UltraTech Cement Ltd (ULTRACEMCO) Q4 FY22 Earnings Concall Transcript

UltraTech Cement Ltd  (NSE:ULTRACEMCO) Q4 FY22 Earnings Concall dated Apr. 29, 2022

Corporate Participants:

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

Analysts:

Pinakin — JPMorgan — Analyst

Indrajit — CLSA — Analyst

Ritesh Shah — Investec — Analyst

Madhav Marda — Fidelity International — Analyst

Amit Murarka — Axis Capital — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Prateek Kumar — Jefferies — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Girish Choudhary — Spark Capital Advisors — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Navin Sahadeo — Edelweiss — Analyst

Rajesh Ravi — HDFC — Analyst

Ashish Jain — Macquarie — Analyst

Raj Gandhi — SBI Mutual Fund — Analyst

Rakesh Vyas — HDFC Mutual Fund — Analyst

Ashutosh Adsare — SBI General — Analyst

Sanjay Nandi — Ratnabali Investment — Analyst

Pritesh Shah — Investec — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’22 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, sir.

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

Thank you. Good evening, friends. I am glad to be speaking to you again at this — at the end of this fiscal year, which yet again saw several disruptions and new beginnings. I guess, cement is not for the weak need people. I will try and focus on two key aspects in this meeting, demand and cost. But before that, I must refresh your mind that cement is always a long-term story. If you believe in it, then don’t get disturbed by daily events.

Let’s look at demand. To my mind, as we have spoken in the past, India is fundamentally on a positive trajectory for cement demand, growing at a pace significantly higher than the world. Infrastructure, rural markets and now urban housing has also started generating good traction for cement. Infrastructure growth has been one of the key pillars of growth for cement in the country. As part of the budget, government has planned to complete further 25,000 kilometers of roads.

Recently, there was an announcement about 220 new airports by 2025. Even if 100 airports were commissioned, you can imagine the amount of infrastructure in and around the airport, the airport itself will generate demand. On the housing front, the government is doing about eight million low-income houses this year, which will generate demand from the rural segment. Another positive development is the revival in demand in the urban housing space. As you must already be aware, unsold top seven Indian cities has come down to the levels seen pre-COVID as property sales recovered very rapidly in 2021.

As for an independent report in major — sales have gone up in major metro cities very high. Housing inventory across cities is down to 32 months by end of 2021 from 35 months a year ago. New projects are good. New project launches are good, and which clearly shows sign for cement consumption will follow. Rural markets are also not going to be left behind. Fourth year in a row, the monsoons are expected to be good this season as well, which should result in a good harvest and improved cash flows for the rural markets.

So three out of four demand are humming well. Now the question is about rising costs and its impact on demand. I believe that the projects interest will not stop. Construction costs are certainly going up, but construction work cannot stop due to other compulsions, like timelines to complete the projects and associated interest costs. Any further delay might increase the cost further. And hence, the existing projects will continue on their path of execution.

What could certainly happen is a new homebuilder who has not started construction for the house may stall, because his or her budgets have to be revised with the rising cost of materials used in construction of house. This, to my mind, may not be more than 1% to 2% of the incremental demand every year. And within no time, general elections, 2024 will be around the corner, which will also boost demand. As per estimates of the real estate players, cement is about 11% of total project cost and has had an impact of less than 1%, whereas all other products have impacted nearly 12% of their costs.

On the other cost elements business, fuel cost, coal and pet coke have risen to unrealistic levels, I believe they should cool down sooner or later. These are really unrealistic prices. There are uncertainties around the Russia-Ukraine situation which is anybody’s guess. Crude prices are, of course, impacting our logistics costs. All possible efficiency improvement efforts are being put in place to minimize the impact of rising costs and there’s no choice, but to increase the selling prices. April has witnessed the recent price increases as well.

I must clarify to you our position on white cement. We have acquired a majority stake in a company called RAKWCT cement in the UAE. It’s a company listed on the Abu Dhabi and Kuwait Stock Exchange. Black White Cement is a market leader in the GCC region and synergies with Birla White will boost its market leadership. This is a critical strategic investment to help expanding Birla White in India. It provides us much needed access to additional capacity to serve markets in the country.

White cement market in India is growing at a rate of about 7%. This capacity will help us meet the growing demand. We are now putting on hold the capacity expansion plan in India, which was about INR978 crores, which we had announced recently because we now will have access to RAKWCT cements 9 lakh metric tonne of clinker and 6 lakh metric ton of white cement capacity. Currently, we are operating at 65% capacity off late.

Their EBITDA margins are good at about 19.5%. Quality of product is good. Nearly 20% of the capacity is exported to India and 45% is sold in the highly lucrative GCC African market. Birla White will be able to secure white cement and clinker supplies from RAKWCT to meet its capacity shortages.

Our ongoing expansion is on track. Capex spends have been at a record high of nearly INR6,000 crores this year and god willing, we should be able to complete all of our projects in time or ahead of schedule in spite of the delays caused by COVID-related lockdown, labor shortages, oxygen shortages and other related activities. In spite of this INR6,000 crores of capex, we had been able to deleverage our balance sheet by a further INR2,800 crores and now ended the year with 0.32x net debt-to-EBITDA.

We are managing and maintaining our working capital on a very tight leash, again, continuing on a negative working capital trend with upwards of INR1,700 crores being negative working capital that we ended with. So in sum, all is good, all is well that ends well. And I would like to conclude on a happy-note that we have crossed our annual revenues of INR50,000 crores like an FMCG company with operating margins as close. Thank you so much.

Operator

Can we open the floor for Q&A, sir?

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

Yes, please.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Pinakin [Phonetic] from JPMorgan.

Pinakin — JPMorgan — Analyst

Thank you very, sir. I have two questions. First, on price hikes. Now there have been industry reports of very large price hikes. What we wanted to understand from you, sir, is that as a company, have you taken similar price hikes in both the trade and nontrade segment? And how has demand been in April versus last year? And what has been the impact of price hikes on volumes at this point?

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

Yes, we have taken price hikes like the industry can’t be left behind. And your other question was on trade, nontrade, yes, both the segments have taken a price increase.

Pinakin — JPMorgan — Analyst

And sir, how has April trended so far after the price hike?

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

April is doing well, doing better than last year.

Pinakin — JPMorgan — Analyst

Okay. Sure. And sir, my second question is on the media reports about UltraTech being a potential bidder for Holcim’s assets in India. What — how should we read into it, sir?

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

Like I am reading the newspaper, you’re also reading the newspaper, so that’s about it.

Pinakin — JPMorgan — Analyst

So is it fair to say that the company is not interested in them, sir?

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

I wouldn’t want to comment anything until the Board takes a decision. So…

Pinakin — JPMorgan — Analyst

Sure. Fair enough. Fair enough. Thank you very much

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

Newspapers safe here.

Pinakin — JPMorgan — Analyst

Sure.

Operator

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

Indrajit — CLSA — Analyst

Hi. Thank you for the opportunity. I have two questions. First, on raw material sourcing, particularly fuel sourcing. Costs aside, are you facing any concerns on shipment availability, particularly for imported coal or imported pet coke. Are you — are the delays longer? And could it impact our production at any point through the course of next three, six months?

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

Not at the moment. Shipment — see ocean freight is high, but freight availability and supply — supplies are not restricted.

Indrajit — CLSA — Analyst

Sure. And even for recoverability in domestic, we are facing…

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

[Indecepherable] availability has nothing to do with — it’s normal. Suddenly, the government some railway company will withdraw race, you would have read, in fact, 16 passenger trains were shunted out to let coal movement for a power plant. So these kind of things keep happening in the country this is normal.

Indrajit — CLSA — Analyst

Sure. Secondly, while you highlighted a fairly detailed in terms of the homebuilder segment demand. But not just cement, every other commodity has gone up and it looks like the cooling off is still some time away, even then particularly in the rural IHB segment, are you not seeing any impact on demand?

Analyst — — Analyst

April is growing in all segments. So I don’t see anything pulling down. So as I mentioned, whatever has already started, it will be — it will be financially illogical, otherwise also illogical to stop the project in between because whatever you have spent does not get into good maintenance that also will get spoiled. You will require additional costs to bring it up. Interest meter will be continuously on. So to that extent, only a person who are deciding to build a new house has to redo is has on our own budgets. Instead of doing a 1,000 square feet house, they might decide to do 800 square feet house or the further decision.

Indrajit — CLSA — Analyst

Sure. Thank you. One last question, if I may. Is there any change in fuel mix on a sequential or year-over-year basis between pet coke imported coal at…

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

So we keep playing with the mix. Last quarter, I think petcoke was 20%, 25%. This quarter, it is up around 40%.

Indrajit — CLSA — Analyst

All right. Thank you so much.

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

Petcoke — today, pet coke landed is definitely in energy terms is far cheaper than coal. So efforts will be to increase petcoke consumption.

Indrajit — CLSA — Analyst

Sure. That’s all from my side. Thank you very much.

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

Thank you.

Operator

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

Ritesh Shah — Investec — Analyst

Yes. Hi, sir. Thanks for the opportunity. Sir, a couple of questions. Sir, first on white cement, could you please repeat the volumes? You did indicate 20% of that capacity currently caters to India.

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

Yes.

Ritesh Shah — Investec — Analyst

Sir, can you give that number, please?

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

The 20% of 6 lakh tons, 120,000 is approximately getting imported in India.

Ritesh Shah — Investec — Analyst

Okay. And, sir, you also said that we will put to rest the expansion, what we had announced.

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

Yes.

Ritesh Shah — Investec — Analyst

Sir, how should one read this? Is it because of the limestone —

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

No. No, no, no, no, no. Because we will have access to RAK White Cement product. That is why we don’t want to — we have spent money on this investment. So instead of — no need to invest right now on expanding in India.

Ritesh Shah — Investec — Analyst

Okay. But sir, if one had to look at it on a delivered cost basis, still, this would be more meaningful as compared to moving cargo from, say, north to south. So that was one angle that I was thinking of, probably it could be cheaper on delivered cost basis. And the other question was if RAK was supplying to, say, paid majors or other companies, would it mean that they would continue to supply? Or would that material will come to Birla White and they will dictate where to supply? How should one look at that part of the equation?

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

Yes. Obviously, the priorities will change for RAK White, because they will have to cater to Birla White first before catering to other customers.

Ritesh Shah — Investec — Analyst

Okay. And, sir, on delivered cost?

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

Delivery cost, it’s cheaper. The freight from Ras Al Khaimah to the ports of India is as economical as transporting from our plant in Rajasthan to Andhra, Karnataka and those markets.

Ritesh Shah — Investec — Analyst

Okay. And sir, just a follow-up. Is there a volume arrangement, minimum off-take that we have from, 10% to 20%, more than 50% or more going forward?

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

There is no minimum requirement and there’s no minimum commitment. So whatever I want, we will want to definitely prioritize for India. And as long as it is value accretive for that company, they will also want to do that. They will also want to increase their capacity utilization. They will also benefit from the expertise of a RAK White, benefit from the expertise of Birla White. Birla White is a branded product, far more respected than other products, which are getting imported in the country.

Ritesh Shah — Investec — Analyst

And sir, will we look to increase our stake over here?

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

We will definitely attempt to do that.

Ritesh Shah — Investec — Analyst

Sure. Sir, just another question. Anything — any update on divestments, Binani, fiberglass?

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

Sorry, I forgot to mention in my commentary, we have completed the divestment of the non-core assets. Funds have already been received on the 30 or 31 March. In fact, we had completed the closing. So we are done and dusted.

Ritesh Shah — Investec — Analyst

Okay. Perfect. And, sir, one last question, if I may squeeze in. Sir, how should one look at fuel inflation into next quarter?

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

I’m sorry.

Ritesh Shah — Investec — Analyst

Sir, how should one look at fuel inflation into next quarter, given you indicated like petcoke is —

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

$1 million last question, Ritesh. All I can say is, your guess is as good as mine and it’s a lottery. Today, you buy at X price tomorrow, it could be X-minus or X-plus. So there is no way to predict or forecast how these prices will go. Coal, as you know, from the $300, it came softened in the last couple of months to $50 or thereabouts, it is fight again.

Ritesh Shah — Investec — Analyst

Sure, sir.

Operator

The next question is from the line of Madhav Marda from Fidelity International. Please, go ahead.

Madhav Marda — Fidelity International — Analyst

Yes. Hi, sir. Good evening.

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

Hi, Madhav.

Madhav Marda — Fidelity International — Analyst

I just wanted to ask that, for UltraTech, in case if we are a potential bidder like, from a CCI point of view, are there any particular regions where it is easier or difficult for us, just from competition commission —

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

We’ll see if we do it. Now, why should we start building castles in the air? So I really don’t know.

Madhav Marda — Fidelity International — Analyst

Okay. Got it. Got it. That’s my only question. Thank you.

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

All right.

Operator

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

Amit Murarka — Axis Capital — Analyst

Yeah. Hi. Good evening, Mr. Daga.

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

Good evening.

Amit Murarka — Axis Capital — Analyst

Just first question is like on FY 2023, could you just provide some capex guidance?

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

Capex guidance, we should be closer between INR4,000 crores to INR5,000 crores, which will complete all our ongoing expansion plus, whatever other WHRS projects are there, INR400 crores to INR5,000 crores.

Amit Murarka — Axis Capital — Analyst

Okay. Okay. And given that your expansion will be done by the end of this financial year, like I believe in the last call, you had said that probably by Q4 you would finalize the new plan.

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

Yes.

Amit Murarka — Axis Capital — Analyst

So what’s the status on that?

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

I’m sorry, finalized what?

Amit Murarka — Axis Capital — Analyst

As in the new investment plans beyond FY 2023. So…

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

We will come back to you once the Board approves. We are working on our growth plans because clearly, we see India as a growth story. We don’t want to de-grow when India is growing. So we will definitely keep growing, we will expand.

Amit Murarka — Axis Capital — Analyst

Sure. And what’s the status on Dalla Super now?

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

Dalla Super, I know it is delayed, but the latest is that Stage one approval was completed and if the file should be moving from UP to MoEF Delhi for Stage two clearance this month. Keeping my fingers crossed, we should be able to get the plant in our hands by the end of this quarter — June quarter.

Amit Murarka — Axis Capital — Analyst

Okay. And then probably another six months to nine months to revamp?

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

Yes, absolutely. Absolutely.

Amit Murarka — Axis Capital — Analyst

Okay. And last question is like on this White Cement acquisition? Like, will it also help improve or lower the competitive intensity because I believe imports were actually coming in and –

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

Yes, certainly, certainly.

Amit Murarka — Axis Capital — Analyst

Okay. So in that sense, you would probably look to improve the price realizations also in India by -?

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

Certainly.

Amit Murarka — Axis Capital — Analyst

Okay. Okay. Thank you. That’s all.

Operator

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

Pulkit Patni — Goldman Sachs — Analyst

Atul sir, there are two questions from my side. First, you mentioned in the presentation about $164 of fuel cost. Could you identify this is what kCal coal? And the reason I’m asking this is that if you look at where coal prices are now, pet coke prices are, I mean, it looks like we are staring at a massive increase in the subsequent quarters. So if you can tell us that kCal that will help us calculate that better?

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

About INR2,000 per million kCal,

Pulkit Patni — Goldman Sachs — Analyst

Is what you’re using for this $164 number?

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

Yes, absolutely.

Pulkit Patni — Goldman Sachs — Analyst

Okay. That’s helpful. And secondly, can you also identify what is the proportion of captive coal that we have right now? And any sense on where that number would be in the next, say, six to 12 months?

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

Yeah, coal, FSA Coal.

Pulkit Patni — Goldman Sachs — Analyst

Yes. I mean, linkage plus. Yeah.

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

It should be about less than 20%.

Pulkit Patni — Goldman Sachs — Analyst

Less than 20%.

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

Yes.

Pulkit Patni — Goldman Sachs — Analyst

Okay. That’s it from my side. Thank you.

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

Thanks, Pulkit.

Operator

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

Prateek Kumar — Jefferies — Analyst

Yeah. My first question is, I mean, in the opening remarks, you mentioned that looking to commission everything on your capacities in FY 2023. So that would mean like 11 million tonnes clinker and 15 million tonne grinding for FY 2023. So can you space out like quarter-wise, if you have that data, like how are you looking to commission during the year?

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

I think I have given that earlier also, let me tell you, just to give you one second. Expansion, so towards the end of Q2, we should have another four million tonnes end of Q3, 1.5 million tonne and Q4, the balance.

Prateek Kumar — Jefferies — Analyst

Balance 10.

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

Yes.

Prateek Kumar — Jefferies — Analyst

And what about Clinker likewise? 11 million tonne of Clinker, which we are targeting for 2023?

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

Yeah. So, this includes the clinker also. So clinker was Herni, Pali and Dhar, yeah, it should be by Q3.

Prateek Kumar — Jefferies — Analyst

Okay. So pretty much everything by Q3, including the Super Dalla [Phonetic] and grinding by Q4.

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

So, only thing is Super Dalla, I’ve been keeping my fingers crossed because I’m dealing with this process, it’s too complicated, something or the other keeps accessing and I’ve been commenting to you guys about Dalla Super since one year. So — and every time I think I’m at the last mile, but suddenly a new mile surfaces. So keeping my fingers crossed is all I can say.

Prateek Kumar — Jefferies — Analyst

Okay. And in your presentation for various present takeover and update region-wise commentary, you mentioned that rural housing seems to be doing better in West and South and not so well in North and East. And probably expect April is doing well as well. So this seems to be different versus some of the commentary from industry like FMCG or auto companies on rural commentary. While you highlighted something in previous comments, but in detail more like — so there’s no rural feedback in general for cement sector?

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

I’ve not seen any setback not, for example, what we saw in Q4 would be a temporary phenomenon because of extreme cold or election happening in that belt. Other than that, it’s back to normal. But I wouldn’t be able to compare FMCG and construction in the same bucket also.

Prateek Kumar — Jefferies — Analyst

And one last question on your fuel cost. So, like volume of 5%, so $64 versus I think in 2Q, you said around $160. So is there–

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

$151 was Q3 and this quarter was $154 — $154, right? $154.

Prateek Kumar — Jefferies — Analyst

Yes. So comparable number, like, let’s say, you would — I mean I know that it is difficult to forecast, but like you would have inventory for at least first quarter. So, how could this move like in first quarter 2023?

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

It will go up, I expect at least a 10% increase.

Prateek Kumar — Jefferies — Analyst

Thanks. These are my questions.

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

Yes.

Operator

Thank you. The next 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. First question, just want to understand across the fuel, what is the inventory day which we carry. I mean is it like 45 days or two months?

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

So, we fluctuate between 45 to 55 days — shipment lands and if we spike up, otherwise, an average of 50 days is good to hold.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. I understand. And sir given the current overall fuel situation, blended cement cost versus OPC would have cost — moved very favorably towards blended. So, just want to see — check, is there any impact on your other raw material cost? I mean what sort of price inflation is happening in [Indecipherable] etc?

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

We have seen inflation across — has also gone up. So, overall raw material costs has gone up 6% to 7%.

Unidentified Speaker —

7%.

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

So, you have seen an increase in cost across the board.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. So this is the fourth quarter and the cost must be still continuing to rise, right?

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

Not necessarily on these, I’d like flash more of contractual in nature. And you might not see such a high jump again this quarter, but general inflation would be there. Inflation itself is 6%, 7% now by the. Yes, sorry. Diesel is something which is unpredictable, which impacts raw material costs. Limestone raising cost moves with diesel.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. Understood. Just one more question on the price hikes. I mean, you shared that they have been taking price hikes across. Is it possible to give any very broad quantification region-wise or overall pan-India quantification?

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

Over what period that becomes very confusing.

Sumangal Nevatia — Kotak Securities — Analyst

So, April versus 4Q average or something like that?

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

April versus 4Q was March. March was 3.65. So average, if I look at for the March quarter was around 360. It’s roughly around 390 now.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Okay. And — okay, understood. And will it be fair to say that, I mean, some part of cost inflation is yet to be covered. So there will be further attempts.

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

Attempts, yes.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. I got it, all right. Thank you and all the best, sir.

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

Thank you.

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

Yeah. Hi. Thanks for taking my question. A couple of questions, firstly, on now that the second largest player combined seeing a potential change of hands. So as the industry leader, how do you see dynamics changing for the industry and possibly for you with the potential Indian promoter coming in, will that make you even more aggressive or maybe look at inorganic slightly aggressively. So I just wanted to know your thoughts on this development.

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

We will focus on our growth. As I mentioned, right now, we are reaching 130 million tonnes and the next phase of growth will also kick in, because we expect Indian market to be growing. As far as assets changing hands, whoever buys it, they will have to generate returns on that asset and be logical in whatever they are doing.

Girish Choudhary — Spark Capital Advisors — Analyst

Got it. But more from Ultratek inorganic opportunities given your scale of capacity and cash flow, so beyond the point, I think organic growth might not help. So are you prepared to look at inorganic?

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

Yeah. Yeah. We keep inorganic opportunities. Unfortunately, while the current new media reports at the top of the town, but there are smaller assets which keep surfacing which we examine, good bad at limit. It has to be a composite asset for us to move forward.

Girish Choudhary — Spark Capital Advisors — Analyst

Got it. And my second question is on the region-wise demand performance. So here again, if I look at East is the only region which has which is just continuing to see demand decline by three consecutive quarters of demand declining on a Y-o-Y basis. So what’s happening here? And when do you see demand bouncing back here?

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

Sorry, I missed your question. Demand which segment?

Girish Choudhary — Spark Capital Advisors — Analyst

In the, Eastern region.

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

Eastern region? So…

Girish Choudhary — Spark Capital Advisors — Analyst

Yeah.

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

So my sense is Eastern region will — this year will show the fastest growth again — in terms of volume, there is a lot of inflow, which happens from outside east. Now capacities will be available in the Eastern market. Our capacities will also surface in this year. So East will grow.

Girish Choudhary — Spark Capital Advisors — Analyst

Okay. I think my question was more — I think this region was seeing three contributive quarters of demand decline. So what is driving this deterioration? And when do you see this…

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

Yeah, I think deterioration, yes, there was a sand issue, big time sand issue in Bengal and we are a few months ago. They were cared rains, which impacted construction activity. These two factors, for sure, impacted construction activities.

Girish Choudhary — Spark Capital Advisors — Analyst

Got it. Thank you. Thank you and all the very best.

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

Thank you.

Operator

Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.

Satyadeep Jain — Ambit Capital — Analyst

Hi. Thank you for the opportunity. Mr. Daga couple of questions, one on fuel, I think you mentioned a Petco is cheaper on a delivered on a per kcal basis. And your inventory is cycle is largely in line at 45 days, 50 days. Would there — is there a change in thought recently? Or would there be a change in that? Would you — given where prices are, either look to layer in more inventory because your maybe console prices may go up or maybe short of the cycle, thinking prices may actually go down or maybe maintain a status. So what — can we assume basically that the 50-day, 55-day inventory cycle will remain largely similar in the coming months?

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

The thing is nobody can predict and it will be gambling if I take a call. So yes, if there are opportunity — some opportunistic trade available, we will look at those rates. But today, it’s quite expensive. So we are maintaining our normal procurement plan instead of gambling on prices. Nobody can forecast, you yourself maintain it could go down, go up, anything can happen.

Satyadeep Jain — Ambit Capital — Analyst

Okay. Our second question, on the next phase of growth that you mentioned, obviously, the board company is looking at different options and there is optionality across the portfolio. When you look at the options that sit in front of you right, if you have to pick maybe certain plants, certain regions ahead of others and you are taking order. Is there maybe some where you can possibly pull the trigger ahead of others?

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

I will tell you when we do it. I can’t reveal it right now.

Satyadeep Jain — Ambit Capital — Analyst

Thank you so much.

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

Thank you.

Operator

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

Navin Sahadeo — Edelweiss — Analyst

Hello. Am I audible?

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

Navin, speak a little louder, please?

Navin Sahadeo — Edelweiss — Analyst

Yes. Can you hear me now?

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

Yes.

Navin Sahadeo — Edelweiss — Analyst

Okay. Great. Thank you for the opportunity. Sir, just one question. On the fuel mix, you said pet coke in the current quarter in March quarter increased to about 40% and linkage coal to one of the other participant’s question, you said is less than 20. So roughly around a little less than 60% is what pet coke can linkage coal put together is imported coal then should make up for the balance, 40%.

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

Absolutely.

Navin Sahadeo — Edelweiss — Analyst

So this is for the kill. For captive power plants that we use a…

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

Its Largely FSA. – domestic FSA

Navin Sahadeo — Edelweiss — Analyst

Largely domestic coal loan Yes. Where there is no much increase or there is a fair amount of e-auction coal also there?

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

No, there’s not much increase. All are — linkage prices prevail.

Navin Sahadeo — Edelweiss — Analyst

Great. So only the kill portion is where we see inflation part of it. Okay. Great. that’s it from my side/ Thank you.

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

Bye, Navin.

Operator

Thank you. The next question is from the line of Raj Gandhi from SBI Mutual Fund. Please go ahead.

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

He has also gone so. Take a next one. We will take the next question, please.

Operator

Yes. The next question is from the line of Rajesh Ravi from HDFC. Please go ahead.

Rajesh Ravi — HDFC — Analyst

Yes. Hi, sir. Good evening. You talked about the fuel cost that we are looking at in Q. And you mentioned at least around 10% increase. However, if we look at the prices which are prevailing in Q1 on a per kilo cal versus INR1.5, INR2, they’re already north of INR three per kilo cal. So how is that number for you looking so cheaper, sir?

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

It will depend on the fuel mix, the carrying costs, the inventory which is there. And anybody and everybody could have some advantage or advantage.

Rajesh Ravi — HDFC — Analyst

Okay. Okay. And in your balance sheet also annual balance sheet numbers that are available, there is a INR150 crore increase in inventory. So is it fair to assume a large chunk of that would be a fuel inventory?

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

Yes. Large chunk because it was a price impact on the fuel inventory.

Rajesh Ravi — HDFC — Analyst

Yes, even that would be one factor.

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

Yes.

Rajesh Ravi — HDFC — Analyst

But even in volumetric terms, that would be a number which you are looking at, okay. And in terms of capex, you mentioned that around INR5,000 crores plus capex towards your green initiatives, right, for FY 2023?

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

All included, yes

Rajesh Ravi — HDFC — Analyst

Lastly, this dollar [phonetic] how much we have spent so far or what has — what is the amount which need to be spent? This is two million, right?

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

We have not spent anything because we still have to first get MOEF approval and we have estimated that it would cost anywhere around INR200 crores or INR250 crores to revise new plant.

Rajesh Ravi — HDFC — Analyst

Okay. And this is just a two million tonne clinker, sir? Or is the branding also…

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

It’s only clinker 2.3 linker.

Rajesh Ravi — HDFC — Analyst

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

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

Thank you.

Operator

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

Ashish Jain — Macquarie — Analyst

Hi, Sir. Good evening. Sir, I had two questions. Firstly, on demand, the table that you put out in the presentation, it has a fair bit of reds this time around. So, relative to that, how has the demand changed in the last few weeks, if at all, in terms of the drivers of demand?

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

April is growing. Y-o-Y April is growing.

Ashish Jain — Macquarie — Analyst

Okay. But like where is the delta coming from versus Q4, is it any specific driver or it’s –?

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

Q4, I’m saying Y-o-Y. You can’t repeat —

Ashish Jain — Macquarie — Analyst

No, no. I know. Sir, I understand that. I’m saying that, if I look at the Y-o-Y trend in Q4 and compare that with Y-o-Y trend in April, is there a specific reason for the –?

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

I’m not — Ashish, I’m not able to track the demand — sales on a day-to-day basis, which segment is buying. So it is difficult for me to comment on that.

Ashish Jain — Macquarie — Analyst

Right. Okay. And sir, secondly, in response to earlier question, did I hear you right that pricing today is INR30 higher by and large versus Q4 average?

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

Yeah. The exit prices, if I were to say, as of now, they are not average April. But they are now INR30 higher.

Ashish Jain — Macquarie — Analyst

So that would cover us for the cost inflation by and large, I think, going by the number you’re indicating?

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

INR30 is going in, in the month of May, if the price increase holds for INR30 then it’s good.

Ashish Jain — Macquarie — Analyst

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

Operator

Thank you. The next question is from the line of Raj Gandhi from SBI Mutual Fund. Please go ahead.

Raj Gandhi — SBI Mutual Fund — Analyst

Hi. Thanks a lot for the opportunity. Just going by the kind of cost inflation that we are seeing any initial assessment in terms of further cement capex cost, what would be the impact? And also, we are here in chip shortage and all of that even delaying the cement plant, so in terms of time lines and all on the equipment side and —

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

So, as far as our existing expansion program is concerned, as I mentioned earlier, there is no delay. And if you going to look at a new greenfield project cost, there, I’m sure if the costs have gone up by 20%, 25%.

Raj Gandhi — SBI Mutual Fund — Analyst

Okay. Okay. And in terms of time lines and all on the — because — on the equipment side and also we are hearing a lot of —

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

No, I don’t think so, because equipment suppliers continue to have enough capacity to my mind. So, what you are referring to some insights you might have, which I don’t have, as in some manufacturers facing some shortages, whether DCS or something like that, I’m not really aware.

Raj Gandhi — SBI Mutual Fund — Analyst

Sure, sure. But broadly, most of the equipment not the long leader, okay.

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

Nobody has warned us.

Raj Gandhi — SBI Mutual Fund — Analyst

Okay. Okay. Sure, sure. Perfect. Thanks.

Operator

Thank you. The next question is from the line of Rakesh Vyas from HDFC Mutual Fund. Please go ahead.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Hi. Good afternoon, Mr. Daga and team. Actually two, three questions, if I may. First one, just a clarification. So, you are highlighting April is better Y-o-Y. But just wanted to check, last year, April was impacted by the second wave in terms of demand. So how should we look at it? And in the context that price hike expectations were already built in the system, post price hike, if you can just highlight as to how demand is trending?

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

So post price hike, again, I’ll repeat Y-o-Y, it is growing, whether there was an impact of COVID or why should we factor in only negatives. Let’s look at it positively. Now this month is growing. The price hikes have been absorbed, if that is what you’re trying to conclude. So your conclusion is Right.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay. Got it. The second question is related to fuel mix. Essentially, the price arbitrage that exists between imported coal versus the rest of fuel basket implies that most of players would be vying for a higher proportion of the remaining basket. And to that extent, how confident are we in terms of maintaining the availability of this mix and maybe improving it. The context being that petcoke availability is reasonably limited. And so is the concern that we are hearing on the domestic coal side.

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

Sorry, what was the question?

Rakesh Vyas — HDFC Mutual Fund — Analyst

So question was that given the price arbiter that exist between imported coal versus the rest of the fuel basket?

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

Yes. So yes, technically, everyone would look at getting more of pet coke and more of domestic coal. So as of now, as I mentioned earlier, availability does not seem to be a challenge. One more factor which is very important, not from today’s perspective but what happened after winter Olympics of China, China has announced an increase of substantial link I’m forgetting the number, a substantial increase in their coal production plan…

Unidentified Speaker —

300 million tons…

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

Put a wrong number, so that is one. Second is post Winter Olympics, all their mines, which were stopped for power plants, which we have started again. So there’s a huge amount of – huge reduction in imports into China, which is making material available for the rest of the world.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Got it. Sir, and one last question is around the capital allocation going forward. Given that we are expected to generate strong cash flow and our capex is going to be fairly stable and net debt already came down very, very sharply. How should we look at the incremental deployment of the free cash flow going forward?

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

So this year, again, we have declared about 20% of net profits for shareholder returns. And I believe this component will keep growing in future years, next year for sure because next year, FY ’23 additional capacities will generate additional cash flows. And then the cash will be used for internal growth. As I mentioned earlier, we are already back on the drawing board for our next phase of growth. So we will look at growth opportunities or organic.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Got it. And just one last clarification. If I have to look at the adjusted number after accounting for the tax provision changes that we made in fourth quarter, is it fair to assume that the benefit of tax adjustment changes was close to INR1,300-odd crores.

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

900 odd crores, INR983 crores, INR980 million crores.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay. Got it. Thank you so much

Operator

Thank you. The next question is from the line of Ashutosh Adsare [Phonetic] from SBI General. Please go ahead.

Ashutosh Adsare — SBI General — Analyst

Hello, am I audible?

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

Yes, please.

Ashutosh Adsare — SBI General — Analyst

Yes, hi, sir. I just wanted to understand. So you bought your net debt to a significantly low level of 0.32 to EBITDA. So going forward, you’re also looking for inorganic goal. So at what level you will be comfortable putting that net debt level?

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

I would look at 0.5x as our threshold going forward. However, I suppose there’s an inorganic opportunity, it might spike up. But now we are confident that given the size of cash flows, we should be able to bring it down within a 12-month period. So — but otherwise, a steady level of 0.5x is a good number to maintain on our balance sheet.

Ashutosh Adsare — SBI General — Analyst

Okay. So this — the three times net debt to EBITDA, we won’t see in the near future. Is that…

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

Yes.

Ashutosh Adsare — SBI General — Analyst

Okay, okay. That’s it for my side.

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

You throw up an acquisition which is so attractive, which requires me to file up 3x. I will do it.

Ashutosh Adsare — SBI General — Analyst

So is there any assets in your radar?

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

If you have something you tell me.

Ashutosh Adsare — SBI General — Analyst

Okay. So also the…

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

Next question.

Operator

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

Sanjay Nandi — Ratnabali Investment — Analyst

Yes. Good evening, sir. Thank you for the opportunity.

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

Yes. Yes.

Sanjay Nandi — Ratnabali Investment — Analyst

Good evening, sir. Thank you for the opportunity.

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

Yes, please…

Sanjay Nandi — Ratnabali Investment — Analyst

Hello?

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

Yes, sir. Please proceed with your question.

Sanjay Nandi — Ratnabali Investment — Analyst

Sir, just to mention, sir, you have taken a price hike of INR30 bag. So is it good enough to cover all the inflation that has happened as of now?

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

So as of now, it looks good. And again, let me correct you. It is not an absolute amount of INR30 through the month, multiple price hikes taken during the month, which today are amounting to INR30 increase over the exit over the average of last quarter. Going in for the month of May, if price is more, then obviously the INR30 increase is available. If costs don’t go up further, then yes, we are covered.

Sanjay Nandi — Ratnabali Investment — Analyst

Okay. So if we presume like coal prices too stable here so far. So is INR30 good enough to cover all those incremental costs?

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

That’s what I said going in if everything remains same, then we are covered.

Sanjay Nandi — Ratnabali Investment — Analyst

Okay. Okay. Thank you so much sir. That’s it from my side, sir. Wish you all the very best.

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

Thank you

Operator

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

Pritesh Shah — Investec — Analyst

Hi sir, specifically on the pricing, what you have indicated possible to give some regional flavor?

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

Sorry, what?

Pritesh Shah — Investec — Analyst

Is it possible to give some regional favor, you indicated INR360 to INR390, INR30 bond on an exit rate basis. Is this something which is consistent on a pan India basis? Or are there some regional trends to pricing here, sir?

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

I think 5% to 10% increase is what I would give you a range across the market, except for South, which is below 5%.

Pritesh Shah — Investec — Analyst

Sure. That’s helpful. Sir, my second question is on incentives. Sir, can you put some numbers for the quarter for the fiscal, what we had? And given we have a lot of expansions, which are lined up, how should we look at this number going forward given most of the industrial policies from the states where we have or where we are setting up capacity, they have use quantum of incentives. So sir, how should one understand this particular variable?

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

And we’ll have incentives, Pali will have incentives, Dhar have incentives, which has in the expansion. Dhulia will — Maharashtra will have incentives and Patna will have incentives. And your other question about incentives for the quarter guide, give me a number please. Pritesh one second.

Pritesh Shah — Investec — Analyst

Yes. And sir how should this number trend going forward given the expansion also what we have…

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

There are multiple plants which are having incentives somewhere the incentive might get completed, somewhere a new incentive will come up. The incentives for the quarter was 100 — about INR170 crores. Sorry, 117 crores.

Pritesh Shah — Investec — Analyst

Okay. Sir, any broad ballpark number if we have to look at the first quarter of FY ’24, by then, all these expansions will be there and commissioning will be done.

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

But incentives will get completed as well. So I don’t have an exact number, 117 could go to INR150 crores or lower or incentive sheet. Just one I can answer.

Pritesh Shah — Investec — Analyst

Sir, meanwhile, can you indicate we completed the year on construction chemicals for how much of revenues? And you had indicated a target of INR25 billion in three years. Any particular update over there as well.?

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

PPD, one second. I have a number — INR100 crores for this quarter, around INR100 crores for this quarter.

Pritesh Shah — Investec — Analyst

Sir, for the year?

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

First quarter. For the year, I don’t have the number readily. Sure.

Pritesh Shah — Investec — Analyst

And sir, any progress over here and you have a step 0 of INR2,500 crores in an…

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

I am looking at opportunities to acquire some assets. And of course, the assets are very small ticket size. We will see as and when we are able to conclude.

Pritesh Shah — Investec — Analyst

Sure, sir. Thank you so much.

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

Thank you.

Operator

[Operator Closing Remarks]

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

Thank you.