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Ladies and gentlemen, good day, and welcome to the UltraTech Cement Limited Q3 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 risk that the company faces. The company assumes no responsibility to publicly comment, modify or revise any forward-looking statement 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, sir.
Thank you. Good evening, everybody, and welcome to this call for UltraTech's Q3 performance. First and foremost, I hope, wish and pray that all of you and your families are safe from COVID. This has been a difficult quarter with costs going up, a sudden and unexpected decline in demand in the month of November and consequent pressures on selling prices. India is a very regional market and that each region, as usual, has performed at different levels. Demand slumped toward the maximum in the eastern corridor, which I'm sure you would have heard already from the market sources. North continued to be relatively strong and growing consistently, performing better than other markets in terms of volumes and prices. At UltraTech, despite a 3 percentage growth -- degrowth in domestic volumes this quarter, we have achieved a 13% growth in the 9-month period. And in spite of a high base for Q4, our aim is to achieve a growth in Q4 also. As for Q3, we believe there were multiple factors leading to the demand slump in November. First and foremost, unexpected rains in several parts of the country, construction ban in NCR, labor availability at several places, sand shortages in the eastern side were just a few reasons which can be assigned to why November fell. December was back on track. On an average over -- for the quarter, our capacity utilization was 75%, but December had already inched up to 80%-plus. Utilizations across the country are improving and so are prices. Let me first give you an update on our expansion program. As part of our growth plans, we are putting up additional 19.5 million tonnes of capacity. 1.2 million tonnes brownfield was already commissioned last quarter in the east and 2 million tonnes brownfield Bara grinding unit has been commissioned in the current quarter in the month of January, taking our total India operating capacity to 114.55 million tonnes. The balance, 16.3 million tonnes of capacity, will be commissioned during FY '23 at different points in time. Barring a few small delays due to the pandemic, we don't anticipate any bottlenecks in projects commissioned schedule. This becomes very important because we believe that demand will see a surge, given the general elections in 2024. To brief you about the other non-core assets which we had inherited as part of the acquisition of Nathdwara Cement, definitive agreements have been signed to sell off the fiberglass business in Europe. We expect to close the transaction in the current quarter. This quarter, we have spent [ INR 59.90 crores ] on expansion and other CapEx, reaching a total of close to INR 4,000 crores. And the pace at which the product execution is going on, we may spend about INR 5,000 crores on overall CapEx in FY '22. I'm happy to share with you that the Board has approved an expansion of our white cement capacity. It will be undertaken in a phased manner from our current 6.5 lakh tonnes to about 12.5 lakh tonnes. The current putty capacity is 8.2 lakh tonnes at two locations. We are in the midst of completing a greenfield expansion of putty expansion -- putty capacity by about 4.4 lakh tonnes. The project is expected to go on schedule in Q2 FY '23. On the debt front, we paid down our treasury, prepaid our loans to the extent of INR 3,459 crores. This was a very well-planned move with the hardening of interest rates and falling treasury yields. Going forward, the gap between our operating EBITDA and total EBITDA will narrow down due to lower treasury operations. On the cost front, fuel costs have softened a bit from the peak but still strong. As we had told you during the last quarter, fuel consumption costs for [ UT ] sales are up by roughly INR 250 per tonne for own cement. During the ongoing quarter, we don't expect any more surprises. But the costs will remain elevated at the current levels. There is a reasonable possibility as of now for prices to soften for the Winter Olympics of China. Logistics costs this quarter were almost at the same level as the previous quarter despite reduction in cost of diesel in the month of November. Exit September quarter, the fuel was higher than the average of quarter 2. This is another reason for not a very visible impact on average logistics cost for Q3. The benefit, big or small, of reduction in diesel costs will be visible in Q4. We have begun the current quarter on a very positive note with improvement in demand sentiments and improvement in prices as well. Next year seems to be poised for a good growth for the industry. General elections, as I mentioned in the beginning, are around the corner, which always spur demand. Urban housing has started seeing rapid improvement, thus helping cement industry. New norms under the [ CR ] will open new [indiscernible] growth for redevelopment of several road constructions. New infrastructure projects are in pipeline. We believe that the project announcement and issuance of new orders will start picking up pace. Government's Gati Shakti initiative is a transparent mechanism of tracking all the projects. And this will further strengthen the intent of timely execution of infra projects. We continue our efforts on sustainability. This quarter, again we have commissioned -- increased our capacity of WHRS as well as solar. Today -- this quarter, we ended our WHRS capacity at 156 megawatts and solar capacity at 221 megawatts. On our current scale of operations, we are now at close to 16% green energy on our path to achieve a 34% green energy by the end of 2024. With that good note, I hand over the session for questions. Thank you.
[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.
My first question is on the cost front. Just to understand your comment, opening remarks, a bit better, so on a full overall cost basis, you expect, if I understand correctly, from fourth quarter some tailwinds to start reflecting or given the consumption lag in the fuel, et cetera, we will see some bit of a fuel cost increase and then maybe some -- 1Q '23, some cost benefits. Just if you could just share some more details, sir, it would be very helpful.
Yes. So numbers of the big benefit or the delta movement would be visible only in Q1 next year. Q4 this year, we -- as I mentioned, that cost will remain elevated and not too much of difference is expected.
Okay. But given that spot prices of pet coke is around INR 170, INR 175, even thermal coal, our sense was that there will be some bit of a lag and inflation further in fourth quarter and then a dip in 1Q. Is that understanding not correct then?
Your understanding is also correct. My understanding is also correct. Let's wait for Q4 results.
Okay. That's fine, understood. Second, on the demand, sir, I mean, 3Q, of course, at the start of the quarter, no one expected so weak demand in the quarter. So will you still term it as an aberration and some external factors? Or -- and is your medium-term demand estimate and outlook still intact in terms of strong recovery in demand?
Yes. Sumangal, as I mentioned, November was an aberration, December was back on track, January continues to be strong. To be -- to give you a precise number from UltraTech's perspective, average capacity utilization for the quarter was 75%, December was 84%. That gives you a sense that this was 1 freak month, everything pointing in the opposite direction, in an unfavorable direction.
Understood. And just one last question on the exit prices of 3Q, any sense on what it was versus 3Q average prices? And very early days in January, but any direction sense on how we are seeing prices? Because we do have some price hikes in few pockets of the country, so if you could just share some details.
Yes. So I think you already get the sense about price hikes before I do. The undercurrent is strong because the demand is strong. So we expect price hikes to take place. And as far as Q3 is concerned, Q3 over Q2 was almost flat. So there were price hikes, which were taken in the month of October, which had to be given up or rolled back.
Okay. And January, we expect price hikes. But as of now, nothing is rejected, right?
No. There have been price hikes in a few pockets in the country already. But you see, don't multiply it by [ 75% ], we have to wait and watch for prices to stabilize. I won't get the benefit for the entire month. But February and March should get the benefit. Again, I say cement market is no less than the stock market. Today, it's up, tomorrow, it's down. Nobody can predict what exactly will happen. Bigger point -- Sumangal, the bigger point is the undercurrent is very strong.
The next question is from the line of Pinakin from JPMorgan.
Sir, just trying to understand the cost item better, can you give us a sense versus the $150 per tonne of P&L cost in the third quarter, what will broadly be your blended purchase cost at this point of time? Because we have seen thermal coal prices against after the Indonesian ban and they have not come off materially.
Yes. So the Indonesian coal price hike apparently might stay for a short period of time. And currently, the prices are elevated. Our expectation is March, April onwards, you should start seeing some softening in price. Jhanwar?
Yes. Just to add [indiscernible], yes, you are right because the Indonesia imports are there on export of coal. But now we understand that there is some [indiscernible], particularly the people who were -- fulfill their domestic quota for [indiscernible] to the local power plant would be allowed to export it. But yes, it is to be seen in the next 4, 5 [indiscernible] months how it gets stepped down. So there may be some impacts here and there if this then continues.
Q4 cost might still be elevated. There will be some positive, some negative. There's an inventory effect. Spot prices have no relevance for the current quarter consumption because the time lag in delivery is a minimum 45 to 50 days. So the newer purchases will impact the next quarter only.
Understood. Sir, just trying to move beyond thermal coal and pet coke, so crude Brent prices are near 5-year highs. The outlook is that crude prices further move higher up. If crude prices do move higher, then would it be fair to say that the cost deflation -- that this inflation that the company is expecting in first quarter may not take place because you will still have continued all-round cost inflation from higher crude indirectly?
That's a possibility. You've seen the way gas behaves, coal -- and coal will not lose the opportunity in -- sorry, I got on mute. Pinakin, you are absolutely right. I don't know when did I go on mute. Okay, so if crude will behave, then there will be a dilemma for demand industry also.
Understood. And sir, lastly, because of the latest COVID wave, would any of the project commissioning timelines get pushed out because if any work has been impacted?
Not at the moment. We don't see any slowdown.
Because the projects [indiscernible] COVID, there may be some small here and there. But I don't think, as Atul said, there is any value on the civil [indiscernible] timing. Yes, very much on time.
At this juncture, so we don't know, whether it's Omicron, Demicron, whatever is coming, how does that impact. So as of today, with the current state of affairs of Omicron and the current state of affairs of the COVID wave, things are under absolute control.
The next question is from the line of Raashi Chopra from Citigroup.
So I think for Q1 pricing, you mentioned that price hikes have come through in some of the regions. So which have still not come through? And if there is a deal here or is there a reason why it hasn't come?
It's a matter of time, Raashi. So as I said, things are done. Let's discuss it offline instead of -- so it has happened. Some parts of Maharashtra and some parts of south, yes, price hikes have been done. Kerala has been done, for example.
So fundamentally, because it also depends [indiscernible] if the [indiscernible] starts too low. But our end, just as said by Atul, once you have a price hike, it will denote only maybe after the lead 10 days' time. So the real reflection would come after 10 days because there is a lot of inventory in the pipeline and that different people may have different sort of rates, so -- but yes, I would say, holistically, we think the demand has improved in the month of January, [indiscernible] the price improvement [indiscernible]
Raashi, I'm repeating, we are operating at 85% capacity utilization now. [indiscernible] is operating about 90%. That should be enough indication of how strong the market is.
Right. Okay. That's helpful. Can you just -- can you talk a little bit more upon the white cement expansion plan and the thought process behind that?
Yes. So white cement right now -- first and foremost, white cement market has already been growing and better late than ever that we decided to start our expansion. We were meeting our requirements with imports, of which is not as remunerative as our domestic supplies. So that is the whole purpose of getting into an expansion mode, increasing our capacity on white cement.
Okay. And as I have missed the number, what did you say the expansion, what was the number?
About 12.5 lakh tonnes. We're doubling the capacity more or less from 6.5 lakh tonnes to 12.5 lakh tonnes.
The next question is from the line of Girish Coudry from Spark Capital Advisors.
Two questions. Firstly, if I look at your slide on the region-wise demand performance, I see east is the only region which has seen 2 consecutive quarters of decline in demand on a Y-o-Y basis. So how much of this will you attribute to one-off reasons? And how much is due to actual slowdown in the region, if at all? So your thought process or your thoughts on...
So the one-off reasons were the sand shortage, rains and labor movement. These three are one-off movements. My expectation is that now onwards, you will start seeing improvement in eastern corridor also. Jhanwar, would you like to add something?
Yes. [indiscernible] major issues; and number two, because the stats supported schemes especially in infra. There, also a little bit was slowed down [indiscernible]. So now things are getting stabilized. And we are pretty confident that the demand should come back as normal.
Got it. And on the white cement expansion, if you can give us a little more on the timelines and also on the white cement limestone reserves post the expansion, so some more details on this expansion.
So on the reserves post expansion, also we would have reserves of 40 to 50 years. That is one. And we would look at anywhere around 2026 to commission the white cement expansion. Because that acquisition is something which is not complete. And that is what will take a bit of time. There's a slide there in the presentation also.
Okay. And then just to finish this off on white cement, one of the reasons you mentioned is that to reduce the high-cost imports. So just to understand this, how much is this imported and versus how much you are using it or [indiscernible]?
This year, the plan was to import 2 lakh tonnes of white cement.
Okay. So basically, white...
And until we commission our expansion, we expect the way the market is growing that our requirement will keep on growing.
The next question is from the line of Amit Murarka from Axis Capital.
Just a couple of questions. Firstly, on other operating income, so last quarter, I remember you mentioned there was some incentive. This quarter also, that number is a bit elevated. So is there some one-off this quarter there as well?
So there will be something which comes in, something which goes out. Last year -- sorry, last quarter, we had Bihar incentive coming in as a block. It has got stabilized now as a regular inflow. This quarter, we had Rajashree Cement, a long-pending incentive, Rajashree Cement Line 4, which got disbursed. So I would expect our incentive and related other incomes to be in and around INR 125 crores to INR 150 crores per annum -- per quarter.
Right. So this quarter, it was more or less INR 270 crores. So like then, what, the Rajashree one would be at INR 120 crores, INR 130 crores?
Amit, what is INR 270?
The difference between the revenue and the sales and the [indiscernible]
Sorry, Amit. Amit, just for a second. Mukesh, will you answer?
The Rajashree Cement is INR 50 crores.
No, INR 270 crores, what is the breakup?
This is including other income also, like scrap sale and [indiscernible]
I would say, have a stable -- incentive-related crashes do take place every quarter. Any write-back might be there on a regular basis. So INR 150 crore is an average number for our size of operation.
Sure. And just one more question on the capacity utilization, so like you mentioned that FY '23/'24 should be strong growth due to preelection and you're already at 85% utilization. But pipeline -- capacity pipeline is there until March '23 largely. So is there a new pipeline also firmed up? And by when can we expect the same thing to be known?
We'll come back to you once -- our Board has to approve -- once the Board approves, we can tell you about it.
And lastly, what was non-trade sales this quarter?
64%, trade.
The next question is from the line of Ritesh Shah from Investec.
A couple of questions. Sir, how are you looking at industry-level capacity additions this fiscal and next still? And factoring the demand scenario that you are looking at, how should one look into UltraTech's market share, given the incremental capacity additions we will have, which will be significant in FY '23?
Yes. So each year, you should look at plus/minus 20 million tonnes of new capacities. FY '23 bulk will be coming from UltraTech. Next year, the year after, you could see plus/minus 20 million tonnes. Our market share will grow with this 20 million tonnes of -- with 16 million tonnes coming in FY '23, the market share is bound to grow.
Okay. Sir, would it be possible for you to give a regional flavor over here?
Regional flavor as in?
On market share, sir. Because 16 million and 20 million is a big number, so is it something...
Very difficult to quantify because that data -- comparable data is not ever available. But when I talk about market share, increase the -- my analysis is that new capacity, which will come in, we will sell it out. Without competition being there, so obviously our presence in the market will grow further.
Sure, sir. Sir, my second question is on construction chemicals. It was good to see the white cement announcement actually coming through this quarter. Sir, we haven't heard anything from construction chemicals. We understand that we have started manufacturing at few of our plants. So we just wanted to understand your thoughts on construction chemicals and basically, how is that going along with Grasim, given they have highlighted significant plans on the paint side? The question is more with reference to any changes on the distribution side, synergies wherein UltraTech is actually benefiting out of it.
We are gradually growing our construction chemicals business. It should be reaching maybe INR 500 crores per annum on an annualized basis by the end of this year. We would look at acquiring good quality assets to grow this business further. The bigger point that you asked about whether in Grasim or in UltraTech, UltraTech will do this line of business in the construction stage and not in the finishing stage. Now there are sealants, waterproofing agents and stuff like that, which is totally...
Excuse me, this is the operator. Participants, the lines of the management has stopped. We request you all to please stay connected while we reconnect the management.[Technical Difficulty]Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead. We have Mr. Ritesh online.
We lost you at construction stage and not finishing stage.
So yes, we will remain in the construction stage and finishing may -- anything that has to be done would be with -- we are not getting into that space. And there is a lot of opportunity, waterproofing agents, sealants, motor, dry mix, then some amount of admixtures also. There, admixtures will become our capital product without forecasted consumption also because we have a big RMC as well for our RMC also. So lots of areas where we are growing steadily.
Sir, so what is the end game plan over here?
I also mentioned -- I don't know whether I lost connection or not. We should be annualizing about INR 500 crores this year. Multiple plants have already been put up. And we would look at interesting opportunities to consolidate with us.
Sure, sir. That's quite encouraging. Sir, where do we see this business 3 years out? And last question.
3 years down the road, if today, I am INR 500 crores, I would target INR 2,500 crores at least.
Yes. Because once we have started in this line of business, obviously you would like to double year-after-year [indiscernible]. Because there enough opportunity for growth in this particular segment, right, from waterproofing, cement, mortar, grouting. So there will be [indiscernible].
Sure, sir. That's quite encouraging.
The next question is from the line of Indrajit from CLSA.
Congratulations. On the same vein actually to the previous question, so going forward, given the amount of cash we will end up generating in the next 2, 3 years and given the expansion plan that we have, any indication on annual CapEx? And would it be more heavily biased towards non-cement or live segments like construction chemicals, white cement, et cetera, or we will continue to see a higher proportion of it in terms of cement business?
So the proportion of CapEx will be higher on grey. Construction chemicals is a very small cost operation. So even if we expand, acquire, it will not be a big portion. And white cement, it will be spread over the next 2 or 3 years, the big spend. So maximum spend, you will see on grey cement. This year, as I mentioned, we might exceed our initial forecast. We might reach close to INR 5,000 crores -- might be close to INR 5,000 crores of CapEx spend. Next year, would be close to INR 4,000 crores of cash outflow on CapEx, which would complete our -- the current phase of CapEx plan, the capacity expansion plan. INR 4,000 crores would include the capacity expansion also as well as the routine CapEx, maintenance -- what we call maintenance CapEx, which is anywhere around [indiscernible] CapEx, which is around anywhere between INR 1,300 crores.
Sure. No. And on the construction chemicals, if you can help us understand the industry better, is there a brand consciousness? Or is it mostly an unorganized sector? Do we have to spend a lot on A&P, getting people conscious about the brand? Or do you think these have reasonable mind share?
There is an effort which has to be put in place to get people to buy a product that we are selling, and it will be an UltraTech brand, to command a premium and to attract -- to have a sticky customer. Jhanwar, would you like to add?
And the [indiscernible] spend [indiscernible] is because our vast network of dealers [indiscernible] network is because [indiscernible] network for dealer as well as the retailer. So people like to make full use of this network [indiscernible]. And yes, the brand will definitely play a role. [indiscernible] already, we have started putting some efforts on branding of these products essentially. But yes, in time to come, but now we are going from one, they will go to another level. So the brand will play again a major role. But [indiscernible] is going from here under the [ other process ].
Next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, just one question. Taking a slightly longer-term view, if we look at the last few years, because of COVID, other disruptions, while growth rates look good, but broadly, there's not been a significant growth in terms of volumes, if I look at a 2- to 3-year CAGR. Whereas in the same period, we've seen capacity getting added at a reasonably strong pace last few years. Are you worried that maybe next 12 to 18 months, the pricing environment might not be as conducive as we are used to seeing in the last 2 years?
First and foremost, on the sales volumes, I think we have been continuously growing from -- 1 second, from 70 million tonnes to crossing the 90 million tonne mark and jumping over 100 million tonnes of sales. So it is growing at a steady pace, I would say. Capacity expansion, yes, over the last 5 years has grown roughly 11%. And we have always invested ahead of the demand curve in time to meet the rising demand. So I don't foresee a challenge to be able to sell -- we don't see a challenge to sell this capacity. Next point that you mentioned is on pricing. Given our consolidated spend or position in any market, we are able -- and it's a rule of the game, not just UltraTech, anywhere where there's a consolidation of the market, pricing discipline is far better. In the case of Gujarat market, we were not present at that point in time. 2014 onwards, we came in. And today, Gujarat market are one of the best-priced markets. Similar phenomena we are seeing in the central market. North is what -- where similar thing has happened in the north market. So east is a market where what you are talking about is a fierce market, a lot of new capacity getting added. So we might see some pricing pressures. But the consumption in the east market will keep going up.
And much our data are out there, I think that despite the new capacity addition, overall capacity utilization of the industry is likely to improve in the next 18 to 24 months.
So Pulkit, I'm just looking at my data from 2016, where we sold about 48 million tonnes, crossing 80 million tonnes now this year. And then jumping on to our 3-digit mark very soon, so we are steadily growing at about a CAGR of 10%, 11%.
No, I mean, my question was more from an industry. No doubt you've done pretty well in the last few years. But in the industry, we were at about 335 million, 340 million tonnes in FY '19. And FY '22, we'll finish at about 350 million, 352 million. So on a CAGR basis, it's not that exciting. But I understand what you are saying that consolidation should likely help, right?
Yes. You are -- okay. Unfortunate instances that have happened, now COVID was most unthinkable thing that has happened. And for all you know, it might continue for a couple of more years. As you read, Cyprus had a new -- somewhere new variant has already been discovered, Demicron or something is being talked about. So I don't know the disruptions which the world will see, which India will see going forward. We've had several instances. There was demonetization in 2016, which broke our back, then GST introduction. There was so much of confusion with GST introduction. Any new -- that's a new system, which came into play, took time to stabilize. So I think we have to take all these events as part of -- in our stride and move on. And as UltraTech, I think we will keep consolidating the industry and grow from strength to strength.
Sure, sir. Sir, and second one quick question, any sense of what could be the realization from this Belgium sales? Any rough cut number that we can...
EUR 94 million. I think EUR 90 million to EUR 94 million, depending on working capital adjustment. So I would safely put a number of EUR 90 million.
Sure. That's very useful.
The next question is from the line of Navin Sahadeo from Edelweiss.
So first of all, I just want a small clarification on this fuel cost that we report in the presentation. So when we say average fuel consumption cost in dollar terms, which is about $151, that is the -- let's say, you're referring to the pet coke price, the imported coal price or it is the blended cost of...
Blended cost of consumption in UltraTech.
In terms of the domestic fuel.
Yes. It's total fuel, including domestic.
Correct. So can you give me a broad breakup as to what it was for the quarter as in terms of how much is pet coke, how much is, let's say, imported coal and domestic coal? Is it possible to share that?
Coke, $193.
Speak loudly now.
Pet coke, $193, and coal at around $137, imported coal.
Correct. I was talking about overall in terms of the breakup in terms of usage in the sense, let's say, pet coke is less 50% of...
Let me tell you. So we have reduced the dependence on pet coke. And this quarter, the pet coke consumption was 25%.
Okay. And if pet coke is 25%, imported coal would be broadly 50%?
It would be a larger chunk.
[indiscernible]
Yes. No, fair point. Fair point. Then, sir, my second question then was about the white cement expansion, which you talked about, so from 6.5 lakhs to over 12.5 lakhs. But if I understand correctly, white cement per se is not a growing industry as such. It is the putty which is growing. Is that understanding correct? And you are rightly putting up...
Putty is growing at a faster pace, putting about 4 lakhs, 4.4 lakhs in putty expansion also. And white cement is also growing. Bulk of the expansion will get consumed into putty, yes. But white cement growth is also there.
Correct. So putty post expansion are current, if I'm not wrong, putty capacity is 8.5 lakhs?
Yes.
Correct. So 8.5 lakhs putty, we are adding roughly around 4.5 lakhs to it. But again, my -- if I understand, to make putty, the requirement of white cement is only 20%. So for 4.5 lakhs of putty, all you need is 90,000 tonnes of white cement.
I agree. That is why I already told you that while cement, we see a huge potential in pure white cement sales as well.
Currently, we are importing also.
Correct. So largely import substitution to begin with, which you said is about 2 lakh tonnes. That can happen straight away and thereafter, the growth part of it. Just one follow-up here. By when -- because it said the expansion will happen in phases. I think I missed that you answered this. But by when is this capacity likely to come onboard?
So it sounds a very long time frame. But we are looking at '26 to commission our Line 3. The biggest portion of time spent will be in land. Land acquisition is not completed. So we would -- now today, the Board has finally approved the expansion, we'll start putting pressure on working on our land acquisition. And perhaps over the next 3 or 4 quarters, I'll have a clarity on how the timelines are getting crunched.
Okay, fair. And just one last question, sir, if I may. Demand, of course, as you said, is strong and December also, I think, saw a reasonable recovery. You also said utilizations were in upwards of 80%. But the coal price is going down. We again saw a lot of fight for market share coming back. And that's where, exit December particularly or most of the December, the prices were under pressure. So in the same light...
I mean, there are some companies who have year ending December.
Yes. But in east, we are seeing a different fight for market share altogether, right?
I'm not aware of any fight.
Yes. Okay, fair point. My simple question on a broader perspective was with coal prices or in general fuel prices easing, do you see headwinds to these price rise? Or you think, no, as long as demand is good, pricing should just be good enough and margin accretive?
I believe, and again, I'll repeat, cement prices with capacity utilizations -- and in my term, I've seen 2 or 3 cycles where all India capacity utilizations have gone above 85%. Margins hit the ceiling. Because what happens is when all the regions are having a good capacity utilization, there is no export of material from one region to the other. Every region is able to enjoy a good pricing environment.
Agree. Let's then hope for that in Q4.
The next question is from the line of Swagato Ghosh from Franklin Templeton.
So I had a very simple question that consolidation helps in passing on some of the cost pressures in difficult times like we have seen in the last 2, 3 quarters. So while the industry is consolidated versus, say, what it was 5 years back, still it's not consolidated enough. So I just want to get a view on what might happen to the industry in, say, 4, 5 years' time. Can we reach a level of consolidation when like even in real demand scenario, we are able to successfully pass on, say, any major cost headwind? And I'm asking you this because you can be a driver of the consolidation, I guess, through acquisition or by pushing out marginal players by selling higher volumes, et cetera.
So that scenario which you're looking at, I don't expect in the next 4, 5 years, there are global markets which are in that phenomena. Consolidation will take place. There will be people who will want to cash out in a good cycle. UltraTech as a company believes very strongly in cement growth in the country over the next decade. We are seeing at least a CAGR of 6% to 8% growth. So we are all very aggressive. We will evaluate every opportunity to keep growing.
Okay. And sir, one other follow-up is going forward, the east is weaker, say, profitability market with the higher competition. Will we be able to successfully pivot our volumes to other regions?
I'm sorry?
Can we shift our volume mix to other regions, if and when needed from east and south to, say, the other regions? So do we have the flexibility?
Yes. We have the flexibility. The reason you -- in fact, we moved material from across the country. That's the advantage of diversity of our existence. Today, with 53-odd locations, we are able to move material criss-cross in any direction.
And so one of the [indiscernible] I would say, with the flexibility [indiscernible] because we have never seen -- practically, I never seen that [indiscernible] purchasing program to the customer. At times, we have -- sometimes that demand is high, and we may have to move from another zone to another plant. There is some cost. But the things is done on a -- because it started on a positive [indiscernible]
Swagato, UltraTech is able to operate more than 250 railheads across the country. That helps move -- and rail freight cost would be 50% of the road rate cost. So that is the kind of advantage which we enjoy. And in times of, what should I say, restriction in supply in one particular market, we are able to meet the customer obligations from other markets also.
Right. So basically, these levers should help us outperform the market over the long run. Is that the right assumption?
Yes, absolutely. I will share with you offline data, which shows clearly period after period, UltraTech has been able to outperform in volume terms. Because what happens is when a new capacity gets added in a particular company, they will have artificial growth, I would say. But if I look at an industry level number, we would have achieved growth quarter-on-quarter higher than the industry.
The next question is from the line of Ashish Jain from Macquarie.
Sir, firstly, on the construction chemical business, can you give some idea in terms of the margins we are making there and where those margins could head? And also, any meaningful CapEx at all if we may incur on that in, let's say, in the next 12, 18 months?
I think, as of now, we are investing in the business, so it's a significant margin.
We are building the business at this stage. And obviously, we have to do a lot of activities and piloting certain things to get the right product and kind of things. So the [indiscernible] today, I'm sure it would [indiscernible]
So right now, we are not focusing on the margin, we are investing in the business. But it can be a healthy 15% to 18% EBITDA for sure.
Okay. Sir, just to understand...
And as far as -- you asked about CapEx, no, it does not -- it's a capital-light business. And the other advantage that we have is we are able to take advantage of our existing plant infrastructure to add to the construction chemical opportunity.
All right. Great. Sir, just to understand, that idea behind this is that either you think it's going to be a huge opportunity because even at [ INR 25 billion ] doesn't seem to be the case in a 2-, 3-year time frame. Or it's just about leveraging the supply chain or the distribution that we have much better. Or is it like some of the input costs and all could be much cheaper for us because of the whole value chain that we have? So what's the thought process behind investing in this business?
The distribution, first and foremost, it synergizes with our vision of being building solution provider, right? Instead of getting a third party to come in and apply something on the construction side, we would have a product of UltraTech being used to complete the project. Take the case of our UBS model. The advantage of that model is that when an individual homebuilder visits the store, he is not just buying cement, but he also sees a pipe that he needs. He also sees the white segment that he needs or a [indiscernible] service or an architect that he requires, services that he requires. He gets everything under a single window, say, under a single roof. Similar is the concept that when UltraTech is being approached by a developer, by an infra company for any project, they get everything that is required to build a bridge or build a high-rise. That's the bigger theme. The advantages that we have is our strong distribution network, the brand equity that we have, the quality of the product that we deliver, the logistics network that we have. It goes hand-in-hand. There's no extra effort that we will require to scale up.
Sir, the only thought which I had just -- because the customer still comes to the store to buy UltraTech Cement. And some of these products are like additive. With a third party, still kind of serves the purpose of making it more comfortable for the customer was my initial thought at least. But fine, I get the point. Sir, secondly, on pricing, can you just share how the exit prices were versus average for the quarter? What the December exit prices?
I'm sorry, what?
What the December exit prices were versus the average for the December quarter?
December, December, December. Price is correct. So December would have exited lower only, almost flat. I'm looking at the data, September and December end was flat, average to be exact, INR 348 a bag versus INR 350 a bag.
Okay. INR 348 is the exit and INR 350 is the average for the quarter? Did I hear that correct?
INR 348 was exit September, INR 350 was exit December.
And sir, what is the average for December, if you can share, please, if it's possible?
INR 350, average for the month.
Got it. Sir, lastly, on utilization, can you just indicate how low did November drop for us? So you give the quarter and December month number. How low did November drop for...
Below 70%, if I remember it right. Yes. It has gone below 70%.
Ladies and gentlemen, we'll take the last question from the line of Prateek Kumar from Antique Stockbroking.
First question is can you highlight a bit on rural demand trend? So peer sector, which is FMCG, you've heard like industry talking about some kind of slowdown there, which may be due to higher base or some kind of pan-Indian slowdown. But how do we see that for cement? And is it something which is contributing to negative growth for the quarter?
Could be. Because the rural markets, largely on the eastern corridor, suffered because of rains and sand shortage and the labor movement. I think things are coming back on track when the labor, supplies and sand availability has settled. December, we are seeing good traction -- December and January, we are seeing good traction across all segments. The most important thing, I don't want to be sadistic, but the benefit of COVID has been revival of urban housing demand. So everybody knows the pillars of cement consumption, which is urban and rural housing, infrastructure, industrial and commercial. All along in that infrastructure and rural housing were supporting the growth. Now urban housing has also started growing. So this is what I would want to conclude with that three of the four levers have started firing very well for cement.
Sure, okay. So I mean, through these rains and sand shortage would be something which should impact probably [indiscernible] so which should probably impact only...
As I see now December and January continuing, the capacity utilization is good across the country.
Thank you. Ladies and gentlemen, that was the last question. On behalf of UltraTech Cement, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.
Thank you.