Star Cement Limited (540575) Earnings Call Transcript & Summary

Okay. And in terms of raw materials, primarily ly ash, what has been the cost trend in FY '23? Has it been stable or they have gone up when fuel prices were going up?

So the cost for fly ash has broadly been stable, nothing too alarming, but I just need to -- so I think it has gone up by about INR 50.

INR 50 per tonne.

Yes

Okay. And could you also discuss on the incentives accrued -- incentives accrued in P&L in FY '23 in terms of cash? And what is the outlook for next year FY '24?

Yes. So basically, we had about INR 125 crores of incentives in FY '23. Out of which, a major -- majority of this benefit was still Jan '23. So in the month of Feb and March, we have actually not gotten a majority of the benefit because it finished off in Jan FY '23. So in quarter 4, we only got a benefit of INR 19 crores.

Okay. And outlook for FY '24 on the existing operations?

So I do not think that there will be any subsidy kicking in FY '24. But what we are getting SGST benefit in the new grinding unit that we're getting in the plan, and that has already been discussed and signed with the government. So once our new lending unit commission and once we pay the -- once we get the credit for the GST and the expansion and then the benefit of SGST will start kicking in, but that will be in the next financial year.

Right, right. And only on the grinding unit or even for the clinker expansion you will be getting incentives?

So in the clinker expansion, because we are expanding in the same company, SCL. There is a benefit in the current line of SCL, which will be also passed on to the expanded capacity. So we do expect some benefit that will not be as significant as the benefit in the grinding unit.

Okay. Also to quantify the incentives, annual incentive accrual, which you foresee once the input credit is adjusted?

Yes. So I think we basically will get a net GST of -- in the volume that we sell in the plan. And right now, we are selling about 17 lakh tonnes in the plan. And at that point, we'll be probably selling about 20 lakh tonnes in the plan. So I think it's just a function of multiplying that volume with the amount to SGST per tonne. So it would be a significant benefit.

[Operator Instructions]. The next question is from the of [ Amal More ] from [ Signet Technologies ]. Due to no response, we move on to the next participant. [Operator Instructions].Next question is from the line of Shravan Shah from Dolat Capital Markets.

Sir, in terms of the demand, I just wanted to understand for FY '23 broadly if I have to look at. So excluding the North East, how it has grown in BR with [indiscernible] and how do you see that for FY '24?

So in outside North East India, those are all critical entries. So it was a good growth for us and outside North East. Mainly because the base is small for us. But we do not expect the same growth rate in outside North East going forward. We expect a growth rate of about 10% to 12%.

But for FY '23, definitely our base was lower, and so we were able to grew 34% outside North East. But in general, for the industry, if one has to look, is it the case that except the Bihar, all of that state Jalpaiguri, Chhattisgarh have all seen a very, very marginal kind of a growth?

Yes, that is true. So the growth rate has been about 2% to 5%.

And how about Bihar?

With Bihar, we would be also very conservative, close to 3% to 5%, something in that range.

So any specific thing that -- and how the things were in Q4? So just trying to understand why normally the perception is that the East states are growing much faster? So what has happened? And will it now has came back to the normal levels, double-digit plus kind of a growth now? So Q4 was the number the similar kind of a 4% 5% growth in East? And how do we see now?

So in East our number was very conservative. It was like 4%, 5%. I'm talking about [ Kahalgaon ]. I'm not talking about the market in East. For us in Q4, and outside North East, we grew by about 5% in outside North East. Even I'll have to come back to you with the results of the market, how it will improve.

[Operator Instructions]. Next question is from the line of Kamlesh from Lotus Asset Management.

Just one question on the part of like the aspiration side. Like what's your game plan for like the next 5-odd years apart from North East and East areas, East region. And what people do you have brought in to achieve that particular top prospect or the region?

So I think that's a good question to ask. So I think, of course, the next 5-year plan is definitely because once we set up the capacity in North East of about 3 million and the grinding unit, I think for the next 4, 5 years, we do not see any scope of putting more capacity, right? So I think the fact that we have to grow, and I think we'll have a very healthy cash flow to grow. We'll have to grow outside North East, and we are looking -- actively looking at mines. We are also looking at smaller plants that we can acquire and then we can probably grow inorganically and organically. So I definitely feel that the growth going ahead for the company will have to come from outside -- from coming out from outside like coming out of North East. And I think in the last one year, we have also built up the capabilities in the organization to embark on the journey. So we have gotten -- so if I start from the start of the year, so I think we have gotten a new manufacturing officer, who are looking after all the plants, who also brings in capability of mine to the company. We have changed our HR head as well a year back. We're bringing in a lot more people in the management level. And of course, a week back, we have our new CEO, Mr. Vinit Tiwari, join us. And of course, with his expertise in other markets in North and East. We do hope to look at opportunities which are viable for us and to grow in those markets.

And Tushar, secondly, like our -- one of the largest competitor is also bringing a large capacity in North East. Don't you think that there could be some competitive pressure? I know that there could -- are there double gain in terms of the clinker capacity. But do you see some pressure on that front or the volumes or the strong demand would take care of that?

So I think it's a function of -- of course, they are -- even Dalmia are getting a capacity of about the same, about 3 million tonnes. But then the other players, the smaller players in North East are not really expanding at the moment. So I think that will be a source of relaxation because I think then -- there are only two players effectively competing and rest of them are not really part of the game. So I think that would be a benefit, which probably will mean that our growth rates, the company's growth rate will be higher than the market growth rate. And secondly, there is some comment coming from outside, basically being dumped in North East. And I think once we have a clinker capacity and we become aggressive and we attack the right spaces, then I think it'll be -- then probably we'll probably be able to curb some of the cement coming in North East. And I think that will again become a growth center for the company. So I think going ahead, of course, in the first year or first 1.5 years, there may be a competitive pressure, but in the long run, I do think that both companies and Star Cement would be able to get a healthy growth and be able to utilize the capacity as per needed.

And lastly, like I think are coming to new areas other than North East. So what would be the time line over there?

So we are actively looking at assets, and I think we should have something to at least share by quarter 2. So that is basically the time line that we're looking at. And it really depends on what you spend. So it will be hard to, of course, get to a definite time line, but yes we are definitely looking into it, and we should be able to at least draw out a plan by quarter 2.

Next question is from the line of Rajesh Ravi from HDFC Security.

Could you discuss on the demand trends outside of North East, particularly in states like West Bengal, Bihar, Dhaka, which are your focused markets for FY '24, what sort of outlook you're looking at?

So we are broadly looking at a 7% to 8% in the markets.

Okay. That is your growth or market you're looking at the market growing in this versus...

The expectation of how far the market would be growing, 7% to 8%.

Okay. Okay. In all the three markets, you're looking similar growth trajectory?

Yes, yes.

And FY '23, I missed, I believe you made some comments on the same, these three states and if you're -- some trend on the other states in East, what were the growth numbers?

So I think the growth number is close to 5% to my knowledge. I don't have the numbers really ready with me. So I won't be able to comment with surety, that's what I assume the market has grown by.

Next question is from the line of Shravan Shah from Dolat Capital Markets.

Sir, just to clarify, when you mentioned that in Q2, we will come up with the update in the expansion outside the North East. So we will be announcing that where we will plan to grow by, let's say, in next 3, 4 years. So that's the way one can look at? And broadly, even if we, let's say, want to either acquire a small plant or grow, what's the minimum capacity we are looking at 2 million tonnes that we are looking at?

So yes, I think the -- to grow outside the 2, 3 opportunities there. One is to acquire a mine. The second one is to acquire a plant. So it would just depend on what opportunity fits with us and how does it pan out. So I think in terms of acquiring a mine, the CapEx would be much lower. And then acquiring a plant for INR 2 million, the CapEx will be a bit higher. So I think -- so we haven't likely tapped on which route we are going to take. So I think it will be a bit hard to comment. So yes, in terms of -- in case we take up -- take a plant, then it would be up about 1.5 million tonnes capacity.

Okay. And when we say that our net debt once the new all the clinker and to grinding units will be operational in 1 year, we will be able to repay. So that will -- that 1 year will start from the August, September, when we'll start the [clinker] grinding unit. So from there, we are looking at 1 year to repay the entire this INR 500-odd crores debt we are looking at max net debt?

So we are looking at -- basically, we're looking at 2024 and 2025 here. So basically, from March '24, the year starts, where we start to go over everything. So by March '25, we should be, again, debt free.

So does that mean that we should be able to easily can see a 50%, 60% plus kind of a utilization from the first year itself?

Yes. So I think we do see about a 40% kind of utilization, 40% to 50% utilization. But I think just how the economics work, the subsidies work the cost effectiveness of the cost efficiencies of the bigger kiln works, right? I'm very sure that we'll be able to pay it off in that year.

Okay. And lastly, just to clarify, we said that now we do not have any incentives in FY '24. No incentive, except that the new branding unit that will come up in Assam, will have state GST benefit. So we do normally have extract a 17 lakh tonnes volume that currently we are doing. So only that benefit will come as an incentive?

Yes. So basically, we have a benefit going on even now that is in the clinker plant and the benefit of small, which is about -- I think about -- it is about INR 26 crores, INR 27 crores. So I think that benefit will remain and then we will get that benefit in the grinding unit and the new grinding unit, and that benefit should be of at least INR 100 crores to INR 150 crores, every year.

Next question is from the line of Raj Gandhi from SBI Mutual Fund.

Just your freight cost for the quarter, freight cost per tonne is down by about 20% Y-o-Y and 10% Q-on-Q. So is that again some regrouping or how is it going down so much?

Raj, one thing because the fleet, you know we have their own fleet. So January, March, February, March prices tend to increase, okay? So -- but we have the fleet, so we are managing for provincial, so we have not allowed to increase the freight cost per tonne in the last February, March. So that is the reason that fleet costs have not increased as compared to Q3, and there is some saving in fixed cost.

Okay. Okay. Great. And on fuel, did you happen to mention that 15% is biomass and then there is another 15% from other fuels. So then does the cumulative AFR go to 20% or?

Yes. So I think the cumulative AFR right now is of about 25%. And that is mainly because our power plants are operating on biomass and also because we get low-grade AFR in Nagaland, which helps us in, of course, meeting the 25% requirement.

Thank you. I now hand the conference over to Mr. Vaibhav Agarwal.

I had a few questions actually. So just an extension of Kamlesh's question. First thing, I wanted to know is that Mr. Vinit Kumar Tiwari, he comes from a marketing and sales background from earlier assignments. So Tushar, I wanted to ask you that, he coming on board, do you have any specific expectations from him as the next CEO of the company? And how do you look him getting on board for Star Cement in particular -- in case of nature of his assignments?

No, completely. So I think there is, of course, a huge expectation from Mr. Vinit Tiwari, given his pedigree and the kind of experience he has. And some of the expectations is, of course, to make Star Cement even more operationally capable and to bring in the efficiency. The other expectation is, of course, to see a good growth rate in North East because North East being a very highly profitable market. And given that he has a vast experience in marketing, it will be something which we're looking at. I think in marketing also, there are good scope of improving ourselves like how we discuss our premium cement, so to push the premium cement to make the technical services stronger because there are some areas in marketing, which, of course, it can basically contribute, too. And overall, in the overall scheme, of course, we look at his expertise in outside North East markets like North and the Eastern market to, of course, grow the company in those markets by taking capacities which are already set or to take mine in a set of new capacity. So I think the expectations are high. And I think we really hope that we deliver on it.

So I also like to ask you Tushar that -- so any change in -- like we had a CEO structure earlier as well, maybe about 3, 4 quarters back. And so any change in management structure at Star Cement with Vinit coming on board and how do you look because you've changed a lot of HR policy in Star Cement. I believe you commented some of those on the call as well. So any change in this time with Vinit coming on board? Or it's the same day that the earlier CEO function and you would like to comment anything on that one too?

No, I think with Vinit coming in, of course, all the functions in Star Cement will report to him. And that is, of course, very clear. And so I do not know which earlier structure, we're comparing it to. But I think...

I was comparing to when Sanjay, sir, was there on board, when he was the CEO.

I think -- we are from there. I think it would be a bit changed because even the expansion and the growth falls in the CEO now. So I think it will be a bit of a same structure to what the earlier CEO had. So yes, I think there would be a change in the scope of what we're managing.

And the last thing from this question, first of all, I just want to know, sir, going forward, it's fair to assume that Vinit, sir, will be focusing more on the marketing and sales efficiency like you told and you would be focused more on the overall growth on now Star Cement to how to take it forward from a promoter's perspective. Is that a fair assumption to make? And what do you think Star Cement could be next? So you will next then on the call that by end of Q2, you may might and share something with us in terms of your next road map. But next, say, next 3 to 5 years, you already have a road map of 10 million tonnes in the near future, but 3 to 5 years, what do you see this number to be maybe 15 million tonnes, 20 million tonnes, 25 million tonnes? What is your expectation?

No, fair enough. So I think to answer the first question, I think, of course, we have the expertise in more an experience in marketing, but he would be looking at all the other functions as well. And so his role will be, of course, as a CEO. And besides the operation, he would also be helping us at the management to kind of take decision ongoing outside North East as well. So I think that is broadly how his job would entail. And the 15- to 20-year horizon -- sorry, the next 5 to 10-year horizon would be that we want to be a 20-million tonne company. And that is what we want to start out and progress the work on.

So 20 million you are saying in the next 5 to 10 years or like 3 to 5 years? I just got a bit of confused.

No 5 to 10 years, sorry. Five to 10 years target is about 20 million tonnes.

Okay. Great. I understand just one small thing. Did you mention on the call that INR 500 crores would be your debt. Are you talking about peak debt here? Or are you talking of debt end -- FY '24 end?

No, I think that's the peak debt that we're talking about.

And can you also spell out the CapEx numbers for FY '24 and '25 model? So if you can just tell what are the CapEx spends in FY '24 and '25 in pipeline, incremental CapEx?

So I think in '24, we are looking at a CapEx of about INR [ 1,300 ] crores. And in '25, we'll be looking at a CapEx about INR 400 crores.

Okay. Thanks a lot, Tushar. So on behalf PhillipCapital India Private Limited, that concludes the call. Thank you very much, Tushar. Thank you very much Manoj and Vinit also. Thank you very much for the call. Thanks for joining the call. Many thanks to the participants on the call. And we can now move to the call. Thank you so much.

Thank you very much. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.