Star Cement Ltd Q1 FY2025 Concall Summary

Key Takeaways

• A quarter to forget, a year to recover: Volume fell sharply in an "exceptionally bad" monsoon and election-hit Q1, forcing the company to trim its volume growth target from 18-20% to ~15% for the remaining three quarters.
• Clinker self-sufficiency restored: A new kiln, commissioned in April, suffered technical difficulties and could not produce clinker until end-May, forcing outside purchases that hit EBITDA by ~₹28 crores. That phase is now over, saving ₹30-32 crores going forward.
• A cascade of cost tailwinds is building: Full SGST benefit (₹300/ton weighted average), a new group captive power agreement, WHRS commissioning, and the shutdown of an inefficient old kiln all land from Q2 onwards, creating a visible path back to the ₹1,500/ton EBITDA target.
• Competitive moat intact: Management sees no new capacity from other players in the Northeast for at least 3 years, citing the region's difficult project timelines and the absence of identified mines for would-be entrants.
• What to watch next quarter: Whether the promised volume recovery materializes as the monsoon subsides, the pace at which SGST and clinker plant subsidies flow through to reported EBITDA, and any further deterioration in pricing outside the Northeast.

Volume & Demand: A Reset Quarter

• Q1 was "exceptionally bad": Monsoon in the Northeast was much worse than last year, and elections further dampened market momentum, producing a sharp volume decline.
• Growth target trimmed: Full-year volume growth guidance was cut from 18-20% to ~15% for the coming three quarters, implying the Q1 shortfall will not be fully clawed back.
• Q2 expectations are measured: Management does not expect Q2 to degrow by 8% but also not to grow by 10%; positive growth is expected in July, with a broader uptick "as soon as monsoon subsides."
• Bangladesh turmoil is a non-event: Imports from Bangladesh into the Northeast are only 1-2 lakh tons per year, and management cannot predict whether that flow stops because Bangladesh may stabilize.

Tushar Bhajanka: "So we're bringing it down our volume growth target from 18%, 20% towards 15% for the coming 3 quarters."

Margin Bridge: The Damage and the Repair

• What hurt Q1: Outside clinker purchase (~₹28 crores impact), pricing pressure outside the Northeast (NPR down ₹12-13/ton at EBITDA level for East and Northeast), and some manpower costs shifting from capitalized projects into operations.
• SGST benefit begins: Input credits were adjusted in Q1; the full Assam SGST benefit of ₹300/ton weighted average on overall volume starts from Q2. The Q1 run rate of ₹10.9 crores is expected to touch ~₹40 crores from Q2, with Q3 and Q4 potentially higher on stronger sales.
• Clinker plant subsidy: Expected to partially kick in during Q2 and fully in Q3 and Q4, adding ₹13-14 crores per quarter.
• Manpower cost run rate: Expected to reduce from ₹52 crores to ~₹45 crores as steps are taken to control costs.
• Logistics normalization: Q1 logistics costs were "a bit unstructured" due to clinker coming from outside and unusual movement patterns; stabilization is expected as the company adds fleet and improves return loads for fly ash and clinker inward.
• Fuel cost floor: No further decrease expected; costs will broadly remain at ₹1.5.
• The target stands: Despite falling market prices, management still anticipates closing the year at ~₹1,500/ton EBITDA.

Tushar Bhajanka: "despite the price that the market prices are going down, we do still anticipate that in the year round figure, we would be able to kind of close it at about INR1,500 per ton EBITDA."

Operational Overhaul: Kilns, Power & Efficiency

• New kiln stabilizing: The bigger kiln, commissioned in April, will take another 3-4 months to fully stabilize. Once stable, it will deliver power consumption benefits and fixed cost reductions, including manpower.
• Old kiln shutdown for efficiency upgrade: The 0.9 MTPA old kiln will be closed for ~15 months to fix the cooler, heater, and other components to bring it to current efficiency standards. This maintenance was previously impossible due to a chronic clinker shortage; the purchased clinker now creates the window to do it.
• WHRS Phase 1 complete: 6 megawatts of the 12-megawatt Waste Heat Recovery System was commissioned in October; Phase 2 (another 6 megawatts) is due by end-December.
• Group captive power signed: An 18-megawatt group captive agreement with JSW (15 MW solar, 32 MW wind) has been signed, with Star Cement taking 30% ownership in the FTV to qualify for the group captive subsidy. The power will mainly serve the Guwahati grinding unit, where grid power costs ₹7-7.5/unit and has risen over the last year. Solar is expected before 18 months; wind will take about 18 months, with savings starting to pick up in H2 FY26.

Tushar Bhajanka: "We just wanted to fix it, to do some on capex on it? Fix the cooler, heater and all those things just to make sure that we are making it efficient and making it to the current standards of how the things should be for the last 3, 4 years, we do not get a chance to do that because we always were in shortage of clinker. Now that we have an opportunity where we have purchased clinker. So we want to take this opportunity to kind of make our older place more efficient."

Competitive Position: A 3-Year Moat in the Northeast

• No new capacity from other players in the next 3 years: Management is categorical that it sees no new capacity entering the Northeast market from competitors over that horizon.
• Dalmia's plant is coming but distant: A plant is under development but will take a year or more to materialize.
• JK Lakshmi has no movement on the ground: Management sees no activity, noting that it takes at least 4-5 years to put up a plant in the Northeast given the region's logistical and regulatory complexity.
• UltraTech may be looking for a mine but has not identified one: Even after a mine is identified, there is a long process before a plant can be set up, leaving "a lot of time."

Tushar Bhajanka: "I don't see that happening honestly. And I don't see about JK Lakshmi, I do not see any moment on ground. I think it takes at least 4, 5 years in Northeast to put up a plant. It's not that easy."

Growth Projects: Silchar, AAC Blocks & the FY30 Ambition

• Silchar plant on track: Land has been acquired and Terms of Reference from the Ministry of Environment obtained; a public hearing is expected in a month, with erection starting by October and commissioning targeted for October next year.
• AAC blocks plant imminent: A ₹50 crore plant will be commissioned by October this year, with Central GST and Assam SGST benefits attached. At 70-80% utilization, management expects ₹60-70 crores annual revenue and EBITDA of ~20% of revenue (₹14-16 crores), with a healthy payback.
• Clinker sales to begin: From Q2 onwards, the company will start selling clinker, with a good uptick expected in Q3 and Q4.
• 20 MTPA by FY30 target intact: The long-term ambition remains unchanged.
• Rajasthan plant progressing: A 4.5-5 MTPA plant is planned with ~₹2,500 crores capex over the next 3-4 years; the company is close to getting a mine. Total capex of ~₹4,000 crores over the next 3-4 years remains the same.

Financial Position: Capex, Debt & Depreciation

• FY25 capex unchanged at ₹835 crores: The full-year estimate holds.
• Debt expected at ~₹350 crores by March-end: Management provided this as the expected year-end total debt position.
• Depreciation to rise further before falling: Depreciation increased in Q1 as Phase 1 and the Guwahati unit recorded a full quarter. It will rise again in Q2 and Q3 as Phase 2 stabilizes, but from Q2 next year onwards it will decrease as assets reach lower book values.
• Tax rate stable at 22%: The rate will continue for 5-6 years because the major portion of profit remains in the lower-tax entity (SCL) due to subsidies.

Guidance & Commitments

Key Metrics