Dalmia Bharat Ltd Management Discussions.

Indian economic overview

India retained its position as the sixth-largest economy and the fastest-growing trillion-dollar economy through a major part of the year under review (except in the last quarter of 2018-19). After growing 7.2% in 2017-18, the Indian economy is estimated to have grown 6.8% in 2018-19 as per the Central Statistics Office release, May 2019.

The principal developments during the year under review comprised a sustained increase in per capital incomes, decline in national inflation, steadying interest rates and weakened consumer sentiment from the second half of the financial year. The weaker sentiment was on account of a large non-banking financial company announcing its inability to address liabilities.

This affected credit expansion, financial markets and consumer sentiment, which, in turn, resulted in slower GDP growth that declined to 5.8% by the fourth quarter of 2018-19, the slowest growth in a single quarter in years.

In 2018, the country attracted ~US$ 42 billion in FDI inflows as per the World Investment Report, 2019.

Driven by strong policy reforms, India witnessed a 23-notch jump to a record 77th position in the World Banks latest report on the Ease of Doing Business that captured the performance of 190 countries.

The commencement of the US-China trade war opened a new opportunity for India, particularly in the agro sector. Inflation (including food and energy prices) was estimated at 2.6% on an annual basis, one of the lowest in years and well below the Reserve Bank of Indias medium-term target of 4%. The rupee rebounded after touching a low of T74.45 to a dollar to close the financial year at T69.44. During the fiscal under review, the Indian Government continued to invest deeper in digitalisation, renewable energy capacity generation and infrastructure building.

Indian economic outlook

The Indian economy appears to be headed for sluggishness in FY20. Even as a new I government is expected to I remain pro-investment and pro-business resulting in a larger I spending on infrastructure build-out, an economic revival appears some quarters away. The long-term outlook of the country appears to be positive on account of various economic reforms, increasing aspirations, sustained consumption momentum and a national under-consumption across a range of products appearing to correct. (Source: CSO, Business Standard)

Key government initiatives

The Indian government continued to take a number of initiatives in strengthening the national economy.

Bank recapitalisation scheme

In addition to infusing Rs.2.1 lakh crores in public sector units, the Indian Government announced a capital infusion of Rs.70,000 Cr. to boost credit and create a strong impetus in FY19. (Source: Hindu Business Line)

Expanding infrastructure

Indias proposed expenditure of Rs.5.97 trillion (US$ 89.7 billion) towards infrastructural development in Union Budget 2018-19 is expected to strengthen the national economy. As of November 2018, the total length of projects awarded under Bharatmala Pariyojana (including residual NHDP works) was 6,460 kms for a total cost of Rs.1.52 trillion (US$ 21.07 billion). The Government announced an investment of Rs.10,000,000 Cr. (US$ 1.5 trillion) in infrastructure over the next five years in Budget 2019-20. (Source: IBEF)

Ujjwala Yojana and Saubhagya Yojana

With the help of this initiative, the Government has transformed the lives of every rural family, dramatically improving ease of their living by providing electricity and clean cooking facility to all willing rural families by 2022.


This Scheme is directed towards providing air connectivity to smaller Indian cities, enabling the common citizens to avail the option of travelling via air. Under this scheme, a number of airports are likely to be constructed.

Under the scheme, some selected airlines are expected to enjoy a three-year exclusivity period on specified routes, which will ensure no price cutting. Further, aviation turbine fuel tax rates have been reduced in collaboration with States.

The Insolvency and Bankruptcy code (Amendment), Ordinance 2018

Passed in June 2018, the ordinance provides a significant relief to home-buyers by recognising their status as financial creditors. The major beneficiary comprised MSMEs, empowering the Indian Government to provide them a special dispensation under the code. (Source: PIB)

Pradhan Mantri Kisan Samman Nidhi

The Indian Government announced in February 2019 the Pradhan Mantri Kisan Samman Nidhi, a scheme promising an annual assured income of Rs.6,000 (US$ 84.5) for any farmer owning <2 hectares of farmland. The budget for fiscal year 2020 allocated Rs.75,000 Cr. for the scheme, benefiting —120 million land-owning farmer households.(Source: PIB)

Direct Benefit Transfer

The Direct Benefit Transfer initiative re-engineered the cash disbursement process in welfare schemes through simpler and faster flow of information / funds to ensure the accurate targeting of beneficiaries, de-duplication and reduction of fraud. In FY19 alone, this scheme is estimated to have transferred >H3,00,000 Cr. and the gains to have accrued since scheme implementation (upto March 2019) was estimated at Rs.1,41,677 Cr. (Source: www. dbtbharat.gov.in)

Indian cement industry overview

India is the second largest producer of cement in the world (after China) with an annual installed capacity of ~500 MT. The industry accounts for ~8% share of the global cement capacity. The real estate sector (including housing) is cements biggest demand driver, accounting for ~65% of the total national consumption. The other cement consumers comprise public infrastructure at 20% and industrial development at 15%. The cement industry employs ~20,000 people across downstream sectors for every million tonne of cement produced.

Following the momentum generated in the previous year, cement demand grew 13% in FY19 on account of a low sales base of the previous year (following GST impact in Rs.1FY18) and healthy growth rates coming out of Eastern and Southern India. Looking ahead, demand growth could be catalysed by investment growth in affordable housing, rural development and infrastructure expansion.

The key regional drivers of Indias cement demand are expected to be Eastern, Central and Southern India. Further, cement prices are expected to stay stable. There was a growth in input costs during the year under review that is beginning to moderate following a decline in crude oil costs and cheaper slag and pet coke availability.

Indias cement industry is skewed towards the larger producers, indicating an impact of scale, brand and Balance Sheet strength. The countrys top 20 cement companies accounted for ~70% of the cement production in the country. Some 210 large cement plants accounted for a cumulative installed capacity of >350 MT while 350 smaller plants accounted for the rest. Of these 210 plants, 77 were located in Andhra Pradesh, Rajasthan and Tamil Nadu. (Source: CMA, IBEF)

Cement industry catalysts

Infrastructure development

There was steady growth in the implementation and completion of large infrastructure projects. The Central Government-backed mega-infrastructure projects like Bharatmala, Sagarmala and Smart Cities are beginning to report increased traction in terms of project award and implementation, a trend likely to sustain.

Affordable housing

The Indian housing and real estate segment is being driven by the demand emerging from Indias affordable segment across rural and urban geographies. —1.54 Cr. rural houses were constructed under the Pradhan Mantri Awas Yojana in the last five years. (Source: PIB)


In FY19, highway construction and expansion reached its highest pace at —30 kms per day. The Central Government has estimated that 65,000 kms of highways will be constructed at a cost of >H5.35 lakh crores by 2022. (Source: TOI)

Rural roads

Over the last 1000 days, the pace of highway construction increased to around 28 kms per day. PMGSY-III envisages to upgrade 1,25,000 kms of road length over the next five years at an estimated cost of Rs.80,250 Cr. (Source: PIB)

Metro railways

Currently, 10 cities in India have a functional metro rail network, spanning >500 kms. The construction of >660 kms across 15 cities is under consideration. (Source: Economic Times)


The projected passenger traffic (to, from and within India) for 2040 is estimated to be — 1.1 billion passengers. On the back of this estimated growth, the number of operational airports are estimated to reach 200 by 2040.

(Source: Ministry of Aviation)


The country focused on the development of the Sagarmala programme to develop and modernise ports along the countrys 7,500 kms long coastline. (Source: Moneycontrol)

Commercial and industrial development

While much of Indias residential real estate sector remained sluggish, the green shoots of the sector comprised a demand for larger office spaces. Gross leasing of office space was a record 48.1 million square feet in 2018 across eight major cities. Investments in Indias commercial real estate sector reached a decadal high of —US$ 2.6 billion during the first three quarters of FY19. Bengaluru, Mumbai and Delhi NCR accounted for 70% of the total office space demand. (Source: Economic Times)


The capex of Indian Railways for 2019-20 was fixed at Rs.1,60,175 Cr. in Budget 2019-20, the highest-ever, surpassing the previous years allocation of Rs.1,48,528 Cr. Under the proposed outlay, Rs.7,255 Cr. was allocated for the construction of new lines, gauge conversion received Rs.2,200 Cr., gauge doubling attracted Rs.700 Cr., rolling stock attracted Rs.6,114 Cr. and signalling and telecom received Rs.1,750 Cr. The allocation for passenger amenities increased by Rs.1,000 Cr. to Rs.3,422 Cr.

Bharatmala Pariyojana

The Bharatmala Pariyojana (the second largest highway development project after the National Highway Development Project) was launched with an outlay of Rs.5.35 lakh crores over a five- year period, envisaging the construction of 65,000 kms of roads in the first phase. Additionally, Rs.1.57 lakh crores is likely to be spent on existing projects, taking the total expenditure to Rs.6.92 lakh crores.

The salient features of this initiative comprised:

• Identification of corridors in a scientific manner

• Commodity-wise survey of freight movement across 600 districts, mapping shortest routes across 12,000 routes, carrying 90% of Indias freight volumes, technology- based automated traffic surveys at 1,500+ points and the satellite mapping of corridors to identify upgradation requirements

The initiative aims to create of a network of ~42,000 kms of economic corridors, inter-corridors, and feeder routes across the country, comprising:

• 44 economic corridors spanning ~26,200 kms and connecting economically important nodes

• 66 inter-corridor routes spanning ~8,400 kms of inter-corridor routes connecting economic corridors

• 116 feeder routes spanning ~7,600 kms of shorter feeder routes for ensuring first/last- mile connectivity The initiative also seeks to decongest 185 choke points across the existing corridor network with a complement of 28 ring roads, 45 bypasses, 34 lane expansions, 12 other interventions and 60+ points (yet to be finalised).

Cement industry challenges

• In 2018, pet coke prices remained on the higher side (US$ 100-110 per tonne) coupled with an increase in the total cost of imported coal by 28.7%.

This also reduced the scope for manufacturers to offset feedstock costs. An upward movement in US$ vis-a-vis INR in the early part of the financial year under review increased the delivered cost of imported feedstock

• Spot power prices remained high and non-captive power users were required to pay higher power tariffs. The surge in tariffs was owing to coal scarcity during the peak-demand period.

Fuel and power prices on average increased 15-18% during Rs.1FY19 over the corresponding period in the previous year

• Although cement is a high-volume and low-value product, it is also a highly- taxed commodity, higher than luxury goods (excluding freight transportation, which is ~20% of the operating cost). The levies and taxes in India are higher when compared to the Asia-Pacific or developing economies like Pakistan and Sri Lanka

• Rise in diesel prices could have a direct impact on the margins of cement manufacturers. Cement manufacturers with a higher dependence on road freight for the transportation of raw materials and supply of finished cement to markets could be impacted in the case of increased diesel prices

• The operating margin for the industry declined due to the Impact of fuel, freight, currency and power costs. Clinker and slag, key raw materials for cement, encountered an increase in cost in some regions, impacting margins that could not be passed due to increasing competition

Cement industry opportunities

The demand growth led by the affordable housing segment is expected to sustain on the back of increased governmental allocations. Fair monsoons should lead to a sustained improvement in rural prosperity. With the focus of government on building national highways and freight corridors, a significant contribution to the incremental cement demand is expected from these sectors.

Budgetary allocations

North East infrastructure initiatives

The Indian Governments Act East focus on strengthening relations with neighbouring countries helped enhance connectivity through various transportation, telecom and power projects.


• The North Eastern Council is a nodal agency entrusted with the responsibility of fostering economic and social development in the North East. The North Eastern Council, whose key members include the Governors and Chief Ministers of eight States, is funding the I infrastructural upgradation of 12 airports

• The Ministry of Road Transport and Highways completed the construction of a greenfield Rs.300 Cr. airport at Pakyong (Sikkim), one of the five highest airports in India

• The Tezu Airport (Arunachal Pradesh) ensures connectivity to districts like Lower Dibang Valley, Anjaw, Namsai and Dibang Valley, among others

• Runway extension works will be taken up by the North Eastern Council at Umroi (Shillong) Airport. Work is underway to allocate hangars at Lokpriya Gopinath Bordoloi International Airport in Guwahati


• Recently inaugurated projects include the 17.47 kms Doimukh-Harmuti Road, which links Assam and Arunachal Pradesh; the 1.66 kms Tura- Mankachar Road connects Assam and Meghalaya. The 17.47 kms Doimukh- Harmuti Road (H58.25 Cr.) provides an important link across the rivers Gumto and Gulajoly

• An express highway project along the Brahmaputra River spanning across 1,300 kms (estimated outlay of Rs.40,000 Cr.) is expected to resolve road ! connectivity issues in Assam

• The North East Road Sector Development Scheme, launched in FY16 is a centrally-sponsored scheme for the construction/upgradation/ improvement of 433.7 kms of roads in Assam, Manipur, Meghalaya, Mizoram, Sikkim, Arunachal Pradesh, Nagaland and Tripura


• There are plans to provide a railway link for the North Eastern states through 20 major railway projects, encompassing 13 new lines, two gauge conversions and five doublings, stretching ~2,624 kms

• All the capitals of North Eastern Indian states are expected to be J connected by a broad gauge rail link by 2020

• 43 projects are underway within the jurisdiction of the North East Frontier Railway

• Assam and Meghalaya will be connected through the Byrnihat-Shillong line whereas Manipur will be connected to Jiribam, a bridge with a pier ; height of 141 metres, making it the tallest rail bridge in the world

Cement industry outlook

Domestic cement demand is estimated to grow at ~8% in FY20, driven by housing development, primarily in the rural and affordable segments and infrastructural development (roads, metro, railways, airports, ports and irrigation projects).

The incremental demand of ~22-26 MT was estimated to be greater than incremental supply, resulting in an expected growth in capacity utilisation. (Source: Hindu Business Line, ICRA)

Global refractory industry overview

The global refractories market was estimated at US$ 23.3 billion in 2018 and projected to reach US$ 26.3 billion by 2023, clocking a CAGR of 2.5% between 2018 and 2023. Refractory demand is closely tied to global demand patterns of industries, like steel, non-ferrous metals, cement, glass and petrochemicals.

Overall market growth is expected to be fuelled by acceleration in iron and steel production in emerging economies such as China, India and Brazil and a high growth rate witnessed by the non-metallic minerals industry. The growth is primarily due to infrastructural development, industrial expansion, construction activity in economically developing areas and improved prospects for these industries in developed economies, creating a growing demand for high- grade refractories.

India refractory industry overview

India is an attractive refractory market. Given the continuous momentum in expected growth in the end-user industries, the refractory market is estimated to grow above 6% in FY20 and FY21. India is already the second largest producer of steel with 106 MT crude steel production in 2018, targeted to grow to 300 MT by 2030. Steel consumption grew by 5.7% y-o-y and reached 92.1 MT in 2018.

The other large refractory consumer was the countrys cement sector. India is the second largest producer of cement with the capacity of 500 MT expected to grow to 550 MT by 2020.

The growth in the end-user industry was primarily driven by growing urbanisation, infrastructure development and Housing for All by 2022 initiative. The growth was also due to an increase in the middle-class population leading to a sharp upswing in the consumption of goods requiring steel.

Company overview

A leader in cement manufacturing since 1939, Dalmia Bharat is a prominent cement player and one of the fastest growing in the countrys cement sector. Dalmia Bharats state-of-the art plants are spread across 13 locations, servicing the growing cement appetite of 22 States. It is the fourth largest cement manufacturing group in India and arguably among the fastest growing from a decadal perspective. Dalmia Bharat accounts for 5% of all Indian capacity share in the areas of its presence. It carved out its reputation as a pioneer in the super-speciality cement niche used in oil wells, railway sleepers and air strips.

Dalmia Bharat is a responsible custodian of manufacturing assets, operating at 72% capacity utilisation in FY19.

The refractory business of the Group dates back to 1954, when OCL commissioned its first refractory plant.

The business has grown into one of the largest composite refractory plants, manufacturing silica, basic-burnt, magnesia carbon, fireclay and high alumina bricks, monolithics, continuous casting, slide gate refractories, castable and pre-cast blocks, basic and high-alumina silica ramming masses/mortars and other process specific refractories such as nozzles, snorkel and lances, among others.

Human resources

Dalmia Bharat believes that its inherent strength lies in a dedicated and motivated workforce. It has created a holistic working environment and urged its talents to go beyond their predetermined scope of work, so that they could come up with innovative ideas that brighten long-term growth prospects.

Dalmia Bharat reduced its talent headcount but did not replace the people who left the organisation. Instead, it chose to re-skill and assign new roles to existing talents, enhancing productivity. As on 31st March 2019, the total number of people employed directly were 5634 and >9000 people were employed through contracts.

Manufacturing operations

From a current installed capacity at 26.5 MT, Dalmia Bharat intends to reinforce this sectoral status through a planned increase in installed capacity by 40% to 37 MTPA by FY21 (brownfield and acquisitions). This expansion is likely to enhance the Groups market share to an estimated 7% of the total cement capacity in the country at that time.

During the year under review, Dalmia Bharat encountered the challenge of rising power costs in response to which it increased the proportion of alternative fuels within its fuel mix. The Group continued using alternative fuels where the fuel cost differential was more than the efficiency differential, strengthening the value proposition.

Dalmia Bharat developed a network optimisation tool to optimise transportation and logistics costs, analysing processes and dispatch routes in addition to conducting a sensitivity analysis. This helped generate a financially viable dispatch plan from its plants to delivery destinations. Dalmia Bharat strengthened its manufacturing process through the proactive use of cutting-edge technologies and timely debottlenecking. This allowed the Group to moderate its electricity consumption to 70 kilowatt- hours per tonne of cement produced, estimated to be ~38% lower than the global sectoral average; the Group also reported thermal power consumption 12-15% lower than the global average.

Mobile connect

Dalmia Bharat strives to reinforce its sectoral position by strengthening its supply chain, automating plants and deploying best-in-class business analytics, mobility and cloud solutions to enhance real-time information availability. Several related initiatives were taken to forge stronger ties with talents, partners, dealers and customers.

Suvidha app

This app was designed to help dealers improve their order lifecycle management. The app offers dealers easing order placement and tracking, one-tap access to their accounts and ePOD.

Driver Saathi app

This app provides transporters with instant electronic proof-of-delivery, expediting payment and feedback generation. It helps the Group track delivery times when there are multiple points of delivery and ensures secure delivery by generating OTPs.

Smart-D app

This app provides a one- stop solution for assessing consumer needs, allowing the Groups sales team to stay in control across the lifecycle by enabling them to track customer satisfaction indices and secondary sales information.

Dalmia Purchase Requisition app

This app enables the senior management to provide instant approvals on purchase requisitions.


Dalmia Bharat integrates data from multiple applications through process automation and business analytics. It developed a robust analytical architecture capable of providing precise micro-details of the business through text messages, e-mails and website updates.

Plant Logistics Management app

This app helps the Group exercise control across the logistical value chain from gate-in to gate-out, helping plug weak links and moderating the average turnaround time.

Internal control systems and their adequacy

The internal control framework is designed to ensure proper safeguarding of assets, maintaining proper accounting records and providing reliable financial information and other data. This system is supplemented by internal audit, reviews by the management and documented policies, guidelines and procedures.

Dalmia Bharat has a well- defined organisation structure, authority levels, internal rules and guidelines for conducting the business transactions. It intends to undertake further measures as necessary in line with its intent to adhere to procedures, guidelines and regulations as applicable in a transparent manner. Internal audit department of the Group carries out the internal audit of the Group operations and reports its finding to the audit committee. In this process the internal audit also evaluates the functioning and quality of internal controls and provides assurance of its adequacy and effectiveness through periodic reporting. Internal audit is carried out as per risk based internal audit plan which is reviewed by the audit committee.

The committee periodically reviews the findings and suggestions for the improvement and is apprised on the implementation status in respect of the actionable items.


Reducing carbon emissions has been a longstanding Dalmia Bharat priority, resulting in proactive investments in low-carbon technologies. Dalmia Bharat increased the proportion of environment-friendly blended cement in its product mix to ~80%. It implemented strategies in line with its long-term vision of achieving enhanced prosperity through sustainable value creation. Dalmia Bharats plants are ISO 14001-certified, validating its environmental commitment. Most of the Groups integrated plants and grinding units are certified with the coveted EnMS 50,001 (Energy Management System) accreditation, indicating the Groups ability to moderate energy use, reduce costs and improve energy-efficiency.

Dalmia Bharat utilises industrial wastes like charcoal, saw dust and shredded tyres as alternative fuel and resources with the following advantages: moderated raw material costs and carbon footprint. Dalmia Bharat has commissioned ambient air quality monitoring systems to monitor ambient air quality outside its manufacturing facilities. It has also engaged external accredited labs to validate that its compliance is in line with National Ambient Air Quality Standards (NAAQMS).

Company outlook

Riding on the back of a projected industry growth (~8% during FY20) and low Indian per capita cement consumption (210 kilograms compared to a global average of 580 kilograms), the Group remains optimistic of prospects.

Dalmia Bharat is undertaking the following initiatives to strengthen its business:

• Undertaking ~7.8 MT of brownfield capacity expansion in East India

• Taking ownership of roadside eateries within 60 kms of its plants and use these as dispatch centres, strengthening its logistical infrastructure without significant costs

• Increasing its renewable energy share as a percentage of electricity consumed by 4x between 2015 and 2030

• Developing synthetic slag compliant with the stringent IS: 455-1989 norms, using low-grade limestone in collaboration with the National Council for Cement and Building Materials, Haryana, allowing the Group to optimise costs and increase offtake

Risk management

Dalmia Bharat is subject to risks and uncertainties that may affect its financial performance. Its business, results of operations or financial conditions could be adversely affected by the risks described below. These are not the only risks that Dalmia Bharat faces. Additional risks and uncertainties not presently known to Dalmia Bharat or considered immaterial could also impair its business and operations.

Economic risk Mitigation
A slowdown in the economy could reduce infrastructure investments, decelerating growth for Dalmia Bharat. Assuming no major global and domestic political shocks, Indias markets are expected to perform better due to projected earnings revival in 2019. The Indian economy is expected to remain sluggish during FY20 but revive across the medium-term, benefiting from structural reforms.


Cost risk Mitigation
Increasing costs could adversely impact Dalmia Bharats margins. Dalmia Bharat started using alternate sources of fuel like carbon black to cut fuel costs.


Environmental risk Mitigation
Production of cement impacts the environment severely and could lead to sanctions being levied against Dalmia Bharat. Dalmia Bharat was the first Indian cement manufacturer to join the RE100 and is committed to 100% renewable electricity use. Looking ahead, the Group expects to emerge as carbon-negative by 2040. As a means to this end, it is increasing the share of low-carbon products in its portfolio, enhancing the use of green power and judicious sourcing of raw materials.


Competition risk Mitigation
Intensifying competition could reduce Dalmia Bharats market share. Dalmia Bharat has been strategically adding capacities and improving footprint across the country, allowing it to maintain its growth momentum.


Debt risk Mitigation
Inability to secure capex funding at competitive rates could jeopardise Dalmia Bharats growth. A debt-equity ratio of <1 has not only enhanced Dalmia Bharats solvency but also credit rating, resulting in enhanced access to low cost debt.


Talent risk Mitigation
Inability to retain talents could unfavourably impact Dalmia Bharat in the long run. Dalmia Bharat offers various professional development and growth opportunities to drive organisational retention. It enjoyed a retention of 89% as on 31st March 2019, one of the best within its sector.


Statements in management discussion and analysis describing Dalmia Bharats objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those either expressed or implied. Important factors that could make a difference to the Groups operation include among others, economic conditions affecting demand/supply and price conditions, variation in prices of raw materials, changes in governmental regulations, tax regimes, economic developments and other incidental factors.