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Ladies and gentlemen, good day and welcome to the UltraTech Cement Limited Q1 FY '19 Earnings Conference Call. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events or otherwise. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Atul Daga, Executive Director and CFO of the company. Thank you and over to you, Mr. Daga.
Good morning, everyone, and welcome to our call for this April-June quarter results. I wish we were doing a repeat performance of last year April-June quarter on current volumes, that would be the day. If wishes were horses, then we would surely be riding them.Let me get on to the first of the wish list, demand. So then demand, I believe, is coming back and this trend we noticed more than a year ago. Housing has been and will always remain the biggest demand driver for cement. But in this cycle, infrastructure led demand is taking cement consumption up and with the improving infrastructure and natural extension is improvement in the housing demand, which we believe should start off in the next 2 to 3 years. There's a market shift at present from individual housing to institutional housing. And I have mentioned in the past also about this being the biggest up cycle for cement.Historically, cement factors have been 3 to 4 years, but we believe this being the longer sub cycle and that the industry is witnessing because this time around, the demand drivers are different. And we expect the momentum in cement demand to continue with some big projects around the annual. I understand we work on Jewar Airport that is the New Delhi Airport, coastal roads in Mumbai, Purvanchal Expressway on the Allahabad-Gorakhpur sector, Mumbai-Nagpur Expressway will commence before the end of this year.The long overdue Mumbai Airport also is expected to commence work now. Land leveling has been completed, and the contracts have already been awarded for the construction of the airport. Polavaram dam in Andhra continues in full swing. All these are very large projects. And this time around again, government has introduced penalty clauses and delays beyond the deadline given for completion of the project. Hence there is a strong chance of systematic and time bound execution.The recent MSD hike will further help improve the rural demand. Of course, this is bound to create inflationary pressures in the economy. Rural markets has been a very strong forte of UltraTech. Today we have nearly 36%, 37% of our sales in rural markets. I'm sorry, I stand corrected, it's now up to 40%. Low-cost housing and affordable housing consistently are supporting cement demand growth with increased base of execution. Since April '18, I'm told fresh construction work started for another million houses in urban areas, million [indiscernible] houses. And construction has already been completed about 0.4 million houses in last 3 months.In rural areas, about 0.5 million houses have been completed during the last quarter, and sanctioned about 2 million new houses. Totally sanctioned till now is about 8.5 million houses. Government is fast reaching its target of at least sanctioning the 10 million houses per year that we had envisaged. Further to update, the first phase of [ DXC ] project is also likely to commission by the end of this year. Our western freight corridor which is 432 kilometers out of the 5,000 kilometers and eastern freight corridor 343 kilometers is likely to commence soon. This should -- this is important not for cement consumption, but to improve the logistics for cement, improvement in rail availability in the eastern corridor which is absolutely dry as far as cement industry is concerned for rake availability. Movement of cement become extremely difficult being with in the absence of availability of rakes because rakes are diverted for government requirements.The growth and improvement of infrastructure in the country will lead to a general improvement in housing demand. Additional capacity from new assets acquired has given us an opportunity to expand our footprint into newer markets and in the institutional channel. With pan-India presence, we enjoy a very high share of business for cement sales amongst all the leading infra companies who are catering to the low income housing projects, catering to the infra projects, and urban housing as well.This quarter, domestic volumes have grown 34%. The quarter saw strong demand across all regions. In our view, we could see double digit growth for the sector in this quarter for sure. For UltraTech, the net sales have gone up 3% and now at about 67%, and trade sales being in the focus have now risen 2% to 68% over the previous quarter.Let me get on to the next wish list, next of the horses of our wish list, which is prices. I would complement our own team for achieving this growth without compromising on prices. The realizations on an average have gone up 1%, 1% to 2% quarter-on-quarter. Our [indiscernible] exit prices have been far higher than the average prices for the quarter across all zones. As compared to previous quarter, central and western markets are good improvement followed by north and south, which were lower than Q4, but the exit prices as I mentioned earlier were higher. East was muted or remained flat. Full benefit of June price hikes should reflect in the current quarter, since the exit June prices were higher than the average.The next area which I would want to touch upon is our cost. Our cost have increased about 3% quarter-on-quarter. That coke [indiscernible] have not shown any signs of slowing down in terms of cost. Rupee depreciation is also impacting the import bill. Another dimension to watch now is the interest cost which seems to be inching now. This could be a dampener on new capital spending, new expansions that seem to be mushrooming -- the players seem to be mushrooming as of now in the country.We are focusing on reducing the impact of increase in purchase price with efficiency improvement. During this quarter, the purchase price impact was about 13%, and efficiency gain was about 2% in our direct manufacturing cost. Mind you, this improvement of 2% is a sustainable long-term permanent reduction in cost. And I believe the purchase price impact wise today, it is high. In the long term, it is not sustainable. And there will be a tipping point when cost starts coming down.With the current cost of pet coke at some of our locations, coal is becoming economical. Our total usage of coal both in kiln and power plants put together has increased to 16% during this quarter as compared to 11% in the same period last year. Amidst the adverse cost scenario, there is one good news for the sector. In the last few days, the government announced the new norms for axle load for trucks increasing it by 20%, 25%, which will surely benefit the logistics costs. There was some confusion that the axle load is allowed only for new trucks, but however, a clarification has been issued that the axle load increase will be -- the exit [indiscernible] will be eligible for the improvement of axle load. We will see how the benefit starts impacting the P&L in the future quarters.Another element wise, the focus is always on operating margins. We've done a large treasury which forms -- and the income, treasury income forms part of our overall EBITDA. This quarter since the yield curve has gone up, it resulted into an end to end dip in our treasury income because of which the overall EBITDA would also look slightly damp.Let me now share with you an update on our sustainability agenda. 5 new projects are under commissioning for WHRS, which will take our WHRS capacity to 121 megawatts, meeting about 15% of our total power requirement. We expect them to be completed by FY '20 -- in somewhere in the financial year '20. We have increased the consumption of alternate fuel to about 4% of our product fuel and are working on further increasing it. We are now certified as 2.18x water positive by a global quality assurance and risk management company DNV-GL. I don't know the full name, so don't ask me about it.Let me touch upon the acquired assets. It's almost a year of -- year has gone by, I think 12 months of operations now. We completed the acquisition on 29th of June 2017. Our focus has been on cost optimizations this quarter, and we should be able to achieve the optimal level of cost from all the acquired plants post monsoon. Couple of plants are under shutdown right now after which we believe that cost will be at par with our existing plants. Excepting of course the structural cost, which are the MMDR royalty and logistics cost because some of the plants are landlocked or far in locations.Total variable cost difference today is around 160 per metric tonne between the two sets of plant and the acquired plants and our existing plants. Out of which, there is scope to achieve efficiency improvements to the extent of INR 50 per tonne which is remaining now. And 110 will be the structural difference. We are confident to complete our improvement plants by December '18.These assets were operating at a very low level of capacity utilization when we acquired them at somewhere around 18%. We completed the acquisition at the start of monsoon months last year and also sand minding bans were hitting the country at that point in time. This led to a force suppression of demand. And our focus has been to increase our capacity utilization of the acquired assets without compromising on prices. We have successfully increased the capacity utilization across the network and the plant are now stable at around 70%, 75% capacity utilization.A lot of -- lot has been said and I have read about increase in supply. We expect the supply to moderate around 3% to 4% every year whilst the demand growth will be around 8% to 10%. Faster pace of demand growth than supply would result in narrowing of demand supply gap and gradual increase in capacity utilization. Historically, if you scan a decades of history of cement industry in the country, every time when the cement demand has started booming, supply has also increased. This is nothing new. However this time around, what we are looking at as the gap between demand and supply, demand will certainly be far higher than the supply.The moderation in supply would be primarily be driven by continuing cost pressures for key import items such as coal, pet coke and coal, as well as costly mines in the long run. Also the rising interest rates will increase the overall financing cost for new capital outlet.On our own home front, we have already completed our 3.5 million tonne of capacity -- greenbelt capacity at Dhar in western MP -- southwest MP. The Bara grinding unit of 4 million tonnes is under commission -- is under execution. Work has picked up pace, and we expect the plant to be commissioned by Q4 this financial year. CapEx spends during the quarter were about INR 330 crores, and balance to be spent for the year is roughly around INR 1,800 crores.We had also announced the merger of cement business of Century Textiles with UltraTech. We expect the transaction to be completed by Q4 FY '19 -- yes, FY '19 after all the regulatory formalities. CCI application is -- has already been filed. It is under review and we expect CCI clearance by middle of August. And thereafter the legal formalities of court convened shareholder creditors meeting, filing with ROC, et cetera, and in between there are court holidays because of which the transaction will get -- see a closure only by Q4 of FY '19. White cement based new putty capacity expansion of 0.4 mtpa is also on track. This is expected to commission by FY '20.Let me talk about our own cash flows. So it's a high focus area right now. Net working capital has increased by about INR 568 crores essentially with a buildup of raw materials and fuel inventory that is typical for pre-monsoon period. During this quarter, our net debt has reduced by about INR 208 crores and now stands at INR 11,799 crores on the Indian balance sheet. Net debt to EBITDA is around 1.75x, and the growth has marginally inched up to 10.4% on the basis of Q1 analyzed.That is all that I have to say. And in the end, I have heard a lot about anxieties about the cement sector saying that demand is rising, prices are not rising, et cetera, et cetera. But I believe that the fruits of patience are always sweeter. There are no secrets to success, and it is a result of preparation and hard work, which UltraTech is well known for. Thank you so much.
[Operator Instructions] First question is from the line of Gunjan Prithyani from JP Morgan.
Just one quick clarification. Firstly, you mentioned the difference between the cost of the JPA and the ex-JPA assets at about 160, right?
Yes.
And the difference is all cost or this 110 of MMDR is included in this?
Yes, 160 includes 110 of MMDR and extra logistics.
Okay. The incremental cost saving or cost reduction would be about INR 50...
50, yes.
-- over the next 2 quarters?
Yes.
Okay. And just to get clarity on this roadmap to PBT breakeven. Now we are already at about at cash breakeven in this quarter, right?
Yes, Gunjan.
And from here, of course the cost reduction of INR 50 will come through in next 2 quarters.
Yes.
But I think from a perspective of reaching PBT breakeven, there will be more needed in terms of EBITDA per tonne increment.
Absolutely.
So is this banking on the debt pay down or the roadmap is contingent on pricing improvement, just want to get clarity there?
It's a mix of both, Gunjan. There is continuous focus on debt repayment. Last year we had reduced INR 1,600 crores. This year about INR 200 -- this year first quarter INR 200 crores already down. However, today when we are at about 70%, 75% capacity utilization, this capacity utilization will go up. One of the plants is under a long shutdown for environmental improvements. It has been converted to back house. That's category requirement. So once all the plants are fully up, the capacity utilization will also go up. And with this increasing demand, the buoyancy in demand, I believe the prices are bound to rise further helping us improve EBITDA. Second thing also which will help UltraTech improve its EBITDA for the acquired assets is fast change in the ratio of trade, nontrade sales and next year's improvement.
And that should also yield some realization improvement?
Yes, yes. Absolutely. Today it will be a mix of course. It's not just realization by itself.
Okay. And would you be okay to comment on what will be the EBITDA per tonne difference because of course we can work out the calculations given at a cash breakeven, but any sense you can give us what will be the...
It is difficult to say that, Gunjan.
Okay. Now secondly on the -- just on these results, the fiscal incentive seem to be higher. So any specific reason why there is more accrual in this quarter? Now should we look at the remainder of the year?
Yes. One is it's directly linked to volumes and prices in the markets where the plants have fiscal incentive. This will go up further when one or -- there's one plant where incentives are due, I believe that should get cleared -- they'll also get cleared the next quarter. It should be fine. So that we would expect clearance on another set of incentives for the [ holiday trips ] are informally provided for, sorry. So this is all due to volume and realization mix as of now.
And this should stay as a run rate for the rest of the year because this has risen pretty sharply versus what we were reporting until even Q4 of last year?
We shall wait and watch. It's as mix. Suppose the volumes go up in western markets and on an average, then the incentive mix will not be visible as much.
Sure. Just one last question and I'll join back the queue. On the lead distance, you mentioned there's been improvement sequentially. But anything you can comment on versus last year because last year 1Q, we didn't have JPA with us. So what is if not sequentially...
Gunjan, it's not sequentially, it's year-on-year. The [indiscernible]...
Okay. What will be the lead distance now?
About 240. How much?
427.
What am I saying, 427 or 429 kilometers, yes. We got 453 one year ago, now it's about 427.
The next question is from the line of Indrajit Agarwal from Goldman Sachs.
Sir, 2 questions. First on pet coke prices. Can you give some ideas to what was the average rate for the quarter and...
$110 was --
$114.
$114 was the average for this quarter. And currency trading is happening at around $119.
All right. That is helpful, sir. And second thing on any update on your registrations in the northeastern market, anything that you can share at this point?
No. When I have an update, I will come back officially.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
One question, sir. Other expenses. Compared to December quarter versus March quarter, we always seeing that the other expense decline, but if I even compare to December quarter given the volume increase that they are seeing was in December or other expenses were absolutely lower than the December quarter.
This is all relating to maintenance cost which would surface. There is no big pattern on maintenance cost.
So you commented there in December quarter there was INR 30 crores JPA related shutdown cost. Even if I adjust for that, despite a 10% increase in volume versus December quarter, absolute other expenses were lower than that.
We wish you haven't [indiscernible] other than maintenance, there is just some slight difference in advertisement cost, so it very depends on...
So my colleague here tells me there will be some element of advertisement costs in this quarter or maybe in the last quarter.
But that could be...
I think unusually, huh?
There will be only INR 10 crores, INR 15 crores, right? That's it, right?
Yes.
So there is nothing unusual?
There's nothing unusual. It will be -- I don't remember anything unusual, no.
Okay. Second thing you've mentioned the exit prices are higher. Just one question there. If we look -- if we take first those prices to sustain at the higher cost of pet coke and freight, your contribution excluding the fixed cost, you will still be maintaining the contribution today what you had in the June quarter?
Let me give you an analogy on this. The prices -- average prices went up about 1% to 2%. And cost has -- variable cost has gone up about 13%. EBITDA per tonne has improved quarter-on-quarter.
Quarter-on-quarter cost had increases [indiscernible].
I stand corrected, Anubhav. Quarter-on-quarter, the cost has gone up about 3%, 3% to 4% and prices have gone up 1%. Prices have risen only in the month of June. So yes, if we are able sustain these prices in the entire quarter, then obviously we should be able to do a good EBITDA. However April-June, July-September quarter is a maintenance period. Maximum amount of maintenance work is undertaken on account of -- during the monsoon period. But as you mentioned on contribution, yes, contribution levels will be maintained.
You will be able to [indiscernible]...
Yes. I don't foresee a challenge over there.
Okay. And sir, this last question on the freight benefit you mentioned on the truck load bearing capacity being increased, any initial assessment let's say, what we could find up?
We are doing it at the moment, Anubhav. Earlier, when the first circular was out, we're not really focused because it was about new trucks. Now the subsequent amendment talks about old trucks also, and there are various categorizations 20-tonner, 38-tonner and 25-tonner, that's already published. So we are analyzing the fleet and how fast we can get the benefit of that.
But just a rough idea in the sense that the benefit can be low single digit in terms of reduction in freight cost or can it be higher than mid-single digit?
I'll keep my fingers crossed. I'll take a target of low single digits only, but if higher is available good for us. I don't have any competition, hence I'm not able to comment on it right now.
The next question is from the line of Raashi Chopra from Citigroup.
My questions have been answered. Thank you.
The next question is from the line of Murtuza Arsiwalla from Kotak Securities.
Just wanted to check the Dhar capacity has been ramped up fairly, fairly aggressively compared to what we have traditionally known in a more slow ramp up. Is it a reflection of the underlying demand growth or UltraTech continues to sort of sell ahead of peers and gain market share like we saw with the Jaiprakash acquisition that you've grown much faster than the industry? So is the ramp up still reflective of...
Why can't you complement us for doing something good?
Sir, I'm just trying to get a clarification whether it's a good work that you are doing versus peers or industry volumes have also improved.
No, I have seen Dhar is a shining example of UltraTech's capability, the technical team's capability. First and foremost, the execution of the project from the ground breaking to commissioning of the first line in a record 354 days, cost being controlled and the ramp up. So of course, ramp up is -- we wanted to do a ramp up earlier also and the demand had also supported.
The next question is from the line of Amit Murarka from Deutsche Bank.
So just first a data questions. What will be your white cement putty volume and revenue in [indiscernible] RMC as well?
White cement...
0.3 [indiscernible]
3 lakh tonnes of white cement. Putty is -- putty is included. Yes. Sorry, I don't have RMC here. White cement revenue is about INR 400 crores. RMC volumes is about -- revenues is INR 507 crores.
Okay, good. And just then a question related to the annual production from me. Sir, just noticed the production mentioned was 57.23 here, but the sales and domestic sales have been 59.3, so there's a 2 million tonne additional sales versus cement production, this is I'm talking about. So I guess this is what, the tolling arrangements have --
Yes, there are lots of tolling arrangements which we keep trying short term versus long term, if there are opportunities available, we do that.
Okay. It's not that clinker sales has increased, right?
No, no, no. Nobody will sell that much of clinker.
Right. Okay. And just some clarification on the regulatory issues. I believe there is a supreme court hearing wherein the oil ministry has kind of supported the pet coke import ban. Now I think the environment ministry has to respond. So what are your sense on that as to...
No, as far as I understand, the Supreme Court judge asked or had asked the ministry -- petroleum ministry to file their report. And since they are delayed, a INR 25,000 fine has been imposed on the ministry. However, the ministries have maintained, and I have seen this order also. I'm sure you will also see the order and heard the Supreme Court ruling or the Supreme Court arguments that both cement and steel are allowed to use pet coke. The import ban is not being discussed as of now. It's more about -- but the Supreme Court judge was talking about the pollution and -- pollution and their related issues with pet coke. Import ban is not there on the annual. And we are pretty confident, it beats all logic -- when India is deficit in pet coke, then why would you ban imports.
Right. And the other worry also I think there is the Reliance pet coke gasifier is almost complete now, so the domestic availability of pet coke could also probably reduce.
Yes, that's true.
Right. And any update about Rajasthan sand mining issue? I believe there is a court hearing pending on that as well?
Rajasthan, I believe is the only state where there are still some issues left to be sorted out. But by and large, it is not impacting the construction activity because sand import from neighboring states is happening at the moment in the industry of Rajasthan.
Okay. And lastly, can I just get the a fuel mix and OPC, PPC, PSC mix as of now?
Yes. I had mentioned it. OPC is about blended at 67%. And what else did you ask?
Pet coke estimate.
Pet coke is about 75%.
75% of the --
Kiln.
-- of the kiln.
For kiln, kiln.
Okay, okay. And balance 25% would be what broadly coal then and [indiscernible]?
Coal is about 20% and alternate fuel is about 4%.
The next question is from the line of Suraj Yadav from CLSA.
This is Vivek. Sir, my first question is again on freight one. So while you said about the calculation that you will have to do, but just conceptually this will only benefit your output or there can be some benefit on the input side also as in when you fetch raw materials or when you fetch gypsum [ flash ] or coal?
Yes, yes, both sides.
Both sides. Sir, I thought inputs will be more volume dependent and therefore there is limited potential to increase the tonnage over there?
No. There are open flux also which are used for inputs. And earlier, when before this relaxation, the government had put the penalties on the buyer if the trucks were loading extra. So a miner -- a local miner would tend to load extra but the buyer is not, buyer was a handicap. So there was lot of restriction on inbound logistics as well. This will get eliminated to the extent of whatever is the allowance.
Okay. So the benefit will be on both the sides, input as well as on the output?
Yes, yes.
Okay. Second is on the cement pricing. Where the exit prices are compared to where the, let's say, spot costs are? Is it still pushing up margins or you are just maintaining what the levels for...
Yes. Pushing up margins. And I already mentioned, if you were to exclude the July-September quarter because July-September quarter will be heavier on cost, anything else remaining the same. October-December, if you were to observe, it will push up margins.
Okay, okay. And obviously I don't have the detail numbers for, let's say, different revenue line items. But if I just purely, if I remove operating income and look at gray cement realization, it doesn't look like on a sequential basis, there is hardly an increase. Is that correct or no?
Sequentially about 1% to 2%.
No, sir. But if I remove operating other income which has fiscal incentives and a lumpy one, actually there is no increase in sequential realization, is that not correct?
Sorry?
I'm saying if I remove the fiscal incentives or let's say operating other income...
So as I look at my -- fiscal incentive is not part of my billing. So if I look at my average billing, my average billing is higher.
Okay. For the quarter you are saying?
For the quarter about 2%. Q-on-Q is what I'm talking, but of course not Y-o-Y.
Sure, sure. So you are saying underlying gray cement realizations are higher on a sequential basis?
And more important, so this was -- I'm sure you guys can do your maths. The price highs were taken during June and multiple points in time in June. So not even -- you don't have full month effect of June. And this is, as I'm repeatedly saying, the prices -- exit prices are higher.
By how much?
Good question.
Could you quantify on a serious note?
Obviously I will not want to tell you, that's why I don't want to quantify.
Okay. And lastly your outlook phase with the cement industry now in its up cycle. Demand is expected to be healthy. So your demand is looking like to be more of an outcome because cement isn't in up cycle. What do you mean by that exactly because when your volumes are rising, let's say 33% there is hardly any change in EBITDA. So I mean cycles are not characterized by that. How would you respond to that?
I wish I was Shakespeare, Vivek, to capture words properly. But the point that I'm trying to make is cement as an industry will see volume growth, very high volume growth, long story short. Second one, again from our perspective, I don't know about other players in the country, but from our perspective, our focus was to ramp up the capacities of the acquired assets which we have been successful. And wherever we found opportunities to increase prices, we have taken price hikes.
Okay, okay. So up cycle, obviously should also mean better margins, right? Is that how one should look at it? Because this quarter -- I mean, you say it's a start of an up cycle, but numbers are not showing that is what I am trying to say.
I know. So what is happening is this time around the cost are also ramping up very fast, whether it is pet coke. I don't have to repeat that point, but all these elements which contribute about 65% of our costs are going up continuously. The low on pet coke if you will recall was January-March '16 about $41 to $45. Today it is hovering around $119. Okay? Coal is at $101 or $102, yes, anywhere around $105 actually. Diesel prices, crude is stable at $75. Rupee is depreciating. This is causing a far higher impact on cost. Small hikes in prices are enough to take care of these costs which has been again visible in this quarter. Because if you see that there is marginal hike in prices, let's say 1% to 2% in this quarter, and the total cost increase of about 3% to 4% over the previous quarter has helped improve the EBITDA per tonne marginally over the previous quarter. So our focus is and if you look at any -- what is [indiscernible]?
Pet coke, [indiscernible].
There is a agency called [indiscernible] who publishes data on coal and pet coke. If you look long, 2 years long, the prices are being forecast in a downward trajectory. Right. So cost will come down, then it cannot go unabated the way the costs are going up on pet coke and coal. There are global phenomena. There is an Aramco IPO. If you were to ask me, that fact also is linked to crude prices. There are several other phenomena which we can discuss offline which are keeping the prices at these levels.
Okay. But my point is wherever the cost are in an up cycle means that you should be able to pass on all the impact and should still grow the margins, right?
Yes, yes, yes. Absolutely, absolutely, absolutely. It will happen.
The next question is from the line of Navin Sahadeo from Edelweiss.
Okay. Sir, my question was now from a market shares perspective having acquired JPA assets, Century is also on its way and hopefully even Binani. So from a overall market share perspective from here on, how do we see expansions in the sense that do we look at our maintaining market share -- expansions for UltraTech to maintain market share or there is scope and of course the company is like aspires to increase it further?
So we today our capacity is 88.5 plus 4 million tonnes of Bara, which will take it to 92.5, plus roughly...
14.
-- 14. I'm rounding it off 106.5. That divided by about 460 million tonnes gives us about 23% capacity share. UltraTech believes in profitable growth. So -- and there is no ends to profitable growth. We will want to increase our market share and profitability alike.
Fair. So in the sense that expansions in that sense that because a lot has been talked about expansions as you've mentioned in your initial comments. To understand that, our expansion including that of Pali, so that can be followed with expansions which are targeted at growth higher than the industry to further increase market share or...
Yes.
Okay, fair. And my question was again on the JPA assets. Is there -- are these assets having wastage recovery plants or is there a...
Not yet. Not yet.
Sorry?
No, not yet. We will take them. Now currently we have 5 plants under execution as I've mentioned. And we will take up the wastage recovery plants in the acquired assets also in due course.
So the 62 which is planned -- new wastage recovery of 62 megawatt which planned, that is at JPA...
No, existing plants, existing plants. So it is at Kotputli which is in Rajasthan, Dhar itself. There is Hirmi.
Hirmi.
Hirmi which is in Chhattisgarh. Do you see that Gujarat plant? And one plant in Andhra.
But there is scope, do you think put it for JPA asset, acquired assets also, right?
Definitely, definitely. Only the [indiscernible] the plant, more the opportunity for WHRS.
So my question then, sir, is that if like the payback period typically as you understand for wastage recovery projects is being very high. What is it stopping us to like have these wastage plants at JP Associates in...
No, wait, [indiscernible] I have 2 arms and 2 legs. So management [indiscernible] is enquired. So we will take it up. We don't want to [ kill ], whether I put it up over there or put it up in our existing plants. There is bound to be efficiency gain and improvement, return on investments will be there.
No, no sir. I was only saying since the cost difference is that INR 50 which is you said can be bridged. And there is some element of structurality of 110 odd. I'm saying wastage recovery could get worse another INR 20, INR 30 there I think?
Yes. So we will take it up. And since these projects are already planned and conceived, the work has already commenced on them. The team is I believe working on the plant as you know. So assessment is happening right now. My colleagues from the JPA assets, acquired assets tells me. The assessment is happening and it will be put up to the board for approval.
Okay. And okay, one last thing. Pali, what is the timeline? Have we ordered equipments for this unit? Pali expansion, I'm saying.
Not yet ordered, but we will start. They're commissioning at June 20, that's what the target is.
The next question is from the line of Sanjay Parekh from Reliance Mutual Fund.
Hello? He is not there.
As there's no response from the line, we move to the next question. That is from the line of Rajesh Lachhani from HSBC.
Sir, 2 questions. Can you just give me what is the demand growth in each of the regions and what was our utilizations in these regions?
Our utilization in north would be somewhere around 80%, central about 70%, east 95%, west about somewhere around 75%, south somewhere around 60%.
Okay. And sir, demand growth in this regions would be?
Demand growth, how do I affiliate that? It is very difficult for me to comment on demand growth on a individual region, Rajesh.
The next question is from the line of Kamlesh N. from Prabhudas Lilladher.
Sir, like with regard to this Pali expansion or the greenfield plant, somehow it's the feeling which we are getting that it has been postponed. Earlier we were talking March 2020. Now even the equipments have been not supplied. So what's the actual thought process on the plant in terms of adding capacity in the Rajasthan? Or is it thought that we would first want to complete this Binani and then we will give a thought to that?
No, there's nothing like that. Not market is so buoyant that we have to do our Pali project. We are running fully sold out, almost fully sold out. Binani, if it were to happen, it will help us meet the growing demand of Rajasthan and the northern markets. So both and it is starting. We are committed to our June 20, March or June 20 deadline, that should not be a problem.
Okay. And sir, just one question on this incentives part. Like say, some of the incentives would be getting expired like for the HP plant. So what should be the sturdy rate or bottom rate we should look at into because in this quarter, it has been as high as around INR 105 per tonne?
Very difficult to conclude that. Well, as I was mentioning on the call earlier, it's all depends upon the mix of sales volume from region to region, and the realization that are happening in that particular -- high prices and low volumes will still lead to lower incentives.
Okay. But sir, your [ let's say ] breakup among the incentives [indiscernible], so it would be more contributed by your rest on region, like say the Maharashtra plants or it's equally distributed among the regions?
It could be more or less equated because incentives are on now on a GST [ positive outs ] within that state. So the rate of incentive is the same. Somewhere you might have or not one-off or one-off additional incentives, like electricity duty, somewhere it is exemption is available and so on and so forth. But the different standard incentive is an exemption on SGST for sales within the state. So that they should remain the same, it's only directly linked to the volumes then.
And sir, lastly like say what's the guidance on the CapEx part in this year and next year?
This year, we've already completed about INR 300 odd crores of CapEx in Q1. INR 1,800 crores more to go. And next year I would have about INR 2,000 crores as of now.
The next question is from the line of Anshuman Atri from [indiscernible] Invest.
My question is regarding recent ministry talks on bringing the royalty payment under GST. Sir, will this change the economics of the acquired plant and bring it at par with the existing one?
Sure, why not it will move?
Additional work.
Why not? So the acquired plant, there is one more level of royalty which will continue. But if this happens, then I think the margins and everything will -- I will not say, I just drop, coming to the office and go and say goals, that's all. So if it happens, it will be wonderful for the industry.
Okay. And secondly is on the coal. For example, for the past 1.5 years, we have not seen any auction, and all the capital producers who would like to have, for example, UltraTech requires so much of coal. So what do you think is like why are these coal auctions not happening? And would you then have something to...
So I recently read a notification announcing the next set of coal auction. We are examining, if there is any minor -- of interest to us. We had one coal mine in auction in 2015, which we are working on commissioning which should start production in now somewhere in 2020 or 2021.
Okay, sir. And preference would be a linkage or a capital coal for UltraTech?
Sorry?
The preference for UltraTech, will it be a linkage or a capital coal mine?
Definitely linkage coal.
The next question is from the line of Anupam Goswami from Stewart & Mackertich.
Just want to know one question, that what is your cost usage on pet coke and what is your cost usage on coal?
I'm sorry? What is the cost?
Cost per tonne if you use on pet coke, and what is your cost per tonne on coal?
Just 1 second.
On NIT basis, pet coke cost is about INR 1.30. Coal is about INR 1.40.
Per 1 tonne, right?
One KPI, 1 KPI.
One KPI, on the energy front.
One KPI, okay, okay. And sir, if you look at [indiscernible] investor in the [indiscernible], if you could give the prices trend in the for all the agents of India, like how much it has resumed or it has gone down from a previous year?
Just 1 second. Yes. So if I were to look at quarter-on-quarter, the prices have -- there's a percentage movement. So central is about 4% to 5%. West is again 4% to 5%. East is flat. North is about a percentage up, and south is, I would call it a flat only.
Okay. And sir, on an overall basis in the longer term, where do you see your margin -- questionable margins at? Because as sharply falling, and can you see anything improvement in the next 2 year maybe?
Yes, yes, yes. So today we had, let's say, 20% margins instead of talking about EBITDA per tonne. I had switched gears to percentage. Today we are at 20%, I think this is the lowest levels of margins. We should see improvement in margins in the coming years.
The next question is from the line of Bhavin Chheda from Enam Holdings.
Sir, you indicated of good demand and actually we are seeing it across the region. But you also mentioned a good demand-supply equation. So when we are reading reports or when we are hearing from companies, everyone is looking for expansion and even the ordering activity is picking up. So what is your sense of supply side because demand looks strong but supply side, we are seeing reports of 25 to 27 million addition for next 3 years versus less than 20 million tonnes for last 3 years. So can you throw some light here about your understanding of ordering activity?
It's slightly higher than that, maybe close to 40 million tonnes over a period of 3 years, which is around 10% growth in supply, all right? And the demand is expected to grow at about 8% to 10%. I would be bullish on a double-digit mark, even if 8% to 10%, average 9% growth which is 27% growth in demand over the next 3 years. So current demand is roughly around 275 or 290 million tonnes. 290 million tonnes, that is potentially set to grow by about 27%, which is roughly 78 million tonnes. And the new capacity announced, this is announcements and board approvals and orders placed anywhere between 40 to 45 million tonnes is the supply which will get commissioned during the next 3 years. So to that extent, supply-demand gap will be shrinking.
So you are indicating you expect 40-odd million tonnes over next 3 years?
Yes.
Whereas the consensus is building towards upwards of 20 million per year, so that's a number of 60 million in total?
No, that's wrong. That's totally wrong.
Okay. Okay. So I think we have to do some more work on that.
Yes.
But I think if your number is correct, then I agree with your assessment.
The next question is from the line of Madhav Marda from Fidelity.
So just on question on the demand side. You're saying 8% to 10% and probably if you're bullish, it could be higher. In the history, if I look for the last so many years and now we are at a higher base, also a 300 million tonnes versus say 100 in the last up cycle that we saw. So what makes you bullish on staying that 10% number because on a 300 million tonne base and with urban housing private CapEx not looking that great, how do we see the demands coming through, because 10% seems [indiscernible]
[indiscernible]
If it comes, but what are the drivers it can -- with inside lot of very big part of overall India demand, right?
Very good point, Madhav. You know my colleague just told me yesterday that FY '12 or FY '10, FY'10 was the highest in the history of cement in India. FY'10 was the highest demand growth in volume terms about 12.1%. Okay, and that's adding both. Now why 10 -- of course, I don't remember what was the base in FY '10 and absolute growth number. So you are absolutely right that on a higher -- today is a higher base of 290 million tonne, that's a 300 million in tonnes [ also ] rounded off and 10%, 30 million tonnes of demand. Now where is the demand going to come from? All these infra projects that we are talking about, some of them might enumerated on the call as well. I'll build on examples. The bullet train project. It will consume additional 1 to 1.5 million tonnes of cement every year. There is rehab project for the B.D. Chawl in Mumbai. It's a INR 12,000 crore project. That's a massive cement [indiscernible]. The highways, now cement roads were not been done in the earlier build cycles. Cement roads are happening now. Okay? The metro project where we are one of the biggest suppliers in Mumbai, the sales are going up currently somewhere around 15,000, 20,000 tonnes will go up, post monsoons to about 30,000 tonnes a month. So these are -- I'm just -- so 30,000 tonnes are not equal to 30 million tonnes, I understand that. But the point that I'm trying to make is all these projects and these projects are on a time-bound execution plan. Government is levying heavy penalties on contractors for any delays. The Worli Sea Link project which took 7 years, 8 years, I don't know how many years and how many extensions, those kind of delays will not be permitted now. So this time around, the heavy-duty consumption of cement is what is going to drive demand. The Purvanchal Expressway, which is the one of the longest one from Allahabad to Gorakhpur, one of the longest expressways that has been done. The Bharatmala project, encompassing all these concrete road projects, 84,000 kilometers of roads. The low-income housing project which is now picking up pace. I again repeat that the affordable housing program has not yet kicked off in its super speed. I am in touch with some developers, and the organized real estate is gathering steel now because of RERA. People have forgotten that RERA just came in May '17 and on May, 8 or 10 states have adopted RERA till now. Once the entire country is on RERA, the organized real estate will start booming. We are seeing uptick in urban real estate already. So [ realized ] Mumbai, Gurgaon, Pune, they are seeing the construction activity and demand for organized real estate coming back. It's a matter of time when the tier 2 and tier 3 towns start picking up pace. I'll give you another example. Gujarat as a state was not growing in demand for cement till about 6 months or 9 months ago. The moment DFC has entered Gujarat, there is so much of ancillary activity which has started picking up that we are seeing huge volumes of cement in Gujarat. State by state, there are different demand drivers, which are generating volumes. Rural markets, we keep forgetting about the rural markets in the country. Rural markets are the largest market in the country. First and foremost, there was this crop loan waiver. Now the MSP hike which has come in. Monsoon has been good consecutively for the 3 years in a running. The demand from rural market has started picking up big time. So all this is leading to the 8% to 10% growth. Last 3 quarters, we have seen 13%, 14% growth in cement industry. It is happening.
Okay. So just one quick follow up to that. So in terms of pricing being better, you mentioned that we'll also try to increase our retail institutional mix. But many of these will be institutional projects, right, Infra plus the low-income housing? So do you think that could be -- that could not hit margins a bit? Would you agree with that presentation?
So we have seen price hikes in our institutional clients -- for our institutional clients also. And because there is only this much of cement that is available, whilst we talk about 72% capacity utilization or 72% overall?
73%.
73% overall capacity utilization in the country. There is a lot debt capacity also in the country. So there is bound to be price improvements from institutional customers also, which we are already seeing ourselves. And more important than the price is the margin, because there is a lot of -- lot of cost which is eliminated in institutional supply, so margins are fairly robust.
Ladies and gentlemen, due to time constraints, we'll take our last question. That is from the line of Ashish Jain from Morgan Stanley.
Sir, my question actually pertains to the last point you made. Today what is the kind of EBITDA per tonne differential you see in your institutional versus non-institutional business?
Difficult to go down to the EBITDA level on -- but the average EBITDA per tonne is 929 give or take INR 20, INR 30 here or there, that's what I would estimate.
Okay. Okay, fine. And then secondly the spike in incentive income that we have seen this quarter. Is it from a specific plant? And if yes, can you just highlight which plant is this?
So the new plant which was to -- which started generating incentives was Dalla part of the acquired assets, but more important is the mix of sales and prices, which had started to improve the other incomes or incentives.
Okay. Sir, just as a side point, so there has been newspaper article and this pertains to Binani, that as per the terms of the bid that is given, you are incurring INR 1.5 crores of interest cost on a per day basis. Will it -- is it possible for you to comment on that? And is that how the deal is...
This matter is sub judiced. That's in court, so I don't want to dwell on that at the moment.
Ladies and gentlemen, that was our last question. I now hand the conference over to Mr. Atul Daga for closing comments. Thank you, and over to you, sir.
Thank you everybody for participating in this call. The Q2 July September quarter, let me warn you up front, don't have high expectations in terms of margins, because it's a wet period. Volumes, I still hope the way the construction activity is going, volumes will sustain and prices will sustain. However, with higher maintenance cost during the quarter, you could see some kind of a depression in margins. Otherwise, it seems to be a beginning of a good year and a good period for cement. Thank you so much.
Thank you very much. Ladies and gentlemen, on behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.