Star Cement Limited (540575) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Star Cement Limited Q2 and H1 FY '24 Conference Call hosted by PhillipCapital (India) Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Agarwal from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.

Yes. Thank you, Aman. Good evening, everyone. On behalf of PhillipCapital (India) Private Limited, we welcome you to the Q2 and H1 FY '24 Earnings Call of Star Cement Limited. On the call, we have with us Mr. Tushar Bhajanka, Deputy Managing Director; Mr. Vinit Kumar Tiwari, Chief Executive Officer; and Mr. Manoj Agarwal, Chief Financial Officer of the company. I will now hand over the floor to the management of the company for their opening remarks, which will be followed by an interactive Q&A. Thank you, and over to you, sir.

Yes. So good afternoon, all. My name is Tushar Bhajanka, and I'm the Deputy MD of Star Cement. I would like to welcome you all to the earnings call of quarter 2. I have the CEO and CFO of the company with me as well. The CFO will give out the numbers of quarter 2, and then we can have a Q&A session. Thank you.

Hi friends, very good evening. I, on behalf of Star Cement Limited, welcome you to the con call for discussing our number of Q2 FY '24 and half year ended September '23. I would like to clarify that we will be discussing on the historical numbers, and there is no invitation to invest. Having said that now, I will just take you through the Q2 numbers followed by half year number. Starting from clinker production during the quarter ended September '23, we have produced 6.48 lakh tonnes of clinker as against 5.12 lakh tonnes same quarter last year. So far as cement production is concerned, we have produced 8.94 lakh tonnes this quarter as against 8.91 lakh tonnes same quarter last year. This quarter, we have taken shutdown in both of our fields at [indiscernible]. Now I will take you through sales volume. During the quarter, we have sold 8.96 lakh tonnes of cement as against 8.91 lakh tonnes of cement corresponding quarter last year. This is so far as far as our cement sale is concerned. As far as geographical distribution [indiscernible] is concerned, in Northeast, we have sold around 6.72 lakh tonnes as against 6.54 lakh tonnes same quarter -- during the same quarter last year. And as far as outside Northeast sale is concerned, we have sold 2.24 lakh tonnes of cement this quarter as against 2.38 lakh tonnes of cement same quarter last year. In terms of blend mix, it is over 9% of OPC and almost approx. 1% of PCC and rest is PC. These are the quantitative numbers for this quarter. Now I will take you through the financials. The total revenue figure this quarter is around INR 585 crores as against INR 594 crores same period last year. As far as EBITDA figure is concerned, this quarter, we have done an EBITDA of around INR 104 crores as against INR 83 crores last year. PAT is INR 44 crores against INR 31 crores, the same -- in same period last year. On per tonne EBITDA plan, it is INR 1,164 during this quarter as against INR 934 per tonne same quarter last year. This is about quarterly numbers of second quarter. The total revenue figure of half year ended September '23 is around INR 1,346 crores as against INR 1,260 crores same period last year. As far as EBITDA figure is concerned, during half year ended September '23, we had an EBITDA of around INR 242 crores as against INR 221 crores last year. PAT is INR 134 crores as against INR 99 crores in the same period last year. On per tonne EBITDA front, it is INR 1,176 during the half year ended September '23 as against INR 1,183 per tonne same period last year. These are the quarterly and half yearly numbers. Now I request all of you, if you have any query, you can ask the same, and I will request Vaibhav to moderate the query wherever it is required. Thank you.

[Operator Instructions] First question comes from Shravan Shah from Dolat Capital.

Sir, first a couple of data points. Trade share and premium share and the lead distance for this quarter?

Yes. Vinit Tiwari this side. Trade/nontrade is 89% and 11% in quarter 2. Premium growth is 6.9% this quarter vis-à-vis 4.6% same quarter last year.

So the share of premium in the trade is 4%?

6.9%.

Okay. 6.9%.

Vis-à-vis 4.6% last year same quarter. Premium growth is close to 37%.

Okay. And the lead distance, sir?

Lead distance for quarter 2 is 214 kilometers.

Okay. 214 kilometers. And in terms of the fuel mix, spot contract coal, Nagaland coal and biomass AFR?

Okay. So in terms of fuel mix, our -- in quarter 2, our FSA is around 6%. Nagaland is around 32%, biomass is around 5%, spot option and trader purchase is around 57%.

Okay. And KKL basis is how much? Last quarter, it was INR 2.4. So...

So this quarter, it is INR 1.9.

So do we expect any further reduction in the end of second quarter -- third quarter?

We expect to remain in the similar line in the next quarter.

Okay. Sir, now coming to CapEx and the time line for the plants that we have, so for plant-wise in terms of the clinker at Meghalaya 3 MTPA, 2 MTPA Silchar and grinding and 2 MTPA grinding at Guwahati, how much CapEx we have done? And how much more for this year we are planning? Last time, we told INR 13 crores that we are planning for this year and INR 400 crores to INR 500 crores in FY '25?

Okay. So first of all, if you want to know about the project status, our Guwahati grinding unit is the first to come. So it's looking quite possible. We will be starting it in December. So this is going to happen pretty soon. As far as our clinkerization unit is concerned, it is expected as of now around February. And as far Silchar unit is concerned, as we informed in last quarter also, we have slightly delayed it for strategic regions. Also, our land acquisition is going well in place. Almost 73% of the land acquisition we have already done and so that's going on. But we are facing it so that we have enough time to utilize our Guwahati grinding unit capacity. So as far as Silchar is concerned, it will be hitting us in the financial year '25-'26. Now coming to CapEx. Overall, CapEx, as you know, all the projects, everything involved was close to INR 2,400 crores. With the loans, our clinkerization was around 1,300. Do you want to know how much we have done it now, that's what your question?

[Audio Gap] for Guwahati?

Sorry, Shravan, we lost your audio.

Guwahati is around INR 450 crores. Silchar is around INR 500 crores. Apart from this, there are 2 other projects on which we are working, which is AAC Block project, which is around INR 50 crores. And a solar project, 25 megawatt, which is around INR 10 crores.

So we have already spent on clinker. How much we have spent? And Guwahati grinding, how much we have spent?

The cost incurred on our clinkerization unit until now is around INR 700 crores. On Guwahati, cost incurred till now is around INR 206 crores. And as far as Silchar is concerned, the land acquisition is going on at this moment. So that's where we stand.

And just -- I have found to be correct, just add one more thing here, that the cost which has been incurred in the books of INR 700 crores per the committed cost, which is, of course, the cost of ordering machines and the payment and the contract is about INR 950 crores. And then, of course, there are certain buildings, certain facilities that we are making with the plant, which we didn't have not prioritized with the plant. So the clinker production will start by Feb, and the other supplementary buildings and plants will be commissioned 2, 3 months after.

Okay. So this year, in FY '24, totally, how much -- combined put together, how much we are planning to do CapEx and the next year FY '24, '25?

We were in total last -- in the last call, I think I suggested about INR 800 crores of CapEx in this year and the rest of it will be next year. Out of the INR 800 crores, we have already done INR 200 crores in quarter 2. And in quarter 3 and 4, we plan to do the net INR 600 crores. And right now, I think the cash reserve in the company is about INR 210 crores. And in this year, we plan to generate about INR 320 crores approx. So we may need a debt of about INR 300 crores in this financial year.

Sir, correct me if I'm wrong. Total for FY '24 combining, INR 200 crores we have spent, INR 600 crores more, so INR 800 crores. But in Q1 also including, so total -- last time we have talked about INR 1,300-odd crores that we are planning to do a CapEx at console level. So against that now we are saying that INR 800 crores?

Yes. So basically, in quarter 2, what we have said is that -- in quarter 1 call, we had said that in the next 3 quarters, we would spend about INR 800 crores, right? So out of the INR 800 crores, we have already spent INR 200 crores. So there's INR 600 crores yet to be invested, right, in the CapEx, which will happen in the quarter 3 and quarter 4.

And for next year FY '25?

For next year FY '25, we would do the balance, right? So I'll have to calculate exactly the difference. But I think about INR 300 crores more in the clinker plant and the Guwahati grinding unit. And then, of course, there will be about INR 300 crores of more investment in the Silchar plant. So the Silchar plant we have deferred, so it will not really be hitting us that much in the early next year.

So more than INR 600 crores broadly for FY '25. So in terms of the net cash, so currently, we have an INR 210 crores, and we are saying that INR 320-odd crores we will be generating. So with this CapEx and we were looking at -- again by end of FY '25, we will become a net cash company. So that stand remains intact?

Yes, yes. I think that stand remains completely intact.

Okay. And lastly, on the pricing front, sir, how are -- in terms of the current prices versus the 2Q average, whatever the reasons particularly in Northeast and East?

So on the NOD front, if you ask me, we have improved by around 5%. And in Northeast, it's around INR 10 a bag. And outside Northeast, it is around INR 50 a bag improvement we have seen in this quarter.

Okay. And that is not impacting the demand?

Yes, demand, it is not impacting the demand. I will say price is not impacting the demand. Overall demand in quarter 2, if you remember it, quarter 1 was superb quarter. There was a huge almost 25% industry growth we registered in Northeast in quarter 1. And accordingly, Star also grew by more than 25% in quarter 1 in Northeast. Quarter 2 has been pretty subdued. It is flattish almost on demand front. So that was expected because quarter 1, the rain got delayed, more rain came into in the second quarter. There was a north -- in north Bengal hill side, there was huge landslides. Roads were totally blocked and jammed. So that has caused demand dampness in quarter 2. And so there's a balancing impact you can see. Quarter 1 was exceptionally well and quarter 2 has been subdued on that account. So going forward, we still maintain. There's no reason why we should not be seeing a double-digit growth in the balance 2 quarters.

[Operator Instructions] Next question is from Mahek Talati from YellowJersey Investment Advisors.

Thank you for the opportunity pertains to there is a sharp decline in the profitability on a quarter-on-quarter basis by close to 40%. So any specific reason because of pet coke, power and fuel cost has declined in this -- on a Q-o-Q basis. So what has impacted our profitability?

I mean one big reason, which has impacted the profitability is, of course, the volume, right? Because Q1 is normally a better quarter in terms of volume. And Q2 -- because of monsoon, normally the volume dips. So in Q1, we did exceptional growth also because the monsoon had postponed. In Q2, the monsoon hit us. So of course, you'll see a big difference in the volumes between Q1 and Q2, which also, of course, explains the difference in profitability between the 2 quarters.

And another is, obviously, the maintenance expense also came into this quarter. So we had a shutdown plant, so that is also a difference between quarter 1 and quarter 2.

Yes. There was an INR 15 crore expenditure in the shutdown, which is the annual shutdown that we took. And of course, because of that, yes, there's a difference there.

Okay. And does the slowness in the demand, which we saw in Q2, is it a postponed demand? Or so -- will that demand come in Q3 and Q4? Or how do you look at that slow demand which we faced in Q2 due to the monsoons?

I think if you'll talk about the demand got postponed, we can also say about preponed also because the incident came in the quarter 1, the way that it came in last year. So we can see a mix impact. I will not say it's totally a postponed demand. Yes, we can see some demand start after Diwali festivities get over. That's a time when things should start looking up. And then as we are moving towards the general election. In the next 2 quarters, I think we see a good build up.

So what is the volume target -- volume growth target in FY '24 as compared to FY '23? How much are we targeting?

Our annual target, if you'll ask me whatever we have achieved and whatever we feel we will be able to achieve in the balance 2 quarters, it should help us in achieving a growth of -- in double-digit, surely, around 13%, 14%, at least, we should be able to achieve.

13%, 14% for FY '24 or for H2?

No, no. I'm talking about the full financial year.

Okay. And last, if I'm -- last if I may confirm, you said that Silchar project has been -- what's the status there?

I think [indiscernible] to start it. So we are just going slightly slow. As you understand, Guwahati unit is coming up in December. So we will be flagged a bit with material for some time. So we felt the bringing up Silchar unit early, may not be a wise thing to do. So we are strategically delaying it for some time. We have calculated our volumes. And based on that, we feel either if Silchar unit comes somewhere in mid-'25, that will be the right time and somewhere around first-second quarter of mid-'25. That will be the right time when we will be sitting and exactly in a position to utilize the capacity of Silchar as well.

[Operator Instructions] The next question is from Amit Murarka from Axis Capital.

Just two questions. First on the market. So our market grew 25% in Q1, but was flat in Q2. So like second half of '25 -- '24 and '25, like can we expect the double-digit growth to broadly be there in the market in terms of projects which are going on and the general demand that you see the B2C level also?

Yes. So as I said, if you look into the month after the second quarter, October, if you look into October, yes, it was good vis-a-vis last October. And since after that, there has been two festivities back to back in Northeast, Durga Puja and now the Diwali. So there has been slight dumpiness at this point of time. But surely double-digit growth I see happening in these 2 quarters.

Okay. Okay. Sure. And also on realization of INR 50 hike that you mentioned that has happened, like has it stabilized? Or you think that like there could be some rollbacks going into Diwali and all?

No, no, no. As far as Star is concerned, we have realized the gains definitely in our NOD. So there's no rollback as for now. There are some slight rollback because of these festivities, which happened because Durga Puja, as you understand, is a big festivity here. So there was a slight correction, but there's nothing big happening. Going forward, if everything works out, I hope this should get maintained. If it has come down, there may be a possibility of taking up another INR 5, INR 10 -- INR 5, INR 7 dilution, which has happened in the last 10, 15 days. We definitely see. And once the demand picks up, the opportunity to bring it back on the table.

And I would just like to add that this slight increase of INR 50 in outside Northeast, in Bengal and Bihar and INR 10 hike in Northeast happened in the month of September. So in quarter 2, we haven't -- the NOD does not reflect that increase in the price because it happened somewhere mid in September. So it did not even have 15 days of impact. So the impact of that should be seen in Q3.

Got it. Got it. Lastly, like I believe Eastern players are also trying to get into the Northeast market. I think UltraTech particularly has been quite vocal about it. So are we seeing them making inroads incrementally? Or you think that it's tough to do that?

UltraTech has been there in that market for quite some time. So it's not a new market for them. Yes, they must be having their own strategy to get into there. But it's not a new market. UltraTech has been serving that market for quite many years.

I don't think like there's be a significant increase in sales from UltraTech side in quarter 2. So there's nothing which actually makes us believe that they are gaining market share in Northeast.

Sure. And sir, just the last one, so I did believe like you are doing the clinker line, even Dalmia is doing their clinker line. And both of them combined, I believe, is like almost like a 30% plus kind of an expansion in the capacity in the market. So could there be a situation of like a temporary kind of increase in competitive intensity within that phase and both of your clinkers are ramping up, just some thoughts on that.

So Dalmia's clinker is coming, I think approximately one year after our clinker front is coming. So I think that will not be the case for at least the next one year. But of course, when there are two companies which are getting big capacities of -- two dominant companies getting big capacities, there could be some correction in the price, right? But I think what will happen is that it will be made up in terms of volume. And that's what we expect. And it will be made up from -- there's cement coming from outside Northeast. So I think there will be some substitution of that market share getting added to ours and somewhat to Dalmia.

[Operator Instructions] Next question is from Mangesh Bhadang from Centrum Broking.

Sir, my question is with regards to your profitability in the Northeast and Eastern regions. In the past, you had mentioned that Eastern region's profitability is significantly lower on Northeast. So with this price hike, which is much higher increase, how far we have bridged this gap? This it more or less similar now? Or do you think there is still a difference that...

So if the question is that is there a difference between any Northeast and outside Northeast profitability per tonne? Of course, there is still a difference between the two. But given that there was a price hike in outside Northeast, which was higher than the price hike in Northeast, the difference would, of course, now reduce, but still very substantial.

Sir, any -- anything we can quantify there or...

Yes. I think outside Northeast, it would be about -- this is before the price hike. I don't have the EBITDA per tonne after the price hike. But before the price hike, I think the per tonne EBITDA outside Northeast was [indiscernible] per tonne. And now the per tonne EBITDA would be much higher. And the per tonne EBITDA in Northeast was about INR 1,500.

Okay. Sir, second question is on the Bihar market. So maybe knowing that there has been sharp slow down in that market in terms of demand, so I just wanted some color on it. Have you experienced the same in the North Bihar market that we target? And if at all it is, then what could be the quantum of the demand decline that you are seeing? Do you think that it is in normal limits -- normal course of the deals?

Your voice is not clear. Exactly, what you're trying to ask is the Star has shut down some market, you're saying that? Or you are saying...

No, sir. No, sir. Bihar market, we have seen some slowdown in demand.

Yes.

So just wanted to understand for North Bihar market that we specifically target, have we also seen a similar kind of slowdown?

Yes, yes. We have experienced a slowdown in demand. Last month or two, I would say, the 2 months it has been a pretty bad in Bihar. And Bengal also it's not something great vis-à-vis Bihar also. But Bihar was the type of growth which Bihar was showing, it is not showing as of now, last few months.

Sir, final, my question is on the incentives. You can just run us through the incentives that we are eligible for the investment that we are doing?

So you are unaware about it. The incentive is 200% of our plant and machinery investment. So we look -- if you want me to quantify that, it should be around [ 800 crores ].

[Operator Instructions] The next question is from Giriraj Maloo from MDM Tradecom.

Just wanted to know what is the current status on the capacity utilization as of today and the current status?

You want to know for quarter 2?

Where we are right now, as of date.

He is asking for H1, quarter-on-quarter. It is around 88% of cement capacity utilization.

Okay. And sir, in the last con call, we have been noting that there has been some plans for the cost reduction of fly ash at the Siliguri unit. So what is the update on that? Have we been able to make some progress on that?

Yes. So that's a project we said, this is a B type wagon projects, so whereby we are bringing fly ash by road as of now. So we want B type wagons. That project is in the -- we are progressing on because it's a -- so presently, we'll be ordering those wagons. And it will be a project which will get realized in financial year '25 only. Somewhere around March and April, we expect those wagons to get delivered. So that's the main number of initiatives we have taken to reduce cost. But one of the major initiative is that. So that is already under progress. Our consultant, everybody has been appointed. Discussion and negotiations are on.

Okay. As per study is that Star amount is about 25% to 30% as far as the Northeast market is concerned. So post this whole expansion that is there for the next 2 years, where do you see this number really jumping into as far as the market.

We are targeting to reach a market share of 30% plus.

30%. So sir, we are expecting the capacity to double? So do you see that kind of absorption being taken by the market because a lot of -- both national players, the big players as well as the small -- there are a lot of small players who are also expanding the capacities of less than about 2 million tonnes. So how do you see on that front?

So there are 2 things. One is the market will grow naturally. So the growth which we get out of the market growth, that is something is there available for us. Secondly, the players in Northeast, who are dumping material and are working and doing like hit and run. These are the players whom we'll have to fight out with. We have all were with whatever -- we are with our capacities there as well as we'll have those subsidies with us. So if the need be, we'll have to fight our market share out from them as well. As far as the smaller players are concerned, we don't see much capacity expansion coming up from any smaller player. So they will remain stagnant at the level where they are in. So the growth which they were also taking will also come to us.

Okay. And sir, any consolidation, do you see any kind of a consolidation happening in the market like the coming couple of quarters or couple of years since a lot of capacity is being added. So any consolidation within the industry that can be expected?

We don't rule it out. Once the two big players have the capacity coming in there, that's for the people, they may not see much opportunity for their existence if they don't have a capacity to expand. They may think about that.

Okay. And sir, as far as Central India place, any progress or any mine that we are really looking out or any opportunity that is there because the company has been looking to venture into the Central India. So any...

We have been looking for mine. So we have participated in a few auctions as well. In Rajasthan, we have participated. In MP, we have participated. In Chhattisgarh, we have participated. We have been successful in getting one. In Chhattisgarh, Saloni, we have been able to get the composite license. We have secured one composite license in Chhattisgarh already.

And sir, one last question. What is the current nontrade versus trade volumes that the company has gone by for Q2? And any ballpark that can be given for the Q3 and Q4?

Our current ratio you want you are asking, trade , nontrade ratio?

Yes. Yes.

89% in quarter 2 and 11%. 89% and 11%.

And sir, do you -- with the new capacity and all in place, how do you see this mix.

It will grow. Our nontrade portfolio will grow. This is one thing which we have not invested much on. Last few months, we have paid attention to this. And it has slightly grown in last 2 months. So we see it will grow -- to a level of 85-15.

And sir, what has been the average pet coke cost that is there in the inventory side?

Come again?

The pet coke cost for -- the average cost that is there in the closing inventory for the last quarter. So the cost realization that will happen in this particular quarter coming.

So you're talking about the pet coke?

The pet coke, the coke cost.

We're not using pet coke.

We will take the last question, which is from the line of Uttam Kumar Srimal from Axis Securities.

Sir, what was capacity utilization of Siliguri unit in this quarter?

Capacity utilization of Siliguri grinding unit in this quarter has been 45%.

45%?

Yes.

Okay. And what was -- in the last quarter to last year same quarter?

Last year, same quarter, it was 37%.

37%, so it has improved. And now sir, we have improved on our premium cement share to 4% to 7%. So any number that you want to take premium cement to 14%, 15%?

Yes. We're targeting to hedge 10% by in this financial year.

10% by this financial year. WHRS plant, which came last quarter. So how much savings till date we have achieved from that?

In quarter 2, we have got INR 10 crores out of WHRS.

INR 10 crores. And last one, sir, this quarter, our freight cost has been quite low on a tonne basis. It has gone down by 16%. So any reason for that?

Yes, there are 2 reasons. One is, as you are aware, that Star has its own fleet. So we have deployed our feet strategically to bring down the freights, number one. Number two, there was a bridge, which was broken last year, which escalated the freight substantially. That bridge work has been over. So that has helped us in bringing down the freights.

And sir, this one is sustainable going forward also?

Yes, we see it sustainable.

Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Vaibhav Agarwal for closing comments. Thank you, and over to you.

Thank you, Aman. Sir, I had a few questions. Sir, you have guided on the call of about 14%, 15% volume growth, if I rightly hear, for FY '24. And in the first half, we have done about 10% growth in terms of volumes. So sir, are we guiding for like a 17%, 18% kind of growth in second half, H2, given that the demand is not great at the moment and there could be a risk to demand because of labor issues closer to elections -- general election? So do we see a downside risk to your guidance of 14%? Or you hold on to that, that we will achieve this number?

We are absolutely aiming for those numbers. We have a claim for them, Vaibhav, because in December, as you know, our plant is coming in. So we are absolutely focused and our actions are in line with that.

Understood, sir. Sir, second question was that in the East, we have seen -- like you also mentioned on the call that East prices have been quite higher than Northeast prices. So has these price hikes been able to push on the inflow of material, which was coming to Northeast from East and other zones? So has the inflow from -- to Northeast from other...

No, no. If you -- that has not impacted any available material flow into Northeast. The reason for that is with a player in East Star low in capacity utilization. So increases have happened, but the volumes are not that great in last 2, 3 months, if you see. So volumes have not been great. So they find we obviously going to dump it at some place. So they continue to dump it, but they are not serious players, as you know. So network also see the opportunity with them as and when they like. Unlike the players who are operating and who are enriching that market and working on branch and everything. So that difference is there -- to be very honest, Vaibhav, these players are operating because of the price. They are operating at INR 30, INR 40 less than us in those markets. So it's a matter of time that they will decide. If we have to fight it out, we will fight it out.

Right, sir. And sir, last question to Vinit, sir. Vinit sir, you've mentioned on the last call about some rationalization of some discount structures happening in East India specifically. So -- and even in Northeast India. So is that rationalization continuing? Or you have seen roll backs of those discounts rationalization? So is this something which is helping price to sustain in your view? Just wanted to take your view on that.

Yes. I think in Northeast doesn't work like since you know we have good exposure of Eastern market. Northeast is not as bad in those practices, I'll say. But it's more disciplined and more transparent, I'll say.

Okay. And as far as East is concerned, sir, do you see -- have you seen like there's good practices sustaining or...

No, those good practices which were -- they have been falling back. Again I see those efforts are there, but I have my serious doubts after effort of one year. Those practices have come back again. And what is the seriousness, how to believe on whether they will be right going forward.

Understood, sir. Understood. Those are my questions. On behalf of PhillipCapital (India) Private Limited, I would like to thank the management of Star Cement for the call and many thanks to the followers joining the call. I'm going now conclude the call. Thank you very much, sir. Thank you all. Thank you.

Thank you.

Thank you very much. Ladies and gentlemen, on behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.