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Ladies and gentlemen, good day, and welcome to the UltraTech Cement Limited Q2 FY '22 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 risks that the company faces. The company assumes no responsibility to public amendment, 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, Stephen, and good evening, ladies and gentlemen. Once again, thank you for joining our earnings call for quarter 2 FY '22, today, the 18th of October 2021. First and foremost, greetings to all of you for the festive season in India. I hope that all of you and your dependents have already been vaccinated for COVID and are able to kill the boredom of work from home by returning back to your respective workspaces and enjoying meeting your colleagues and associates in person. At UltraTech, we believe that work for home is here to stay, and we are enabling roster services, releasing office leases wherever possible, redesigning our larger offices to suit the new normal. To quote, new normal is never normal. Yes, that is what we are seeing in the cement industry as well. Every now and then, we are waking up to news of a new cyclone, Ida, Tauktae, Yaas, and whatnot. Cyclones generally would give our shores a miss, but now are hitting our shores every now and then. Monsoons have continued in the country in the month of October as well and have only started receding in the last few days. World is just recovering from the aftermath of COVID and now fuel is creating roadblocks for the economic growth. Shortages in gas market is pushing demand of electricity generation from coal-based power products. The surge in demand for coal is largely from recovering economies. China first shut down its coal mines, and now it's stockpiling domestic coal and gas reserves. And on the other side, Russia is curtailing its supplies. China was not importing coal from Australia. But of late, I guess that is getting resolved, and they'll start importing from Australia. Fuel prices have seen an unprecedented rally. Who could have forecast more than a $50 jump in less than a month? Added to that, the stock buildup requirements of the West and North Asia for the winters. In India also, all the coal supplies were being diverted to the thermal power plants. But only today's newspaper was -- had some relief that inventory at Coal India has been improving, and the power rates have corrected on the exchange. With this kind of pricing in the coal market, pet coke again becomes favorable in terms of energy cost at the current levels of -- current price levels of coal. So I guess, switching back to pet coke makes more economic sense. Using alternate sources of coal from wherever the most economic -- economical source of coal available is the order of the day. Increasing alternate fuel is slow in India. This quarter, we have reached 4.4% of our total fuel consumption as alternate fuel. And our efforts will be to continuously increase the sourcing of alternate fuel from wherever possible. However, something needs to be done to protect our margins, too. Industries like coal and other commodities are raking in the big moolah with price increases and artificial shortages. Cement cannot keep on just improving efficiency to protect and generate margins. We have taken a call at UltraTech to increase prices of cement to help manage the rising cost of production. Current spot prices of coal have already gone up 3x from June '21 and pet coke is up nearly 2x. Sometimes during the month of October, we had increased the prices in almost all the regions. The prices are now back to where they were pre monsoons. This is certainly not enough to cover the cost pressures. Needless to mention, you must have already got the information from your famous stock info and famous channel checks. On other costs, you would have noticed an increase in UltraTech, but I would urge you not to annualize these numbers. At the beginning of COVID, we had told you about a reduction in our overheads plan of about 10% over FY '20. Yes, we are at it. FY '22, we'll see our overheads around the same number as FY '20, thus having absorbed the inflation of 2 years. Let me now talk about the brighter side, demand. It seems to be robust as monsoons have been receding, volumes are going up. In spite of heavy rains that the country witnessed, UltraTech has recorded a domestic gray cement volume growth up 8%, 70% in white cement. Could we have done better? Yes, most certainly, but we were at the mercy of rain gods. In the lighter vein, a pharma company would always urge for rains -- a pharma company manufacturing antimalarial drug would urge for rains, and cement company would pray otherwise. Q2 was substantially impacted by monsoons, which were above normal in most parts of the country. And in fact, till yesterday, some parts of Northern India and Kerala were facing heavy showers. On the infrastructure side, the trust by the government continues to be very high as part of implementation of its INR 1.1 trillion project under NIP to be completed by 2025. If you were to deep dive briefly on the various subsets of infrastructure, roads, fastest-growing sectors with a massive plan to connect the entire length and breadth of the country under the Bharatmala Pariyojana project, there are 20 expressways already operational and 30 are under construction. Highway construction is almost at par with last year with [indiscernible] kilometers completed till September. Ordering was a tad slower, but we expect it to catch up this quarter. Railways, Q3 onwards, the speed of implementation at DFC is picking up, and most of the work is expected to be completed by the end of fiscal '22. Metro rails, 18 existing metro rail systems have already started increasing the length of their existing metro lines, and 27 new metro lines are being added in the country. Irrigation projects are also back on track. Airports, 2 major airports, which is New Bombay and Jewar are likely to commence this fiscal year. Airports in the major districts are being implemented as part of UDAAN scheme to improve the regional connectivity. On the commercial real estate side, it's a mixed trend. The IT infrastructure space demand is again booming, giving rise to the commercial space. And we are also seeing good traction in the urban housing market in the Tier 2 and Tier 3 markets. Infrastructure expense continued to lead the demand boost with the increase in execution speed across all projects. To quickly touch upon our expansion plans. We have commissioned 1.2 metric tonne brownfield expansion of our Bengal and Bihar unit. This is part of the 3.2 million tonnes scheduled for this financial year. The 1.2 million tonnes is additional grinding capacity for which clinker is sourced from our existing units in Chhattisgarh, East MP and East UP. These expansions are focused on composite cement and in the overall capacity, though less than 1%, but certainly a tiny contribution towards increasing the share of blended cement in our endeavor to continuously improve our CO2 emission norms. The next in line for this fiscal is a 2 million tonne Phase 2 of our Bara grinding unit. Small delays, but it's on course now, and we expect to commission it before the end of this fiscal year. All other projects of the 19.5 million tonne expansion are on track for a smooth -- except for small delays of a month or 2 here and there. In these coal crisis time, I'm happy to share with you that our Bicharpur coal black -- coal block will also start coal mining operations from Q3 FY '22. The coal will be used in our [indiscernible] plants.During this quarter, we have also commissioned 12 megawatts of WHRS capacity and added 21 megawatts of solar capacity tie-ups. With the expansion of -- with these expansions, our green power share has increased to 15% of our total requirements. Before I conclude, let me talk about the cash flows. Working capital has been increased in value terms due to the rising purchase price of -- purchase costs. However, we continue to maintain a negative working capital of around 8 to 9 days on this quarter sales. This negative working capital will further improve in the second half with the reduction in inventories post monsoon. We generated an operating cash flow of INR 1,750 crores. A large part of this was used on the ongoing CapEx plans. In the first half of this year, we have spent INR 2,300 crores on CapEx and should end the year with nearly INR 4,000 crores to INR 5,000 crores of CapEx, all being funded from internal accruals, and yet deleveraging further. During this quarter, we trimmed our treasury surplus to INR 7,600 crores and retired INR 5,200 crores of long-term debt. At the end of this quarter, we are 0.47x net debt-to-EBITDA at consolidated level and will only improve going forward quarter-on-quarter. With rising sales volumes and expansions coming on stream, the reduction in net debt will certainly pick up pace as we move forward. And to conclude, I believe cement demand seems to be on a stronger path. There is a pressure on fuel supplies and costs, but rising costs will be compensated by increase in cement prices. So ladies and gentlemen, let's sit back and enjoy the ride. Thank you. And over to you for questions. I also have with me our Managing Director, Mr. K.C. Jhanwar, to take on any questions.
[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.
Mr. Daga, the first question is on the cost, if you can elaborate a little bit more on the fuel cost specifically. I mean, we currently have a very changing -- I mean, a very dynamic situation for the economics of pet coke and thermal coal. And also with the inventory in hand, I mean, how are we looking at coal cost in coming quarters if, say, the spot price sustains for a couple of more months? And also, there's a spike in the employee cost. Is this a new run rate to work with?
So on fuel cost, your guess is as good as mine. We don't know where the peak is, where -- when will it start switching gears, but the general feedback that we are getting is at least there is a few more months of pain in the cost on fuel. But more importantly, we are passing on all these cost increases in selling prices. As far as availability is concerned, I don't see a challenge as of now in availability of imported coal. We were, in any case, very loosely dependent on domestic coal, a shade under 15% or maybe 12% of domestic coal is our -- part of our fuel mix. Balance is all imported. As for employee costs, this year -- last year, there were no increments which were given, as you are all aware, as part of our COVID plan. So this year, the increments were given, which came into effect in this quarter and will rationalize as we go forward in the future years.
Understood, understood. Second, sir, with respect to the demand front, you shared a very strong commentary in your opening remarks. Any ballpark number for second half for the industry demand growth which you are working with internally or expecting? Any quantification or guidance on that front?
I would be very safe in estimating it anywhere between 6% to 8% in the next 6 months, which could be conservative. Would you like to add, Jhanwar?
Yes, yes. So yes, As Atul said rightly, because now it's a very challenging time because with such an increase of fuel prices, which will obviously result into increase in the cement prices. And all we know that the steel prices have also doubled actually in last few months. So there may be some impact on the demand side. But yes, we can still safely assume about 6% to 8%, to our understanding, the demand should be there. And all of you know that these months are the peak months from the demand point of view.
So as the festive season gets over November Chhath puja, I don't remember when is this Chhath puja in India. But typically, from there onwards, we start falling short of capacity. That's what we saw last year, January, March, and I think it will repeat.
Understood. And just one last thing, just the European loan assets, which we have, we classified that as discontinued. So any progress on the recovery of that?
We are fairly advanced in our negotiations. And my sense is, by end of December, we would be reporting a closure on that transaction as well.
The next question is from the line of Raashi Chopra from Citigroup.
Sir, just a few questions on cost for this quarter. One is last quarter, I think, coal consumption cost was about $123. So do you have a blended cost for this quarter?
This quarter is a shade under $110. That's a...
It's lower...
Sorry, $120. It's $120.
So it's flattish on a...
It's flattish, yes.
Okay. So you have less also this year because of our inventory or...
So we had inventories, and we had done some smart contracts, which is enabling us -- which enabled us to procure fuel at lower costs.
What do we expect to gain in the third quarter?
It's bound to go up. I would expect -- where's the chart. $120 could go up by...
[$170, $180].
No, maybe $10, $20 more it could go up. Average -- take the average.
This $10, $20 is in the third quarter, but I would imagine us to talk about some inventory this quarter, this is like the peak given current pricing, so will the fourth quarter be higher...
Raashi, peak, I cannot guarantee. I don't know how long the prices will keep on going up. But yes, we will see an increase in our fuel costs going forward.
Okay. Second, on the price increases that you're referring to, to sort of absorb the cost inflation. So when you think about that, is it -- you want to kind of maintain that EBITDA level versus 1Q or versus last year? So when you say cost inflation absorption, as in what kind of -- I mean what is the...
Given a choice, I will want to reach the best-in-class EBITDA margin that we would have achieved. So our endeavor will be not to be buckled under the pressure of rising fuel costs. And on a steady state, if I were to look at -- 34%, 35% is a very high number. But on a steady state, 27% to 28% -- 26% to 28% would be a good range to benchmark performance.
So October, what has been the -- you said October, you took price increases, so what is that? What is in the quantum roughly?
Varies from market to market. And average, I would say, INR 10 to INR 15 has already gone up.
Yes. Yes, INR 10 to INR 15 have -- the price has gone up. But as you know, it varies from market to market. And sometimes the discount structure is in the different markets. So maybe -- but the prices...
So INR 10 to INR 15, Raashi, across the country. And the good part is all the regions have absorbed these price hikes. Other thing is there is a general expectation amongst the infra players, among the dealer community that price rises are imminent. So there is very little resistance.
Got it. Okay. And just one more on your Bicharpur coal block, this coal will be used in the power plant?
[indiscernible] plant.
In the power plant.
Yes, yes. It will be -- we can blend it also in the kiln as well as in the power plant.
So how much -- what proportion of the coal are you -- you will be substituting.
So that piece, Raashi, it's a very small portion. I think, on today's capacity, we need plus/minus 12 million tonnes of fuel. And this mine coal block is -- annual mining plan is 750,000 -- less than 1 million tonnes per annum.
Okay. Sir, one last question, what is the lead distance this quarter?
I'm sorry, what?
What is the lead distance? Because you made a comment that geographical mix has also hurt the freight cost. So just number one, what does that mean? And number two, what is the lead distance?
Lead distance. Sorry, I heard freight. About 425 kilometers.
The next question is from the line of Pinakin Parekh from JPMorgan.
Sir, my first question is just trying to understand this energy cost trend issue better. If we look at Slide #17, where there is the green line, which is the index of pet coke prices versus the black line, which is the energy cost index, it's nearly half of where the spot pet coke prices are. Now when we look at spot prices of thermal coal, pet coke, and if there were no inventory benefit, how much would have been the energy cost been higher by? I mean, assuming there is no change in spot prices from here, there's roughly INR 1,100 a tonne. Should be at INR 1,500, INR 1,800, INR 1,300. How should we look at the total cost inflation from here, sir?
Sure. So Pinakin, there, one is carryforward inventory. The other is efficiency improvement. We have been continuously improving our power consumption, heat consumption. Power consumption has gone down by 4% Y-o-Y. That is one. And if -- so that is where the big difference delta between 240 and 126 lies. Of course, this is only a schematic reference because I have taken only pet coke price index. I haven't taken the coal price index, and the blending ratios will continue to change. So to answer your question, INR 1,100 could be INR 1,300, but not INR 1,500. Hello?
Sorry. Spot thermal coal and spot pet coke prices?
Yes.
Understood, sir. Sir, my second question is that if I look at the broader -- moving beyond energy cost, there is a cascading impact of inflation coming through in other line items also. Because Brent is moving higher. Diesel prices have started moving higher. You mentioned packaging cost is also higher. So when you are looking at total cost over the next 2 quarters, if we take the starting point as the 2Q realization, if we were to go back to the first quarter EBITDA margins or EBITDA per tonne, what kind of price hike would the industry need to see? Would the industry be okay with a 5% price hike to absorb all the costs and revert back to margin? Or we're talking about 10% to 15%?
If I were to assume INR 350 as a base price, 10% minimum is required.
To cover all the costs and you go back to the first quarter?
And go back to Q1 margin. Because Q1, you are referring to is a very high margin level.
Yes, sir. Okay. Understood. That is very clear.
It will happen. It will happen.
The next question is from the line of Ashish Jain from Macquarie.
Sir, again, my question goes back to the earlier questions, one is on power and fuel cost. So if I understood your comment right, it's versus the $120 that you said was a blended consumption cost, versus that if I paid $220, $230, we are seeing the energy costs will go up only by INR 200. Is that...
Give or take, yes.
Okay. Okay. And sir, like this $10 number that you said could be the impact in Q3 on the fuel cost side. This is good for whole of Q3 based upon a reasonable production assumption? Or...
Yes.
Okay. So the $210, $220 is not going to hit us even in Q4, you think, based upon the contracts we have...
Yes, Q4 -- whether Q4 will be $220 or higher is yet to be seen. We try and keep the various expertise that the team has -- various levels of expertise that the team has in sourcing and planning will come to its play, and we will try and keep our prices -- energy costs as controlled as possible.
No. Sir, my apologies, but just to persist on this. What I want to understand is that, either due to our contracts or based upon some of the sourcing mechanism, is it possible for us to source coal even if the spot is $220, are we sourcing at $160, $170?
I wish I could. I wish I could.
Okay, okay. So at some level, the market price will -- should...
Yes, it will catch up. It will catch up.
Okay, okay. Great. Great.
I'm not able to say -- Ashish, I am not able to say whether it will happen in Q4 or Q5, which is Q1 '23.
Right, right. Okay. And sir, secondly, just on the CapEx plans. You said that we are seeing some delays, as I understand, 1 or 2 months is what you indicated. But are we seeing these delays across locations or 1 or 2 locations?
No. 1 or 2 locations, we saw some delays. That would only -- that's the only delay -- everything there has been a catch-up in fact. Like Chhattisgarh were a delay. They have caught up brilliantly. Pali, they have caught up brilliantly. We are a larger one. The others are smaller ones. So Cuttack was the maximum -- so that also has picked up, sorry. So out of the 19.5 million, 3.2 million will get commissioned this year. And next year, every quarter, we will have, out of the remaining 16 million tonnes, I had given the schedule in the earlier presentation. One of the -- I think, quarter or the CapEx plan presentation, we will be able to meet that schedule, a month here or a month there. Hello? Ashish?
Mr. Ashish Jain, if you are able to hear...
I think he is disconnected or lost the signal.
Yes. It seems like we lost the connection for Mr. Jain. We move to the next question from the line of Amit Murarka from Axis Capital.
Yes. So like first question is on mix. Sir, what would have been the trade mix in this quarter?
69 -- 67% is trade mix.
So broadly stable then. And also like on other operating income, I see that it has jumped quite sharply this quarter. So any reason for that?
So incentives keep coming in and out. This quarter, we had our incentive coming in, some incentive expired, and there could be some other miscellaneous income kicking in. So this would be a one-off, and I would have a stability at the way we have been around INR 60 to INR 70 -- INR 70 crores per tonne.
Right. Okay, so this quarter, that is -- it's almost double of your usual run rate in that sense?
Yes, yes, yes.
Okay. And also in terms of the capacities, like obviously, you've highlighted about the ongoing expansions which are on track, which should be done like, say, by March '23. But given that we know that it takes, let's say, 18 months or 2 years or more also, if it's a greenfield to do, like are you thinking around further expansions more from FY '24 and further pipeline point of view?
Yes, we cannot stop growing. India is the only market, as you very well know, which is expected to see a growth of 6% to 8% -- 6% to 7%. But if I look at the CAGR of 10 years, 6% to 7% is a very confident number to go by. If we don't grow, then we will start losing market share.
Okay. So we should assume, let's say, that kind of a capacity growth rate can -- on an usual basis.
Inorganic or organic.
Okay, okay. And also in terms of capital allocation, now that like you're quite fast going towards a net cash balance sheet, what is going to be the capital allocation plan or inorganic is back on the radar? Or how is it?
It's always there on the radar. The right opportunity is what we would look for. And capital allocation, as you know, that the return to shareholders will increase. We had stepped it up in last financial year. And I'm sure -- I think this was a very well thought-out decision taken by the Board after looking at the long-term cash flow plan that we will be able to step up returns to shareholders after taking into account our requirements for growth, which will not be leveraged.
Okay. So then like is it fair to say that the balance sheet will not turn into a net debt balance sheet maybe or maybe even if there is an acquisition or something?
So if there's an acquisition that there will be 1 year of leverage because you see acquisition has a bulk front-ended payment. So it depends on the size also. If it's a small million tonnes, you will not even realize that the balance sheet has absorbed it. But if it's a 10 million tonne or a 13 million tonne acquisition, then bump up for a year will take place.
It all depends on the kind of opportunity we get. And obviously, the opportunity is quite big, then as Atul said rightly, it may have some impact year on...
I think I have stated -- mentioned this earlier also in some forum. You -- your financial models will tell you what is the size of the EBITDA that UltraTech will be in FY '24. FY '23, all capacity, 20 million tonnes of new capacity coming on stream, stabilizing in '24. '24 is a new normal EBITDA for UltraTech. Take a thumb rule of whatever leveraging you want to do on that, and it's a 1-year reduction.
Right, right. Got it. And lastly on Super Dalla, like I guess there is some more delays. Could you just throw some light on that as well?
Quite unforeseen, unfortunate instances keep taking place at the bureaucracy level. We were scheduled to fast track, then PM visit happened. So everybody went into the PM visit mode. No meetings taking place or somebody not there, et cetera, et cetera. Having said that, March '22 is a very realistic number that we will have our plant cleared up, ready to start work. March '22, yes.
Okay. But you also...
We did not want to bother you with the negativities. There are so many things that we have to deal with.
Yes. But I remember there is some work also that needs to be done once you get the plant because it's been shut for a long time. So...
Yes. But you see that -- we have clearly identified the CapEx plan. If I am able to wrap it up by December, we will start work in January, touch and go March, April, we'll start generating clinker from there. It's a 2.3 million tonne clinker.
The next question is from the line of Ritesh Shah from Investec.
A couple of questions. Sir, first, is it possible if you can break up the INR 286 crores number. You did indicate that incentives related to Dhar Cement. Related to this, I wanted a wider answer from you regarding what are the sort of incentives that you're expecting from, say, Dhar or Pali, or some of the incremental announcements that you've already made? Sir, that's the first question.
Let me first, before I forget -- your questions are long and more complicated. So incentives are not standard anywhere. So you have to approach the authorities, the regulatory body and see whatever is best possible under the ongoing schemes or early a new scheme gets announced. So whether you are eligible, not eligible at all is a mixed bag. So we don't count -- don't depend on incentives at all for our project returns, return -- incentives are always on top. And Pali, let's say, Pali, I expect to commission by September '23, when will I get -- the incentive application is fairly at advanced stage. When will I get it, I don't know. Practically, all the projects are there in different stages of consideration at the state authority levels. Remains to be seen when we get it.
Sir, specifically coming back to Dhar. I understand that under the earlier government, cement was in negative list for MP, and after that, it was taken off. So I'm sure like we would have got some benefits over here. So if you can compare just to understand the IRR of the project better, that would be useful, if possible.
There is -- I will give you details offline. But now the -- earlier, the incentives used to be directly linked to VAT. Now they cannot be linked to SGST because it's very difficult to track from the state exchequers perspective, how much material is sold within the state and how much material has gone out. So they keep structuring different packages to incentivize investments. We have got a completely different incentive package for Dhar and completely different hypothesis, which we are pursuing, which -- at Pali. So it's completely different.
Sure. Sir, second question, just coming back to the cost inflation part. Sir, what is the procurement strategy? So basically, when we procure fuel, we have optionality for pet coke, which you indicated will increase in pie going forward. But when it comes to pet coke or coal, there will be spot contracts, medium, long-term contracts. So just wanted to understand what is the sourcing strategy when we say that our costs will only increase by $20 to $30 next quarter? So is it like we already have booked something at low cost? So just wanted to have some sense on thought process behind that.
So I'll give you a bigger picture instead of giving exact details being confidential from competition perspective. We -- in cement, obviously, we are the largest consumer of fuel, 12 to 13 -- 12 million to 13 million tonnes of fuel. So we cannot depend on spot alone. We do a blend. We do long-term contracts at fixed prices. We are -- we do long-term contracts on index-linked prices, discount to index, different sources to try and manage the average cost. We do blending of fuel within -- as a kiln feed to reduce the average fuel cost. We are trying to increase a small number, but we are trying to increase our alternate fuel so that dependence on fuel goes down. We are increasing our WHRS capacity, which is helping me reduce my fuel consumption for power. We are ongoing...
And there are also a number of initiatives -- ongoing initiatives in terms of fuel and power efficiency improvement. Yes, the consumption norm. So it's a combination of multiple things, actually. And of course, the blended part of it.
Continuously trying to improve our conversion ratio. So that is also helping improve the fuel consumption.
[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity International.
I just had a quick question. Sir, basically, given that UltraTech, like you mentioned, is the largest consumer in the Indian cement space, and we have all these long-term contracts. If you think about some of the smaller players in the industry, but they also have access to such long-term contracts, which would be at sort of more fixed prices and more favorable prices or such contracts would be more limited to the larger players in the industry?
Would you like to ask them instead of asking me about them?
We might reverse it then ask you.
So Madhav, there are benefits of scale and size, which UltraTech certainly enjoys. I wouldn't want to comment about what others are doing on a public forum.
Okay. And then just a second question was that like you said, price hikes should happen considering how heavily coal and petrol costs have gone up. Should we broadly basically expect this to come through January onwards, possibly through the kitchen or it could be even earlier?
Sorry. Can you repeat your question, Madhav?
No. The price hikes, basically, would be coming usually as it happens in January onwards, when the peak season...
October onwards. Yes, October 7 onwards.
Okay, okay. So we'll keep on passing ahead through the quarter?
Absolutely, absolutely. I mean you can't do a lag effect over a year. Otherwise, the damage would be done in this quarter.
The next question is from the line of Satyadeep Jain from AMBIT Capital.
First, on the -- on capital cost inflation, given where steel prices are, cement prices are. Are you seeing any capital cost inflation on your existing project or if you had to start a new project? Could you elaborate on that?
So let me take the latter part of the question first. A new project obviously will cost much more. Our greenfield project would go about $100 a tonne very easily. As for our ongoing projects, there are some cost overruns, but there are cost reductions and optimizations, again, thanks to bulk buying longer-term contracts that we have been able to largely weather the storm of increase in steel prices. I mean steel becomes a major component for CapEx costs. Jhanwar, would you like to add anything?
Just to further add upon, because our the major context for the technology supply and the steel part was reasonably well covered before the price -- steep price increase started in steel and other metals. So I don't think there would be a major surprise in terms of the cost. There are some minor here and there, very marginal increase maybe there, but we are putting all efforts so that by better efficiency or whether other improvement initiative we can contain it, the cost within the budgeted cost.
Total project costs for the 19.5 is INR 6,800 crores. Somewhere around -- a shade under INR 7,000 crores. I think INR 6,800 crores is a number to my memory. We will remain at that.
Okay. But if you had to -- say, you're well covered on the existing projects, if you have to start a new project, obviously, there, you'll see some capital costs instead?
Yes, there the cost will go up.
Yes, obviously, because it's on the overall interest and then the impact of the exchange rate and so many other factors. And it's not only cement, but I think all metal prices, right from copper, aluminum, everything.
Everything is up. So...
And the contractor cost is also now increasing substantially.
So if you were to look at average greenfield cost of, let's say, $90, it would go up to $110, for sure.
Okay. Secondly, you did talk about imported coal, but coming to domestic coal also for your CPTs, what kind of long-term SSAs we have with Coal India for coal refinement? And...
As of now, Coal India is canceling the shipments...
In coal especially, because they have totally stopped for the time being allocation of coal to the non-power sector. But yes, obviously, it's a combination of FSA, the auction coal and...
How much percent in domestic coal?
17% combined.
So between kiln and our power plants, total fuel 17% is domestic, which was being met out of auction coal or FSA. Don't count what is happening today or yesterday as of now because that's, I believe, temporary. Coal India will get its reserve back on track. There were delays because of heavy monsoons. Movement was not taking place so on and so forth. With season improving, things will come back to normalcy in Indian domestic suppliers.
Okay. But as you do your planning and you look at different scenario analysis, typically, the power situation would improve in winter and soft prices will improve. But in case they don't, what's your fallback option that you're looking at for your CPGs?
Well, we'll have to depend on grid power also and imported coal.
The next question is from the line of Navin Sahadeo from Edelweiss.
Hello? Am I audible?
Yes, Navin.
Two questions. One is, first of all, a clarification. I'm sorry if it's a repeat. You said Q2, the average fuel cost was about $120, which in the current spot terms is over $200. And for that increase, the max hit that will come to us in terms of average fuel cost increase will be just about INR 200 or roughly $3. Is that understanding correct?
Okay. Yes. In Q3.
In Q3, okay. Okay. So in Q3, we are expecting fuel cost increase of roughly INR 200 per tonne and thereafter another impact in Q4?
We'll see. We'll see. Because the way spot is increasing.
Right. So if I were to just ask from, let's take Q2, the current quarter as the base at which it's about $120 and the spot of INR 240, INR 250, I really hope that it spirals down as quickly as it went up. But assuming at the current rate, what is the cost delta?
Cost -- sorry, for what period? We just discussed.
Yes, but we said it's Q3.
Fuel cost goes up by INR 200, INR 300 -- INR 200.
In Q3?
Yes.
But at current spot, it goes up to how much?
Current spot, it will -- should go up by maybe INR 500 more if I have to consume everything at $225, $230, $240. But I am very peaceful and sleeping [Foreign Language] at night because we are passing it on to you if you are constructing your house.
No, I already did last year.
Your second house and your villa in Alibag. I know Navin.
Right. Then the second question is about the fuel mix. So pet coke from Q4 has been falling. I think it was 28%, 30% in Q4. Previous quarter, we were at about 17%, 18%. Currently, where is this fuel mix in terms of, broadly, pet coke, imported coal? How should one look at it?
Pet coke was how much? 18%?
19%.
Pet coke was 19%.
Now being interchanged. And just to add up on, see the fuel mix is very dynamic actually because, one, quarter back, the coal was very competitive and pet coke had become expensive. Now the pet coke is equally competitive. And the second is now the major challenge is not the price. If you ask me, honestly, it's availability and the fuel security. So -- but we have developed recently very good skill to switch over from one fuel to another fuel very quickly without losing much of time. So it all depends what kind of prices of the pet coke and the coal.
No, precisely, sir. I asked this question precisely for that reason, that it's not about the price, it's about the availability. And on a per-tonne basis, your -- as we speak, I think the imported coal is much costlier as compared to pet coke, but pet coke availability is a challenge. So with that in mind, as we speak, as you said, pet coke has again become the favorable fuel. So how much can it go to in terms of percentage?
You would know it better. You ask a coal analyst, not a cement.
It's very difficult, very honestly to predicate. You said very rightly, the availability of pet coke is not such a huge as the way the coal is available. So it all depends actually what kind of scenario gets emerged from different part of the world, not only from India.
So Navin, to give you comfort, 2 things. As of now, the pipeline has not choked. So there is a continuous flow. And we are ensuring that none of our operations, not a single plant will suffer a shutdown because of nonavailability of fuel.
Of course, that must be certainly just a wiser mix.
Second, as -- yes, I think that's the beauty of being a large player. You have the reach practically everywhere to get resources. And secondly, I'm sleeping peacefully because the cost is being pushed on to the consumer.
Great. That's really nice. Just one last question, if I may slip in. Staff cost sequentially higher. I know other expenses is higher because of maintenance. The staff cost sequentially is higher. So that's for the increments. So is it...
I had already told, the increment was -- got factored in, in this quarter.
Correct. So can that be taken as the normalized base to be annualized? We cannot annualize the other expenses. Sir, can we annualize the...
It will be lower because there were some onetime bonuses also factored in. So it will be lower, not same level.
[Operator Instructions] The next question is from the line of Girish Choudhary from Spark Capital Advisors.
Most of my questions have been answered, but one thing, if you can share, the regional pricing trends like you generally share on a sequential basis, that will be great.
Regional pricing trend for what?
During the quarter. During the quarter, 2Q.
For the last quarter?
Yes, yes. Or for UltraTech.
Well, the -- we have the numbers, guys. One is the average prices were up about 4% to 5% on an all-India basis. There was an increase of 2% to 3% in North and East. Central was flat. West was 5%, 7% increase. South was flat.
So these were on Y-on-Y basis, right?
Y-on-Y.
Y-on-Y.
Can you share the sequential numbers, if possible?
Sequential, the prices were marginally down about 3%. The biggest drop was in the Eastern markets, closer to 10%. But otherwise, average 3% plus/minus, marginally down.
The next question is from the line of Rajesh Ravi from HDFC Securities.
Yes, in the earlier part of the call, you mentioned that in second half, you're looking at 6% to 8% volume growth. So if we do the math, for the full year, it works out to be around 13%, around 97-odd million tonne gray cement sales. Is this what you're looking at?
I guess so.
Great. And second is, if I look at the gray cement performance on a Q-on-Q basis adjusted for the other 2 businesses, realization is down just 1%. So any specific reason there? Because markets, we understand that prices were down 3% to 4% across markets, barring North and Central, where it seems to be slightly flattish. So is it there any change in sales strategy, which helps you clock lower decline sequentially?
Are you a shareholder, Rajesh? Yes or no? Or you part-time?
No, no, I'm not.
Well, you should be holding UltraTech then. We are -- I think UltraTech, as a leader in the industry, always command respect in pricing as compared to the other players.
Okay. And on the cost side, if I look at the cost line items, which you mentioned in the PPT, and if I take that with the gray cement realization, we see around INR 30-odd decline Q-on-Q in your EBITDA margin. So is this all because of the power and fuel cost? Or...
Cost. It's cost, cost, cost.
Okay. And this is what you're looking to the realization increase from this month onwards?
Yes, because monsoons it's very difficult as it is there is a pressure on volumes. And in spite of the heavy monsoons, I think nobody complimented us, but I take the compliment from you that we did a 7.5%, 8% growth in volumes. The moment monsoons have started subsiding, we have taken the opportunity of increasing the prices.
Okay. Okay. And on the costing side, WHRS, which you installed 13 megawatts. So what is your total installed capacity post that?
It's mentioned in the presentation. 150 something, right?
137 WHRS.
137 megawatts WHRS.
Okay. 137 megawatts.
For a nonshareholder, you ask so many questions.
And lastly, on the capacity, which is...
Sorry, Rajesh, let me take on some other questions.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
Yes. My first question is on the truckers issue in Eastern markets. So is it something which impacts us also? There was a strike, which resulted into close down of some plants in Chhattisgarh. And has that issue been resolved?
Yes. No. The truckers issue is there in Chhattisgarh and -- but the good part is, we are not too much impacted, obviously, because our all [indiscernible] adding actually. So yes, definitely, there maybe some marginal impact on the road movement actually from the plant. And as of now, I understand it is getting resolved tonight or by tomorrow morning. The almost understanding has been reached. But let's see there because this development of negotiation, discussions is happening since last 3 days. But yes, we are near to reach to some understanding.
And second question is on this demand trend chart, which you generally give on a presentation is always very useful, which mentioned that our central region has a flat growth during the quarter. Is this the only reflection of monsoons? Or...
Eerie monsoon, yes. Cities like Bhopal and Madhya Pradesh faced torrential rains this time.
Okay. So like -- something like election-related demand coming in UP is something, which is seen on the ground? Or it is also sort of impacted by monsoon?
No, no. Now you will have the benefit of election demand. '23 -- '22, '23 will be all election-driven demand. General elections are there, '24. So you had seen what happened in '19.
I was talking about state elections in UP. So...
I was referring -- besides state election, I'm referring to general elections also coming in. So '22, '23 will see a very robust demand momentum.
The next question is from the line of Mihir Jhaveri from Avendus Capital.
Just wanted to ask you on this demand thing, which you said in the second half, which is going to be 6% to 8%. If I look at purely from that angle, the base is pretty high in Q3 and Q4 last year was phenomenal given the COVID situation. Even Q1 was very strong. So how should we look at it? Is this -- is there a risk to this guidance? Or since you...
No, no. There is -- this is a huge, huge field. I went in a long detail in my commentary on the infra space. See, let me give you the basics. What is now happening is, post COVID, the housing sector has also been -- urban housing sector has also been reviving. Monsoons have been good, crops have been good, so rural demand will continue to have a party time. Infrastructure was continuously growing. Earlier, pre-COVID, rural markets and infrastructure were the torchbearers for demand. Now you are seeing the urban housing also coming in. I also touched upon the IT-related commercial demand, which is coming up in Karnataka, in Andhra big time, in Tamil Nadu in a big way. So you will see a huge amount of cement consumption going forward.
Okay, sir. And just a clarification on the cost part, sir. So the cost impact probably what you highlighted from the fact that Q3 will have a less impact. So cost impact clearly will continue given at current spot price in Q4 and Q1 as well, right?
True. True.
I mean that's -- okay.
The cost will be not bound.
The next question is from the line of Kamlesh Bagmar from Prabhudas Liladher.
Sir, just one question for -- likely related to your Middle East and overseas operations. I believe this quarter has been one of the worst in last, like, say, around 18-odd quarters. Our derived or implied EBITDA has been hardly around INR 8 crores. So what has been the reason behind that? Has there been some onetime cost that has been...
No, no. This was a temporary setback. One is costs going up in the UAE market and export markets into Sri Lanka from India suffering. We had a bit of a slowdown from our Gujarat plant into Sri Lanka. But now I think there will be a catch-up because Sri Lanka, which -- we sell close to 1.5 million tonnes per annum. It was a controlled price regime. Now it's going to free price -- prices are decontrolled. Price increases have already been taken in Sri Lanka. So I expect it to come back. It's a one-off bad quarters for our overseas operations.
Okay Sir, lastly, sir, you know that Q2 is a mix of maintenance cost and lower efficiencies. So -- but like I said, given the Q3 where we could have a peak quantity, a very strong quantity of cement and, on top of that, better efficiencies. And secondly, we will have a higher energy cost. So taking that into consideration, like, say, for Q3 and Q4 fixed cost element is also there. So how do we see the costs? I know that a lot of questions have been asked, like, I believe most of the parts have been discussed on that thing, but taking fixed cost, term cost, all that in consideration, Q3, Q4 or combined H2 over Q2, how the cost would pan out in terms of overall trajectory?
I will give you some homework. You do the calculation of our operating leverage over the last 3 or 4 quarters, and it will answer you.
We take one last question from the line of Sanjeev Kumar Singh from Motilal Oswal Financial Services.
I wanted to understand what sort of capacity additions are you pursuing in the industry? And secondly, in terms of inorganic acquisition, I believe that in 1 of the presentations, you have written that 50 million, 60 million tonnes of inorganic acquisition opportunities are available. Can you comment on that? Are there good assets available? And when the profitability is higher, then they will still be available?
So first point, I think this year, 20 million to 25 million tonnes is what I would expect, slowing down next year. And on a longer-term basis, I still believe as auction mines come into play, recently, somebody took a small mine in Chhattisgarh at $660. So it's quite unrealistic to generate a return on these kind of highly expensive resources. So you won't see too many CapEx -- besides, you need also to look at what are the mining resources each player has, at what location the data is easily available. If somebody wants to run a plant at -- with just 5 years or 10 years of life, god save them and god save the investor who is putting money in that company. So expansion, 20 million tonnes coming up. Next year, again, we have a large chunk of our expansion, 15 million tonnes coming up next year. Beyond that, there is, I would say, a slowdown in investments. As for acquisitions, we are always open to a target, which helps us -- gives us a profitable growth opportunity. So growth as in increase in my market share and profitable obviously. Obviously, it has to generate a return on my investment. As of now, there are a couple of transactions which I am examining, small ones, not worth -- very small ones. But I'm sure there will be people who will want to cash out at some point or the other, and we will be there to have a discussion.
Okay. Okay, sir. Second, sir, just a clarification, was gray cement realization down 2.5% Q-o-Q? Because if I go by the presentation, it looks like it was down 2.5%. Am I correct or it was lower than that?
Realization is down Q-o-Q?
Yes.
We are 2.5%, 3%.
Ladies and gentlemen, on behalf of UltraTech, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you so much.