet again, we have gone up to 1.41 as our conversion ratio, blended cement continues to rise. Blended cement has reached about 71%, which helps us meet our carbon emission norm — our targets to reduce our carbon emissions.

In the end, I’ll conclude by saying that I believe cement is going to see good time in the next few years, and for which UltraTech is very well prepared.

Thank you. And over to you for questions.

Questions and Answers:

Operator

Thank you very much sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah. Thank you for the opportunity. Sir, my first question is with respect to the energy cost. I missed the opening remarks. So if you see both coal and pet coke has been quite volatile, it corrected from the peak sharply, but it has started increasing. So if you could just elaborate, I mean how do we see on consumption basis our power and fuel cost shaping up in the next two quarters?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

We believe that this quarter, the July-September quarter was the peak cost and we should start seeing marginal reduction in our consumption costs in the next two quarters.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Is it possible to quantify?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

No.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Generally, I mean, how many days of inventory are we carrying and have we increased —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Our normal norm is about 45 days. And this time we have consciously gone up to 55 days. That is why I spelt-out our working capital increase also taking place.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. That’s helpful. On the RM cost, we read the comment and also that index which you’ve shared on the flyash, it’s up 89% quarter-on-quarter, which is a bit unusual. Is it possible to share, I mean, what sort of inflation are we seeing in other RMs like slag, gypsum and also, is this a seasonal one-off spike or —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Sumangal, this is one-off. What happens is that you can see the power plant shutdown. You have to source our flyash from our next available power plant, which will be, obviously, further away. So the transportation cost goes up. There is no pattern that you can establish accordingly on flyash cost.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Understood. And just one last broad question on the overall minute [Phonetic]. There are a lot of media reports on, say JPS, India Cement, and few regional players in east and west. I mean how do we see the M&A activity shaping up in the sector and given our market share what sort of, say inorganic growth appetite do you see for UltraTech?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

All I can share with you is to allay the confusion in minds of several people that given our size, we will get restricted on consolidation, but the geography is wide open for UltraTech to consolidate through inorganic routes also. As and when some opportunities surfaces in any part of the country, we will examine it.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. All right. Thank you, Mr. Daga, and all the best.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

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

Amit Murarka — Axis Capital Limited — Analyst

Yeah. Hi, good afternoon, sir. So just, on the cost side, like in the presentation, it’s mentioned that the power and fuel cost was $200, the fuel was $200 per ton. So this includes the domestic coal sourcing as well or this is the imported fuel cost?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

This is imported fuel cost.

Amit Murarka — Axis Capital Limited — Analyst

Okay.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Core for us is a very small percentage. 7% to 8% only.

Amit Murarka — Axis Capital Limited — Analyst

Okay. And last time — in the last call, you had mentioned that there were some cargos of Russian coal and all which was taken. So was that there in this quarter and the sourcing is continuing as of now?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So yes, it has started getting into consumption in this quarter. And it was an opportunistic trade, so in case something again surfaces, we will examine it.

Amit Murarka — Axis Capital Limited — Analyst

Okay. And on the pet coke like the spot prices, could you just shed some light on that, like, what is the spot pet coke? Is it closer to like 200 or it has gone beyond that also then?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Beyond 200 now. I mentioned on the call Amit, 205.

Amit Murarka — Axis Capital Limited — Analyst

Okay. I missed that. Okay. Fine, that’s all. Yeah. I will come back in the queue.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

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

Ritesh Shah — Investec Capital — Analyst

Yeah. Hi sir, thanks for the opportunity, sir. Couple of questions. Sir, first one is, you indicated we are open to inorganic growth. Sir, how should we look at it? What are the things that you would look at, which will make us attract to the asset?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

This is a very weird question. See, our fundamental premise for evaluating any asset is a profitable growth opportunity. I’ll pay a price on which I am able to generate return for shareholders. And we will buy an asset, where we can increase our market presence. And also I had mentioned that India is a wide-open geography for us as well.

Ritesh Shah — Investec Capital — Analyst

Right. Sir, if I have to dig one step over here. Sir, how would you look at versus the expansion optionality that we have on the table, which you have indicated like we are absolutely going full throttle and we have a pipeline, which is actually workable. So if you look at the incremental ROCE versus the optionality that we have on the table, how should one look at that comparative math on incremental ROCE?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So incremental ROCE or organic, obviously, it is time value of money. And you get an inorganic opportunity, you hit the ball, hit the road running. That is the advantage that one would have on inorganic versus organic, and it depends on the price that you are paying. Today, organic would be costing, absolutely Greenfield, where you start acquiring land also. It will cost $110, $120 give or take. So that is how — and if you start investing today, it will take you seven years to put up that capacity. As compared to that, you might pay some premium — you will have to pay a premium over replacement cost, but you also get advantage of seven years of market share and cash flows.

Ritesh Shah — Investec Capital — Analyst

Sure. Sir, my second question is, we have indicated our —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Second or third?

Ritesh Shah — Investec Capital — Analyst

Third, sir. Sorry. I have four in total. So third question. Sir, we have indicated incremental expansion plans on the capacity side. Just wanted to have your thoughts on what are our plans on distribution, basically incremental range that has bulk cement terminals, optimizing sea freight, DFC, how should we look at all the small variables?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So fleet expansion, we don’t own fleet. Our transporters continuously add when wherever it is required. Our transporters who are associated with the organization or with the group or maybe for decades, they will expand their fleet as and when required. Our endeavor is to continuously improve, increase the penetration in terms of dealer network. Today, our channel partners trend would be upwards of 1 lakh, close to 1,10,000 channel partners, and a continuously increasing number. DFC is opening up. I saw Rajasthan has already started double-storey wagons. Of course, they have not yet been made available for cement. But I think things are opening up. As for bulk terminals, our expansion footprint is always planned in a manner, where if a bulk terminal is required, we will take it into account upfront instead of waiting. For example, in the second phase of growth, we have two or three bulk terminals — two, sorry, two bulk terminals already planned. And any future requirement also bulk terminals will be planned, grinding unit. So it will be a split grinding unit composition that will come into play.

The last point that you mentioned about railway sidings, there is no target —

Ritesh Shah — Investec Capital — Analyst

Railway siding and sea freight.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

And?

Ritesh Shah — Investec Capital — Analyst

Sea freight.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Sorry, what? Sea?

Ritesh Shah — Investec Capital — Analyst

Sea.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Sea. Ocean route. So as far as railway sidings are concerned, I think we keep on adding wherever available, whenever available. Last count I remember [Technical Issues] 260 odd railheads. Yeah. 260 plus railheads. So it’s not top down target, but operational efficiency improvement plan with which we keep on adding railway sidings. As far as ocean route is concerned, we have our own jetty at our Gujarat plant, bulk terminals, 279 railway sidings as of now. Bulk terminals along the coast line, it is Mumbai, that is JNPT. Then it goes down to Mangalore. Mangalore also, right? Bulk terminals. Yeah. Bangalore, Kochi. So this is on the coast line. We will look at expanding our network on the eastern side as well. We don’t have bulk terminals at the moment, but we look at expanding that network, in our second, third phase of growth.

Ritesh Shah — Investec Capital — Analyst

Perfect. Sir, just one last question. We have an interesting launch on white cement base in liquid primer. Sir, just wanted to understand what is the rationale for it to be in UltraTech and why not crash and given — for my limited understanding, it is better to bundle it with green sources putty. Please correct here. Thank you so much.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. Because the raw material is white cement and all the primer and putty based products are done by UltraTech. That’s why it’s here.

Ritesh Shah — Investec Capital — Analyst

Sure, sir. Thank you so much. Wish you good luck.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

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

Prateek Kumar — Jefferies LLC — Analyst

Hello. Yeah. Good afternoon, sir. My first question is on utilization. You mentioned your overall utilization is down 76%. Can you throw some light on regional utilization, sir?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I’m sorry, and —

Prateek Kumar — Jefferies LLC — Analyst

On regional utilizations, region-wise utilizations.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Regional wise utilizations. So North was nearly 85%, Central was 70%, East was 90%, West was more than 60%, South was more than 75%.

Prateek Kumar — Jefferies LLC — Analyst

How much you said for Central?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

70%.

Prateek Kumar — Jefferies LLC — Analyst

Okay. And on, sir, pricing, overall, it appears that we had like around 2.5%, grey cement realization declined about 2% to 3% decline on a sequential basis. How would that be region-wise?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Region-wise, I think East was the least impacted. North saw a decline. North and Central were the leaders in decline. East was better placed. West was neutral.

Prateek Kumar — Jefferies LLC — Analyst

Sure. And in the presentation, you have mentioned that there is a preponement of maintenance shutdown. Did that have any specific impact on cost, which was like sort of one-off.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

See, I think my maintenance costs were higher than planned by about INR80 crores, I think it was INR80 crores. Yeah.

Prateek Kumar — Jefferies LLC — Analyst

So like for — I mean, when you say the like-for-like, basically last year —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

What I mean was that we had planned — original plan as per our annual budget, x number of things were planned. We did three more things than that in this period. And the spending was also higher, partly because of cost of procurement going higher and partly because of additional that was done.

Prateek Kumar — Jefferies LLC — Analyst

And last question on your logistics cost. In your presentation, you mentioned the diesel prices are lower like almost 5%, but like-for-like logistics cost is down 1%. So is there any change in lead distance, which is resulting in lower decline in logistics cost?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. Diesel cost is not 100% logistics cost. Anything else?

Prateek Kumar — Jefferies LLC — Analyst

Sure, sir. These are my questions. Thank you.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yeah. Thank you, sir. Sir, just wanted some color on East market. You did mention about —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I can’t hear you.

Operator

Sorry to interrupt, but may we request you to move to handset mode please.

Pinakin Parekh — JPMorgan — Analyst

You mentioned that East prices have relatively held up better than the other regions. But this is also a region where we would see the maximum capacity addition over the next two quarters. And the presentation highlights that Chhattisgarh and Orissa had been de-grown due to sand mining bans. Given this context, how do you see the East market at this point of time. Is demand going to get further impacted because of what’s happening in Chhattisgarh and Orissa?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I believe Pinakin, East will the best-performing market in terms of demand. And that is why I think nobody is a fool to add additional capacity in that market. There is big signs or big rationale with each player is having to add capacity in that market. So this additional capacity will get absorbed in East, demand will continue to support. But don’t want to get into comments on individual states or a point in time because sand issues are here today, then something else will happen tomorrow. But if you look at the underlying demand, underlying capacity utilization, in this quarter also, in fact, we had the highest — within our regional capacity utilization, East was the highest. I believe the industry, not just UltraTech, industry players will continue to enjoy a good capacity utilization when used.

Pinakin Parekh — JPMorgan — Analyst

Sure sir. Sir, my second question is basically — this is the second quarter where UltraTech India realizations seem to have outperformed the peers. We had seen a larger than peer group increase in the first quarter and we have seen a smaller than peer group decline in the second quarter. In your sense, is this because of higher non-trade mix, more premium products or specific regions aiding this performance?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Should I reveal all my trade secrets to you? Sorry. So value added product is continuously going up. It’s reached more than 18% now. That is one area. We are increasing our blended cement ratios, increasing our trade ratios as well. So everything — and plus there has to be some respect that you should give to UltraTech as a brand. So we have historically commanded superior pricing as compared to the other players. And I believe UltraTech will continue to do so.

Pinakin Parekh — JPMorgan — Analyst

Understood. Thank you very much sir.

Operator

Thank you. The next question is from the line of Pulkit from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Sir, thank you for taking my question. Just one question. You mentioned that it is because of monsoon having a prolonged impact that demand got impacted. Now our understanding was that July and August were weak months and September is actually a relatively stronger month. Would that be correct that we exited September at a much stronger volume print or is it the other way around based on what you just said? I just wanted —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

If I remember it right, Pulkit, all the months have shown growth. And yes, I think my colleague confirms September was higher growth as compared to the other months, but each month we have seen growth.

Pulkit Patni — Goldman Sachs — Analyst

Okay. So we can expect that since September exit was a stronger month and now that we are off monsoon, hopefully, this momentum should continue for us.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. I will just not go with that statement of yours off-monsoon. I don’t know whether the monsoons are off now or not.

Pulkit Patni — Goldman Sachs — Analyst

Sure. Okay. Yeah. That was it from my side. Thank you, sir.

Operator

Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi, good afternoon. I have two questions. First, sir, on capital allocation going ahead, right. So assuming at 131 million tonne capacity, we will be able to sell close to 100 million tonnes, if not more and should generate close to INR12,000 crore of EBITDA annually. Even with INR6,000 crore of capex, we’ll have significant amount of free cash flow to make it net cash positive in two years at best. So any thoughts on other than inorganic expansion return of cash to shareholders or anything on that front?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

That is always there. I think we increased the dividend allocation to the share — dividend allocation was increased to 20% year before last, and now we are again looking at growth. So as I said, this quarter, we had positive operating cash flow, but net cash after capex was negative. We have capex happening in ’24, ’25 as well, and a shade of part of ’26 will also see an extra amount of capital. If you will recall two years ago or three years ago, our average annual capex would be plus, minus INR2,000 crores, and now we are going to see plus, minus INR6,000 crores for the next two years or three years. Having said that, we are still on course to be — we are delayed, as of now, because of the cash flow being used for capex, otherwise it would have been the net cash already in this year. I expect net cash to be on the balance sheet towards the end of March ’24.

Indrajit Agarwal — CLSA — Analyst

Sure. This is helpful. Second, like calendar ’23 will be the pre-election year. And if there has to be any like significant bump up on infra activity, demand from infra government spending, we should have seen some bit of pre-ordering already. Are you seeing any signs of that yet?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Not yet. I think we expect more than what is happening. See the good part is that demand is — we recorded 10% growth domestic sales in this monsoon — heavier monsoon quarter. So obviously, there is a positive direction in which the orders are flowing and cement consumption is happening and I expect it should go up further.

Indrajit Agarwal — CLSA — Analyst

So that buoyancy you see in the rural residential part as well or —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yes.

Indrajit Agarwal — CLSA — Analyst

All right. Thank you. Thank you so much for your answers.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Navin Sahadeo from Edelweiss Securities. Please go ahead.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah. Good evening, sir.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Hi.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah. Can you hear me? Am I audible?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yes, loud and clear.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Right. Thank you so much. So first, the previous questions — thank you for giving the region wise color on utilizations as well as realizations. Is it possible to get some trend on profitability? For example, your average EBITDA per ton was more like INR800. So is it possible to get which regions are little more profitable than these and others lag around?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I don’t have that at the moment.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Very broad. Very broadly. I know numbers —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So if I look at the prices, so then, obviously, South would be the leader in profitability followed by West and North catches up along with — East is, of course at the last step in terms of profitability. Central and North would be up behind South and West.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Got it. Thank you. This is helpful. Sir, my second question then was about your fuel mix. So presentation says 40% is pet coke. And I think you also mentioned imported coal is 7% to 8%, if I heard that correctly.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Domestic coal is 7% to 8%.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Okay. So if you could just give me the overall fuel mix please, both in the kilns and power plants?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Just one second. So indigenous coal 15%, imported coal 46%.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Okay. I get it.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I should look at kiln separately. Indigenous coal in kiln was 5%, imported coal was 50%, pet coke was 40%, alternate fuel were about 5.2%. That’s in the kiln.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Understood. And the earlier number was for TPP, the 46%?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

We don’t have TPP separately. The hybrid number with TPP plus kiln — there TPP, one second, it is there. So TPP imported, sorry, indigenous coal 56%, imported coal 29%, pet coke 5%, others 10%, lignite, which is essentially an ordinary fuel.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

So sir, staying on this kiln split because you mentioned that pet coke is far more favorable in terms of cost. So the imported coal that you’re using is at par to that cost because of better sourcing or it’s conscious that we don’t want to go higher on the pet coke consumption front.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

We have to balance the pet coke coal mix and our coal procurement is far more efficient than anybody else’s.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Yeah. But it still is higher than pet coke on a landed basis even now, right? So are we looking at increasing pet coke considerably from 40% currently or it will still — this is what max it is?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

It can go up to 50% to 60%.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Okay. So which basically then means that if this mix is changing, Q3 can then see very meaningful decline in the cost? I mean, of course, spot prices are higher.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Costs will come down for Q3.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Before it takes up again because spot prices are then — I’m saying before it takes up again because cost prices are —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Navin, we cannot really start annualizing spot prices. So our game plan, we will deliver lower costs this quarter and lower costs next quarter.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Understood. And then just my last question. You mentioned working capital as a prime reason. But I mean, for that increase in net debt position, so given that these fuel prices are again sort of bottling out maybe say or going up, is it fair to say that this working capital funds will stay locked even for March or that would still —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

No. I think — again, I had mentioned and I would have requested you to listen to my commentary more carefully. We would get into a negative working capital zone before the end of March. With volumes going up, will be one big driver for more cash collections takes place with higher volumes. Inventories, we have now reached about 54 days, 54 or 55 days. By the end of March, we will come down to our normal level of 45 days. So that will release cash. Cost of purchase will be lower as of now. So nobody knows how prices will actually pan-out. But our planning is to release working capital cash by March, for sure.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

No. Great. I did hear your comment. I was just confirming because since the fuel prices are wherever they are today. Is that —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Navin, but that’s today, yeah. So —

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Correct.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

There was a time when pet coke was INR170 and everybody started annualizing it. That was not the right thing to do. So we’ll have to — this is the most unpredictable times that we are going through.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Sure. Sure. And just one last confirmation. Did you see we have spent about close to INR3,000 crores in capex so far into the year?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

First half, yes.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Okay. Because I’m just looking at your balance sheet and the capital work in progress or even total property plant and equipment. These numbers are up like about INR800 crore odd each, which is INR1,600 crores. Just trying to understand —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Part of advance would be there. That is one point which I can think about advance also in CWIP right?

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

No. Capital advances are reported separately.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. So capital advances also you need to add. But I don’t know what the accounting issue is. But I can get an explanation send to you separately.

Navin Sahadeo — Edelweiss Financial Services Limited — Analyst

Sure. That will be really helpful. But thank you so much for answering and all the very best. Thank you.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thanks, Navin.

Operator

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

Ashish Jain — Macquarie Group — Analyst

Hi sir, good evening. Firstly, on coal, I mean you made a comment that pet coke may go to like 50%, 60%. So given the current pet coke and coal prices, ideally, we should be going to 70%, 80% pet coke, right. So is there anything constraining us on that front?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

There are technical constraints. That’s all I know that there are technical constraints. In the earlier days, when pet coke was darling of the industry, those days also, we had tested and we reached about 70%, 78% peak. So there is some issue with blending, limestone from mine to mine has different qualities because of which you cannot mix 100% pet coke. Second point would be availability. As and when pet coke is available, one would pick up shipments of pet coke.

Ashish Jain — Macquarie Group — Analyst

Okay. Got it sir. Sir, secondly, in terms of with the — from let’s say, growth plans outside the organic plants that we have. If we have to explore M&A like any specific region, where both we are interested and we will not even face regulatory issues in terms of our market share and those kind of stuff. Can you point where our strategy can —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Vested in India for our organic opportunities that I will not have regulatory issues in any geography in the country.

Ashish Jain — Macquarie Group — Analyst

Okay. Got it.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

At this stage, where we are. I don’t know, five years, six years later.

Ashish Jain — Macquarie Group — Analyst

Okay. Got it. Sir, lastly just a housekeeping question —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I think we have evaluated through all the lenses that the regulators look at and what is the requirement? So we are well within the norms.

Ashish Jain — Macquarie Group — Analyst

Right. Sir, just couple of housekeeping questions. One, what was the share of blended cement this quarter, sorry, trade cement this quarter?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Trade was 68%.

Ashish Jain — Macquarie Group — Analyst

Okay. And then secondly, you spoke about the chemical business revenues, which has crossed INR100 crores this time. In our segmentation, where do we put that? Is it in grey cement or it’s in others?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Very small, less than 10%. So, it does not — less than 1%. Yeah. So there is no segmentation.

Ashish Jain — Macquarie Group — Analyst

Yeah, I know that.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Part of cement only Ashish.

Ashish Jain — Macquarie Group — Analyst

Part of cement. Okay. Got it. Thank you so much, sir.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you, Ashish.

Operator

Thank you. The next question is from the line of Girish Choudhary from Spark Capital. Please go ahead.

Girish Choudhary — Spark Capital — Analyst

Yeah. Hi. Thanks for taking my question. Firstly, would like to get your sense on the industry’s supply dynamics or are you worried of the potential build-up or a surprise in your supply — with also the new entrant in choosing significant amount of money? And the other larger players having a strong balance sheet. So, I just wanted to get your sense on the supply dynamics. That’s the first one.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So my guess is that all the supply, which comes in organic supply will get absorbed easily. Because India has a story, will show you much higher growth as compared to any other market because there is a huge amount of development required, there is huge amount of housing required. It’s a no-brainer statement, which I am making. But yeah, India will see a huge amount of cement consumption happening in the next few years. Two years can be 10 years, more than 10 years that I don’t know. But as of now, it’s still a very long distance away. India also reaches a saturation point and growth tapers down. So as long as there is growth potential, additional capacity will get absorbed. And one more point one needs to keep in mind that total capacity that one looks at is a myth because there are lots of capacities, which are non-operational, lots of capacities, which are inefficient or shut. So effective capacity, available capacity is lower than the nameplate capacity that you might be tracking.

Girish Choudhary — Spark Capital — Analyst

Got it. Fair enough. And secondly, if I look at your Phase 1 and Phase 2 capacity addition plans which is roughly around 40 plus million ton of addition. West is the region you’re seeing very low capacity coming in roughly around 1.8 million tons. So any reasons why a lower addition there is to do with reserves or utilizations or are you looking at inorganic —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I am not able to hear you clearly, which region you picked up as low addition?

Girish Choudhary — Spark Capital — Analyst

As in West, if you look at West, you’re adding only 1.8 million tons, so between Phase 1 and Phase 2.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

West is more due.

Girish Choudhary — Spark Capital — Analyst

Yeah. So you’re just adding, yeah.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. Mine is not a constraint. In West, luckily we have coastal plant. So I can bring limestone from the Middle East in cases. So limestone as a resource is not a constraint in the Western market. West, we have enough capacity available, and we don’t put surplus capacity and create problems for us. We’ll put up capacity where we feel that we need additional volumes right now.

Girish Choudhary — Spark Capital — Analyst

Got it. Thank you, sir.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

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

Rajesh Kumar Ravi — HDFC Securities — Analyst

Yeah. Hi sir, I don’t know if you have already answered this.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I have answered it.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Hi sir, could you talk on the fuel cost on a per kilo cal basis? How was it in Q2, and versus Q1?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

INR2,489 per million kcal was the cost in Q2 as compared to INR2,215 in the previous quarter. And if I go back one year, Q2 FY ’22, it was INR1,427. So INR1,427 has come up to INR2,489.

Rajesh Kumar Ravi — HDFC Securities — Analyst

INR2,489. Okay. And sir, in this quarter, how were the numbers currently in October.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

We’ll talk in January.

Rajesh Kumar Ravi — HDFC Securities — Analyst

That’s okay. Just, directionally, is it coming off.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

What is coming off?

Rajesh Kumar Ravi — HDFC Securities — Analyst

Quarter-on-quarter, do you see this number coming off versus what you saw in Q2?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Fuel cost?

Rajesh Kumar Ravi — HDFC Securities — Analyst

Yeah. Fuel cost per kilo cal.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah. Fuel cost will come off.

Rajesh Kumar Ravi — HDFC Securities — Analyst

Okay. I think that is all from my end. Thank you.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thanks, Rajesh.

Operator

Thank you. The next question is from the line of Kamlesh Bagmar from Lotus Asset Managers. Please go ahead.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Yeah. Thanks for the opportunity, sir. Sir, just one question on the cost side like, say, going forward like seen couple of years, what quantum of cost reduction do you see like SEBI to fair side or power and fuel cost?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

About INR100 a ton would definitely come out of cost reductions, minimum.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

On the variable side?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yes.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Okay. And sir, like, in the presentation, we have mentioned 19.5% as the mix of the renewable power. So is it in terms of the capacity or in terms of the power usage in this quarter?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Consumption. Actual generation, actual consumption, whatever you want to say.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Okay. And sir, lastly, like you have 40% odd share of pet coke. So vis-a-vis imported coal because this INR2,489 looks to be very competitive as compared to what thermal coal prices are. So is it the case that the grade of the imported coal, which we are using is also equally competitive as compared to the pet coke?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Because like, say, if you see —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Because you get US coal is very high grade coal, 6,900 kcal. Normally we are not buying RB1.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Okay. So that would be RB3 or all that. So that’s why that is also competitive as compared to the —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah.

Kamlesh Bagmar — Lotus Asset Managers — Analyst

Okay. Great sir. Thanks a lot.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

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

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Yeah. Thank you, sir. Sir, what was the lead distance in this quarter?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

428 kilometers.

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Okay. Sir, you mentioned that a regulatory issue will not be there. You have taken care of that in terms of the inorganic expansion. But just trying to further understand for my understanding, in terms of, let’s say, if you go for, let’s say Nuvoco acquisition, I’m just giving an example. So how do the CPI look at —

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I don’t look at specifics. You can ask a general question if you have.

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

No. I’m asking the general in terms of the market share, how the CPI looks at any percentage, what are the broad criteria that the CPI looks at post the acquisition 10%,15%, 20% market share should not be there.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I think that, I will not be able to answer.

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Okay. Third, sir, just trying to understand in terms of the second phase of expansion in 22.6. How much broadly from that we would be commissioning in FY ’24?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Maybe 3 million or 4 million.

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Okay. And raised mostly by March of FY ’25?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

’25 and some might go into fiscal ’26. It means for the first half of ’25-’26.

Shravan Shah — Dolat Capital Market Pvt Ltd — Analyst

Okay. Got it. Thank you.

Operator

Thank you. The next question is from the line of Sanjay Nandi from Ratnabali Investment. Please go ahead.

Sanjay Nandi — Ratnabali Investment — Analyst

Yeah. Good evening, sir. Thank you for the opportunity. Sir, we have seen some spike in the employee cost in this particular quarter. Can you please throw some color on that, sir?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Spike in — so the annual increments — we follow an increment cycle from July, 1st July. Our increment evaluation done in March given effect in July. So July-June is our annual cycle.

Sanjay Nandi — Ratnabali Investment — Analyst

Okay. Thank you so much, sir, for the opportunity. Happy Diwali, sir.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Same to you.

Operator

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

Amit Murarka — Axis Capital Limited — Analyst

Hi, thanks for the opportunity again. So just on a white cement and putty like the RAK acquisition that you had made, so that’s supposed to kind of flow in additional volumes into India. So by when is that expected to start?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

This quarter they will start, October-December quarter should be starting volumes. The packing material has already reached there, quality etc all settled, logistics tied up. So this quarter shipment should happen — it starts happening.

Amit Murarka — Axis Capital Limited — Analyst

Okay. And the exports to Sri Lanka, like, is there anything happening or it’s completely stopped?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Very marginal. So only in case we have secured rupee LC available, which is opening up. So against those LCs only we are exporting. So exports have dropped down dramatically from maybe 1 lakh tons, 1.5 lakh tons per month, give or take 1 lakh, 1.5 lakh to 30,000 or 40,000 to shipments only. And one more reason, I’m glad you asked about Sri Lanka. Our working capital, so we have close to INR200 crores due from our Sri Lanka operations. So the money is lying there. Government is releasing money gradually. We received about INR40 crores last quarter — in the reported quarter. And I believe that money will get regularized in the next two quarters or three quarters.

Amit Murarka — Axis Capital Limited — Analyst

Got it. And what was the export volume in Q2, absolute number?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

1 lakh tons.

Amit Murarka — Axis Capital Limited — Analyst

Okay. Got it. Thanks sir. Wishing you a Happy Diwali.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Happy Diwali to you.

Operator

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

Ritesh Shah — Investec Capital — Analyst

Sir, two questions. First is, sir, If I heard it right, you indicated on TPP. We have 5% pet coke and 56% local coal. Sir, my question is why pet coke is at only 5%? I remember like 2017 something, there was a court judgment.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

So what was the court judgement?

Ritesh Shah — Investec Capital — Analyst

I think it did restrict the usage of pet coke when it comes to power plants. But for kilns, it was allowed because of the quality of limestone and limestone saturation factor. So question is, can this number of 5% pet coke, when it comes to TPP, increase and can it be a cost saving lever?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

In TPP, we use domestic coal which is far more cheaper.

Ritesh Shah — Investec Capital — Analyst

Right. But, sir, you said 29% is imported, and 5% is pet coke. So 29% imported versus 5% pet coke. Is there room for substitution?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Yeah, there is. So one is in the NCR and the related markets pet coke is not allowed in power plants that you are aware. And its opportunity wherever we find financial economics working in favor of pet coke, we use that.

Ritesh Shah — Investec Capital — Analyst

Sir, if my memory serves me right, it’s only in three states where in pet coke and TPP is not allowed.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I’m sorry. Yeah, you’re right. NCR, that is the market.

Ritesh Shah — Investec Capital — Analyst

Okay. So can this number move up and surprise.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Could be. I don’t have a ready answer actually, Ritesh.

Ritesh Shah — Investec Capital — Analyst

Okay, fine. And sir, second quick question, is there some changes, which one can expect on the discounting trends in the marketplace? Is there some probability over here?

Atul Daga — Business Head, Executive Director and Chief Financial Officer

I have no idea about that.

Ritesh Shah — Investec Capital — Analyst

Okay. Thank you so much, sir. Thank you.

Atul Daga — Business Head, Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. [Operator Closing Remarks]