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    Heidelberg Cem.

    HEIDELBERGNeutral
    Construction Materials·15 Feb 2023
    Management Summary

    HeidelbergCement India reported a challenging Q3 FY23 with volumes impacted by warehousing issues and profitability hit by a 9% increase in costs, primarily power and fuel. Despite these headwinds, the company maintained a strong focus on green power, increasing its share by 33%, and continued to operate with negative working capital. Management outlined plans for debottlenecking, limestone mine expansion, and expects demand improvement in Central India, alongside a softening of fuel prices in the upcoming quarter.

    Highlights

    8
    • Green power share increased by 33% QoQ.

    • Volumes increased QoQ but decreased YoY due to warehousing issues.

    • Cost increased by about 9% YoY, partially offset by price increases.

    • EBITDA dropped due to increased power and fuel costs.

    • Company continues to operate on negative working capital with net cash of about ₹1.4-1.5 billion.

    • Fuel cost per ton of cement for Q3 FY23 was ₹1,260, up from ₹980 in Q3 FY22.

    • Fuel cost increased by ₹300/ton and total cost by ₹370/ton for the quarter.

    • Realization declined by 2.5% QoQ in December quarter.

    What Changed2

    vs Q1 FY24

    Guidance items11 → 12 (+1)Risks discussed4 → 5 (+1)
    Key financials

    Metrics

    18

    Periods

    5

    Headline

    7
    • Green Power Increase
      33%
    • Cost Increase
      9%
      YoY+9%
    • Net Cash
      $1.4B
    • Current Clinker Capacity
      3.1 Mn
    • Total Clinker Capacity (incl. Karnataka)
      3.5 Mn

    Q2 FY23

    1
    • Trade Share
      83%

    Q3 FY22

    1
    • Fuel Cost per Ton
      ₹980

    Q3 FY23

    7
    • Fuel Cost per Ton
      ₹1,260
    • Fuel Cost Increase
      ₹300
    • Total Cost Increase
      ₹370
    • Realization Decline
      2.5%
      QoQ-2.5%
    • Trade Share
      76%

    9M FY23

    2
    • Fuel Cost Increase
      40%
      YoY+40%
    • Volume Drop
      9.5%
      YoY-9.5%

    Guidance & targets

    12
    CategoryTargetPriority
    Cost
    Gigajoule consumption
    3.06-3.07
    High
    Cost
    Power consumption
    70 units
    High
    Capacity
    Additional Clinker Capacity (Debottlenecking)
    200,000-250,000 tons
    High
    Capacity
    Additional Cement Capacity (from Debottlenecking)
    350,000 tons
    High
    Merger
    Heidelberg & Zuari Merger Timeline
    1.5 years
    Medium
    Fuel Cost
    Fuel Cost Reduction QoQ
    8%
    Medium
    Demand Growth
    Central Region Demand Growth
    7%
    Medium
    Demand Growth
    Central Region Demand Growth
    5.5-6%
    Medium
    Capex
    Sustainable Capex
    40 crores
    High
    Capex
    Debottlenecking Capex
    15 crores
    High
    Capex
    Total Capex
    55 crores
    High
    Revenue
    Top Line Compounding Growth
    more than 10%
    Medium

    Risks & concerns

    6
    RiskSeverity

    Warehousing and logistics issues

    Some warehousing problems and changes impacted volumes in Q3 FY23, but management believes it's temporary and being overcome.Management acknowledged

    medium

    Competitive pricing pressure

    Increased capacities and aggressive pricing by competitors have impacted volumes and realizations, particularly in Central India.Management acknowledged

    medium

    Fuel cost volatility

    Power and fuel costs significantly impacted EBITDA, though softening trends are expected in the March quarter.Management acknowledged

    medium

    Statutory clearances for projects

    Greenfield projects and capacity expansions are subject to long and complex statutory clearance processes, which are not entirely within management's control.Management acknowledged

    medium

    Regional oversupply in Central India

    Capacity in Central India is projected to increase significantly (65 to 90 million tons by 2024-2025) while demand growth is lower (7%), potentially leading to persistent pricing pressure.Analyst acknowledged

    medium

    Areas of Evasion(1)

    • Zuari Cement specific projects (refused to comment on HCIL call)

    Q&A highlights

    3

    “Let me answer your question in the reverse order in terms of our premium there was an accounting change, we had introduced this new brand and there was some method of computing which we were doing so that is not actually 57 now this is a true picture which is on the total trade volume.”

    Clarified a significant reported decline in premium share was due to an accounting change, not actual performance, and addressed reasons for volume decline.

    asked by Shravan Shah

    2 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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).

    05

    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.

    06

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.