Ambuja Cements, ACC and Sanghi Industries Limited

Q2 FY '25 Earnings Conference Call

October 28, 2024

MANAGEMENT

MR. AJAY KAPUR

CHIEF EXECUTIVE OFFICER

MR. VINOD BAHETY

CHIEF FINANCIAL OFFICER

MR. DEEPAK BALWANI - HEAD INVESTOR RELATIONS

MODERATOR

MR. SANJEEV KUMAR SINGH - MOTILAL OSWAL

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Ambuja Cements Ltd., ACC Ltd., Sanghi Industries Ltd.

October 28, 2024

Moderator:

Ladies and gentlemen, good day, and welcome to Ambuja Cements Limited Q2 FY '25 Earnings

Conference Call hosted by Motilal Oswal Financial Services 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. Sanjeev Kumar Singh from Motilal Oswal Financial

Services Limited. Thank you, and over to you, sir.

Sanjeev Kumar Singh:

Thank you. Good afternoon, everyone, and thank you for joining the call. Without much delay,

I will transfer the call to Mr. Deepak Balwani, Head of Investor Relations. Mr. Deepak, over to

you.

Deepak Balwani:

Yes. Thank you, Sanjeev. Wishing you all a very happy and a prosperous Diwali. It is my

pleasure to welcome you all to Ambuja's Second Quarter FY '25 Earnings Call. Ambuja Cements

Limited is one of the India's leading cement companies and a member of the diversified Adani

Group, the largest and the fastest-growing portfolio of diversified, sustainable businesses. Our

financial results, investor presentation and press release are now available on the company

website and stock exchanges.

Joining us on this call are Mr. Ajay Kapur, Chief Executive Officer; and Mr. Vinod Bahety,

Chief Financial Officer. Now let me invite Mr. Ajay Kapur to share his insightful perspective

on the quarterly results. Over to you, Mr. Ajay.

Ajay Kapur:

Thank you, Deepak. Good afternoon to all of you. I extend a warm welcome to each of you for

joining us in our quarter 2 and H1 FY '25 Earnings Call of Adani Group's cement business. We

continue to strengthen our position as a market leader in the cement industry.

Adani Cement is becoming stronger over time with an intense commitment towards capacity

expansion to both organic and inorganic groups, along with excellence in operational efficiency,

ESG and safety parameters. Adani Cement market share is about 15% with an internal target of

20% by FY '28.

To begin with, I would like to share some of the high-level highlights before I dive into specifics.

Ambuja enters into a binding agreement to acquire 46.8% stake in Orient Cements Limited. The

acquisition complements existing cement footprint, reducing overall lead distance and logistics

costs and improving market share in core markets. Post successful completion of this transaction,

our capacity will increase to 97.4 million tons, and the acquisition will be met through internal

accruals.

We continue to remain debt-free. Our first phase of 200-megawatt solar power project at Khavda

in Gujarat has been charged. 70 million tons of new limestone reserves have been secured in

quarter 2 FY '25, 4-million-ton clinkering and 6.4 million tons cement capacity is expected to

commence by quarter 4 FY '25, taking the total capacity to 100-plus million tons per annum.

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October 28, 2024

The consolidated quarterly Y-o-Y performance. We achieved a revenue of INR 7,516 crores, driven by strong focus on our micro market management strategy, expansion of our dealer networks, blended cement at 84%, increase in premium products as a percentage of trade sales by 300 bps up to 26%. On the operational cost for the quarter, it was INR4,497 per ton, showing a decline of 4%.

This is driven by a 10% decline in energy costs, owing to better fuel management and strong focus on green power. Kiln fuel costs reduced by 13% to INR 1.59 per 1,000 kCal from INR

1.82 last year. The transportation cost declined by 7% at INR 1,282 per ton on account of footprint optimization.

Secondary lead distance reduced by 7 kilometers to 47 kilometers. The direct dispatch to customers increased by 600 bps to 55%. With the improvements mentioned on the cost front, EBITDA stood at INR 1,111 crores at a margin of 14.8% and EBITDA per ton of INR 780. As of 30th September, the consolidated cash and cash equivalents stood at INR10,135 crores.

During H1, approximately INR 14,700 crores has been utilized, out of which INR 12,350 crores towards organic and inorganic growth, namely Tuticorin grinding unit, Penna acquisition and ongoing capex programs, besides dividend outflow of INR 555 crores and the balance towards working capital, which we had higher receivables, higher inventory, lower payable, income tax payout, etcetera.

The consolidated half yearly Y-o-Y performance, the revenue stood at INR 15,828 crores, operational cost at INR 4,467 per ton. EBITDA stood at INR 2,391 crores at a margin of 15.1% and EBITDA per ton at INR795. In the best interest of time, I will not discuss the standalone financial performance of the listed companies separately as they are available on the stock exchanges.

Now I will share with you the progress we have made on our announced long-term strategic plan. As we plan to expand our cement capacity, 140 million tons by FY '28, we are pacing well to achieve the stated target. This has also resulted into higher cash outgo as informed above. With the acquisition of Orient Cement, our operating cement capacity will go up to 97 million tons post completion of the transaction.

We are on course to commission our 4 million tons clinker unit in Bhatapara in Chhattisgarh and the associated grinding units in Sankrail and Farakka in West Bengal, Sindri in Jharkhand by the end of this financial year. The grinding unit of Salai Banwa in Uttar Pradesh will be commissioned in quarter 1 of FY '26 and brownfield expansion of Bathinda grinding unit in Punjab and Marwar grinding unit in Rajasthan, Kalamboli unit expansion in Maharashtra, Dahej grinding unit expansion in Gujarat, Jodhpur Penna grinding unit and clinker unit, Krishnapatnam grinding unit to be commissioned by quarter 3 FY '26.

With commissioning of these projects, we shall be reaching cement capacity of 115 million tons by quarter 3 FY '26. Further clinker unit of 4 million ton of Maratha in Maharashtra and grinding unit at Warisaliganj in Bihar are also expected to be commissioned by the end of FY '26, enabling us to reach 118 million tons capacity by end of next financial year. We have also identified 13

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October 28, 2024

additional grinding unit projects for which land acquisition and statutory approvals are under progress, which shall enable us to reach 140 million tons by FY '28.

For the new facilities of 4 million tons clinker line at Bhatapara, 90% of the civil work is now complete and major equipment has been received at the site. Expected completion is quarter 4 FY '25. For its corresponding grinding units in Sankrail and Farakka in Bengal, civil work of 88% and 97%, respectively, have been completed and major equipment has been received at site. Expected completion of these units is by quarter 4 FY '25.

For the new facility of 4 million tons clinker line at Maratha in Chandrapur, contract has been awarded on EPC vendor. 59% of major equipment ordering done by EPC partners, project execution work started, expected completion by quarter 3 FY '26. These Kiln lines will have 42- megawatt of waste heat recovery and provision for utilizing 30% alternate fuels.

For the new facility of 3 million tons clinker line in Jodhpur of Penna, 70% civil work and 60% of major equipment ordering done, expected completion by quarter 3 FY '26. For new facilities of 2.4 million ton grinding unit at Salai Banwa, Uttar Pradesh, 26% civil work is now complete, and delivery of major equipment commenced at site. Expected completion by quarter 1 FY '26.

Major equipment ordering for roller press at Bhatinda grinding units, fly ash grinding unit and blending system at Kalamboli and grinding unit at Dahej has been completed and all these projects are under execution. Contract awarded for grinding unit at Marwar Mundwa and Warisaliganj to EPC vendor, and both the projects are now under execution.

Now I will share some of the key initiatives being undertaking for becoming a cost leader in the cement sector. Securing major raw materials at cost-competitive prices and efficiency and productivity improvement capex will further help in optimizing by 8% to 10%. First, let me discuss the steps we have taken to lower our energy costs.

Our wastage recovery capacity at the time of takeover was 40 megawatts, which we are now targeting to increase to 218 megawatts by March '25. Currently, the WHRS capacity is 196 megawatts. We have earlier announced our investments in 1,000 megawatt of RE, which is expected to get commissioned by FY '26 and would ensure that 60% of our power requirement will be green power.

This would help in reducing the power cost by INR90 per ton by FY '28. First phase of 200 megawatt at Khavda in Gujarat have been charged. Over the next 2 quarters, this will reach full capacity. As previously explained to meet our requirements, we aim to have captive coal supplies. As a result, we are bidding for coal mines in the auctions being conducted by the government, a higher share of coal from our captive mines and opportunity to buy imported pet coke will further lower our own fuel costs.

Driven by better fuel management and structure initiatives undertaken, our power and fuel costs have decreased by 10% to INR1,276 per ton in quarter 2 FY '25 from INR1,425 per ton in quarter 2 FY '24. These initiatives include an increase in the share of AFR and Green Power. The share of AFR and fuel mix has improved to 9.5% from 7%. The share of Green Power and fuel mix has increased from 15.6% to 18.2%.

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The second cost item is freight and forwarding. There are three focus areas for cost reduction here. Number one, reduction in lead distance, warehouse footprint optimization and railroad mix optimization. We are targeting to reduce the average primary road lead distance by about 100 kilometers. Primary lead distance in the current quarter was in 271 versus 272, and secondary lead distance at 47 versus 54. This has been done with improvement in direct load dispatch by 600 basis points.

To further optimize our cost in logistics, we have ordered 11 GPWIS rakes, of which all 11 have been delivered and running in approved circuits. These rakes will enable cost-efficient clinker movement from the mother plants. In addition to these, we have also ordered 26 BCFC rakes for safe and cost-efficient transportation of fly ash from thermal power plants to our facilities. Of these 26 BCFC rakes, 3 rakes have been delivered and another 8 are expected to be delivered by March '25. Because of these initiatives, our logistics costs have been reduced by 7% to INR1,282 in quarter 2 FY '25 from INR1,377 in the same quarter last year.

To secure our limestone supplies in quarter 2 FY '25, we have won bids for another 2 new mines having reserves of 70 million tons, 1 in Madhya Pradesh and 1 in Maharashtra. On ESG, we are committed to net-zero by 2050. Ambuja and ACC are the only 2 cements companies in India who are undergoing net-zero target validation by SBTi.

Ambuja is a leader in water stewardship and co-processing of plastic waste. Ambuja and ACC put together used more than 5 million tons of waste-derived resources in quarter 2 FY '25, embracing circular economy. The 2 companies created societal values for more than 4.7 million people by contributing to fields like health care, education, employment, and sustainable livelihoods.

The company won many awards and accolades for its responsible and sustainable business practices. On the global front, Ambuja has been the world's first cement company to join the alliance for industry decarbonation and initiative of International Renewable Energy Association, became a signatory to transitioning industrial cluster initiative of World Economic Forum and became a member of United Nations Global Compact.

Finally, looking at the industry outlook. I think strong infrastructure demand and ongoing needs from the housing and commercial sectors are anticipated to boost cement demand in H2 FY '25. The introduction of PMAY Urban Housing 2, with an allocation of INR11 lakh crores, along with government's continued focus on infrastructure development as the key to economic growth augurs well for cement sector.

Strategic investments in road, railways, along with urban and commercial amenities is poised to drive robust growth. We expect demand during FY 2025 to grow in the range of 4% to 5%. India's per capita cement consumption currently at 275 kg is still having a lot of headroom for growth, and I believe over the next 10 years can reach 1-billion-ton cement market.

In conclusion, as I mentioned earlier, on multiple occasions, Adani Cement will benefit from accelerated growth, lower costs, and group synergies, all of which will contribute to lead the

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market and achieve sustainable performance in the near future. The pace of capex has increased, which will help to achieve targeted growth ahead of time.

With this, I now hand over to our CFO, Mr. Vinod Bahety.

Vinod Bahety:Yes. Thank you, Ajay ji. Good afternoon, friends. Season's greetings and festival greetings as well. Good to connect with you all again at a very important junction in our journey of growth, where Ambuja consol is expected to hit 100 million metric tons very soon. And by the end of FY '26, we should be reaching 118 million metric tons, very close to our target of 140 million tons, which is ahead of our target curve.

During the last 12 months, friends, we have successfully completed 3 important acquisitions: Sanghi, Penna, and the recently announced Orient apart from Asian and the grinding unit of Tuticorin of MyHomes. I will share more updates on the integration, which has gone very well.

Friends, you have often heard from us about our drive on the few major areas viz. Growth, Cost and ESG. Since September '22, when we took control, we have been constantly achieving new milestones across these three important focus areas viz. Growth, Cost and ESG. Cement business has grew almost 50% in 2 years, largely driven by the inorganic growth, while organic is also going very well, and you have heard Ajay ji in terms of the progress made across the various projects, which will add capacities in months to come.

On the cost efficiency, in December '23, we laid out our clearly defined roadmap in terms of cost leadership to improve the margin, and we are well on this track. A good level of investment has been made for this cost optimization, which will start yielding us the results in coming quarters, whether it is green power, key logistics, WHRS, AFR, operational efficiencies, amongst others. Ajay ji already highlighted 200 megawatts of our 1,000-megawatt plant that has already been lighted up, and we'll start getting the green power in November itself.

I'm very glad to highlight one important initiative, which we have been working on for the last 2 years, but now getting more prominence is digitization from manufacturing to logistics and sales. We are putting a comprehensive technology platform, which is expected to bring commendable difference in the way we are operating the business, and it will help further to bring improvement in productivity and efficiency.

On the governance part, friends, again, happy to share that we have appointed Grant Thornton to do a detailed independent review of the RPTs and the entire framework around it. The report has been shared. Very satisfactory report, which has been shared with the statutory auditors, the audit committee, and the Board. And it only reinforces the systems and processes, which we have placed, and we have been highlighting to you from time-to-time.

In addition, if you remember, in March quarter, we had also used services of proxy advisory firm, IiAS, for the assessment of the governance area framework, and I'm glad to highlight that we scored a Good position in the overallband from them, which is 60 and above score. And this is what, for example, many of the leading corporates of India share this kind of scores. Ambuja has scored in that. We also won Golden Peacock Award from the Institute of Directors, a prestigious award in the field of ESG. We are the only cement company to have won this.

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So this half year, very importantly, if you look at our balance sheet, you will see that we have done the purchase price allocation, PPA, for the acquired assets, which is Sanghi, Asian and Tuticorin. Earlier in March, we had done on the provisional basis, but now this September, we have-finalized the PPA. And more importantly, also for Penna, we have done provisional one, which will get finalized for Q3. So I will answer specific questions around it, but this is like an important half year from that perspective.

Therefore, balance sheet, some of the numbers are not like-to-like comparable. However, on these two major factors of the balance sheet, which is cash and cash equivalent and net worth. On cash and cash equivalent, I begun the half year -- 1st of April, I was holding INR16,000 crores of cash and cash equivalents. Then in April, the warrants program gave another INR8,300- odd crores. And then the operating cash flows, net of taxes, were close to INR3,100-odd crores. With this, gross amount was INR27,400 crores. And in terms of utilization, capex is almost INR5,000 crores. The investment, primarily in terms of Penna is INR7,800 crores. Dividend outgo was around INR560-odd crores, and then the changes in the NWC, net working capital close to INR4,000-odd crores. Therefore, with all these inflows and outflows, if I look at the net figure, as of now, the cash and cash equivalent is closer to INR10,135 crores in Ambuja console.

On the net worth also, I'm glad to highlight that beginning of April '24, we were at INR50,843 crores. And I'm closing the half year at INR59,916 crores, which is a jump of almost INR9,073 crores in terms of net worth. Needless to highlight Ambuja remains debt-free, and we are in the highest bracket of all the ratings in terms of AAAs.

Further in the network, some of the analysts have been asking for tangible net worth, which is closer to INR43,000 crores, which means all my intangibles, goodwill, if I remove the net worth stands to INR43,000 crores, which is almost 73% of my overall net worth. So tangible net worth in 73%.

And this tangible net worth in simplified manner, it is represented by cash and cash equivalents of almost INR10,135 crores. PPE of almost INR29,000 crores and NWC of close to INR4,000 crores. So on net worth and cash and cash equivalent, I pre-empted the question. And with this, I would pass on the call again back to the coordinator, Mr. Sanjeev.

Sanjeev, over to you.

Moderator:Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Rahul Gupta from Morgan Stanley. Please go ahead.

Rahul Gupta:Yes, hi. Thank you for taking my question. I have couple of questions. First, on a console basis, volumes grew by around 9% year-on-year, and this is on the back of industry struggling at around 1%, 2%. So can you give more color on what's happening on this? What drove such high growth? Similarly, on the pricing side, I understand a strong pricing was also a function of you gaining -- or the expansion of premium products.

But if I look at prices per bag, that has also not fallen a lot from INR249 to INR247. So any additional color on this front would be very helpful? Thank you.

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Ajay Kapur:

Yes, Rahul, good question. Our volume growth is driven both by our current capacities and also

the acquired capacities. As you know, we've been ramping up. Those capacities are helping us

to fill up the voids which are there because we didn't have presence in some markets. Like, for

example, Sanghi itself, if we take an example last year versus this year, there's a tremendous

increase.

Some volume growth has also happened in B2B segment where, again, we are not having

capacity, so they have been used to expand. And therefore, you've seen -- because of premium

products and also because of a very structured marketing, we've been varied Y-o-Y, the drop is

substantial. I mean you can see that. For 2 quarters, it's not so substantial.

Rahul Gupta:

Yes. So just to understand this, you would have substantially gained market share on volumes

within the quarter. So anything different that you are doing or was industry not that bad? How

should we reiterate this 9% year-on-year growth?

Ajay Kapur:

So Rahul, this also has -- this is, I think, the volume of CLC. This also includes clinker sales,

which happens from Ambuja to its subsidiaries and otherwise. But even if you remove the

clinker sales, I think the volume is still a healthy 7%. And as I mentioned, this is also a function

of the acquisition of new assets that we have done.

Some of them are not working in the previous period or working at a lower utilization. And with

Ambuja ACC brands, we've been able to increase it.

Rahul Gupta:

Okay. And when can we get numbers for Penna -- Penna is not included in this quarter, right?

Ajay Kapur:

Part of it is. So the number of very, very small quantity of Penna is there.

Vinod Bahety:

Almost 45 days of operations of Penna, Rahul, is part of this quarter and half year.

Rahul Gupta:

So can you give us numbers around that? What would be volumes, what kind of EBITDA that

you have got from Penna because that will not be in the base, right?

Ajay Kapur:

That will not be in the base. We can, offline, give it you. Or we can connect and give it to you.

Vinod Bahety:

But broadly, like in terms of volume, from a cement perspective, Penna has given almost 4.5

lakh. But more importantly, on the clinker, Penna is helping us a lot. And we are seeing a

capacity of almost a 70% utilization for Penna in 45 days and -- which is also helping us to meet

some of the requirements of our southern plants from clinker perspective. Ajay Ji already

highlighted that our sales includes both cement plus clinker, right?

So on Penna, as part of our integration has went extremely very well. And within like a month

or 2 months, we were able to operate at almost 70%, 75%. During our acquisition, we had given

targets to hit 80%, 85% in, say, 3 years' time, but I see that we will be able to achieve much

before that.

Ajay Kapur:

Yes. Cement volume for Penna would be in the range of 1 lakh to 2.5 lakhs.

Rahul Gupta:

Sorry. So earlier, what was this 450,000

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Ajay Kapur:

That was with clinker you see.

Rahul Gupta:

That's including clinker?

Ajay Kapur:

Yes, yes.

Rahul Gupta:

And excluding clinker, it would be around 150.

Ajay Kapur:

Around 1 lakh odd.

Rahul Gupta:

Okay. So just my -- just a suggestion, I'm sure other participants would have similar questions.

If you can help us more details around what kind of numbers were consolidated from Penna

during the quarter, that will be very helpful, otherwise.

Vinod Bahety:

Sure. Thank you. So we'll move to the next question please.

Moderator:

Yes, sir. Thank you. The next question is from the line of Navin Sahadeo from ICICI Securities

Limited. Please go ahead.

Navin Sahadeo:

Yes. Good afternoon. And thank you for the questions. Also congratulations on decent set of

numbers. So I have 2 questions. First is, I just wanted to get a better sense of now the cash that

we have, which is already mentioned, of course, at INR10,000 crores-odd. But from Penna

perspective, also that -- the cash which is lined up for Orient assuming the open offer gets

subscribed fully, so in that context, what kind of appetite do we still have from an acquisition

perspective is what I would request some color on.

Are we open to doing further a similar size of Orient kind of an acquisition or here on, we could

be looking at more smaller side of acquisition? And how should one look at?

Ajay Kapur:

So Navin, very good question. First of all, you'll appreciate both are very strategic acquisitions.

And they are helping us both inimproving cost efficiencies, but also improving volume because

these are 2 big drivers of value. Now I think we are currently focused on completing Penna. It's

a very good asset, multiple tasks ahead of us, and Orient.

So I think our hands are quite full right now with these 2. Having said that, I also mentioned in

the opening that we are building 3 kilns as part of our expansion, 2 which we had already started

and 1 is part of the Penna. So about 11 million tons of clinker and 20 million, 22 million tons of

cement is already underway.

So I think that with 10 million of Penna of 8.5 million of Orient, 18.5 million and add another

20 million. So I think we're already having a substantially low-cost new expansions happening.

And I laid out the roadmap right up to 118 million. 118 million minus 140 million leaves only

22 million. So I think that also, as I mentioned, we have plan in place.

With all these consolidations, our balance sheet and also the strength of annual cash generation

goes up. In spite of all this, at the group level, we remain healthy, cash positive. And I think

generally, we don't comment on the future, so I think I'll leave it at that. Maybe that's for some

other day, some of the time.

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Vinod Bahety:

And Navin, like in terms of net worth of almost INR60,000 crores and debt-free leaves enough

opportunity for expansions on both organic and inorganic. So I will just rest myself here, but

you can understand the strength the balance sheet has.

Navin Sahadeo:

Okay. Helpful. Second question, I'll put it on Penna. If you can just walk a little bit further in

detail here because you gave volumes, which is around 100 kt for cement, but you also said it

was supporting significantly in terms of clinker to some of the southern plants. So from an

incremental perspective, what kind of volumes, first of all, can we expect from Penna because

that I'm assuming would be fairly stabilized as of now?

Or does it continue to support more clinker to other units? So I just wanted to understand the

actual cement contribution that one can expect from Penna. And also what is the cash now that

is yet to be paid? Because your presentation says about INR7,800-odd crores is the amount

allocated. The deal, as we understand, was INR10,400 crores. So the balance amount, how

should be that looked as well?

Ajay Kapur:

Yes, Navin. So what I'll do is I'll ask Vinod to address the cash part, but let me first address your

question on Penna. We're very happy with the Penna ramping up. In fact, our clinker, all the

kilns have operating at near 85%, 90% utilization levels. And we are also doing some small

adjustments because the plants were not running earlier, but we are very happy that already they

are producing almost at 80%, 85%. And hopefully, by the time we close this year, we'll be hitting

95%.

And obviously, that clinker is helping some of our grinding units in South, and that will play

out. Parallelly, the demand and the sales teams are working. I'm confident in the next quarter

when I come in front of you, the sales of Penna would also be quite healthy, and it's going in the

right direction. I think we are more or less on track as far as sales is concerned. But for the right

reasons, I cannot comment on what's happening this quarter, which I can only comment when I

meet you for the results for the next quarter.

Vinod Bhai, could you just throw some light on the cash?

Vinod Bahety:

Yes. So Navin, on the cash & the capex, if you remember, during announcement also, we said

there are under construction assets. Krishnapatnam grinding unit which is increasing from 2

million to 4 million tons and also the ongoing capex at the Jodhpur, the Marwar project of Penna.

Both of them are progressing very well. And the remaining outgo will happen with part of the

progressive milestones to be achieved. That is how it is planned, and which is very much a part

of the overall transaction. So your observation is right.

Navin Sahadeo:

Yes. To summarize, by end of '26, this entire INR10,400 crores would have got consumed. We

have paid about INR7,800-odd crores.

Vinod Bahety:

Absolutely right. So I said, as per the current year, the milestones are laid out. Now if it is '26 or

if it is little 3 months or 4 months here and there, but the progressive payment will be made once

the seller achieves the targets.

Navin Sahadeo:

Understood. Helpful. Thank you.

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ACC Ltd. published this content on November 04, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on November 04, 2024 at 08:57:08.869.