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Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of UltraTech Cement Limited. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify, or revise any forward-looking statement on the basis of any subsequent development, information, events or otherwise. [Operator Instructions] 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. Good evening and a very warm welcome to all of you to this earnings call of UltraTech Cement. As was expected, this quarter has not been good for the industry as well as ourselves alike. Lots of things happened which went not in favor of the industry, which are clearly reflected in our numbers as well. Let me talk about all the negatives first and there is lots of good things also to talk about. Firstly, the monsoons. As you are already seeing, everybody is aware, monsoons have been so erratic. It seems to be a dramatic ecological change that is taking place in the country. Excessive monsoons have been there almost all parts of the country, except maybe some areas like Tamil Nadu or Assam and Meghalaya, which saw lesser rains. Delayed exit of monsoons has been causing some amount of pressure on cement consumption and construction activity, and it remains to be seen how these monsoons will be -- delayed exit of monsoons will impact the crops. We'll have to wait and watch. Cost is the next item which I would want to touch upon. And as I had mentioned in the call during the last quarter, the costs are still elevated, continue to remain high, primarily driven by the rising prices of fuel. There was a brief period of merriment when pet coke prices dropped to USD 170 per tonne and everybody thought that this reduction is permanent. I'm sure many players interested in pet coke would have booked some contracts between USD 170 per tonne, USD 190 per tonne. But today, as of yesterday, in fact, the prices of pet coke are back to USD 205 per tonne plus. There was some news about Venezuelan supplies as well. However, we were advised not to venture into Venezuela supplies due to the U.S. sanctions. And coal is stuck around USD 300, USD 350. Softened up a bit but still very high. Not yet worth buying for most of the 7 players, as there is a significant arbitrage in pet coke. Few years ago it used to be opposite. Pet coke was expensive as compared to coal. In our analysis, the geopolitical situation continues to be the driver for determining the costs or the trends or the direction in which the fuel costs will move. China is always the sleeping giant. Today the Chinese economy is down, but I'm sure China will revive, open up at some point or the other. Europe has started its coal-fired engines because of the ongoing war in Europe -- the Russia-Ukraine war, which is also sucking up a lot of coal supplies. Our view is that fuel costs will remain high due to the ongoing geopolitical scenario, albeit we have seen the worst on coal and pet coke prices. Hopefully they should not go up further. Crude has softened a bit. But we'll have to wait till the government decides to pass on the benefit to industrial consumers. We have to wait and see in the manner in which it is passed on and how much is passed on. During this quarter, UltraTech has completed shut down work on almost 19 of its kilns out of the total 43 kilns. Maintenance costs have been higher because of inflationary pressure on refractory brick costs and other maintenance costs. Prices were under pressure during the -- towards the end of May '22, and they saw a continuous slide. Monsoons you don't see any opportunity in increasing prices. However, the first available opportunity that the industry saw, I believe in pockets where demand has been good, price increases have been attempted, some price increases have settled, some have not settled in the country. Typical of the Indian cyclical cement industry, the season for cement starts after the festive season is over, which is after Diwali. So I would -- Diwali ends 24th and maybe 25th of this month and you should start seeing improvement in the market sentiment on all sectors after that only. One negative aspect about the rising prices of fuel is large cash flows are getting blocked in costlier working capital. After enjoying a long run of negative working capital, we had no choice but to give up the gains with rising costs and identifying pockets of opportunities to buy cheaper fuel, we have increased -- consciously, we have increased our inventories, which has resulted in increase in our working capital. However, I am confident that in the next 6 months as volumes go up, as the cost of purchase of fuel stabilizes, our working capital will go back into the negative working capital zone before the end of this fiscal year. There is no reason why the industry will not take prices up since the margins are continuously under pressure. Let me now talk about the positive side. Demand has been good and that is the most important factor, most heartwarming factor from our perspective. On an increased capacity -- we increased about 4.5 million tonnes of capacity YoY. On an increased capacity, our domestic volumes have grown about 10%. This could have been higher but for the heavy monsoons. Improvement in capacities bodes well for profitability and cash flows. Good capacity utilization is the key. Good capacity utilization would easily help increase prices. This year and the next year definitely can be delivering a double-digit growth. Why? Well, because the first half itself, as UltraTech, we have recorded about an average of 14% growth despite a weak monsoon quarter. And as you are all aware, that demand starts picking up post November and March is a peak period. So definitely we should be able to deliver double-digit growth this year and next year as well. During the quarter, we've commissioned about 32 megawatts of renewable energy, taking the total to 318 megawatts, which makes it 5.6% of our total power consumption. An additional 5 megawatt WHRS was also commissioned. Birla White continues to strengthen its position in the industry. Putty expansion that we had undertaken from 6.8 -- what was our capacity? 400,000 tonnes of additional capacity has been commissioned. It's under trial runs now and 400,000 tonnes has been commissioned. It's under trial production and we hope to commercialize the plant before the end of this month or mid-November. Imports from RAK White will further strengthen the brand presence in the country. I believe the first shipment will happen during this quarter. We have been steadily growing our construction chemicals business, which recorded revenues of about INR 132 crores, up from INR 82 crores last year. On our growth plans, we are again ready to ride the high demand cycle with additional capacity getting commissioned. During the reported period, we commissioned Dalla brownfield expansion of 1.3 million tonnes, ending this quarter at 115.85 million tonnes of capacity. Pali greenfield plant and Dhar brownfield expansion is almost ready to roll out production, and we should see commissioning of these plants in the October-December quarter. So we are on course, on track to reach 131.25 million tonnes of capacity by the end of March '22, which will be fully available for the next fiscal year to meet the rising demand and generate additional cash flows for the company and the shareholders. All this capacity expansion is being met out of internal accruals. And this year, we expect cash outflow on CapEx of anywhere between INR 6,000 crores to INR 7,000 crores. We have already done in the first half, I think, INR 2,900 crores or INR 3,000 crores of cash has already been spent on CapEx in the first half. The Phase 2 expansion of 22.6 million tonnes, which was announced last quarter, work has commenced. Almost INR 500 crores of spending has taken place on advanced payments, labor mobilization, some sites civil work has already started. This is going to take us to our next milestone of 153 million tonnes of capacity by '25-'26. A quick update on ESG. We continue to focus on reducing CO2 emissions with several collaborations and global tie-ups. 4 of our key cement products have been granted Environment Product Declarations, which is called EPD. This is a key step in our endeavor to drive sustainability in our business with a lifecycle approach. With this, UltraTech's green product portfolio includes more than 16 green -- more than 70 GreenPro-certified products. We continue our focus on improving our blending ratios this quarter. Yet again, we have gone up to 1.41. As our conversion ratio, blended cement continues to rise. Blended cement has reached about 71%, which helps us meet our carbon emission -- our targets to reduce our carbon emissions. In the end, I'll conclude by saying that I believe cement is going to see a good time in the next few years and for which UltraTech is very well prepared. Thank you. And over to you for questions.
[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.
Sir, my first question is with respect to the energy cost, I missed the opening remarks. So if you see both coal and pet coke it's been quite volatile. It's corrected from the peak sharply, but again, has started increasing. So if you could just elaborate how do we see on a consumption basis our power and fuel cost shaping up in the next 2 quarters?
We believe that this quarter, the July-September quarter was a peak cost, and we should start seeing marginal reduction in our consumption costs in the next 2 quarters.
Okay. Is it possible to quantify, sir?
No.
Okay. Generally, how many days of inventory are we carrying? And have we increased or...
Our normal norm is about 45 days. And this time, we have consciously gone up to 55 days. That is why I spelt out our working capital increase also taking place.
Understood. That's helpful. On the RM cost, we read the comment and also that index that you shared on the fly ash, it's up 8%, 9% quarter-on-quarter, which is a bit unusual. Is it possible to share what inflation are we seeing in other RMs like slag, gypsum? And also, is this a seasonal one-off spike or...
Sumangal, this is one-off. What happens is that in case there's a power plant shutdown, you have to source fly ash from next available power plant, which will be obviously further away. So the transportation cost goes up. There is no pattern that you can establish accordingly on fly ash costs.
Okay. Understood. And just one last broad question on the overall M&A, there are a lot of media reports on, say, JP assets, India Cement, and a few regional players in east and west. How do we see the M&A activity shaping up in the sector? And given our market share, what sort of, say, inorganic growth appetite do you see for UltraTech?
All I can share with you is to allay the confusion in minds of several people that given our size, we will get restricted on consolidation, but the geography is wide open for UltraTech to consolidate through inorganic routes also. As and when some opportunity surfaces in any part of the country, we will examine it.
Okay. All right.
The next question is from the line of Amit Murarka from Axis Capital.
So just on the cost side, like in the presentation, it's mentioned that the power and fuel cost was USD 200 -- the fuel was USD 200 per tonne. So this includes the domestic coal sourcing as well or this is the imported fuel cost?
This is imported fuel cost.
Okay.
Coal for us is a very small percentage, 7% to 8% only.
Okay. And last time, in the last call, you had mentioned that there were some cargoes of Russian coal and all, which was taken. So was that there in this quarter and the sourcing is continuing as of now?
So yes, it has started getting into consumption in this quarter. And it was an opportunistic trade, so in case something again surfaces, we will examine it.
Okay. And on the pet coke, like the spot prices, could you just shed some light on that, like what was the spot pet coke? Is it closer to like USD 200 per tonne or has it gone beyond that also?
Beyond USD 200 per tonne now. I mentioned on the call, Amit, USD 205 per tonne.
Okay, I missed that. Okay, fine. That's all. I'll come back in the queue.
The next question is from the line of Ritesh from Investec.
Sir, couple of questions. Sir, first one is you indicated you are open to inorganic growth. Sir, how should we look at it? What are the things that you look at, which will make us attract to the asset?
A very weird question. You see our fundamental premise for evaluating any asset is a profitable growth opportunity. I'll pay a price on which I am able to generate return for shareholders. And we will buy an asset where we can increase our market presence. And I also had mentioned that India is a wide-open geography for us as well.
Right. Sir, if I have to take one step over here. Sir, how would you look at, versus the expansion optionality that we have on the table, which you have indicated like we are absolutely going full throttle, and we have a pipeline which is actually workable. So if you look at the incremental ROC versus the optionality that we have on the table, how should one look at that comparative math on incremental ROC?
So incremental ROC or organic, obviously, it is time value of money and you get an organic -- inorganic opportunity, you hit the ball -- hit the road running. That is the advantage that one would have on inorganic versus organic. And it depends on the price that you are paying. Today, organic would be costing -- absolutely greenfield where you start acquiring land also, it will cost USD 110, USD 120, give or take. So that is how -- and if you start investing today, it will take you 7 years to put up that capacity. As compared to that, you might pay some premium -- you will have to pay a premium over replacement costs, but you also get advantage of 7 years of market share and cash flows.
Sure. Sir, my second question is, we have indicated...
[Foreign Language]
Third. Sir, I have 4 total, so third question. Sir, we have indicated incremental expansion plans on the capacity side. Just wanted to have your thoughts on what are our plans on distribution, basically, incremental -- railway has bulk cement terminals, optimizing sea freight, DFC, how should we look at all these [ 4 ] variables?
So fleet expansion, we don't own fleet. Our transporters continuously add fleet as and when wherever it is required. Our transporters who are associated with the organization or with the group for maybe 4 decades, they will expand their fleet as and when required. Our endeavor is to continuously improve, increase the penetration in terms of dealer network. Today, our channel partner strength would be upwards of 1 lakh -- close to 110,000 channel partners and a continuously increasing number. DFC is opening up. I saw Rajasthan has already started double-story wagons. Of course, they have not yet been made available for cement, but I think things are opening up. As for bulk terminals, our expansion footprint is always planned in a manner where if a bulk terminal is required, we will take it into account upfront instead of waiting. For example, in the second phase of growth, we have 2 or 3 bulk terminals -- sorry, 2 bulk terminals already planned. And any future requirement also, bulk terminals will be planned, grinding unit. So it will be a split grinding unit composition that will come into play. The last point that you mentioned about railway sidings...
Sea freight -- railway sidings and sea freight.
Sorry, what? Sea route. Ocean route. So as far as railway sidings are concerned, I think we keep on adding wherever available, whenever available. Last count I remember [indiscernible] 260-plus railheads. It's not a top-down target, but operational efficiency improvement plan with which we keep on adding railway sidings. As far as ocean route is concerned, we have our own jetty at our Gujarat plant, bulk terminals, 279 railway sidings as of now, bulk terminals along the coastline there is Mumbai, that is JNPT. Then it goes out to Mangalore. Mangalore also, right, bulk terminals? Yes. Mangalore, Cochin. So this is on the coastline. We will look at expanding our network on the Eastern side as well. We don't have bulk terminals at the moment, but we'll look at expanding that network in our second, third phase of growth.
Sir, just one last question. We have an interesting launch on white cement based liquid primer. Sir, just wanted to understand what is the rationale for it to be in UltraTech and why not Grasim given, from my limited understanding it is better to bundle it with [ paints ] versus Putty. Please correct if I'm wrong.
Yes, because the raw material is white cement and all the primer and putty-based products are done by UltraTech, that's why it's here.
Sure, sir.
The next question is from the line of Prateek Kumar from Jefferies.
Yes. My first question is on utilization. You mentioned your overall utilization is around 76%. Can you throw some light on regional utilizations?
Region-wise utilization. So north was nearly 85%, central was 70%, east was 90%, west was more than 60%, south was more than 75%.
How much you said for central region?
70%.
Okay. And on pricing, overall it appears that we had like around a 2.5% grey cement realization decline or 2% to 3% decline on a sequential basis. How would that be region wise?
Region wise, I think east was the least impacted. North saw a decline. North and central were the leaders in decline. East was better placed. West was neutral.
Sure. And in the presentation you've mentioned that there was a preponement of maintenance shutdown. Did that have any specific impact on cost which was like one-off?
These costs -- I think my maintenance costs were higher than planned by about INR 80 crores. I think it was INR 80 crores.
So when you say the like-for-like, basically last year...
What I mean was that we had planned -- original plan as per our annual budgets X number of kilns were planned. We did 3 more kilns than that in this period. And the spending was also higher, partly because of cost of procurement going higher and partly because of additional work that was done.
And last question on your logistics cost, in your presentation mentioned the diesel prices are lower 45%, but like-for-like logistics cost is down 1%. So is there any change in [ rate ] distance which is resulting in lower decline in logistics cost?
1% impact to 1% only. Yes, so diesel cost is not 100% logistics cost. Maybe 40% quarter-on-quarter. Anything else?
Sure, sir. These are my questions.
The next question is from the line of Pinakin Parekh from JPMorgan.
Just wanted some color on east market. You mentioned that east prices have relatively held up better than the other regions. But this is also a region where we would see the maximum capacity addition over the next 2 quarters. In the presentation, you highlight that Chhattisgarh and Odisha had seen degrowth due to sandmining ban. Given this context, how do you see the east market, at this point of time? Is demand going to get further impacted because of what's happening in Chhattisgarh and Odisha?
I believe, Pinakin, east will be the best-performing market in terms of demand. And that is why I think nobody is a fool to add additional capacity in that market. There is a big size or big rationale, which each player is having to add capacity in that market. So this additional capacity will get absorbed in east, demand will continue to support. But don't want to get into comments on individual states or a point in time, because sand issues are here today, then something else will happen tomorrow. But if you look at the underlying demand, underlying capacity utilization, in this quarter, also, in fact, we had the highest -- within our regional spread, our capacity utilization in the east was the highest. I believe the industry, not just UltraTech, industry players will continue to enjoy a good capacity utilization and use.
Sure, sir. Sir, my second question is basically, this is the second quarter where UltraTech India realization seems to have outperformed the peers. We had seen a larger than peer group increase in the first quarter, and we have seen a smaller than peer group decline in the second quarter. In your sense, is this because of higher nontrade mix, more premium products, or specific regions aiding this performance?
Should I reveal all my trade secrets to you? So value-added product is continuously going up. It's reached more than 18% now. That is one area. We are increasing our blended cement ratios, increasing our trade ratios as well, so everything -- and plus there has to be some respect that you should give to UltraTech as a brand. So we have historically commanded superior pricing as compared to the other players, and I believe UltraTech will continue to do so.
Understood, understood.
The next question is from the line of Pulkit from Goldman Sachs.
Just one question. You mentioned that it is because of monsoon having a prolonged impact that demand got impacted. Now our understanding was that July and August were weak months and September is actually a relatively stronger month. Would that be correct that we have exited September at a much stronger volume print, or is it the other way around based on what you just said?
If I remember it right, Pulkit, all the months have shown growth. And, yes, I think my colleague confirms, September was higher growth as compared to the other months. But each month we have seen growth.
Okay. So we can expect that since September exit was a stronger month and now that we are off monsoon, hopefully, this momentum should continue for us.
Sure. I will just not go with the statement of yours that we are off monsoon. I don't know whether the monsoon are off or not.
Sure, sure. Okay. That was it from my side.
The next question is from the line of Indrajit Agarwal from CLSA.
I have 2 questions. First, sir, on capital allocation going ahead. So assuming at 130 million tonnes, 131 million tonnes capacity, we will be able to sell close to 100 million tonnes, if not more, and should generate close to INR 12,000 crores of EBITDA annually. Even with INR 6,000 crores of CapEx, we'll have significant amount of free cash flow to make it net cash positive in 2 years at best. So any thoughts on other than inorganic expansion, return of cash to shareholders, or anything on that front?
That is always there. I think we increased our dividend allocation to the -- dividend allocation was increased to 20% year before last. And now we are again looking at growth. So, as I said, this quarter, whilst we are in positive operating cash flow, but net cash after CapEx was negative. We have CapEx happening in '24, '25 as well, and a shade of -- a part of 26 will also see an [ extra ] amount of CapEx. If you will recall, 2 years ago or 3 years ago, our average annual CapEx would be plus/minus INR 2,000 crores, and now we are going to see plus/minus INR 6,000 crores over the next 2 or 3 years. Having said that, we are still on course to be -- or we are delayed as of now because of the cash flow being used for CapEx, otherwise, we would have been in the net cash -- already in this year, I expect net cash to be on the balance sheet towards the end of March '24.
Sure. This is helpful. Second, calendar '23 will be the pre-election year. And if there has to be any like significant bump up on infra activity demand from infra government spending, we should have seen some bit of preordering already. Are you seeing any signs of that yet?
Not yet. I think we expect more than what is happening. See, the good part is that demand is -- we recorded 10% growth domestic sales in this heavier monsoon quarter. So obviously there is a positive direction in which the orders are flowing and cement consumption is happening. And I expect it should go up further.
So that buoyancy you see in the rural residential part as well or that you think...
Yes, yes.
All right.
The next question is from the line of Navin Sahadeo from Edelweiss Securities.
So, first, the previous questions, thank you for giving the region-wise color on utilizations as well as realization. Is it possible to get some trend on profitability? For example, your average EBITDA per tonne was more like INR 800. So is it possible to get which regions are a little more profitable than these and others lag around?
I don't have that at the moment.
Very broadly, very broadly. I know numbers may be difficult.
So if I look at the prices, so then obviously, south would be the leader in profitability, followed by west and north catches up along with east is, of course, at the last step in terms of profitability. Central and north would be behind south and west.
Got it. This is helpful. Sir, my second question then was about your fuel mix. So presentation says 40% is pet coke. And I think you also mentioned imported coal is 7% to 8%, if I got that correctly.
Domestic coal is 7% to 8%.
Okay. So if you could just give me the overall fuel mix, both in the kilns and power plants.
Just one second. So indigenous coal 15%; imported coal 46%.
Okay. I get it.
One second, if I should look at kiln separately, indigenous coal in kiln was 5%, imported coal was 50%, pet coke was 40%, alternate fuel was about 5.2%. That's in the kiln.
Understood. And the earlier number was for TPP, the 46%.
We don't have TPP separately. The hybrid number, with TPP plus kiln -- is there TPP? One second, it is there. So TPP imported -- sorry, indigenous coal 56%; imported coal 29%, pet coke 5%, others 10%, lignite, which is essentially an alternate fuel.
So staying on this kiln split because you mentioned that pet coke is far more favorable in terms of cost. So the imported coal that we are using is at par to that cost because of better sourcing or it's conscious that we don't want to go higher on the pet coke consumption front?
We have to balance the pet coke/coal mix and our coal procurement is far more efficient than anybody else.
Yes. But it still is higher than pet coke on a landed basis even now, right? So are we looking at increasing pet coke considerably from 40% currently, or it will still -- this is what max it is?
It can go up to 50% to 60%.
Okay. So which basically then means that if this mix is changing, Q3 can then see a very meaningful decline in the cost? Of course, spot prices are higher.
Yes. I had mentioned that costs will come down for Q3.
Before it takes up again because spot prices are again -- I think before it takes up again because spot prices are...
Navin, we cannot really start analyzing spot prices. So our gameplan, we will deliver lower cost this quarter and lower costs next quarter.
Understood. And then just my last question. You mentioned working capital as the prime reason. But it's no [ cause ] for that increase in debt -- net debt position. So given that these fuel prices are again bottoming out maybe say or going up, is it fair to say that this working capital funds will stay locked even for March or that would still...
No, no, I think I had -- again, I had mentioned and I would have requested you to listen to my commentary more carefully. We would get into a negative working capital zone before the end of March. With volumes going up will be one big driver for more cash collections takes place with higher volumes. Inventories we have now reached about 54 days, 54 or 55 days. By the end of March, we will come down to our normal level of 45 days. So that will release cash. Cost of purchase will be lower as of now. So nobody knows how prices will actually pan out. But our planning is to release working capital cash by March for sure.
Great. I did hear your comment. I was just confirming because since the fuel prices are wherever they are today.
Navin, but that's today. So there was a time when the pet coke was USD 170 per tonne and everybody started annualizing it. That was not the right thing to do.
Correct.
We'll have to -- this is the most unpredictable times that we are going through.
Sure, sure. And just one last confirmation. Did you say we have spent about close to INR 3,000 crores in CapEx so far into the year?
First half, yes.
Okay. Because I'm just looking at your balance sheet and the capital work in progress or even total property, plant, and equipment, these numbers are up like about INR 800 crores odd each, which is INR 1,600 crores. Just trying to understand...
Advance would be there. That is one point which I can think. But advance also will be CWIP, right?
No, capital and advances are reported separately.
Yes. So capital advances also you need to add. But I don't know what the accounting issue is, but I can get an explanation sent to you separately.
Sure. That will be really helpful.
The next question is from the line of Ashish Jain from Macquarie.
Firstly, on coal, you made a comment that pet coke may even go to like 50%, 60%. So given the current pet coke and coal prices, ideally, we should be going to 70%, 80% pet coke. So is there anything constraining us on that front?
So there are technical constraints. That's all I know that there are technical constraints. In the earlier days when pet coke was darling of the industry, those days also we had tested, and we reached about 78% peak. So there is some issue with blending. Limestone from mine to mine has different quality because of which you cannot mix 100% pet coke. Second point would be availability. As and when pet coke is available, one would pick up shipments of pet coke.
Right. Okay. Got it, sir. Sir, secondly, in terms of the -- from, let's say, growth plans outside the organic plans that we have, if we have to explore M&A, like any specific region where both we are interested and we will not even face regulatory issues in terms of our market share and those stuff. Can you point where our strategic investment...
We're invested in India for organic opportunities. I will not have regulatory issues in any geography in the country. At this stage where we are. I don't know 5 years, 6 years later.
Okay. So lastly, just a housekeeping question...
I think we have evaluated through all the lenses that the regulators look at and what is the requirement. So we are well within the norms.
Right. Sir, just couple of housekeeping questions. One, what was the share of blended cement this quarter -- sorry, trade cement this quarter?
Trade was 68%.
Okay. And just secondly, you spoke about the chemical business revenues, which has crossed INR 100 crores this time. In our segmentation, where do we put that? Is it in grey cement or it's in others?
Very small, less than 10%. So it does not -- less than 1%, yes. So there's no segmentation.
Yes, I know that.
Part of cement only, Ashish.
Part of cement. Okay, got it.
The next question is from the line of Girish Choudhary from Spark Capital.
Firstly, would like to get your sense on the industry's supply dynamics. Are you worried of a potential buildup or a surprise in your supply with also the new entrant choosing significant amount of money and then some of the other larger players having a strong balance sheet. So I just wanted to get your sense on the supply dynamics. That's the first one.
So my guess is that all the supply which comes in -- organic supply will get absorbed easily.
Okay.
Because India, as a story, will show you much higher growth as compared to any other market because there's a huge amount of development required, there's a huge amount of housing required. It's a no-brainer statement which I'm making. But yes, India will see a huge amount of cement consumption happening for a few years to -- in the next few years. Few years can be 10 years, more than 10 years, that I don't know. But as of now, it's still a very long distance away when India also reaches a saturation point and growth tapers down. So as long as there's growth potential, additional capacity will get absorbed. And one more point one needs to keep in mind that total capacity that one looks at is a mix because there are lots of capacities, which are nonoperational, lots of capacities which are inefficient or shut. So effective capacity, available capacity is lower than the nameplate capacity that you might be tracking.
Got it. Fair enough. And secondly, if I look at your Phase 1 and Phase 2 capacity addition plan, which is roughly around 40-plus million tonnes of addition. West is a region which you're seeing very low capacity coming in, roughly around 1.8 million tonnes. So any reasons why a lower addition here. Is it to do with reserves or utilizations, or are you looking at inorganic...
I'm not able to hear you clearly. Which region you picked up as low addition.
I think west -- if you look at west, you're adding only 1.8 million tonnes, so between Phase 1 and Phase 2.
West is more GU, no?
Yes. So you're just adding...
Yes. Mines is not a constraint. And whereas luckily we have coastal plant, so I can bring limestone from the Middle East in case of -- so limestone as a resource is not a constraint in the western market. West we have enough capacity available. And we don't put surplus capacity and create problems for us. We will put up capacity where we feel that we need additional volumes right now.
Got it.
The next question is from the line of Rajesh Kumar Ravi from HDFC Securities.
I don't know if you have already answered this. Could you talk on the fuel cost on a per kilocal basis, how was it in Q2 versus Q1?
INR 2,489 per million kcal was the cost in Q2 as compared to INR 2,215 per million kcal in the previous quarter. And if I go back one year Q2 FY '22, it was INR 1,427 per million kcal. So INR 1,427 per million kcal has come up to INR 2,489 per million kcal.
Okay. And sir, in this quarter, how are the numbers currently in October?
We'll talk in January.
That's okay. Just directionally, is it coming off?
What is coming off?
Quarter-on-quarter, do you see this number coming off versus what you saw in Q2?
The fuel cost?
Yes, yes, fuel cost per kilocal.
Yes, yes, fuel cost will come off.
Okay. I think that is all from my end.
The next question is from the line of Kamlesh Bagmar from Lotus Asset Managers.
Sir, just one question on the cost side, say, going forward, like say in couple of years, what quantum of cost reduction do you see, be it freight side or power and fuel cost?
About INR 100 a tonne would definitely come out of cost reductions, minimum.
On the variable side.
Yes.
Okay. And sir, in the presentation, we have mentioned 19.5% as the mix of the renewable power. So is it in terms of the capacity or in terms of the power usage in this quarter?
Consumption. Actual generation, actual consumption, whatever you want to call it.
Okay. And sir, lastly, you have 40-odd percent share of pet coke. So vis-a-vis imported coal, because this INR 2,489 looks to be very competitive as compared to what thermal coal prices are. So is it the case that the grade of the imported coal which we are using is also equally competitive as compared to the pet coke?
Yes, yes. Because you get U.S. coal is very high-grade coal. INR 6,900 kcal gas. Normally, we are not buying [ RV1 ].
Okay. So that would be [ RV3 ] or all that. So that's why that is also competitive as compared to the...
Yes.
The next question is from the line of Shravan Shah from Dolat Capital.
Sir, what was the lead distance in this quarter?
428 kilometers.
Okay. Sir, you mentioned that a regulatory issue will not be there. You have taken care of that in terms of the inorganic expansion. But just trying to further understand for my understanding, in terms of, let's say -- if you go for, let's say, Nuvoco acquisition. I'm just giving an example. So how do the CCI look at...
I don't look at specifics. You can ask a general question if you have.
Yes. No, no, I'm asking a general in terms of the market share, how the CCI looks at any percentage? And what are the broad criteria that the CCI looks at post the acquisitions? 10%, 15%, 20% market share should not be there?
I think that I will not be able to answer.
Okay. Third, sir, just trying to understand in terms of the second phase of expansion 22.6 million tonnes. How much broadly from that would be -- we will be commissioning in FY '24?
Maybe 3 million or 4 million tonnes.
Okay. And rest mostly by March of FY '25.
Right. And some might go into '26 also -- fiscal '26, it means first half of '25-'26.
Okay, got it.
The next question is from the line of Sanjay Nandi from Ratnabali Investment.
Sir, we have seen some spike in the employee cost in this particular quarter. Can you please throw some color on that, sir?
Spike in -- annual increments -- we follow an increment cycle from 1st July. Our increment evaluation are done in March, given effect in July. So July-June is our annual cycle.
The next question is from the line of Amit Murarka from Axis Capital.
So just on White Cement and Putty, the RAK acquisition that you had made, so that is supposed to flow in additional volumes into India. So by when is that expected to start?
This quarter they will start. October-December quarter should be starting volumes. So packing material has already reached there, quality, etc., all settled, logistics tied up. So this quarter, shipments should happen -- start happening.
Okay. And the exports to Sri Lanka, is there anything happening or it's completely stopped?
Very marginal. So only in case we have secured rupee LC available, which is opening up. So against those LCs only we are exporting. So exports have dropped down dramatically from maybe 1 lakh tonnes, 1.5 lakh tonnes per month, give or take, to 30,000 tonnes or 40,000 tonnes, 2 shipments only. And one more reason, I'm glad you asked about Sri Lanka, our working capital, so we have close to INR 200 crores due from our Sri Lanka operations. The money is lying there. Government is releasing money gradually. We received about INR 40 crores last quarter -- in the reported quarter, and I believe that money will get regularized in the next 2 quarters or 3 quarters.
Got it. And what was the export volume in Q2, absolute number?
INR 1 lakh tonnes.
Okay. Got it.
The next question is from the line of Ritesh from Investec.
Sir, 2 quick questions. First is, sir, if I heard it right, you indicated on TPP we have 5% pet coke and 56% local coal. So my question is why pet coke is at only 5%. I remember like 2017 something, there was a court judgment.
What was the court judgment?
I think it did restrict the usage of pet coke when it comes to power plants, but for kilns it was allowed because of the quality of limestone and limestone saturation factor. So question is, can this number of 5% pet coke when it comes to TPP increase? And can it be a cost saving lever?
In TPP, we use domestic coal, which is far more cheaper.
Right. But sir, you said 29% is imported and 5% is pet coke. So 29% imported versus 5% per coke. Is there room for substitution?
Yes, there is. So we -- one is in the NCR and the related market, pet coke is not allowed in power plants. That you are aware. And it's opportunity wherever we find financial economics working in favor of pet coke, we use that.
Sir, if my memory serves me right, it's only in 3 states wherein pet coke in TPP is not allowed.
Yes, you're right. NCR, which is -- that is the market.
Okay. So can this number move up and the surprise?
Could be. I don't have a ready answer actually, Ritesh.
Okay. Fine. And sir, second quick question, is there some changes which one can expect on the discounting trends in the marketplace? Is there some probability over here?
I have no idea about that.
Okay. no worries.
Ladies and gentlemen, that was the last question for today. On behalf of UltraTech Cement, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.