ORIENTCEMNSEQ1 FY23August 8, 2022

Orient Cement Limited

9,382words
65turns
7analyst exchanges
2executives
Management on call
Deepak Khetrapal
MD & CEO, ORIENT
Krupal Maniar
ICICI SECURITIES LIMITED.
Key numbers — 40 extracted
rs,
market and a plant in Rajasthan as good as you can get. So, congratulations to all our shareholders, huge value add to what we have in terms of our capacity to keep generating the good results in the
188 crore
I’m sure all of you also don’t like, having had the highs of let’s say the same quarter last year 188 crores EBITDA there about and Rs. 1370-1380 per tonne of EBITDA, coming down to, by 45% to overall EBIT
Rs. 1370
e, having had the highs of let’s say the same quarter last year 188 crores EBITDA there about and Rs. 1370-1380 per tonne of EBITDA, coming down to, by 45% to overall EBITDA that we earned last year, it’s
45%
last year 188 crores EBITDA there about and Rs. 1370-1380 per tonne of EBITDA, coming down to, by 45% to overall EBITDA that we earned last year, it’s certainly not something that we can ever feel ha
1%
as I’m sure they leave all the shareholders, analysts disappointed. As you know we’ve had nearly 1% growth in volumes over first quarter last year, which looks quite honestly under par even for our
2%
e in cost, the blended realizations for us as you guys have seen has been a very modest just over 2%. And even sequentially, it’s the increase is less than 5%. Our total costs are higher by 20% year
5%
e seen has been a very modest just over 2%. And even sequentially, it’s the increase is less than 5%. Our total costs are higher by 20% year-on-year and nearly 11% over Q4. The thing to note here is
20%
over 2%. And even sequentially, it’s the increase is less than 5%. Our total costs are higher by 20% year-on-year and nearly 11% over Q4. The thing to note here is that if we look at our total costs
11%
lly, it’s the increase is less than 5%. Our total costs are higher by 20% year-on-year and nearly 11% over Q4. The thing to note here is that if we look at our total costs over same quarter last year
Rs.743
our total costs over same quarter last year, while the total cost per tonne are higher by around Rs.743 a tonne out of that everything excepting maybe Rs.100 over R.640 odd coming straight out
Rs.100
e total cost per tonne are higher by around Rs.743 a tonne out of that everything excepting maybe Rs.100 over R.640 odd coming straight out of just power and fuel increase. While over last year
Rs.1600
rge, but we have to also factor in the fact that even today our power and fuel cost are just over Rs.1600 a tonne is perhaps amongst the best in the industry is seen because I’m seeing many companies repo
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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
“It’s a project that they’re committed to, whenever that gets triggered to be a major boost to the demand in our market.”
Deepak Khetrapal
opening
“Any other major project is not looking likely to come up and that’s been a bit of a dampener on the southern markets.”
Deepak Khetrapal
opening
“And in the meantime, as we know the entire cash generation that we were having we have been prepaying, even in the month of December we prepaid a very large amount of the total project debt we had.”
Deepak Khetrapal
opening
“So, as a net result, 30th June our project loan which was the term loan while that has come down to 259 crores.”
Deepak Khetrapal
opening
“So, that obviously, will be that’s beyond what you are saying we will invest in CAPEX in the current year.”
Deepak Khetrapal
opening
“I personally won’t expect it although we will try our best but I don’t think land will come that quickly.”
Deepak Khetrapal
qa
“So, I’m giving you the current time, that’s why the current plan to maybe put about 2 million in capacity there.”
Deepak Khetrapal
qa
“In terms of timelines, all of us keep hearing based on what information comes to us through all the people like you, that a Greenfield project people do say that it takes as long as five years to put up if we are starting completely from scratch.”
Deepak Khetrapal
qa
“We will try and see because obviously, they are going to be pressures from Rajasthan government to start the project faster.”
Risks & concerns — 15 flagged
So, the first challenge for us in any case is to start acquiring the land and parallelly identifying the land on which the plant will come up in the area of mines and start applying for the necessary environmental clearances and all the other authorizations.
— Deepak Khetrapal
The markets that we address have not been supportive at all in terms of demand volumes and when the demand and volumes don’t look at the pricing always becomes very difficult in terms of passing on our increased cost, because cost have kept rising so we’ve not been able to pass on the costs and even the operating leverage has not come to rescue us from the thin margins that the current costs give to us now.
— Deepak Khetrapal
Besides the lack of demand momentum, as we know which has been regional challenge, it’s not been a pan India challenge because as I mentioned some of the markets have seen very robust demand growth.
— Deepak Khetrapal
The challenge for the industry across our country is the heightened cost of fuel and several other inputs.
— Deepak Khetrapal
Even they have had to report a decline in the overall profitability, which is worrisome because if large volumes and decent price increases also are resulting in drops in EBITDA over last year we all need to be concerned about but I guess it’s a function of the prices, taking a little bit downward trend that needs to bail us out.
— Deepak Khetrapal
But then the challenge was that this be additional business that we would have booked would have come even more from the B2B side where the prices were not giving us enough joy to do business.
— Deepak Khetrapal
One of the other I would say challenging features of the Q1 has been that the slowdown in the trade segment, or the B2C segment in our markets has been much sharper and if you have been able to gain some volume increases over last year, that’s come largely through the B2B business and B2B business also, which is towards large projects where the OPC component tends to be higher and when the OPC component is higher it does tend to impact your power and fuel cost per tonne.
— Deepak Khetrapal
During this particular quarter, all of you are well aware of the pressures that railways have been to move coal from the coal mines to the power plants because the central government, state governments everybody put pressure on them, availability of rakes became a major issue and even if the rakes were available, the terms on which they were making the rakes available by levying really punitive demurrages and wharfage charges huge penalties.
— Deepak Khetrapal
So, we are just watching the market and being a little cautious that maybe a little slow.
— Deepak Khetrapal
So, it’s a little bit of slowdown on CAPEX here, but we might need some cash not as much as cash because land acquisition as we know in India these days has become very, very difficult, we’ll be able to buy land in a hurry and spend a lot of money there.
— Deepak Khetrapal
And you mentioned that your CAPEX for the Brownfield for Devapur is not progressing, you are going slow and cautious on that.
— Rajeshkumar Ravi
Quite honestly Rajesh, the way our current costs are looking high, even if I’m not saying they will soften over the Q1, I don’t think Q2 is likely to see any noticeable increase that’s not the.
— Deepak Khetrapal
Rather than assuming the reserves and suddenly putting up large capacity than being disappointed, the more cautious approach might be that we build up a smaller plant and add another line if we think we have enough limestone.
— Deepak Khetrapal
I do believe that from their side, they will try to put pressure on I’m expecting it to be over three years.
— Deepak Khetrapal
So, earlier timeline was March 24 so should we say now that it will be difficult by March 24 and possibly we should look at maybe six months to 12 months delayed than that?
— Amit Murarka
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Q&A — 7 exchanges
Q
Sir, I have a few questions congratulations for getting this Rajasthan mines. So, first question is relating to this only. What is the total mining capacity and annual throughput which is possible from this mine and what timelines you’re looking at all, I understand land pooling you already said will take good amount of time, but any ballpark numbers?
Deepak Khetrapal
Rajesh the total capacity when we did the assessment of the limestone there is in the region of 120-150 million tonnes as has been assessed, and that’s why we have said that, in all probability we end up setting up a line of about 2 million tonnes a year which should give us a life of more than 50 years for the plant. But here, I must say that almost it’s true of almost every mine that whatever are the initial estimates of limestone reserves, in actual usage, when you start doing mining, you get a lot more of that, right. And that’s to everyone. So, I’m giving you the current time, that’s why
Q
So, my first question is around the Rajasthan unit. You mentioned the potential 2 million ton capacity. So, is that a clinker capacity are you talking about or the cement?
Deepak Khetrapal
No, I’m talking about the cement capacity there. But 120-150 million tonne limestone, shouldn’t there be like a 3.5-4 million tonne kind of a cement capacity that should be visible? Look, always as I mentioned, when you start doing the actual mining, this is your exploration, are estimated reserves, if it does become viable to have a larger capacity, we can always add one more line. Rather than assuming the reserves and suddenly putting up large capacity than being disappointed, the more cautious approach might be that we build up a smaller plant and add another line if we think we have enough
Q
So, just a few questions from my side. So, in the last couple of years our EBITDA per tonne has been around, Rs.1000-1100 thereabout, so ignoring the quarterly impact that we had in this quarter and Q1 last quarter, is this sustainable, and what is driving the sustainability of EBITDA per tonne?
Deepak Khetrapal
In the previous nearly two years that you are talking about, the EBITDA became possible largely from the pricing that the market offered to us. As you’ve seen, although we are saying prices have been under pressure, they have not gone down and cement industry we have seen times when even the prices have gone down from the previous times. So, as of now, as I mentioned to the previous question, the demand that we see in the market normally should be reviving in a couple of months’ time, a few weeks’ time once the monsoon gets over. With the demand increasing obviously, our effort will be to be a
Q
Congratulations on getting mining lease. My question is that, as you explained Devapur Brownfield may take some more time. So, can we might also meanwhile have thoughts about setting up a Greenfield capacity at Rajasthan. So, can we see a situation where in because of the fact that we already have slightly excess capacity at our Devapur clinker capacities we can sort of like exit the plan altogether of Devapur expansion and focus only on the Rajasthan new Greenfield capacity?
Deepak Khetrapal
No, I don’t see the possibility of Rajasthan replacing the need for the expansion at Devapur. I don’t expect that to happen. Sequentially, like I said, my wish list would be if I could do Rajasthan faster. I would anytime. But replacing that, we have enough limestone and the markets that our Devapur plant in Telangana serves will also have the growth and having the limestone mines with you why would you not want to use them over a period of time. So, we will not give up on that expansion, no. So, in sense of timeline first, it would be Devapur even if, because meanwhile we will need some time
Q
I wanted to discuss a few question which the earlier participant asked on the balance sheet because we’re looking at a net worth of around 1500 crore currently. And the Devapur and Tiroda project and the WHR and all would be around 2000 crore, even if it is phased out to some extent. This new project also in Rajasthan would cost you anything between 1500 to 2000 crore depending upon the contour of the CAPEX. So, for next FY23, maybe next four years, we are looking at 4000 crore CAPEX. So, what sort of equity infusion could be factored in or rather, my question is what type of net debt to EBITD
Deepak Khetrapal
So, Rajesh I would reiterate what we have said earlier board mandated policy is very clear, when we want to make any CAPEX, we are not allowed to exceed debt equity of 1.5. And debt EBITDA to be contained within three. On a group level / on company level? At the company level yes. So, would that not be, either it is supported with a good amount of big infusion, if it is infusion or staggering the CAPEX beyond over next six to seven years? Yes, that’s a possibility. Let me not rule out any possibility right now. That’s why earlier when you was asking me questions, I did tell you that give me gi
Q
It’s possible to provide the CAPEX guidance for FY23 and 24. And as well as you talked about the Devapur plant, but about this Tiroda plant have we ordered the machineries or Tiroda plant also will get delayed, so I need to ask by FY24 and can we see any of the plant coming in Tiroda as well as Devapur grinding unit?
Deepak Khetrapal
As I just mentioned, they might be a couple of quarters delay in that unless the clearances for the Tiroda plant do not come very, very quickly. So, there is some chance because as I mentioned, the new even it’s a Greenfield grinding unit. It is subject to many approvals if they get delayed for whatever reasons, so there is no way we can start construction. And unless Tiroda grinding unit construction starts there is no point in our starting construction at Devapur, because it’s related that is a related investment. So, there could be some delays as I’ve already indicated, I’m not saying there
Q
Thank you Seema. On behalf of ICICI Securities, we would like to thank the management of Orient Cement for providing us this opportunity to host the call. And thank all the participants for joining the call. Thank you, Seema. You may now conclude the call.
Deepak Khetrapal
Thank you, everyone.
Speaking time
Deepak Khetrapal
28
Rajeshkumar Ravi
10
Moderator
9
Amit Murarka
5
Aashav Patel
5
Vaibhav Jain
3
Ashish Kejriwal
3
Krupal Maniar
2
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Opening remarks
Krupal Maniar
Thank you, Seema. Good morning and a warm welcome to everyone. On behalf of ICICI Securities, we welcome you to the first quarter FY23 Earnings Call of Orient Cement Limited. On the call we have with us Mr. Deepak Khetrapal – MD & CEO 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
Thank you Krupal. Thank you very much. Good morning, everyone and warm welcome to our investors call that we host every quarter now. And thank you for sparing your time to come and listen to us. I just need to inform you that today Soumitra Bhattacharya our CFO has not been able to join me on this call, because he actually is in a hospital and he is undergoing some small surgery. So, I am here and Manish Aggarwal from our company, he’s here with me on the call. To start with, let me say this time, we are doing a call with the day or weekend break, because I had some of the board meetings in the meantime. And I’m sure you’ve had ample time to go through the results of our Q1 that we announced on Thursday. And I’ll take this opportunity to provide some perspective on the numbers. But before that, I would like to touch upon, the most exciting development that has happened in just last few days and on the day of the board meeting, we also announced that to stock exchange, all of us have be
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