RAMCOCEMNSE16 November 2022

The Ramco Cements Limited

8,144words
183turns
17analyst exchanges
4executives
Management on call
P.R. Venketrama Raja
MANAGING DIRECTOR – THE RAMCO CEMENTS LIMITED
A.V. Dharmakrishnan
CHIEF EXECUTIVE OFFICER – THE RAMCO CEMENTS LIMITED
S. Vaithiyanathan
CHIEF FINANCIAL OFFICER – THE RAMCO CEMENTS LIMITED
Amit Srivastava
B&K SECURITIES
Key numbers — 40 extracted
INR 1,501 crore
tart with the highlights of our performance of the second quarter. Our revenue increased YoY from INR 1,501 crores to INR 1,793 crores for 2QFY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. An
INR 1,793 crore
ghts of our performance of the second quarter. Our revenue increased YoY from INR 1,501 crores to INR 1,793 crores for 2QFY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. And EBITDA per tonne s
INR 402 crore
e increased YoY from INR 1,501 crores to INR 1,793 crores for 2QFY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. And EBITDA per tonne stood at Rs 582 tonnes, which is one of the lowest in th
INR 193 crore
om INR 1,501 crores to INR 1,793 crores for 2QFY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. And EBITDA per tonne stood at Rs 582 tonnes, which is one of the lowest in the last eight years
Rs 582
FY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. And EBITDA per tonne stood at Rs 582 tonnes, which is one of the lowest in the last eight years. Profit after Tax stood at INR 11 crores
INR 11 crore
d at Rs 582 tonnes, which is one of the lowest in the last eight years. Profit after Tax stood at INR 11 crores during the quarter. The main reason for the drop in profitability in the current quarter is due
rs,
ch clearer. But this time, it is the other way around. The situation may continue for a few quarters, considering the prevailing uncertainties. However, we are optimistic about long-term prospects and
1.5 million
xpansion plans. The green field cement plant in Kolimigundla, Kurnool district with a capacity of 1.5 million tonnes of cement grinding commenced commercial production on September 2022. The Honourable Chief
0.9 million
r 2023-24. The company propose to increase the grinding capacity of Haridaspur plant in Odisha by 0.9 million tonnes per annum at a cost of only INR 130 crores since other infrastructures are already in plac
INR 130 crore
grinding capacity of Haridaspur plant in Odisha by 0.9 million tonnes per annum at a cost of only INR 130 crores since other infrastructures are already in place, thereby doubling its capacity to 1.8 million t
1.8 million
INR 130 crores since other infrastructures are already in place, thereby doubling its capacity to 1.8 million tonnes per annum. During the current quarter, the company has incurred INR 504 crores towards cap
INR 504 crore
ts capacity to 1.8 million tonnes per annum. During the current quarter, the company has incurred INR 504 crores towards capex. The company’s net debt as on 30-09-2022 is INR 4,741 crores. The average cost of
Guidance — 20 items
Amit Srivastava
opening
“We would like to start the call with the opening remarks from the management, which will be followed by Q&A.”
P.R. Venketrama Raja
opening
“We are more committed to continue our good efforts to do a much better job going forward.”
P.R. Venketrama Raja
opening
“The resilience of cement demand in the medium-term is also encouraging in view of promising factors like good monsoon, good water levels in the reservoirs, focus on infra spend by the government and the upcoming elections.”
P.R. Venketrama Raja
opening
“Nagar plant will be commissioned before March 2023.”
P.R. Venketrama Raja
opening
“The remaining two units in Andhra Pradesh and Odisha will be commissioned during the financial year 2023-24.”
Shravan Shah
qa
“And now this year also we are planning to do a capex of INR 1,717 crores, and next year also, the capex will be INR 892-odd crores.”
Management
qa
“So when we put up the second plant, the cost of putting up the plant will be very less.”
Management
qa
“In the third quarter, definitely, we expect a good cash flow.”
Shravan Shah
qa
“So we broadly expect the current INR 4,700 crores net debt to remain by end of March?”
Shravan Shah
qa
“Second, on the Orissa 0.9 MTPA, the new one that we have said today, when the commissioning will be there, COD will be expected by...”
Risks & concerns — 7 flagged
The main reason for the drop in profitability in the current quarter is due to the margin pressure in view of drop in cement prices amid higher fuel prices.
— P.R. Venketrama Raja
The business environment continue to be uncertain due to rapidly changing economic environment in view of prevailing stress in geopolitical situation across the globe.
— P.R. Venketrama Raja
Having said that, with the continuing consolidation of the cement industry, coupled with increased addition of fresh capacity could lead to increased appetite for market share among the players, which may put pressure on margins in the near future, especially due to the uncertainty in fuel prices.
— P.R. Venketrama Raja
So having given this background, I wanted to know that as a group, how we are going to manage this challenge of high debt.
— Vinay
That is only your pet coke cost which mix is changing every quarter because the market is volatile when we are optimising our sales mix.
— Rajesh Kumar Ravi
Is there a risk that, given the location, the capital cost may end up being higher and is good environmental approvals also being slightly more difficult given the location it is so close to a main city, which is somewhat rare for a cement plant.
— Satyadeep Jain
Our volume will not put any pressure on prices.
— Management
Q&A — 17 exchanges
Q
So before asking questions on operational aspect, I want to first understand on the date and the capex front. So the date in the last six months has increased by close to INR 900 crores. And now this year also we are planning to do a capex of INR 1,717 crores, and next year also, the capex will be INR 892-odd crores. First of all, why such a significant increase in capex in this year? Because last quarter, we guided an INR 850-odd crores capex. So with this, how do we see our net debt by FY23 and FY24?
Management
The capacity has gone up because in the Kurnool plant, even for second line, we made many preparatory works for expansion. So when we put up the second plant, the cost of putting up the plant will be very less. Take, for example, Odisha, although first line cost is around INR 700 crores. The second 1 million tonne, we have to put only INR 130 crores. So while putting up the second line, we thought many of the silos, many of the common facilities we created now itself, so that we can complete the second line quickly since already ECs in place we want to have the commissioning time very less, an
Q
Yes. So Sir, just on the capex part, you gave your reasoning of preparatory work at Kurnool, but 4Q, we guided for some Rs 700 crores. Last 1Q call, you said that, okay, let me take the capex higher to Rs 900 crores, and suddenly you double that capex because of the preparatory work you have done at the Kurnool plant. But I am assuming these forecasts what you do would not be a function of 15, 20 days decision, right? I mean that preparatory work or whether a Kurnool has to expand, you would have taken that call six months back. Can you explain that?
Management
You should not be very sarcastic. When the competition is picking up, and others are consolidating, we should also consolidate in faster pace, rather than in slow pace. So do not think that we do not know how to plan it. We also have good plans on all these things. Sometimes, when the big players are coming, we should also prepare to face the challenges. Sir, my question is not on the planning. What I am trying to ask you is that competition will further increase, right? In our industry, competition never goes down, right? As you always told, we have learned from you that competition is someth
Q
My question is for the Chairman. Sir, first, I would like to highlight that I am a very old investor in The Ramco Cements, and I have immense respect for, Sir, what you and Mr. AVD have done in creating shareholder wealth in this company for the last decade. Sir, having said that; however, if I look into the last couple of years, I have noticed that Sir, we as a group have taken up huge debt. Be it Rajapalayam Mills which has nearly INR 1,000-odd crores net debt, Ramco Systems INR 70 crores and now even The Ramco Cements, I think is at its all-time high debt of INR 4,700 crores. So, Sir, given
Management
Yes, we will not use this anywhere else. We do not do that. Sir, my next question is regarding two of our associates. So I was just going through today this related party transaction, which has come out. So there is this Madurai Trans Carrier. Now I see we have spent almost INR 36 crores, which is huge in first half of ’23. So I wanted to understand why is this such a large number? And what is the spend for what service are we taking? Madurai Trans Carrier, they were owning two aircrafts and one helicopter also. We used to hire them. Then now, one helicopter and one aircraft were sold. You kno
Q
Regarding the Odisha GU expansion, while it is appreciated that it is a low-cost expansion. I was just wondering about the rationale for the same because a couple of quarters back actually, you were saying that East is not making much money. And even now, I don’t think the situation is too different, particularly with new capacities coming in. So what are the thoughts around further expansion into East India?
Management
I told you it is not making much when compared to South. I never told you that it is not making money at all. We have large limestone reserves in Andhra Pradesh and to use that, definitely, we have to be in the Eastern market. The nearest market is Odisha for us to grow. We are seeing how to reduce the cost and increase the profitability there; we are making all the efforts. Now almost we achieved 100% capacity in Odisha plant, there are many inquiries for our new products mainly from the infrastructure projects. So that is why we are embarking upon this expansion. It may not be as profitable
Q
My question is on your fuel cost. So based on data on the presentation, in second quarter this quarter, basically, we have realised US$ 199, last quarter we said US$ 178. And in the fourth quarter ’22, we also said US$ 199. So actually, versus fourth quarter ’22, our fuel cost has sort of not increased. But our like-for-like power and fuel cost looks INR 500 higher at least. So there is a disconnect there...
Management
Sorry, Sir, can you repeat? So there is a data on your presentation, where you talk about blended fuel consumption per tonne of material during the quarter, during the last quarter and every quarter we give this data. So in current quarter, we have given that as US$ 199, last quarter we gave that number as 175-odd... It was US$ 164... Sorry. 1Q it was US$ 164, 2Q it is US$ 199... Okay. Your presentation suggested something else. So 2Q, it said US$ 199, in 1Q it said US$ 174 No, see that. 1Q is US$ 164 and 2Q is US$ 199. See half yearly is US$ 181. Q1 is US$ 164. Q2 is US$ 199. How about 4Q las
Q
The first question is more on a medium-term outlook on our capacity. If we are to five years down the line, I mean the – what is the ambition in terms of increasing the capacity from 21, 22 million tonnes. And the second question is on the debt side. I mean what is the comfort level of debt, both absolute and in terms of leverage. I mean, do we expect next one or two years to focus on de- leveraging and reduce to some comfortable level or we continue with our expansive plan, our growth plan.
Management
Firstly, our cash flow has been affected by INR 400 crores to INR 500 crores during the first six months. So that really made you to be uncomfortable, otherwise whatever I committed earlier, we might have met our commitment. Secondly, we have taken up R.R. Nagar project one year ahead of the schedule since our Kurnool project was delayed, we thought we can make up by saving in R.R. Nagar project. That is why; we have taken a little ahead of this schedule. Otherwise, we wanted to take up RR Nagar project only six months or one year later. See, as far as 2022-23 is concerned, we are expecting 25
Q
Before that, someone asked about the Pet coke consumption cost. 1Q was US$ 85, 2Q was US$ 97. 3Q was US$ 149, Q4 for US$ 199. This year, 1Q was US$ 164, 2Q is US$ 199. This is the consumption rate. Sorry, you can proceed with the questions.
Rajesh Kumar Ravi
While you mentioned the blended fuel costs on a per tonne basis, I believe on a per kilo cal this number may vary significantly because of the different calorific mix. So would it be prudent if you could share what was the fuel cost on a per kilo cal... Per kilo cal will be around INR 2.70 And 1Q, what was the number? INR 2.65 So this is confusing to most of us, Sir This all depends upon fuel mix What I'm saying is from INR 2.60 per kilo cal on consumption basis. So from INR 2.60 to INR 2.70, there is hardly any jump while if I see – if you see the input cost or the – it is almost gone up by I
Q
Sir, two questions. Firstly, power & fuel cost is definitely something, which is beyond our control. But Sir, if I had to ask you what are the variables that the company is focusing on when we can actually optimise on the cost. This can be any of the variables on the logistic cost or any other cost or discount structure to retain the GST benefit as part of the discounts where the companies cannot claim. Is that variable under our control?
Management
Whatever discounts we are giving, is GST adjusted, Okay. To that extent, we do not lose GST on discounts. We do not give any discounts outside GST. Since our volume has gone up almost by 37% for the first six months, every other element per tonne has come down... Okay. Sir, my second question is on capital allocation. During the call, you indicated a couple of reasons for going in for incremental expansion. Firstly, you indicated energy balance and hence, basically, we are announcing incremental capex. Secondly, you indicated lower capex intensity and thirdly, you indicated that the change in
Q
A couple of questions. On the detail – thank you for all the details on the capex. On that, there is a mention of capex for the limestone mine at Jayanthipuram. Can you please explain what is going on there?
Management
In Jayanthipuram, we got a big mining lease, almost 100 million tonnes of limestone reserves which is situated 10 to 15 KMs away from our plant, now I am entering into an agreement with railways for 10 years to avail 50% concession in railway freight for transport of limestone from mines to my factory, which is a dedicated line. I have already a railway siding. We have to create railway facilities like loading, unloading facilities at my mines. This will definitely reduce my logistics cost in the long-term. The cost of transportation limestone from the Budawada mines, to the plant will be low.
Q
Thank you for the opportunity, Sir. My most questions are answered. Thank you so much, Sir. Thank you.
Management
Q
Thank you for the opportunity, Sir. So, my question is on the premium product specifically. So, currently in this quarter we have about 25% of our sales from premium products. I just wanted to understand what is the total capex we have spent on this premium product and what would be our revenue potential from this?
Management
We have spent around INR 200 crores as capex towards creation of the new Silos, packing plant and others infrastructures. The revenue projection is around 30% to 35% of our topline. 30% to 35% of the topline. It will be done in over the next two to three years period. Yes. Possible… I just wanted to understand on the asset turnover of this capex. More than the asset turnover, you would see the brand image. Nobody gives cement for different applications. That gives us a lot of mileage in the brand also. That is why our growth is much faster than other companies are. The reason I am asking this
Q
Just on the part of the capex, like as we had mentioned that we are going to have the enabling facilities where we have already spent for Kurnool and these locations. So when can we expect the second line at Kurnool because we are already spending a part of that?
Management
I will wait for the Board approval. Once my Board approves, I will definitely keep you informed. But can we expect in over the next couple of years? Let my board approves and let my cash position improve, definitely we keep you informed. And Sir, secondly, on that Karnataka grinding unit, like say, a quarter back, we had mentioned that we would extend roughly around INR 350-odd crores on that grinding unit and also was expected to start in a six months’ time? So in the meantime, what we have done, we had revived our old Mathodu plant as grinding unit, which was shut down earlier. Now, we are d
Q
Yes. Just two things, first, what was the trade share in 2Q?
Management
69% And Sir mentioned, correct me if I’m wrong, Sir, mentioned that for the full year in terms of volume, we can see the same 30% kind of growth and the next year 23%, is it... Yes, you are right.
Q
On this volume growth, while you are delivering phenomenal growth, would it be because the market will not be going in these two places at even half the rate. So what is your thought in terms of the implications on the pricing and margins?
Management
Pricing is very dynamic. I am just hoping on a lot of infrastructure spending, so that is why I am projecting this increase because during the last six months, we are able to get a lot of inquiries from NHAI and other infrastructure projects. What we are getting, is much more than what we expected. That is why we are confident we will grow by 30% in the next six months also. Our volume will not put any pressure on prices. No, Sir, if trade versus non-trade, how does the margin profile differ Sir? No, it is almost same. There is no big difference. The advantage in non-trade is the savings in lo
Q
So, Sir, we see FY23-24 earlier capex guidance, we have almost increased by INR 12 billion. I am just trying to understand the figure because we do not include the INR 500 crores for R.R. Nagar plant, INR 130 crores for Odisha, INR 160 crores of Budawada and INR 350 crores for Bommanahalli. So if you see this INR 1,200 crores is mainly because of increase in this. So do we have to factor in any material figure for the preparatory work for the second line of Kurnool?
Management
Yes, I told you. It is included. My second line in Kurnool can be put up in not more than INR 550 crores to INR 600 crores. Sir, I am just trying to understand this incremental INR 1,200 crores, mainly because we are spending in this project. In addition, it seems that we are not materially factoring any capex for the second line of Kurnool? Many silos that has been built will accommodate the second line. In addition, the railway siding has been built will take care of the second line. Many of the infrastructure also we have extended that will take care of the second line. The foundations for
Q
This follow-up question to earlier question. So you talked about the fuel consumption cost in fourth quarter last year and current quarter, which is actually same at US$ 199, so why our reported power & fuel cost per ton is higher by like INR 500 per ton over the same period?
Management
Yes. See, there are two things. One is exchange rate. The exchange rate has depreciated, that is why we had told in dollar terms. So rupee depreciated by more than 12%. Also, consider OPC/PPC cost due to change in mix.
Q
Yes, thank you very much, Sir, for your valuable inputs, and clarification around capex. And that concludes this conference call for today. Thank you everyone for joining us.
Management
Thank you, Amit Srivastava. The call is nicely arranged. Thanks for all the participants. The questions are very insightful for us. Yes, thank you, Sir.
Speaking time
Management
80
Moderator
19
Rajesh Kumar Ravi
15
Prateek Kumar
10
Hiten Boricha
10
Shravan Shah
7
Kamlesh Bagmar
7
Vinay
6
Ritesh Shah
5
Nitin Arora
4
Opening remarks
Amit Srivastava
Good afternoon, everyone. On behalf of B&K Securities, we welcome you all to the 2QFY23 Earnings Conference Call with the management of The Ramco Cements. We have with us from the management; Mr. P.R.V. Raja, MD; Mr. A.V. Dharmakrishnan, CEO, and Mr. S. Vaithiyanathan, CFO. We would like to start the call with the opening remarks from the management, which will be followed by Q&A. So over to you, Sir.
P.R. Venketrama Raja
Good evening, everybody, and I warmly welcome you all to the earnings call of The Ramco Cements to discuss the unaudited results of 2QFY23. Thank you for taking the time to join us for this call. And I am sure all of you have already seen our results, and I would like to highlight a few of our performances. We will start with the highlights of our performance of the second quarter. Our revenue increased YoY from INR 1,501 crores to INR 1,793 crores for 2QFY23. EBITDA has dropped YoY from INR 402 crores to INR 193 crores. And EBITDA per tonne stood at Rs 582 tonnes, which is one of the lowest in the last eight years. Profit after Tax stood at INR 11 crores during the quarter. The main reason for the drop in profitability in the current quarter is due to the margin pressure in view of drop in cement prices amid higher fuel prices. The business environment continue to be uncertain due to rapidly changing economic environment in view of prevailing stress in geopolitical situation across th
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