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Edited Transcript of JKLAKSHMI.NSE earnings conference call or presentation 4-Nov-19 10:30am GMT

Q2 2020 JK Lakshmi Cement Ltd Earnings Call

New Delhi Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of JK Lakshmi Cement Ltd earnings conference call or presentation Monday, November 4, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Shailendra Chouksey

JK Lakshmi Cement Limited - Whole-Time Director

* Sudhir Anna Bidkar

JK Lakshmi Cement Limited - CFO

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Conference Call Participants

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* Amit Murarka

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Anupam Goswami

Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst

* Gunjan Prithyani

JP Morgan Chase & Co, Research Division - Analyst

* Hrishikesh Bhagat

Kotak Mahindra Asset Management Company Limited - Equity Research Analyst

* Jimesh Sanghvi

Principal Asset Management Pvt. Ltd. - Senior Research Analyst

* Madhav Marda

Fidelity Investments - Equity Research Associate

* Mitesh Shah

Ohm Stock Broker Pvt. Ltd., Research Division - Research Analyst

* Niteen S. Dharmawat

Aurum Capital - Co-Founder

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Rajesh Kumar Ravi

HDFC Securities Limited, Research Division - Research Analyst

* Ritesh Shah

Investec Bank plc, Research Division - Analyst

* Sanjay Nandi;Ratnabali Capital;Analyst

* Swagato Ghosh;Franklin Templeton;Analyst

* Vaibhav Agarwal

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the JK Lakshmi Cement Q2 FY '20 Conference Call, hosted by PhillipCapital (India) Pvt. Ltd. (Operator Instructions)

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

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Vaibhav Agarwal, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [2]

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Thank you, Stanford. Good evening, everyone. On behalf of PhillipCapital (India) Pvt. Ltd., we welcome you to the Q2 FY '20 Call for JK Lakshmi Cement. On the call we have with us Mr. Shailendra Chouksey, Whole-Time Director; and Mr. Sudhir Bidkar, CFO.

I will now hand over the floor to the management of JK Lakshmi Cement for opening remarks, which will be followed thereafter by Q&A. Thank you, and over to you, sir.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [3]

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Good afternoon, ladies and gentlemen, and welcome to Q2 con call for JK Lakshmi Cement. Broadly, just to recap the results that you would have seen. Our total production for cement was 17.45 lakh tonnes in the quarter and sales were 20.60 lakh tonnes, which included clinker sale of 1.32 lakh tonnes. These figures broadly, sales (inaudible) 9 35 for the quarter were about 10% higher than the corresponding quarter of last year. Operating profit for the quarter stood at INR 149 crores and including other income INR 155 crores. And after providing for interest, which at INR 38 crores or almost 22% lower than what we had in the corresponding quarter of last year. The cash profit for the quarter was INR 116 crores. And PBT for the quarter stood at INR 73 crores and after tax was INR 27 crores. Tax for the quarter stood at INR 46 crores. In this quarter, we also commissioned the Orissa grinding unit. So with that, our total cement capacity has gone up to -- from 11 -- 10.9 lakh tonnes to 11.7 lakh tonnes. That, together will 1.6 lakh tonnes therefore, we have got total capacity of about close to 13.3 lakh tonnes or thereabout.

Then in the results, you would have seen that we have also given the balance sheet and the cash flow, which has become mandatory. Consolidated results have also been announced. What is important is that our debt equity is now below 1:1 on a gross debt basis on a standalone. On a net debt basis, it is down to 0.77 as of 30th September. And including the subsidiary, which is -- therefore, which is having a debt of about close to INR 500 crores, our debt equity as of 30th September stands at 1.34 on a gross consolidated basis and 1.12 on a net debt basis on a consolidated basis. Broadly, these are the opening remarks.

Now I throw the floor open for the question answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Rajesh Ravi from HDFC Securities.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [2]

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Congratulations on good set of numbers, I would say strong numbers. So first of all, on the few housekeeping numbers that you gave, what would be the RMC revenues in this quarter?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [3]

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Sorry, we are not able to hear you.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [4]

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Sir, what is the RMC revenues in this quarter?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [5]

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RMC revenue. Just hold on. RMC, there has not been any significant change as such, but RMC revenue for the quarter is about INR 38 crores. Yes, 38 -- INR 39 crores. Around the same as was in the corresponding quarter of last year.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [6]

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Last year. Okay. And sir, if you see the realization this year -- this quarter, sequentially, we believe we have seen a significant improvement, 2% sequential improvement, in realization, when the industry overall saw a sequential pull-off in the realization. So what drove our pricing improving sequentially? And on the cost trend, if you could throw some light on how has been the fuel trend and the -- this logistics consultancy expenses through BCG and all? What is the status on those in Q2? Then I'll move forward to the balance sheet questions, please.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [7]

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In the pricing value you have compared to the corresponding quarter last year, there has been some improvement in the pricing, especially in the north India, which helped us. And also with the help of some of the measures that we had taken, which we had conveyed in the last and -- in the previous 2 meetings we've been talking, they have also given us some advantages in terms of reduction of our freight, in terms of higher sale in trade and also in bringing down the OPC sale, et cetera. So I think these measures have also contributed and other is the price increase. Those from the previous quarter, there has been a marginal fall in the pricing, but I think, by and large, the pricing remains the same, consistent where it was for the last 2 quarters.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [8]

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Okay. So I -- referring to June versus September quarter, there is a sequential improvement in the realization. So what drove this improvement because the market over, we understand there is -- because of the heavy monsoons, there's a pressure on both trade and nontrade pricings on a -- obviously, seasonal pressure.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [9]

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Yes, I was -- I think that some of the measures that we have taken, some contributed to the sequential increase in the prices -- in the realization, some of it. Regarding the price, our own, some of the measures have also helped us.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [10]

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Okay. So this -- could we take it as a sustainable pricing, assuming the market prices remain where they are?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [11]

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Yes, they should be.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [12]

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Okay. And sir, on the trade-nontrade mix in this quarter, how would that be?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [13]

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See we have been making improvements quarter-on-quarter. This quarter sequentially, there's only a minor change of about 1% improvement in our trade considering the fact that second quarter, the demand was very, very low, and especially in the east where we suffered maximum volume fall because of the Orissa still going down on account of Fani cyclone. And then the Chhattisgarh, our main market, suffering on account of the heavy rains. So there we had lost some volumes. Because of the volume fall, the leverage to choose between trade and nontrade and be selective, it doesn't work. That's why we have been sort of not able to make substantial growth there. But now we are operating at about 55% trade, which is fairly good, and in the east market, 10%.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [14]

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Okay. 65% on total basis.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [15]

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Not on total basis. This -- total would be about -- close to about 57%, 58%.

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Rajesh Kumar Ravi, HDFC Securities Limited, Research Division - Research Analyst [16]

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57% to 58%. Okay. If I take -- if I may take one last question on the balance sheet. Sir, this quarter, like the half yearly cash flow that we have seen, there is an increase in working capital and the inventory primarily I would -- we would want to understand and also on the ICD, what are these related to?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [17]

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Inventories and receivables are normative increase, which does happen always in the second quarter. That's it. So this ICD is basically investment out of the treasury purpose only. It is -- debt repaid in less than a year's time.

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Operator [18]

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The next question is from the line of Niteen Dharmawat from Aurum Capital.

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [19]

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Congratulations for the good set of number. My question is about the demand in pricing scenarios, especially in Central India. I heard some time back in the last quarter that MP government was having a 0 cement orders roughly. So what is the situation now with respect to the demand scenario?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [20]

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Presently demand has been pretty tough from the beginning of the current financial year, and that's why 6 months, if I see -- if I combine north and east, the overall market has gone down by about 4% to 5%, there is a fall. And if I -- if in these 2 zones, in fact, the house industries where we operate, then the cumulative fall is about 7% to 9%. That is the fall. And now that is mainly on account of the fact that the previous year, the mainstay of the demand was the infrastructure, the government-led expenditure. This year, it has got very badly impacted. The first quarter got affected because of the elections -- because the government departments were working only on that -- at half budget. And then even after the government formation, so far not much funds have been released to the infrastructure. So I think that is where we are. And of course, real estate continues to remain in difficulty, so the only area where there has been a scope to increase the consumption is the private consumption, private housing. But that this year has got very badly impacted on account of heavy rains in most of our markets. So we are now quite hopeful that with all these things over, and the government should also got -- if they get that to the targeted road, building, et cetera, the demand should be very good in the remaining 5 months, but this is only right now the expectation. These things will get clarified more so in the fortnight or 2 to 3 weeks' time.

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [21]

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Got it. Sir, my second question is about this thermal power plant that you commissioned during the last quarter. So what is the cap utilization now? Has this got the stability of the operations there?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [22]

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Yes, stability is there, but unfortunately, now with the ban of petcoke, we're required to use coal. So there, obviously, the savings which we had originally envisaged using the petcoke, those are not there. Stabilization is there, but it is working out to be expensive. So maybe once we get the linkage next year, then it will throw some -- basically some saving in the terms of the power and fuel costs. Otherwise, it is not that very viable as far as the coal cost is concerned, as it stands today.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [23]

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Once the freight prices get increased. Then relatively, it becomes cheaper.

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [24]

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Okay. Sir, my final question is, what is the consolidated debt now?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [25]

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Consolidated?

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Niteen S. Dharmawat, Aurum Capital - Co-Founder [26]

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Debt?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [27]

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Consolidated debt on a gross debt basis as of 30th September is INR 2,100 crores and net of that is INR 1,750 crore.

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Operator [28]

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(Operator Instructions) The next question is from the line of Madhav Marda from Fidelity Investments.

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Madhav Marda, Fidelity Investments - Equity Research Associate [29]

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Sir, just one quick question. Wanted to understand about your expansion plans. If there is anything, if you're planning brownfield or greenfield? And if we have any limestone available for any expansion in any other parts of India?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [30]

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Yes. We have capabilities at all the 3 locations, Udaipur, Sirohi as well as Durg for brownfield expansion. So we maybe in 6 to 9 months' time, we'll announce some project, brownfield only. Greenfield, we don't have any plans.

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Madhav Marda, Fidelity Investments - Equity Research Associate [31]

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Okay. And what is the scope for the brownfield expansion given the limestone that's available at each of the locations or total...

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [32]

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We can have 1 line at each of the 3 locations, including that new expansion. The limestone reserves are adequate for another 30 to 40 years at all the 3 locations. So depending on the demand supply in various zone, we'll announce that.

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Madhav Marda, Fidelity Investments - Equity Research Associate [33]

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Okay. And how much would be the cost typically for a brownfield expansion?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [34]

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Brownfield would be anywhere between $85 to $95 per tonne.

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Madhav Marda, Fidelity Investments - Equity Research Associate [35]

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$85 to $95. Okay.

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Operator [36]

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(Operator Instructions) The next question is from the line of Gunjan Prithyani from JPMorgan.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [37]

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Just a follow-up on this volume growth. You mentioned about the region volume growth put together for your regions. Could you give sense on how did north fares separately and how east fared? And where are we in terms of utilization levels for these 2 markets?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [38]

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We are not normally giving the figure for our -- separately for north and east, but as far as the general market sales is concerned because we were -- we are majorly confined into Chhattisgarh and Orissa, we had quite a steep fall in east because of the cyclone as I mentioned earlier, Fani, in Orissa, and the heavy rains in Chhattisgarh. So the east was more impacted in terms of volume than the north.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [39]

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But north, what would have been -- I am not, I mean, specifically asking your volume, how was the split, but I'm just trying to get sense, how -- I mean how positive was the volume growth as per you in the north region?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [40]

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Q2 was lower even in north. Combined all the states, there was a fall of about 4%.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [41]

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Okay. 4% fall. Okay. And the other follow-up I had was on the EBITDA per tonne or the cost difference, whatever you can share between the east and the north operations now.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [42]

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That we generally don't give separate cost or EBITDA per tonne. Overall for the company, you're aware.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [43]

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No, but I'm just asking on the cost side, is there -- how much is the variation between the cost -- in the east operations and the north operations?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [44]

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Cost wise, basically, Durg is slightly higher as of now because of that coal cost and all that, but differences just narrowed down because the efficiency parameter what we have been able to get into Durg are also close to what we have in Sirohi. So cost difference has not been much, hardly INR 100 to maybe INR 120, that's all.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [45]

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And there are no additional cost levers, which are -- which you expect should play out on the east operations further.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [46]

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No. Frankly, no as of now. But once that some saving could come, but that is still a year later when that conveyor belt gets commissioned and all that. That's all. Other than that, there's no specific cost advantage to -- further cost advantage to Durg as compared to Sirohi.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [47]

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In the coming quarter, the -- if your question is, what is the sort of headroom? Then I think the obvious is that there should be a volume ramp up in the coming quarter in the east, which we suffered heavily. So I think that situation will be better, so then your cost per tonne, obviously, gets reduced.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [48]

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Okay. And just last question, I'm not sure -- there was this cap rate on the prices, is that still applicable? Or I mean, of course, the market prices may be probably are lower than that, I don't know, but is that cap still applicable? Or that's been done away with?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [49]

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Gunjan, you very rightly said that the prices are lower than what that cap rate one-time was. So therefore, one has really not worked on with the new government to see that perfect cap does not exist. But I think currently, the situation is how do we really improve the pricing situation. And that will happen as a coronary to the demand increase, which would -- which we expect will come out. If that happens, then I'm very sure we can work towards the -- removing the artificial barriers also.

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Operator [50]

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The next question is from the line of Jimesh Sanghvi from Principal Asset Management.

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Jimesh Sanghvi, Principal Asset Management Pvt. Ltd. - Senior Research Analyst [51]

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Sir, if you can throw some light on your power and fuel cost on a per tonne basis that has seen an increase on a sequential basis. So any particular reasons why it has gone up and probably the petcoke and the coal prices are softening in the domestic market?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [52]

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This quarter, we had taken some shutdown because of the clinker inventory. So as a result, our WHR consumption or the generation was lower. That resulted in the cost going up. So otherwise, it will be back to the earlier quarter going forward.

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Jimesh Sanghvi, Principal Asset Management Pvt. Ltd. - Senior Research Analyst [53]

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In terms of -- okay, fine. So can you put a number to that as such what could be the hit?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [54]

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Back to the first quarter number.

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Operator [55]

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The next question is from the line of Sanjay Nandi from Ratnabali Capital.

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Sanjay Nandi;Ratnabali Capital;Analyst, [56]

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Sir, can you just guide us on the current volume growth scenario prevailing in these -- for the last month of October?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [57]

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Yes, we have seen some volume growth in the month of October, but I think the full impact will come in November and December because October also had the Diwali impact. So while we have -- there is an improvement in the volume, but I think it's only indicative, and real time may not be very substantial because the -- because of Diwali, there is almost 3 to 4 days of very poor dispersals, the trucks don't come.

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Sanjay Nandi;Ratnabali Capital;Analyst, [58]

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Okay. And sir, do you feel like in the second half would -- was more better compared to the first half?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [59]

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Yes, certainly, second half was better, barring just Diwali.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [60]

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Traditionally, also, we see -- always see the second half better than the first half. So we hope that this year also it will be the same.

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Sanjay Nandi;Ratnabali Capital;Analyst, [61]

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And sir, what is the pricing outlook? Like the prices are holding the exit price for first half? Or they are just cracked in the month of October?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [62]

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No, no. The prices have -- by and large, there was a minor fall in the prices of the markets in October from September, but I think they have been -- thereafter, they have been holding. And once the demand picks up, we are very hopeful that some price correction will take place.

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Sanjay Nandi;Ratnabali Capital;Analyst, [63]

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Okay. And sir, how long will that petcoke price fall will be priced-in in our power and fuel cost? Like this time, we have captured that thing or it will again be reflected in the second half as well?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [64]

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It will get reflected in the second half as well.

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Sanjay Nandi;Ratnabali Capital;Analyst, [65]

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Sir, can you just quantify the amount. Like what kind of figure that might get reflected in part turn costs?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [66]

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Already, there has been a reduction. You would have seen in the current quarter, we were at 7,500 as compared to 8,700 in the corresponding quarter last year. If one were to see on a sequential basis, in the first quarter, it was 7,800. That is already down by 300, so there may be a marginal drop thereafter also in the coming quarter.

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Operator [67]

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(Operator Instructions)

The next question is from the line of Swagato Ghosh from Franklin Templeton.

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Swagato Ghosh;Franklin Templeton;Analyst, [68]

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Sir, for this quarter, how much was premium sales as percentage of total?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [69]

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Premium sale was more or less about -- we are currently at about 8% to 9% of our total volume in the premium that we are maintaining.

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Swagato Ghosh;Franklin Templeton;Analyst, [70]

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Okay. Which brand, sir, that fall under premium?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [71]

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The PRO+.

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Swagato Ghosh;Franklin Templeton;Analyst, [72]

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Okay. Okay. And sir, what was this number, say, 2, 3 years back, like I'm just trying to understand if you have improved from those levels?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [73]

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Yes. See, we introduced it about 4 years back, and gradually, we have ramped up. So if you were to see, say, last year number, it would have been about 6% and year before that would have been 5%. So every year, we are making an improvement there.

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Swagato Ghosh;Franklin Templeton;Analyst, [74]

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Got it. And sir, that BCG project on the logistics cost optimization, I think that BCG's work is done, but we have not realized the advantages. Is that fair? Or have you already...

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [75]

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See we have realized -- the freight was not only from logistic cost, it was for overall improvement of the efficiency. Logistic was a large piece that we are undertaking. So what we have only said last time that there will be some benefit still to be accrued more out of this. So it will be wrong to assume that there has been no impact in the last quarter. We have got gains out that project, and we will continue to gain every month something or the other from it.

Yes, Mr. Ghosh, could you hear the answer for the last question as you were talking about the saving on the freight?

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Operator [76]

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Mr. Ghosh, you may go ahead. The line from Mr. Ghosh has dropped. We take the next question from the line of Pritesh Sheth from CRISIL Limited.

Pritesh Sheth from CRISIL Limited, your line is unmuted. Please go ahead with your question.

Pritesh Sheth from CRISIL Limited, please unmute the line from your side and go ahead.

As there is no response, we take the next question from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [77]

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Sir, my first question is, so this 1.3 lakh clinker sales, was this in -- I mean, which region of operation? Or is it in both the regions?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [78]

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Majorly into north, but some quantity in east also.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [79]

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Okay. And sir, as you said, so this -- we had like a 3% decline in volumes. That is correct, 2.06 million volumes. So -- and on comparison, we have seen some growth in October. That's what you said.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [80]

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Yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [81]

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Okay. And regarding this, there was this -- this question was discussed previously on -- like we have a sequential improvement in pricing by around 2%. So did that had a meaningful impact on Gujarat pricing where we also saw some 20%, 25% volumes?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [82]

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We said Gujarat prices are slightly affected. In terms of volume increase, I think we will see the full impact in November and December. There was a subdued impact in Gujarat as far as volume is concerned, but now we are very hopeful that -- I'm talking about October, compared to October, November, December are usually much higher because the Diwali impact is also highest in Gujarat.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [83]

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Okay. No, sir, previous quarter I was asking that the benefit of the higher realization quarter-on-quarter because we said also that there was a slight dip in trade segment sales also. So despite that, we had an improvement in last quarter on a sequential basis. So if there is any specific region, which added to growth?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [84]

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Yes, we could increase, I think, everywhere, including Gujarat and north, both.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [85]

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Okay. So it was company-specific initiatives, probably not industry-specific?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [86]

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Right, right.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [87]

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Okay. And sir, our logistics cost has now fallen to below INR 900 per tonne, which was like, I mean, which we used to have around into FY '17 sometime, so this reflects the benefits of BCG consultation.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [88]

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Yes. Partly, yes. And partly, also, because our clinker sale is going down. So when the clinker sale is mainly on the -- are booked on 0 freight, mostly sold on expected uses. So when you see the numbers, the clinker freight tax added and therefore on the total volume, the impact of clinker sales going down also is seen in the number of -- the amount of the freight.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [89]

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Okay. And sir, what was our consolidated volumes for the quarter and like for 1H period?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [90]

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Sorry?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [91]

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Sir, consolidated volumes, including UCW and excluding intercompany sales?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [92]

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Consolidated, for 6 months -- you want for the quarter or 6 months.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [93]

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We have both on, sir?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [94]

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Do you want quarter or 6 months?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [95]

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Sir, both of them, quarter as well as previous quarter as well.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [96]

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Hello?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [97]

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Sir, current quarter as well as Q4, Q1 as well.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [98]

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(foreign language) they analyze quarter-on-quarter.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [99]

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Yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [100]

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Yes. Yes, sir, I'm there on the line.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [101]

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First of all, what was your question, last question, which we missed out?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [102]

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Sir, I was asking what was our consolidated volumes for the quarter and for previous quarter as well.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [103]

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For this quarter, it is -- for JK Lakshmi, it was 20.6 lakh tonnes, 6 lakh tonnes was Udaipur. So 26.6% was there on a consolidated basis for the quarter. And for 6 months, they had 53.88 lakh tonnes is the total, including Udaipur also -- almost 9.9 lakh tonnes, 10 lakh tonnes (foreign language). So 43.9 lakh tonnes is consolidated for JK Lakshmi standalone and 10 lakh tonnes for Udaipur makes it 53.9 lakh tonnes

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [104]

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Correct. And then just one last question. Your fuel mix, I mean, for the consolidated operations? And if there's material difference between north and east?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [105]

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Now we are using almost 90% petcoke here in the north and in the regional operation, and there it is around 65%.

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Operator [106]

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The next question is from the line of Anupam Goswami from Stewart & Mackertich.

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Anupam Goswami, Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst [107]

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Sir, congratulations on a good set of numbers. My question is what is your outlook on the realization for the whole year? As we kind of sense that the -- in first 6 months, the demand has been pretty weak in the industry. So how the demand would outsold in the next half and how the realization will stick out? If you can give some idea on that.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [108]

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So we are expecting that in the next 6 months, there should be a pickup. So while it may not still come to the level of last year second half, but it certainly would be better than the first half of this year. So normally, the first 6 months, constitutes about 40% to 45% of the yearly and 55% to 60% is the volume in the second half. So I expect the same sort of a ratio would be there this year too.

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Anupam Goswami, Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst [109]

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Okay. And sir, on the realization front, how do you see for the whole year?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [110]

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Well, realization is only a guesswork. And also, if you ask a manufacturer, part of his ritual thinking is also there. So I think if I were to look at it very broadly, I would expect, certainly, the second half to be better by say, if not anything, by about INR 100 a tonne higher than the first half.

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Anupam Goswami, Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst [111]

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And sir, you mentioned about the east, there has been a sharp drop in the demand. Sir, how is it going to recover from in the second half? Or have you seen any recovery from the October month itself?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [112]

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Yes, we saw some recovery from about 5th of October to 25th of October. But thereafter, the Diwali, there was almost -- so if you see the gross monthly figure, you may not see much improvement over like 1 year, 2 year. While last year, the Diwali was in November, so I think one must actually see a combined of October, November, this year versus October, November of last year. Then I think we may end up at very close to that number. So there will not be actually a growth of -- over the last year, but there certainly will be a growth compared to the previous 6 months.

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Anupam Goswami, Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst [113]

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Sir, if you can quantify the drop you are seeing in the east for you?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [114]

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Drop, well, I can only tell you about the market. Market, we have experienced a lower value minus of about 9% to 10% in the volume there as far as general -- the market -- the industry is concerned.

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Anupam Goswami, Stewart & Mackertich Wealth Management Ltd., Research Division - Research Analyst [115]

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9% to 10% drop in the east, in the market.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [116]

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Yes.

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Operator [117]

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The next question is from the line of Hrishikesh Bhagat from Kotak Mutual Fund.

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Hrishikesh Bhagat, Kotak Mahindra Asset Management Company Limited - Equity Research Analyst [118]

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Sir, what will be your CapEx for this year? And secondly, can you help us with the likely debt figure at the end of year for standalone as well as Udaipur?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [119]

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This -- the CapEx for this current year is, in the first 6 months we have spent about INR 50 crores, another INR 25 crores, INR 30 crores will get spent because all our projects are over. There won't be any project-related CapEx, only normative CapEx is there. So that is as far as the CapEx is concerned. And to answer your question regarding the debt, we will see a further reduction of about INR 125 crores to INR 130 crores debt both on consolidated as well as on a standalone basis. So -- figures, so whatever we have just reported will be lower by about INR 150 crores -- INR 130 crores to INR 150 crores maybe.

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Operator [120]

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(Operator Instructions)

The next question is from the line of Ritesh Shah from Investec.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [121]

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Sir, my question is, how should we look at the balance sheet ratios? You did indicate that we're looking at INR 130 cores of net debt reduction. But you also said like in 6 months, we'll be looking at certain expansion, a brownfield one. Sir, so how should we look at the balance sheet in context?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [122]

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When I say, we will be announcing some projects, so on the date of announcement, we don't contract the loan immediately, no drawal is there. So I don't see any fresh drawal of loan for the new CapEx which we may announce towards the year-end. So that INR 150 crores reduction would be there as of the March '20 figures of the debt.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [123]

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So sir, is it fair to assume like we are looking at, say, around INR 1,600 crores of debt -- end of the year, INR 1,600 crores, INR 1650 crores of debt at end of the year and that will be peak debt for us?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [124]

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Peak debt already happened 2 years back, but now INR 1,600 crores is on the consolidated basis, you're right. On a stand-alone, it will be about INR 1,100 crores. So after that, maybe next year, we may contract some loans for the new project, new expansion.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [125]

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Okay. That's helpful. Sir, secondly, if you could quantify how much is the intercompany sales for clinker and cement between UCW and JK Lakshmi? And how is it helping on the cost side because I understand there is clinker moving from UCW to JK Lakshmi's grinding units in Gujarat? So sir, what are the benefits? And I think at a point in time, long back you had stated that a premium grade cement will only be pushing from UCW plant. Sir, if you could please help understand this part a bit better?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [126]

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Basically, the idea of production rationalization is to reduce on the logistic cost. So if Udaipur is to sell some product in Gujarat, they might as well procure it from our grinding units and instead of moving cement there, move only the clinker. So that is only production rationalization, which is happening. Vice versa for JKLC, if they were to sell more in the north, they may do it from Udaipur.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [127]

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Okay. Sir, can you quantify the clinker movement and the cement movement over here? Sir, something like the clinker, which...

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [128]

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I don't have the figure. We can take that off-line. I don't have the figures readily.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [129]

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Sir, last question. Sir, what is the trade, nontrade price differential right now in northern markets and in the eastern markets?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [130]

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See the -- you are talking about the difference in the price during the trade and nontrade in both these markets?

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [131]

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Yes, sir. Because normally, when the differential is very high, we typically see prices actually go down. So sir, just wanted to understand where the differential is right now.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [132]

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See while the trade prices, there's a pattern; in non-trade prices, the individual orders vary substantially. So -- but it's still to -- so it's very difficult to really generalize. There are orders invoiced on which have gone to as low as even INR 190 or INR 200. But by and large, what we are giving there is about INR 240. So while the trade would be anywhere around INR 275 to INR 280. So in the north, the price difference between the trade and nontrade would be easily about INR 30 to INR 40 a bag. In east, this gap is slightly lesser. There the gap would be about INR 20 to INR 25 a bag.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [133]

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This is helpful. And sir, last question, which are the additional capacities that we expect to be commissioned over next 6 to 12 months in our northern markets and the eastern markets that we cater to including the grinding units?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [134]

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The true capacities, which have come for clinkerization and I'm sure you are aware of it, one is JK and the other is Wonder in the north. And in the east, it is Dalmia Cement, but it is Orissa. Other than that, there's no capacity, which are expected to go online next 6 -- in this financial year in both these markets. As far as grinding is concerned, the -- both JK and Wonder, their grinding capacity, there is still a gap. JK's Aligarh grinding unit is expected to come, that's what we believe from the market. It's expected to come in about 2 months' time, while Gujarat unit is going to take some time to come, about 6 months' time. In case of Wonder -- they are planning a grinding unit in Haryana which, to my mind, will not take less than 1.5 years. The other is in Madhya Pradesh, which will take another about 6 to 8 months. That is a position of the north. In east, I'm not aware of any fresh grinding capacity immediately coming up, except for those which are pending commissioning in Orissa. We have commissioned. Shree has to -- yet to commission. And Ramco capacity expansion at West Bengal has already taken place, but Maha griding capacity in Orissa is yet to come.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [135]

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Correct. Sir, that's very helpful. Sir, last one question. Will we be looking at inorganic growth going forward?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [136]

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Yes, we are currently looking only organic growth by way of ground drilling, as Mr. Bidkar explained, in all the 3 areas. But then, yes, for any inorganic growth, either I develop or I buy up the limestone mine rights through a new auction, which have not yet materialized. Secondly, our acquisition. So we are -- while we are constantly on the lookout for acquisition, but currently the pricing being demanded in the right market we find is the pricing are not justified.

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Operator [137]

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The next question is from the line of Amit Murarka from Motilal Oswal.

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Amit Murarka, Motilal Oswal Securities Limited, Research Division - Research Analyst [138]

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Just a couple of questions. One, the east grinding unit that you've commissioned. So as you also highlighted and what you also understand is that there's too many grinding units coming up in east. So how do you think the competition will be in the region? And how do you plan to ramp up your utilization in this unit as well as generally speaking?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [139]

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Yes, I think the utilization ramp-up would be comparatively slower in Orissa at this point of time because of the number of units coming up. You are right. But that does not mean that you will not get the benefits of the new grinding units as the freight saving would be considerable there. So I think any price fall, if at all, because of the excess capacity coming up, should be more than justified by the freight saving. Secondly, the prices there are already at such an end, at their low level, there is not much of headroom for prices to come down still lower without the people selling below their variable costs. So that's why I'm not unduly pessimistic about the Orissa grinding units.

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Amit Murarka, Motilal Oswal Securities Limited, Research Division - Research Analyst [140]

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Okay. So why I asked that also because Shree has -- is going to commission again. And then, obviously, Dalmia is also coming up and all of these are aggressive players in the market. So just in that context, I wanted to understand, like, what will be the strategy? Or how do you think your utilization will pan out over there?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [141]

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Yes, as I already mentioned that because of the excess capacities coming there, Orissa market is a challenge, but what it totally means is that the -- either the Orissa becomes a hub for supply to other markets, the neighboring states, or the ramp-up would be slower because you cannot -- whatever prices you keep, you cannot supply more than the demand of the market.

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Amit Murarka, Motilal Oswal Securities Limited, Research Division - Research Analyst [142]

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Okay. Sir, how much will be the fixed cost addition because of this grinding rate? I don't think it will be much, but still?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [143]

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They won't be much big.

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Amit Murarka, Motilal Oswal Securities Limited, Research Division - Research Analyst [144]

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Yes. Okay. And lastly, on the tax rate, like have you decided about, I mean, whether you'll be continuing with the old tax rate? Or how is it?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [145]

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We would continue with the old tax rate because of the MAT Credit Entitlement, which is sitting in the balance sheet of about INR 180 crores, which in the event of you opting for a lower tax bench laps, so it doesn't make sense to switch over as of now. We'll exhaust that first and then taken a call thereafter.

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Operator [146]

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The next question is from the line of Madhav Marda from Fidelity Investments.

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Madhav Marda, Fidelity Investments - Equity Research Associate [147]

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Sir, this is a fairly more broad question.

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Operator [148]

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Excuse me, this is the operator. Mr. Marda, may we request you to use your handset, please?

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Madhav Marda, Fidelity Investments - Equity Research Associate [149]

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Yes, is it better now?

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Operator [150]

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Yes. Thank you.

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [151]

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Yes.

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Madhav Marda, Fidelity Investments - Equity Research Associate [152]

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Yes. Sir, just wanted to -- a basic question on the industry as a whole, in east India or regions like east India where there is a lot of slag or fly ash and these kind of materials available where blended cement as a concept is picking up in a big way. Is clinker really that important for making cement in India anymore? Or -- because we've heard of blending up to 50%, 60% in the cement. So will clinker be as important as it was, say, 20 years back versus today?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [153]

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Yes, you are right. See, gradually the blending cement ratios would get improved. But I think the fact that you still require about, on a weighted average basis of about -- on flat basis about 50%, and on PPC basis about 70% clinker, there is still a lot of relevance of clinker. Secondly, the freight and the rate of these materials is really -- sometime the -- when they realize that the -- you're overtly dependent on fly ash or slag, there cost goes up considerably. We have experienced this in the east. The cost of the fly ash went higher than the cost of the clinker. So while on clinker you have a -- because it's your own production, you have some handle on the costs. But when you are buying from an outside source, especially slag, then you do not have a handle on the price. It can go up any time. Second issue is the location. Most of the plants in the north are only dependent on the fly ash. Now we all are experiencing the fly ash shortage from time to time, either because the fire houses are not having adequate coal or because they can consume like it is one below. So I think it's dependent on so many factors, so therefore the relevance of clinker cannot be wrest away. Does that answer?

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Madhav Marda, Fidelity Investments - Equity Research Associate [154]

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Yes, sir. So I agree with you probably. Incrementally, sir, do you think the blending ratios could go higher from here? Or you think we've reached the peak of blended cement or the clinker factor as we call it?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [155]

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Sorry, but it's -- you see the attempt is to take -- increase your conversion factor. I mean reduce your clinker dependence, but the fact of the matter is that there are certain markets in the nontrade cement, which are still dependent only on OPC. And at large, even if you have slag of at par, there's hardly sale -- any sale of slag cement there. And for that matter even PPC is much lower than most of the other cement. So OPC is still considered a very high percentage. We are present in Gujarat, so we have a slightly lower conversion factor than the other pan-India players.

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Madhav Marda, Fidelity Investments - Equity Research Associate [156]

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Got it. Sir, if I can just ask one last question. Why are certain nontrade markets or government projects demanding OPC rather than blended cement? Is there a particular reason in terms of product quality or something like that, that suits their project more? Why is that, sir?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [157]

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I think it's more a matter of mindset than the quality. In Gujarat because it has suffered 2 earthquakes and immediately after the earthquake the government mandated use of OPC in the earthquake-prone areas, so the mindset is that the cure is only OPC for a solid structure. So while industry has worked a lot on -- ruined that sort of a belief but still it -- it carries on in their mind.

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Operator [158]

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Ladies and gentlemen, due to time constraints, we will be able to take the last 2 questions.

We take the next question from the line of Mitesh Shah from Ohm portfolio.

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Mitesh Shah, Ohm Stock Broker Pvt. Ltd., Research Division - Research Analyst [159]

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Sir, you indicated the gross debt -- you indicated the gross debt at INR 2,100 crores for a consolidated entity? Can you indicate for standalone, how much is the gross and net?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [160]

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On a standalone basis, gross is INR 1,560 crores and net is INR 1,234 crores as of September 30.

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Mitesh Shah, Ohm Stock Broker Pvt. Ltd., Research Division - Research Analyst [161]

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Okay, sir. And sir, generally, looking for the brownfield expansion, what typical size do we look at for 2.5 million, 3 million tonne, brownfield expansion?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [162]

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Yes, 2.5 million. Around 2.5 million.

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Mitesh Shah, Ohm Stock Broker Pvt. Ltd., Research Division - Research Analyst [163]

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That will be on cement side, right, to understand?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [164]

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Yes, yes, yes.

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Mitesh Shah, Ohm Stock Broker Pvt. Ltd., Research Division - Research Analyst [165]

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Okay. And what you indicated $85 to $90 would be for cement -- when you indicated brownfield expansion will cost $85 to $90 that will be for -- it will be for an integrated plant, right?

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Sudhir Anna Bidkar, JK Lakshmi Cement Limited - CFO [166]

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Yes, yes. For the 2.5 million, yes.

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Operator [167]

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The next question is from the line of [Simran P.] from India Ratings.

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Unidentified Analyst, [168]

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Sir, I would like to know about the industry outlook for the coming 6 months based on your expectations, how much does...

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Operator [169]

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This is the operator. [Simran], may we request you to use your handset, please. We couldn't hear the question.

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Unidentified Analyst, [170]

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It is -- I'm using the handset. Can you hear me now?

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Operator [171]

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Yes.

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Unidentified Analyst, [172]

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So should I repeat the question again.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [173]

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Yes, please.

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Unidentified Analyst, [174]

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Sir, what is your expectations as for the industrially outlook is concerned? Like, will it go up, perform better than the last year, second quarter, like, the second half? Or is it going to be remaining the same, basically?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [175]

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I'm not expecting industry to perform on volumes in the second half. No, it would remain below last year's second half, but certainly better than the first half of the calendar year in terms of -- I'm talking in terms of volume.

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Unidentified Analyst, [176]

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Okay. And sir, realizations, it's going to remain sustainable?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [177]

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Yes. We are expecting that the prices should remain sustained for the simple reason that if we -- the volumes have to move up from the first quarter -- first half, then the propensity to drop the price is not there.

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Unidentified Analyst, [178]

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Okay. Sir, so you are saying that the volumes will not drop. Right?

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [179]

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Yes, right.

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Operator [180]

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Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vaibhav Agarwal for closing comments.

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Vaibhav Agarwal, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [181]

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Yes. Thank you. On behalf of PhillipCapital, I would like to thank the management of JK Lakshmi for the call and also many thanks to callers who are joining the call.

Thank you very much, sir. You may now conclude the call, Stanford. Thank you.

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Shailendra Chouksey, JK Lakshmi Cement Limited - Whole-Time Director [182]

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Thank you. Thank you.

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Operator [183]

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