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Demand and pricing outlook

* Demand in Jul’22 seems to be better than last year. Most of the company’s markets witnessed decent price increases in Apr-May’22, however; prices were under pressure in Jun’22. Price increase was owing to unabated all-round cost increase. Now with the start of monsoons there is a pricing pressure in Gujarat and North markets (down INR10/bag MoM), while Chhattisgarh is placed relatively better.

* The company is focusing on improving geographical mix by selling more into nearby markets, increasing trade mix (currently has sold ~56% into trade segment) and higher share of premium products (currently premium product is being sold only in north markets and contributes ~14% to volumes).

Operational highlights

*  Standalone sales volumes were 2.79mt (including 0.1mt of clinker). UCWL’s sales volumes stood at 0.55mt. Consolidated sales volumes (after eliminating inter-company) were at 3.03mt (including 0.1mt of clinker).

* The company has changed the reporting method for clinker to cement conversion for its subsidiary company (UCWL). Earlier clinker purchased from UCWL and cement sold to the company after conversion was included into total sales volumes. However, to eliminate duplication in volumes, the company reframed the reporting of such transaction and from 1QFY23 the company has taken conversion charges on clinker supplied by UCWL for conversion and it will not be included in total sales volumes. However transaction related to cement sale will be shown at full value and will also be included in respective company’s total sale volume.

* Non-cement revenue was INR1.2b v/s INR0.8b/INR1b in 1QFY22/4QFY22. RMC revenue was at INR550m v/s INR330m/INR480m in 1QFY22/4QFY22.

* Standalone employee cost stood at INR922m and this is likely to be a normal run-rate on quarterly basis. Further, higher other expense was due to increase in packing cost (sharp increase in crude prices) and inflationary impact. .

* Average fuel cost/t in 1QFY23 stood at INR11,700 v/s INR9,000 in 4QFY22. Management expects further increase of 20% in fuel cost in 2Q. Fuel cost is expected to be peaked out in 2QFY23. In 1Q fuel mix was 46% coal (largely imported coal), 41% petcoke and 13% AFR v/s 56% petcoke, 30% coal and 14% AFR in 4QFY22.

* Trade sales stood at 56% while blended cement sales was at 67%. Lead distance was at 393Km v/s 395km in 4QFY22.

Capacity expansion plans

* Capacity expansion (1.5mtpa clinker and 2.5mtpa grinding capacity) of UCWL is likely to be completed by Mar’24 (clinker capacity is expected to get commissioned in 3QFY24, while grinding capacity will be commissioned in 4QFY24). Estimated capex for this expansion is INR16.5b and INR3.5b has been spent so far. The balance capex will be spent equally over the next two years.

* In AR FY22, the company highlighted to achieve cement capacity of 30mtpa by FY30 (v/s its current capacity of 13.8mtpa on consolidated basis). The company has been awarded two limestone blocks in central Rajasthan and coastal Gujarat, where the land acquisition has started.

* Further the company hired a grinding unit (capacity of 1.5mtpa) in Uttar Pradesh (UP). This GU will help to increase its reach in newer geography (eastern and central UP). Management estimates 0.6mt of additional volume in FY23 from this GU, subject to clinker availability. The company has signed an agreement for 10 years and will have first right of refusal for this plant

Debt and capex

* Standalone gross/net debt stood at INR9.2b/INR20m; consolidated gross/net debt stood at INR18b/INR6.6b.

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