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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to UltraTech Cement Limited Q2 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.
Thank you so much. Very good evening to all of you and a warm welcome to this conversation on UltraTech's results for the quarter ended September '18. Before you jump to conclusions and give credence to what others talk about, let me tell you about cement prices. Prices have seen improvement in the regions where there is demand fill, however, the improvement in the margins is not visible since the costs have also been rising. We have seen improvement in prices in southern states, in Gujarat, Central India. East has been marginal. And North India has also shown some improvements. We are focusing on reducing the price gap between retail and institutional sales, that is becoming a prime focus area. At UltraTech, specifically, we saw improvement of about 3% in north, south and central markets, a small drop in the west and a small increase in the eastern markets. Let me now jump to the section on costs. The concern still remains of the rising costs, as you're already aware of crude and dollar. Almost 30% of costs in cement industry are linked to dollar, and this will result in some kind of cost pressure in the future as well. On 23rd August 2018, China had imposed additional 25% antidumping duty on U.S. pet coke. This is clearly helping Saudi Arabian pet coke to shift its customer base. However, there will be a favorable impact on pet coke prices. A reduction in pet coke prices will help reduce the impact of rising crude and dollar. We have seen some softening in prices from a peak of around $122 to around $108 as of now, but the benefit of this reduction will flowinto the October-December quarter only. During this quarter, we have taken shutdowns for annual maintenance in 17 of the 22 kilns that we operate, resulting in higher operating costs to the extent of INR 100 per tonne. We expect the manufacturing costs to go up by INR 1 or INR 2 a bag on the current exchange rate and fuel prices. Talking about costs. One of the recent favorable developments in the country is on account of change in the rules around axle loads. Trade government has implemented the changes in the axle load allowance at different points in time since the announcement by the center. Benefits have started flowing in our logistics cost. States like Tamil Nadu, Karnataka have not yet modified or revised allowance. We are expecting full benefits of the revised axle load to reflect in Q4 this fiscal year. Let me now talk about demand. Demand has been growing steadily, and as we have mentioned in the past that this year and the following few years will see a strong upside in the industry. Last 4 quarters, cement has been talking of growth above GDP. Demand from rural segment is consistently picking up and likely to strengthen further with the recent 6% to 23% MSP increase for ragi crop. Monsoon has been erratic for the country this season, which could have some impact on regional rural expense. It will vary from region to region. With our continuous efforts to increase rural presence, during this quarter, our sales volume in the rural areas grew about 15%. Infrastructure development program initiated by the government continues to boost demand. Work on airports, like Mumbai; Jewar, that is in Delhi; Bangalore -- Bangalore upgradation; Goa; Chhattisgarh upgradation; Bikaner military airport will kick off in the next 12 months. Surat, Kolkata, Guwahati, Kanpur, Bhopal are the next cities going in for metro development. We are also on some ports like Gopalpur, Jafrabad, Kandla, JNPT. Regional dam in Kerala will continue to keep the demand going strong. Structurally, in the long run, we foresee the customer profile will shift towards institutional customers and OPC. This will remove the vagaries in demand, helping the industry with steady performance. We have launched new products during this quarter. Composite Cement was launched in the month of September in the Asian markets and another special grade cement has been launched recently in Andhra and in the western markets. These products are picking up momentum in the market and we hope will generate higher returns. We will continue to focus on value-added products, and you will see a flurry of launches of new products as we go forward. On our retail segment, UBS, we have added another 120 stores during the second quarter, taking the total stores to around 1,760. Number of stores has increased 45% in the last 2 years. UBS is a fantastic platform, helping us increase our reach in micro markets, with about 46% of UBS sales coming from the rural areas. On our sustainability initiatives. We are reducing our fossil fuel-based power consumption. During this year, we have invested and commissioned 2 WHRS projects of 13 megawatts capacity each in the states of Madhya Pradesh and Chhattisgarh, taking our total capacity of WHRS to 85 megawatts. This will definitely support the reduction in usage of high-cost power and will ease the energy cost for these plants. We are also implementing solar and wind power plants at various locations. To date, we have commissioned 55 megawatts of solar and wind power. And together with our WHRS plants, renewable energy is contributing nearly 8% of our overall power requirement. We in UltraTech are very serious on energy conservation and target to increase the share of renewable energy to about 20% of our power requirement of current capacity by the end of fiscal '22. With continuous efforts on increasing the usage of alternative fuel, we have made investments in feeding systems in almost all our plants to use alternate fuel. Environment-friendly solutions now contribute 3% of total fuel consumption in retail. Our efforts are to increase alternate fuel to around 10% by FY '22. In our commitment for increasing energy productivity, UltraTech has signed up for EP100 and has voluntarily committed to double the energy productivity in 25 years. The EP100 membership reaffirms the commitment by the company to have a low-carbon business structure. In the earlier quarters, we have discussed about the operations and improvements of the acquisition that we had done in 2017. The assets are now operating smoothly in line with our existing assets. Cost gap in comparison to UltraTech's existing assets has reduced to INR 135 per tonne versus INR 160 per tonne in Q1. This cost gap includes the impact of structural cost differences and regional disparities. Now the next phase of improvement involves investment in WHRS at 2 of the 5 integrated plants, which we will undertake during the course of next fiscal year. This will be an investment of approximately INR 200 crores to INR 300 crores. Construction work at Bara grinding unit with 4 mtpa capacity is slightly delayed and expected to commission by June 2020. The utilization plant at Dalla is expected to be available for operation in time for the Bara grinding unit. A bit about -- a short piece about Binani Cement asset. As you all must be aware, the hearings were completed and the order is now reserved. The NCLAT is on vacation. I believe the courts will resume functioning from next week, and in the next 10 or 15 days, the order should be pronounced. The other transaction that we are doing is about Century Textiles cement and assets. The shareholders and creditors meeting for voting on the transaction is scheduled on 24th of October. Let me take this opportunity to brief you on the transaction, since there were some concerns that we have heard about. Firstly, on valuation. Century Cement plants have a clinker capacity of 9.17 mtpa, effectively giving a cement capacity of 12.1 mtpa. EV of INR 8,620 -- INR 8,621 crores effectively worked out to INR 7,124 per tonne. In comparison in 2017, when we acquired 21.2 million tonnes of capacity for INR 16,189 crores, it had a transfer clinker capacity of 1.6 million tonnes. Effective EV for that transaction worked to around INR 7,211 per tonne. There are additional investments acquired in Century Cement assets. One of the plants required additional investment in land for securing mining rights. We're also taking over contingent liabilities attached to these assets, unlike the other transactions that we have done so far. Given the size of the balance sheet, there's hardly any player which could have offered an equity of INR 5,000 crores. It will be a dilution for them in the range of 15% to 30%, 35%. Given the equity of INR 5,600 crores offers an opportunity to the shareholder of Century to stay invested in pure-play cement and have the advantage of higher-value appreciation with UltraTech as compared to their investment in a multibusiness Century Textiles. This is a large transaction and UltraTech has a track record of completing the transaction and turning the asset around. This transaction, as I understand from Century's point of view, helps them deleverage and focus on their future plans. If Century had sold these assets to any other entity, it would result into a value loss for the shareholders due to a high capital gains tax and dividend distribution tax. Hence, we believe that the offer from UltraTech is beneficial to the shareholders of Century Textiles. Leverage is something of a concern for us and we are very focused on reducing our leverage as fast as possible. You might recall that as at March 2017, we were net cash on the balance sheet, after which we took on a debt for acquisition of 21.2 million tonnes of cement capacity. Our peak debt EBITDA had gone up to 2.3x. We are down to 2x as of September '18. Our leverage is set to go up further with the INR 3,000 crores debt being taken over for Century Cement business acquisition and, if we win the Binani Cement asset, a further debt of INR 7,600 crores. I don't see the relevance of the leverage position at the end of March '19 since the balance sheet will have accounted for these 2 acquisitions without accrual of any of their earnings. The leverage will start coming down from Q1 FY '20, with cash generation from increased capacity and no major capital outlay in the offering. Before I end my commentary, I would want to clarify on a small change in accounting from this quarter. After the amendment in the accounting standards for revenue recognition, fiscal incentive are now to be treated as other incomes instead of other operating incomes. And sales promotion expenses are adjusted -- certain sales promotion expenses are to be adjusted from sales instead of being part of expenses. The accounting standard change is effective from 1st April 2018, and we have reported the prior period numbers accordingly. With that, I end this -- my commentary on the results and open for questions. Thank you so much.
[Operator Instructions] The first question is from the line of Bhoomika Nair from IDFC.
Sir, just on 2 aspects on the cost structure that you spoke about. I just wanted to clarify that you said the manufacturing costs have gone up by INR 1 to INR 2 per bag from current levels to reflect the higher rupee depreciation, pet coke prices, diesel, et cetera. Is that -- so that's what I understood, correct?
No, no, no. What I was saying, Bhoomika, was that there could be a possible further increase in cost because everybody is aware, the depreciation hit in the month of September only -- the rupee depreciation hit in the month of September. And crude had shot up to $85, $86, cooled off a bit, but there is always a chance of it going up. Anyway, the higher levels of crude will impact the cost in this quarter.
Okay, okay. So in terms of what would have been the average pet coke price that we've seen in 2Q? And what would be the current level? So if you can just give some color on...
$114 is the average consumption cost in Q2. And the costs are down to less than $108. As we speak, I heard that the costs are down to $102, $103 also.
Okay, okay. And in terms of freight, because you mentioned that there has been a lot of benefits which has come through on the lower axle -- on the higher axle loads. And the entire benefit, we'll be able to see in Q4. So broadly, overall, in the second half or through the year, what has been the benefit on the axle load or what you expect to see?
Road freight comes down by about 7%, 7.5%. Road freight -- today, we are -- our road-rail mix is 75-25.
Okay. So will this be able to partially offset the diesel prices, which is why we've not seen a Q2 increase in the -- your freight cost?
Yes, yes, yes. Absolutely.
Okay, okay, okay. And sir, just lastly, if you can just comment on how was the pricing trend in October versus average of Q2.
October, I think, the prices have been steady. There's no dramatic movement from the changes that we saw this quarter. I think the October -- the July, September pricing was pretty good from the perspective of it being monsoon period, and we have effectively been able to see an improvement in realizations. Otherwise, historically, if you track the performance, prices generally drop significantly in monsoon period.
The next question is from the line of Raj Gandhi from State Bank of India.
Just -- you clarified on the costs. So you are saying despite this axle load laws, which I think the benefit should be there for the next full quarter, still, the cost will -- overall cost will inch marginally up.
So axle -- the freight cost is not part of manufacturing costs. Freight cost is separate.
Okay, okay. Sure. Got it, got it. And just on expansion, if you could -- you mentioned the grinding unit will come in July 2020...
June 2020 -- sorry, June '19. Q1 FY '20, June '19.
Okay, okay. Good. And any update on the other plants? Pali?
So Pali, actually, we are waiting -- we haven't started work on it yet. We are waiting for the decision on the Binani asset and then we will take a call.
The next question is from the line of Raashi Chopra from Citigroup.
So just to clarify on the costs again. So manufacturing costs should go up, and then we've seen a softening in the pet coke prices. And I assume that the shutdown costs will go away in the next quarter. So effectively, we should have likely seen the peak of the costs now?
Yes. In July, September, it's been the highest cost possible.
So -- and then you are saying that the prices at the moment are stable or in line with what we saw in this last quarter?
Yes, yes.
Right. But is there -- and if the EBITDA percent has come...
So net-net, EBITDA percent profile improvement will take place. Is that's what you are...
No, I was actually coming to the fact that at what price -- when do we start like -- with demand being strong, and we've seen double-digit growth in the last few quarters, like, when do we see an improvement enough in pricing to actually more than cover the cost inflation?
That's a billion dollar question. I would say wherever -- within micro market, when we begin seeing opportunities; wherever the demand has been growing robust, we have taken price improvements. Can I give you example of our north, central and south, so all 3 put together, right?
Yes.
All 3 put together, we have seen about 3% improvement average. There are pockets within that which have seen a higher amount of improvement, more than 5% improvement in prices. So we are seeing now, it's a demand -- pull-based price improvement are becoming visible rapidly. And my sense, post-Diwali, I think post -- what happens post-monsoon, there's Chirag and Dussehra and Diwali, these times when labor is not available, construction work slows down, volume pick up is slower. Trade especially is lower because nobody wants to initiate, individual homebuilder segment does not initiate any construction work. Difficult to raise prices. It's only post-Diwali in the month of November, you start seeing improvement in pricing trends. How much, is anybody's guess.
So even in the Western markets, which were we -- part of the Western market that were weak in the last quarter, that hasn't seen any improvement as of now?
No, no. So Western markets continue to be strong, and there's a marginal drop from the highs.
And just one last question. What was -- what were regional utilization levels for you? And what was JPA's utilization?
Regional utilization is north around 75%, 77%; central around 60% -- 55% to 60%; east, around 80% to 85%; west, around 65% to 70%; south, 65% to 70%. And the -- and so this acquired assets or JP assets were trending more or less the same because central asset is essentially the acquired asset and north is hovering around 75% to 80%.
The next question is from the line of Madhav Marda from Fidelity Investments.
Sir, you mentioned the clinker utilization level for the industry are higher than the cement utilizations.
Correct.
Could you just help us out with how much is the differential because this is one place where the data is not very clear for the industry. If you could give it region-wise or overall just to give a broad color?
We have it? So I don't have it region-wise, Madhav. Perhaps I could collate that and share with you offline.
Sure. But overall as in as a -- at the overall country level, how much would it be higher compared to cement? Like you mentioned it was about 70%. But how much will the clinker be?
7%, 8% higher than cement.
7%, 8%. Okay.
The next question is from the line of [indiscernible] from Franklin Templeton.
Yes. So I had maybe a subjective question. So on prices, you said that, obviously, monsoon quarter was good, and October thus far has been stable. But I want to understand what's happening on the ground. Is it the case that companies are actually trying to take price hikes, it's not going through, hence able all are companies like playing the wait-and-watch game? Because you said that now there's a few festivals which are like on and off in various regions. So it's like companies are actually not attempting price hikes, like major price hikes. I'm not talking about INR 2, INR 3. So I think, industry need some major price hikes. So are we actually waiting out this period and waiting for the real strong demand period and then we will see companies like yourself and the others actually take that concerted effort to take the price hikes?
To some extent, yes. And I also agree with your first comment, that companies do take the opportunity wherever there is a slight shortage, people take opportunities to increase prices. And it's a -- it's like today the prices are higher and tomorrow also, if there's one more rate which comes to the market, prices have to be corrected. So I think that if the market is evolving now and it is becoming far more demand-driven pricing as compared to supply-driven pricing.
Okay. And on the other side of the equation, like you mentioned the trade and the nontrade gap, there's a focus from your side to reduce that gap. But on the industry overall, is there a similar effort from everyone else? Because I think Q1, there's a sharp decline in the nontrade prices which hurt the overall realization. So can you give us the overall picture on what's happening in the industry?
So for the industry, other guys, you'll have to talk to them. We have consciously taken price hike for our institutional clients also because the demand is coming from that segment, and that segment is demanding OPC, which is a costlier product, naturally, and a customer who wants consistency of quality and consistency continue to your supply will definitely be willing to pay a premium. So wherever large clients, small clients, we have taken price improvements in our institutional segment.
Right. So you have taken that increase in Q2?
Yes.
The next question is from the line of Navin Sahadeo from Edelweiss.
So just a couple of questions. Sir, you mentioned some regions are operating at peak to incur utilizations. So just wanted to understand, which according to you are these regions and...
North and east.
Okay. So if then -- even then, why are we still seeing like in the past couple of quarters very, very muted price hikes? I think -- I'm not saying that their prices are not improving at all, your presentation does say there is a muted hike. But if they're running at peak clinker utilization, is it fair to say that peak utilizations or clinker per se does not really matter because there is always a blending ratio which can always be improved or what is the mix?
So east market, of course, the blending ratio are the highest because that's where the slag market is. And...
Then the utilizations for clinker are -- you're saying at the peak rate?
Yes, yes. Absolutely.
So my question basically is, if at least, let's forget other regions, but if these 2 regions...
What happens is that with the attraction is that, that the eastern markets of -- are presenting today, there is a lot of material which is coming in from south in the eastern markets. And east markets are such that they are absorbing the flow which is happening. I think east markets have been consistently growing at -- close to 20%. Today, eastern markets, for your reference, I believe the capacity of the industry is about 89 million tonnes. And it is set to cross 300 million tonnes mark in the eastern market in next 2 years as well. And that also will remain supply deficit, I would say. So there are opportunities which exist with good amount of profitability that people would want to see -- take advantage of and move material towards southern. So from Andhra, moving up to Orissa, is hardly any distance.
Fair. No, I was also asking that since demand is good, utilizations for clinker are at peak, and slag, I believe, would have almost doubled in the past one year or so. Despite that, why prices are still muted? As in, you're saying it's only because of competition from south?
It's competition. As I said, I think the material is continuously flowing in. So if we were to look at stand-alone east, it would've been a totally different picture, if there was no inflow from south or central for that matter.
So what about north? In that case, why north then -- what is disturbing the price hikes in north?
As of now, we have taken small price improvements wherever possible in micro markets, as I mentioned. And as of now, markets, I believe, post-Diwali and in the month of November, you should see further improvements.
Okay. So it was really -- I think that's the most important trigger to be watched.
I guess so, I guess so.
Okay. And my -- sir, second question was that, as you said, Bara grinding unit and the commensurate clinker are now by June 2019, so I think there has been a delay here ever since we acquired -- I mean, if I remember correctly, since the time we acquired these units over a year, there has been, I think a delay of couple of quarters now at least 2 to 3. So is there any specific issue for the delay or is it more to be able to like, push that much volumes in the market? How are we -- how should one to look at it?
No. It's contractual delay. The JP as part of our overall deal, the JP Infra, that is a company which is executing these projects. And there are -- they have their hands tied because of it, there are some delays. That's all.
Sorry, I didn't get you. Are you saying did it because of the contractual obligation committed by JP?
Contractual -- the profit has taken some time, maybe there were -- I remember there was a labor strike in between which brought work to a halt. Then mobilization labeled -- labor takes time or replacement might have got delayed. That's all. These are routine project-related delays, nothing else. Not much. We are waiting for the capacities in fact.
Yes, because I'd argue it was also similar because it required an additional investment of just around INR 500-odd crores and the benefits were far higher to the rate.
INR 470 crore is the total investment, benefits are much larger. So we are waiting. We are in continuous follow-up with the JP Infra team for execution of the project at the fastest pace.
Okay. And just one last question if I may slip in. What are the current -- I mean, for the quarter, what were the revenues from RMC and white cement business?
RMC is about INR 480 crores, and white cement is about INR 450 crores.
The next question is from the line of Abhijeet Dey from BNP Paribas.
Sir, given that we are facing in terms of clinker utilization levels in north, upwards of 80% and eventually they'll be a max out. Is there a timeline to Pali in the worst case if this litigation in Binani gets extended for...
I think beyond a point, we would not wait for Binani, and looking at the lucrative opportunity that the markets are offering. I guess, [indiscernible] actions will be taken to press the pedal on the Pali execution. So if we -- because everything is in place, land is in place, approval's in place, order is already committed, we have issued NOI to our supplier. So everything is fixed. It's about to get the engineering contractors on the ground. Even if you take a decision in January-March quarter, that is March '19, March '20 and September '20, we could see 18 months? 18 to 21 months max. So September '20 or December '20. That is where we could see the commissioning. But the decision to -- the starting point will be known in January-March period.
And is there opportunity of a much faster because of our record timing of commissioning in the current 12 months. Can Pali do the same or...
It can. But I am keeping a standard project timeline of, let's say, 15 -- sorry, 18 months. Now that the team has delivered 12 months execution, the board's expectation will be to deliver it in 12 months.
The next question is from the line of Jithin John from CLSA.
Atul sir, this is Vivek. My first question is on the wastage recovery bit. So let's say, you have mentioned in your presentation that's what you want to focus on. So current capacity, 85 megawatts, where does it reach -- have you done a math in terms of where can it reach 1Q?
Makes salt in 121. 121 megawatts.
Okay. And timeline would be?
Just one second, '19, '20. So I guess FY '20.
FY '20. Okay. Got it.
FY '20, yes.
Okay. Sure. Second, your commentary for the last few quarters has been consistently very positive on demand, and indeed, the outcome has been similar. You had mentioned in your presentation, industry to witness...
[indiscernible]
We'll take that offline. But I'm saying industry to witness new capacity addition at 15 million to 17 million tonne. Is there a risk to that number if demand growth is so strong?
No, no, it's not possible. Because one more fine point which was mentioned in that slide is, this is coming on the basis of old limestone, existing limestone mines. And as time passes, new limestone mines will have to be used, which will be far more costly here. People who have bid INR 300 to INR 400 a tonne on limestone, that limestone mine land, I know it is costing now that we have 1 mine for which we are buying land. Century Textiles, and they have informed us the mines that they have under auction and buying land. Land is becoming expensive. People are asking for a much higher price than which could have been bought earlier. As also the operating cost will become more challenging because the royalty from the mines under auction will come into play. I don't hence see the capacity announcement going beyond 15 million, 17 million tonnes per year for the next 3, 4 years.
Okay. Two more questions. One on Binani, what -- where exactly are we in terms of -- are there any set out timeline by which the resolution will happen?
The hearings are done. The Judge went on [Foreign Language] and Clerk is also on vacation. And I think Clerk started functioning -- starts functioning from Monday, if I'm right. And once Judge [indiscernible] resumes office, we will wait for the order to be passed. I'm sure he would have dictated -- I have no idea, actually. So we are just waiting for the order to be passed, it could get passed in the next 2 weeks or 15 days.
And there is an option for the party losing to go to Supreme Court, which means can it get delayed for a few more months -- by a few more months?
No, no, I don't think so. The losing party, I'm sure, will go to the Supreme Court. But that does not -- because it is not -- so the matter is sub judice, I can explain it to you offline because I [indiscernible].
Okay. Last question. I know this has been asked so many times on the call, but so on the pricing bit again, costs are moving up, demand is so strong. For a long time, industry has been waiting for demand pickup. But is there a structural change in the industry structure or anything which is making it -- making prices go up so difficult? Anything that worries you or we should be aware?
No, no. I am happy on the contrary that the demand is becoming institutional because that helps consistency in volumes, all right? So that is one plus point. Second thing is that the demand pickup which is taking place, I think we have to wait and watch the monsoons go by, which I have mentioned in the past also. And there's no reason why we will not see stronger price movements November onwards. I maintain that today as well.
The next question is from the line of Indrajit Agarwal from Goldman Sachs.
Sir, I have 2 questions. First on demand. Now if I look at Slide 5 of your presentation, what we see is the strong wave starts to catch up from the third quarter of this year. Then we head into general elections and then we are hearing all sorts of liquidity concerns. Do you see downside risk to demand growth numbers from these levels?
The liquidity concerns which are we are hearing in the markets, now that you mentioned, yes, it could have some impact because today as we hear how we -- there is some concern on liquidity in the housing finance companies. If that happens, IHB market comes to a slowdown. However, this leg of demand growth, this cycle of -- upcycle of cement is being driven by infrastructure. And infrastructure will lead to housing work. I think the -- this time will also pass for the financial markets and I'm sure Indian economy is far more robust than other -- any other economy and we will be out of this mess.
Sure, that answers. And sir, secondly, again on pricing. If I like break the market into institution and non -- and the trade, so is it like the reported pricing looks weak because the mix is changing more towards institutional where prices is a little bit lower? Or the underlying pricing is actually weakened both the markets?
No. Usually, if I look at my trade ratio, it's not gone down dramatically in this quarter over the previous -- over a previous quarter. The reduction is all on account of monsoon period. Yes, institutional prices are lower than the grade prices. However, as I have mentioned in the past also and today as well, that we have been taking improvement in prices in -- for institutional play as well.
Sure, sir. And last, actually, a follow-up with the second question only. How do you see the competitive intensity varying in these 2 markets? Is it similar? Or is it institutional? Is it far more competitive than the trade or the other way around?
Again market to market, depending upon the number of players, even to meet the requirements of a particular project. To give you a simplistic example, the bullet train project. Today, there are 7 segments of bullet train, which are under execution now. If the -- and Gujarat phase has already begun. So there are plants of UltraTech and there are -- there is competition plant. There are 2 companies which are most suitably placed to capture the benefit of that project. So it's ultimately fate which boils down to the profitability and the competitive advantage which each player would bring to the table.
The next question is from the line of Gunjan Prithyani from JPMorgan.
I basically have a follow-up on this trade and nontrade. How has your trade and nontrade mix changed toward the last -- maybe, last 12, 18 months? And the -- another point on it is, do you think this market is lesser brand conscious and to that extent you see far more competitiveness?
No, no, no. Large projects are very brand conscious because they require very consistent quality and specific quality. So we have seen our trade mix at 66% in this quarter over 68% last quarter, which I think is insignificant because the IHB segment is generally very slow in terms of the monsoon period.
So how would this compare with last year's same quarter? Or maybe last year, if you can give us some sense how is the industry...
Yes, last year trade segment was at about 71%. And I think we are inching back towards that by March '19. Or Q4 this financial year, we should be about 70%.
But if I just step back few years back, this number used to be for industry and for everyone more upwards of 75%. Or maybe for you guys it was closer to 80 -- 75%, 80% range. So this has structurally changed now, right?
Yes. Because, Gunjan, infrastructure demand is institutional and that is coming in a big way as compared to the earlier times where we were maybe at 75%, plus/minus 75% on trade. It was largely IHB or the retail market to which was residing demand. Today, rural is demanding demand -- rural is driving growth and infrastructure is driving growth big way.
Okay. And if the number of 10% to 11% growth, that you mentioned, are double-digit growth for the last few quarters. Do you look at how -- what has been the growth of the trade segment than growth of the nontrade segment? Is there a number -- ballpark number that you can share or give us a sense on?
I don't have it immediately, but yes, the nontrade segment is growing at a faster rate than trade segment.
But any -- I mean, is trade growing? Like rural and possibly now, I think it's growing.
It's growing because the volumes -- 20% growth cannot all be delivered by a small base of infrastructure.
[indiscernible]
Yes. So in fact, if you will look at my commentary and presentation, we have grown 15% in our own rural markets.
Okay, okay. And I just noticed that your net debt on a sequential basis is going up. Has it gotten anything to do with your working capital related...
It's working capital deployment essentially because you pile up clinker, pile up coal during monsoon periods.
Nothing to do with the mix because it is in the more nontrade?
No, no, no, nothing. Because the cement stock cannot be more than 3 to 4 days in any case. It's always at that same level. The finished cement stock.
Okay. And on the cost side, the onetime -- the annual shutdowns, there were also one -- there was a large shutdown for the JP assets, which of course you had not taken after the acquisition happened. Would it be possible for you to quantify what was the onetime higher...
I don't have it, Gunjan. Let me dig it out and give it to you offline.
Okay. Just last follow-up on this cost difference. Now you mentioned INR 135 cost difference between the new -- the acquired assets and your old assets. And you're looking at some investments going into next year. So where do you think the cost difference -- cost savings -- additional cost savings...
There are certain markets or plants which have -- I said, there are structural differences and regional disparities. The regional disparities would be because of the quality of limestone that exists in central market versus north market. Regional disparity because of operating in a hilly area in Himachal, where cost of moving material becomes higher. So these kind of differences will remain. INR 135, the differential which is there, could -- has to come down to about INR 100 out of which INR 64 -- INR 70 is royalty and INR 30 will be towards -- give or take INR 30 will be towards freight related and other local regional costs.
Okay. And we are sticking to the cash breakeven, the INR 500 crores?
Yes, yes, absolutely. All signs are pointing in that direction. And if you look at one of the slides in our presentation where you've seeing large improvements -- so which have been done in the acquired plant. Slide 10, heat consumption is -- has already been achieved to a level lower than our existing capacity. Pet coke usage has gone higher. And blended production is also higher than in our existing capacity. Power consumption is something which is still not there. I think both the shutdown -- when does Bela shutdown come to an end?
December.
Oh, so post -- in the January, March quarter, I think we will see power consumption also be in line or better.
But there are -- I think the issue is more from the pricing perspective, right? Now the cost efficiencies are fully exploited. For you to reach the cash breakeven, you need additional pricing delta to kick in for -- to meet that cash breakeven, right? That is -- I mean, now the gap in cost no longer exists, excluding this, it's going to be...
Gunjan, we already did cash breakeven in January, March. Now we are looking at PBT breakeven, i.e. covering my depreciation...
Sorry, PBT -- sorry, I meant PBT breakeven.
Yes, yes. So we are looking at doing a PBT breakeven in April, June. There'll be a small role by cost improvement and a bigger role by pricing.
[Operator Instructions] We have the next question from the line of J. Radhakrishnan from IIFL.
Sir, just one question from my side. In Slide #20 or in the presentation, you have given revenues net of taxes for current year and last year. So is it possible for you to give for 1Q also? What is this number? 1Q FY '19?
Yes. One second. Q1, INR 8,354 crores.
INR 8,354 crores. Yes, just if I can squeeze for one more question, sir. So this trade mix declining 66% for this quarter. Sir, you took 71%, is it for full year last year or it is...
I was referring to Q2 last year.
Okay. So if I'm just putting that math, it is looking like nontrade sales is up some 40% and trade sale is up some 11%. Is that somewhat a right kind of number or that is wrong?
Sorry, I didn't get you. What?
So if I'm just playing that number for volumes, so I am getting a 40% growth in nontrade volumes in nontrade segment and 11% growth in trade segment.
You're your maths, and I'm sure your math will be right. I've not done the math.
Sir, just trying to understand, is that to some extent right? Or it's maybe I'm -- because that could be some leveling up...
I can tell you the solution.
The next question is from the line of Dheeresh Pathak from Goldman Sachs.
Can you share your region wise clinker utilization, please?
No, I don't have it.
Okay. Second question is, this fiscal incentives from Q1 to Q2 sequentially, why is there such a sharp decline from INR 140 crores to INR 85 crores?
So last quarter, we had a new benefit kicking in, and then there is a regional mix which is depending upon where the growth is and where the distribution is, accordingly, this mix will keep changing.
Okay. But the -- it's a sharp correction. So how is the -- can you just give more color like which region where you're not enjoying in there the growth?
We had kick started a research center in central market last quarter which helped -- which gave us a bigger benefit in that INR 140 crores or INR 139 crores. And now the regional mix, I'll have to do a comparison of the regional capacity utilization of Q1 versus Q2, that will only tell me the answer, which I don't have it immediately.
The next question is from the line of Madhav Marda from Fidelity Investments.
Sir, just a couple of follow-up questions. On the supply, you mentioned 15 million, 17 million tons additional. Is that all clinker backed...
No, it is -- unfortunately it is not clinker back.
Okay. How much of it is clinker versus just grinding?
You have it? I'll get that information as well to you, Madhav.
Okay. And just the second question on the demand. I think it was asked by a previous participant as well, but demand has been strong because -- I mean, people have mentioned this over and over again, but it's basically infra affordable housing by the government and the go base, which is helping. But I just wonder with this -- the HFC challenge, which is going on across the country. Plus I think the government spent on infra heavily when they had the crude windfall, which is sort of going to go away now. So all these factors. Do you think the government can continue to spend on infra the way that they have with preelection spending coming to an end, certain southern states are having sort of debt-laden balance sheets. Can they spend that much? So can we continue to see to see such strong demand growth?
So those -- Madhav, those states having debt-laden balance sheet are doing wonderful work. One should travel to Amravati and see how the construction is happening. That is one. Second, the HFC issue, I think should be short-lived, I'm not the expert. But government spending on infrastructure and housing -- the low-income housing will continue. The urban housing is already, no, not yet out of its surplus inventory and slower growth phase. It still is the slower growth phase.
The next question is from the line of Ritesh Shah from Investec.
Sir, my first question is, what is the clinker factor for composite cement? And you indicated another special grade of cement. And what's the reasoning for the launch of composite cement and another special grade of cement?
Sorry, what is the first question, Ritesh?
Sir, you indicated you have launched 2 products, one was composite cement and you indicated we have launched some another special grade of cement. If you could please highlight, basically, what is the clinker factor in each of this and economic rationale? Is it like to beat slag inflation or it's something else?
No, it's product differentiation. And I'm -- unfortunately, I won't be able to give you the breakup for confidentiality. The other product which has been launched, unfortunately there is no name for this product. That's why I'm not able to tell you the name. But there is a specialty grade cement which was launched. Both are profitable because the costs become lower than existing costs.
Okay. And sir, is it like we're trying to reduce the clinker factor with this another special grade of cement? Is that the idea? Or is it just getting a new brand into the market?
Brand is the same, but if you can win the product with better features -- better quality and giving construction, what should I say, something better to deal with, then it's always advantageous.
Sir, have you already seen a plan in launch for this new product?
No, not yet. So it's a soft launch down in East and then we are gradually increasing it.
Sir, my second question is, why is it that we are not expanding at Kotputli, and we are looking at Pali?
Mines. I need sufficient mines. We don't want to expand compromising on the existing mines because you can expand and reduce the life of mine which might be, let's say, 30 years or 15 years, that is not what we would want to do.
Okay. And sir, last question. You indicated reducing differential between trade and nontrade. Sir, can you please give some color region-wise over here? It will be quite useful.
I don't have it yet.
The next question is from the line of Kamlesh Chugh (sic) [ Kamlesh Bagmar ] from Prabhudas Lilladher.
I have one question on the -- on our current utilization, like say, if you see central plants, they are operating at roughly around 70% adjust for that seasonally lower utilizations. And with the Binani coming in, which is currently operating at hardly around 40% adjust. So don't you think that the intensity of [indiscernible] to keep the prices lower would continue to be there even going forward?
No. Because in the north and western markets, we sell nearly 2 million tons every month. And Binani, which is operating, let's say, around 2 lakh tons a month today, at its lowest capacity utilization. That material is already selling. In addition to that, we might have to sell 1 lakh, 1.5 lakh tons more, the market is growing at that pace to easily absorb that capacity. As I've mentioned, we are fully -- if we are maxed, sort of, on our clinker, and we need additional capacity. The demand exists to absorb it.
But sir, given the price which we are going to pay for the Binani and the capital cost at the Pali plant. Don't you think that Pali makes much more sense as compared to the Binani. Even if you see the nearby plants like say, JK Lakshmi, all are making hardly an EBITDA of minimum like -- hardly around INR 550 to INR 600, which vis-Ã -vis like the Pali or like the nearby plants, all are making, like say, roughly around INR 800 to INR 900 EBITDA per ton in addition to the incentives which the state government is offering?
We will want to look at the incremental capital cost, and I believe doing a brownfield like Binani will be far lower in terms of incremental capital outlay than at Pali. And Binani certainly offers us advantages to access the Western market, which is harder to grow as compared to Pali, which would be focusing on -- more on the Northern Rajasthan markets.
Okay, okay. Sir lastly, like there are some fears or the doubts in the market that you are incurring some additional cost because of this delay in -- on this order related to the Binani Cement. So can you highlight some facts that whether we are incurring any additional cost?
I'm not incurring any costs at the moment. So what about additional costs?
Like say in terms of dues or in terms of...
No, no, there's nothing like that.
The next question is from the line of Murtuza Arsiwalla from Kotak Securities.
Just given the movement in trade versus nontrade sales and the demand from the infrastructure segment, can you give us the mix between OPC, PPC slag? Or OPC versus other blended cement?
So the blended ratio is roughly around 65%.
Blended is 65% in the current quarter? And how would that have been in the same time last year?
57%.
57%. And how much of the cost increase would you attribute to the fact that you moved up your sort of or...
I'll have to do that math, Murtuza, I don't have it offline.
But part of the cost would have been because of high OPC?
There will be some, yes. Certainly, there will be some cost difference between blended cement and OPC.
And does it still dilute, so while OPC may have -- so there is a conflicting...
What happens is, OPC gives a higher price.
Yes. So does it offset? Or is selling a higher quantum of OPC still sort of dilutive in terms of overall profit?
No, no, no. So the only concern one would have is that OPC consumes mines at a much faster pace. It earns more for sure.
It earns more for sure, despite the higher cost. All right.
Thank you so much.
Thank you. Ladies and gentlemen, that was the last question. On behalf of UltraTech Cement, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.