HeidelbergCement India Limited — Q4 FY24 earnings call

Call held 31 May 2024

Management summary

HeidelbergCement India reported a strong Q4 and FY24 with significant volume growth and improved EBITDA per ton, driven by cost optimization and increased green power usage. The company is actively pursuing capacity de-bottlenecking and product premiumization. However, it faces challenges from market pricing pressure, recent volume degrowth, and delays in key strategic projects like the Gujarat expansion and Zuari merger.

Highlights

  • FY24 volume growth at 9%, with Q4 volume growth at 4%.

  • EBITDA per ton reached INR659, marking a 16% year-on-year increase.

  • Green power share increased to 38% in Q4 FY24, with a target of over 40% by FY25.

  • De-bottlenecking project to add 400,000 tons to cement output by Q1 2025 calendar year.

  • Repaid interest-free loan of INR629 million and announced a dividend of INR8 per share.

  • Combined fuel cost for Q4 was INR1.8 per kilocalorie.

  • Cement prices dropped by approximately INR6 per bag in April/May compared to Q4.

  • Industry volume experienced double-digit degrowth in April/May, with an expected uptick in June.

Concerns

  • Intensifying competition and pricing pressure

  • Delay in Gujarat expansion environmental clearance

  • Unresolved stamp duty issue delaying Zuari merger

  • Cement price drop in April/May

  • Double-digit volume degrowth in April/May

Key financials

3 periods

Headline

  • EBITDA per Ton
    ₹659
    YoY +16%
  • Negative Net Operating Working Capital
    2,000 Mn
  • Dividend per Share
    ₹8

Q4

  • Volume Growth
    4%
  • Combined Fuel Cost
    ₹1.8/kcal

FY24

  • Volume Growth
    9%

What they filed

Q1 FY27: revenue up 5.0%, net profit down 35.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue461 543 612 598 512 +11%574 +6%646 +6%628 +5%
EBITDA37 33 91 89 58 +57%53 +61%88 −3%67 −25%
Net profit11 5 50 48 25 +127%16 +220%45 −10%31 −35%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Green Energy

  • Green Power Share Green Energy · FY25 · High confidence >40%
    Our target is to reach more than 40% green power by FY '25.

    — Joydeep Mukherjee, Managing Director

Capacity Expansion

  • Increased Cement Output (from de-bottlenecking) Capacity Expansion · Q1 2025 calendar year · High confidence 400,000 tons
    de-bottlenecking of clinker capacity, which should result in an increased cement output of 400,000 tons.

    — Joydeep Mukherjee, Managing Director

  • Clinker Capacity (post de-bottlenecking) Capacity Expansion · Q1 2025 calendar year · High confidence 3.3-3.4 million tons
    it will aid or it will increase to clinker capacity to 3.3 million tons or 3.4 million tons.

    — Anil Sharma, Chief Financial Officer

  • Gujarat Plant Commissioning Timeline (post EC) Capacity Expansion · After EC · High confidence 3 years
    Obviously, from that -- it will take 3 years' time.

    — Joydeep Mukherjee, Managing Director

Cost Reduction

  • Power Cost Reduction (from green power) Cost Reduction · Current quarter · High confidence 30-35%
    And then, to that extent, the power cost will be reduced by around 30%, 35%.

    — Anil Sharma, Chief Financial Officer

Capex

  • Total Capex Capex · Next fiscal year (FY25) · High confidence INR100-120 crores
    So next year, next fiscal year, we can say that the total capex will be in the range of INR100 crores, INR120 crores.

    — Anil Sharma, Chief Financial Officer

Volume Growth

  • Industry Volume Growth Volume Growth · FY25 · Medium confidence 6-7%
    Well, the volume growth will be -- should be in the line of -- in line with industry growth. ... which should be in the region of about 6% to 7%.

    — Joydeep Mukherjee, Managing Director

Product Sales

  • Power Shield Sales Volume Product Sales · End of 2025 · High confidence 20,000-25,000 tons/month
    By the end of 2025, we should be clocking anywhere between 20,000 to 25,000 tons.

    — Joydeep Mukherjee, Managing Director

Product Mix

  • Premium Cement Share Product Mix · Next 2 years · High confidence ~45%
    So I think our ambition is to reach a number of -- around 45% in the next 2 years.

    — Joydeep Mukherjee, Managing Director

Risks & concerns

  • Intensifying competition and pricing pressure

    high

    Market fragmentation and intensifying competition could put pressure on cement prices, though management expects prices to bounce back.

    Management acknowledged

  • Delay in Gujarat expansion environmental clearance

    high

    The Gujarat expansion project cannot move forward until environmental clearance is received from the government.

    Management acknowledged

  • Unresolved stamp duty issue delaying Zuari merger

    high

    The merger with Zuari is stalled due to an inability to find a solution regarding stamp duty calculations, pushing completion to FY26 or FY27.

    Management acknowledged

  • Cement price drop in April/May

    high

    Cement prices dropped by approximately INR6 per bag in April and May compared to the Q4 average.

    Management acknowledged

  • Double-digit volume degrowth in April/May

    high

    The industry experienced double-digit volume degrowth in April and May, though an uptick is expected in June post-elections.

    Management acknowledged

  • Impact of elections on consumption

    medium

    Elections led to conservatism in consumption and a dampener in the last couple of months.

    Management acknowledged

Areas of evasion (3)

  • Specific timelines for Gujarat expansion environmental clearance
  • Exact resolution timeline for Zuari merger stamp duty issue
  • Precise Q1 FY25 profitability outlook given recent price drops

Q&A highlights

1 direct, 1 evasive
Clinker de-bottlenecking and Gujarat expansion status Partial
No, this clinker de-bottlenecking project has been started this year. And we are going to get the benefit by first quarter of 2025 calendar year. ... In Gujarat, the matter is still pretty much in the government's court. We can't move until we receive the EC.

Clarifies the timeline for current expansion plans and highlights the regulatory bottleneck for a major future growth project.

Asked by Keshav Lahoti

Merger of Zuari with HeidelbergCement Evasive
Again, we have been working over it and we still we are not finding a solution with respect to stamp duty thing. ... So you are right that even if you start the process in the fiscal year '25, it is not going to complete. It takes time, maybe '26 or '27.

Reveals significant, ongoing delays and uncertainty regarding a major strategic consolidation, impacting long-term outlook.

Asked by Keshav Lahoti

April/May volume degrowth and Q1 FY25 outlook Direct
So the number that you indicated is right. I think the entire industry, all the major players, the degrowth would be in that range. It will be a double-digit degrowth for April and May, but we are looking at an uptick in June post the election dates are over, because there would be a lot of pent-up demand.

Provides crucial near-term demand indicators and market sentiment, acknowledging significant recent volume decline but anticipating recovery.

Asked by Aman Agarwal

2 min read 6 chapters

Detailed narrative

Q4 FY24 Performance & Key Metrics

HeidelbergCement India reported a 4% volume growth in the March quarter (Q4 FY24), contributing to a 9% volume growth for the full financial year 2024. The company achieved an EBITDA of INR659 per ton, marking a 16% year-on-year increase, primarily driven by a decrease in power and fuel costs. Management announced a dividend of INR8 per share and highlighted maintaining a negative net operating working capital exceeding INR2 billion. The combined fuel cost for Q4 was INR1.8 per kilocalorie.

Sustainability & Green Initiatives

The company continues its commitment to sustainability, producing 100% blended cement with a CO2 footprint of 506 kgs per ton and being 4.4x Water Positive. Its green power share increased to 38% in Q4 FY24, up from 33% for the full year. HeidelbergCement aims to further increase its green power share to over 40% by FY25, anticipating a 30-35% reduction in power costs from new green energy sources, including a recently signed Hybrid PPA for 16 megawatts (8MW Wind + 8MW Solar).

Capacity Expansion & De-bottlenecking

HeidelbergCement has initiated a clinker de-bottlenecking project, expected to be completed by Q1 2025 (calendar year). This project is projected to increase cement output by 400,000 tons per annum and boost clinker capacity to 3.3-3.4 million tons. The company's total capex for the next fiscal year (FY25) is estimated to be in the range of INR100-120 crores, with a significant portion allocated to this improvement project.

Product Premiumization Strategy

The company launched a new value-added product, Power Shield, in December '24, which has already achieved sales of over 8,000 tons per month. Management aims to significantly scale up Power Shield sales to 20,000-25,000 tons per month by the end of 2025. This initiative is part of a broader strategy to increase the premium cement composition to approximately 45% within the next two years, up from the current 34%.

Market Outlook & Recent Challenges

While the Indian economy shows impressive growth, the cement sector faces challenges. Elections led to conservatism in consumption and labor shortages in recent months. The company noted intensifying competition and potential pricing pressure, although it expects prices to eventually bounce back. Cement prices dropped by approximately INR6 per bag in April and May compared to the Q4 average, and the industry experienced double-digit volume degrowth during these months, with an anticipated uptick in June post-elections.

Strategic Project Delays

Two major strategic projects face significant delays. The proposed Gujarat expansion is stalled due to pending environmental clearance from the government, with a projected 3-year timeline for commissioning once the EC is received. Additionally, the merger of Zuari with HeidelbergCement is facing unresolved stamp duty issues, which management indicates could push its completion to FY26 or FY27, highlighting the complexity of multi-state mergers and mining permit transfers.

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