UltraTech Cement Ltd (ULTRACEMCO) Q3 FY22 Earnings Concall Transcript

UltraTech Cement Ltd  (NSE:ULTRACEMCO) Q3 FY22 Earnings Concall dated Jan. 17, 2022

Corporate Participants:

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

K. C. Jhanwar — Managing Director

Analysts:

Sumangal Nevatia — Kotak Securities — Analyst

Pinakin — JPMorgan — Analyst

Raashi Chopra — Citigroup — Analyst

Girish Choudhary — Spark Capital Advisors — Analyst

Amit Murarka — Axis Capital — Analyst

Pritesh Shah — Investec — Analyst

Indrajit — CLSA — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Navin Sahadeo — Edelweiss — Analyst

Swagato Ghosh — Franklin Templeton — Analyst

Ashish Jain — Macquarie — Analyst

Prateek Kumar — Antique Stock Broking — Analyst

Presentation:

Operator

[Starts Abruptly] 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, sir.

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

Thank you. Good evening, everybody, and welcome to this call for UltraTech’s Q3 performance. First and foremost, I hope, wish and pray that all of you and your families are safe from COVID.

This has been a difficult quarter with costs going up, a sudden and unexpected decline in demand in the month of November and consequent pressures on selling prices. India is a very regional market and each region as usual has performed at different levels. Demand slump was the maximum in the Eastern corridor, which I’m sure you would have heard already from the market sources. North continued to be relatively strong and growing consistently, performing better than other market in terms of volumes and prices.

At UltraTech, despite a 3 percentage de-growth in domestic volumes this quarter, we have achieved 13% growth in the nine-month period. And in spite of a high base for Q4, our aim is to achieve a growth in Q4 also.

As for Q3, we believe there were multiple factors leading to the demand slump in November. First and foremost, unexpected rains in several parts of the country, construction ban in NCR labor availability at several places, sand shortages in Eastern side were just a few reasons which can be assigned to why November fell. December was back on track. On an average our — for the quarter, our capacity utilization was 75%, but December had already inched up to 80% plus. Utilizations across the country are improving and so are prices.

Let me first give you an update on our expansion program. As part of our growth plans, we are putting up additional 90.5 million tons of capacity. 1.2 million ton brownfield was already commissioned last quarter in East, and 2 million tons brownfield Bara grinding unit has been commissioned in the current quarter in the month of January, taking our total India operating capacity to 114.55 million tons. The balance 16.3 million tons of capacity will be commissioned during FY23 at different points in time.

Barring a few small delays due to the pandemic, we don’t anticipate any bottlenecks in project commissioning schedule. This becomes very important because we believe that demand will see a surge given the general elections in 2024.

To brief you about the other non-core assets which we had inherited as part of the acquisition of Nathdwara Cement, definitive agreements have been signed to sell off the fiberglass business in Europe. We expect to close the transaction in the current quarter. This quarter, we have spent INR59.90 [phonetic] crores on expansion and other capex, reaching a total of close to INR4,000 crores and the pace at which the project execution is going on, we may spend about INR5,000 crores on overall capex in FY22.

I’m happy to share with you that the Board has approved an expansion of our white cement capacity. It will be undertaken in a phased manner from our current 6.5 lakh tons to about 12.5 lakh tons. The current putty capacity is 8.2 lakh tons split at two locations. We are in the midst of completing a greenfield expansion of putty expansion — putty capacity by about 4.4 lakh tons. The project is expected to go on schedule in Q2 FY23.

On the debt front, we paid down our treasury, prepaid our loan to the extent of INR3,459 crores. This was a very well-planned move with the hardening of interest rate and falling treasury yields. Going forward, the gap between our operating EBITDA and total EBITDA will narrow down due to lower treasury operations.

On the cost front, fuel costs have softened a bit from the peak, but still strong. As we had told you during the last quarter, fuel consumption cost for UTCL are up by roughly INR250 per ton on cement. During the ongoing quarter, we don’t expect any more surprises, but the costs will remain elevated at the current level. There is a reasonable possibility as of now for prices to soften post the Winter Olympics of China.

Logistics costs this quarter were almost at the same level as the previous quarter despite reduction in cost of diesel in the month of November. Exit September quarter fuel was higher than the average of Q2. This is another reason for not a very visible impact on average logistics costs for Q3. The benefit big or small of reduction in diesel costs will be visible in Q4.

We have begun the current quarter on a very positive note, with improvement in demand sentiments and improvement in prices as well. Next year seems to be poised for a good growth for the industry. General elections, as I mentioned in the beginning, are around the corner, which always spur demand. Urban housing has started seeing rapid improvement, thus helping cement industry. New norms under the CRZ will open new vistas of growth for redevelopment of several old construction.

New infrastructure projects are in pipeline. We believe that the project announcements and issuance of new orders will start picking up pace. Government Gati Shakti initiative is a transparent mechanism of tracking all the projects and this will further strengthen the intent of timely execution of infra projects.

We continue our efforts on sustainability. This quarter again we have commissioned, increase our capacity of WHRS as well as solar. Today, this quarter we ended our WHRS capacity at 156 megawatt and solar capacity at 221 megawatt. On our current scale of operations, we are now at close to 16% green energy, on our path to achieve a 34% green energy by the end of 2024.

With that good note, I hand over the session for questions. Thank you.

Questions and Answers:

Operator

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

Sumangal Nevatia — Kotak Securities — Analyst

Thank you, sir for the opportunity. My first question is on the cost spend just to understand your comment — opening remarks a bit better. So on a overall cost basis, we expect, if I understand correctly, from fourth quarter, some tailwinds to start reflecting, or given the consumption lag in the fuel, etc., we will see some bit of a fuel cost increase and then maybe from 1Q ’23 some cost benefits? If you could just share some more detail, sir, it will be very helpful.

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

Yes, Sumangal, so the big benefit or the delta movement would be visible only in Q1 next year. Q4 this year, as I mentioned that costs will remain elevated and not too much of difference is expected.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. But given that spot prices, say, pet coke around INR170, INR175, and even thermal coal, our sense was that there will be some bit of a lag and inflation further in fourth quarter and then a dip in 1Q. Is that understanding not correct then?

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

Your understanding is also correct, my understanding is also correct. Let’s wait for Q4 results.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. That’s fine. Understood. Second, on the demand, sir. I mean, 3Q, of course, at the start of the quarter, no one expected such weak demand in the quarter. So will you still term it as an aberration in some external factors, or — and is your medium-term demand estimate and outlook still intact in terms of strong recovery in demand?

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

Yes. Sumangal, as I mentioned, November was an aberration. December was back on-track. January continues to be strong. To give you a precise number from UltraTech’s perspective, average capacity — capacity utilization for the quarter was 75%. December was 84%. That gives you a sense that this was one freak month, everything pointing in the opposite direction in an unfavorable direction.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. And just one last question on the exit prices of 3Q, any sense from what it was versus 3Q average prices? And very early days in January, but any direction sense on how we are seeing prices? Because we do hear some price hike in few pockets of the country. So if you could just share some details?

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

Yes. So I think you already get the sense about price hikes before I do. The undercurrent is strong because the demand is strong, so we expect price hikes to take place. And as far as Q3 is concerned, Q3 over Q2 was almost flat. So there were price hikes, which were taken in the month of October, which had to be given up or rolled back.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. And January, we expect price hike, but as of now nothing is reflected, right?

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

No, there have been price hikes in a few pockets in the country already, but you see, don’t multiply it by 365. We have to wait and watch for cycle to stabilize. I won’t get the benefit for the entire month, but February and March should get the benefit. Again, I’d say cement market is no less than the stock market. Today, it’s up, tomorrow it’s down. Nobody can predict what exactly will happen.

Sumangal Nevatia — Kotak Securities — Analyst

Got it. Thank you so much, sir. And all the very best.

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

Sumangal, the bigger point is the undercurrent is very strong.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Appreciate that. Thank you, sir. Thank you, sir. All the best.

Operator

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

Pinakin — JPMorgan — Analyst

Yes. Thank you very much, sir. Just trying to understand the cost item better. Can you give us a sense versus the $150 per ton of P&L cost in the third quarter, what will broadly be your blended purchase cost at this point of time? Because we have seen thermal coal prices against after the Indonesian ban and they’ve not come off materially.

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

Yes. So the Indonesian coal price hike apparently might stay for a short period of time. And currently, the prices are elevated. Our expectation is March-April onwards, you should start seeing some softening trend. Do you want to add?

K. C. Jhanwar — Managing Director

Yes, just to add a context — it’s Jhanwar here. Yes, you’re right, because the Indonesia imports have ban on export of coal, but now we understand that there is some relaxations are being announced, means particularly the people who have fulfilled their domestic quota from everything to the local power plant would be allowed to export actually. But yes, it is to be seen in the next fortnight or in a month how it gets shaped out. So there may be some impact here and there if this ban continues.

Pinakin — JPMorgan — Analyst

Sure, sir —

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

[Speech Overlap] Q4 costs might still be elevated. There will be some positive, some negative, there are inventory effect. Spot prices have no relevant for the current consumption — current quarter consumption because the time lag in delivery is minimum 45 to 50 days. So the newer purchases will impact the next quarter only.

Pinakin — JPMorgan — Analyst

Understood. Just trying to move beyond thermal coal and pet coke. So crude Brent prices are near five year highs. The outlook is that crude prices further move higher. If crude prices do move higher, then would it be fair to say that the cost deflation — that disinflation that the company is expecting in first quarter may not take place because you will still have continued all round cost inflation from higher crude indirectly?

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

Yes, that’s a possibility, because you’ve seen the way gas behaved, coal — and coal will not lose the opportunity in case [Technical Issues] Oh, sorry I had gone on mute. Pinakin you’re absolutely right. I don’t know when did I go on mute. Okay. So if crude misbehaves, then there will be a dilemma for cement industry also.

Pinakin — JPMorgan — Analyst

Understood. And sir, lastly, because of the latest COVID wave, would any of the project commissioning timelines get pushed out because if any work has been impacted?

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

Not at the moment, we don’t see any slowdown.

K. C. Jhanwar — Managing Director

Yes, because the projects, obviously with the COVID, there may be some smog here and there. But I don’t think as Atul said, there is any worries on the schedule commencing timing. We are very much on track.

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

At this juncture.

K. C. Jhanwar — Managing Director

Yes.

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

So we don’t know whether after Omicron [Foreign Speech] Delmicron, whatever is coming, how does that impact. So as of today, with the current state of affairs of Omicron and current state of affairs of the COVID wave, things are under absolute control.

Pinakin — JPMorgan — Analyst

Understood. Thank you very much.

Operator

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

Raashi Chopra — Citigroup — Analyst

Thank you. Atul, just firstly on pricing, you mentioned that price hikes have come through in some of the regions. So which regions have still not come through? And if there is a delay or is there a reason why it hasn’t come?

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

It’s a matter of time, Raashi. So step by step things are done. Let’s discuss it offline instead of — so East has happened, some parts of Maharashtra and some parts of South, yes, price hikes have been done. Kerala has been done for example.

K. C. Jhanwar — Managing Director

So fundamentally because it also depends on the level, basically. If the levels are too low, but as just now said by Atul, once you have a price hike, it will be not only maybe after these 10 days’ time. So the real reflection would come after 10 days, because there is a lot of inventory in the pipeline and different people may have different stock operator. So — but, yes, I would say, holistically since the demand has improved in the month of January, logically the price improvement must have come in through.

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

Raashi, again I am repeating, we are operating at 85% capacity utilization now. Linkage is operating around 90%. That’s the, you know, indication of how strong the market is.

Raashi Chopra — Citigroup — Analyst

Right. Okay. That’s helpful. Thank you. Just can you talk a little bit more upon the white cement expansion plan and the thought process behind that?

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

So white cement right now — first and foremost, white cement market has already been growing and better late than ever that we decided to start our expansion. We were meeting our requirement with imports which is not as remunerative as our domestic supplies. So that is the whole purpose of getting into an expansion mode, increasing our capacity on white cement.

Raashi Chopra — Citigroup — Analyst

Okay. And I think I missed the number. What did you say about the expansion, what was the number?

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

About 12.5 lakhs — doubling the capacity, more or less from 6.5 lakh tons to 12.5 lakh tons.

Raashi Chopra — Citigroup — Analyst

Okay. Fine. Thank you.

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

All right.

Operator

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

Girish Choudhary — Spark Capital Advisors — Analyst

Thank you, sir, for taking my question. Two questions. Firstly, if I look at your slide on the region-wise demand performance, I think East is the only region which has seen two consecutive quarters of decline in demand on a Y-o-Y basis. So how much of this would you attribute to one-off reasons and how much is due to actual slowdown in the region, if at all, so your thought process or your thoughts on the —

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

The one-off reasons were the sand shortage, rains and labor movement. These three are one-off movement. My expectation is that now onwards, you will start seeing improvement in Eastern corridor also. Jhanwar, would you like to add something?

K. C. Jhanwar — Managing Director

Yes, definitely. Because the sand was one of the major issues. And number two, because the states supported schemes actually in infra, that also little bit got slowed down post elections of Bengal and kind of things. So now things are getting stabilized and we are pretty confident that the demand should come back in the quarter.

Girish Choudhary — Spark Capital Advisors — Analyst

Okay. Got it. And on the white cement expansion, if you can give us little more on the timelines and also on the white cement grade limestone reserves post the expansion? So some more details on this expansion?

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

So on the reserves, post expansion also, we would have reserves of 40 to 50 years. That is one. And we would look at anywhere around 2026 to commission the white cement expansion, because land acquisition is something which is not complete, and that is what will take a bit of time. If you refer the slide, there is a presentation also.

Girish Choudhary — Spark Capital Advisors — Analyst

Okay. And then just to finish this off on white cement, one of the reasons you mentioned is that to reduce the high-cost imports, so just to understand this, how much is imported and versus how much you are using it —

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

This year, the plan was to import 2 lakh tons of white cement.

Girish Choudhary — Spark Capital Advisors — Analyst

Okay. So basically, white —

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

And till we commission our expansion, we expect the way the market is growing, that our requirement will keep on growing.

Girish Choudhary — Spark Capital Advisors — Analyst

Got it. Thank you, sir.

Atul Daga — Business Head, Executive Director & 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 — Analyst

Hi. Good afternoon, sir. Just two questions. Firstly, on other operating income. So last quarter, I remember you mentioned there was some incentive, Dhar. This quarter also that number is a bit elevated. So is there some one-off this quarter there as well?

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

You know, there will be something which comes in, something which goes out. Last year — sorry, last quarter, we had Dhar incentive coming in as a block. It has got stabilized now as a regular inflow. This quarter, we had Rajashree Cement long pending incentive — Rajashree Cement Line IV, which got disbursed. So I would expect our incentive and related other incomes to be in and around INR125 crores to INR150 crores per annum — per quarter.

Amit Murarka — Axis Capital — Analyst

Right. This quarter, it was more or less INR270 crores. So like then what the — the Rajashree one would be, what INR120 crores, INR130 crores?

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

No, what is 270?

Amit Murarka — Axis Capital — Analyst

The difference between the revenue and the sales and total revenue.

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

Sorry, Amit. Amit, just one second. Mukesh, will you answer?

Unidentified Speaker —

In the Rajashree Cement, it is INR50 crore.

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

No, INR270 crores, what is the breakup?

Unidentified Speaker —

This is including other income also, like scrap sale and miscellaneous write back.

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

I would say, we have a stable incentive related scrap sales do take place every quarter. Any write back might be there on a regular basis, so INR150 crore is an average number for our size of operation.

Amit Murarka — Axis Capital — Analyst

Sure. And just one more question on the capacity utilization. So like, you mentioned that FY23, FY24 should be strong growth here due to pre-elections and you’re already at 85% utilization. But the pipeline — capacity pipeline is that till March ’23 largely. So is there a new pipeline also firmed up? And by when can we expect the same thing to be known?

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

We’ll come back to you. Once we — our Board has to approve. Once the Board approves, we can tell you about it.

Amit Murarka — Axis Capital — Analyst

And lastly, what we can expect on trade sales this quarter?

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

64% trade.

Amit Murarka — Axis Capital — Analyst

Okay. Thanks. I’ll come back in the queue.

Operator

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

Pritesh Shah — Investec — Analyst

Hi, sir. Thanks for the opportunity. Couple of questions. Sir, how are you looking at industry level capacity additions this fiscal and next fiscal? And factoring the demand scenario that you are looking at, how should one look into UltraTech’s market share given the incremental capacity additions we will have, which will be significant in FY23?

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

Yes. So each year, you should look at plus/minus 20 million tons of new capacity. FY23 bulk will be coming from UltraTech. Next year, the year after also, you could see plus/minus 20 million tons. Our market share will grow with this 20 million tons of — 15 million tons coming in FY23, the market share is bound to grow.

Pritesh Shah — Investec — Analyst

Okay. Sir, would it be possible for you to give a regional flavor over here?

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

Regional flavor as in –?

Pritesh Shah — Investec — Analyst

On market share, sir, because 16 and 20 is a big number. So, is it something —

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

Market share, very difficult to quantify because that — data comparable data is never available. But when I talked about market share increase, the percept — my analysis is that new capacity which will come in, we will sell it out without competition being there. So obviously, our presence in the market will grow further.

Pritesh Shah — Investec — Analyst

Sure, sir. Sir, my second question is on construction chemicals. It was good to see the white cement announcement actually coming through this quarter. Sir, we haven’t heard anything from construction chemicals. We understand that we have started manufacturing at few of our plants. So we just wanted to understand our thoughts on construction chemicals, and basically, how is that going along with Grasim given they have highlighted significant plans on the paint side. The question is more with reference to any changes on the distribution side, synergies where in UltraTech is actually benefiting out of it?

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

We are gradually growing our construction chemicals business. It should be reaching maybe INR500 crores per annum on an annualized basis by the end of this year. We will look at acquiring good quality assets to grow this business further. The bigger point that you asked about whether in Grasim or in UltraTech, UltraTech will do this line of business in the construction stage and not in the finishing stage. Now there are sealants, waterproofing agent [Technical Issues] And stuff like that, which — this is totally [Technical Issues]

Operator

Excuse me, this is the operator. Participants, the line for the management has dropped. We request you all to please stay connected while we reconnect the management.

Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead. We have Mr. Pritesh Shah online.

Pritesh Shah — Investec — Analyst

Hi, sir. We lost you at construction stage and not finishing stage.

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

So yes, we will remain in the construction stage and finishing may — anything that has to be done would be with — we are not getting into that space. And there is a lot of opportunity, waterproofing agents, sealants, mortar, dry mix, then some amount of admixtures also, so there admixtures will become our capital product without for captive consumption also because we have a big RMC as well — for our RMC also. So lots of areas where we are growing steadily.

Pritesh Shah — Investec — Analyst

Sir, so what is the end game plan over here?

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

I also mentioned — I don’t know whether I lost connection or not. We should be annualized about INR500 crores this year. Multiple plants have already been put up. And we would look at interesting opportunities to consolidate with us.

Pritesh Shah — Investec — Analyst

Sure, sir. That’s quite encouraging. Sir, where do we see this business three years out? And last question.

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

Three years down the road, if today, I am INR500 crores, I would target INR2,500 crores, at least.

K. C. Jhanwar — Managing Director

Yes, because once we have started in this line of business, obviously, we would like to level year after year actually, because there is enough opportunity for growth in this particular segment right from waterproofing, cement, mortar, grouting. [Technical Issues] So there will be enough opportunity.

Pritesh Shah — Investec — Analyst

Sure, sir. That’s just quite encouraging. Thank you so much for the answers. I’ll join back the queue. Thank you.

Operator

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

Indrajit — CLSA — Analyst

Hi, sir. Congratulations on a good set of numbers. Thank you for the opportunity.

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

Hi, Indrajit.

Indrajit — CLSA — Analyst

Hi, sir. On the same vein, actually, to the previous question. So going forward, given the amount of cash we will end up generating in the next two, three years, and given the expansion plan that we have, any indication on annual capex? And would it be more heavily biased towards non-cement or light segments like construction chemicals, white cement, etc., or we will continue to see a higher proportion of the cement business?

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

See, the proportion of capex will be higher on gray. Construction chemicals is a very small cost operation. So even if we expand, acquire, it will not be a big portion. And white cement, it will be spread over the next two or three years, the big spend. So maximum spend, you will see on gray cement. This year, as I mentioned, we might exceed our initial forecast. We might reach close to INR5,000 crores — might reach close to INR5,000 crores of capex spend. Next year, would be close to INR4,000 crores of cash outflow on capex, which would complete our — the current phase of capex plan — the capacity expansion plan. INR4,000 crores would include the capacity expansion also as well as routine capex — maintenance cap — what we call maintenance capex, which is anywhere around — sustainance capex, which is around — anywhere between INR1,000 crores to INR1,500 crores.

Indrajit — CLSA — Analyst

Sure. Thank you.

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

I think we have lost. Okay. Yes.

Indrajit — CLSA — Analyst

No. And on the construction chemicals, if you can help us understand the industry better, is there a brand consciousness or is it mostly an unorganized sector? Do we have to spend a lot on A&P, getting people conscious about the brand? Or do you think these have reasonable mindshare?

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

There is an effort which has to be put in place to get people to buy a product that we are selling, and it will be an UltraTech brand to command a premium and to attract — to have a sticky customer. Jhanwar, would you like to add?

K. C. Jhanwar — Managing Director

Yes. And the major brand is UltraTech because our vast network in terms of dealer and the retailer network. We have a good network for dealer as well as the retailer. So we would like to make good use this network actually. And yes, the brand will definitely play a role. So yes, already we have started putting some efforts on branding of these products basically. But yes, in time to come, now we are moving from one level to another level. So the brand will play again major role, but predominant, it is going to under the UltraTech brand.

Indrajit — CLSA — Analyst

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

Operator

Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead. Excuse me, this is the operator. Mr. Patni, we can’t hear you.

Pulkit Patni — Goldman Sachs — Analyst

Is this better?

Operator

Yes. Now, we can. Thank you.

Pulkit Patni — Goldman Sachs — Analyst

Can you hear me now?

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

Yes, clear.

Pulkit Patni — Goldman Sachs — Analyst

Okay, great. Sir, just one question. Taking a slightly longer-term view, if we look at the last few years, because of COVID, other disruption, while growth rates look good, but broadly, there’s not been a significant growth in terms of volumes, if I look at a two to three-year CAGR. Whereas in the same period, we’ve seen capacity getting added at a reasonably strong pace last few years. Are you worried that maybe next 12 to 18 months, the pricing environment might not be as conducive as we are used to seeing in the last two years?

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

First and foremost, on the sales volumes, I think we have been continuously growing from — one second, from a 70 million tons to crossing the 90 million tons mark and jumping over 100 million tons of sales. So it is growing at a steady pace, I would say. Capacity expansion, yes, over the last five years has grown roughly 11%. And we have always invested ahead of the demand curve in time to meet the rising demand. So I don’t foresee a challenge to be able to sell — we don’t see a challenge to sell this capacity.

Next point that you mentioned is on pricing. Given our consolidated spend or position in any market, we are able — and it’s a rule of the game, not just UltraTech. Anywhere where there is a consolidation of the market, pricing discipline is far better. Take the case of Gujarat market, we were not present at that point in time. 2014 onwards, we came in, and today, Gujarat market are one of the best price markets. Similar phenomena we are seeing in the Central market. North is what where similar thing has happened in the North market.

So East is a market where what you are talking about is a fierce market, a lot of new capacity getting added. So we might see some pricing pressures, but the consumption in the East market will keep going up.

K. C. Jhanwar — Managing Director

And whatever data are available, I think despite the new capacity additions, overall capacity utilization of the industry is likely to improve in the next 18 to 24 months.

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

So I’m — Pulkit, I’m just looking at my data from 2016, where we sold about 48 million tons crossing 80 million tons now this year, and then jumping on to our three-digit mark very soon. So we are steadily growing at about a CAGR of 10%, 11%.

Pulkit Patni — Goldman Sachs — Analyst

No, I mean my question was more from an industry. No doubt you’ve done pretty well in the last few years. But as an industry, we were at about 335, 340 million tons in FY19 and FY20 to we finish at about 350-352. So on a CAGR basis it’s not that exciting, but I understand what you are saying that consolidation should likely help right

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

Yes. You are — okay. unfortunate instances that have happened, now COVID was most unthinkable thing that has happened. And for all you know, it might continue for a couple of more years. As you read, Cyprus or somewhere new variant has already been discovered, Delmicron or something is being talked about. So I don’t know the disruptions which the world will see, which India will see going forward.

We have had several instances. There was demonetization in 2016, which broke our back. Then GST introduction, there was so much of confusion with GST introduction. Any new — that’s a new system which came into play, took time to stabilize. So I think we have to take all these events as part of — in our stride and move on. And as UltraTech, I think we will keep consolidating the industry and grow from strength to strength.

Pulkit Patni — Goldman Sachs — Analyst

Sure, sir. Sir, and second one quick question. Any sense of what could be the realization from this Belgium sales, any rough cut number that we can –?

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

EUR94 million. I think, EUR90 million, EUR90 million to EUR94 million depending on working capital adjustment. So I would safely put a number at EUR90 million.

Pulkit Patni — Goldman Sachs — Analyst

Sure. That’s very useful. Thank you so much.

Operator

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

Navin Sahadeo — Edelweiss — Analyst

Hello.

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

Yes, hello.

Navin Sahadeo — Edelweiss — Analyst

Yes. Thank you for the opportunity. So first of all, I just want a small clarification on this fuel cost that we report in the presentation. So when we say average fuel consumption cost in dollar terms, which is about $151, that is the — let’s say, you’re referring to the pet coke price, the imported coal price or it is the blended cost of —

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

Blended cost of consumption in UltraTech.

K. C. Jhanwar — Managing Director

That includes the —

Navin Sahadeo — Edelweiss — Analyst

It includes the domestic fuel also?

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

Yes, it’s total fuel, including domestic.

Navin Sahadeo — Edelweiss — Analyst

Correct. So can you give me a broad breakup as to what it was for the quarter as in terms of how much is pet coke, how much is, let’s say, imported coal and domestic coal? Is it possible to share that?

Unidentified Speaker —

Pet coke $193.

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

Speak loudly

Unidentified Speaker —

Pet coke $193 and coal at around $137, imported coal.

Navin Sahadeo — Edelweiss — Analyst

Correct. I was talking about overall in terms of the breakup in terms of usage in the sense, let’s say, pet coke is let’s says, 50% of —

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

I’ll tell you. We have reduced the dependence on pet coke and this quarter the pet coke consumption was 25%.

Navin Sahadeo — Edelweiss — Analyst

Okay. And if pet coke is 25%, imported coal would be broadly 50%?

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

Would be a larger chunk.

K. C. Jhanwar — Managing Director

Just to [Indecipherable] for the high calorific value imported coal.

Navin Sahadeo — Edelweiss — Analyst

Yes, high calorific value imported coal. No, fair point. Then, sir, my second question then was about the white cement expansion, which you talked about. So from 6.5 lakhs tons to over 12.5 lakhs tons, but if I understand correctly, white cement is not a growing industry as such. It is the putty which is growing. Is that understanding correct? And you’re rightly putting up —

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

Putty is growing at a faster pace. I’m hoping about 4 lakhs tons, 4.4 lakhs ton putty expansion also. And white cement is also growing. Bulk of the expansion will get consumed into putty, yes, but white cement growth is also there.

Navin Sahadeo — Edelweiss — Analyst

Correct. So putty post expansion, our current — if I’m not wrong, putty capacity is 8.5 lakhs tons?

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

Yes.

Navin Sahadeo — Edelweiss — Analyst

Correct. So 8.5 lakhs tons putty, we are adding roughly around 4.5 lakhs tons to it?

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

4 lakhs ton. Yes.

Navin Sahadeo — Edelweiss — Analyst

But again my — if I understand, to make putty, requirement of white cement is only 20%. So for 4.5 lakhs tons of putty, all you need is 90,000 tons of white cement?

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

I agree. That is why I already told you that white cement we see a huge potential in pure white cement sales as well.

K. C. Jhanwar — Managing Director

And the fact that currently we are importing also.

Navin Sahadeo — Edelweiss — Analyst

Correct. So largely import substitution to begin with, which you said is about 2 lakh tons?

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

Yes.

Navin Sahadeo — Edelweiss — Analyst

That will happen straight away, and thereafter the growth part of it. Just one follow-up here, by when — because it said the expansion will happen in phases. I think I missed that you answered this, but by when is this capacity likely to come on board?

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

You know, it sounds a very long time frame, but we are looking at ’26 to commission our Line III. The biggest portion of time spent will be in land, land acquisition is not completed. So we would — now once — today, the Board has finally approved the expansion. We’ll start putting pressure on working on our land acquisition and perhaps over the next three or four quarters, I’ll have a clarity on how the timelines are getting crunched.

Navin Sahadeo — Edelweiss — Analyst

Okay. Fair. And just one last question, sir, if I may. Demand, of course, as you said, is strong and December also, I think, saw a reasonable, like, you know recovery. You also said utilizations were in upwards of 80%. But the coal price is going down. We again saw a lot of fight for market share coming back and that’s where exit December, particularly or most of the December, the prices were under pressure. So in the same light —

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

Navin, there are some companies who have year-ending December. Hello?

Navin Sahadeo — Edelweiss — Analyst

Yes, but in East — yes, but in East, I’m saying, we are seeing a different fight for market share altogether, right?

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

I’m not aware of any fight.

Navin Sahadeo — Edelweiss — Analyst

Yes. Okay, fair point. My simple question on a broader perspective versus coal, prices are, in general, fuel prices easing. Do you see headwinds to these price rise or you think no as long as demand is good, pricing should just be good enough and margin accretive?

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

My belief, and again, I’ll repeat, cement prices with capacity utilizations, and in my term, I’ve seen two or three cycles where all India capacity utilizations have gone above 85%, margins hit the ceiling. Because what happens is when all the regions are having a good capacity utilization, there is no export of material from one region to the other. Every region is able to enjoy a good pricing environment.

Navin Sahadeo — Edelweiss — Analyst

Agree. Let’s say you hope for that in Q4 now. Thank you. Thank you so much. And all the very best.

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

Yes.

Operator

Thank you. The next question is from the line of Swagato Ghosh from Franklin Templeton. Please go ahead.

Swagato Ghosh — Franklin Templeton — Analyst

Yes. Hi, Daga, sir. Good afternoon.

K. C. Jhanwar — Managing Director

Hi, Swagato. How are you?

Swagato Ghosh — Franklin Templeton — Analyst

All good, sir. So I had a very simple question that consolidation helps in passing on some of the cost pressures in difficult times like we have seen in the last two, three quarters. So while the industry is consolidated versus, say, what it was five years back, still it’s probably not consolidated enough. So I just want to get a view on what might happen to the industry in, say, four, five years’ time? Can we reach a level of consolidation when like even in real demand scenario, we are able to successfully pass on, say, any major cost headwind? And I’m asking you this because you can be a driver of the consolidation, I guess, your acquisition or by pushing out marginal players by selling higher volumes, etc.

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

So that scenario, which you’re looking at, I don’t expect in the next four, five years. There are global markets, which are in that phenomena. Consolidation will take place. There will be people who will want to cash out in a good cycle. UltraTech, as a company believes very strongly in cement growth in the country over the next decade. We are seeing at least a CAGR of 6% to 8% growth. So we are all very aggressive. We will evaluate every opportunity to keep growing.

Swagato Ghosh — Franklin Templeton — Analyst

Okay. And sir, one other follow-up is going forward, East is weaker, say, profitability market with higher competition. Will we be able to successfully pivot our volumes to other regions?

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

I am sorry.

Swagato Ghosh — Franklin Templeton — Analyst

Can we shift our volume mix to other regions if and when needed from East and South to say the other regions, do we have that flexibility?

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

Yes, we have that flexibility. The reason you — we — in fact, we move material from across the country. That’s the advantage of diversity of our existence. Today with 53-odd locations, we are able to move material criss-cross in any direction.

K. C. Jhanwar — Managing Director

That’s one of the big, I would say, pluses with the UltraTech angle, because we have never seen — practically, I’d say, never seen that kind of logistics problem to the customer. At times, we have — sometimes the demand is high and we may have to move from another zone to another plant, maybe with some additional force, but the servicing is done on a — because it is always known as positive contributor.

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

You know, Swagato, UltraTech is able to operate more than 250 rail heads across the country. That helps move — and rail freight cost would be 50% of the road freight cost. So that is the kind of advantage which we enjoy. And in times of, what should I say, restriction in supply in one particular market, we are able to meet the customer obligations from other markets also.

Swagato Ghosh — Franklin Templeton — Analyst

Right. So basically, these levers should help us outperform the market over the long run. Is that the right assumption?

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

Yes, absolutely. I will share with you offline data which shows clearly period after period, UltraTech has been able to outperform in volume terms because what happens is when a new capacity gets added in a particular company, they will have artificial growth, I would say. But if I look at an industry level number, we would have achieved growth quarter-on-quarter higher than the industry.

Swagato Ghosh — Franklin Templeton — Analyst

Okay. Sure. Thanks.

Operator

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

Ashish Jain — Macquarie — Analyst

Hello. Hi, sir. Good evening.

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

Hi, Ashish.

Ashish Jain — Macquarie — Analyst

Hi, sir. Sir, firstly, on the construction chemical business, can you give some idea in terms of the margins we are making there and where those margins could head? And also, any meaningful capex and all if we may incur on that in, let’s say, in the next 12, 18 months?

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

I think as of now, we are investing in the business, so it’s a significant margin. And —

K. C. Jhanwar — Managing Director

I’ll comment that we are building the business.

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

Building the business right now.

K. C. Jhanwar — Managing Director

We are building the business at this stage. And obviously, we have to do a lot of active [Speech Overlap] and piloting certain things to get the right product and kind of things. So obviously, once we reach to the reasonable sign, I’m sure it would definitely generate —

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

So right now, we are not focusing on the margin. We are investing in the business. But it can be a healthy 15% to 18% EBITDA for sure.

Ashish Jain — Macquarie — Analyst

Okay. Sir, just to understand —

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

And as far as — you asked about capex. No, it does not — it’s a capital-light business. And the other advantage that we have is we are able to take advantage of our existing plant infrastructure to add to the construction chemical opportunity.

Ashish Jain — Macquarie — Analyst

All right. Sir, just to understand, the idea behind this is that either you think it’s going to be a huge opportunity because even at 25 billion doesn’t seem to be the case in a two, three-year time frame or it’s just about leveraging the supply chain or the distribution that we have much better or is it like some of the input costs and all could be much cheaper for us because of the whole value chain that we have? So what’s the thought process behind investing in this business?

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

The distribution — first and foremost, it synergizes with our vision of being building solution provider, right? Instead of getting a third party to come in and apply something on the construction side, we would have a product of UltraTech being used to complete the project.

Take the case of our UBS model. The advantage of that model is that when an individual homebuilder visits the store, he is not just buying cement, but he also sees a pipe he needs, he also needs the white cement that he needs or vasthu service or an architect that he requires, services that he requires, he gets everything under a single window, say, under a single roof. Similar is the concept that when UltraTech is being approached by a developer, by an infra company for any project, they get everything that is required to build a bridge or build a highrise. That’s the bigger theme.

The advantages that we have is our strong distribution network. The brand equity that we have, the quality of the product that we deliver, the logistics network that we have, it goes hand in hand. There’s no extra effort that we will require to scale up.

Ashish Jain — Macquarie — Analyst

Right.

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

Hello.

Ashish Jain — Macquarie — Analyst

Yes. Sir, the only thought which I had just — because the customer still comes to the store to buy UltraTech Cement, and some of these products are like additive, with — even if it’s third party, still kind of serves the purpose of making it more comfortable for the customer was my initial thought at least. But fine, I get the point that you’re saying.

Sir, secondly, on pricing, can you just share how the exit prices were versus average for the quarter — for December exit prices?

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

I’m sorry, what?

Ashish Jain — Macquarie — Analyst

What the December exit prices were versus the average for the December quarter?

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

December — prices corrected, so December would have exited lower only, almost flat. I’m looking at the data, September and December end was flat. Average, to be exact, INR348 a bag versus INR350 a bag.

Ashish Jain — Macquarie — Analyst

Okay. INR348 is the exit and INR350 is the average for the quarter, did I get right?

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

No, INR348 was exit September, INR350 was exit December.

Ashish Jain — Macquarie — Analyst

And sir, what is the average for December, if you can share, please, if it’s possible? INR350. I don’t have average for the month. Got it. Sir, lastly on utilization, can you just indicate how low did November drop for us? So you gave the quarter and December month number. How low did November drop?

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

Gone below 70%, if I remember it right. It had gone below 70%.

Ashish Jain — Macquarie — Analyst

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

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Prateek Kumar from Antique Stock Broking. Please go ahead.

Prateek Kumar — Antique Stock Broking — Analyst

Hello. Thanks for the opportunity. First question is, can you highlight a bit on rural demand trends, so peer sector which FMCG, we’ve heard like industry talking about some kind of slowdown there, which may be due to higher base or some kind of transient slowdown. But how do we see that for cement? And is it something, which is contributing to negative growth for the quarter?

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

Could be, because the rural market, largely on the Eastern corridor, suffered because of rains and sand shortage and the labor movement. I think things are coming back on track when the labor suppliers as well as sand availability has settled. December, we are seeing good traction — December and January, we are seeing good traction across all segments. The most important thing — I don’t want to be sadistic, but the benefit of COVID has been revival of urban housing demand. So everybody knows the pillars of cement consumption, which is urban and rural housing, infrastructure, industrial and commercial, all along in that infrastructure and rural housing were supporting the growth. Now urban housing has also started growing. So this is what I would want to conclude with that three of the four levers have started firing very well for cement.

Prateek Kumar — Antique Stock Broking — Analyst

Sure. Okay. So I mean, rural, this rains and sand shortage would be something that could impact — so which will probably impact only —

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

See, again, as I see now, December and January continuing, the capacity utilization is good across the country.

Prateek Kumar — Antique Stock Broking — Analyst

Sure, sir. And that’s the only question. Thank you.

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

Thank you.

Operator

[Operator Closing Remarks]