ACC : Transcript of Investor Earnings Call - 8th February, 2023

"Ambuja Cements & ACC Limited

Q3 FY23 Earnings Conference Call"

February 08, 2023

MANAGEMENT: MR. KARAN ADANI - CHAIRMAN, ACC AND

DIRECTOR, AMBUJA CEMENTS

MR. AJAY KAPUR - CHIEF EXECUTIVE OFFICER

(CEMENT BUSINESS)

MR. VINOD BAHETY - CHIEF FINANCIAL OFFICER

(CEMENT BUSINESS)

MODERATOR: MR. RITESH SHAH - ANALYST MATERIALS, HEAD

MID-MARKETCOVERAGE, ESG FROM INVESTEC

CAPITAL SERVICES

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Ambuja Cements & ACC Limited

February 08, 2023

Moderator:Good morning, ladies and gentlemen. Welcome to Ambuja Cements & ACC Limited Q3 FY '23 Earnings Conference Call hosted by Investec Capital Services. Please note this call is only for buy-side and sell-side analysts.

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. Ritesh Shah, Analyst Materials, Head Mid-Market Coverage, ESG from Investec Capital Services. Thank you, and over to you, sir.

Ritesh Shah:Thank you, Lizann. I, on behalf of Investec, thank you for joining Ambuja Cements & ACC Limited Q3 FY '23 Conference Call. We shall have a detailed business update from the Management and the way forward.

Today, we have with us Mr. Karan Adani - Chairman, ACC and Director, Ambuja Cements. We also have Mr. Ajay Kapur - CEO of Cement Business; and Mr. Vinod Bahety - CFO, Cement Business.

I will hand over the call for the prepared remarks, post which, we will have a Q&A session. Over to you, Vinod ji.

Vinod Bahety:Thank you very much, Ritesh. Thanks, Lizann. Good morning, all of you. On behalf of Mr. Karan Adani, Mr. Ajay Kapur, myself and on behalf of the Management Team, I welcome all of you. Thank you for joining us today for the analyst call.

Let me provide some highlights of the performance of December Quarter and I will right now discuss on a consolidated basis:

This has been our first full-fledged quarter under the new promoter, Adani Group. The company has in a real sense embarked on a transformational journey, which has resulted in sizable operational efficiencies across all the business parameters and which has resulted in to a good jump in the financial performance quarter-on-quarter.

On the industry level, the cement industry saw higher capacity production with a good pickup in demand during the quarter. We have seen a healthy increase in our top line of around 11%, coupled with a good reduction in the overall cost.

The cost optimization is led by a reduction in the overall fuel cost and which I will take more in detail and the other operational efficiencies. This has helped us to improve the EBITDA margin, which has expanded by 8% from 6.1% to 14.4%.

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Ambuja Cements & ACC Limited

February 08, 2023

A notable point here is also the synergies between both the companies, the parent company, Ambuja, and its subsidiary, ACC, as well as with Adani Group. On the EBITDA level, EBITDA has jumped by 161% at an absolute amount of Rs. 1,138 crores quarter-on-quarter. This is led by a higher revenue base of Rs. 8,036 crores. And we expect this trend to continue in the coming quarters when we will see a full impact of our performance improvement levers.

Net revenue was sequentially up by 11% and year-on-year 4%. With our new capacity of Ametha, which we are targeting, it will be commissioning somewhere in March, and commercial production will start somewhere in Q2. And this did include the 3.3 million tons of, say, clinker capacity and 1 million tons of grinding unit, and also debottlenecking of additional capacity and asset sweating, we expect our top line to be moving healthy going forward.

We have a strong product portfolio, a strong brand, legacy strong brand along with premium products in our core markets. And we continue to have market leadership on those core markets.

Overall, an important factor on a per metric ton, my cost has come down by Rs. 283, which itself give a bump to the EBITDA by Rs. 220 crores. And as I said in my earlier remarks, fuel cost has been a mover in this factor. We expect to optimize further our cost by leveraging the synergies from the adjacency businesses of Adani Group apart from our initiatives on improving overall efficiency factors.

On the volume front, we achieved a growth of 7%. And as I mentioned, the trend continues to be positive on back of the increased CAPEX on the housing, on the infrastructure. Budget has been also very positive for this sector.

On the cost front, some of the key achievements, and these are like the operational factors quarter-on-quarter. Kiln fuel cost has substantially reduced from Rs. 2.84 per 1,000 kilocalories to Rs. 2.45 per 1,000 kilocalories, thereby resulting into an overall decline of say 14%. Logistics costs reduced by almost 6%. And it is now residing at Rs. 1,339 per ton. And we have further more initiatives planned here to bring it down. The raw material cost has come down 5% from Rs. 703 per ton to Rs. 667 per ton.

On a standalone basis, for Ambuja Cements, it has also recorded a substantial jump in the sequential EBITDA by 103% at Rs. 715 crores. The net revenue sequentially up by 13%, and year-on-year by 11%. It stands at Rs. 4,218 crores, and volume is up by 11%.

The robust sequential PAT growth by 166% and Y-o-Y PAT growth by 46% to Rs. 369 crores, which in real sense, the momentum has begun for all the initiatives being taken. EBITDA margin expanded both sequentially and Y-o-Y at 17.5%, while on a consolidated basis, we were at 14.4%, but Ambuja standalone is on a higher side at 17.5%.

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Ambuja Cements & ACC Limited

February 08, 2023

The company remains zero debt, debt-free with a healthy position of cash and cash equivalents close to Rs. 9,500 crores, to be precise Rs. 9,454 crores. This augurs very well for the journey to achieve scale, market leadership apart from the whole idea is to serve on the lowest cost basis in the natural markets.

Working capital remains a key focus area for us. And we have seen a good improvement in the overall inventory, as well as the trade receivables, which have come down, what we say, the DSO, which has come down from 10 days to 8 days.

Ambuja Cements remains committed to achieving significant size, scale and market leadership with strong emphasis on margin expansion. The base has been created in December. And quarter-on-quarter, we are expecting to be better from here, and adhering to the world-class ESG standards. And we will discuss more about the ESG achievements both the companies have achieved.

On the growth part, we remain committed to increasing our waste heat recovery system capacity to almost 190 Megawatts by March 2025 from the existing close to 65 Megawatts as of December 2022, so which is almost 125 Megawatts plans to increase this factor.

We have relaunched our green initiatives of using the waste management under Geoclean. We plan to accelerate higher consumption of waste material. This quarter, we saw the highest ever AFR consumption, which we will continue and improve it further so that the thermal substitution rate of the plant, we achieve to our target of 30% by 2027.

To further strengthen our ESG leadership, Ambuja's sustainability strategy is led by its Sustainable Development Plan of 2030, which we have covered in detail in our Analyst Presentation, which was released yesterday.

Our ESG highlights make us proud. If I just have to give one or two examples, ECOMaxX Concrete, which has been launched to augment green solutions in RMC business, and we see a good growth in the RMC. So, ECOMaxX will help us to have green solutions there.

Significant thrust, I highlighted about WHRS. I mentioned AFR. And of course, we are going to also use the group‟s strength on renewable power. This will help us to improve substantially on our objective of circular and green economy.

Water governance, a key factor, Ambuja is by far the leader, because we are 8 times water positive. And on the sustainable livelihood, women empowerment, rural infrastructure, the social inclusion, we have a very robust CSR initiatives led by Adani Foundation, also Ambuja Foundation. And that is all of them are collaborating very very well.

The company has won several awards recognition for its outstanding work in ESG, the water positivity, the circular economy and CSR, which I won't repeat, because that has been shared in detail in the investor presentation.

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Ambuja Cements & ACC Limited

February 08, 2023

So, let me conclude by saying that our business fundamentals remain very strong. We are well positioned to continue with our growth trajectory and remain market leader in the segment.

Now I request Mr. Ajay Kapur ji also to give a broad overview on the strategy and the way forward. Over to Ajay ji.

Ajay Kapur:Thank you, Vinod. Good morning to everyone. Very happy to address all of you on our first

investor call post Adani Group's acquisition of ACC and Ambuja.

As already highlighted by Vinod and as already, you know, you would have seen our investor deck, what we are trying to achieve is largely a three-step approach.

First is, here and now, we want to improve our operational performance. We had engaged even before we had acquired consultants to work with us. We are very happy to say that all the efficiency improvement projects are now underway. And we expect to start seeing the benefits of improved waste heat recovery, alternate fuels, our flash drying investments, improved clinker factor, product mix, playing on the power of ACC Ambuja brands and also premium products.

We have started relooking at the logistics, which we believe we have a very strong fundamental position in Ambuja with our Western Coast serviced through railway mode. We were one of the pioneers in starting the hub and spoke model of cement grinding units way back 20 years. We are bringing it back with full force. We are taking full advantage of the adjacencies within our Adani Group.

We will be looking at own wagons. We will be looking at terminals and grinding stations in time to come as part of our vision to become the lowest cost to serve. And I repeat cost to serve, because it's not just cost of production. It's also how you reach the market. And then, I would also relay our plan to double our capacity from 67.5 million tons to 140 million tons. And we have already initiated actions in all these areas.

As we say this, we are also, you know, aware that ESG remains a fundamental focus and the pillar on which the entire working and strategy rests. We are mindful of customer excellence. Therefore, we are launching in this leg now the next set of initiatives to service our customers.

We have taken some initiatives in improving direct from factory dispatches. These numbers are already reflected in our last quarter results. We have improved by 5% or 6% the share of direct dispatch from most of our plants and grinding stations.

We are also focusing a lot on improving our limestone reserves, as well as strengthening our resources. A lot of work is going on. We are relooking at the entire mining strategy. We are relooking at our coal mine and also going forward, adjacencies with the group on coal and coal basket, what we call the solid fuel.

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