Release Date: February 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shri Keshav Cements & Infra Ltd (BOM:530977, Financial) reported a total income of INR34.36 crores in Q3 FY24.
- EBITDA increased by 12.47%, reaching INR11.69 crores, with an expanded EBITDA margin of 34.38%.
- The company achieved a net profit of INR3.97 crores, resulting in a net profit margin of 11.46%.
- The company has been meeting 100% of its energy requirements through renewable solar generation since April 2018.
- Permission has been granted for the expansion of the solar plant from 37-megawatt to 40-megawatt peak, contributing to sustainable practices and energy efficiency.
Negative Points
- Sales for Q3 were flat compared to the year-on-year growth despite the favorable post-monsoon season.
- The company has been facing inefficiencies in power consumption, consuming about 110 units per ton of cement compared to the industry standard of 60 units.
- The top-line growth appeared flat due to the shift to ex-plant dispatches, which reduced logistic costs but did not significantly increase net realization.
- The cement demand and prices in Karnataka have softened slightly, with potential pressure expected to persist until the elections.
- The company’s working capital cycle has remained consistent, with no significant changes in inventory days, debtors, or receivables.
Q & A Highlights
Q: Congratulations, sir, for a very good set of numbers and thank you for the opportunity. I just have one question regarding our profitability and our revenue. This is a post-monsoon period where normally, cement uptick we can see. I just want to understand why our sales for the Q3 were flat as compared to the year-on-year growth? And secondly, we posted around a margin of around 34%-plus. So what has contributed to this 34%? What has contributed from the operational efficiency and what has contributed from the softening of the raw material prices as you mentioned in your opening remark and whether these margins are sustainable? Thank you, sir.
A: Sure. So your question is regarding the growth in Q3 as well as why was there enhanced profitability or EBITDA based on what impacted. So if you look at the top line by itself, even though the growth has been almost flat, but dispatches have grown and most of the dispatches what we have done in this quarter have been typically ex-plant basis, which means that normally the management of the company is trying to reduce the dispatches on the delivered basis and relying mainly on ex-plant basis. Now, this will have specific advantages like the transportation cost is loaded onto the dealer, of course, with certain discount on the pricing. Even though our quantity and capacity utilization has reached 76%, because of the lower, not exactly lower net realization, because of too large extent avoiding the transportation, the top line has appeared very flat, which is why you will see that your margins have increased drastically. In theory, if we were to do the same logistic like what we did in Q3 FY23, the top line would have been a little higher. But the main contributor to the profit margin and the EBITDA has been the reduction of prices in the petroleum coke. And that seems to continue to go down for this quarter too. And hopefully, with that trajectory showing no adverse price change, the profitability and the EBITDA is likely to continue in the positive direction. Thank you.
Q: Can you please explain this ex-plant? Does it mean that you are directly dispatching it from the plant, something like that?
A: So what typically happens -- So typically, what happens is when we dispatch cement to the end consumer, depending on the trade and commerce dealings, our competition mode is going on. A lot of times we also offer to deliver it to their doorstep. Of course, there is an increased price relation with that, but a lot of times the company may not realize the entire cost or will not be able to pass on the cost of logistics on to the consumer. But as and when we try to avoid more of delivering the goods to the customer, we eventually slowly get rid of the additional incremental transportation cost, which is why you will see that even though sales has grown, in reality, net relation also has grown, but it is still showing a top-line flight because some of the logistic costs also have reduced.
Q: Sir, in the 34%-plus margin, how much has been contributed from solar and what is the cement margin for you, if you can bifurcate?
A: So are you talking about EBITDA?
Q: Yes, sir.
A: So EBITDA has been a healthy growth this quarter, like this quarter, EBITDA is around INR460. This was about INR155 in Q3 of FY23. This healthy growth is mainly because of reduction in fuel prices and is likely to continue. In fact, the entire last year, the cement EBITDA generated around only INR60, entire year, whereas industry has achieved about INR850 to INR900. However, we achieved very less only because of inefficient utilization of fuel and power, which is what is being corrected in the CapEx now. So with INR60 the entire year, this year, we are able to achieve INR250 for nine months and almost INR460 per metric ton in Q3.
Q: That is cement, right? And what about solar EBITDA? What was the percentage over there? As we have also looking --
A: Sure, sure. So solar EBITDA typically is around about INR33 crores to INR34 crores over the entire year. So over the quarters, out of around INR11.7 crores EBITDA, almost INR8 crores is contributed by solar. The balance is contributed by cement.
Q: So the enhancement in the EBITDA margin is because of very good EBITDA from the solar, cost efficiency, what we have seen as with the export price coming down and also the strategies we played with the ex-plant deliveries. Am I understanding it correct, sir?
A: Yes, yes. Mainly because of the ex-plant delivery, the top line has -- appears to have reduced in spite of the increased dispatches only because to a large extent, the logistic costs have been absorbed by the end customers. But EBITDA margin has increased drastically because of reduction of fuel cost. But there's no reduction in consumption. So there are two different things. Consumption has remained inefficient as it is. Even the power consumption is inefficient. But since the price of solar -- sorry, fuel has gone down, that has impacted EBITDA. So this CapEx, what we will be doing, we will be addressing the issue of consumption itself.
Q: You said that there is less consumption of the power. So I believe that is one of whatever we generated from the solar that has been less consumed, am I understanding it correct?
A: Correct. Even though we are consuming the power from our solar plant 100%, what inefficiently we are utilizing, for example, let's say, we are consuming about 110 units per ton of cement, whereas the industry has reached around 60 units. So with our CapEx, so ultimately that 50 units, what we are consuming here could have been better sold outside and generated profit, which is not happening right now.
Q: We recently increased our solar by around 2 megawatt. So what was the spend on it? And in future, like in FY25 or end ‘26, do we have any plan to enhance it further? And if yes, what is the CapEx for the same?
A: Solar, right?
Q: Right.
A: So, solar as of now, we have 37-megawatt capacity. As we speak, we are adding another 3 megawatt. So final paperwork to place orders going on. And the CapEx for this is around INR8.5 crores to INR9 crores, which will be contributed by the supplier by the way of long-term payment. So there's no cash outflow as such with this project right now. However, for the long term, once the capex of cement is completed and
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
