Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ACC Ltd (BOM:500410, Financial) reported a consolidated revenue of INR 8,311 crore, driven by strong market management and dealer network expansion.
- The company achieved a 13% decline in energy costs due to better fuel management, resulting in a reduction in kiln-fuel costs.
- Transportation costs declined by 8% due to footprint optimization and increased direct dispatches to customers.
- ACC Ltd (BOM:500410) plans to expand its cement capacity to 140 million tonnes by FY28, with significant progress in ongoing projects.
- The company remains debt-free and plans to fund capacity growth through internal accruals and operating cash flows.
Negative Points
- The cement prices have fallen by 5% to 6%, impacting the EBITDA per tonne.
- The company faced capacity constraints in the East and South regions, affecting volume growth.
- There is a concern about the potential impact of limestone lease expiries by 2030, although ACC Ltd (BOM:500410) has plans to mitigate this.
- The company has significant CapEx plans, including INR 10,000 crore for the full year, which may impact cash reserves.
- The industry faces competitive pressures and tepid demand, which could affect future pricing and profitability.
Q & A Highlights
Q: My first question was regarding the current bifurcation of private and public infrastructure investment that we did, for example, what is the bifurcation of private sector as well as the public sector?
A: Sure. At an industry level, about 64%-65% of cement is consumed for housing, 23%-24% for infrastructure (largely government but also some private BOT projects), and 15% for commercial institutions (largely private). So, around 75%-80% is private sector and 20%-25% is public sector.
Q: On the green power bit, you said that the first phase of the 200-megawatt project is delayed. Does this mean the entire 1,000 megawatt project gets delayed? Also, can you provide a CapEx breakdown for '25 and '26?
A: Our June '25 target remains firm. The first 200 megawatts will come in August, 650 megawatts by March '25, and another 150 megawatts by May '25, completing the 1,000 megawatts by Q1 FY26. The overall CapEx for this initiative is INR 6,000 crores, with INR 1,500 crores already invested and the remaining INR 4,500 crores to be incurred over the next 12 months.
Q: Regarding the Penna acquisition, there seems to be some delay in the timeline for the Jodhpur unit. How should we look at integrating Penna into our numbers? Will Ambuja Cement be launched in South India?
A: The acquisition is in advanced stages and should be completed in a fortnight, with full integration benefits visible in Q2 and Q3. We will use Ambuja, ACC, and Penna brands strategically in South India to penetrate the market effectively.
Q: What do you make of consolidation in the cement industry?
A: The top five companies now hold 60% market share, up from 45% in 2018, indicating ongoing consolidation. We are pursuing both organic and inorganic growth, acquiring assets that fit our strategy. Our internal target for new growth is less than $80 per tonne, and we apply stringent checks to ensure responsible expansion.
Q: What do you make of limestone lease expiries come 2030 for Ambuja, ACC, and the wider industry?
A: For Adani Group, we have 19 leases expiring by 2030, mostly in ACC. By then, only 11 will be left, and we have alternate plans for three sites. The right of first refusal rests with the current player. Industry-wide, this is a known issue, and we are making representations to the government for a solution.
Q: When do we see Sanghi completely optimizing in terms of capacity?
A: We are progressing well with Sanghi, expecting full utilization of clinker by the last quarter of the current FY. Investments in jetty and shipping infrastructure will follow, with potential wind investments to make the plant cost-efficient.
Q: Given the focus on internal accrual-funded growth, why invest heavily in renewable power when it can be sourced externally?
A: Investing in renewable power aligns with our ESG goals and reduces CO2 emissions. It also offers cost benefits, reducing production costs by INR 100 per tonne, thereby improving EBITDA. This strategy ensures we remain cost-competitive and environmentally responsible.
Q: We've done about INR 800 EBITDA per tonne this quarter. How do we plan to achieve the target of INR 3,650 operating cost by FY28?
A: The target of INR 3,650 is based on current costs and includes initiatives like green power, waste-heat recovery, and logistics optimization. While prices are market-driven, our cost reduction initiatives are within our control and will help achieve the target.
Q: On the volume growth, when do we expect market share gains given the capacity expansion is back-ended in FY25?
A: Last quarter, we had a 17% growth in volume. This quarter, we faced capacity constraints in East and South regions. We expect these issues to be resolved in the current quarter, leading to improved market share.
Q: Can you provide details on the office building CapEx?
A: We are constructing a cement house in Ahmedabad for INR 600-700 crores and a regional office in Delhi for around INR 500 crores, totaling approximately INR 1,000 crores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
