NUVOCO — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to Nuvoco Vistas Corporation
Questions and answers
Moderator · Conference Operator
Thank you very much, sir.
Ladies and gentlemen, we will now begin the question- and-answer session.
The first question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
Vivek Ramakrishnan
I wanted to know about your debt and deleveraging plans well into the future.
You had given guidance till March.
You had taken a lot of debt and you have kind of taken it out via liquidity even.
But going forward, what is the kind of leverage that we can expect in the Company in terms of we can say it in terms of debt to EBITDA or whatever ratio that is convenient for you.
And how much capex, do you see in terms of going into FY23?
J Krishnaswamy
I think we are consistent with what we spoke in the IPO.
Our debt for the Company at the end of September is Rs.
5,718 crore and the net debt to EBITDA ratio as I spoke a little while ago is 3.08x.
Our target is by March 31st this fiscal, our debt should come to about 2.2 times the EBITDA.
On a long-term basis we are looking at FY26 where we will become a debt-free Company.
In terms of the capex which we are deploying for the Company in FY22 our target is Rs.
550 crore out of which about Rs.
230 crore we have already spent in H1, the balance ones will happen in H2.
The next year in FY23 we are looking at a capex Rs.
1,5250 crore, that's what we spoke during the IPO.
That involves the groundbreaking of Gulbarga and starting our work 18 months post the listing, Along with that the debottlenecking of Risda, Nimbol as well as Sonadih line 2 will happen.
One of the things which we spoke during the IPO, was the Bhabua expansion from 0.8 to 2 million tonnes.
There we are in consultation with the State Government.
The entire project is dependent on whether the Government is able to give fiscal benefits to us.
We will take a decision of starting work in the state only after we get a formal go ahead in terms of fiscal benefit.
Moderator · Conference Operator
The next question is from the line of Shubhra Dwivedi from SBI Life.
Shubhra Dwivedi
Out of the Rs.
1,750 crore* capex you mentioned lined up for FY23, how much would be for the Gulbarga project and how would be for the debottlenecking projects?
Maneesh Agrawal
The overall capex over the next five years that was talked about during the IPO roadshows was Rs.
4,750 crore out of which around Rs.
550 crore will be spent this year and around Rs.
1,525 crore would be spent next year out of which the major portion would be towards the Gulbarga expansion line of around Rs.
3,000 crore.
Shubhra Dwivedi
And my second question was, so at the parent level Niyogi level, is it now completely debt free?
J Krishnaswamy
Rs.
3,500 crore has been transferred to Niyogi and then Niyogi has become a debt free Company.
Shubhra Dwivedi
And it would have given some loans to Nirma, or it would have passed the surplus through dividends?
J Krishnaswamy
Niyogi has become a debt free company.
Moderator · Conference Operator
The next question is from the line of Amit Murarka from Axis Capital.
Amit Murarka
Wanted to understand your cost and margin.
There seems to have been a sharp jump in cost on a QoQ basis.
While I understand the increase in power fuel rate in those line items, but even then, the increase is much higher than what we see for industry.
So, is it to do more with the regional players, why the cost are looking so different compared to 1Q?
J Krishnaswamy
Let me just take all the cost elements one at a time.
The first one, which really impacted the Company was obviously the fuel price impact.
During my opening remarks, I spoke about the power and fuel cost.
Q4 of last year we were one of the best in the industry at Rs.
854 per tonne.
That was like benchmark in terms of comparison to all the peer group companies.
However, in Q1, this Rs.
854 became Rs.
917 due to slow escalation of the coal cost.
However, as the quarter progressed in Q2 it became Rs.
1,008 per tonne, a good Rs.
100 increase over Q1. That's the kind of impact which we are having.
In October, the fuel prices further increased to over Rs.
1200 per tonne and the rates at which the inflation of coal is happening, it might even touch a good Rs.
200 more than Q2 actuals.
All thee prices have either doubled or even tripled in some cases and added to the fact that the non-availability of coal internationally and ocean freight rates being very high these days.
And right now, there is a mad rush by all the companies to book material at any cost because if the industry has to run, we need coal to run kiln.
So, the objective for all of us is get the kiln running, make the clinker so that when the season comes you are not caught with no clinker.
Hence, we have taken a decision to buy coal even though it is expensive.
Fortunately, in the last two to three weeks, there is some softening of pet-coke as per the international coal reports, I am only hoping this will get moderated in the coming six to eight weeks.
But the biggest thing our Company is banking is the linkage coal which I spoke a little while ago.
We are uniquely placed at about 27% of our coal requirement in the East from the linkage coal, which came to 12% in Q2 because of collieries never supplied coal to us.
But our team is now sitting as we speak with SECL management to supply coal to us.
As when they open the collieries, they will have to give first benefit to our Company so that by end of this month, beginning of December, we will start getting coal from SECL.
That was the first reason of fuel impact.
The second was the diesel price increase, which used to be Rs.
76 and all of us know diesel reached Rs.
100 in the last one month.
A little bit of softening has happened in the last 10 days, but it increased the distribution cost in Q1 to Rs.
1,343 per tonne.
So, these are two important points.
The third important point is a fixed cost increase.
Here again, it's a very strategic tactical point which we did in Q2. When the demand had dropped in the market and also with this strike in Chhattisgarh, we took two decisions, one to run all the kilns, second to get the annual shutdown going for all the kilns because when the demand was not happening, we kind of took a decision to fix all the kilns.
We have six kilns in the country, five out of six kilns have already been reconditioned or annual maintenance done for this year.
We don't expect any further shutdown in the balance five months.
Hence, this quarter had higher fixed cost impact due to the higher shutdown cost.
So, these are basically fixed cost impact from shutdown, diesel impact in the distribution cost and the coal impact in the power and fuel cost, that's the basic reason for inflated cost numbers in Q2.
Amit Murarka
So, now that the Government has reduced the duties on diesel and the prices have come down by almost 18%-20% will the Chhattisgarh negotiated tariff with the truckers stay or will that now be reduced again?
J Krishnaswamy
That's a wonderful question.
I am not going to stick my neck out and say whether we will get this thing or not but when we did the agreement with the transporters it was clear that when we resolved the strike we agreed for a particular component of diesel as part of the overall escalation.
I think, Nuvoco believes that hopefully other companies also are on the same wavelength that whatever we are agreed in terms of percentage diesel linkage through overall freight increase, diesel cost comes down the freight cost has to come down.
That’s going to be our line of discussion in the coming period.
But we will have to take it in a spirited manner with the trucking companies in Chhattisgarh.
Amit Murarka
Just a last question, what was the clinker production in the quarter?
J Krishnaswamy
We will discuss off line, if you are okay with that?
Amit Murarka
Sure, thank you very much.
Moderator · Conference Operator
The next question is on the line of the Pinakin Parekh from JP Morgan.
Pinakin Parekh
My first question is basically trying to understand prices and margins.
You said that there was a price hike in the month of October.
Can you give us a sense what was the quantum of the price hike vis-à-vis the September average cement prices?
J Krishnaswamy
So, what has happened is the prices started getting corrected from about 5th October and all the way multiple times during the month.
If you really look at the overall price per bag, it can be to the tune of different states had different prices, the wholesale prices got corrected in Bengal to the tune of about Rs.
23, Bihar it was about Rs.
30, Orissa Rs.
16, Jharkhand Rs.
30, Chhattisgarh Rs.
24.
But you would know, all this did not happen on one day.
It happened from early October all the way till 31st of October.
So, the less impact of price for that month was close to about Rs.
10 to Rs.
15 per bag correction which happened in East and about Rs.
10 to Rs.
12 correction happened in North.
So, that's the kind of impact on the volumes in that month.
But now after the festivities have ended and the markets have opened, we will get the full benefit of all the price increases which will happen during the month.
Pinakin Parekh
Now just putting those price increases in the context of the second half, you said that coal cost will be higher, but you will have some price improvements, you will have some volumes.
Can we expect the EBITDA per tonne which fell very sharply in the second quarter versus first quarter to go back above Rs.
1000 a tonne in the third and fourth quarters or you think that the cost inflation is just too high, and the price increases will not be able to offset it.
J Krishnaswamy
It will be very difficult for me to put a number at this point of time because of the dynamic situation in the market in terms of fuel cost.
But that's only one part of the answer.
All of you would listened to every company’s result call and you would have seen that every company the EBITDA erosion from quarter on quarter is almost this kind of numbers which we have faced.
We faced a little bit more because we are a East focused Company and pricing also really played a negative part for us in Q2 as compared to Q1. Having said that the correction in prices will certainly reinstate the profitability of Company to a much higher level than what we achieved in Q2. But I am going to keep my fingers crossed at this stage.
If the coal prices are going to continue to be at October levels, then I think the numbers which you indicated will happen.
But if the coal prices are going to be further inflated, by Rs.
200per tone odd then certainly it demands further price correction in the month of November, and I think as a Company, we have to really focus on getting the prices right in November to ensure or restore profitability in Quarter 3.
Quarter 4, I see much better quarter in terms of demand upliftment as well as more stability in the market.
Pinakin Parekh
My last question is you mentioned that on the FY23 capex target of Rs.1750 crore*.
Does this mean that the Company is not looking to de-lever next year because Rs.
1,750 crore* essentially will eat up all your operating cash flows even if we assume Rs.1,100 of EBITDA per tonne
Maneesh Agrawal
Basically, the operating cash flows would be significantly higher than what the capex requirement would be there.
So obviously it is going to help us deleverage going forward in FY23 from the FY22 level.
Pinakin Parekh
But the operating cashflow being higher, what is the underlying assumption of EBITDA?
I mean at Rs.
1,000 EBIDTA per tonne, it will not be high enough to do both the capex and deleveraging, right?
Then the assumption is that the EBIDTA per tonne is much higher than this.
J Krishnaswamy
Pinakin, we have spoken in the past during the IPO time as well as the Quarter 1 results.
One of the things we are not looking at is that there are a number of aspects which we considered as part of the Company's strategy and business plan over the next few years.
The number one was getting volume leverage for the Company and fixed costs rationalization as we move from the last year's actual of 17.3 million tonnes to this year's target which is close to about 20 million tones and then next year, we are looking at close to about 23 million tonnes.
That's the kind of numbers which we work and hence now the big impact is going to be the volume impact.
The second one, which we also discussed during the IPO was the cost inflation will be neutralized by the big price increases which the industry will get.
Albeit there is lot of conversation about whether we will take it straightaway, whether the industry would benefit or not, but I think whatever we said at that time has come true.
Industry certainly will take the price increase, I’ll talk on the quarter later.
Our assumption at the time was Rs.
475 of price increase and Rs.
350 of cost increase and we said the impact of pricing should be about Rs, 75 to Rs.
100 per tonne.
That was one big assumption which we had made.
Second one was the volume impact.
The most important thing for Nuvoco is the internal levers and the synergies coming out of NU Vista and Nuvoco.
There we had a clear target that the internal levers to the Company will give anywhere between Rs.
150 to Rs.
250 per tonne.
And what was the agenda we spoke about; one was to get composite cement.
Second was to get price acceleration program which gives Rs.
70 per tonne due to premiumization.
The third thing we said was Rs.
50 per tonne will come on through SPRINT savings, Rs.
50 through fixed cost impact.
Rs.
25 will come through incentive.
Currently, as we speak, we are not able to get the fixed cost impact because the volume has not got built up during the weak quarter in Q2. I think as a Company and a management, we are confident that demand will come back very soon in the coming 1 or 2 months and certainly we get sustained in Q4 and beyond.
Last but not the least is the huge infrastructure thrust as for the rural housing improvement which I spoke about in my initial remarks.
The demand is going to go in the industry from 6% to 8% East being the fastest demand growth in the region in the country at 9% to 10% followed by North and Centre.
Nuvoco operates in East, North and Centre and we are looking at a sustained volume growth.
So, with the volume growth happening, cost impact neutralized by the price increases, scale benefit and unlocking the internal levers to the Company.
We were targeting to move EBITDA from Rs.
975 per tonne actual last year, all the way to Rs.
1,200 per tonne is what our business plan made.
We continue to have similar assumptions.
We still have a robust and a challenging agenda which the Company's focused to deliver.
Moderator · Conference Operator
The next question is from the line of Shravan Shah from Dolat Capital.
Shravan Shah
Just continuing the previous question, when we are saying that we are looking at 20 odd million tonnes for this year, so in the first half we have done 8 million.
So, we are looking at 12 million odd in the second half, so close to 6 odd million per quarter.
So, till now whatever October and November – 11 days, are we on track in terms of achieving that number?
J Krishnaswamy
I am not going to kind of make a number where we will hit the year, but certainly I'll be able to tell a few points which are very important.
First thing is I spoke about sand mining ban which impacted in the state Bihar, the entire industry was prepared.
So, happy to report, the Supreme Court judgment has come to reopen the sand mining and Bihar will open up.
Monsoons are over in Bengal, and Bengal is opening up after the Durga Pooja and Diwali.
Strike is over in Chhattisgarh.
Chhattisgarh demand gets reinstated.
Jharkhand post Chhatt pooja will get reinstated and Orissa will certainly get reinstated as we speak.
Last but not the least, the markets in Gujarat, Rajasthan Delhi, Haryana, western UP all are opening up as we speak.
With this kind of number last year in Q4 we did 5.6 million tonnes and I have spoken in the past also that we were having a clinker shortage and most of the companies in need had to get clinker from other states.
As we speak, we have close to about 0.75 million tonnes of clinker in stock because in the weak quarter, we continued to run the kiln and stock up clinker in all our plants.
0.7 million tonnes of clinker would produce roughly around 1.4 or 1.5 millon tonnes of cement.
With this kind of head start which we have, what we will not have is what we faced in Q4 last year.
Coming back to what we will do in Q3, of course October ended and November with this festivities getting over and with markets opening up 2 days ago.
The next , 50 days is going to be very critical for Nuvoco as well as for the industry and I really hope and expect that the demand is going to get a full momentum going forward.
As we thought whether we will hit 20 odd million or not, idea is delivering around 2 million tonnes every month for 6 months, 1 month is already gone so I guess it will be little bit lower than the original number, but our aim will be to maximize from December until March.
Shravan Shah
Second question is on the working capital front so in the first half if I look at the cash flow, close to Rs.
674 odd crore went into the working capital.
So, the thing, what I am trying to understand the capex that we are looking at, second is, are we also planning the deleveraging and here the working capital is increasing.
So, put together, just trying to understand how are we looking at to actually go for a de- leveraging?
J Krishnaswamy
I will make the first two comments and Maneesh will give you the relevant details.
The current working capital level is a very practical move by the Company to block all coal available, wherever it is available to stock up coal.
The second one was we also took a tactical decision to buy slag.
All of you would know that the slag prices had gone up to as high as Rs.
1900 per tonne and Rs.
1800 per tonne and when the weak quarter was happening, we took a call, we have a strategic tie up with Tata Steels at a preferred price and when the steel industry was moving on, we decided to get all the slag which was being made even though were not consuming which is going to help us in Q3 and Q4. So, we built up slag inventory, we built up coal inventory.
As I spoke to you, we built up clinker inventory to the tune of 0.75 million tonnes.
And last but not the least, in the last 3 to 4 weeks, we also built-up cement inventory to tune of 0.35 – 0.40 million tonnes.
All this is resulting into high working capital which will all vanish in the next 5 to 6 months.
From 1st April we will have very low working capital and we will have the right leveraging to pay back all the loans as well as invest on capex next year.
Shravan Shah
Just to get what you said in terms of building up the inventory but if I look at the trade receivables, there also around Rs.
321 odd crore has increased.
So, can you explain that?
J Krishnaswamy
That will happen because last 2 months if you see the Trade is also struggling.
So, I guess we have to be very considerate and work with the channel partners because we are all in it together.
So, I guess it's been a conscious call not to kind of push them, but I think the channel partners really work well in the industry.
We have got a wonderful relationship with them.
Once the market opens up, all these things will come back because we operate close to about 10-11 days receivables in the East and about 3 to 4 days receivables in North.
Slightly increased by 2 days now but as all of it will vanish.
I think the panacea to all this is once the sales happen everything will come in order.
Maneesh Agrawal
Just to add, our receivables in cement side are backed by security deposits.
As a strategic call, inventory of clinker, cement and coal were built up.
In normal course of business, as Q3 and Q4 volumes improve, the inventory will get consumed leading to free cash flow arising out of reduction in working capital which is part of cement cycle.
Shravan Shah
The third thing is on the RMC front.
So, this quarter, our RMC revenue has increased on QoQ from Rs.
131 odd crore to Rs.
182 crore but if I look at the EBIT level loss, it has increased from Rs.
6.5 crore to Rs.
9.3 crore.
So, 2-3 things just wanted to understand, first in terms of what was the volume for this quarter in RMC?
What is the EBITDA margin that was there?
So maybe if you help me in terms of the depreciation for RMC, that would be great.
How do we now see in terms of the RMC revenue picking up and when can we see the RMC turning positive?
J Krishnaswamy
I will give you part answer right now but in terms of granular details of numbers, if you are okay, we can discuss off line.
But certainly I'll give you the high-level stuff of RMC.
In Q2 of last year of FY21, we did 159, K Cum of sales.
Q1 this year we did 323, in Q2 it became 424.
Every quarter RMC business is doing better than the previous quarter in terms of revenue.
The overall revenue was Rs.
71 crore in Q2 FY21, Rs.
131 crore in Q1 FY22 Rs.
180 crore in Q2 FY22. We had an EBITDA loss of Rs.
12 crore Q2 FY21. We've come into an EBITDA positive of Rs.
3 crore in Q2 FY22. As I mentioned before in the earlier calls, it's going to be a little bit of a gradual process for us to get the RMC business going but we have totally restructured the business, wound up some of the plants which were not economically feasible, but we also got into new businesses like we are now a big supplier for the bullet train HSR project in Surat.
We also signed contract with Oil India in Numaligarh to supply to them.
We're also going to supply concrete to Chennai Metro out of the Chennai plant.
We also got about 35% of the business on cash and carry and there's a huge thrust on getting premium products going.
Last year we used to trend it about 20%-21% of premium products.
This year we are already trending at 25%.
Our goal in Q3-Q4 is to go to 28% and 30%.
We are able to get the premium product going, focus on cash & carry business.
Our goal for this business in Q4 is to hit around 200 KCum per month which will be around 600,Kcum in Q4, and the aim is once we start this out, the scale will basically improve EBITDA for this business and result EBIT will come automatically.
Moderator · Conference Operator
The next question is from the line of Kamlesh Parmar from Prabhudas Lilladher.
Kamlesh Parmar
One question on the strategic side, like we are looking to put up a green field plant in Karnataka but if you see our north portfolio, I do know that it needs to be our much bigger player and we are among the top 3.
So, in case of North, our market share is between around 3.5% odd.
Rather than looking at the North market, we are going to set up a Greenfield plant in a crowded market like south, so what is the thought process there?
Rather than expanding in the north market, where like say we would be among the lowest in the top 3 players.
Like at par with Mangalam Cement or India Cement, which is not a focus player in that market, then why we are going to Karnataka.
J Krishnaswamy
Let me just explain to you, I think in the previous calls, in the quarter calls as well as in the buildup to the IPO, we had a very clear-cut plan of how Nuvoco is going to grow and become a 25 million tonne Company in the coming few years.
That's been the ambition for the Company, and we have made a roadmap for this journey.
First, we said was at this point of time, whatever capacity we have in East, we will only debottleneck and not kind of put up any more capex in the short to medium term.
The next one was Gulbarga which technically can be called in Karnataka, we all know Gulbarga is on the tip of Karnataka and Maharashtra.
The ambition of the Company is to enter the Maharashtra, Gujarat market out of IU or spilt GU unit from Gulbarga so that the plant is not to serve the south market.
The plant is to serve the Center and Maharashtra through the western market where all of us know pricing and realization is pretty good.
The last one you asked about why not north, of course, north is very much in our plan.
Our first foray is going to be an expansion in Gulbarga, backed by further expansion in north India.
Why are we taking north as step two and not step one is for the following reason.
In north India, we had a capacity utilization till last year of only 70%.
In East we have a capacity utilization on 90%-95%.
In North India we have capacity utilization of 70% odd.
What we did was to get Double Bull brand in north India and put a second brand along with Duraguard to get that additional capacity utilized by selling in a new brand, which I spoke a little while ago, it’s been a wonderful entry for us in markets other than Rajasthan where we have not yet launched.
Every market, Double Bull is galloping.
Secondly, to get the additional requirement in north, we are debottlenecking the Nimbol plant about 1000 tonnes per day, additional capacity which I spoke about groundbreaking and in the next 15 to 18 months, Nimbol will come.
With this kind of 6,000 TPD Nimbol plant and 6,000 TPD Chittor plant in terms of clinker, we're looking at 12,000 TPD of clinker availability in north.
Our ambition is to move from OPC to PPC.
Whereas in north it is about 35%-65%.
Our aim is to move from OPC to PPC, move from non-trade to trade, get Double Bull going in north and that would take the overall capacity of the Company from current 4.8 million tonnes to all the way to 6 million tonnes in this next 1 to 1.5 years.
By the time we get this growth and a capacity utilization done, our sequential expansion in north will stop.
The first one is, get Gulbarga right, launch in Maharashtra, Gujarat through split grinding model and expand in west followed by a step into the north expansion.
Kamlesh Parmar
Would we be putting at the grinding unit to service the Gujarat market?
I haven’t seen any companies taking the clinker right from Gulbarga to service the market of Gujarat.
J Krishnaswamy
I didn't say that we are going to put up a grinding unit in Gujarat.
We will put up a grinding in an appropriate location which will have fiscal benefits in Maharashtra and hence if you really look at cement industry, you get the radius of 180 and 250 kilometers at the clinker through a railway siding and then get GU up and that GU will have another 150-kilometer radius to transport the material.
With this model of having a GU somewhere in Aurangabad, Ahmednagar and such kind of various work is happening right now.
Too early for me to say where it will come.
Certainly, we have mines in Gulbarga so we will have to put the site there.
The environmental clearance is approved, mining plan approved and railway siding work is largely happening, compound wall done, and mines are opened.
So, it more or less ready for us to use this mine.
Then on we get into north Maharashtra, Vidarbha area and east Gujarat towards Surat, that’s the area we are looking at.
Moderator · Conference Operator
The next question is from the line of Sumangal Nevatia from Kotak Securities.
Sumangal Nevatia
I just missed few details.
So, which year do we plan to complete the Gulbarga Greenfield project, if you could just say that again?
J Krishnaswamy
In our business plan we had said, we will start construction in Gulbarga 18 months post the listing.
So, our listing happened in August, 18 months would be end of the next year, which is Q3 FY23 and then on we are looking at 24 months for the plant to come up.
Sumangal Nevatia
Second on some other cost items, like slag, fly ash, is it possible to share some recent trends?
J Krishnaswamy
We had shared details last time around as well.
But in terms of slag details let me just give you some indication, some information which is useful.
We have a slag tie up with Tata Steel.
Overall, we have a long-term 20-year contract with Tata Steel till 2039.
I won't be able to divulge the exact price because of commercial considerations which we have with Tata Steel but suffice to say it comes with a substantial reduction to the current slag price in the market.
The best price currently trending in the market is Rs.
1200 per tonne and the worst price trending in the market is Rs.
1600 to Rs.
1800 per tonne.
We have pricing which is much better than the best price trending in the market in terms of slag for 20 years and that's a great relationship which we have with the Company.
The second one is fly ash.
In 2 sites, namely Mejia plant and as well as Jojobera plant, we have fly ash coming from Tata Power as well as Damodar Valley Corporation and there the cost of fly ash is much lower than what anyone would buy from open market.
Likewise, in the Bhiwani Plant we have a tie up to get preferential fly ash rates.
Other than that, rest of the fly ashes as much as what others buy from the open market.
Sumangal Nevatia
I understand the security of the raw material but in terms of price trends, at least if the market price trend if you can suggest for slag which you said is Rs.
1200, how has this moved in the last few months?
J Krishnaswamy
I think you really look at the slag price trends for the industry, I think it is all moved from Rs.
1600 to Rs.
1800 to Rs.
1900.
But for our Company will be blended rates of what we get from Tata Steel and what we buy from open market, trending price is close to about Rs.
1100 is what in the Q1 and Q2 of this year.
But you would know that the slag prices are little bit exorbitant in the last 6 to 8 months.
I think already the prices are softening as we speak.
In fact, in number of auctions, we have kind of renegotiated with some of the slag suppliers and not going to book at the prices which they are offering.
I think because the demand was also little bit low for cement in Q2 because of monsoon and the slag prices already softened, our view is maybe by the end of November- December it should come to reasonable levels and not certainly at Rs.
1900 per ton level where it's not worth it to buy slag.
Moderator · Conference Operator
The next question is from the line of Rajesh Ravi from HDFC Securities.
Rajesh Ravi
My questions pertain to first on the Chhattisgarh strike impact on sales volume for the second quarter and how has been the impact in Q3 because we understand a similar number of days the strike impacted inthird quarter also?
J Krishnaswamy
I'll talk about Q2 certainly because in Q2 certainly Chhattisgarh strike impacted the industry and certainly companies like ours and 2-3 other companies who are basically road-based companies bore the full attack other than companies who had rail connectivity from other states into this.
Even though we had Arasmeta and Sonadih which has rail connectivity but then Risda which is a big plant for us.
Our estimate is we had lost about 1 lakh tons of sale in the month of September alone and that backed up by a similar kind of number in October.
But October is not big, not too much of an impact because the entire industry was crippled by huge monsoons and sand mining in states like Bihar and other states, but certainly in September we got impacted and it had a negative impact in the overall top line.
Rajesh Ravi
Secondly you talked about that you took a clean shutdown across almost all the locations, Why is that the per ton other expense costs number for this quarter has jumped to almost Rs.
800 crore versus average of Rs.
600 core in the preceding 4- 5 quarters.
Any thought on that, is it all because of the clinker kiln shutdowns or something else we intended?
That is what we're trying to understand.
J Krishnaswamy
Two big reasons, one as you associated, I think shutdown is a big one.
In fact, shutdown cost of similar quarter last year Q2 FY21 was about Rs.
37 - Rs.
38 crore whereas the shutdown cost in Q2 FY22 is Rs.
62 crore.
So, about Rs.
25-Rs.
26 crore increased in this cost versus last year.
The second, we also commissioned. the CPP projects in Arasmeta and the trial production for Jojobera CPP was carried out.
The depreciation cost increase by about 6 to 7 crore in this quarter.
Last but not the least, the packing cost went up significantly versus last year to this year, last year it used to be about Rs.
140 per ton.
It went as high as Rs.
220 per ton, currently trending at Rs.
205 per ton.
These were the big-ticket items which impacted the various cost lines
Rajesh Ravi
Some of these only Rs.
75-80 odd will come off in third quarter versus second quarter?
J Krishnaswamy
Shutdown will go away, packing costs I can say because granule prices again taking the same direction as fuel prices globally.
Hopefully that comes down granule prices will also come down but certainly shutdown cost will go away in Q3.
Rajesh Ravi
Two more questions, on the debt reduction what is the target for FY22 now that H1 is done?
J Krishnaswamy
As said earlier, our target is 2.2X is the net debt to EBITDA ratio end of March
Rajesh Ravi
Net EBITDA ratio 2.2 at the end of FY22.
J Krishnaswamy
End of FY22. That's the target we are working on.
Rajesh Ravi
This is on the net debt level you are talking about.
J Krishnaswamy
That's it.
Net debt level.
Rajesh Ravi
This synergy Rs.
150 per ton for this year and Rs.
100 synergy benefit for next year.
If you could elaborate how much of these have been achieved?
J Krishnaswamy
We thank you for asking this question.
I was waiting somebody would ask that question.
In fact, one of the most satisfying thing for us is all our teams have been able to get the synergies going between the two companies, we said about Rs.
150 this year and Rs.
100 next year.
We are on track in the last 6 months.
I think it's only going to increase once the volumes come and then we're able to push a lot of materials through the factories.
I guess this number of Rs.
150 is still achievable.
I think the teams are committed to acknowledging the benefits which will come up in the next year.
Moderator · Conference Operator
The next question is from the line of Satyajit Jain from Ambit Capital.
Satyajit Jain
A couple of questions, on the volumes it seems Nuvoco outperform the entire softness in East in the quarter.
Was it taking market share in this region or was it diverting some higher volumes to central compared to normal run rate and the Company has also built a significant inventory indeed there is a debt deleveraging target, there is working capital that the Company would want to release?
If the demand doesn't play out as expected would the Company like to take some market share, be aggressive in taking some market share or maybe look to divert some volumes to central India market just for the working capital release also and in taking the debt targets that we have in mind?
That’s the first question.
J Krishnaswamy
The first thing I'll say about you asked about Q2, how did we get the volumes?
Certainly, I think we are very mindful of distribution cost and lead distance and getting the EBITDA per ton right.
At no point of time, we will move cement to long distance.
It's just not attractive and spoil the EBITDA for the Company.
That's a core assumption and target for the Company, not to sell cement for the sake of selling.
We have core markets like Jharkhand, Bihar, Bengal,.
These are part of our strategy called BBJRM.
We have to maximize sales in Bengal, Bihar, Jharkhand, Rajasthan, and western MP and these are the markets that Company consistently works to get the maximum throughput going.
That's what we adopted in Q2. I think the teams did a wonderful job to buck the trend in this market and still achieve the volumes which we achieved in this market.
There is no way we will go and sell in states which are not close to us and incur additional costs just to get some market share in other places.
Suffice to say, this was a temporary quarter where the number is 3.8 million tones but if you see Nuvoco always operates with close to 95% capacity utilization and then when the markets are going to open up there is no case for us to even take material away from the home markets like Chhattisgarh plant or Jharkhand plant.
We focus very close about 150-200 kilometer radius around the plant to maximize sale.
As regards to your second question of its higher working capital with so much of cement and clinker will we be tempted to move material to non-core markets to deleverage the Company?
I have to say that at this point of time as a senior leadership of our Company I'm pretty confident that going forward markets will grow.
Q4 is estimated to be a bonanza quarter.
I think all the stocks will vanish in the next 5 months.
Satyajit Jain
Second question is on the projects.
On the Gulbarga. first of all, has the management taken some decision around whether it's going to start with 6,000 ton per day initially and another 4000 ton per day later on or is it going to be 10,000 ton per day and is there capital cost inflation because earlier we talked about Rs.
3,000 crore for a 10,000 ton per line and to you is it is the number the same?
J Krishnaswamy
During the IPO time we did speak about 10,000 TPD line but we've not made any shift in terms of whether it goes from 10,000 to 6,000 ton or not, but if you had participated in those calls certainly similar questions were posed to us at the time.
Our answer at that time was very clearly that we need to have capacity in this place but closer to the time when we embarked on a technical study and the business model going which will happen in the next 1 or 2 months, we'll come to a decision whether a 10,000 TPD Gulbarga is right for the Company or a 6,000 TPD to start with the ability to expand to 10,000 TPD.
Maybe two cycles from now when we meet we'll be able to give you better clarity on whether we are going to zero down on a 10,000 TPD or 6,000 TPD.
Satyajit Jain
Is there capital cost inflation right now where you sit for 10,000 ton per day that you initially expected Rs.
3000 crore?
J Krishnaswamy
No, it has nothing to do with capital cost is going to decide whether we will do over a 10,000 TPD or 6000 TPD.
Certainly, I think we have started working on the modeling of markets, ability to get EBITDA per ton, what's the contribution we'll get, what is going to be distribution, but the teams who are currently working on this business model and the target markets whether it’s an IU or IU plus split GU which are our core market.
I think it will shape within 3 to 6 months, I think by the time we can go for next cycle or the cycle after that we'll be able to give you what is the plan for Gulbarga but suffices to say that we are going to expand in Gulbarga.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen that was the last question, I now hand the conference to the management for closing comments.
J Krishnaswamy
Thank you all for participating in this call.
As I said the vision for our Company is to build a safer, smarter, and sustainable world and the mission for Nuvoco’s to become a leading building materials Company delivering superior performance. the values being integrity, operational excellence, entrepreneurship, collaboration, and care.
These are the cornerstones for our Company.
We arethe fifth largest Company in India and the leading Company in East India with acquisition Nu Vista.
But for this short temporary dip in the market because of extraneous conditions, I think as a Company we are well on our way to unlock value between the two companies, get the synergies going and then aggressively developing the market by launching new products, launching composites cement, getting double bull and work on moving our non-trade to trade share.
Higher trade share is in line with our strong focus on sustainability to reduce the carbon footprint year on year.
That in short is our presentation to all of you.
If there are any further questions you may have, do reach out to our Chief of Investor Relations Madhumita Basu and the team will be happy to answer all your queries and myself and Maneesh will always be there to work with Madhumita to answer every question of yours.
Thank you so much and look forward to meeting you again later.
Disclaimer
This is a transcription extract and may contain transcription errors.
The transcript has been edited for clarity.
The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy. *Correction on Capex for FY 23.
Capex to be read as Rs.
1525 Cr instead of Rs.
1750 Cr