ORIENTCEMNSEQ4FY22May 18, 2022

Orient Cement Limited

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Management on call

Deepak Khetrapal

MD & CEO, ORIENT

Soumitra Bhattacharya

CHIEF FINANCIAL

Krupal Maniar

ICICI SECURITIES LIMITED.

Key numbers — 40 extracted

20%

is very expensive. That obviously is posing huge challenges to an industry which ends up spending 20% plus on just moving the material around, and also a very very large amount on power and fuel. So,

Rs. 486 crore

y to report that in FY22 we have repaid the debt the project loan that we had taken by as much as Rs. 486 crores. Whereas not even a penny was due to be paid this year. This fact actually was reminded to me by

Rs. 260

t out right at the start. Our net debt now, net of cash that we held on 31st of March has been at Rs. 260 to Rs. 270 crores that's it. The other thing for the full year if we look at it, we have managed t

Rs. 270 crore

at the start. Our net debt now, net of cash that we held on 31st of March has been at Rs. 260 to Rs. 270 crores that's it. The other thing for the full year if we look at it, we have managed to cross the EBIT

Rs. 600 crore

's it. The other thing for the full year if we look at it, we have managed to cross the EBITDA of Rs. 600 crores for the first time in our working history, which is up 6% to 7%. The EBITDA for the year higher

aged to cross the EBITDA of Rs. 600 crores for the first time in our working history, which is up 6% to 7%. The EBITDA for the year higher by this much percentage from whatever results I have come a

o cross the EBITDA of Rs. 600 crores for the first time in our working history, which is up 6% to 7%. The EBITDA for the year higher by this much percentage from whatever results I have come across

Rs. 20

from there. The drop in EBITDA per ton for the full year is really marginal, I mean we are just Rs. 20 odd off from what we had EBITDA per ton last year. It looks like a miracle given the kind of year

21%

ear that it's been but like I said, we are happy to be where we are. Our PBT for the year is up 21% over last year. Profit After Tax is also up by about 23%. Like I said, these numbers make us happ

23%

where we are. Our PBT for the year is up 21% over last year. Profit After Tax is also up by about 23%. Like I said, these numbers make us happy and I am hopeful that it will also make the investors

rs,

money in advertising campaign. So, these are the I would say the limitations of quarterly numbers, which I just thought I will call out as a reminder to all of us. But any way, I think given where

12%

. And here are the quarterly numbers. So, our volume drop over last year in this quarter has been 12%, now this is the distortion, which I was talking about if you look at QoQ basis, the preceding qu

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Guidance — 20 items

Krupal Maniar

opening

“Deepak Khetrapal for his opening remarks, which will be followed by interactive Q&A session.”

Deepak Khetrapal

opening

“And I am happy to report that in FY22 we have repaid the debt the project loan that we had taken by as much as Rs.”

Deepak Khetrapal

opening

“So, many of you would have seen the kind of films that we have released largely on social media, the Good Poetry Project, it surprised how much traction that it is getting to us from everybody who cares for our company and our cement.”

Deepak Khetrapal

opening

“Voluntarily, we have actually prepared the report which has been approved by our Board yesterday and it will reach all of you along with the Annual Report that we send out.”

Deepak Khetrapal

opening

“So, BRSR has been approved by the Board yesterday, it's going into print soon and will reach all of you very very soon.”

Deepak Khetrapal

“I think the anxiety on what the fuel mix will be in the coming quarter or two or three, has been obviously haunting all of us in the industry.”

Deepak Khetrapal

“So, there is no forecast that I can give you beyond the fact that maybe as of now, about a month ago, we were running very very low inventories.”

Deepak Khetrapal

“Not in stock, but we have booked and confirmed that that will be available to us.”

Deepak Khetrapal

“Going forward, as again like I said, it will be dynamic --; you know petcoke becomes more useful or whatever.”

Deepak Khetrapal

“So, kiln will be of the same size, we will add maybe a million, million and a half tons of additional grinding on site at Devapur and 2 million tonnes grinding capacity in Tiroda.”

Risks & concerns — 13 flagged

I am sure, although not all the results are out for the cement industry by now, but most of the results which have come out are very clearly reflecting the difficulties that the industry is facing, the difficult times, I mean it’s been a tough quarter, as has been the, I think the whole year, as the year went by the costs just kept building up.

— Deepak Khetrapal

Like I said, these numbers make us happy and I am hopeful that it will also make the investors community happy to see that in a difficult year we are where we are and also looking at the difficulties that the rest of the industry seems to be at least reporting through their performance numbers.

— Deepak Khetrapal

So, that's a bit of a challenge in terms of perspective, for us to (( CK BIRLA CROUP OFIENT CEMENT say, oh, we have not done as well as last year, last quarter.

— Deepak Khetrapal

And as a result of that, in many situations, we had to take a very difficult call of saying no to an order.

— Deepak Khetrapal

And all of you are quite aware of how difficult it is, for a salesperson to say no to a customer saying at this price we will not take the order.

— Deepak Khetrapal

And here I think the challenge arose more in the second half, because in the first half we were getting the volumes that were planned.

— Deepak Khetrapal

So, which has also helped us in moderating the inflation impact of the diesel which is hurting everyone.

— Deepak Khetrapal

But as the crisis seems to be not slowing down, and as things keep looking more and more difficult.

— Deepak Khetrapal

If, so wherever for example, around our Chittapur plant, it's very difficult to get agro waste, because just too many power plants are there and not enough agro waste being generated.

— Deepak Khetrapal

So, at Chittapur plant we choose to use more of hazardous waste, the municipal waste, the RDF and things like that, there also we are running into a challenge in terms of availability.

— Deepak Khetrapal

Now it’s coming to us at a negative cost simply because we have invested money into creating the infrastructure, which can handle this liquid hazardous waste, without that you can't use it, you are putting your own people at risk if you bring that in.

— Deepak Khetrapal

So, hopefully I am still hoping that you know by June these pressure start easing and we can resume the normal, that's why we haven't covered through imported coal too much, it’s just a small, modest quantities, just to remain, to be able to sleep better let me put it that way.

— Deepak Khetrapal

It’s a difficult time so there is no clear answers on that.

— Deepak Khetrapal

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Q&A — 8 exchanges

My question pertains to the fuel mix which you obviously touched upon, could you share how has this changed quarter-on-quarter? And what is your thought process in terms of this high share of green fuel that you have, alternate fuel, which you have been able to achieve, would that 15% plus number seem sustainable in next few quarters?

Deepak Khetrapal

I think the anxiety on what the fuel mix will be in the coming quarter or two or three, has been obviously haunting all of us in the industry. The fuel mix will remain very dynamic. So, there is no forecast that I can give you beyond the fact that maybe as of now, about a month ago, we were running very very low inventories. But as the crisis seems to be not slowing down, and as things keep looking more and more difficult. In the recent times, we have gone ahead and booked a fuel, I think we seem to be well covered right now for fuel availability for at least next eight weeks or thereabouts, m

So, like, we have been now seeing so much of cost inflation and while you have managed better than others. But what's the outlook on the cost going into Q1 and Q2, like what kind of increases is expected in power and fuel?

Deepak Khetrapal

Again, Amit, we can only talk about from the perspective of what we have managed to book so far as I mentioned. And those costs over the exit costs of last year they would definitely be higher, that's one question, and but they will be higher, hopefully by low double digits. So, you know 12%, 13% or thereabouts higher than what we saw the exit for the last quarter. They are definitely on the way up even now there is no relief there. Especially for us because you know, having exhausted all the avenues which are available to us to keep buying more economical fuel, they seem to have been exhauste

My first question is on the domestic coal availability. So, while our fuel mix have sort of remained like in favor of domestic coal, especially at the Telangana plant, but how in general is (( CK BIRLA CROUP OFIENT CEMENT the availability of fuel as of now, because there are a lot of reports suggesting shortage of domestic coal for non-priority sectors?

Deepak Khetrapal

There is shortage of domestic coal, there is no denying that fact. And whatever is available, the priority is being given to as we know, to the power sector. So far we had tough six weeks in the financial year. And that's why as I mentioned, we have booked some expensive imported coal to remain at least operative, otherwise we would have run out of fuel. I have already mentioned that and that's why like inflation as I said in cost of fuel would be visible in the first few weeks of this quarter. They have, it's been visible. But we typically, we also know that as the monsoon sets in early June,

I don't take away anything from the fact that you have fought back very well in the face of terrible rises in energy, power and fuel costs. But there is another part of your cost breakup which is interesting and which I can't figure out, which is that how have you managed to put a cap on material costs and employee costs. So, sequentially of course, there is a huge drop in employee costs, I believe there was some kind of one-off last quarter. And I am not sure but cost of materials would also include the royalty out goes on limestone and all of that.

Deepak Khetrapal

Of course, costs of material does include all of that, absolutely. On the employee costs look it is like this, end of the year is normally the balancing quarter for the year in terms of costs. So, throughout the year, we make some provisions expecting the payouts to happen. That's one part (( CK BIRLA CROUP OFIENT CEMENT of the story because obviously, when variable pays this that are there so there are obviously internal budget that we have. So, first two quarters, if you recall, the performance was much better than second half. And that made us hopeful that the full year would like that to s

My question pertains to CAPEX, since we are expanding our capacity and there will be around Rs. 2,000 crores we will be spending on these expansions. So, how we are going to do CAPEX for the same in FY24; FY23 and FY24? And how debt will look like in the next two years?

Deepak Khetrapal

As per the, let’s say visibility that we have as of now, the CAPEX on the expansion projects this year should be in the region of Rs. 700 crores to Rs. 750 crores that’s our expectation to be able to spend to have the capacities available by the end of the next financial year. And balance of that will naturally happen in FY24. What kind of debt we will be looking at peaking at, because even in next FY23/FY24, even if you do around Rs. 1,000 crores of operating cash flow, even we will be looking to take some debt for the expansion. So, what is your take on that? My simple take is it's a functio

On the balance sheet again, just wanted to, what would be the total CAPEX that need to be spent on these two projects that you are looking at, Maharashtra and Telangana. And what would, peak debt number you are looking at if you could, you know --?

Deepak Khetrapal

Total CAPEX, we said for the expansion will be ballpark Rs. 2,000 crores out of which the debt which hopefully we will not need to raise it this year, but by next year it will be about Rs. 1,100 crores for the first phase. When we get into a second phase, which is either Rajasthan or Chittapur expansion, that time we will, but FY24 it doesn't seem that we will need debt more than this. And the current debt, how much payout would be, how much need to be reduced, or we are expecting to reduce, you will be borrowing incrementally Rs. 1100 crores. But you may be retiring off the existing debt also

Just one question, if I may and more on the strategy front. Since the Rajasthan mines are likely to be like coming back to us anytime soon. I just wanted to get some understanding that will we be going for some CAPEX there immediately? Or is there a possibility of getting an extension to the fact that by March ‘24, these mines have to be operational, some color will be really helpful?

Deepak Khetrapal

So, Navin, I don't think it's news to anyone that as of now we have not bought any land in Rajasthan. So, the first thing we will start doing, is to start acquiring land, the moment they confirm the lease back on us. I mean, I need that lease LOI to be released to us, before I start buying land, because land in that area is not with us. The only CAPEX which will happen in the next year, year and a half at least, maybe a full two years, only to acquire the land. And you know, land acquisition is a very small part of the total sum in project cost. And if I have enough, and the follow-up question

On behalf of ICICI Securities, I would like to thank the management of Orient Cement for providing us this opportunity to host the call. And thanks all participants for joining the call. Thank you very much. You may now conclude the call.

Management

Speaking time

Deepak Khetrapal

Moderator

Rajesh Ravi

Amit Murarka

Dipen Sheth

Uttam

Prateek Kumar

Krupal Maniar

Deepak Khetrapa

Navin Sahadeo

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Opening remarks

Krupal Maniar

Good afternoon and a warm welcome to everyone. On behalf of ICICI Securities, we welcome you to the 4th Quarter and FY22 Earnings Call of Orient Cement Limited. On the call we have with us Mr. Deepak Khetrapal - MD & CEO and Mr. Soumitra Bhattacharya – CFO of the company. At this point of time, I will hand over the floor to Mr. Deepak Khetrapal for his opening remarks, which will be followed by interactive Q&A session. Thank you and over to you sir.

Deepak Khetrapal

Good afternoon everyone. And a very warm welcome to this investors-analysts call that we do every quarter and thank you for sparing your time to come and listen to us and listen to what we have been up to in the last quarter and the last year also, in some ways. And with me on this call from Orient Cement is Soumitra Bhattacharya our CFO and also we have with us our Investor Relations in-charge Manish Aggarwal, who stays in touch with most of you whenever you need clarification. Without wasting much of your time, let me just start getting into what we have done in last quarter. I am sure, although not all the results are out for the cement industry by now, but most of the results which have come out are very clearly reflecting the difficulties that the industry is facing, the difficult times, I mean it’s been a tough quarter, as has been the, I think the whole year, as the year went by the costs just kept building up. And specially the cost of power and fuel, which is largely about coa

Deepak Khetrapal

Thanks Soumitro for reminding me. So, I mean as we keep saying and in the annual reports we have talked about our efforts towards sustainability starting with we despite the small size that we have of just about 5 million tonne at that time, we perhaps were the first or not the first, the smallest company in the world to join something which we call Cement Sustainability Initiative (CSI) which was being run under the aegis of World Business Council for Sustainable Development. So, that's how we are committed towards sustainability. So, this year, although it is not mandatory for us to issue the BRSR report by the Board. Voluntarily, we have actually prepared the report which has been approved by our Board yesterday and it will reach all of you along with the Annual Report that we send out. So, all the data that needed to be collected has been collected and put in. And we are obviously making commitments towards meeting the SDGs as defined by the UN, and also towards carbon neutrality,

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