Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JK Lakshmi Cement Ltd (BOM:500380, Financial) has a strong focus on renewable energy, achieving 48% renewable energy usage last quarter, up from 39% the previous year.
- The company has improved supply chain efficiencies, reducing lead distance by 12 kilometers compared to the previous year.
- Premium product sales have increased to 30%, positively impacting the bottom line.
- The company has significant limestone reserves, ensuring operational continuity for 35 to 50 years.
- JK Lakshmi Cement Ltd (BOM:500380) is planning strategic expansions, including a 4.6 million tonne plant in East India and a 1.5 million tonne plant in the Northeast.
Negative Points
- Pricing pressure has led to the lowest price levels in the last three years, impacting realizations.
- Volume growth has been flat due to market dependencies on migrant labor and election-related disruptions.
- The company experienced a higher sequential drop in realizations compared to the broader industry.
- The merger with Udaipur Cement Works Limited has not yet quantified the exact savings, creating some uncertainty.
- The company faces intense competition and aggressive pricing strategies from larger players, impacting market share and profitability.
Q & A Highlights
Q: Can you talk a little bit more about our limestone reserves that we put up our plants in north? And how many years of reserves do we have there and when do they come up for renewal?
A: At Sirohi, our renewal is in the year 2030 and the residual reserve is for about 15 to 20 years now with us. At Udaipur, we have a requisite reserve for another 40 to 50 years. We have recently got lease of adjacent mines, extending the life of limestone at that location for at least another 10 years. We have also acquired limestone lease rights at Nagpur, which will last for at least 45 to 50 years if we put up a 5 to 7 million tonne plant.
Q: How much time would it take for us to ramp up the volume for the Udaipur Cement expansion? And achieve optimal or high utilization and volume growth?
A: Due to the general election during quarter one, overall demand was impacted. Our plan is to achieve at least 60% utilization by the end of the year for our line two, and overall around 70% to 75% for both the limestones.
Q: How do our current profit margins in the East region compare versus the ones we have in the north and west? Is there a substantial difference in profits as of now?
A: Yes, there is a difference. Last quarter, our EBITDA in the East was at least INR200 higher than in the North and West. We have done better in the industry by focusing on markets nearby to our plant, resulting in better margins in the East.
Q: Can you talk about the thought process behind the expansion in the East, given the high capacity being set up by competition in the region? How much can the railway siding and street grinding units add to the profitability in the East on a per tonne basis?
A: We were short of capacity during peak periods, and our top line strategy and distribution strategy in the East have been profitable. The addition of railway siding allows us to reach markets we couldn't before. These factors prompted us to expand.
Q: On the merger proposition, can you quantify the savings you are expecting directly from the proposed merger?
A: It is difficult to quantify the exact savings post-merger. However, the merger will help create a stronger balance sheet and cash flow, enabling faster growth. There will be savings in fixed costs, economies of scale through common procurement, and logistic alignment.
Q: What is the demand expectation for FY25 for the industry and for the company?
A: The industry forecast has been revised down to 6% to 7% from 7% to 8%. We expect to do better than the industry by at least 1% to 2%.
Q: Can you provide the net debt numbers on a consolidated basis as of June '24 and the non-cement revenues for 1Q?
A: On a standalone basis, the net debt is INR325 crores. On a consolidated basis, the net debt is INR1,650 crores. Non-cement revenue for 1Q is about INR132 crores, with an EBITDA margin of around 4%.
Q: Can you explain the higher sequential drop in realization compared to the broader industry?
A: The drop is due to increased clinker sales and price drops in some geographies. Our strategy is to maintain market presence even when prices are down, which also impacted our realization.
Q: What are the initiatives you are working on to reduce costs?
A: We are focusing on renewable energy and AFR to reduce power costs. We are also using technology to improve our pyro-process. Additionally, we are optimizing our distribution strategy and supply chain to reduce costs.
Q: What is the status of the conveyor belt at the Durg plant?
A: We are still awaiting approvals, which are in the final stages. We expect to get the approvals in another couple of months.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
