Ambuja Cements : TRANSCRIPT OF INVESTOR EARNINGS CALL - 2 MAY 2023

"Ambuja Cements & ACC Limited

FY23 Earnings Conference Call"

May 02, 2023

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

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

MR. CHARANJIT SINGH - HEAD INVESTOR RELATIONS

• AMBUJA CEMENTS & ACC LIMITED

MODERATOR: MR. NAVIN SAHADEO - ICICI SECURITIES LIMITED

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Ambuja Cements & ACC Limited

May 02, 2023

Moderator:Ladies and gentlemen, good day and welcome to the Ambuja Cement and ACC Limited FY23 Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo from ICICI Securities Limited. Thank you, and over to you, sir.

Navin Sahadeo:Good evening, everyone. On behalf of ICICI Securities, I welcome you all to the FY23 Earnings Call of Ambuja Cement and ACC Limited. From the management, we have with us CEO Mr. Ajay Kapur, CFO Mr. Vinod Bahety, and Head Investor Relations Mr. Charanjit Singh. So without any further ado, I hand over the call to Mr. Charanjit Singh for his opening comments. Over to you, Mr. Singh.

Charanjit Singh:Thank you, Naveen. Good evening, everyone, and thank you for taking out the time to join our FY23 full-year results call. As you very well know, this is our second results call after the change in ownership. And much like the previous call, we'll focus on the performance of Adani cement business, particularly Ambuja and ACC. Hoping that you have downloaded a copy of the results presentation that has been released an hour back, some of the slides from that deck will be referred during the briefing session, which in next few minutes. For any queries and questions relating to promoters or another company of the Adani group, you can separately reach out to me and I'll schedule a call with the group CFO or with the family office, as may be required. So with this, I will now hand over to Mr. Ajay Kapur for his comments regarding the performance of the two companies. Over to you, Ajay.

Ajay Kapur:Thank you, Charanjit. Warm greetings to everyone. Thank you for joining us today for the operational and financial performance of the cement business of Adani group, namely Ambuja Cements and ACC Cements, for the quarter ended March 23. This is the second quarter post the change in management, and we are happy to share that the efforts taken to improve the overall performance of our business have started to yield results. It has been another exciting quarter to see our progress on various initiatives, such as operational efficiencies, synergy and business excellence, which have resulted into substantial improvement in business parameters.

Last quarter, we set out on a challenge to redefine the supply chain and logistics for our business. We are happy that we reached a positive outcome in the state of Himachal Pradesh to address the logistic challenge faced by our company. Through perseverance, hard work and steadfast commitment to our values, we have emerged stronger than ever before. Let me provide some highlights of this quarter and some insights on the way forward. Starting with the revenue, the revenue for the quarter came in at INR7,966 crores, up 1% quarter on quarter.

The growth in revenue is despite the adverse impact on volumes from halting of operations at our HP plants for both Ambuja and ACC for 50 days in the current quarter, and also a small breakdown which we suffered in one of our grinding units in eastern region. The share of blended cements has increased to 92% versus 91% quarter on quarter and a share of premium products as a percentage to trade sales and volume is maintained at 22%. Now coming on the cost, operating cost of the quarter is INR4,764 per ton, which is 5% lower quarter on quarter. This is

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Ambuja Cements & ACC Limited

May 02, 2023

attributable to 18% decline quarter on quarter in power and fuel cost, mainly driven by the kiln fuel basket, where the reduction is 10%, from INR2.45 per 1,000 kcal to INR2.21 per 1,000 kcal.

The share of direct sales has increased from 50% in the quarter to 54% in the current quarter. The rail coefficient increased from 26% to 30% Q-o-Q. Other expenses is at INR702 per ton, which is 8% lower quarter on quarter on account of resource optimization. With the mentioned improvements on both revenue and cost, EBITDA for the quarter came in at INR1,523 crores, which is a jump of 34% quarter on quarter.

EBITDA per ton for the quarter was INR1,079, implying a jump of 30%. EBITDA margin too expanded by 470 bps to 19.1%. The total fund flow from operations during the quarter was INR1,571 crores, which was negative 627 crores last quarter, basically implying an increase of 2,198 crores quarter on quarter. Working capital remains the key focus, and there has been an improvement in the working capital management during the quarter.

And the working capital turnover has improved by eight days. On 31st March, the consolidated cash and cash equivalent in the company's book is INR11,530 crores, which is an increase of INR2,076 crores quarter on quarter. Talking about the ESG highlights for the quarter, we expanded our green portfolio by launching two new products in our ReadyMix portfolio, ACC Aeromax and ACC CoolClean, in addition to ACC EcoMax that was launched in the previous quarter. Now coming to standalone results for Ambuja Cements, we recorded substantial jump in sequential EBITDA by 35% at INR962 crores, net revenue sequentially up by 3% and up by 8% Y-o-Y at INR4,256 crores, in line with the volume growth of 8% Y-o-Y. Robust sequential PAT growth by 36% and Y-o-Y growth of 2% to INR502 crores. EBITDA sequentially rose by 35% and grew 17% Y-o-Y at 962 crores, as already mentioned.

And sequentially EBITDA margin has expanded from 17.3% to 22.6%. Treasury grain has improved by 25 crores quarter on quarter on account of efficient treasury management. With this stellar performance and considering our growth plan, board has recommended dividend of INR2.50 per share, which is 125%. Ambuja and ACC together are symbiotic with strength, meeting legacy. And with a strong capex program under the Adani group, we will position the business as a strong force to reckon with.

Moving to a long-term strategy, for which you can also refer to our March 23 presentation uploaded both on company and exchange website. Many of you would be aware, but I'm just repeating the strategy because it's very critical. It has three levers, doubling the plant capacity, number two, reduction in operating cost to become lowest cost player in the industry, and number three, enhancing our branding and marketing strategy. First, talking about capacity expansion, we are targeting doubling of capacity in five years to 140 million tons from 70 million currently. This will require about 40 million additional clinker capacity.

We already provided a plan of 12 million capacity in our March strategy presentation, which is spread across seven locations. For this new capacity addition, we are following a cookie-cutter approach, with most of the clinker lines having capacity of around 4 million tons, and grinding facilities of around 2 million tons. We have shortlisted a set of equivalent suppliers to whom the orders will be placed on an ongoing basis. We also revisited our EPC strategy to EPNC, because

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Ambuja Cements & ACC Limited

May 02, 2023

we realized that by breaking in parts, we will end up having more savings and that will also be recalibrated in our strategy of expansion going forward. Now, the pillar, the second pillar on the cost reduction, we are targeting cost reduction of about 300 to 400 rupees per ton from these broad categories, which essentially will have energy cost, freight and forwarding cost, and other costs.

For the energy cost, we are taking following actions. We're going to increase the waste heat capacity from 70 megawatts currently to 175 megawatts by quarter 2 FY25. Increase the share of AFR from 8.8% to 30% over a mid-term, with a target of 15% by the end of the current fiscal year. RE capacity addition of 200 megawatts is being targeted by FY24 end. Long-termtie-ups for domestic coal suppliers.

Currently, we have a captive coal mine, Garepalma, having a capacity of 1.2 million tons per annum. We have won the bid for the coal mine, Dahegaon, Gavri, having a capacity of 2 million tons. These two mines together get roughly about 50% of our current demand of kiln coal, especially. Initiatives on waste heat recovery system, alternate fuels and raw materials and RE capacity addition will substitute 30% of our current coal requirement. However, given our expansion plans, we are targeting some more mines and long-term coal supply arrangements. Other focus area for cost reduction is fly ash sourcing.

For current requirement of around 14 million, we are considering long-term supply arrangements for power plants, including the Adani power plants. These initiatives on cost reduction and energy coupled with the long-termtie-up of fly ash would result in a part-time cost reduction of around 250. The second set of focus on cost is freight and forwarding. Here we have three focus areas. First is to reduce the lead distance. Second, optimize the warehouse between ACC and Ambuja. And third is rail and road mix optimization. On top, we are also going to expand capacity. And most of the grinding will go through grinding units. So with doubling of the count of grinding facilities from current 30 to 70, we are targeting for average lead distance of around 150 kilometers.

Since the time of takeover, we have managed to reduce the road lead distance from 177 to 173 for Ambuja, and 165 to 161 for ACC. For warehouse optimization, we are targeting increasing the share of direct dispatch from the grinding units. For our current operations, we have managed to reduce our warehouse count from 943 to 670 and increase the volume share of direct dispatches from 50% to 54%. With support from Adani Logistics, we are doing not only our own railroad strategy, but also exploring sea transportation options.

We have already taken strides in this direction by ordering 10 rigs, first of which has already come in. These rigs will also enable safe and cost-effective transportation of clinker and fly ash from the power plant. These optimizations are expected to yield a cost reduction of around rupees 100 per ton. Now the third pillar on the cost reduction is other costs. The cement business is being run as a single entity with a single executive team, unlike previously where there were two separate businesses with each having its own set of people across functions. For example, a lot of work is being done on streamlining the employee hierarchy under the new operating model. Removing road redundancies between ACC and Ambuja, company now has a common

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Ambuja Cements & ACC Limited

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	regional head between Ambuja and ACC, who are incentivized to push overall volumes, reduce
	cost, and also optimize logistics.
	Additionally, the de-bottlenecking initiatives would also enable unlocking potential for our
	existing infrastructure. This, I believe, will give us additional rupees 50 per ton. Now coming on
	the third lever, which is the sales and marketing, our product portfolio continues to remain strong
	on the back of legacy brands, along with premium products in our core markets. While ACC has
	pioneered product development, Ambuja has pioneered brand building and technical services.
	Our strategy to increase the sales has four key aspects.
	Number one, redefining catchment areas for market reach. We have identified 10 growth states
	to focus, where we aim to do either be number one or number two in the segment. Increasing
	the share of B2B segments overall from current 21% to 25% by FY27. This segment is growing
	at a faster rate than the trade segment. Increase in share of premium products from current 22%
	to high 29%, 30%, and maintain the leadership in individual home buyer segment.
	These initiatives would enable us to move more than double our top line from around 31,000
	crores to around 70,000 crores, while EBITDA will move up, will more than triple to 17,500
	crores, with the expansion of EBITDA margin to 25% from the current average of 19% over the
	last three years. Let me conclude by saying that our performance during the quarter was strong,
	with clear quarter on quarter improvement in both operational as well as financial parameters.
	We continue to generate significant cash to finance our expansion and pay dividends to our
	shareholders. I thank you for cementing your bond with us, which reinforces us with Virat
	Comprehensive Strength. Thank you.
Charanjit Singh:	Let me just now hand over to Mr. Vinod Bahety for his comments.
Vinod Bahety:	Yes, thank you, Charanjit. Good evening, ladies and gentlemen. While Ajay has in detail covered
	the performance highlight, I will cover briefly the overview of the business, which we have
	highlighted in the presentation which we have uploaded. The first few slides are about the group,
	so I will quickly move on that, and I will straightaway come on the cement overview, slide
	number eight. As we have highlighted, the key pillars of our cement business is focus on cost,
	grow the capacities, grow market leadership, with utmost focus on ESG.
	So we have a well-articulated ESG plan, 2030, and as you would go through the presentation,
	we are substantially achieving the target, and we are confident we will be achieving well on
	time. A notable area to highlight is about the water positivity, which we already have
	substantially progressed over there.
	Slide number nine. In terms of diversification, we are very well geographically diversified
	business with pan-India operations, covering almost 70% plus of India. Slide number 10. We
	have two strong iconic brands, Ambuja resembling strength, and ACC resembling legacy. This
	helps us in higher direct customer business, which we are at 80% as compared to industry, which
	is at 65%, so we are market leader in terms of direct customer business. On slide number 12, I
	am at, we are regaining our financial strength, our EBITDA improvement quarter-on-quarter,
	and the profitability.
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