JK Cement Ltd

MR. VAIBHAV AGARWAL - PHILLIPCAPITAL (INDIA) PRIVATE LIMITED

Page 2 of 13 Ladies and gentlemen good day and welcome to JK Cement Limited's earnings conference call for Quarter and Half Year Ended 30th 2024 hosted by PhillipCapital (India) Private Limited.

As a reminder all participants’ 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 conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital (India) Private Limited. Thank you and over to you sir.

Thank you, Michelle. Good evening, everyone. On behalf of PhillipCapital (India) Private Limited welcome you to the Q2 and H1 FY25 Call of JK Cement Limited.

On the call we have with us Mr. Ajay Kumar Saraogi – Deputy Managing Director & CFO and Mr. Prashant Seth – Business Information and Investor Relations.

I would like to mention on behalf of JK Cement and its Management that certain statements that may be made or discussed on today's Conference Call, may be forward looking statements related to future developments and which are based on current expectations. These statements are subject to a number of risks, uncertainties and other important factors which may cause actual developments and results to differ materially from the statement made. JK Cement Limited and the Management of the Company assumes no obligation to publicly alter or update these forward-looking statements whether as a Result of new information or future events or otherwise.

I will now hand over the floor to the Management of JK Cement for their “Opening Remarks” which will follow interactive Q&A. Thank you and over to you Saraogi sir.

Thank you, Vaibhav. Good evening and welcome to this Q2 call. The Board of Directors met on 26th of October to review the working for the quarter ended September ‘24 as well as half year ending September ‘24.

The major highlights of the working; the net sale for the quarter was 2,322 crores as against 2,555 in the previous quarter, a dip of about 9% and 2,476 year-on-year, a dip of about 6%. The operating expenses were lower by 2% at 2,119 as against 2,164 previous quarter and year-on- year flattest 2,124. The EBITDA for the quarter was 273 crores as against 479 in the previous quarter, a dip of 43% and 447 in the previous year, dip of 39%. EBITDA margins was 11.7% for the quarter as against 18.7% in the previous quarter and 18% in the previous year.

If you look at profit before tax, it was Rs. 64 crores as against 292 crores and 246 crores and profit after tax was 45 crores as against 203 crores and 179 crores. EPS for the quarter was Rs. 5.80 paisa as against 26.2 and 23.1. For the half year April-September, the net sales were down by 3% at 4,877 crores as against 5,117. The operating expenses was lower by 1% at 4,283 crores

Page 3 of 13 as against 4,345 crores. The EBITDA was down by 11% at 752 crores as against 849 crores.

Margins was 15.4% as against 16.9%. Profit before tax was 355 crores as against 454 crores, a dip of 22% and profit after tax was 247 crores as against 305 crores, a dip of 19%. The EPS was Rs. 32.10 paisa as against Rs. 39.50 paisa.

As you would have seen, the working for the quarter was not on the expected lines. That was mainly on account of both external and internal factors. External factors were the demand because of the monsoons and the expected demand was not there and there was pressure on pricing continued and for internal there was additional shutdown because of monsoons and which resulted incremental expenses affecting the bottom line.

As regards the project, the 6 million tons expansion work is at a good speed and we are confident that we would be able to commission as per the expected lines either by end of third quarter or beginning of fourth quarter FY26.

If you look at the balance sheet; the gross debt as on 30th September was 4,664 crores as against 4,592 crores as on March. The cash balance as on 30th September was 1,620 crores as against 2,011. Net debt was 2,582 crores as against 3,044 crores. The net debt to EBITDA was 1.6x as against 1.29x and the net debt to equity was 0.56x as against 0.48x. So, these are the major highlights I'll be happy to answer your questions. Thank you.

Thank you very much sir. We will now begin the question-and-answer session. The first question is from the line of Shravan Shah from Dolat Capital.

First on the other expenses for this quarter was how much one time which we will not be seeing from third quarter onwards because that has impacted profitability a lot?

So, there are two things which are there affecting which may be classified as one time. So, there would be an incremental one-time expenditure of about 30 crores which is there which should not be there in the subsequent quarters. Also, in the raw materials because of the shutdown, we had purchased certain clinker and that clinker quantity should not be there. There could be some marginal clinker which we are we have procured for central India in the month of October.

Otherwise, there would be no requirement of any purchase clinker going forward. So, these two could be the one-time expenditure which if we look at in terms of the value, could be anything around 45 to 50 crores, could be a onetime impact which is there in this quarter.

If I look at from the grey cement perspective, so 1H we have done close to 2.1% volume growth and we were looking at 10% for this year. So, now for full year how much we are looking at?

So, yes, we were looking at 10% overall and H1 the growth is only nominal. Even though we are expecting a good demand, we would see that we should be closing anything around with the growth of about 6% to 7%.

Page 4 of 13 And in terms of the realization for grey cement was actually QOQ, if I am just looking at the numbers, it is 0.8% whereas for white it was 3% down. So, for both the things just wanted to understand because for other companies we have seen (+2%) kind of a QOQ decline in realization. So, is there anything even if you can specify the incentive that how much we have booked in this quarter so that will help and also how the prices are there in the October month now?

So, as far as realization is concerned, one since we had lower volumes, we cut down sales in certain not so remunerative areas which normally we could have done. So, one that was some volumes were cut in the low retention areas in some non-trade segments because we did not have sufficient volume available, especially in the south also. There has been a marginal increase in the premium product sale also. All these factors have resulted that though the prices were under pressure but on an average with a mix, we are not seeing any fall in the realization per ton.

And now how we look at the prices in the October month versus our 2Q average?

So, Q2 average marginally up. But we have to really see this is, whatever some prices had increased but not across but in the north and all, so marginally up as compared to average of Q2.

But we have to see, how we are able to increase upon some more pricing in coming days post Diwali maybe.

We will take the next question from the line of Amit Murarka from Axis Bank.

So, while the one-off expenses are one well explained in the quarter like some other opening revenue was also there, I believe which was on the higher side also. Generally, could you talk about like in south you had an extended maintenance shutdown. So, how has it improved your cost efficiency or what was that extended shutdown taken for?

So, in case of the other operating expenses we had got one time subsidy which had come from central India. So, that subsidy is included in the one time, so that it was realized and got in this quarter, that is reflected.

Also, the south extended shutdown like could you just maybe talk a bit more about it as to what was it for and how that improved your efficiency or any cost metric?

See what has happened in the south, we had planned a shutdown of about 45 days which also included some modification to be carried on. We were saying that with the usage of AFR the kill output had lowered. So, we wanted to do certain modifications in the cyclone so that we are able to a maintain, high usage of AFR and have in fact get more clinker and maybe some additional clinker. So, while doing so there was a continuous rain which disrupted the working and the overall shutdown was for about 70 days. So, because of that extended shutdown of about 25 days we were forced to even to be in the market and not lose the trade market, we had to even purchase a lot of clinker to feed in the market. So, extended shutdown has not been I mean on the cost front it has not something substantially high. But that has resulted in some additional

Page 5 of 13 period, the clinker which we had to buy from the market. So, that resulted in loss of contribution which is reflected which could be a one-time. The incremental cost was not that high. That was only about 10 to 12 crores in this south plant.

Also, lastly the kcal cost has gone up on a QOQ basis, why would that be?

The kilocalorie cost has gone up during this quarter because one the AFR cost has increased. So, we are seeing that there is a fall in the fuel prices, marginal fall. But the usage of AFR, the AFR supplies, the AFR cost has increased whatever contracted quantities which we had. Now we have again renegotiating. Actually, AFR pricing is also linked to the fuel pricing. So, what they do they always link it to the fuel pricing. Now with the softening of fuel prices we are renegotiating the gap to be maintained between the price of AFR versus fuel. Otherwise, it would not be economical to use the AFR, make all the effort of using the AFR.

So, it's mainly because of AFR cost going up because pet coke cost has gone down in the quarter. Yes, the pet coke prices.

The next question is from Patanjali Srinivasan from Sundaram Mutual fund.

I wanted to understand how much our unit cost of production can go down by in the next couple of quarters because I think from last quarter's base to this quarter, the number has gone up like quite a bit. I think it's up almost Rs. 450 per ton.

No, see this quarter is exceptional because of low volume, so the cost has gone up. When you use your inventory the inventory cost is much higher because it contains an element of fixed cost as per the account. So, all that affects the overall cost of the goods. But if you compare with the normal as we said, if you look at Q1 cost, so sequentially the cost should be reducing. With the fuel prices softening and all, we should see an impact of about Rs. 50 coming up in each of the remaining two quarters.

As in so Q1 FY25 it was 4,800. So, you are saying Q3-Q4 it can drop by Rs. 50. By about Rs. 100 a ton?

So, it can get to around 4,700, is that correct? Yes.

And any region wise could you give us some color on what demand was, any region where demand was not as good as we expected or it was better than what we'd expected during the quarter?

See the demand slip was not so much felt in the central India. There was a dip in demand definitely in the north and the southern part.

Page 6 of 13 The next question is from Ritesh Shah from Investec Capital.

First is any update on Toshali, specifically I'm looking at the limestone, long term supply agreement that we were looking with the government, that’s a first question. So, second question is on the paints business?

In paint business what would you like to know?

Where are we on the paint business right now, the revenue number and the EBITDA number for the quarter and how are we looking at the ramp up of the paints business? And the third is we have indicated a number of Rs. 150 to 200 per ton of cost savings over ‘25-26. Where are we on that journey? These are the three broader questions.

On the Toshali, actually we recently had a meeting with the CM also, our MD and we had because of the change of guard. So, whatever had been discussed earlier, we had to really in a way start afresh. We had a meeting and we had discussed with him and for a long term arrangement and we had a meeting with the Chief Secretary also. I think we should get some their proposal whatever we have submitted their response sometime in the month of December or so. We are hopeful. So, let's see, once we get that we will be able to take a call going forward.

So, once a long-term agreement, see one is they have given an indication cost, it the whole thing, the finalization of this would definitely take some time. But at least it will help us in formulating our strategy for entering into the east and at what is the time frame because as such the only thing is that we want to firm up the arrangement of limestone so that the opportunity for entry into east is there. But immediately we are not going to start that we are clear till we will take a final call where to go for the next investment once we are about to complete the 6 million tons expansion. So, at this stage the only thing is to conclude the tie up for the limestone for entry in the east. As far as paint is concerned, yes, we have done in the….

Our turnover in this quarter was 53 crores and 6 months is 117 crores and the EBITDA loss for the 6 months is 25 crores. Have you scaled up paints business?

Now as we see, October is a main season month, so as we have done a record sale in this month.

As we had a guideline that we should be closing the year somewhere between 250 to 300 crores as a top line. We are confident that we would be in that region on the top line. Our expected loss for the whole year was around 40 crores, so we should be within that range only. And next year we have a plan as a ramp up, next year we have a plan of about 400 crores top line 400 to 450 crores and 600 crores by FY27 where we should be having a break even. And on the cost side?

On the cost side, we had 3-4 levers and the one was on the logistic. So, we are working towards that and I think we have already been able to factor in about Rs. 22 of logistic savings. And we

The next question is from the line of Navin Sahadeo from ICICI Securities.

Before I ask a question just a clarification on the previous question. EBITDA loss you said for the first half was 25 crores, so how much would that be in Q2? Pardon? You said EBITDA loss. I said the EBITDA loss. For the paint business. In Q2 it is 15 crores. And first half one? H1 its 25. Full year it will be around 40? About 40 crores.

My question first question was with respect to the TSR rate. I think previous quarter, as per your presentation I'm saying that there was a decent jump towards end of ‘24 and further it increased in Q1. But in Q2 this has dropped sharply to 13%.

So, see you would see that Q2 being a maintenance period for all the kilns, so that has resulted in a sharp decline.

And secondly, Navin there is one more factor. Actually, earlier we were covering only 9 plants out of the 13. Now we have got the SBTi approval for covering all the 13 plants. So, this data is actually revised for the 13 plants now. That is also a reason for the reduction. So, all the new plants are added now in this.

Page 8 of 13 So, Panna was actually not included and if you look at the AFR usage, in Panna being Indian coal usage that is the plant which uses the least volume of AFR. So, thermal substitution is the minimum and actually the journey has started now after, so first the first thing at Panna was to ensure the full stabilization of the plant. And this quarter the Panna kiln because see nowadays yes, monsoon is there but the monsoon the typical type is that you have very excessive rain for a few number of days. That is something which really disturbs the entire thing. So, as we say onetime loss even in Panna though our brick lining was due in the month of October, from end September which is now there. But this excessive rain when the kiln was closer to the shutdown, it did have an effect on the kiln and we had to run the kiln at a very low output for almost a month and also in between we had to close the kiln for two days, one day and that. So, during the quarter the availability of the kiln was also less. The kiln ran at normal output only for one- third of the month and at reduced output for the balance period. So, all that has also resulted, affected the cost factor, the other things and all thermal substitution and everything got disrupted because of the erratic working during the quarter.

My second question was on the new announcement on two coal block auctions which you have won. So, if you could give more details as to when are these mines you are expecting it to like come into production, what benefits that one can expect from this or is this more like securing?

It is a long-term benefit. It is going to give us substantial benefits going forward. So, we have won two coal blocks, one is Shahdol and one is Mahan, both in Madhya Pradesh. So, the first block is a smaller block, that was that block we have to work from the beginning. The vesting agreement has been done and now we have the full team on board for the block and we have initiated a plan to start work to do the mining lease and the mining evaluation and everything, procurement of land so that we are able to, though the time frame given by the government for commissioning the block is by FY29 but we are targeting at least one year or 15 months earlier.

So, that is the status for the block. The second block which is already partially developed and which is a bigger block that we are in the process and within the month of November we shall be having the entire agreement with the government and we have made out an action plan for what to be done. So, immediately after the agreement, the site would be handed over to us and we should be able to start work at the site. We feel that we are planning that maybe if exact timelines will know once we go to the site. But we plan maybe in 30 months, we are able to commission this block. This commissioning of the both the coal blocks is going to, one secure our fuel especially for the central India which is dependent on linkage fuel and domestic fuel and the fuel cost would be far cheaper. Today we are getting linkage fuel at about Rs. 1.50 paisa to Rs. 1.60 paisa per 100 NCV. This would come at a much lower around Rs. 1 max, outer limit Rs. 1.10 paisa.

So, this can even if not now at least 3 years down the line this….

So, many companies if you look at in that region everybody has a coal block. So, we are fairly at a disadvantage on that concern. So, we will not be at a disadvantage as compared to the competition and maybe if that fuel works out, we are also working out. We can also see whether we can feed some volumes to the northern plants also because it makes a business sense. So, we

Page 9 of 13 have options. But central plant definitely where we have north Line 2 is coming up where the major expansion is there. So, it will secure fuel over there at a very good price.

The last comment, you said no second line north?

No, sorry I said the second line of Panna. So, we are already doing two expansions are there. So, that will become at a single location the largest point for us over 20,000 tons of clinker.

What is the now the game plan for the paints business JK Maxx because now we are already seeing advertisement of JK Maxx Paints on pan India news channels as such. So, if you could first of all just give us that how many touch points are there, how many dealers we have as of now and what is the game plan so that we can get a broader perspective about the paint business?

Does this mean that since the advertisements and these are coming up, there could be a further cost to it in terms of branding and etc.?

So, I will answer the second question first. The branding cost and all as we said is part of 600 crores which we have committed to the paint business. And we would like when the paint business and so there is no further commitment beyond 600 crores. And the total plan from a journey of to close to 300 crores this fiscal and to 600 crores by FY27 is all part of the 600 crores and by which time the business should become self-sufficient. So, that is a plan. You want any further clarifications you let me know.

We will take the next question from the line of Abhishek Poddar from HDFC Mutual fund.

Just one regarding the white cement. We have seen realizations falling in last few quarters. How is the market there? Can you talk about the competitive landscape there, how the margins are doing and where do you see the bottoming out?

The paint manufacturers, especially Asian Paints continues to be very aggressive as far as putty is concerned. And the dip in realizations is only on account of the putty realizations dip in putty.

So, we expect though there has been some correction. I think when we were thinking earlier that in last year March that it has already bottomed out. But the onslaught by Asian continued however after recent in July after announcing some increase in the paint pricing, they also increased some pricing. But still some hidden discounts and other things do continue. We feel that this may have bottomed out but it continues. A putty field continues to be very competitive and Asian Paints with all that they have already taken the #1 position in the putty field. They have become the largest player of though they don't have any production facilities. But they are still the largest seller of putty with a market share of close to about 30% as against 24% for Birla and 22% for us. So, that is the position for the putty. There is a growth for us year-on-year but we are not able to match the growth of which is there by Asian Paints. Not even UltraTech or none of the other putty players are even some paint manufacturers though they are growing but they are not growing at the pace which Asian Paints is growing in terms of putty.

Page 10 of 13 Just one question or more, how do we think volumes here like it is 1.7 last year? Should we think about growth this year and if you can give some guidance that how the industry is growing in this?

So, if you look at the putty should be growing at about 8 to 9. Should grow about at 8% to 9% this year. And we are trying to see that we grow at least 5%, though our internal target is definitely much higher. But as of what it looks anything between 5% to 6% should be our growth numbers.

And just one last question on the grey cement side. Are you already seeing some green shoots in demand? If you can talk about how the season is October is and how do you expect post?

October is definitely much better than what September is. But some of the government spending that has to really come in full-fledged and I think that should come from November onwards.

The next question is from Raghav Malik from Jefferies.

I just wanted to check on the CAPEXs target for the year. Are you still retaining the same target of 1,800-2,000 crores for FY25 given that we've done 500 odd crores in the first half?

No, projects are on stream, and we are maintaining the CAPEXs targets.

The next question is from Prateek Kumar from Jefferies.

My first question is on your profitability. So, you said that realizations have benefited from maneuvering of markets during this quarter. So, next quarter it should normalize like versus industry peers your realization trend versus other peers?

So, next quarter it should match with the industry but suppose industry shows a growth of 3% over the quarter and there is no dip. So, that will not be there. We have to then compare the situation vis-a-vis first quarter and where the industry is standing vis-à-vis is first quarter in this quarter in Q3 and we will be at par with that.

So, we will have a lower realization growth, but will that be offset by better cost performance Q-on-Q?

There will be definite cost performance, there will be definitely improvement in volumes. But now with increased volumes, we will be catering to all the segments because on a medium or long term we cannot afford to lose any segment if we have to maintain the volume growth. In Q2 we did not have the volume because of the maintenance.

One of the large peers talked about realization improvement to the tune of 200 per ton may flowing to EBITDA per ton. So, is that kind of improvement which we should also look at?

Page 11 of 13 We will be at par with the industry, one this realization it will not be that the top players show that realization and we don't show it. If the prices improve, we will be at par, we will not behind any producer.

And the last question on October volume. So, because of festive timing changes it will still be a decline year-on-year for the volumes for the month.

No actually I think we should be showing a growth year-on-year also in October.

The next Question is from the line of Rajesh Ravi from HDFC Securities.

First question pertains to your CAPEXs. You already spent 1,400 crores on consol basis. And you are saying that 2,000 crores is the annual target for FY25. So, are we looking at the second half to be so dull on the CAPEXs?

We have spent 750 crores till now out of the target of 1,800-1,900 crores. From where did you get 1,400 crores?

From the last yearly balance sheet cash flow statement consol cash flow it is 1,400 crores. I was referring to that number. But I think we can clarify this to you. Check this cash flow number.

We will check up because the number what is included will clarify that because the actual expenditure is around 750 crores which is the CAPEXs. But any other thing is in the cash flow it is showing and the all other expenditure is as per the plan because there nothing new has happened. So, we still continue to on the project is on as per the schedule. So, we continue to spend on the project in the same manner. So, that I don't think so and whatever other expenditure which we have done on the normal CAPEXs and all they are as per schedule, there's nothing.

And second on the volume growth, see first half our grey volume is flattish and white volume we have seen 5% decline. You are maintaining 10% volume growth for the grey business for full year. So, are you confident the second half will be able to deliver 20% volume growth in the grey cement business and similarly for white and putty, I suppose you guided 5% growth against 5% decline. So, second half a 10% growth, do you see green shoots good enough to support that kind of volume numbers?

So, in grey as I said earlier that our numbers, we should be anything between 6% to 7%. We are talking about anything, be that the numbers and in case of white, there is no negative growth.

The white if you look at the volume numbers when it is not when the total number, it is year-on- year sales is about 3% growth. See last year Q2 was…

Page 12 of 13 6 months you can. I am referring to 6 months numbers.

Even 6 months it is higher. See we have like combined number of 7,86,000 tons as against 7,61,000 tons 6 months last year. And cash flow also I am looking the consolidated cash outflow on the CAPEXs is 745 crores. Where did you get the number of 1,400? I'll recheck my number.

You please check both the numbers, the white business volume, this, everything.

You mentioned that you are looking at Rs. 50 to 60 savings through logistics and another similar amount of savings you were looking from the inching up of green power share, right? Yes, on use of alternate fuel.

Basically, FY25 and ‘26 total Rs. 150 odd which you are looking over next 2 years, ‘25-26. So, it will be equally split between both the years the savings?

What I said, we should see an exit of about Rs. 60 in March.

On cumulative Rs. 60 rupees in this year?

Yes. So, we should see a broadly a Rs. 60 exit in sometime March and maybe balance we should see in FY26.

Rs. 90 odd you are looking at next for FY26. Yes.

The next question is from the line of Shravan Shah from Dolat Capital.

Just a couple data points. So, blended mix for this quarter and road-rail mix was how much? The rail-road, rail was only 9%. And blended mix? 70%.

And sir for this quarter how much was the incentive that we have booked? It is 58 crores.

Page 13 of 13 And for all the 6 million tons expansion, so previously we said that December ‘25, next December we will be starting so that timeline remains intact or any update there?

By December ‘25/last quarter, end of third quarter, beginning of fourth quarter should be the commissioning.

And also, is it possible to share the fuel mix for this quarter how much was the pet coke, imported coal?

By heat pet coke was around 75% and balance is the alternate fuel and the imported.

And is it fair to say that this quarter, let's say at a consol level if we look at 11.1% kind of EBITDA margin. So, the white cement or let's say whatever way we can look at grey margin would be much lower and white is still higher than this blended average.

You have to arrive at that number yourself. We are not sharing.

Directionally just trying to understand because as you mentioned that the putty, significant competition is there. So, just trying to see whether that margin has also come off decently there also What I would say yes, mean the grey business margins would be marginally lower in this quarter as compared to the white.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Vaibhav Agarwal for closing comments. Over to you sir.

Thank you. On behalf of PhillipCapital (India) Private Limited, we thank the participants for joining the call and thank you very much sir for giving us the opportunity to host the call. Thank you, Michelle. You may now complete the call. We wish you all a very Happy Diwali and a very Happy Dhanteras, thank you.

Thank you everyone for joining and wish you a Happy Dhanteras and Happy Diwali.

Thank you very much sir. Thank you. Ladies and gentlemen, on behalf of PhillipCapital (India) private limited that concludes this conference. We thank you for joining us and you may now disconnect your lines.