ACC : Transcript of Analyst Call

"Ambuja Cements & ACC Limited

Q1 FY 24 Earnings Conference Call"

August 02, 2023

MANAGEMENT: MR. AJAY KAPUR - CHIEF EXECUTIVE OFFICER - AMBUJA CEMENTS & ACC LIMITED

MR. VINOD BAHETY - CHIEF FINANCIAL OFFICER - AMBUJA CEMENTS & ACC LIMITED

MR. CHARANJIT SINGH - HEAD INVESTOR RELATIONS

• AMBUJA CEMENTS & ACC LIMITED

MODERATOR: MR. NAVIN SAHADEO - ICICI SECURITIES LIMITED

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Ambuja Cements & ACC Limited

August 02, 2023

Moderator:Ladies and gentlemen, good day and welcome to the Ambuja Cements Limited and ACC Limited Q1 FY '24 Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Sahadeo from ICICI Securities. Over to you, sir.

Naveen Sahadeo:Thank you, Dev. So good afternoon everyone. On behalf of ICICI Securities, I welcome you all to the Q1 FY '24 earnings call of Ambuja Cement and ACC Limited. From the management, we have with us CEO Mr. Ajay Kapur, CFO Mr. Vinod Bahety and Head Investor Relations Mr. Charanjit Singh. Without any further ado, I now hand over the call to Mr. Charanjit Singh for his opening comments. Over to you, Mr. Singh.

Charanjit Singh:Thank you, Naveen, and very good afternoon, everyone. Firstly, thanks for taking out the time to join on the call. Our format will be similar to as has been in the previous call. We will focus on Ambuja and ACC with reference to our numbers and the information. With respect to any information, you require on the promoters on the group level, please feel free to reach out to me separately after the call. Without taking much time, I will hand it over to Mr. Ajay Kapur, then we will follow it with comments from Mr. Vinod Bahety and thereafter we will open it for Q&A. So, over to you Mr. Kapur.

Ajay Kapur:Thank you, Charanjit. Warm greetings to everyone. Thank you for joining us today. It is my pleasure to share with you the operational and financial performance of Adani Group's cement business for the quarter ended June '23. The third quarter post the change in management has been a spectacular one for our progress on a number of projects including operational efficiencies, synergies and business excellence, which have significantly improved key business metrics.

Let me provide some highlights of this quarter and some insights on the way forward. Starting with revenue, the revenue for the quarter came in at INR8713 crores, up 8.5% Y-o-Y. The realizations for the quarter were INR5,657 per ton. The volume of premium product has increased by 10% on a Y-o-Y basis.

Now coming to cost, our operating cost for the quarter is at INR4,575, which is 7% decline over last year. This is attributable to 20% fall in energy costs given the coal tie-ups and reduction in kiln fuel by 17% on a Y-o-Y basis at INR2.07 per 1000 kcal. The raw material cost reduced by 11% on a like-for on a like for like basis, on a Y-o-Y from INR707 per ton to INR631 per ton.

In the figures you might feel this is a little difference, but this is largely on account also of a higher production that we have done of clinker. This is in line with our target to reduce cost of raw materials by 12% during the year versus last year. Transportation cost is INR1,436 per ton, which is sustained at same quarter as the previous one, despite higher sales volume by 1.3 million tons.

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Ambuja Cements & ACC Limited

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Consistent reduction in other costs over the quarters, and this has come down to by about INR163 per tonne, which is a 20% decline Y-o-Y on account of resource optimization and synergy with the parent company. With the mentioned improvements on both revenue and cost front, EBITDA for the quarter came in at INR1,930 crores, which is a jump of 55% Y-o-Y. EBITDA per ton for the quarter was INR1,253, implying a jump of INR41, Y-o-Y.

The margins for EBITDA expanded by 670 bps to 22.3 on a Y-o-Y basis. PAT grew by 31% Y- o-Y at INR1,135 crores. The capex spend during the quarter was INR576 crores for the quarter and was achieved from internal accruals and cash in hand. As on 30, June, the consolidated cash and cash equivalents in the company's books was INR11,886 crores, which is an increase of INR3,744 crores, Y-o-Y.

Coming to standalone results, the net revenue is up by 18% Y-o-Y at INR4,730, in line with volumes which are up by 23% on a Y-o-Y basis. EBITDA grew by 48% Y-o-Y on a like-for- like basis, excluding dividend income of INR550 crores last year same quarter from ACC at INR1,138 crores. Margin expanded from 19.2% to 24.1%. Robust PAT growth at 29% on a Y- o-Y basis, again, all alike for like, excluding dividend income of INR550 crores at INR645 crores for this quarter.

The company won several awards and accolades for its outstanding work in customer service, safety, circular economy and CSR. Ambuja has been recognized as India's most trusted cement brand. 2023 by TRA Research. Ambuja ranked amongst India's top 50 most sustainable companies across sectors and amongst India's top three most sustainable companies in the infrastructure and engineering sector by BW Business World.

So let me share with you the progress that we have made on our long-term strategy plan, shared with you also in May at the time of full year results for FY '23. First our new capacity addition. On strategy update I highlighted to reach cement production capacity of 140 million tons by FY '28. We will add around 40 million tons of new clinker capacity, thereby implying around 10 new clinker lines.

The first line of 3.3-million-ton facility is now almost ready within Ametha, with production likely to start in quarter 2. Equipment orders for another two more lines are already placed. This includes 4-million-ton facility at Bhatapara and another 4 million facility at Maratha in Chandrapur. Each of these lines will have 42 megawatts of wasted recovery and provision for utilizing around 50% alternate fuels.

These two facilities are expected to be commissioned within 24 months. For doubling the capacity of grinding facilities to 140 by '28, we are targeting 35 brand units against this target, we have already announced six new facilities with the capacity of 14 million tons. Of these, six facilities, three units are mapped to the upcoming clinker facility at Bhatapara, these includes one each at Sankrail, Kharagpur and Farakka.

Another three units are mapped to Chandrapur clinker facility, these include one unit each at Jalgaon, Amravati and Pune. Besides, a facility of one million tons capacity is proposed at Bhatinda grinding unit at Punjab and one new one-million-ton unit will be commissioned at

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Ametha in quarter two FY '24. All together we will take the total grinding capacity to around 83 million tons per annum.

We will continue to provide progress updates of new orders and also the progress on individual products on an on-going basis. Now sharing an update on structural initiatives to become the cost leader in the Indian cement industry. In my last call and also in our strategy presentation, I have guided for a total cost reduction of over INR400 per ton under three broad segments, which are energy and cost, freight and forwarding, manpower and admin.

Let me first discuss on the progress made to reduce our energy cost. Our waste heat recovery capacity at the time of takeover in September was 40 megawatts, which we are targeting to increase to 175 megawatts by July '24. As of June, '23, we managed to increase the waste heat capacity to 90 megawatts.

We could manage to increase our AFR share to 7% against our long-term target of 30%. I also mentioned that we are considering installing 200 megawatts of captive renewable power generation. The construction of the facility has already started in Khavda in Gujarat and is expected to be ready by the end of the current financial year.

On multiple occasions, I have highlighted that we want to be self-sufficient on our coal requirements with captive coal supplies as well as coal from group synergies. As a result, we have started bidding for coal mines and auctions being conducted by the Government of India. On account of these initiatives and reduction in fuel prices globally, our power and fuel costs have reduced by 30% to INR1,501 per tonne in Q1 FY '24 from INR2,138 per ton in June to September Q1, the last reported before our takeover.

The second cost item is freight and forwarding. There are three focus areas for cost reduction here. First, reduction in lead distance. Second, warehouse footprint optimization. And third, railroad mix optimization. We are targeting to reduce the average road lead distance to around 100 kilometres. When we took over the company, the average road distance was 172 kilometres in June to September '22, which has reduced to 170 kilometres in the current quarter.

We have increased the share of direct dispatches from 44% in September quarter to 51% in the current quarter. Rail dispatch percentage improved from 26% to 29%, comparison of the same September versus June quarter. On account of these initiatives, our logistics cost have been sustained at June, September '22 quarter despite higher sales volume and catering to long lead markets to increase our market share.

Now moving to the third cost item, which is other costs, our business is being run as a single entity with a single executive team and a streamlined employee hierarchy, thereby removing the role of redundancies between Ambuja and ACC, with this savings in technology know-how fees and packing cost reduction. This has led to other cost reduction by 13% to INR669 per ton in quarter one FY '24 from INR770 per ton in the quarter preceding to the change of ownership.

To ensure our assured supply in limestone, we continue to bid for limestone mines and in the last few months, we have won some new mines. Let me conclude by saying that our performance during the quarter was strong with improvement in both operational as well as financial

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parameters. We continue to generate significant cash to finance our expansion and pay dividends to our shareholders. I would now call upon my colleague, Vinod Bahety, to also make some comments on the performance of the quarter.

Vinod Bahety:Thank you, Ajayji. Good afternoon, ladies and gentlemen. With a strong and robust financial performance, seeing a good jump in EBITDA both in absolute terms as well as on per metric ton, I am also glad to inform that our balance sheet has grown stronger compared to last quarter, with net worth increasing by almost INR700 crores commensurate with the overall PAT. The cash and cash equivalent is net positive almost at INR12,000 crores. My operating cash flows are healthy I have spent almost INR600 crores on increasing my gross block. Despite that, I'm positive on the net operating cash flows.

Overall, with a stronger balance sheet and healthy cash flow position, it augurs very well for our growth aspects. I'm sure many of you have seen our annual report, both physical or digital. We have put in a lot of effort to put all level of details, which will give you lots of insights on the initiatives and the efforts being done by the management. Now, we request the moderator to put the floor open for questions and answers.

Moderator:Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia: Yes, good afternoon, sir, and thank you for this opportunity. I'll start with my question. My first one is on the volume growth. So, this quarter, if we see, we've grown volume by 9% at consolidated level, whereas most of our large peers have grown significantly higher closer to 20% odd. So just want to understand, what is the reason for the underperformance and versus industry and versus last years and what is the key constraint here. Is it a capacity constraint or some other issue, which we face during the quarter?

Management:Okay. So, thanks, Sumangal. The industry, I believe, has by and large grown around 9% and 10% and our growth more or less is in sync with that. The players whom you are talking about have also added new capacity, so there is of course the flow from their new capacities, which has been added in the last couple of quarters. As we will start building and adding our new capacity, the one which is also coming in a Ametha,

You will start seeing our growth also coming up. But other than that, I think most markets we have grown favorably. There was a little aggressive monsoon in West, where we have a larger presence that of course had its play in the most of the month of June, when the monsoon was very high.

Sumangal Nevatia: Got it. So, okay, sir, over the next two years, given our pipeline of capacity addition, from a utilization point of view, can we grow at 10% to 12% odd, if the market growth supports that, or we should expect lower growth over the next two years?

Management:I don't see any issue with our growth of 10% to 15% even.

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