Hemadri Cements Ltd Management Discussions

Global Economy

The global cement economy plays a vital role in raising horizons of cement industry across different countries. The global cement market size was valued at US$ 343.48 BN in 2023 which is projected to grow from USD 537.43 billion by 2031, at a CAGR of 5.1% in forecast period (2024-2031). The rising population and demand for infrastructural development surge a demand for cement across the globe. The imbalance created by nature in different parts of the globe which will have impact on the production be resolved by global cement production levels. The growing demand for public expenditure for non-residential buildings which forms part of construction of hospitals, colleges, health care centers created opportunity and demand for the product (cement). The FDI inflows in the industry related to manufacturing of cement, and gypsum products reached to US $ 6.10 BN (Rs.5.08 lakh crores) (April 2000 to Dec.2023). The global arena is for expanding construction sector in the current market trend will be on the rising demand for the product.

Indian Economy

The Central Government prioritized Capital Expenditure Infrastructure and development by aiming to an increase of 30% over previous year. The Indian cement industry is set to add 150-160 million tonnes of capacity from fiscal year 2025 to fiscal year 2028, as it aims to meet rising demand from the infrastructure and housing sectors, according to a report by Crisil Ratings. In previous five fiscal years, the industry has added 119 million tonnes per annum, reaching a total of 595 million tonnes. With a cement demanded grew more than 8 per cent.

Recent trends in Industry shows Cement volumes are expected to grow by 9-10% YoY in FY2024 to 425 – 430 million MTPA and by 8-9% YoY in FY2025 to 460-465 million MTPA. According to CSIR report, "Cement consumption is expected to reach 450.78 Mn. Tonnes by the end of FY2027. At present the installed capacity of cement in India is 570 MTPA with a production of 298 MTPA." The easing of cost-side pressures is likely to improve the operating margins by 260-310 bps to 16.0-16.5 % in FY2024 and by 80-100 bps YoY to around 16.8%-17.3% in FY2025. The Indian cement industry is expected to continue its fast-paced growth and attain installed capacity of 850 million tonnes per annum by 2030 and 1350 million t/a by 2050. The Indian cement industry has made tremendous strides in technological upgradation and assimilation of latest technology.

The Central Government also had strong focus on projects promoting Infrastructure Development with the belief that increased investments in infrastructure will propel growth in other industries. As per recent Statistical research reports, the Indian Cement industry is likely to add 82 Million Tonnes by 2024, the highest in the last 10 years, driven by increasing spending on housing and infrastructure activities. Cement consumption is expected to reach 480 million tonnes by the end of 2028.

The cement industrys production capacity is expected to reach to meet optimum utilization by 2025, driven by the infrastructure policy of government and spending in the real estate sectors growth is the boon for development. The cement industry in India facing several challenges, including mines and land acquisition, environmental concerns, operating and logistics issues. The industry is a significant contributor to carbon emissions, which is being monitored and controlled by the government by implementing several measures to reduce its environmental impact. The industrys another challenge is related to land acquisition and utilization which process can be time-consuming and expensive. The biggest challenge of operating and Logistics is combined with transportation costs account for a significant portion of the overall cost of cement production. The industry is adopting new methodologies with technical advancements to address these challenges and become successful over the years. The governments focus on infrastructure development and the real estate sectors growth expects to drive demand for cement in the coming years.

Cement Industry – outlook and opportunities

The union budget FY2022 had allocated Rs.48,000 Crores which is increased by 66% totaling to Rs.79,000 crores for FY 2023 towards the Pradhan Mantri Awas Yojana to build affordable houses in urban and rural India. Investments for FY 2023-24, totaling Rs.75,000 crores (Rs.15,000 crores from private sources) will be made in about 100 vital transportation infrastructure projects to provide last and first mile connectivity for the coal, ports, food grain, steel, and fertiliser grains sectors. Indias Cement production has reached 374.55 MTA in FY23, a growth rate of 6.83 (YOY).

As per the Union Budget 2023-24, the government approved an outlay of Rs.2,70,435 Crores (US$ 32.67 billion) for the Ministry of Road Transport and Highways, these steps are likely to boost the demand for cement. This is 25% higher than the revised estimates for 2022-23. The highest expenditure (60% of the total expenditure) is towards NHAI. In 2023-24, NHAI had allocated Rs 1,62,207 crore, all of which is budgetary support.

The allocations have been proposed for various ministries under the Interim Budget 2024 are encouraging with respect to housing (Rural, urban, agriculture related) transport, logistics and infrastructural development. Viz. (a) Ministry of Road transport and highways is Rs.2.78 lakh crores (b) Ministry of Rural development is Rs.1.77 lakh crores and (c) Ministry of agriculture and formers welfare (Housing and Infrastructure) is Rs.1.27 lakh crores. With notable allocation under the Union Budget 2023-24 for infrastructure affordable housing schemes and road projects to fuel economy, the domestic cement industry is poised for a volume surge.

Company Perspective

During the financial year 2023-2024, the company once again witnessed obstacles due to unseasoned weather conditions and rains, sluggish market conditions which had impacted the operations and revenues of the Company. During the last quarter of the financial year, the coal price has increased multi-fold accompanied by acute shortage in supply of Coal. This has impacted margins of the company. We are sourcing coal from Singareni collieries on advance payment. Imported coal from private parties with short-term credit. We have advantage of Limestones are sourced from our own mines. Gypsum is purchased from local market. The Companys policy is to adhere all statutory norms and in ensuring the occupational health & safety of all its employees. Strategic measures were taken to produce eco-friendly and cost effective cement production. The management is planning to satisfy the demands for different segments towards consumption with suitable price mechanism. To overcome the obstacles exerted from competitors, augmented marketing strategy is with availability of cement to match with production. Due to un-certain market conditions mainly on pricing front, the company is planning for minimal additional investment in revamping KLIN and Cement Mill with a strategic cost reducing measures and plan for increasing the life of the plant and machinery and thereby reducing Coal Consumption. An all-round effort is taken to use vibrant and young talents available in the industry which may improve the condition and to achieve the longer perspectives of the company.