Star Cement Limited (540575) Earnings Call Transcript & Summary

So INR 1,500-odd crores kind of a number we should be looking at in FY '28.

Yes.

Okay. And this will be largely for the [indiscernible] so the overall CapEx, what we previously talked about INR 2,400 crores, INR 2,500 crores. So that remains the same?

Yes. So I think in that, the CapEx that we have planned for Rajasthan is about 3 million tonnes of grinding and 3.3 million tonnes of clinker about, but that we are still finalizing the exact specs of the machine and 2 million tonnes in Jhajjar. The overall CapEx of this thing is about INR 2,600 crores to INR 2,700 crores is that what we are expecting. And I think we are focusing in the next 2 years to primarily get this CapEx going in North. So that will be the primary focus of the CapEx, all the CapEx that we do.

Yes. Because the last latest presentation, what we have where we were saying that INR 2,250 crores for integrated Nimbol and INR 650-odd crores for Haryana. So that is close to INR 2,900-odd crores that we are looking at.

So that is -- so I'm also talking about the combined amount. I think it may be about INR 2,700 crores. We are still doing the math. It may be INR 100 crores, INR 200 crores up or down, that I think we will -- once we start finalizing the machinery, we will be able to give clarity in our presentation as well. And I think we'll be able to take a definite budget for the expansion. I think it will be about INR 2,700-odd -- but with the GST, it may be about INR 2,900 crores. So I think the difference in numbers because of the GST, which I may not be including in my number, but the presentation includes.

Okay. Okay. Got it. So for the QIP previously, which we are looking at INR 1,500-odd crores. So there anything that we are now looking at. So once we have 1.5x net debt to EBITDA, then we will go for it or how -- anything changing there?

So I mean, right now, because we have -- we're only focusing on Rajasthan for the next Rajasthan and North for the next CapEx for the next 2 years. And I think if our approvals are healthy, then we should be able to manage it with about 1.5x, 1.6x, debt EBITDA. So we are not at the moment actively thinking of QIP. We will do it at the opportune time in case there's opportunities available for which we need to further raise money that may be organic or inorganic.

Okay. Okay. Got it. And this year for full year in terms of incentive would be INR 130 crores, INR 140-odd crores?

So IP, it should happen, but there is a restriction that the Assam government has come up where they are dividing the overall subsidy benefit by across the number of years that the subsidy is valid for. So what I expect for this year is not about INR 145 crores, but about INR 115 crores. Okay.

Okay. Got it. And in this quarter, what was the green share and why this year-end where we can be reaching?

Green shares for this quarter was about 3%. This, of course, includes the WHRS as well.

Yes.

And this we are planning to introduce solar some group captive opportunities that we're evaluating. I think in quarter 3 or quarter 4, we will also share the details of those contracts.

Okay. And lastly, the fuel mix for Q1 would be in terms of the FSA, AFR and biomass would be how much?

So fuel mix for FSA would be about -- would be about 45% and from FSA and the other source spot contracts. What has happened in quarter 1 is that all the coal has been directed to the power plant by because I think there was a surge of power requirement. So all the Coal India coal was diverted. So what we -- we did not have that many rakes come in of FSA, and we had to focus on buying spot contracts of coal, which are, of course, at a higher price, and that is why the fuel cost has gone up. Now I think that we are -- we will be able to get a few rakes from FSA more frequently. And that is why we expect the fuel cost to go down to 1.45.

Okay. I got it, but still you said the FSA was 45% in terms of the fuel mix in Q1. What was the balance?

The balance about 30% was spot contracts of coal, which is basically we're buying off the market, right? And then there was a component of biomass and some from -- yes, and then there is a component of biomass. So I think this was the broad fuel mix.

We take the next question from the line of Prateek Kumar from Jefferies.

I have more industry question. Can you discuss the cement demand for FY '26 or like maybe estimated FY '27 clinker capacity and grinding capacity for '27? And how do you look at it number like 2, 3 years?

So in FY '27, I do not see any clinker capacity come in. The demand seems to be a bit muted in the first 2 quarters, primarily because there was election now there is like tremendous amount of flood. So -- but in the last 2 quarters, the latter quarters, I expect the demand to improve. In terms of capacity additions, I think in the next 3 years, I would expect capacity addition of about 1 million each of 2 players. And besides that, I am not aware on ground of any other capacity additions happen.

Okay. These are like clinker capacities you're mentioning, 1 million each of clinker and similar grinding, right?

Yes, like proportionately, I think that is right.

Okay. And what will be the like maybe FY '26 end clinker and grinding capacity of the region?

That number has to get back to you on. I don't have it off hand like that. But I think it should be about 15.5 million to 16 million. That should be my estimate of the clinker capacity in the Northeast currently.

Do you have estimate for grinding capacity as well?

Grinding capacity would be about 23 million -- 23 million to 24 million.

And besides yourself and Dalmia Bharat, like other smaller peers, have they been able to expand or like most of expansion is from the top 2 players in the region past 3 years?

So I mean, besides us and Dalmia, we are the 2 people who are majorly expanded. I think other companies are doing brownfield expansion and they are trying to debottlenecks of about 0.5 million, 0.6 million. So I don't think there's anything significant that they're expanding at the moment.

We take the next question from the line of Harsh Mittal from Emkay Global Financial Services.

I have only one question. How has been the prices behave in the past 1.5 months basically the post 1Q exit given the flood situation in now? -- if you can give color on it.

Yes. So I think the prices have broadly been flat. So from Q1 to now, I think there's almost like INR 2, INR 3 increase in the price, but it has broadly been flat because -- I mean -- yes, so I think because the demand has gone, I don't think there's any reduction in the price, but there's a cost pressure, so we have to maintain the price, and that's why the price is a bit flat. But I think because of the demand -- because of the cost pressures, I think once the demand opens up, I think there will be a requirement to increase the prices a bit to absorb the cost.

And this flat prices is case in both of the markets, this Northeast as well as in outside Northeast. Is this assumption correct?

Yes. I think in Bihar, the prices is a bit higher by about INR 10 -- but in West Bengal and Northeast, the prices are up by about only INR 3.

Okay. And sir, any number if you can give about what could be the cost per tonne reduction in quarter 2 or you saying it may be flat, if any indication you can give on the operational cost per tonne?

So operational cost besides the fuel cost, it may go down to about INR 1.45. I don't see a lot of costs going down because the bag prices are also high at the moment. So I don't see that also going down. I mean, it depends on the war and the crude oil prices and prices and -- so that is beyond our control. I think we are introducing -- I mean, from a longer horizon, we are introducing a few things, which should help us in reducing our cost. I think we are -- by October, November, we will get a railway siding in Silchar. And we start operationalizing our Silcher capacities fully. I think there will be a lot of operational logistics savings that we may be able to accrue because of that because that will help us in serving the cheap -- in serving the South Assam market more effectively along with other states in Northeast. We are also planning in the next 5, 6 months, also planning to introduce EVs in some typical routes. I think that would also lead to significant savings. We are planning to introduce wagon tippler in Siliguri, which will reduce this clinker transportation cost and fly ash cost to Siliguri significantly. We expect about INR 150 savings from the sales that we make from Siliguri after we do introduce wagon tippler there. So I think there are a few cost initiatives that we're taking, which will materialize in the next 3 to 6 months, basically.

And in addition to that, because there are some one-off in of donation and some incentive that will also reduce in the next quarter. So that is INR 60 to INR 70 saving will be there as compared to this quarter.

Got it. Sir, last question from my side. Are we seeing at our guidance of INR 150 crores of noncement revenues this year? Or there is some downside risk on that...

Sorry, can you repeat that again?

Sure. My question is, so in the last call, we gave a guidance of INR 150 crores revenue guidance for the non-cement part business. So are we staying intact? Is this guidance intact? Or is there some downside risk to this number?

No. So that INR 150 crores was not -- that INR 150 crores was not actually the EBITDA increase. That was the revenue increase that we had suggested that we will do about INR 150 years by our Building Solutions division by AAC and RMC and that is actually a revenue estimate. That's not an EBITDA estimate.

This revenue estimate only. I said about revenue.

So that revenue estimate, I think, again, because the demand have been a bit sluggish. So we are not right now at the ARR where we touched 150, but we are increasing our RMC plants. We are focusing on ASC. And I think we should be able to reach that ballpark figure. At least on an ARR basis, we should be able to reach that 150 number by the quarter 4.

We take the next question from the line of Navin Sahadeo from ICICI Securities.

Sir, a couple of questions. So my first question was that if North as a project is certain, is there -- from a strategy point of view, are we contemplating entering the region with some RMC units because you already have some experience for RMC in your home turf. And given the way North is typically an OPC market, incrementally, I think other companies are also talking about RMC increase. So as a strategy, would you be contemplating putting more RMC units in the region to begin with so as to make like a brand visible or create or indirectly seed the market? And then probably once your product is launched or once your factory is launched, that could help us gain a better traction. Is that something on the card?

So I personally -- that's a good suggestion. We have not got down to thinking about that yet. But I think it's a good suggestion. I think I would ask my team to kind of evaluate it. And then probably we can have a discussion about it in the next earnings call. Right now, I think we will just -- we read the market. I agree with you that a lot of cities have the RMC culture and I think we'll have to eventually get to it. But we haven't really modeled it out, and we haven't really explored it in detail. So we'll do that and we'll get back.

Sure. We'll look forward. My second question then was about the incentives. So you mentioned Assam government did some change wherein from the earlier payout, they would now do much more equated kind of payout. So 2 things here. I wanted to understand what is the amount outstanding? And are there any receivables there from the Assam government, which will take longer than expected?

So Manojji, do you have the number?

Currently, we have around -- because we have received this quarter also, we have received INR 50-odd crores, INR 140 crores we have received till June, we have an accrual of INR 165 crores. And we have received INR 40 crores out of it and INR 25 crores by June -- up to June '25, everything will be cleared. Then after that, just let me give the number INR 85 crores accrual till March '26. That is supposed -- it will be INR 85 crores plus INR 25 crores. This is INR 110 crores is outstanding till March '26. And further this quarter, we have accrued around INR 16 crores, that is outstanding. INR 130 crores is the outstanding from Assam.

INR 130 crores is outstanding. And sorry, how much -- how many years now -- what is the total book size or incentive amount that we can get irrespective of the period? I believe they are the period now. So what is the total duration in terms of year and annual...

Total was INR 794 crores, okay? That has to be -- we will get...

Yes. So I think INR 794 crores that we were supposed to get, earlier, there was no restriction of how fast we will get it dependent on the amount of SGST that you give to the government, right? And I think that used to get deducted -- the net SGST used to get deducted from the amount of the overall subsidy, right? But now what we've done is that they have divided the number of -- the amount of subsidy by 12 years, right? So out of that, 2, 3 years have already gone through whatever remaining subsidy was there, they divided it by the remaining number of years, right, as per the new circular. So the impact of that is about INR 20 crores, INR 30 crores, which is why I said that the estimate of overall subsidy will reduce from INR 145 crores to INR 115 crores.

Understood, sir. And sir, my last question, because there was a change in the government in West Bengal and whatever local articles that we were reading through some trends maybe, I could just understand that there was a big crackdown on the illegal sand mining in the West Bengal, so to say. So do you have any idea if the upcoming industrial policy will have any or any -- like is there a proposal by the state to formalize the sand mining, which will also then, in a way, lay ground for having more organized RMC business in the West Bengal as a state?

So I think you're right. I mean, in West Bengal, we did -- I mean, there were problems because of the illegal sand mining and crackdown on it. So that is also the reason why the demand for cement has also been a bit muted, I think, in that area. I do not know if the government is trying to formalize this and what steps they are taking to counter this. But I think that once the rainy season gets over, I think they will, in some form or the other, open the sand mining because I think it will be critical for them to do that. I mean -- and right now, they can't do it with heavy raining. So it won't be possible for them to do it right now.

Understood. And let me again congratulate you for still being the highest -- one of the highest EBITDA per tonne companies, even excluding incentives. We look forward to similar such leadership or margin gain going ahead as well.

As there are no further questions from the participant, I would now like to hand Mr. Manoj Agarwal.

We have to give the closing remarks by Taushar as no participant there.

Yes, yes. I think he said the same. He requested for the same. requested the same...

I mean there was some noise, I think I'd like to just say that, of course, quarter 1 was not as far as any of our expectations, I think because of unforeseen events globally as well as in the states. I think quarter 2 seems to have a similar trajectory. This is also because the GST has been significantly revised. I think first hit on the subsidy side was because the GST had reduced from 28% to 18%. So I think in quarter 1 alone, INR 40 crores was a hit because of that. If we actually exclude that hit of INR 40 crores, then I think we were positive EBITDA in terms of percentage in absolute terms, which shows that there was resilience. I think from September onwards, anyway the subsidy impact last year had also already hit us. So I think from quarter 3 onwards, we will see that there's not much of a loss that we're making because of the reduction in the subsidy. And that part in the books would seem to be taken care of. And then I think the profitability also in terms of the percentage growth in EBITDA, we will start reflecting in the books. So the first quarter -- 2 quarters because last year till September '25, the GST rate was 28%, and now it is 18%. So right now, we are absorbing the hit of the subsidy. But I think from September onwards, last year also, it came down to 18%. So I think the hit that the books are facing because of the subsidy will stop being felt after September onwards, and you'll start seeing a growth thereafter.

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect