On maintenance cost - last couple of quarters other expenses were on higher side reasoning being higher maintenance for acquired assets. Press release now says maintenance of acquired assets is largely completed. Given digitalization and AI integration initiatives, will other expenditure continue on the higher side or has it peaked out?
I won't say this peaked out because digital initiatives have to step in. Operating leverage benefits will help in coming quarters, especially as Penna and Sanghi utilization improves from current lower levels. On technology, comprehensive plant-level and business-level digital programs will step in maybe at least 2 quarters as we revamp foundation and add AI platform layers. These initiatives will bring marginal improvements apart from operating leverages, but real improvements begin from next financial year. However my optimism for INR4,000 a ton by end of this financial year remains.
Would we look to reassess useful life of existing assets after debottlenecking and equipment upgrades?
We have done that. One or two assets we will look at mothballing and will share details separately - but that is insignificant in overall scheme. We constantly do that in context of market share and additions of new assets. As new assets keep adding, we look at variable assets for mothballing. For Wadi Line 1, we have stopped using it - it was very old and we have dismantled it. That doesn't affect any source of clinker.
On commissioning timelines - comparing with prior quarter, six projects show delay of a quarter including Bathinda, Bhatapara, Maratha, Salai Banwa, Jodhpur, Krishnapatnam. How should we read this?
Torrential rains and flood-like situations across many parts of country have caused some delays. When I say operational, I look at commercial operationalization more than trial run. Commercial production will start before Q4 and start giving benefits. Some are at different stages of pre-trials. Trials will commence and commercials will follow. No unreasonable delay - these are part and parcel of situations with rains and other issues.
On cost - other expenses per ton are dropping in Q2 versus Q1, where Q2 is a maintenance quarter. Is it lower kiln maintenance, lower advertisement spend, or other factors driving down other expenses?
Other expenses are at INR774 a ton versus INR712 a ton. Kilns have gone through maintenance and benefits will come in coming quarters. The reduction of almost INR62 per ton comes from improved synergies and efficiency gains. We have also improved overall sales promotion and marketing strategies with analytics-driven branding using more effective media than costly media, including more digital footprints. So other expenses is a factor of all of these initiatives, with no underplayed maintenance issues.
On working capital - cash flow shows an increase of about INR2,000 crores in 1H. What is driving this increase - is it receivables, advances, or other reasons?
Two factors. One is receivables - higher non-trade sales in subdued Q2 due to monsoon increases overall receivables to B2B customers. Second is overall inventory - higher closing stock of finished goods, plus higher stock of spares and consumables. As mitigation, we have built up almost 2-3 months of coal inventory which has moved very well in our favor. So coal, finished goods inventory, clinker inventory, stores and spares, and receivables are the factors. We expect strong improvements in Q3 on this front.
On debottlenecking - cement debottlenecking is given plant-wise in the presentation. You also mentioned clinker debottlenecking. Can you provide further details on which units will see debottlenecking at the clinker level?
We will be setting up another three kilns, almost 12 million tons. Earlier 84 million tons FY '28 target is becoming 96 million. Generally my kilns are 4 million tons. One is going to come up in Bhatapara itself, with two major blocks - existing Bhatapara and Chilhati which is about 25 km from Bhatapara. Chhattisgarh is one area with sizable limestone reserves. Sanghi has potential to become one of the lowest cost of clinker. North and West primarily remains where we have substantial strong advantage.
Historically debottlenecking was never heard from ACC and Ambuja under previous management. Now it is at 13 locations - is this all that has been identified, given we have 45-46 locations? And you said adding new clinker lines, so is this not really clinker debottlenecking but new clinker capacity?
Debottlenecking happens by adding roller press to plants with ball mills, helping achieve higher grinding capacity. We have identified 13 locations in Phase 1 which comprehensively covers it, but we will have more down the line. These are low hanging fruits. On clinker, we will keep adding to meet expanding GUs and additional capacities of debottlenecked assets - one-to-one mapping isn't possible as these are phased. We are adding three more lines to take clinkering to almost 96 million tons. Bhatapara, Maratha and Penna Marwar will commission sooner.
On existing clinker - is there scope to debottleneck the existing 65 million tons of clinker capacity as well?
Yes. For example Sanghi at 6.5 million tons - typically these plants always have a 5% to 10% in-built cushion. Technical guys say if things go well, Sanghi can produce 7.5 million tons. So in cement, plants have inherent and intrinsic in-built capacity for debottlenecking. To start with, these are like low-hanging fruits on the grinding side and clinkering will follow soon.
On previous question's INR70-odd per ton additional cost on sales promotion and maintenance - how much of this 70-odd would continue over the next two quarters?
INR70 per ton will proceed with improved volumes from acquired assets done systematically. Penna and Sanghi investments are complete and results will start flowing in. Brand spend is a continuous exercise with more benefits coming from higher share of premium cement. Y-o-Y growth of 20% volume, or 11% even excluding acquired assets, outbeats industry. The opex part for maintenance will now be controlled, sustained and reduced with benefits of improved capacity utilization for acquired assets.
Clarification - when you say exit the year with INR4,000 per ton cost, is it fourth quarter end or March end? And the INR3,650 by FY28, is it full year or fourth quarter March 28?
Pick it as March. INR4,000 is exit of FY '26 - so March '26. Likewise March '27 and March '28.
RMC business is ramping up - share of RMC was 4% of revenues in FY25 and 4.5% in 1H. How should we look at this business going forward and at what level will RMC revenue share stabilize? And what is current cement consumption in RMC?
RMX is building up well. By FY '28 full-blow basis, cement consumption in RMX will be around 5% of capacity. We are targeting 365-odd RMX plants in next couple of years. RMX has built up well on EBITDA margin as well. Currently cement consumption in RMC is around 2% odd, ramping up to 5%.
On volume growth - 20% growth in latest quarter while industry is growing much less. How sustainable is this growth? And as you go upmarket and more premium, how are you balancing pricing and volume?
Last quarter and current quarter both delivered 20% Y-o-Y growth. Sustainability - quite bullish to achieve double-digit growth, may not be 20% as acquired assets mature and base goes up. Targeting double-digit growth on strength of strong brands plus Adani brand getting shipped in. Premium cement versus volume growth will get well balanced - looking at both market share and premium proportion. Capacity itself is growing 10% to 15% every year - 107 to 118 to 130-135 to 155 by FY28. Therefore I'm bullish about double-digit growth.
On integration of Orient, Penna, Sanghi - how should we think about volume growth, margin growth and market share growth over next 12-15 months?
Excluding acquired assets, EBITDA at base capacity is around INR1,189 per metric ton. With acquired assets giving lower EBITDA - Penna and Sanghi - capacity utilization improvement should bring them closer to current levels. We see healthy improvement to sustain 4 digits and grow from there. FY '28 target is INR1,500 EBITDA. INR400 cost reduction journey - INR4,000 exit March minus INR400 = INR3,600. Acquired assets will mature with very good demand uptick in Western (Sanghi), Southern (Penna) and West/South (Orient) markets. Sanghi swings into substantial positive zone from Q3.
On balance sheet working capital - can you give the bridge of cash reduction from June until September?
Investor deck slide 37 shows the bridge. Starting point INR10,125 crores and closing cash of September INR1,813 crores. June was INR2,971 crores, with capital market event of acquisition of INR5,910 cr of Orient, plus capex programs and investment activities. From INR2,971 crores to INR1,813 crores - majorly going to capex program. Almost INR1,400 crores from capex program for ongoing capex commissioning in Q3 and Q4.
What was the overall capacity utilization this quarter including all acquired assets?
Including all acquired assets on consol basis, around 65% to 67%. Therefore I have benefit to improve further. Even at 65% we are in volume numbers and advantage of operating leverage will flow in for coming quarters.
If I exclude Penna (only 45 days in last year base) and Orient (not in base), would you have grown in line with market or gained market share this quarter?
I would have grown almost 2.5x better than market. Industry average at 4% growth - without Orient and Penna I would be at 11% growth.
On clinker expansion from 84 million to 96 million tons - is any of this in ACC or whole thing in Ambuja? And what are next steps from 73 million tons by FY26 close?
That is for the incremental new lines, not debottlenecking - debottlenecking on clinker will be more comprehensive separately. From 73 million by FY26 close, FY27 goes to about 81 million (with Marwar adding 8 million tons in between), and FY28 reaches 96 million. Capex hit rate is almost INR2,000 crores per quarter, around INR8,000 crores per year. INR1,400 crores capex in second quarter, INR2,800 crores for first half.
On adopting latest technology on new capacities - if you could elaborate on the technology, quantify operational efficiency on heat and power, and on average plant age reduction by 40% - is this only because of new assets, and would we need to reassess residual life of plant and depreciation?
On technology and efficiency - new 4 million ton clinker lines have heat consumption of almost 680 kilo calories versus existing 730-740 kilos. New clinkering lines straight away improve heat consumption averaging. On power, our consumption is slightly higher than industry leaders at upwards of 60 units on average; latest assets will come at less than 50 units per ton of clinker. Despite older assets, current performance has to be looked at in that context. 40% reduction in overall average age happens by FY28 with these expansion plants. INR250 of the INR400 cost reduction journey comes from power and fuel.
On average employee age reducing to 38 years - how are you reading this number? Natural attrition or hiring younger workforce, and how does it map to firm productivity?
We have hired almost 1,300 GTs and DTs going through well-structured training program. By end of this year they will complete 1 year and be available for absorption. Putting good focus on holistic training across functions. Productivity has been improving substantially with technology layered on top. Adani Cement HR cost per ton of cement is one of the most efficient compared to peers. Productivity will further improve once digitization ships in on full-fledged basis.
We have done a good job ramping up capacity from acquired assets and going through cost reduction journey - what is the hurry to expand very fast given utilization is slightly dropping?
From beginning, on first day of board meeting we announced going up to 140 million tons - well organized strategy. We just added 15 million tons of debottlenecking taking us to 155 million. This will substantially help in efficiency and operating leverage. Capacity utilization is not a concern for brands like Adani Cement, Ambuja and ACC. We have spent time on machine reliability for acquired assets - Sanghi and Penna - which will see sizable uptick in capacity. Market share target is 20% to 22% by FY '28, supported by 29,000 dealers, 50,000-60,000 retailers and almost 7 lakh contractors.
On consolidated EBITDA per ton at INR1,060 versus standalone level INR708 for Ambuja and around INR900 for ACC - can you explain the bridge? Does MSA give us better profits at consol level?
That is true. When you look at volume at individual companies and add them up, the volume will be higher. But in consol the inter-company sales between companies gets knocked off. Hence this happens from arithmetic perspective.
What is the utilization at the acquired assets roughly?
Base capacity assets are at very good utilization upwards of 75%. Acquired assets vary - Orient is at healthy level being Western markets and Bombay focused. Penna being Southern market gets influenced by Southern industry trends. Sanghi being coast-based plant with torrential rains in Q2 will not be reflective of trend - Sanghi should move around 65%, 70% in Q3 and Q4.