Star Cement Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Clinker plant failure crushed profitability: PAT collapsed to ₹6 crores from ₹41 crores YoY, and EBITDA per tonne fell to ₹995, because the new Line-3 clinker plant could not be stabilized for 5–6 months, forcing costly outside clinker purchases and wiping out expected GST and logistics benefits.
• Volume growth split in two: Northeast volumes grew ~11% while outside-Northeast volumes fell ~5%, as pricing crashed in Bihar and West Bengal and government spending stayed low.
• Recovery pinned on a single fix: Management expects a "drastic improvement" in Q4, but only if the clinker plant stabilizes by end-November, a timeline that has already slipped once.
• FY25 growth guidance quietly reset: The earlier 20% volume growth target is gone; management now expects "early double-digit" growth of 11–12%, citing both the clinker issue and weak demand.
• What to watch next quarter: Whether Line-3 actually hits 7,000–7,500 TPD by end-November, whether Q3 clinker purchases stop, and whether government scheme releases from December translate into a real demand surge.

The Clinker Plant Problem

• Line-3 never stabilized: The new clinker plant at Lumshnong, Meghalaya, suffered faults in the electrical panel, crusher and static claimer, preventing stabilization for 5–6 months after capitalization in April. Replacement panels are expected by 17th November and erection by 22nd November, after which smooth functioning is promised.
• Forced clinker purchases: Because Line-3 could not produce, the company bought ~5,000–6,000 tonnes of clinker from outside in Q2, with more purchases in Q3, disrupting logistics, raising freight costs, and compressing margins.
• GST benefit delayed: The Meghalaya plant's GST incentive was partially booked but remained very small because Line-3 barely manufactured; management expects ₹50–60 crores quarterly in the remaining two quarters once the plant runs.
• Cost-savings promise: Once the new kiln operates, management expects a ₹100–150 per tonne benefit, driven by lower fuel consumption, freight savings from the new truck fleet, and FSA advantages.
• Q3 still a struggle: Profitability in Q3 will be lower than Q2 because clinker purchases continue; only partial benefit from the new plant will flow through.

Management: "I completely respect and agree to the fact that, yes, we were expecting better results, and we should see it, right, given the price supports us, right, because price is something which is not in our control."

Demand & Pricing Environment

• Two-speed demand: Northeast volumes grew ~11% in Q2 despite weak government spending, while outside-Northeast (West Bengal, Bihar) volumes declined ~5%, with East demand staying subdued through October.
• Pricing pressure outside Northeast: Prices in Bihar and West Bengal have "seriously crashed" and not improved from the Q2 average; Northeast prices increased by only ~₹10 compared to Q2.
• Government spending the swing factor: Government expenditure in the Northeast was low in H1, subduing demand; management expects schemes to release from December–January, and if housing schemes are lucrative, there could be a demand surge.
• Lead distance rising: Lead distance increased to 218 km from 207 km in Q1 FY25, adding to freight costs at a time when outside clinker purchases were already disrupting logistics.
• Dalmia entry not imminent: Dalmia's commissioning is next financial year, not this one, so no pricing pressure is expected in Q4; possible pressure emerges in Q1 next year.
• Northeast pricing outlook: No price increase seen in November; historically prices rise ₹15–20 per bag in December as the season builds, but this depends on demand behavior.

Volume & Profitability Outlook

• Q4 as the turnaround quarter: Management expects a "drastic improvement" in Q4, with EBITDA reaching ~₹220–230 crores, much higher than last year, as the clinker plant stabilizes, GST benefits flow, and clinker sales begin.
• Q3 capacity utilization: Expected at ~70%, rising to 85–90% in Q4 during the season; FY26 average utilization seen at ~75%.
• H2 volume growth: Overall volume growth of 10–11% expected in H2 FY25, with higher growth in the Northeast; Guwahati unit should reach full utilization by end of Q3 and into Q4.
• Clinker sales opportunity: Once Line-3 ramps up to 8,000–9,000 TPD, the company will be self-sufficient for clinker across Northeast plants and can sell to players in North Bengal, where demand is high and will remain high in season.
• Depreciation to ease: Depreciation was higher this year due to Guwahati stabilization in March and clinker plant capitalization in April; under the WDV method, it will start diminishing from next year onwards.
• Marketing costs already absorbed: Marketing campaigns hit Q1 and Q2; no further major startup or marketing costs are expected for the new kiln, though the first 1–2 months of operation involve reaching sufficiency.

Management: "So, I expect about a Rs. 100 to Rs. 150 of benefit from operating the new kiln."

Expansion Pipeline

• Silchar plant delayed: Commissioning now expected by December 2026, a 2–3 month slip from the earlier September–October 2026 target.
• Jorhat plant next: Expected by FY27, roughly 12–15 months after Silchar; land has been identified and the team is working to acquire it.
• Rajasthan mines acquired: Mines in Nimbol, Rajasthan, with ~6.5 crore tonnes of reserves; geological survey is underway, and if quality is confirmed next quarter, the company will begin land acquisition for a clinker plant.
• WHRS in two phases: The 12 MW Waste Heat Recovery System will commission 6 MW by end-November and the second 6 MW by December-end.
• AAC blocks and construction chemicals: AAC block plant in Guwahati commissions in the first two weeks of December, alongside a launch of construction chemicals (mortar, waterproofing); both are eligible for central and state subsidies.
• CAPEX revised down: FY25 CAPEX reduced from ₹835 crores to ~₹720 crores; FY26 CAPEX guided at ~₹480–500 crores, primarily for Silchar (₹300 crores), Jorhat (₹100 crores), operational CAPEX (₹100 crores), and group captives (₹12 crores).

Tushar Bhajanka: "I think anyone who attempts to put up a plant will at least take four, five years to put up a plant. Given that they have now finalized the land and finalized the mine."

Promoter & Governance

• Promoter stake sale clarified: The Chamaria family (one of four promoter families) is selling stake for personal reasons; the other three families have been buying shares, and management stated this does not affect the company's future roadmap.
• Pledge query deflected: When asked about a recent pledge by Amritansh Chamaria, management called it a personal matter and said they do not know what is happening within that family's 14–15% holding.
• Investor relations commitment: Management committed to making numbers work in the investor presentation and asking the team to be more responsive to queries, after analysts flagged gaps in CAPEX breakdowns and incentive quantification.

Guidance & Commitments

Key Metrics