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At Star Cement, we have grown attractively by being consistent in our
endeavour to invest in the future.
This commitment has extended from a commitment to invest singularly in
incremental manufacturing capacities to a broadbased investment in people, processes,
resources and Balance Sheet.
This integrated preparedness has empowered the Company to stay ahead of
the industry curve and deepen its competitiveness in the right place at the right time.
During the year under review, your Company sustained this commitment.
The Company invested in manufacturing capacities ahead of the demand curve as one way to
deter prospective competition from enhancing capacity, inspiring trade confidence that we
possess adequate product capacity to respond to their unforeseen needs (shrinking the gap
between market growth and available supply) and creating the foundation for prospective
economies of scale.
This was visible during the last financial year when the Company
engaged in an unprecedented expansion of its clinker and cement capacity, deepening its
regional leadership and establishing a first-mover's advantage related to incremental
capacities. The Company graduated from the conventional response of supply chasing demand;
by launching ahead of competition and by enhancing capacity sizably in one go, the Company
created a scenario marked by supply-driven growth. In doing so, the Company deepened a
multi-year foundation for business leadership and sustainability.
The rationale for this aggressive capacity growth was that cement is
largely a regional play in India. Even as brands have become progressively national in
visibility
and relevance, the viable supply of cement from a manufacturing
facility is usually circumscribed within a catchment area of 250300 kms. Given the
Company's longstanding presence in North East India - retrospective and prospective -
there was a premium to sustain regional investments and deepen undisputed regional
leadership.
This proactive capacity creation, which was intended to generate
long-term gains in regional leadership, began to generate enhanced market share within
months of being commissioned; the upsides had already become visible in the first quarter
of the current financial year as market share rises from ~24% to ~27%.
At Star Cement, we believe that the capacity expansion was not only
advisable but necessary. India's per capita consumption of cement was 260 kg during the
year under review. North East India accounted for 3.76% of India's population and 7.9% of
India's land mass and negligible proportion of its cement consumption.
The skew in these numbers is already reflecting in a positive
divergence in cement offtake growth within North East India and the rest of the country.
In FY 23-24, the 9% growth in cement demand in North East India was higher than the
all-India average of 8%, indicating attractive growth room.
We believe that it is only a matter of time when a sustained increase
in disposable incomes translates into even more enhanced cement consumption in the region,
putting a premium on the ability of branded prominent brands to service that growing
market with speed and cost-effectiveness.
The Company expanded its manufacturing capacity of cement by 35.27% in
FY 23-24, strengthening growth readiness.
At Star Cement, we believe that North East India is likely to attract
an unprecedented investment in
renewable energy. The mountainous nature of the region coupled with
high precipitation provides the region with an attractive hydro- electric energy platform.
The world is passing through a decisive and dramatic energy shift from the extensive use
of fossil fuels to clean energy sources. North East India is attractively placed in the
regard; the region comprises the potential to construct hydro- electric dams, creating a
foundation to progressively replace the use of thermal energy. In addition to this, there
is a growing appetite for cement from the region's housing and infrastructure building
sectors.
At Star Cement, we possess a structured approach in enhancing and
deepening our regional presence. During the year under review, we expanded our grinding
capacities at existing locations; concurrently we charted out a program to commission
grinding units that would manufacture cement in Silchar and Jorhat. By the later part of
the calendar year of 2026 and 2027, we expect to commission 2.0 MTPA at each of these new
locations. We believe that by increasing the number
of clinker grinding units across North Eastern India we are creating a
distribution network where each unit is suited to its location, enhancing scale,
competitiveness and environment responsibility.
The commissioning of these units is expected to deepen the Company's
competitive advantages. The commissioning of these plants close to their respective
consumption markets is expected to shrink the time and distance related to the last mile
delivery of cement to the consumption markets. This is expected to enhance the confidence
of trade partners that the proximity of these two manufacturing facilities will help
service their needs faster, empowering them to moderate their cement inventory and enhance
working capital efficiency.
The present expansion of the Company's cement grinding units from three
to four on the overall and from two to three in North East India is expected to generate a
logistical advantage. By venturing to commission these grinding units closer to consuming
markets, the Company expects to moderate cement delivery distances and carbon footprint.
Besides, the fly ash that would be delivered from Bihar to the cement manufacturing unit
in Guwahati will, over time (when two new cement manufacturing units are commissioned), be
delivered to the two proposed units directly.
The progressive replacement of road-based logistical connectivity with
rail is expected to moderate transportation costs and carbon footprint.
At Star Cement, we are not just increasing our manufacturing capacities
of clinker and cement; we are also moderating the use of fossil fuels and increasing the
use of green fuels. The Company intends to grow its energy mix through a complement of
renewable energy (solar and wind), waste heart recovery systems and the increased use of
bamboo (over
coal) and other alternate fuel like medical waste, plastic wastes etc.
Over the foreseeable future, we expect to increase the proportion of
green energy sources to 55% of our energy mix by 2026, deepening our brand recall for
responsible resource use and the manufacture of green cement.
At Star Cement, we have consistently focused on protecting the
robustness of our Balance Sheet while enhancing our manufacturing capacities. This
strategic consistency will sustain. By the virtue of making this industrial investment in
the State of Assam India, the Company is entitled to a government subsidy equivalent to
200% of investment to be received across 20 years. The Company expects to accelerate
production and sales with the objective to earn this subsidy in only seven years, creating
an incremental annual cash inflow of H140 Crore. The result is that the Company is likely
to report a 20% growth in revenues during the coming financial year, coupled with a
proportionately higher EBITDA, validating its commitment to sustainably profitable growth.
At the close of the year under review, the Company possessed H130 Crore
in total debt and H2,710 Crore in net worth. The addition of incremental profits arising
from the capacity expansion cum market share in addition to the subsidy inflow is expected
to strengthen the Company's financial foundation.
This foundation could then be progressively leveraged to expand cement
manufacturing capacity outside North East India across the coming years, creating a
pan-India personality.
| Sajjan Bhajanka, |
| Chairman & Managing Director |