Concall Commentary Q3 FY24
Key Points:
- Demand: Industry growth is expected to be around 3-4% in Q3 due to the festive season, worker absenteeism, elections, and weather disruptions. However, demand has improved since mid-December, and fundamentals for long-term growth remain strong.
- Prices: Prices corrected due to slower demand but improved QoQ and YoY. Prices are expected to rise as demand improves.
- Expansion Plans: All expansion plans are on track or ahead of schedule. Phase 3 capacity of 21.9 million tons progressing well with orders placed and civil work commenced. Capex to exceed initial plans at INR 9,000 crores in both FY’24 and FY’25.
- Financials: Working capital was slightly extended due to opportunistic coal and pet coke purchases, leading to a marginal increase in debt. Q4 is expected to see an improvement in cash flow and a reduction in net debt. The target of zero net debt by March ’25 was reiterated.
- Costs: Fuel cost reduced to $150 per kcal due to lower imported coal and pet coke prices. Further reduction expected in near future.
- Sustainability: 24% of power generation from non-fossil fuels with plans to double by FY’25. All future expansions are to be with WHRS and zero thermal power.
- Kesoram Acquisition: Scheme filed with stock exchanges, CCI application to be filed soon, merger effective date set for April 1st, 2024. Numbers will be consolidated retrospectively after regulatory approvals.
Overall:
UltraTech remains optimistic about long-term growth despite short-term demand challenges. Expansion plans are progressing well, costs are decreasing, and commitment to sustainability is strong. The Kesoram acquisition is expected to be completed in FY’24.
Important Q&A Discussions
- UltraTech is making progress on expansion in the Northeast
- They are looking for profitable growth opportunities
- Industry demand growth for cement is expected to be close to double-digits
- Trade volume for cement was 64%
- Blended cement was around 68%
- Pet coke price was $126
- Total clinker across three regions is approximately 12 million tons
- Q4 performance is expected to improve, but no specific growth number was given
- The premium for the quarter was 23%
- There may be a slowdown in demand growth in the first half of FY’25
- The company will not reveal any information about future plans before 2032
- The country is not expected to suffer from the shortage of fly ash and slag
- Availability of rail is a major challenge in Eastern India
- The government is yet to take multiple levers
- The split between pet coke and imported coal is 50-50
Concall Commentary Q2 FY24
Industry:
- Cement is a long-term story connected to economic fundamentals.
- Emerging markets, especially India, offer the best growth potential.
- Infrastructure development in India fuels cement demand.
Costs:
- Input costs like coal and pet coke fluctuate significantly.
- High maintenance costs in Q2 (24 kilns shut down at UltraTech).
- Selling prices also fluctuate, recent hikes are positive but wait-and-watch advised.
- All India prices up 7-8% compared to June exit, but quarter average prices only marginally up.
Expansion:
- 22.6 million tons capacity expansion on track for completion by June 2025.
- Additional 3 slag mills (1.8 million tons) to be commissioned with this phase.
- Total capacity to reach 159.65 million tons after expansion.
Financials:
- INR 2,545 crore capex spent in Q3, mostly on expansion.
- INR 600 crore spent on working capital, building fuel inventory during price dip.
- Net debt rose to INR 4,917 crore but is expected to decline in peak season.
Performance:
- 15% domestic volume growth (16% including international).
- Strong logistics network: 403 km lead distance, 40 km secondary lead, 1,100 warehouses, 280 sidings, 52% direct dispatches.
Sustainability:
- Indian infrastructure needs to drive cement demand, leading to emissions.
- UltraTech invests in reducing emissions, aiming for 60% non-fossil fuel energy by current expansion completion.
- India’s potential 2036 Olympics bid is positive for the cement industry.
Important Q&A Discussions
- It’s too early to determine the impact of increased pricing on demand during Q3.
- Prices are holding, and any market slowdowns or resistance are expected to pass over.
- The next phase of expansion is almost finalized and will be presented to the Board before the end of the calendar year.
- The expansion plan aligns with the vision of achieving 200 million tons of cement in India.
- Pet coke usage is only for the kiln, not the entire thermal power plant.
- Pet coke is not allowed to be used in thermal power plants legally.
- The increase in other operating income is due to additional incentives.
- The specific components of the increase were not detailed.
- Contracts for fly ash and slag are typically not more than a year and are not linked to WPI.
- Price discovery for these contracts is through the tender process or e-bidding.
- Governments are expected to maximize project execution and not hold back payments, which should support the working capital of infrastructure companies.
- Detailed pricing information for the slag contract was not provided, and the focus was on EBITDA performance in the next quarter.
- No specific details were provided regarding market share or coal percentage
- No specific details were provided regarding margins and price hikes in the industry.
- The company never mentioned the concept of one India price or regional pricing.
- The discussion did not provide specific details about industry practices related to regional pricing.
Concall Commentary Q1 FY24
Optimistic Outlook:
- High cement consumption for 3rd year, expecting double-digit growth.
- Economic factors like FDI, inflation, and fuel costs favor growth.
- The government’s infrastructure push (road construction) bodes well.
Company Performance:
- Commissioned 4.3mn tonnes capacity, expanding presence in key markets.
- Reduced net debt, and completed the first phase of the expansion plan.
- Incremental capacity of 4mn tonnes planned through debottlenecking.
- Improved clinker conversion factor to generate an additional 3mn tonnes annually.
Sustainability Initiatives:
- Fast-tracking green energy program, targeting 60% green energy by FY’26.
- Increasing Waste Heat Recovery System (WHRS) footprint.
Additional Points:
- Pet coke price complexities and landed cost due to moisture loss.
- UltraTech’s lead distance for customer service is only 270km.
Important Q&A Discussions
- Atul Daga discusses the high capacity utilization and strong demand in all regions of the country.
- Marginal price increases have been seen in North and West, but South and East are still not showing traction in prices.
- UltraTech evaluates opportunities for inorganic growth and is investing in alternative fuel handling systems.
- UltraTech plans to reach 1.2 gigawatts of renewable energy and 425 megawatts of WHRS.
- Clinker utilization is at more than 90% and expansion projects are expected to be completed by FY ’25.
- Positive outlook for pricing and demand, with potential for improvement in the coming quarters.
- UltraTech is targeting a capacity of 200 million tons by 2030, with plans for the next phase of growth in progress.
- Arbitrations have no specific timelines and can be prolonged.
- The company has achieved strong growth and high capacity utilization across the country, outperforming in most markets.
- UltraTech is focused on maintaining competitive costs and is considering a mix of greenfield and brownfield expansions for future growth.
- The company is also exploring opportunities in renewable energy and alternative fuel handling systems to improve operational efficiency.
- Overall, UltraTech is optimistic about the industry’s growth and its own performance, with a positive outlook for pricing and demand.