Star Cement Limited (540575) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Star Cement Limited Q3 FY '20 Post Results Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prateek Maheshwari from AMBIT Capital Private Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On the behalf of AMBIT Capital, I would like to welcome you to the Star Cement 3Q FY '20 Earnings Call. From the management, we have with us Mr. Sanjay Kumar Gupta, the Chief Executive Officer; and Mr. Manoj Agarwal, the Chief Financial Officer. We'll now begin this call with opening remarks from the management, and then we'll open the call -- open the floor for Q&A. Thank you, and over to you, Mr. Manoj.

Yes. Good afternoon, everyone. I, Manoj Agarwal, CFO of Star Cement Limited, would like to welcome you to our earnings con call for the Q3 FY '20. Mr. Gupta, the CEO of our company will be joining soon, as he is traveling now. I will take you through -- in the meantime, I will take you through the Q2 earnings (sic) [ Q3 earnings ] and 9 months ended numbers, and then we will open the floor for the interactive session, where you will be able to ask the questions and we will be happy to reply. Now I would like to clarify that we will be more discussing on the historical number and there is no invitation to invest. Having said so, I will just take you through the Q1 -- Q3 number followed by a 9-month period ended number. Starting from clinker production during the quarter ended December 2019, we have produced 5.69 lakh ton of clinker as against 6.02 lakh ton same quarter last year. So far as cement production is concerned, we have produced 6.49 lakh tons of cement this quarter as against 5.89 lakh tons same quarter last year. That is a growth of around 10%. Prateek, in the meantime, because Sanjay Gupta might have reached, you can also call him, that would be better. Hello?

Yes, yes. Sure.

Yes, sir. Sure, sir. All right, sir.

Yes. You can contact him.

We have the line from Mr. Sanjay Gupta connected.

Okay. Now I will take you through sales volume. During the quarter, we have sold 7.19 lakh ton of cement and 0.34 lakh ton of clinker as against 6.40 lakh ton of cement and 0.15 lakh ton of clinker same quarter last year. This -- there is a growth of more than 12% in cement and more than 100% in clinker. This is as far as cement and clinker sale is concerned. As far as geographical distribution of cement is concerned, in Northeast, we have sold around 5.33 lakh ton as against 4.96 lakh ton same quarter last year, with a growth of more than 7%. And as far as outside Northeast is concerned, we have sold 1.86 lakh ton of cement this quarter as against 1.44 lakh tons same quarter last year, with a growth more than 19 -- 29%. In terms of blend mix, it is almost 14% OPC, 2% PSC and the rest is PPC. These are the quantity number of this quarter. Now I will take you through the finance -- through the financials. The total revenue figure this quarter is around INR 450 crore as against INR 415 crore same period last year. As far as EBITDA figure is concerned, this quarter, we have done an EBITDA of around INR 100 crore as against INR 123 crore last year. PAT after minority interest is INR 71 crore as against INR 82 crore in the same period last year. On the per ton EBITDA front, it is INR 1,335 during this quarter as against INR 1,878 per ton same quarter last year. This is what's our quarterly numbers. Now I will take you through the 9 months ended December '20 (sic) [ December '19 ] numbers. The total revenue figure for the 9 months ended December '19 is around INR 1,292 crore as against INR 1,293 crore same period last year. As far as EBITDA figure is concerned, during 9 months ended December '19, we have done an EBITDA of around INR 292 crore as against INR 324 crore last year. PAT after minority interest is around INR 200 crore as against INR 209 crore in the same period last year. On per ton EBITDA front, it is INR 1,402 during the 9 months ended December '19 as against INR 1,607 per ton same period last year. These are what the quarterly -- for the 9-month ended numbers are there. Now I request all of you that if you have any queries, you can ask the same, and I will request Prateek to moderate the queries wherever if required if queries are coming. Thank you.

[Operator Instructions] The first question is from the line of Jigar Shah from Maybank.

Yes. First question pertains to -- if you can repeat the ratio of the OPC and PPC? Also give the status of the expansion in the new plant.

Yes. OPC, it is more or less -- OPC is at 14% and 2% is the PFC.

Okay. And can you give status of the new plant?

Yes. Manoj, I'll take this.

Okay, okay. Yes.

Yes. So good evening, everyone. So the new plant, which is Siliguri, is on track. It is going to start operations from the month of March or April, as it has been told earlier.

Okay. And the other thing is, if you can throw light on the general demand scenario and price scenario in Northeast and East separately? There is a lot of feeling the people are getting that East market is becoming very crowded, and therefore, the pricing is under pressure, plus in Northeast, there is this issue of CAA going on, so that is also hurting the overall growth. So any thoughts on this would be appreciated?

So in terms of demand, Northeast demand has been on track. I will say, for a 9-month period, the Northeast volume growth has been around 7%. And that is also -- and we have also grown in Northeast. On a 9-month basis, we have grown at -- the volume growth is around 7%. Overall, East, the first quarter number -- growth was not -- was bad. There was a degrowth in quarter 1. Quarter 2 was a flattish quarter. But quarter 3, there, the growth has come back. And if you look at it, even our numbers in outside Northeast is concerned, the volume in this quarter for outside Northeast has grown by 30%. So our expectation is that full year, in spite of all the problems that the East is facing, and whether this CAA protests or anything else, I think those are all behind us. And we hope to see the fourth quarter will definitely bounce back heavily as the -- if you know that the overall flood situation in Assam and large part of Eastern region was really grim. But post the flood situation, I think the demand will pick up. We are seeing that kind of demand coming up in the month of January also. February is doing better. So we hope that the overall East will at least grow at the rate of 5%, 6%, and Northeast would grow at around 8% to 9% on a full year basis.

That is you are saying for the current year?

Yes. We're talking of current year. Right.

And on price, I mean, any comment?

So in the last quarter, the prices have actually gone down, both in Northeast and outside Northeast. The Northeast price reduction was -- in quarter 3, the price reduction was somewhere around INR 12. Outside Northeast, the price reduction was somewhere around anything between INR 15 to INR 20 to INR 25, depending on which market you are looking at. But the prices have started looking up from January and continuing the same trend, upward trend in the month of February also. So by this time, we have already seen a price increase of around INR 10 in Northeast and around INR 15 to INR 18 outside Northeast. So we hope this trend will sustain as the volume growth is also better. We hope the uptick in price will be maintained, and we will see a good amount of price increase in quarter 4.

So one last question, if I can squeeze? On the sustainability issue, what kind of steps you're taking? This is more considering the entire industry and Star Cement, and issue is becoming globally quite serious. So in terms of the different sustainability measures, if you can give some remarks briefly?

No. See we have...

Especially on the carbon footprint.

Yes. So what we are also trying to do is that we have also -- we're trying to chip in, in bit of whatever we can do. So we don't have a WHRS plant as of now. We have already planning to set up a WHRS plant in our existing line, which would be around anything between 13 -- 12 megawatt to 15 megawatt. That project, we are expecting it to commission in next 18 to 24 months. So that will substantially reduce our carbon footprint. We are also -- there are other game initiatives, which we are also taking in terms of using the different type of fuel, which we use. We are looking at some biomass fuel to be utilized in the kiln. So yes, definitely, at a company level, we are taking steps to reduce our carbon footprint.

[Operator Instructions] The next question is from the line of Indrajit Agarwal from Goldman Sachs.

Congratulations for a good set of numbers. A few questions from my side. I joined the call a little late. Can you give us the volumes for East and Northeast separately, again?

Yes. East -- total volume number for Northeast is 5.32 lakh ton and for outside Northeast, it is 1.87 lakh ton.

East demand has been strong. So this has been reiterated by some of your peers as well. So can you tell us what are the demand drivers? And what is the sustainability of these demand drivers? Are you seeing some bit of a real estate picking up? Or is this more government-driven demand?

So largely, the demand is retail-driven only. As I've been saying, we have been expecting that the wholesale demand, which is largely the infra demand, should pick up. But it has not happened as yet. Even in this year, in past 3 quarters, we have not seen much of uptick in as far as the infra demand is concerned. So there has been some movement as far as the bigger projects in Northeast, such as the Subansiri project. There has been a tender of around 1.5 lakh tons of cement from NHPC for Subansiri. So that tender -- so there is some movement in these high-value projects. There are certain road projects, which are still moving. But I will say that will only contribute to about 2% to 3% of demand growth, but the entire 8%, 9% of demand growth is largely retail driven, then affordable housing work, which is driving the demand and the government Interest Subvention Scheme, which is there for the individual house owners, that is driving the demand. So as far as the Northeast, and I will say large part of East is concerned, main driver continues to be the individual housebuilding segment.

Okay. That is helpful. And last, on East market as a whole, the broader market, we have a couple of big capacities coming up from UltraTech, some from Dalmia, a little bit from Shree as well, plus whatever consolidation we have seen in the industry yesterday in terms of the Emami facility. How do you see the demand-supply dynamic shaping up in the industry in that region over the next 12 to 24 months?

So yes, there will be some capacities, which are definitely coming up. Our cement plant of 2 million ton will definitely be added one. Shree will be commissioning one plant, even Dalmia probably will be commissioning one plant. UltraTech does not have a greenfield project coming up. Yes, their acquisition of Century Cement, in terms of Birla Gold and all, that will definitely -- they will definitely ramp up the overall capacity utilization of that company. So that will put some pressure on demand, but I still feel that the overall -- the entire market size of Northeast has grown really well in last 5 to 10 years. So Bengal today is now around 21 million ton, 22 million ton market. Bihar has grown rapidly in the last 5 years. So it is around 15 million ton, 16 million ton market. So these 2 markets are very large markets now and 6% demand growth in these markets automatically adds at least 4 million tons, 5 million tons of cement. So even if there is a 5 million ton, 6 million ton of addition every year, the market should be able to absorb it. As far as the consolidation is concerned about Emami and Nuvoco, Emami was already selling entire 5 million ton, 6 million ton, and it was a cement which has already been sold. There's nothing new, which is coming up or adding up into -- as far as the Bihar market is concerned -- Bengal and Bihar and eastern market is concerned. Yes, there will be -- they will be selling already 6 million ton, their capacity is around 8 million ton, but it lacks clinkers, actually. It is not dragged by the entire clinker. So that will take time for anybody to ramp up the entire 8 million ton capacity of Emami Cement. So our view is, in the long run, the demand from -- entire demand-supply scenario should be evenly poised, and we hope that there will not be much pressure on prices.

[Operator Instructions] The next question is from the line of [ Kartik Soni ], an individual investor.

Congratulations for a good numbers, sir. Sir, my first question is regarding your EBITDA per ton. It has gone -- if I'm not wrong, it is around INR 1,400. But last quarter, you had said it should be around -- the yearly number will be around INR 1,600 per ton. So what -- why this reduction this quarter?

So this quarter's EBITDA is INR 1,335. And the 9-month EBITDA is around INR 1,400. See the -- in this quarter, the impact was largely on the price reduction, which has happened all across the board even in Northeast and outside Northeast. So that is a major contributor, definitely. We have also said that there is an impact of increase in coal prices for us. That is also there. But I think that has largely been offset in this quarter. But yes, the overall price reduction is approximately INR 300 a ton, so that has had an impact on EBITDA.

So sir, do you still keep that your expectation of INR 1,600 on a yearly basis or it should come down, your guidance?

No. So since we have only one quarter, and there has been some price movement, I will be looking at a full year EBITDA of around INR 1,500 to INR 1,550.

Okay, okay. Great, sir. And sir, second question is any -- in this recent budget, any special -- any major announcement that could directly affect the company?

No. I think the budget was absolutely neutral for the industry as such. So there's not a major announcement, which is going to impact it. Yes, definitely, the allocation, which has happened in other infrastructure projects, the details which are available, that will definitely boost the rural demand. And we are hopeful that those things starts kicking in and starts contributing to the overall demand of cement.

Okay. And sir, one last question, if I could ask? It is regarding any improvement in market share? And second thing, your finance cost. This quarter, your finance cost has gone a bit up -- quite up compared to -- on a year -- on a Y-o-Y basis also and on quarter -- Q-o-Q basis also.

So I'll request Manoj to answer the finance part.

Yes. The interest cost increased because this quarter, we have seen a reversal of the -- what we have capitalized as preoperative expenses, that reversal is around INR 3 crore. So that is the only thing, which you are seeing as a finance cost. So it will not come in the next quarter.

Okay, okay. And sir, regarding your market share, any improvement on the market share, Northeast market share?

No. I think we have maintained our market share. There is no increase. And we have grown in line with what industry has grown. On the full year basis, we hope to grow at the same level.

Okay. So then the market share is still around 23%, 24%, 25%?

23% -- 24%.

The next question is from the line of the Prateek Kumar from Antique Stock Broking.

Yes. Sir, my first question is, is there an update on the coal mining issue in the Northeast market?

You know, the coal mining is already banned in Northeast, right? And the ban was lifted by Supreme Court on the 3rd July 2019 order, and it has stated that the coal mining in Northeast can commence...

Sorry to interrupt. Mr. Kumar, there's a lot of disturbance from your line.

Okay. I'll mute my line.

Hello?

Yes, sir. You may, please, proceed.

Yes. So the Supreme -- after the Supreme Court judgment on 3rd July '19 -- 2019, the coal mining ban has been lifted, but it has been said that in spite of rathole mining, they have to do the mechanized mining, which is permitted as per the MMDR Act, right? So in that sense, the mining ban is not there. But yes, the coal mining has to still take some time to commence because the landholding pattern in Meghalaya is very fragmented. It is on an individual basis. And they have -- the state government is trying to consolidate that landholding by creating cooperatives and start -- it will take some time to start the coal mining in Meghalaya.

And in current quarter because of higher cost, imported coal seems -- the cost has gone higher by INR 300 as you mentioned?

Yes.

So now like 100% of our fuel mix is imported coal?

Yes. So in this quarter, specifically, the cost has gone up around INR 150 a ton. But see, still, I will say that there were some inventories of old stock, which have been utilized. But I think, yes, on a full year basis, next year onward, the impact is going to be somewhere around INR 250 to INR 300 a ton. And as of now, we have been buying the 100% of coal. We have been using some pet coke also and the coal. So this is all purchased. It is not 100% imported. We are also sourcing some coal from various auctions taking place by coal -- done by Coal India.

Right. And regarding the CapEx project, is there a delay by 3 months in the Siliguri grinding unit? So we earlier envisaged December, January, so is it delay there? And what is -- any update on status of Meghalaya clinker unit?

No. I think clinker -- we were looking at to start in the month of February, but we have already started it in -- I think this is going to start in the month of March. So that's the only thing which is there. So it is going to start in quarter 4 only. As far as the Meghalaya clinker unit is concerned, we have already -- has been said, we have already received the approval for single-window clearance. We are in process of preparation of the project report, the filing of environment clearance after the preparation of report will happen. And we are progressing steadily, and it is on track in terms of achieving the target of starting the clinker plant by 2023.

The next question is from the line of Mangesh Bhadang from Nirmal Bang.

A couple of questions from my side. Firstly, sir, on Siliguri, just probably -- which are the North Bengal and other markets that you'll be targeting from there? And where you will source clinker from for this facility? And if also you can talk about which is the supply that is coming in, which can specifically target that area? And second question is on the subsidy receivables. What is the amount that you have right now?

So as of now -- see, the Siliguri unit, once we start it, largely, it is -- the concentration of our sales is largely going to be very heavy as far the North Bengal is concerned, which is up to Murshidabad, that is going to be. And yes, definitely, we will also be going to South Bengal, some markets in South Bengal. But that will be -- the most concentrated area will be up to Murshidabad. And in Bihar, we will be largely targeting the Eastern Bihar market from Siliguri plant. So that is the target area as far as Siliguri is concerned. As far as the subsidy is concerned, I think we only have INR 50 crore receivable from subsidy. And hopefully, we will receive this money in this particular year.

How much, sir, sorry?

So this 50 -- the only outstanding from subsidies is only INR 50 crore, and we hope to receive -- we are expecting this to come in this quarter itself, maybe if it is -- since the budget is over, we hope that the fund will start getting released. Once that happens, we hopefully will get this fund.

Okay. And also, sir, for the target area that you mentioned, any supply which is coming up, which will have similar lead distance?

No. I don't think that there is any cement plant, which is there in this particular -- our target market. The only plant, which is going to come up is going to come in South Bengal market of -- one is Shree Cement and another plant of Dalmia will come up. So these are the only 2 plants, which are there. But in our target market, no new facility is coming up.

Okay. And South to North, there would be more than 200 kilometers distance, I guess?

Yes. So Siliguri to Calcutta, the distance is around 500 kilometers. So our target market is largely going to get concentrated -- so for the purpose of spread, probably we -- in the initial days, probably the spread will be a little wider, and we'll reach to around 400 to 500 kilometers. But once the consolidation process starts in, we'll consolidate with the concentrate to the most effectively in the market up to around 300, 350 kilometers.

And where will you source the clinker from, sir?

So the entire clinker is going to come from Meghalaya.

The next question is from the line of Rajesh Ravi from HDFC Securities.

Most of my questions are answered. I just wanted to get some clarity on this Siliguri. Hello?