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Good morning, ladies and gentlemen. Welcome to Orient Cement Q1 FY '23 Results Conference Call, hosted by ICCI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Krupal Maniar from ICC Securities. Thank you, and over to you, sir.
Thank you, Seema. Good morning, and a warm welcome to everyone. On behalf of ICICI Securities, we welcome you to the first quarter FY '23 earnings call of Orient Cement Limited. On the call, we have with us Mr. Deepak Khetrapal, MD and CEO of the company.
At this point of time, I will hand over the floor to Mr. Deepak Khetrapal for his opening remarks, which will be followed by interactive Q&A session. Thank you, and over to you, sir.
Thank you, Krupal. Thank you very much. Good morning, everyone, and a warm welcome to our investors call that we host every quarter now, and thank you for sparing your time to come and listen to us. I just need to inform you that today, Soumitro Bhattacharyya, our CFO, has not been able to join me on this call because he actually is in a hospital and he's undergoing some small surgery. So I am here and Manish Aggarwal from our company is here with me on the call. To start with, let me say, at this time, we are doing a call with a day's or a weekend's break because I had some of the Board meetings in the meantime. And I'm sure you've had ample time to go through the results of our Q1 that we announced on Thursday. And I'll take this opportunity to provide some perspective on the numbers. But before that, I'd like to touch upon, I think, the most exciting development that has happened in the just last few days and on the day of the Board meeting, we also announced at the stock exchange. All of us have been waiting literally with bated breath for our mines in Rajasthan to be restored to us, which has been a matter of not quite litigation, but a matter of some disagreements on how the modalities should work and what kind of charges are payable. I'm delighted to inform all of you that the Rajasthan mines are being restored to us, exactly on the terms that we wanted. There's a simple change of name from Orient Paper & Industries Limited to Orient Cement Limited. There's no transfer, no transmission, no fee, no charges, nothing at all, and that's how we wanted it. So fortunately, that is now back with us. Congratulations to all our shareholders on having the opportunity to enter as far as the most robust cement market in the country. We do need to complete a few steps. I need to travel to Udaipur, [indiscernible] the mines are do the supplementary. Mining leases were -- the paperwork required has to be completed. But parallelly, with that, we are already beginning to gear up for the initial activities that we need to do as I guess all of you are aware. We have got the mining lease back, but there was no land that we required because it's long ongoing dispute -- so the first challenge for us in any case is to start acquiring the land and parallelly identifying the land on which the plant will come up in the area of mines and start applying for the necessary environmental clearances and all the other authorizations. So we are going to start work on that. But the good news is, earlier, which was looking like something which will keep getting delayed because of the attitude that the Rajasthan government had shown in the past. But I'm delighted that delay is over mining lease back and it's now up to us how quickly we can complete the land acquisition and the environmental clearances, and start the construction of the greenfield capacity. But we are very excited at Orient Cement to get this opportunity because we know many of our investors have been concerned about or rather narrow exposure to the markets in India and typically the markets, which had a huge supply overhang. With this capacity, as soon as it comes up, I think we would have gained a major goal of diversifying our market and a market like -- and a plant in Rajasthan is as good as it can get. So congratulations to all our shareholders. I think with huge value add to what we have in terms of our capacity to keep generating the good results in the future. So with these mines coming back, does it change our direction of growth? That would be the obvious question. As I said, we still have to complete some papers, please give us some time to assess the time needed for the acquisition of land and for obtaining the necessary clearances and approvals to set up the capacity. We are, of course, tempted to put everything else on the slow burner and put the greenfield capacity in Rajasthan our top priority, which it should be, but the practical challenges of a greenfield new capacity need to be factored in. And that's why I'm saying, give me a little more time and I'll maybe come back to you with better time lines and also what will take the top priority and how do we move from here. Coming back to Q1, it's certainly been a quarter that we, at Orient Cement, also don't like, and I am sure all of you also don't like. We having -- had the high of the, let's say, the same quarter last year of INR 188 crores EBITDA and the whereabouts and INR 1,370 crores, INR 1,380 per tonne of EBITDA, coming down to -- by 45% in the overall EBITDA that we earned last year, is certainly not something that we can ever feel happy about. So we've been hit badly by the -- obviously the realities in the market. The markets that we address have not been supportive at all in terms of demand volumes. And when the demand and volumes don't move with the pricing, always becomes very difficult. In terms of passing on the -- our increased cost because costs have kept the pricing. So we've not been able to pass on the cost and even the operating leverage has not come to rescue us from the thin margins that the current costs give to us now. As you know, South overall and Telangana, Karnataka, AP markets particularly, have had a very lean quarter. And given the very, very heavy and excessive rains in these markets, again, even July has been -- has seen soft volumes. So obviously, it's now in the throes of a very heavy monsoon season. And in the absence of demand triggers in the southern markets like the Kaleshwaram Phase II that we've been expecting to be brought up, but now I think it may happen with a little bit of delay only once the Telangana government is able to rustle a bit resources that it needs. It's a project that they're committed to. Whenever that gets triggered, it will be a major boost to the demand in our market. Any other major project is not looking likely to come up, and that's been a bit of a dampener on the Southern markets. I'm sure if we go by the results that have been announced by the rest of our industry colleagues, there are some parts of the country like North, for example, center, for example, even in the West, the markets like Mumbai, Gujarat, there are some really good tailwinds in terms of market demand. And obviously, the pricing improvement, many companies have reported significant growth volumes, volumes in growth and also significant gain in the pricing that they've been able to realize from the market, which is a good sign for everybody in the industry. But unfortunately, we've been caught in a market where this support was missing. And we do need to catch up with the demand uptick and thereby have the opportunity to recover the increased costs from our customers. Besides the lack of demand momentum, as we know, which has been a regional challenge. I mean it's not been a pan-data because, as I mentioned, some of the markets have seen very robust demand growth. The challenge for the industry across our country is the heightened cost of fuel and several other inputs. When variable costs are pushed up like this and the market lags the demand momentum of volumes as the opportunity to pass on the increased cost to the market gets severely constrained. The results announced by many big companies clearly reflect this pain, even people with very, very large increase in volumes with significant gain in pricing, even they have had to report a decline in the overall profitability, which is worrisome because if large volumes and decent price increases also are resulting in drops in EBITDA over last year, we all need to be concerned about. But I guess it's a function of the price is taking a little bit downward trend that needs to bail us out. And the good news is that the last few weeks, we have all -- we also keep hearing through -- all the analysts also keep track of what the markets are. The fuel prices seem to have softened a little bit over the last few weeks, I mean, $10, $15, $20 a tonne we here depending on what's the source of the fuel that we are trying to import. And that is a good sign. And as I think as we eat into the inventories that we've filed up as of now. That improvement in costs will start kicking in. Would they very quickly fall to levels, which were a few months ago? That's unlikely because even if they fall by the time that cheaper fuel starts flowing into our operations, there is always a lag because we obviously cover fuels in advance. Given the markets that we are in, I think at Orient Cement, we can't wish away the reality that we have in front of us. And we've had results which leave us disappointed as much as I'm sure they leave all the shareholders and analysts disappointed. I mean, as you know, we've had a barely 1% growth in volumes over first quarter last year, which looks quite honestly, under par even for our markets. Could we have done some more volumes? Perhaps we could have. But then the challenge was that the additional business that we would have booked would have come even more from the B2B side where the prices were not giving us enough joy to do business. And similarly, there are some markets that we do farther south, for example, or even towards the central markets, the costs that we have and the prices that were available there did not allow us to even use of the same opportunities which are available in markets, which were there, but not quite remunerative. So it's 1% growth is a function of partly the markets being sought, partly our own -- the strategy that we've been adopting for the last many quarters of doing only a business where a threshold level of realizations and therefore, contributions is available. Despite a sharp increase in cost, the blended realizations for us, as you guys have seen, has been a very modest just over 2%. And even sequentially, it increases less than 5%. Our total costs are higher by 20% year-on-year and nearly 11% over Q4. The thing to note here is that if we look at our total costs over same quarter last year, while the total cost per tonne are higher by around INR 743 a tonne. Out of that, everything excepting maybe INR 100, [ over 640 odd reviews ] coming straight out of just power and fuel increase. While over last year, it looks large, but we have to also factor in the fact that even today, our power and fuel costs are just over INR 1,600 a tonne is perhaps amongst the best in the industry because I'm seeing many companies reporting the power and fuel costs well in -- we above our costs despite the huge increase that we've also suffered. We seem to have managed these costs relatively better comparatively speaking. But like I said, there's no joy when you start seeing the cost of only power and fuel being higher than the total cost of clinker that we've had a few quarters ago. So it's a worrisome scenario for the markets, but I guess that's a function of what's happening globally on the energy crisis. The INR 100-odd the gap that I said is, which is other cost increases include the increments to people, it includes our investments in brand that we've obviously done a little more than what we have done in the previous 2 years of COVID. So that always kicks in. We -- one of the other, I'd say, challenging features of the Q1 has been that the slowdown in the trade segment or the B2C segment in our markets has been much sharper. And if we've been able to gain some volume increase over last year, that's come largely through the B2B business. And B2B business also, which is towards large projects where the OPC component tends to be higher. And then the OPC component is higher, it does tend to impact the power and fuel cost per tonne. So when we are reporting increase over last year, let's also factor in the fact that it's also because we sold OPC in this quarter compared to what we did either in the last quarter same year, last year same quarter or even the previous quarter to this quarter. Our EBITDA, as you people have seen, has dropped from INR 180 crores to INR 103 crores with very similar volumes. And EBITDA per tonne from [ INR 1,384 ] last year has come down to [ INR 750 ]. As I said, what can be more disappointing than this. But like I said, we [Technical Difficulty] quarter does not make [indiscernible] so we have to keep working. And -- but I think all of us would concede, like I said earlier, last year's EBITDA and EBITDA per tonne, it did look sustainable. None of us, I think, expected that to continue. But even then I have to admit that the numbers for the quarter are disappointing. There is no getting away from it. And I'm the first one to acknowledge that. We are trying our best to, as I said, to cope with the situation, which seems to have got only worse due to extremely heavy rains in the month of July in all of our markets, which are obviously putting pressures on not just volumes, but resulted even on prices already. Just a quick summary of the highlight numbers, volume up 1% over Y-o-Y and a drop of nearly 12% quarter-on-quarter. Revenues are up by 3%, down 11% sequentially. The saving basis that our premium product StrongCrete actually has been doing steadily. And in the last quarter, we have despite the poor B2C demand, we still managed to keep pushing the more expensive product that is a StrongCrete to the market. And the percentage remains around 14%, 15%, which I think is steady now. To secure the fuel safety, we obviously have had to invest more in our inventories. And also not just start trying to store more fuel, even trying to sort of -- even looking at the inflation in price per tonne, even if you had similar volumes, the prices are a lot higher. So on our book, the inventories look a lot higher, not just of raw materials and fuels, but we also had large inventories at the end of June because we had more clinker than we started the quarter with, so obviously, there is a little bit of inventory impact there. And the higher B2B sales has also been a factor, which I thought I'll call out, but that also means that compared to the trade segment, B2B sales always involve a longer credit period in the markets. And the overall pressure we've had, therefore, on our working capital has finally led to our having to borrow money once again from the banking systems or the working capital requirements, which for, I think, last many -- I don't remember when we borrowed money on working capital from the banks. But we've had the facility, we've had the limits. So we started drawing on that. We are making sure that we remain secure about, number one, the fuel inventory; number two, also that we are able to service the demand that exists in the market. So as a result of that, I think on the debt front, the plans that we had to very could repay the entire term loan that we had, they obviously have not proceeded at the pace that we would have wished if the cash flows had remained around the levels that we've had in the past many quarters. And in the meantime, we have been -- on the entire cash generation that we were having, we've been prepaying. I mean even in the month of December, we prepaid a very large amount of the total project that we had. So when the working capital needs come in, we have not been carrying free cash with us. So as a net result, I think on 30th June, our project loan, which was a term known while that has come down to INR 259 crores, but we also had to borrow on a net basis about INR 160 crores from the banking system on the working capital limit side. So that's the debt position. The -- as I mentioned, the relief is in the form of the fuel prices, which are beginning to look a little soft, although it's too early that whether it stays as the demand for energy in Europe and other Northern Hemisphere in the world comes to the winter demand for heating starts coming up. Let's see what happens on the supply position of energy from Russia because that's a big if right now. And how that impacts the energy prices. We can only talk about what the current prices are looking like. In the meantime, we continue to consolidate and redefine our customer base and channel base, as we've always been reporting to you. Brand presence through more effective, innovative communications, advertising we are doing, and as I said, this quarter, with the same quarter last year, the part of the cost increase is also coming from higher investment in advertising and brand building. Our ground level services, we have to keep strengthening and that we keep doing in terms of opening over therefore, improving our service everywhere. But despite all that, because of the B2B market being more robust than the consumer or the trade sales market, the Q4 blended cement has slipped slightly to just under 60%, and the B2B obviously has been a little over 40%, which -- so the 2%, 3% swing from B2C to B2B side, which leads to higher cost and higher credit in the market. In terms of market mixes, it's fairly steady, but a little bit because there was more opportunity in certain markets in the West, especially markets like Mumbai, which I touched upon earlier. We do have a very small presence in Mumbai. We're trying to take advantage of that, although it's like I said, we are not as competitive as many other companies who have closer proximity to Mumbai and they're able to become more competitive given their more moderate logistics cost. So as a result, overall, in the West, we've done in Q1, 55% of our volume, south has been 36% and central about 9%. The railroad mix, which, again, I know it's all on people's mind all the time. During this particular quarter, all of you are well aware of the pressure that railways have been to move coal from the coal mines to the power plants because the central government, state governments, everybody put pressure on them, availability of rates became a major issue.
And even if the rates were available, the terms on which they were making the rates available by leaving really punitive demurrage and wharfage charges, huge penalties. So we also have been trying to see how do we moderate that.
And compared to, let's say, 25% of our volume that we moved by rail in the preceding quarter, Q4 of last year, this quarter it's come down to 19%, the same as it was in the same quarter last year, which I guess would be a seasonal phenomenon because whenever there's extreme summer and that the country needs more power to be produced and more coal to be available, I think we'll keep having these interventions from the government authorities to move -- to actually make the rates available to the other industry, they're less -- a little less than what the rest of the year might be.
So let's wait and see. But for the current quarter that I'm reporting on, it's been a little bit of a setback on the rail mix also. Fuel mix for us has obviously swung very largely in favor of pet coke. Our, let's say, domestic coal -- basically, coal and the entire fuel mix has been just about 45%.
Most of it from the domestic suppliers, a very small residual quantity of reported fuel that we had coal that we had to be consumed. And the pet coke has risen to 42% and the AFR is at 17%, the alternate fuels that we keep talking about. Our -- on the other item, which always is in your interest for people, especially the analysts who are trying to create a model of how the cash flows might be. Given all the challenges that we have, given all the low capacity utilization that we have, we've not pushed our investments as fast as perhaps we were hoping that we will do and they certainly have, when I indicated the projected for FY '22, around INR 800 crores total CapEx, including maintenance CapEx, you might run short on that because we still haven't really taken the decision to start the actual physical construction activity for the new downfield capacity that we had spoken about. We're watching the markets very, very carefully, and we obviously will lose no time at all in putting the capacity when we have a very clear visibility and conviction that the additional investments that we make in CapEx will get utilized well, will get absorbed by the market. So we're just watching the market and being a little cautious. That may be a little slow. But at the same time, there's something which we had not indicated earlier. As soon as we are able to complete the paperwork with the government of Rajasthan, obviously, we'll start the acquisition of land part in Rajasthan for the mines that are coming back to us. That might start needing some bit of investment in procurement of land. So that obviously will be -- let's say, beyond what we are saying, we'll invest in CapEx in the current year. So there's a little bit of slowdown on CapEx here, but we might need some cash, not as much as cash because land acquisition, as we know, in India, these days has become very, very difficult. We will be able to buy land in a hurry and spend a lot of money there. I personally wouldn't expect it. Although we will try our best, but I don't think land will come back quickly. It's a land which is under private occupation, and we have to start the process using the right, I'd say, means at our disposals start acquiring the land. So that's the overall summary, I'd say, of Q1 that we've been through. And I'm sure there'll still be some questions which are unanswered, and I'll wait now and hand it over to Krupal, and all of you to ask your question, and let me see what more I can provide to you in terms of information. Thank you.
[Operator Instructions] The first question is from the line of Rajesh Kumar Ravi from HDFC Securities.
Sir, I have a few questions on litigation from getting Rajasthan mines. So first question is relating to this only. What is the total mining capacity and annual throughput, which is possible from this mine? And what time lines you're looking at all? I understand land pulling you already said will take a good amount of time, but any ballpark numbers?
Rajesh, the total capacity when we did the assessment of the limestone there is in the region of 120 million, 150 million tonne as that's been assessed. And that's why we have said that in all probabilities, we end up setting up a line of about 2 million tonnes a year, which should give us a life of more than 50 years for the plant.
But here, I must say that almost -- it's true of almost every mine that whatever are the initial estimates of limestone reserves in actual usage when you start doing money, you get a lot more of that, right? And that's to everyone. So I'm giving you the current demand that's why the current plan to maybe put out a 2 million in capacity there.
So time lines, I mean all of us keep hearing based on what information comes to us through all the people like you. But a greenfield project, people do say that it takes as much as 5 years to put up, if you are starting completely from scratch. You try and see because obviously, there are going to be pressures from Rajasthan government to start the project faster.
So we will need to expedite the -- every single process to put up the capacity very quickly. Can that happen within 2 years' time? I don't think that's practical. Let's acknowledge that. So but somewhere around 3, 3.5, 4 years is something that would be our target, but lots of things need to fall in place for that to happen, and we will be trying ourselves for that.
Sure, sir. And this being a greenfield, the cost should not be less than INR 800 crores, I mean, INR 1,600 crore plus CapEx, if at all, or 2 million need to be set up and being a greenfield?
Yes. I would -- see, there's a couple of things there. One, obviously, land has become more expensive to [indiscernible] investment in land will be a little higher. But the saving grace there might be that we do not need anymore given the overall power situation in the country, we may not need to put up a CPP that much. And I think even railway side investments may not be very large because the -- that area is fairly well developed, and the distance of private railway siding that you build may not be as big. So there are a few of these details that need to obviously be factored. In the ballpark, everybody does believe that a greenfield 2 million tonne project should cost you about INR 1,500 crores, INR 1,600 crores. You're right.
Okay. Okay. This is one. And you mentioned that the CapEx for the brownfield, Devapur is not progressing, you're going slow and cautious on that. So for FY '23, what are the status on the Tiroda plant, Devapur and also on the 10-megawatt WHR?
See the 2 plants that -- I would say, the cost saving projects as you call them, the wastage recovery plant is proceeding on schedule, and we are -- we seem to be doing well, and we will finish, we will commission that plant within Q4 of this financial year, and that should start benefiting us from the first quarter of next financial year. That's what we've indicated and we are sticking to that. Similarly, for to improve our costing and also availability of fly ash at Chittapur, which all have been in the past have suffered because of the global wide plant shutting down. Here the rate handling system for fly ash is also under construction as per schedule. And that also will be compared within this financial year. When I talked about the other CapEx, which is more towards capacity expansion, right? So which is the brownfield of Devapur, which has to support the grinding unit at Tiroda. We want to have, obviously, a clarity on the Tiroda execution first because if we put up a line 4 at Devapur, it's largely to be able to address and support another grinding unit. So there's no point in putting up additional clinker line ahead of the grinding capacity right? So from that perspective, the Tiroda clearance that's still a work in process. While some of the permissions have already come in, like we have for the railway side, we got some approval -- just a minute. We also got the approval from the power authorities to consume power during final construction. So the many, many approvals required. One of the key things that we're waiting for is the permission for sub-leasing of the MIDC land on which the Tiroda unit has to come. So these are unfortunately the prerequisite before starting the construction of the grinding unit there. And we are all working on that. We are all working on that. Yes. But as you would agree, because to meet my current requirements around the markets, I am -- my current clinker capacity is good enough. I think all of you would agree that our capacity expansion in line 4 Devapur should happen coinciding with the grinding unit becomes variable.
I agree, sir. Because you already have surplus capacity, so this release won't hurt your near-term growth for sure. So now what are your efforts on targets for CapEx number, any number that you're looking at?
I have not looked at because like I said, we were -- from the time the Rajasthan mining bureau come, just made in various board meetings with AGM. So just finishing that, in the next 2, 3 weeks, I think we'll get a better idea. And then I'll be shooting for a number just like that. Let me just said earlier, the time from all of you and then revert with that...
And one last question on the costing of fuel. If you could share what was the circular costing for you in Q1? And how did it fare against March quarter performance?
The entire cost increase that we reported in the power and fuel cost has actually come from bulk... blended cost of the calories consumed, obviously. So there's nothing else. I mean, not that in terms of our efficiencies, in fact, we've been misguided. And we've been better than the previous quarter. So the entire increase that you see, you calculate the percentage over last year, you have the percentage.
Because last year...
This time, we are at INR 1,600 a tonne to employ -- it's nearly 60% increase there. Blended cost, I don't have in front of me and plants I have, but I don't share a plant-wise cost.
No, no, no, I don't need plant-wise, blended just because if you could give us where do we stand in Q2 versus Q1 on the cost fuel side, fuel costing because fuel cost last 3, 4 months have been only going up and the recent pull-off will have a positive impact in subsequent quarters. But Q2, is it fair to assume that cost inflation will continue quarter-on-quarter?
Quite honestly, Rajesh, the way our current costs are looking high, even if -- I'm not saying they will soften over the Q1, I don't think Q2 is likely to see any noticeable increase. That's not the...
The next question is from the line of Amit Murarka from Axis Capital.
So my follow-up question is around the Rajasthan unit. You mentioned the potential 2 million tonne capacity. So is that a clinker capacity that you're talking about or the cement?
No, I'm talking about the cement capacity there.
But with the 120 million, 150 million tonne limestone I think shouldn't there be like a 3.5 million, 4 million tonne kind of cement capacity that should be visible?
Look, we can always -- as I mentioned, when we start doing the actual money because this is your exploration, our estimate result. If it does become viable to have a larger capacity, we can always add one more line. Rather assuming the reserve, suddenly putting up large capacity that's being disappointed, I think the more cautious approach might be that we build up a smaller plant and add another line if we think we have an appliance store. Let's not forget it also, we're entering a new market. In a market where there are very large competitors already there, it gives us time to find our footing, start gaining the market share in a market, which obviously is not going to be easy for us to get market share from. So I think if we make investments in smaller phases, even if we look a little more expensive investment per tonne, but in terms of utilization and returns on capital, it might turn out to be a better strategy that's what my view is.
So that makes sense. On that approval that you've received for the transfer, is there some time line by when you need to start the limestone mining there? Like is it 3 year, 4 years? Is there some time line attached to that?
No. You see, I'll be honest with you, that I haven't signed anything with the government yet. They have just passed an order saying that those mines are being restored to our instrument. Typically, we know and when I -- like I said, in the next couple of weeks, once they have done the [indiscernible] we will be signing a formal agreement with the government based on the order, which has been already passed by the minister. I do believe that from their side, they will try to put pressure, and I'm expecting it to be 3 years. And -- but we've had this discussion with the government authorities, and they have said that if we see your serious intent to put up the plant in terms of how much progress we have made on every front, we will be flexible on it, although they will not put it in writing, but they said that if we see that you've already committed and you're making large investments, we could be a little flexible. But right now, there would be a constraint of, I think, maximum 3 years, they will allow us.
Okay. Okay. Sure. And lastly, on this Devapur expansion. So earlier time line was March '24. So should we -- I mean, say now that it will be difficult by March '24 and possibly we should look at maybe 6 months to 12 months delay than that?
When we say possible, I think we perhaps putting it as if we are not able to do it. I'm saying we are choosing not to do it. So there's a little bit of difference. It's a question of are we making a conscious choice? Or are we running into a problem that we can't meet the FY '24. The deadline we could have met of the Q4 line brownfield expansion. But unless I'm 100% sure of my new grinding unit becoming available to me to consume the additional clinker, we think it might be wiser to first have a full fix on the grinding unit and then probably in parallel build the clinker capacity. We could delay it, -- I mean, how much time again, as of now, I'm still waiting to get a clearer thing because the grinding unit construction time will be 15 to 18 months. We know that, right? We haven't even started the basic work there. And that's why I'm saying by FY '24 or in fact, I was thinking that maybe in FY '24 or the last quarter, maybe the grinding unit will already be available and parallelly might clinker capacity will come up. That's looking a little doubtful because all the necessary approvals that we need for which we are working along with Adani, they are trying to help us as much as they can, but some of these processes are taking longer. Maybe at this moment, my own guess is that maybe 6 months beyond what more estimate was, not more than that.
Got it. Got it. And last question for me. Like we've seen so much of inflation on the fuel side of things, but for some reason, the pricing has actually not moved up in the last almost 4, 5, 6 months. So why is that so like -- I mean one would generally expect it to be passed on at least partly, if not fully?
Amit, if we see the parts of the Indian market, which have seen demand growth, the costs have been passed on to the customer to a very large extent. It's only in the markets where the demand has been very, very sluggish. Then the markets push you back. And then what happens is that each one of us wanting not to lose operating leverage, you want to book some volumes and we start booking business at a price without the cost being passed on because if we don't do that business, we'll be hurt even more. So it has to be accompanied by some bit of robustness in the demand. But with the monsoon, which are looking very good right now, the normal sense that we've seen is post a very good monsoon, normally, we see a good demand pickup. So let's hope that we -- once the monsoon gets over and the project work start again, it will give us the opportunity. But without the demand being there, it's very difficult to be able to pass on these costs.
[Operator Instructions] The next question is from the line of Vaibhav Jain from ithought PMS.
Yes, can you hear me?
Yes, I can.
So just a few questions from my side. So in the last couple of years, our EBITDA per tonne has been around INR 1,000, INR 1,100 thereabout. So ignoring the quarterly impact that we've had say in this quarter and Q1 of last quarter, is this sustainable? And what is the driving -- what is driving the sustainability of EBITDA per tonne?
Look in the previous nearly 2 years that we're talking about, the EBITDA became possible largely from the pricing that the market offered to us, right. As we've seen, although we are saying prices have been under pressure, they have not gone down. In similar industries, you've seen time where the prices have gone down from the previous time.
So as of now, as I mentioned in the previous -- to the previous question, the demand that we see in the market normally should be revising in a couple of months' time, a few weeks' time of the monsoon gets over. With the demand decreasing, obviously, our effort will be to be able to pass on the increasing cost to the market.
And the moment we are able to do that whatever -- see costs are already being incurred, they are being booked. Any increase from the market that we're able to get on pricing will straight away come to the bottom line, right? So the only thing which we are missing right now to sustain our performance -- see on every other parameter that we have internally in the company, whether it's efficiencies, any KPI that you pick up, we are getting better all the time.
The only thing which has one missing is the pricing that we need to pass on the cost. Let's hope that if not in this particular quarter that we are in, in Q2, which would remain impacted by the monsoon overall. I'm hoping that the next quarter onwards, we'll start seeing an uptick in price because -- look, the fact is structurally whichever segment of the market in India today have seen good demand, you've also seen good pricing there. So it's -- that correlation, we need to sort of get back. The demand has to come and that should give us an opportunity to recover our costs.
Okay. So sir, I was asking more from a perspective of we have this strategy change that we've done to push more of strong treat. So just also on that, I wanted to know like over the last 3 or 5 years, how has the mix of trade and non-trade moved? And what is the sustainability of the same?
As far as trade to -- from non-trade to trade, we actually were a company which are doing close to 60% in non-trade and 40% in trade, which over a period we reversed that completely. And even in a bad quarter like this, I've reported 60% trade and 40% non-trade, which is the reversal -- even in a bad quarter. Otherwise, we have started going up to -- there have been quarters we have done 64%, 65% in trade and obviously the balance in B2B side. So that strategy is playing out. The premium product, as I mentioned, StrongCrete has done well enough for us to gain further confidence. And that is one product on which while earlier, I don't know whether you were in those calls, many of the people on this call had known that we were charging a premium of INR 35 on our PPC cost on StrongCrete. We've been encouraged by the market response and in fact, fairly recently that pricing premium have moved up from INR 35 to INR 45 because that's a product which is now established in the market, consumers know the merit of using that product and how it benefits their overall construction. So we are beginning to get better there. But in a quarter when B2C demand total falls, the total -- obviously, and then we have to make up for some capacity utilization using the B2B segment, which otherwise, we may not have looked at.
Right, right, okay. Sir just one last...
We're not in a seller's market. I mean, let's face it, we have to deliver the reality of the market.
Right, right, right. Sir, just one last question. I think in your last few con calls, you had mentioned that to change the 2 kilns in Devapur so that it can use pet coke, it won't be viable to incur that CapEx. So just wanted to understand the economics of that, like what is the CapEx? And what is the kind of payback period we're looking at and why it's unsustainable?
I'll tell you, but little let's get the -- again, if there's a confusion, let me try and clarify. Devapur's advantage is, it's very close to coal mines. So the cost -- the blended cost of coal at Devapur is so low that for pet coke even from domestic market for it to be transported to our plant is uncompetitive. Okay?
Okay.
So that's one challenge. Because challenge affects an opportunity when the domestic coal is available in abundance, it's the best benefit you can have. So in that sense, to equip and to increase CapEx on the kiln in Devapur to consume pet coke, which it is -- when it is a more expensive fuel, how does that make sense? Only pet coke turns out landed cheaper at Devapur then we must make the investment, right?
Right, right. Okay.
Yes. So that's the key. It's actually when you're talking about CapEx, it's -- the limitation comes in the form of the grinding capacity, the coal mills that we have because coal mills have a certain capacity to grind, okay? Pet coke comes with a different hardness and different reaction to grinding. If you want more pet coke to be used, we may have to actually replace our coal mills, which is not a small investment at all and for what purpose because pet coke is not even cheaper. That's the whole logic.
[Operator Instructions] The next question is from the line of Aashav Patel from Molecule Ventures PMS.
Congratulations on getting the mining lease back, sir. My question is that as you explained that Devapur brownfield may take some more time. So can we -- and we might also meanwhile have thoughts about setting up our capacity at -- greenfield capacity at Rajasthan. So can we see a situation wherein because of the fact that we already have slightly excess capacity at our Devapur clinker capacity, we can sort of like exit the plan altogether of Devapur expansion and focus only on the Rajasthan new greenfield capacity?
No, I don't see the possibility of Rajasthan replacing the need for further expansion at Devapur. I don't expect that to happen. Sequentially, I mean, like I said, my wish list would be, if I could do Rajasthan faster. I would any time... But replacing that -- and we have enough limestone in the markets that our Devapur plant in Telangana serve will also have the growth and having the limestone mines with you, why would you not want to use them over a period of time. We'll not give up on that expansion, no.
So in sense of time line, first, it would be Devapur even if -- because meanwhile, we will need some time to do complete with the land acquisition and stuff?
Yes. See, it's like this. Devapur is something that we can start at our discretion any time. As soon as I'm sure that there's a grinding unit will consume it, I have no problem in starting Devapur expansion plan. In Rajasthan also, the plan is, we will try and ask the government to support us in land acquisition also. We will try for that. How much support we are able to elicit from the state government will determine how quickly we can put up the new capacity, right?
Sure, sure.
And that's why when the question not being asked, I did say that give me a couple of months' time in which I'll be able to assess what kind of support is available to us from the government side also because having given us the mine, they also want the mineral to be used, and they want the royalties to be earned on that. In this case, that we would try and leverage that and get some support from the Rajasthan government, even in acquisition of land.
Sure. So sir, if a year or 2 down the line, what happens if we are able to commence both the projects simultaneously greenfield and brownfield capacity, won't that put some strain on our balance sheet? Now that we have worked really hard to clean the balance sheet and reduce the debt substantially. So we would sort of need to relever it.
Look, there are 2 ways of doing that. One is, obviously sequencing the expansion plans and investment in a manner in which the current balance sheet does not come under stress. That will remain the top priority. Two, not bring the balance sheet in a stress. But if, let's say, both the investments look lucrative, there are other ways of further strengthening the balance sheet. It's not that if you need so much that you only bring in debt. There are always an option for us to increase the network, the capital base of the company by infusion of capital, and there are many ways of doing that. So to assume that anything is impossible. I don't quite believe because there's always ways of addressing a problem -- addressing more than a problem, this is now a question of addressing an opportunity. Opportunity is lucrative. We would find ways and means of meeting of utilizing the opportunity without creating risk for the balance sheet.
Sure, sure, sure. With time, you might see -- also see a possibility of maybe, say, if not -- if we don't want to get a debt any more beyond a point then we might think of diluting some equity. But even at this very lucrative valuation, the stock is trading at compared to the industry. So do you think even dilution would be a viable option?
Dilution will be done only if it's a viable option. You're putting the question why would we do valuating, it's not a viable option. Then we will not do it.
Sure. So at current valuation, dilution doesn't make sense, right?
Absolutely not.
That was my only question.
Absolutely not. At the current valuation, no, certainly not. And when you talk about dilution -- when you talk about dilution, let's not forget, one of the ways of not creating dilution is to raise the money through a rights issue, right? Wherever even if the rights issue goes at a lower price, the existing shareholders will benefit from it. So there are many ways to address that, right?
[Operator Instructions] The next question is from the line of Rajesh Kumar Ravi from HDFC Securities.
Yes. I wanted to discuss the same question, which the earlier participant asked on the balance sheet because we are looking at a net worth of around INR 1,500 crores currently. And with Devapur and Tiroda project and the WHR all would be around INR 2,000 crores, even if it is faced out to some extent, this new project also in Rajasthan will pursue anything between INR 1,500 crore, INR 2,000 crores depending upon the compute of the CapEx. So for next FY '23, maybe next 4 years, we are looking at INR 4,000 crore CapEx. So what sort of equity infusion could be factored in to keep -- or rather my question is, what type of net debt-to-EBITDA number as a company would be comfortable with? And that is how your CapEx should be factor here?
So Rajesh, I would reiterate what we have said earlier, the board mandated policy is very clear. When we want to make any CapEx, we are not allowed to exceed debt equity of 1.5, and debt EBITDA to be contained within 3.
On a group level -- on a company level?
At the company, yes.
Okay. So would that not mean either it is to be supported with a good amount of big infusion, equity infusion or staggering the CapEx beyond, say, over next 6 to 7 years?
Yes, that's a possibility. Let me not rule out any possibility right now. That's why -- when you're asking me questions, I did tell you, give me some time... factor in the -- so all the answers can't be ready when the scenario in terms of when will the investment is required is not clear right now. It will happen, what kind of time line it will happen with that, unfortunately, Rajasthan coming in, Tiroda clearance is not being enhanced, it's become a little uncertain, and that's why you I sought time from you people.
Agree, agree, sir. And last question on the regional competitive intensity currently given that in Maharashtra and the Maharashtra market, we have 3 new capacities ramped up utilization for next 12 months, Shree Cement, Birla Corp, Dalmia, how is that shaping up the Maharashtra market? And even I understand Birla Corp plant is closer -- is close proximities with Telangana market, whereby they can service the onside markets also to ramp up the utilization. What impact are you witnessing because of this? Is it impacting for incumbents like you in terms of your volume growth? Or is the pricing getting constrained because of the same? And by when do you see things normalizing?
Well, the last part, let me answer straightaway. The things will normalize when the demand growth meets what the new capacity is coming, right? So that's the ultimate. That's the basic economics. So there's no getting away from that. In the meantime, in a sluggish market when any new player comes in, obviously, they would try and take some market and they invested a large sum of money. And they use their own method that they find appropriate at this time to gain the market share, even if they do get a loss -- so a player like us who has been well established, we will remain very careful about not diluting the brand positioning afar because in a short-term competition, you start diluting a price that you've built up over a long period of time, that's a very, very long-term damage to the company, right? So in the meantime, we are obviously struggling on both the fronts of not being able to do as much volume as we would have done if they were not there. At the same time, we would have also been able to get better pricing if they were not there, which is a reality, which is all about the competitive markets. So we are obviously having to cope with the impact of new capacities that have come up in our neighborhood, which is, like I said, it can never be ruled out any state in life. But we are also not wanting to make sure that everything stays okay and the price completely crushes and we lose our market positioning, the brand positioning. It is a very tight rope walk, very balanced walk that we have to keep doing.
Ladies and gentlemen, we'll be taking the last question. That is from the line of Ashish Kejriwal from Centrum.
Sir, is it possible to provide a CapEx guidance for FY '23 and '24? And as well as you talked about Devapur plant, but about this Tiroda plant, have we started -- have you ordered the machineries or Tiroda plant also will look at the date. So I need to ask by FY '24 end, can we see any of the plant coming in Tiroda as well as Devapur grinding unit?
As I just mentioned, there might be a couple of quarters delay in that unless the clearances for Tiroda plant do not come very, very quickly. So there is some chance because as I mentioned, the new -- even it's a greenfield grinding unit, it is subject to many approvals. If they get delayed for whatever reason, so there is no way we can start construction. And unless Tiroda grinding unit construction starts with no point in our starting construction at Devapur because it is still related, that is the related investment. So there could be some delays as I've already indicated. I'm not saying there will be delays, but there could be. I'm not ruling that out.
Okay. So Tiroda plant grinding unit as well as Devapur grinding and clinker unit, all these will be -- there will be a possibility of delay. So if this is a situation, what can be our estimated CapEx for FY '23 and '24?
I would not give it that to you unless I also have how much money I will be putting in Rajasthan in the short term, right? So that's why at the middle itself, I said to assess that give me some time, I will call you back again for -- if not earlier, at least next quarter, we'll give you much clearer picture on that because we need to assess -- to give you a number without knowing what -- where Rajasthan might be in by FY '24. It may be misleading, right or premature.
But sir, at least in FY '23, can you give some guide because if you have to start the process of acquiring land also something has to be put in and you will delay the process in Tiroda as well as Devapur. So there could be a possibility of some still hover in CapEx, which we have guided earlier?
Yes. Yes. Yes. That's why I already had mentioned, we had said that our CapEx in this year might be about INR 800 crores. Now it would be smaller than that for sure as it looks right now. How much would it be INR 500 crores, INR 600 crores at best perhaps I mean if that happens. But definitely some nowhere close to INR 800 crores.
Many congratulations for Rajasthan mine, sir.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Krupal Maniar for his closing comments.
Thank you, Seema. On behalf of ICICI Securities, we would like to thank the management of Orient Cement for providing us this opportunity to host the call. And thanks all the participants for joining the call. Thank you, Seema, you may now close with the call.
Thank you. Thank you, everyone.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.