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HeidelbergCement India Ltd Management Discussions

197.1
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Apr 3, 2025|09:07:19 AM

HeidelbergCement India Ltd Share Price Management Discussions

Global & Indian Economy at a glance

Particulars

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Est. Est.

A. World Output / Real GDP

(Annual percent change)

World 3.46 3.26 3.82 3.63 2.84 -2.69 6.47 3.46 3.21 3.18 3.23
- Advanced Economies 2.38 1.84 2.57 2.28 1.80 -3.94 5.72 2.62 1.63 1.74 1.77
- Emerging Market & 4.32 4.38 4.79 4.66 3.61 -1.77 7.02 4.06 4.32 4.16 4.21
Developing Economies

India

8.00 8.26 6.80 6.45 3.87 -5.78 9.69 6.99 7.83 6.81 6.46

B. In ation: Consumer Prices

(Annual Percent change)

World 2.73 2.73 3.25 3.65 3.51 3.24 4.71 8.73 6.78 5.94 4.51
- Advanced Economies 0.31 0.75 1.71 1.96 1.40 0.69 3.11 7.28 4.60 2.62 2.05
- Emerging Market & 4.74 4.35 4.48 4.96 5.12 5.17 5.90 9.80 8.34 8.29 6.19
Developing Economies

India

4.91 4.53 3.59 3.41 4.77 6.17 5.51 6.65 5.38 4.56 4.17

C. Current Account Balances

(Percent of GDP)

- Advanced Economies 0.60 0.78 0.97 0.76 0.76 0.34 0.96 -0.33 0.47 0.69 0.68
- Emerging Market and -0.29 -0.37 -0.09 -0.17 -0.02 0.43 0.94 1.53 0.64 0.28 0.22
Developing Economies

India

-1.05 -0.63 -1.84 -2.12 -0.87 0.90 -1.22 -2.00 -1.21 -1.40 -1.60

D. World Trade Volume

2.96 2.24 5.51 4.03 1.26 -8.35 11.00 5.59 0.29 3.01 3.31

(Annual percent change)

E. Commodity Prices

(Annual percent change)

- Oil Base 100 22.54 35.97 -16.38 -45.50 63.56 62.68 -36.38 -4.61 -11.40
- Non-fuel Base 100 6.44 1.37 0.73 7.11 30.92 11.55 -8.96 0.09 -0.61
(Primary Commodities)

Source: World Economic Outlook (April 2024) published by International Monetary Fund (IMF)

A. Global Economy

The Year 2023 saw the worlds commitment to defy the fallouts of the Russia Ukraine war, Middle East crisis, supply chain hiccups, stagflation, and hawkish monetary policy adopted by almost all major economies to control prices. The world economy sustained a growth of 3.2% due to three main factors firstly the raising of interest rates by Federal Reserve and Central Banks of Europe that kept the inflow coming in, secondly the households withdrew their savings to mitigate the impact of higher borrowing costs, and thirdly a correction in real estate borrowing rates. The GDP growth rate of 3% is expected to continue with the same elasticity in 2024. However, the 3.1% future GDP growth is the lowest in past decade barring the COVID year. There are some setbacks in the revival mainly slow paced of expansion, remnants of COVID 19, continuation of Russia Ukraine war, the recent

Middle East crisis, and the trade sanctions on around two dozen countries. We saw in 2022-2023 the movement of investment from European developed economies to the US due to high interest rates. In 2024 the disinflation in major economies of the world, lowering of central banks policy rates in advanced economies is again redistributing wealth from there to the emerging markets. Growth distribution forecasts amongst the two main blocks is: Advanced Economies 1.7%; Emerging Markets and Developing Economies 4.2%. Forecasts for India remains strong for 2024 and 2025. The five largest emerging markets Brazil, China, India, Indonesia, and Russia have contributed about 0.9 percentage point to the decline in medium-term global growth prospects between 2008 and 2023. Inflation is still high in many parts of the world therefore revival of world economy is far-off given the hawkish monetary policies.

World Area

GDP Projections (%) In ation Projections (%)
2024 e 2025 e 2024 e 2025 e
Asia 4.5 4.3 2.4 2.7
Europe 1.6 2.0 8.5 6.0
North America 2.6 1.9 3.0 2.1
South America 1.4 2.7 24.7 10.1
Central America 3.9 3.8 3.0 3.3
Caribbean 9.7 6.9 6.8 5.6
Middle East and Central Asia 2.8 4.2 15.5 11.8
Sub Saharan Africa 3.8 4.0 15.3 12.4

Source: World Economic Outlook; Apr 2024.

The greenhouse gas emissions reduction goals of limiting the global average temperature increases to 1.5 2.0?C above pre-industrial levels are still unmet. Emission reductions requires policy changes, fiscal incentives, and availability of alternate sources. Transition to clean energy is risk prone for small countries as it impacts their energy security.

B. Indian Economy

International forecasts for Indias real GDP is 6.8% for 2024 and 6.5% for 2025. Consumer price inflation is expected to fall from 5.4% in 2023 to 4.6% and 4.2% in 2024 and 2025 respectively. The government has made infrastructure development a top priority, and it is expected to play a key role in achieving its goal of building a $5 trillion economy by 2025. To achieve its $5 trillion economic plan by 2025, the country is required to invest $4.5 trillion in infrastructure development through 2030, according to the Department of Economic Affairs, GoI.

The forecast for Indias infrastructure during the following ten years is promising riding on the alluring government initiatives and a backlog of large projects having a sizable amount of capital and financing outlay. India is a significant market for construction equipment producers and developers with an emphasis on sustainable constructions, employing greener materials and technology, as well as supplying sophisticated technology products.

Several government-backed infrastructure projects have

been announced by the Indian government over the past few years. Some of these projects include the under construction: Bharatmala Pariyojana, Narmada Valley Development Project, Chenab River Railway Bridge, Delhi Metro Industrial Corridor, Mumbai Trans Harbour Link, Inland WaterWays Development Project, Navi Mumbai International Project and Zoji-la and Z-Morh Tunnel Project. The Housing for All schemes, building of airports, ports, river linking projects and the like.

C. Indian Cement Industry

C.1. Capacity and Demand

Installed cement capacity in India in FY 24 was around 595 Mn T and the demand / production was around 422 Mn T yielding a capacity utilization of 70%. The demand growth is in the region of 8.6% in FY24. A brief overview of per capita consumption of cement Vs. cement production rate shows that barring Covid year the per capita consumption has grown indicating healthy state of economy.

C.2.

Input Costs

Overall improvement of mining activities and availability of fuels globally, prices have corrected to 2 year low with global prices attractively placed. Global pet-coke prices also down by 25% that has helped local pet-coke to correct proportionately with crude prices down by 17%. We have managed with local pet-coke from time to time mitigating the risk of inventory and price fluctuations.

Correction in crude prices have contributed granules raw materials for manufacturing PP bags availability competitively thus lowering packaging cost. We have maintained lowest conversion cost in the Industry despite several challenges through rotation and by identifying new suppliers with modern technology.

Spares & Consumables, repair costs have gone up with lack of skilled manpower, higher input costs, lack of alternatives. We are mitigating this risk by identifying new suppliers, contractors, online bidding, developing alternatives for OEMs, inhouse works that is helping us to contain cost and timely arranging and handling of shutdowns. With SAP Ariba in place, we are trying to maximise catalogues with fixed prices and long-term contracts that has reduced inventory considerably and effective planning with reduction in spend.

C.3.

Opportunities and Outlook Housing & Real Estate: Presently the housing shortage is around 30 Million units. This is expected to increase to 90 Mn units by mid-2030. Owing to increase in young population, higher education and nuclear families the demand for housing is expected to double in next 10 years.

Public Infrastructure: Plan outlay for railways,

ports and urban infrastructure fund for Tier 2 and
3 cities will bode well for cement demand.
- Bharatmala (roads and highways) projects
- Tunnels & Border Roads
- Roads and Expressways
- Indian Railways projects

- Amrit Bharat Station Scheme (World Class Railway Stations)

- Industrial corridors and industrial projects
- Gati Shakti (Logistics projects)
- Nuclear Power Plants

Industrial Development: The Company

foresees a healthy demand in the construction sector resulting from capital spending from businesses. It has done good work in debottlenecking and invested in capital for asset sweating.

C.4. Threats

The Russia Ukraine war is continuing since 2022 with military aid from US. Another front Hamas Israel started in October 2023. The ongoing wars are not only threat for global peace but also to the global growth. Flow of foreign investments is based on the fiscal benefits offered by a country. The global warming has caused droughts and flooding in many parts of the world impacting resources, food chain and lives. Already the once water surplus cities in India are facing shortages. Labour shortages and subdued demand for housing in urban areas are concerning.

D. Company Review - Operational and Financial

Performance

A snapshot of the Companys financial performance for

FY24 compared with FY23 is as under:

(INR in million)

Particulars

FY24 FY23
Revenue (Net of GST) 23,657.8 22,381.0
Power & Fuel Cost 6,697.2 7,726.3
Freight and forwarding expenses 3,500.2 3,116.1
EBITDA (including other income) 3,712.4 2,941.4
EBIT 2,615.7 1,818.3
Finance Cost 347.6 460.6
Net Profit after Tax 1,677.5 991.7
Earnings Per Share (EPS) - INR 7.4 4.4
Book Value Per Share - INR 64.9 64.5

Snapshot of some of the key financial ratios are given below:

Particulars

FY24 FY23 Change
Debtors Turnover (Days) 5.21 4.59 13.5%
Inventory Turnover (Days) 8.03 8.17 -1.7%
Interest Coverage Ratio 26.06 17.15 51.9%
Current Ratio 1.26 1.31 -3.7%
Debt Equity Ratio 0.09 0.12 -28.4%
Operating Profit Margin (%) 13.43 11.26 2.2%
Net Profit Margin (%) 7.11 4.49 2.6%
Return on Net Worth (%) 11.45 6.55 4.9%

The primary reason for change in the above-mentioned

ratios is increase in volume and margins.

Digitization initiatives:

Company undertook the following process improvements in

FY24:

Project

Benefits

CRM (SIAS)

- SIAS (Sales is a science) our newly launched unified CRM serves as an integrated ecosystem facilitating seamless data flow across various applications, providing a centralized hub for all stakeholders.

- It offers a one-stop solution aimed at enhancing usability and efficiency. The platform equips the sales force and Customer service teams with invaluable tools, enabling them to visualize data and make well-informed decisions on the go.

- Additionally, CRM aids in strategic planning by unlocking the full potential of territories, leading to increased productivity and sales revenue, while simultaneously reducing transportation time and effort.

- Time optimization is another key feature, as CRM enables representatives to efficiently schedule visits to maximize customer engagement within minimal timeframes.

- Moreover, the platform empowers managers by granting them easy access to crucial data, thereby facilitating better decision-making processes. Overall, CRM revolutionizes the stakeholder management by providing comprehensive support and various resources to business.

Influencer Loyalty Program (Sambha- ndh+)

- The Sambandh + App is Influencer engagement platform designed to recognize and reward the engineers & contractors who help our home builders in building their dream house.

- This helps to establish strong and long-lasting relationships with influencers in the construction and building materials industry who have the power to influence decision- makers, whether they are individual house builders, builders, or any other relevant individuals.

- This helps to create brand advocacy, increase engagement with end-users, and improve brand recall and retention.

Pyro Expert - Ensuring automatic optimization of process.

System-
Narsingarh

Mills Expert System-

- Designed to perform a specific task with expert efficiency and minimum human intervention.

Narsingarh & Jhansi

- Enhance process and product quality with increased output and productivity.

DCS - Enhances production efficiency.
Upgrades- - Ensures quality of plant assets.

Narsingarh WHRS, Imlai

- Lowers the risk of obsolescence and unavailability of spares.

E. Product Performance and Customer Relations

Our unwavering dedication to customer service and relentless pursuit of product innovation have been pivotal in our journey towards sustained growth and market leadership in central India.

We understand that our success is intricately linked with the success of our customers. Thus, we have invested significantly in enhancing our customer service infrastructure, ensuring seamless communication channels, timely resolution of queries, and personalized assistance. Through proactive engagement and attentive listening, we continuously strive to exceed customer expectations, fostering long-term relationships built on trust and reliability.

Moreover, innovation is the cornerstone of our operations. Recognizing the dynamic nature of the construction sector, we have consistently invested in research and development to pioneer groundbreaking solutions.

In FY24 your company flagged off Sales and Marketing Excellence Program named RISE (Return Improvement Through Sales Excellence) with the aim of enhancing our competitiveness in branding, customer service & channel acquisition.

Following are some key initiatives taken under RISE: i. Launch of Unified CRM to improve effectiveness of Sales Process ii. Brand Repositioning & Launch for New Packing Architecture iii. Introduction of Water-repellant Cement under a new brand iv. Introduction of New Influencer Loyalty Program v. Expanding our footprint to some new markets

F. Business Risks and Concerns

The Companys foreseeable risks are adequately covered

through strategic planning and insurance.

Major business risks and their mitigation strategies are as follows: I. Economic Risk: The Russia-Ukraine and Hamas-Israel wars can become flashpoints. Inflation in Europe is expected to remain high compelling central banks to follow hawkish monetary policy curtailing investments. The Central Government elections and subsequent formation of government is expected to continue until

2 Quarter of FY25. The model code of conduct

enforced by the Election Commission of India with effect from 16 March 2024 slows the government machinery until the date of declaration of final election results. Consequently, we foresee 2 quarters of slow pace of growth in FY25.

Mitigation Measure: We will focus on cost reductions, improvements in efficiency parameters, new projects and new geographies.

II. Supply Risk: Despite continuation of war in the Middle East and Europe the major impact on supply chain is not envisaged,

External Risks: Ex - Demand risk, Supply risk, Environmental risk and Business risk.

Internal Risks: Ex - Manufacturing Risks, Business Risks, Planning and Control Risks and Mitigation and Contingency.

Availability of Alternative Fuels also poses challenge to achieve targeted Thermal Substitution Rate. Mitigation Measure: Even though diesel prices have come down, inbound logistic costs are quite high due to increase in maintenance cost, tolls, limited availability of trucks, high interests but we could mitigate the risk by adding new fleet through new transporters with increased capacities.

Spares & Consumables, repair costs have gone up with lack of skilled manpower, higher input costs, lack of alternatives. Key blending cement ingredients slag and fly-ash are in short supply. We have managed with local pet-coke from time to time mitigating the risk of inventory and price fluctuations. With the demand for local coal gone up, opening of new mines, the quality of the coal was not consistent and deteriorating. In order to mitigate this risk, we have explored various washeries with long term contracts this year that has improved quality yield and reduction in cost by 29% compared to last year.

The Company has mitigated risk by identifying new Biomass suppliers from distant areas & also identified new Biomass streams, like Soya Husk, Mix & Mustard Husk within the size requirement of ours (<50 mm) & that helped to increase Biomass consumption. Technical modifications in the flap damper/ shut off gate (high speed gear, etc.) assembly has supported right type of AF material as well smooth consumption. Shortage of Railway rakes due to majority of rakes movement for coal transportation to Power Houses has affected High Grade Limestone (Sweetener) transportation that was mitigated by road transportation of sweetener from Katni Mines to Narsingarh plant.

For Spares and Consumables risks we are mitigating by identifying new suppliers, contractors, online bidding, developing alternatives for OEMs, inhouse works that is helping us to contain cost and timely arranging and handling of shutdowns. With SAP Ariba in place, we are trying to maximize catalogues with fixed prices and long term contracts that has reduced inventory considerably and effective planning with reduction in spend.

I. Freight Cost Risk: Cement is a low-value high-volume product; therefore, logistics becomes a significant component in its overall cost. Rail and truck availability or increase in fuel costs could swing the margins significantly.

Mitigation Measure: The Companys Rail-Road mix currently stands at about 55:45. Warehouse & lead optimization and continuing measures to control logistics costs remains a focus area for the Company. II. Competition Risk: Due to expansion by competitors our core market is facing influx of volumes challenging our market share.

Mitigation Measure:

Introduction of new brands

Increasing % contribution of premium products & Trade Sales.

Balancing growth between distant and home markets.

Aligning service team to hand hold the independent home builders during various construction phases.

Addition of new channel partners.

G. Internal Control Systems

The Company has established automated and digitalized processes for internal control and compliance system. These systems are discussed regularly in the meetings of Audit Committee and the risk based annual Internal Audit Plan. The Internal Audit Plan evaluates internal control systems, compliance, robustness of internal procedures, sound business practices, safeguarding Companys assets, compliance with laws and regulations, accuracy in financial reporting and completeness in records.

Process owners undertake corrective actions in the time frame which is followed up. Material observations are placed before the Audit Committee. Statutory auditors have also audited the internal controls over financial reporting and have opined that the same are adequate and are operating effectively.

The Company ensures that well-structured and effective controls remain in place that are commensurate with the size of its operations.

H. Human Resources

HR Digitization initiatives: HR Digitization initiatives: Workday, the group initiative was launched in India in 2023-24 with master data, Talent management, Performance review process, succession planning and goal setting introduced across the Organization. This has provided a transparent and efficient platform for employee data with smooth workflow and data management.

Employee engagement We conducted the employee engagement programs like the family day, Sports activities, cultural programs, knowledge sharing across plants and HO as well as several sales offices. We also conducted a follow up employee engagement survey through Cerebrus, an external agency, the last one being in 2019. The scores were flat against previous survey findings. Pursuant to the same, we shared the results with the leadership team for action planning as a first step. We continued to review and amend the policies like the leave policy, making it more flexible, recruitment policy, with special focus on Internal Job Postings and create internal opportunities for employees.

Senior Management and Middle Management Succession Planning: With consolidation happening all across Cement sector, we continued to witness employee turnover impacting the support areas as well. While we continue to attract talent from the market in some critical areas, we also identified key talent against critical positions in house and moved some senior talent within the organization against vacancies. The momentum of succession planning continued at Top and senior levels as well at N-2 level.

Learning and Development Multiple trainings were conducted clocking over 20 thousand training hours and 4000 participants approximately, including blue collar employees with some employees attending multiple trainings. 19 external trainings were conducted, the rest being in house programs. Focus on safety and sustainability was part of the training programs, in keeping with the groups priority. Compliances including POSH trainings were conducted all across the Organization, with special impetus on certification through group e-learning program, supplemented by classroom trainings.

Talent Acquisition and management: Over 170 new employees in white collar category and 12 in the blue-collar category joined the Company. Many initiatives of reorganizing the structures took place including that of HR,

Sales and customer services in order to stay closer to the employees and the market. New area offices and regional offices were carved out to focus on specific markets and increase customer reach.

Industrial Relations Wage settlements were successfully conducted in all the plants of HCIL and we continue to have a peaceful and conducive industrial environment in the plants. Skill matrix for the blue collar employees was conducted in Damoh plant as a pilot program, to be implemented in the other plants as well. This will help us engage the, evaluate and develop the blue collar employees for shop floor improvements.

Cautionary Statement

Statements in the Management Discussion and Analysis Report, which describe the Companys objectives, projections, estimates, expectations or predictions, may be considered to be “forward-looking statements” within the meaning of applicable Securities Laws and Regulations. These statements are based on certain assumptions and expectations of future events. Actual results could however materially differ from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian political, economic, and demand-supply conditions, finished goods prices, raw materials cost and availability, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, Policies, tax regimes, economic developments within India besides other factors such as litigation and industrial relations as well as the ability to implement strategies. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent development, information or events or otherwise.

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