Star Cement Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Volume up, EBITDA flat: Volume growth was offset by lower GST refunds and higher fuel costs, leaving EBITDA unchanged YoY at INR138 crores. Per-ton EBITDA fell to INR1,185 from INR1,410.
• Subsidy cliff absorbed: Q1 last year included a INR300-350 crore subsidy; this year’s Q1 had none, yet margins remained healthy, demonstrating improved underlying profitability.
• Capacity expansion on track: The 2 MT Siliguri grinding unit and 3 MT Meghalaya clinker plant are set to commission by early 2024, well ahead of key competitors, positioning the company to solidify its Northeast dominance.
• WHRS stabilized, savings ahead: The waste heat recovery system is now running at 10-11 MW, with management expecting INR45-50 crores in savings this year, though Q2 will see an annual shutdown impact.
• What to watch next quarter: Whether the promised doubling of premium product share materializes, the trajectory of fuel costs toward the INR1.95 target, and any concrete progress on the long-term growth roadmap beyond the Northeast.

Volume & Pricing Dynamics

• Northeast volumes surged 30% YoY while East volumes were flattish; management confirmed no logistical challenges and no market share loss in the East.
• Trade mix improved by 2% as the company deliberately constrained non-trade exposure to 12% (only 8% OPC) due to current capacity limits, prioritizing higher-margin trade sales.
• Pricing held firm: Northeast prices increased from April to June and have been maintained since, with no seasonal dip at the start of the financial year. A INR15 price equalization support withdrawal was a billing correction, not a price cut.
• Short-run outlook stable: Management expects prices to remain stable through Q2, though the view beyond that is uncommitted: "let's see how it turns up."

Vinit Tiwari: "I think we are well placed to handle that situation when it comes. When we have a capacity, I think we are much better placed to fight in the market."

Cost Structure & Margin Levers

• Fuel cost was the margin drag: Opening stock kcal cost was high at INR2.4, pushing up power and fuel expense; closing stock improved to INR2.05, and Q2 is targeted at INR1.95 as bamboo and alternative fuels ramp up.
• Biomass usage fell to 7% in Q1 against a normal 15% target, one reason gross calorific value increased; management expects this to normalize.
• Grid power cost rose for the Guwahati unit from INR6 to INR7.25 per unit, while the clinker plant’s self-generated power cost was elevated by high coal prices.
• Other expenses dropped QoQ by INR22 crores as consultancy fees from BCG and others taken in the prior quarter were not repeated; costs should remain stable at Q1 levels for the next 2-3 quarters.
• Fuel cost savings ahead: Management expects a INR0.40 reduction in gross kilocalorific value, yielding ~INR300/tonne savings on clinker and ~INR180/tonne on cement.
• Fly ash cost initiative: The company is planning BTAP railway wagons for fly ash procurement, a long-run project aimed at substantially reducing transportation costs, particularly for the Siliguri unit.

Tushar Bhajanka: "No. So actually — so there may have been a mistake in me saying it last time, but it was actually INR2.4. That was the opening stock."

Capacity Expansion & Capex

• Capex phasing: INR800 crores to be spent over the next three quarters, followed by INR400-500 crores on the Silchar plant.
• Silchar delay not damaging: Management noted the Guwahati plant will provide sufficient grinding capacity in the interim, so the postponement will not hurt sales.
• Competitive timing advantage: The company’s capacities are coming online almost a year before Dalmia’s, giving a window to solidify market share.
• Debt drawdown from Q3: The company will begin taking INR400-500 crores in debt from Q3 this year, with rates expected not to exceed 8-8.1%, though still under negotiation. Peak net debt is seen at INR500 crores, with repayment targeted by end-FY25.

Strategic Initiatives & Geographic Ambitions

• Northeast first, then beyond: The priority is to sell more in the Northeast where margins are better; only surplus volumes will flow outside the region.
• Premium product push: Management reiterated its target to double the premium percentage in the next two quarters, claiming fruits are already visible from the start of Q2, though the metric remained at 4% last quarter despite a prior commitment to reach double digits.
• New premium products are expected to launch this quarter, part of an aggressive push in the outside-Northeast market to optimize the Siliguri plant.
• Mine auctions and acquisitions: The company is actively participating in mine auctions outside the Northeast, including Chhattisgarh, and is evaluating acquisition targets in the 0.1-0.25 crore tonne range. Larger deals like Saanvi are not of interest.
• Long-term growth roadmap still undefined: Management is evaluating opportunities in the South and East, participating in auction mines, and looking at organic options with a 3-3.5 year horizon, but no specific plan was shared.

Tushar Bhajanka: "The idea is not to only grow but to grow profitably in whatever other regions that we go to."

WHRS, Subsidies & Incentives

• WHRS now stabilized: After running at half capacity (5.6 MW) during kiln stabilization in Q1, the system is now delivering 10-11 MW of the 12.3 MW capacity.
• Annual shutdown in Q2 will partially mask WHRS savings this quarter, but management still expects INR45-50 crores in savings for the full year.
• Subsidy cliff absorbed: Last year’s Q1 included INR300-350 crores in government subsidy; this year’s Q1 had none, yet margins remained healthy, a point management emphasized when reading the results.
• New incentives secured: Assam’s State GST benefit offers 200% of investments for the Guwahati and Silchar grinding units, available for 15 years but expected to be consumed in under 7 years. The 25 MW solar plant has also applied for 100% SGST benefit.
• Pending subsidy: All government subsidies have been received except ~INR14 crores from the last quarter of March.

Tushar Bhajanka: "Last year quarter 1, we did have the subsidy of INR300 crores, INR350 crores. And this year, quarter 1, we do not have the subsidy of INR350 crores. Still, I think the margins are healthy."

Guidance & Commitments

Key Metrics