Star Cement Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Volume-led quarter, tax clouds the bottom line: Sales volume grew 5.3% YoY to 9.08 lakh tons, driving revenue to ₹617 crores, but PAT growth was muted as tax exemptions expired for two key subsidiaries.
• Pricing power is tentative, not structural: A ~₹10/bag increase in December was the sole price action; management expects it to hold in Q4 on seasonal demand but warns any cost-pass-through will likely hit in Q1 FY24.
• Margin defense is the real strategy: The company deliberately cut low-contribution markets to preserve unit margins, even at the cost of Siliguri utilization staying flat at 55%. EBITDA per ton improved to ₹1,324.
• The expansion story is on track, with a small delay: The ₹2,100–2,200 crore capex cycle is progressing; the Silchar grinding unit slipped by two months to August 2023, but the WHRS is due for February commissioning.
• What to watch next quarter: Whether the December price hike actually sustains through Q4, the pace of working capital release from the ~₹200 crore clinker stock build, and any signal on Q1 FY24 pricing as fuel costs decline.

Volume & Realization

• Volume driver: Q3 sales volume rose to 9.08 lakh tons from 8.62 lakh tons YoY, supported by higher clinker production (7.39 lakh tons vs 5.24 lakh tons) and cement production (9.21 lakh tons vs 8.75 lakh tons).
• Realization trend: Realization per ton improved sequentially to ₹6,797 from ₹6,642 in Q2, but management did not provide a YoY growth breakup when asked.
• Trade mix shift: Non-trade share reduced to 8% from 11% YoY, aligning with the stated strategy to reduce low-margin institutional exposure.
• Lead distance gain: Lead distance improved to 211 km from 224 km YoY, signaling better geographic efficiency in served markets.
• Premium cement reset: Premium product share fell to 4.5% from a previously stated 7% because the sales focus shifted to pushing PPC in markets targeted for higher overall share, rather than prioritizing premium categories. The premium target was revised down to 7–8% from an earlier 11%.

Management: "We are not necessarily trying to only focus on the premium products. So, I think because of resifting our focus elsewhere is probably the reason why numbers have been revised for the premium category."

Pricing & Demand Environment

• Q3 pricing dynamics: October and November saw poor demand due to festivals, preventing significant price increases. A ~₹10/bag increase was achieved by end of Q3, but its full effect was not reflected in Q3 results.
• Q4 price outlook: No price hike occurred in January, and none is expected in early February. Management sees a hike as possible only if demand picks up by end-February; otherwise, prices may remain stable.
• Q4 demand confidence: Q4 is seasonally the strongest quarter for cement, and management does not expect prices to fall during this period, even if costs decline.
• Q1 FY24 risk: Management explicitly flagged that any impact of cost reduction on prices could occur in Q1 FY24, depending on how demand and competitive dynamics shape up.
• Competitive landscape: Dalmia Bharat is adding capacity in the North East, though timelines are unknown. Management had no information on other players adding capacity.

Management: "I think because of the seasonal demand I do not think the prices will start falling in at least Quarter 4. I think if there would be any impact of cost reduction on the prices that could be in Quarter 1 next year."

Costs & Margins

• Fuel cost stability: Blended fuel cost remained stable at ₹2.09–2.10 per GCV in both Q2 and Q3, with a mix of ~25% Nagaland coal, ~5–6% FSA, and ~50% imported/auction coal.
• Q4 fuel tailwind: Management expects average fuel cost to reduce by about 10% in Q4 versus Q3, with additional benefit from the WHRS commissioning.
• EBITDA per ton: Q3 EBITDA per ton (excluding other income) was ~₹1,194, within the guided range. Management expects to maintain margins at ₹1,200–1,250 per ton.
• Siliguri utilization trade-off: Capacity utilization held at ~55% in Q3, similar to YoY, because the company deliberately cut down on markets with poor contribution to preserve unit margins, even though served markets saw good growth.

Management: "We have tried to cut down on markets which were not giving us good contribution and where we did not see the contribution potential to preserve the unit margin and because of that even though in the market that we serve we have seen a good growth for the overall in Siliguri the utilization is not improved because we have cut down some markets."

Expansion & Capex

• WHRS timeline: The Waste Heat Recovery System is expected to be commissioned in February, delayed from January, with full benefit accruing from March onwards.
• Grinding unit progress: The Guwahati grinding unit is expected between October and November 2023. The Silchar grinding unit is delayed and now expected in August 2023, versus the earlier June target.
• Clinker plant: The Meghalaya clinker plant (0.3 crore tons) is expected by January 2024. A new WHRS is planned for this plant, to be commissioned by next January.
• Capex phasing: Q4 FY23 expected spend is ₹300–350 crores. FY24 capex is expected at ~₹1,100–1,200 crores, with the remainder of the ~₹1,200–1,300 crore outlay in FY25. Total plan remains ₹2,100–2,200 crores, less ~₹500 crores for Silchar.
• No solar play: Management stated solar capacity is not planned, as it is not profitable in the North East.

Balance Sheet & Working Capital

• Net cash decline: Net cash fell by ~₹200 crores, from ₹746 crores to ~₹548 crores, driven by ~₹200 crores deployed into working capital, mainly increased clinker stock and advance coal payments, plus WHRS payments and other expansion spending.
• Working capital outlook: Working capital should reduce from current levels as clinker stock is consumed and coal already paid for is received, though management was uncertain if it would return to previous normal levels by March.
• Tax headwind: The tax exemption period sunset for the Guwahati unit and Star Cement Meghalaya Limited led to increased tax expense, constraining PAT growth. The cash flow impact is limited to MAT.
• Promoter activity: One promoter family sold ~0.4% shares during the quarter for personal purposes; other promoters have been buying.

Guidance & Commitments

Key Metrics