Detailed Narrative
Q3 FY23 Performance Overview
HeidelbergCement India experienced a mixed Q3 FY23. Volumes saw a quarter-on-quarter increase but a year-on-year decrease, primarily attributed to temporary warehousing issues. Costs rose by approximately 9% YoY, largely due to increased power and fuel expenses, which significantly impacted EBITDA. Despite these challenges, the company maintained a negative working capital position and reported net cash of around ₹1.4-1.5 billion.
Cost and Realization Dynamics
Fuel cost per ton of cement for Q3 FY23 was ₹1,260, a notable increase from ₹980 in Q3 FY22. For the quarter, fuel costs increased by ₹300/ton, contributing to a total cost increase of ₹370/ton. Over the nine months ended December 2022, fuel costs rose by 40% YoY. Realization declined by 2.5% QoQ in the December quarter, reflecting competitive pricing pressures and a 9.5% volume drop over the nine-month period.
Green Initiatives and Operational Efficiency
The company reported a substantial 33% increase in green power utilization, highlighting its commitment to sustainability. Management aims to further reduce gigajoule consumption to 3.06-3.07 and power consumption to around 70 units. These efforts are part of a 'mission possible' program focused on embedding permanent efficiency improvements across plants, building on best demonstrated practices.
Capacity Expansion and Limestone Reserves
HeidelbergCement India plans to debottleneck its Central India plant, aiming to add 200,000-250,000 tons of clinker capacity, which will translate to approximately 350,000 tons of cement capacity, expected to come on stream next year (FY24). The company also successfully bid for adjoining limestone mines in Madhya Pradesh, securing reserves that will extend the plant's life and offer future expansion opportunities for a 3 million ton greenfield project in Gujarat, though this is a long-term plan (3.5-4 years).
Market Outlook and Demand
Management projects Central India demand growth of 7% for FY24 and 5.5-6% for FY23. They anticipate a softening of fuel prices in the March quarter, with a potential 8% QoQ reduction. The overall outlook for India's cement demand remains positive, driven by government infrastructure projects and a good Rabi crop expected to boost rural demand. However, regional oversupply in Central India, with capacity projected to reach 90 million tons by 2024-2025, poses a risk to pricing.
Strategic and Corporate Developments
The Managing Director announced his resignation effective March 31, 2023, with Mr. Joydeep Mukherjee taking over. The potential merger of HeidelbergCement India and Zuari Cement into a single entity is expected to take another 1.5 years. The company's CAPEX for FY23 and FY24 is budgeted at ₹40 crore for sustainable projects, with an additional ₹15 crore for clinker debottlenecking in FY24, totaling ₹55 crore. The withdrawal of GST incentives post-February is expected to impact margins by approximately ₹40 per ton.