While the management of EKC is sleeping, competition is setting up new plants…

Q3FY24 – Transcripts summary

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• Recognition – from The Bureau of Industrial Standards for meeting the highest quality of cement without any product failures over the past three years of observation

About the Business

350 – Distributors

500-600 – Retail Sales points

They are reducing around 75% – 80% of power cost by green plants

Permission has been granted for the expansion of the solar plant from the current capacity of 37 to 40-megawatt peak

• Q1 final year will be similar

• Q2 of next year is going to be a monsoon quarter

• Q3 is a good quarter

• Q4 will have little correction

Guidance

In the areas they are in almost 10 to 15 million tons of cement is being sold per month whereas they are only putting in a capacity of 1 million ton per annum which is very minuscule

They are aiming to reduce the dispatches on the delivered basis and relying mainly on an ex-plant basis

Guidance on pet coke – reduction of prices in the petroleum coke and Q4 they are expecting to go down

By FY ’26, they are targeting INR900 to INR1000 rupees EBITDA per Ton, and by 27 they are expecting 300 cr of revenues

By FY26 they are aiming for about 75% to 80% of capacity

At 80% efficiency of 1 million ton capacity Considering inflation and a projected revenue of 5,000 per ton, the revenue range is anticipated to be between 370 to 430 (presumably in crores INR) for the top line.

Management has got a very good experience in setting up the power plant

Why sales are flat

• The cost of the dispatches done in this quarter are typically ex-plant basis and the company is trying to reduce the dispatches on the delivered basis and relying mainly on an explant basis to dealers with discounted prices despite the increase in capacity utilization which has reached 76%
• The reason for doing so is not to be able to pass on the cost of logistics to the consumer.

Volumes

• FY23, there are 2,26,000 tons over the dispatch quantity
• As of 9months, it has reached 1,98,000
• Expecting the range of 240 to 245,000 tons for FY24

Reason for improvement in EBITDA & PAT

Changes in terms as mentioned above and reduction of prices in the petroleum coke

EBITDA – In this quarter 11.7 cr of EBITDA 8cr is contributed by solar

Reason for solar plant expunction

1. For transmission from existing lines, 20% to 30% of the capital cost has already been incurred
2. So now they are just enhancing the DC capacity to accommodate the existing electrical equipment capacity
3. To accommodate this internal consumption of electricity without incurring additional costs such as cross-subsidy charges this plant will be added
4. With this capacity of 3 Megawatt, they can increase EBITDA and are expected to be commissioned by April 2024
5. After the expansion and commissioning of a new one-million-ton capacity in July, the power currently generated and potentially sellable to external parties dew to efficiencies will instead be consumed internally due to increased operations
6. This setup allows for capitalizing on incentives for the existing power generation facilities, which can then continue to sell power externally with government incentives, while the new solar power project, supports the internal power needs

Inefficiencies

Until the capex is deployed their EBITDA per ton will be lower than the Industry

Now they are consuming 110 units per ton compared to 60 units per ton of electricity as per the industry

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Withdrawal of TRF’s merger with Tata Steel has triggered quiet a rally in TRF. I tend to agree with the upmove

My simple thesis on this name:

1. Withdrawal of merger is a clear indication that the worst is behind – both financially and operationally
2. A CHP (Coal Handling Plat) manufacturer, it is likely to be a beneficiary of growing thermal power need in the country. TRF is a vendor to BHEL who has been winning significant quantum of thermal power orders. Those should start to reflect in its vendor books as well.
3. At 14x trailing PER, it is one of the cheapest stock among peer set.
4. Finally, despite recent run-up, market cap is just INR 530cr. For a Tata Company, that should indicate signicant upside potential.

Happy to hear others’ views.