Star Cement Limited (STARCEMENT.BO) Earnings Call Transcript & Summary

Right now, we're trying to just secure a mine, but if you are able to secure a mine, then we plan to do a CapEx of -- we plan to put up about 3 million tonnes clinker plant along with 4 million tonnes grinding in Rajasthan, which would basically be about INR 2,400 crores to INR 2,500 crores CapEx overall.

Okay. And sir, how is the pricing right now compared to quarter 1 FY '26 prices in both Northeast and East region?

So compared to quarter 1, I think the prices right now are still maintaining, they have not fallen by as much or anything. So I think we should not see a very big dip in the price due to off season.

Okay. And sir, since prices have improved, so Siliguri unit might also be producing more cement as compared to what it was doing earlier. So how do you see Siliguri unit capacity utilization this year because since prices have improved compared to last year?

So definitely, we are pushing more outside Northeast to West Bengal and Bihar markets because the prices have improved. I think we'll see in the quarter 2 results that I think that has really helped us in achieving higher volume.

Okay. And now coming to sir, this premium cement sale. This is around 12%. And last quarter also, it was around 12%. So it has remained on the same level. So what we are doing to increase the sale of premium cement?

So I mean if you compare it to a year back, we have definitely improved it from 6%, 7% to 12%. And I think we have taken a target to be more aggressive to be pushing our premium sales more. We've taken a target to make it reach about 18% by the end of the year.

The next question comes from the line of Jayesh Shah from OHM Portfolio Equity Research.

I just had 1 question on the incentives and subsidies. There were some media reports of certain state government, including West Bengal looking to withdraw these incentives and subsidies. So where are we on this? And how long does it take to collect the subsidy amount once you are eligible?

So good question. So we -- unlike states -- other states that you mentioned, right, I don't think Assam has a history of taking away the subsidies, right? Because we have completed all our documentation. We have gotten an eligibility certificate from the Government of Assam, which is also approved by the GST department, the finance department of the state. So it's more of a binding agreement that one has with the state, right? And then we've already filed for getting the subsidy for the last year that we had booked about INR 150 crores. And I think that should be with us before the quarter 2 end. So we'll see that whatever we are booking in terms of subsidy in our books is also received in our cash flows every quarter from now on.

Okay. So are they really [ messing ] the timetable of disbursement as per whatever that has been promised to you?

Yes, so basically there is no timetable as such, but what normally happens is that right now, there's a backlog, right, because we were filing all our documents and all. So there's the backlog of last year as well, which we're supposed to get, which I think we'll get the entire INR 150 crores or major part of the INR 150 crores in quarter 2 end, by quarter 2 end. So that will finish the backlog until quarter 1, right. And then we will -- for each subsequent quarter that passes, we should be able to get the subsidy amount by end of the next quarter. Suppose the subsidy amount for quarter 2 will be accrued to us and received by us in quarter by end of quarter 3. That is how normally it should follow, and this is how we've seen in the past also that it has followed. So the subsidy is not the main amount which is just showing in the books and never received by the company. In our case, it's never happened like that, and we hope to maintain this right?

Okay. That's very comforting. And my second question is, given the stake that UltraTech has in your company, which they say is financial investment. Are there any -- is there any business relationship, trade arrangements or do you benefit with -- due to UltraTech taking stake in your company in terms of dealer, distribution, logistics or...

No, not really. So UltraTech definitely bought a stake in the company. And but that was a non -- so as you think it was just an investment that they made from a long-term perspective, I guess. But I don't think that affects our business negatively or positively, either way, right? Both the companies are operating at arm length. There's no synergy that we are benefiting from right now.

Okay. And lastly, in terms of demand outlook for Assam, given all this political uncertainties and media articles that we keep hearing, what is your outlook on overall demand scenario in Assam. And how much you sell exactly in Assam?

So approximately about -- sorry?

Yes, Assam and Meghalaya, basically?

Yes. So if I talk about Northeast overall, then I think, in Northeast overall, we sell almost -- about 75% of our sales is happening in Northeast right now, right? And I think the market growth in Assam and other states in Northeast are going to be good only because there is just so much more scope to grow, right, which you can also see in the sales numbers that we normally forecast. I mean the kind -- the way our -- Star Cement's turnover has grown in the last 4, 5 years, I don't think then that kind of growth has been seen in outside Northeast, right? So definitely, there's more potential to grow. And there are also a lot of hydro projects which are coming up. There's also lot of infrastructure projects which are coming up. And I think the demand will be basically led by that.

The next question comes from the line of Harsh Mittal.

I have 2 questions. So as per media articles, there has been trial runs conducted for the first freight train to Nagaland and Tripura a quarter ago, roughly a quarter ago. So how do you see this as a benefit to Star Cement in terms of capturing higher market share -- market share in these states or reduced freight costs? So that would be my first question, sir.

Sorry, could you please repeat the question?

So my question being that Northeast Frontier Railway, they have started trial runs for their first freight train, cement cargo freight trains to be transported to the states of Nagaland and Tripura roughly a quarter ago kind. So how do you see this as a benefit to Star Cement in terms of higher market share or reduced freight costs?

So I think it can give an advantage in terms of serviceability, right, in terms of the freight. It also poses a risk because now the cement players from outside can also send the cement to Nagaland directly, right, through the rail. So it has both elements of like benefit and disadvantage but definitely, I have not worked out the math's of how cheaper it could make it if we send it through rail now, but we will definitely do that working. I think in [ billing ] season, it will help us service better these markets.

Sure, sir. And second question being, as per your market intelligence, besides Star Cement and Dalmia Bharat, what is the tentative expected supply, which we are going to see in the next 4, 5 years, sir in Northeast?

Sure. I think in the next 3, 4 years, I do not expect any other plant to come, though, of course, major cement companies in India are definitely looking at this market now, right? They were maybe also talking in their investor calls. I think for 4 years I do not see any of the capacity really coming in, so for 4 years, I do think that this market would broadly be dominated by two players. And probably, there is a chance at a third one, probably comes in 3, 4 years. And then we -- it's very hard to predict. But of course, cement -- then we'll see how the scenario changes. But I think the market will become big enough for the market to even absorb a third player in like 4, 5 years' time. I don't think that, that should be a challenge, right, because the market is also growing, right?

Sir, what is the current market size for Northeast?

About INR 14 million would be the current market size.

And the expected growth rate you expect for the next 3, 4 years, CAGR, any guidance on that market growth?

I -- it's anyone guess, but I think it should be about 10% at least.

The next question comes from the line of Navin Sahadeo from ICICI Securities.

Am I audible?

Yes, yes.

So two follow-up questions. If you could please talk about the efficiency because Green Power share, I think, in the previous quarter was around 20%, but the target is to take it to almost 55% by '26 itself. So where are we in terms of Green Power efficiency or other initiatives as well, be it the FSA coal or any other things that can help us reduce costs in the coming quarters?

Yes. So thank you so much. And the FSA cost, of course, even the FSAs, we have tied up for the long run, if you see that 78% of our requirement of fuel were met through FSA. So definitely, we're doing a decent job at managing our cost of fuel, right? And I do think that quarter 1 was slightly better in terms of fuel cost, kCal, rupees per kCal then quarter 4, and it was also better than last year same quarter. So we've definitely pulled across also on the fuel cost and reducing. On the green energy, we are currently hired EY to make entire plan of how we can substitute more of a power requirement to green energy. So we -- on that plan, we are putting up about 40 megawatts of solar in Assam itself that will help us serve the Guwahati units. And we are also probably going to draw some power to Meghalaya from that solar farm. And then we're also looking at wind options, not in Assam, of course, but in other states that we can kind of get a captive wind farm that we can probably use to provide power to us. So I think in a month's time, we'll have a clear road map. Of course, some of the road map we have already started implementing with regards to solar. But then the wind and other sources of renewable energies, we are tapping will only be clear after the entire EY project is done. So I think by next investor call, we will have a clear road map of how we are reaching 55% to 60%.

And the PPA we had signed last year with JSW Green Energy stays, right, that starts contributing by end of this fiscal, is that correct?

Yes, that should start contributing by end of fiscal year, though there were some delay of 3, 4 months in that. But we are just talking to them as well as to how we can bind them to kind of give us as soon as possible. We're also evaluating other options to that agreement in case we want to have our own captive generation because that in the long run reduces your fixed cost because when you tie up with JSW or any other developer like that, you're buying power at a fixed cost, which may be INR 3.5 or INR 3.6 whatever the rate you may decide, right? But that INR 3.5, INR 3.6 become your base cost, right. Whereas if you put up your own plants then your base cost is only the cost of O&M of the plant or solar or wind. So your variable cost falls to INR 0.6, INR 0.7. So I think in the long run it makes much more sense for cement companies if they want to be competitive to kind of put up their own plants because they effectively reduce the variable cost by 3 or more rupees, right?

Yes. Yes. That's very helpful. And sir, my last question was on our preparedness for foraying into Rajasthan. You said that some -- of course, we have more -- participated in some more auctions and maybe in a couple of weeks, there will be a formal update on the outcome of the same. But I wanted to broadly understand is typically, how far are we in terms of actually having a plant in place? Will it be -- will you say it is 3 years away? Will you say it is 4 years away? How should one look at foraying into North?

I think it's about 3, 3.5 years away. I think that is the time line because for us to acquire mine and land and then put up a plant will take us 3 years, right? So in 3 years' time, unless we go for an acquisition, right, which I don't think is really available in Rajasthan, but probably in areas of South, I don't think there's any other way but to spend 3 years and put up a plant there.

The next question comes from the line of Shravan S from Dolat Capital.

Sir, just continuing this part. So currently, the 4 million tonnes that we will be adding ongoing expansion, so we will be reaching close to 11.7-odd million tonnes. And this Rajasthan would be maybe 4 million, 4.5 million tonnes in terms of the cement level. So around 16-odd million tonnes, but we target to reach a 20 million tonne by FY '30. So whereas we will be -- will it be in the Northeast of maybe 2, 3 years down the line where you can add because we already got more mines there?

We're honestly evaluating because I think that was -- the 20 million was just an aspirational target of where we think our long-term vision should align but in the short term, we'll, of course, have to find opportunities, right? So I don't think I have a clear answer. We are evaluating to put up a plant to 2 million tonnes in Bihar, for example, right? Because our Siliguri plant, I expect in the next few years, we'll reach further utilization of the plant. So we will have to put another grinding unit for us to grow in outside Northeast, right? So we may put up a plant in Bihar. It looks like a favorable place with good thermal plants around it, with the market, which is growing, of course comparative but growing. So we do think that 3, 4 million extra capacity that we want to build up, we're evaluating it, which area it should be. And I think we'll have an answer in a quarter or 2 because I don't think it's very easy for us to forecast entire 5 years from now. But I think definitely, we are working on 2, 3 more opportunities, so that we can probably ramp up to the 20 million capacity as soon as possible.

But in whatever way we will -- whether we'll reach to 18 million tonne or 20 million tonne, but in terms of the net debt-to-EBITDA level, what's in our mind that we will not -- obviously, right now, we are at much, much comfortable level only INR 300 crores around kind of a net debt. So at what -- till what level are we comfortable to keep on increasing net debt?

So that obviously depends on the EBITDA that we achieve, right, and the cash flow that we get. So I do assume that we should be able to start touching level of INR 850 crores to INR 900 crores of EBITDA from this year onwards, right, and probably do better next year. So if that is the case, then I do think that we should be comfortable with about INR 1,500 crores of debt in the worse case situation, worst-case scenario, right? So I think that is something that, depending on how the cash flow are seeming when the year and next -- this year and next year, we should be able to ramp up our comfort of taking debt to about INR 1,500 crores at max, right, which I think is in line with other companies, right? It's almost 1.5x the debt-to-EBITDA ratio is 1.5x, which is fine I guess.

True, true. No, no, that is fine. But what -- because currently, obviously, we are having INR 1,700 plus EBITDA per tonne. And hopefully, if you can help us, given the -- as you are mentioning, the prices are stable and maybe we can start seeing some cost benefit also. So this kind of a run rate likely to be maintained. That is first part. And second is, once we have up Rajasthan obviously, there we will not be having a maybe half of the profitability, what right now we are enjoying. So that also we are watchful despite that fact or which should not be kind of a worst case INR 1,500 crores kind of a debt is this manageable.

Yes. No, that's what we also thought that if cash flows in the next 3, 4 years in Northeast is stable, and even if you have a INR 1,500 crore debt, which you, of course, will start reducing as soon as your plants commissioned, that I don't think it's bad. And also the company will think of doing QIPs as well, right, if we do go in Rajasthan and do all those things. So I think from that perspective, also, we'll definitely maintain our EBITDA -- our debt levels in control because as a company, we don't like to pay too much for debt as it's clear with our history, right.

Got it. Got it. Understood. And now onwards from Q2, the current OpEx per tonne, that's the way what we calculate in terms of revenue minus EBITDA, whatever the cost divided by volume, so that number should not be rising, but rather it should be seeing -- one should start seeing, given the volume uptick will be there. So we should start seeing a declining trend there. And if the prices remain stable, then the -- just kind of EBITDA per ton INR 1,700 or is this the manageable at least for next couple of quarters?

Yes. No, so I do think -- yes, I think that's true, but it also happens that every quarter is a bit different in terms of volume, right? So if I compare my OpEx cost, compared to last year's same quarter, Q2 then it is definitely lower. If I compare it to Q4, where the volumes are very high, then the fixed costs are divided by a higher volume, right? So I think then it's very hard to like beat Q4 because the volumes were higher. So I think it should be fair for variable cost to pass that treatment, but not overall cost of growth.

Okay. Okay. Got it. And if you can help us also currently trade, nontrade of price gap in -- on Northeast and East would be how much?

Trade, non-trade, I think it's about INR 60 to INR 70.

In Northeast?

Yes, in Northeast.

And in East?

East, we actually don't sell that much of non-trade. So I don't think we will be able to give a good benchmark.

Okay. Okay. Okay. Got it. And then -- yes, sir, lastly, this Silchar, how much already we have done the CapEx and what is balance for Silchar because that is going to start by this January, February?

In Silchar, till date we have done only about INR 105 crores, right? Because a lot of payments will now start going in quarter 2 and quarter 3, right? So -- but our time line is quite certain that by quarter 4, we should be able to commission and there be some aspects of the plant, which may be getting commissioned after quarter 4. But -- so we may see that even after commissioning the plant, there are some CapEx which are ongoing. Yes, if that answers the question?

The next question comes from the line of Amit Murarka from Axis Capital.

Just on the Northeastern market like we have been hearing about other companies also wanting to set up capacity, latest being JK Lakshmi having won some limestone leases over there, and they're talking about starting a plant in roughly 2 years' time. So do you see like competitive intensity going up over the next 2 to 3 years, as these new players enter the market? Like it's usually been seen as a duopoly market, but UltraTech wants to get into the market and now even JK Lakshmi wants to get into the market. So what's your thought or view on that?

I think for anyone who is coming fresh to Northeast it will take at least 3, 4 year to put up a plant and I do think that, of course, as the market becomes bigger, people will come in and they will like to get a share of the market. So it's quite natural. I do not think the Northeast has that kind of space where it can accommodate a lot of people. So people when they're doing their working after like suppose a competitor comes in, they'll have to really question that for the fourth one or fifth one, is the market big enough to absorb the capacity, right? So I think -- I do think that in 4 years that probably the competitive landscape will be more aggressive, right? But then I do think it will settle down, right? Because I don't think people will just keep on entering Northeast, right, there is a limit to it because there's only a very small market that they can address.

Yes. But as people enter, won't it spoil, let's say, the pricing because Northeast has been having really strong and consistently good pricing margin?

I think like it may spoil it for a year, it may spoil it for 2, but I think eventually everything settles down, I guess, in some ways.

Sure, sure. Got it. And generally, like is my understanding right that the market is operating at like 65% to 70% capacity utilization right now after you expanded and then even Dalmia is going to kind of get the clinker commissioned soon enough, so...

Yes, I think it is operating at about 70% -- 65%, 70% utilization.

What would be the size of the market, if you can just let us know in terms of...

It's about 14 million tonnes.

14 million tonnes. Got it. Sure. And you would be having what, 25% market share or less? .

Yes. So we have about 27%, 28% market share.

And Dalmia would be having a similar number?

Yes, like something a little bit lesser than us.

The next question comes from the line of Navin Sahadeo from ICICI Securities.

Yes. I just had one follow-up. The incentives we booked in Q1 was INR 62 crores, and it was almost INR 75 crores, INR 76 crores in Q4. So just wanted to know, is it fair to assume that this year as a whole, we will receive in upwards of, let's say, INR 250 crores, of course, assuming volume momentum stays intact, but I believe with your ramp-up of sale and overall, it should. So is it fair to assume that incentives can continue at this run rate of INR 475 per tonne or INR 500 per tonne for the full year or if that could be a little stretched?

Yes, it's fair to assume that we probably should be able to get incentive about INR 230 crores to INR 250 crores.

The last question for the day comes from the line of Harsh Mittal.

Sir, my question is, what would be the tentative capacity for the Rajasthan on the drawing board, if any?

Tentative capacities?

What have you planned the expansion size, capacity size?

So I think it will be wherever we put up a plant, it will be about 3 million tonnes of clinker and about 4 million tonnes of grinding.

Right. And the tentative budget for the same?

So the budget will be about INR 2,400 crores. Yes, I think we've already answered this questions just 10 minutes back.

As there are no further questions from the participants. I now hand the conference over to Mr. Tushar Bhajanka for closing comments. Thank you, and over to you, sir.

Thank you so much, everyone, for your questions. And if anyone has any remaining questions, they can always e-mail us and we're happy to answer those questions. And yes, and if there's any further interest, you didn't get in touch with the CFO, and if you want to visit the plants, we are happy to organize something. So thank you so much.

Thank you. On behalf of Emkay Global, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you. Thank you.