Star Cement Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Demand normalised after a front-loaded Q1: Heavy rains and landslides in Q2 flattened volumes after Q1’s exceptional ~25% industry growth, which management says was itself a pull-forward from a delayed monsoon.
• Pricing power is improving, especially outside the Northeast: Realisations rose ~₹10/bag in the Northeast and ~₹50/bag outside it, though the mid-September timing means Q3 will see the full benefit.
• Costs are moving in the right direction: Fuel kcal rates fell from ₹2.4 to ₹1.9 QoQ, and freight cost per tonne dropped 16% on a repaired bridge and deployment of the company’s own fleet.
• Capacity expansion is on track, with one strategic delay: The Guwahati grinding unit starts in December 2023 and the Lumshnong clinker unit around February 2024, while the Silchar unit is deliberately pushed to mid-2025 to avoid oversupply.
• What to watch next quarter: Whether the full ₹50/bag price hike outside the Northeast holds and converts to EBITDA, the pace of the promised H2 double-digit demand recovery, and any update on the failed discount rationalisation efforts in the East.

Demand & Volume

• Q2 was a weather-hit quarter: Heavy rains, landslides in the North Bengal hillside and blocked roads flattened demand, creating a sharp contrast with Q1’s ~25% industry growth in the Northeast, which itself was inflated by a delayed monsoon.
• October showed recovery: October demand was good versus the prior year, though back-to-back festivities (Durga Puja, Diwali) caused a slight dampener.
• Bihar and Bengal are weakening: Demand has been “pretty bad” in Bihar and Bengal for the last two months, and Bihar’s earlier growth trajectory is not being maintained.
• H2 bet is on double-digit growth: Management expects demand to pick up after Diwali festivities, with a good build-up moving toward the general election, and is “absolutely aiming” for the numbers implying 17%-18% H2 growth.

Tushar Bhajanka: “If we will talk about the demand got postponed we can also say it was preponed also because the rains didn't came in the quarter one the way they did came in last year.”

Pricing & Competitive Dynamics

• Price hikes landed, with a lag: A ~₹50/bag hike outside the Northeast and ~₹10/bag in the Northeast took effect in mid-September, so Q2 captured almost none of the benefit; the full impact is expected in Q3.
• Gains are mostly holding: No rollback has occurred as of now, though a slight correction of ₹5-₹7 happened during festivities; management sees an opportunity to reclaim that if demand picks up.
• East India discipline has collapsed: Efforts at discount rationalisation in the East have fallen back, and management has “serious doubts” about the sustainability of those practices after a year of trying.
• Northeast faces dumping pressure: Price hikes in the East have not stemmed the inflow of material into the Northeast because East-based players with low capacity utilisation continue to dump at ₹30-₹40 below Star’s prices.
• New clinker capacity will test pricing: Dalmia’s clinker plant is expected roughly one year after Star’s own unit; management expects no issue for at least a year, but once both have big capacities, some price correction is possible, though volume gains from substituting cement currently coming from outside the Northeast should compensate.

Management: “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. But what will happen is that, it will be made up in terms of volume.”

Costs & Margins

• Fuel costs eased materially: The kcal rate declined from ₹2.4 to ₹1.9 QoQ, and management expects a similar line in Q3.
• Freight costs dropped 16% per tonne: The reduction is driven by two sustainable factors: strategic deployment of Star’s own fleet, and the repair of a bridge whose prior breakage had escalated freight substantially.
• Q2 profitability was hit by a planned shutdown: The annual kiln shutdown at Lumshnong cost ₹15 crore and widened the QoQ profit decline beyond the normal monsoon volume dip.
• The profitability gap between regions is wide but narrowing: Before the price hikes, per-tonne EBITDA outside the Northeast was ~₹300 versus ~₹1,500 in the Northeast; the larger hike outside the Northeast will reduce but not eliminate this substantial gap. Management declined to quantify the post-hike split.

Capacity Expansion & Strategic Projects

• Guwahati grinding unit: Expected to start in December 2023.
• Lumshnong clinkerisation unit: Expected around February 2024, with supplementary buildings and plants following 2-3 months later.
• Silchar unit deliberately slowed: Land acquisition is ~73% complete, but management is going “slightly slow” because the Guwahati unit will create a material surplus for some time; commissioning is now targeted for mid-2025 (Q1/Q2 FY26).
• BTAP wagon project progressing: A consultant has been appointed and wagon negotiations are ongoing, with delivery expected around March-April FY25; the project aims to bring fly ash to the Siliguri unit by rail instead of road.
• Central India exploration continues: The company secured one composite license in Chhattisgarh (Saloni) and continues to participate in auctions in Rajasthan, MP and Chhattisgarh.

Management: “We are just going slightly slow as you understand Guwahati unit is coming up in December. So, we will be thrive with material for some time. So, we felt bringing up Silchar unit early may not be a wise thing to do.”

Market Position & Portfolio Shift

• Premium share is climbing: Premium cement share rose from 4.6% to 6.9% YoY, a ~37% growth, with a target to hit 10% this financial year.
• Non-trade push underway: The non-trade portfolio is expected to grow toward an 85:15 trade-to-non-trade ratio.
• Market share ambition is explicit: Management is targeting a +30% market share in the Northeast.
• Consolidation may be coming: Management does not rule out consolidation in the Northeast once two big players have capacities coming in, noting that smaller players without expansion capacity may consider exiting.
• Siliguri utilisation is improving: Capacity utilisation at the Siliguri grinding unit rose to 45% from 37% in the same quarter last year.

Management: “the players who are not serious players in Northeast who are dumping material and are working and doing like hit and run, these are the players whom we will have to fight out with, we have all wherewithal with whatever with our capacity there as well as we'll have more subsidies with us.”

Guidance & Commitments

Key Metrics