HeidelbergCement India Ltd Management Discussions

Global & Indian Economy at a glance

Source: International Monetary Fund, World Economic Outlook Database, April 2025.

The Global Economic growth rate has shrunk from the earlier projection of 3.1% to less than 3% largely due to continuation of war in the middle east Asia and eastern Europe, economic downturn of countries having mid-size population, and uncertainty in global trade policies. In the initial part of the year there were signs of revival however, the geopolitical events in the later half and the ongoing tariff tussle between large economies has reduced the global sentiments.

The US Debt as percentage of GDP is reportedly ~122% and 124% for 2025 and 2026 respectively, a situation where debt servicing itself requires taking more debt dragging the nation into debt trap. Recent history has shown how some developed economies failed due to debt trap in the first decade of this millennia. Since US Dollar is the preferred currency for worldwide trade, a recession in US may depreciate dollar, impacting nations whose currencies are pegged to it notably China and oil producing nations where the losses in exports would be huge. The present US government is aiming at higher tariffs on imports rather than higher taxes on the citizens to avoid dollar depreciation. The alternative international currency model (proposed by BRICS) is not lucrative enough for the world to accept and a strong rebuttal coming from US and Europe. Therefore, the only achievable choice for economies is to become a self-sufficient, self-reliant economies with limited imports.

Presently, the Emerging and Developing Asia holds the fort with highest growth predicted in 2025 and 2026 coupled with lowest inflation rate. However, this scenario can change after the recent events in Kashmir culminating into a decisive action from India on Pakistan.

Source: World Economic Outlook; Apr 2025

These are testing times, and one hopes that the nations become responsible towards each others needs while bringing in internal reforms, debt restructuring, structural balances, systemic changes, self-sufficiency, and better domestic policies to bring economic stability.

International forecasts for Indias real GDP growth rate are 6.2% for 2025 and 6.7% for 2026. Consumer price inflation is expected to fall from 4.6% in 2024 to 4.24% and 4.09% in 2025 and 2026 respectively. The RBI estimates real GDP growth at 6.5% for FY 26. The key areas of development in the budget FY 26 are focused on youth, farmers, women, and the poor. Although, the global economic outlook may disturb Indias economic growth, the bilateral trade agreements talks between India and US are a positive sign.

The internal driving factors of India growth are namely consumption and investment that will remain strong. Given the focus of the government in the farm sector and the forecast of an above normal monsoon for 2025, the farming sector incomes will also rise while keeping the food prices under check. The rise in farm incomes boosts housing construction demand in the rural and small towns.

The Union Cabinet has approved the proposal for "Implementation of the Pradhan Mantri Awaas Yojana- Gramin (PMAY-G) during FY 2024-25 to 2028-29" for construction of additional 2 crore rural houses with an outlay of Rs. 3.06 lakh crores and the work is going on in full steam. Year-on-year CPI inflation is moderating to 3.34% in March 2025. Stability in food prices with predictions for a good monsoon, softening interest rates bode good for the economy. Global uncertainties and weather disturbances, however, pose risks to the inflation outlook. Even though IMF has projected a somewhat lower real GDP growth of 6.27% compared with RBI forecast of 6.5% in 2026, India is still the fastest growing economy.

C.1. Capacity and Demand

Installed cement capacity in India in FY 25 was around 660 Mn T and the demand / production was around 453 Mn T yielding a capacity utilization of 69%. The demand growth is in the region of 6.3% in FY25. Per capita consumption of cement is steadily increasing but is nowhere near the world average of 550 kgs, indicating a huge opportunity for infrastructure growth in coming years.

Fuel prices were stable compared to last year with minor fluctuations and price uncertainties and other raw materials were all secured locally except for imported gypsum wherein price was stable with consistent supply throughout the year. Despite several challenges, we havent left any stone unturned in positioning well to drive stiff competition. Taking advantage of softening of international Petcoke prices mid 2024, we renegotiated with local refineries, supplier rotation, maximizing discounts, we were able to reduce the price by 16%.

(We have ensured sourcing of secondary cementitious materials as per requirement with optimum costs and the nearest sources.)

Spares & Consumables, repair costs have gone up due to higher input costs and longer planned shutdown 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. On successful implementation of SAP Ariba that has transformed traditional procurement to digital sourcing, automation has gone up from mere 4% in 2024 to 33% in March25 from catalogue buying thus reducing repeat orders, minimum inventory, sourcing as & when required.

Housing & Real Estate: Estimated housing shortage in the year 2030 is around 31 million dwelling units. As the housing price growth is expected to moderate in FY 26, demand for new houses will rise.

Amongst the various schemes announced by GoI in FY 26 budget, the notable ones are:

Support to states for Infrastructure: A scheme of granting interest free loan to states from an outlay of TINR 1.5 for capital expenditure and incentivizing reforms.

Urban Challenge Fund: A fund with a corpus of TINR 1 for implementing proposals Creative Redevelopment, Cities as Growth Hubs, and Water and Sanitation.

Power Sector Reforms: Incentivizing distribution reforms and augmentation of intrastate transmission.

Asset Monetization: Ploughing back the revenue from the monetization of unused and underutilized assets into infrastructure enhancement. Aimed at releasing TINR 10 between 2025 30, it is expected to strengthen economic growth, create jobs and attract private investment.

The SWAMIH Investment Fund (Special Window for Affordable and Mid-Income

Housing): The fund has garnered BINR 155 for development of stalled, brownfield, RERA registered residential developments in the affordable housing / mid-income category.

Industrial Development: The Company foresees no let-up in cement demand in the construction sector resulting from capital spending from individual homeowners. Work in debottlenecking and procuring cheaper sources of power is in progress.

Although the wars in the Middle East Asia and Eastern Europe are showing signs of abetment however, with the recent terror incidents in northern India perpetrated from a neighbouring country can impact the economic growth engines. Likelihood of inflation, higher spending on defence, lower investor sentiments, and muted capital expenditures can lower the cement demand growth rate in the short term.

A snapshot of the Companys financial performance for FY25 compared with FY24 is as under:

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

The primary reason for change in the above-mentioned

ratios is decrease in volume and margins.

Company undertook the following process improvements

in FY25:

We recognize that our success is deeply intertwined with that of our customers. At the heart of our business strategy lies a strong commitment to innovation. Through proactive engagement and attentive listening, we strive to consistently exceed customer expectations, fostering long-term relationships built on trust and reliability.

In response to the evolving demands of the construction industry, we have continuously invested in research and development. This commitment has enabled us to expand our product portfolio with innovative solutions like the launch of Power Shield, a water-repellent cement that has significantly strengthened our market positioning and added a key milestone to our innovation journey. The sale of our premium products in trade segment has increased to 17% in FY25 as compared to 15% in FY24. Consumers normally use the best quality cement in slab casting including leakage proofing. Hence it is sold as a premium product. The brand was initially launched from Jhansi Plant and after excellent response, is now produced at Damoh also and is available across our central India markets.

We have introduced OPC-43 grade cement. The same has been launched to supply to the product requirement of the Non Trade Customers in our key markets

To ensure customer focus we have digitized the customer service team. The same ensures committed personalized services to customers using power shield. We launched the Sales Excellence Program-RISE in FY24 to drive sustained growth and identify key levers contributing to increased sales performance. Building on its initial success, our focus in FY25 has been on strengthening the program to enhance our competitive advantage across branding, customer service, and channel acquisition. As part of RISE, several strategic initiatives have been implemented:

1. Dealer and Market Intelligence - Regular reviews and dedicated war rooms to monitor dealer churn, market share trends, and identify untapped white spaces.

2. CRM Enhancements - Introduction of new functionalities in our CRM application, including offsite training modules, architect visit tracking, and comprehensive API integration with SAP.

3. Sambandh + Upgrades - Implementation of a sales audit module in our influencer loyalty program, facilitating data-driven decision-making. The first successful redemption through the app was recorded in October 2024.

4. Prospect Training Rollout Initiated focused training sessions under the PROSPECT program across select Regional Marketing Offices to elevate sales team effectiveness.

5. Performance Marketing - Launched targeted performance marketing initiatives across multiple channels, including WhatsApp and call centers, to drive engagement and conversion.

6. Digital Marketing - Intensified focus on digital marketing campaigns to expand our online presence and strengthen brand awareness across digital platforms.

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: India is on the verge of a looming economic and military reply to Pakistan in the aftermath of terrorist attack on tourists in the state of Jammu and Kashmir. Although, the Russia-Ukraine and Hamas Israel wars are showing signs of abatement, but the peace and normalcy will take time to implement. The US- World Tariff wars have created uncertainty in global trade volumes. These are testing times for India and the world, yet India remains the beacon of hope with the highest growth projection for 2026.

Mitigation Measure: We will focus on cost reduction measures, de-bottlenecking, 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.

FY 25 was a challenging yet a dynamic year in many ways full of opportunities. Despite, major global socioeconomic and political events like UK-US elections, Russia-Ukraine conflict, Israel-Gaza war, Red Sea crisis etc. which were disrupting supply chain significantly and the cement industries were no exceptions, the Company was able to meet its requirements without any disruptions in a timely and cost-effective manner.

Fuel prices were stable compared to FY 24. Minor fluctuations and price uncertainties and other raw materials were all secured locally except for imported gypsum wherein price was stable with consistent supply throughout the year. Despite several challenges, we havent left any stone unturned in positioning well to drive stiff competition. Taking advantage of softening of international pet coke prices mid-2024, we have renegotiated with local refineries, supplier rotation, maximizing discounts, we were able to reduce the price by 16%. While reducing dependency on imports, we have utilized fully local coal even though having low GCV but through washeries to maintain required consistent quality. Except for mineral gypsum, we source all the raw materials locally but this year we have substituted imported gypsum also with chemical gypsum which is a byproduct waste by reducing dependency on imports and sourcing cost effectively.

We have ensured sourcing of secondary cementitious materials as per requirement with optimum costs and the nearest sources.

Your Company is pioneer in cement industry in recycling, usage of various byproducts, waste products from various industries like manufacturing, agricultural, RDF etc., minimizing dependency on natural resources towards sustainability leading to prosperity, well-being, and holistic development but also towards preserving natural resources. With continuous investment in technology and modifications, your company achieved a TSR (Thermal substitution Rate) of 8.8% from 4% in 2022. We have consumed 54kt of alternative Fuels out of which 19kt was RDF i.e., Municipal waste which is substituted in place of natural coal for our fuel requirement. Sustainable municipal waste disposal not only emphasizes minimizing environmental impact and maximizing resource recovery through various practices like recycling and waste-to-energy conversion but reduces dependency on natural fuels and mining reducing environmental impact. This approach aims to move away from traditional landfilling, which can contribute to pollution and greenhouse gas emissions.

Towards improved efficiency, traceability, accountability, we have centralized our operations with S2P office in place since 1 July 2024. Sourcing activities of all the plants at centralized level has leveraged supplier rotation, bundling of volumes, volume discounts and best prices.

On successful implementation of SAP Ariba that has transformed traditional procurement to digital sourcing, automation has gone up from mere 4% in 2024 to 33% in March25 from catalogue buying thus reducing repeat orders, eliminating unwanted materials, bare minimum inventory, sourcing as and when required, reduction in storage and eliminating ware outs. Catalogue buying and long-term outline agreements has not only reduced inventory considerably but effective planning has also reduced spend.

III. 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.

IV. Competition Risk: Competition has increased in our core markets challenging our market share.

Scaling up the volume of power shield brand

Scaling of OPC 43 grade cement to defend our Non-Trade key markets

Started contract manufacturing at Bhabhua Plant to develop new vacant markets

Continue the balance of extracting from Home & distant markets

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.

a) Appointment of internal trainer for Sales Training and initiation of dedicated training framework for frontline sales staff.

Following stage-wise areas were covered:

I. Training Content Development/Module Development II. Costing and RMO-wise Schedule (RMO wise) III. Implementation Flow for location-wise sales training

b) Internal Workshops delivered by Director-HR (HC-India):

I. To celebrate International Womens Day, Mr. Joydeep Mukherjee, Managing Director and Ms. Poonam Sharma, Director-HR(HC-India) led a discussion on Diversity and Inclusion initiatives with the team. This was followed by an inspiring "Mind Unlimited" painting workshop, facilitated by Ms. Sharma, where participants creatively expressed the strength of womanhood through depictions of Maa Durga.

II. In order to nurture our sales capabilities, by leveraging power of human mind, we organised Mind Unlimited Training for Area Incharge level staff members.

c) Initiated skill matrix assessment work for blue collared workers at our Jhansi Plant:

a. Face-to-face meeting were held with each Section Head

b. identification of sub-department wise technical roles

c. Finalisation of draft skill matrix for Jhansi

Skill Matrix Assessment process will further be implemented at Chennai Grinding Unit(CGU), Solapur Grinding Unit(SGU), Sitapuram Power Plant(SPP), and Yerraguntla(YGL).

d) Initiated Onsite Workplace Health Clinic at office premises of 02 offices of Gurugram. The initiative was aimed at prioritizing employee well-being, and reinforcing our commitment to a healthy and productive workplace as part of our ongoing efforts to support employee health and wellness.

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.