Review of Economy
Global Economy
The global economy in 2022 was largely dominated by high inflation, the
Russia-Ukraine crisis and outbreak of COVID-19 infection strains. The rapid increase in
interest rates by central banks concerned impacted demand and global GDP growth. The
commodity prices however have moderated from the high level seen immediately after the
Russia-Ukraine conflict. Lower food and energy prices and an easing of
the supply chain are positives. Consequently, headline inflation has declined from its
peak witnessed in 2022, though core inflation continues to remain high.
A hard landing for the global economy is expected due to persistent
inflation and financial sector turmoil. The rapid increase in interest rates to control
inflation has brought forth the vulnerabilities of the banking sector. In such a scenario,
policymakers must balance controlling inflation and ensuring financial stability while
providing much needed fiscal support and international cooperation to sustain economic
recovery. According to the IMF, GDP growth is forecast to drop from 3.4% in 2022 to 2.8%
in 2023 and settle at 3.0% in 2024. Advanced economies should anticipate a considerable
growth decrease, from 2.7% this year to 1.3% the following year. Global headline inflation
is expected to drop from 8.7% in 2022 to 7.0% in 2023 because of lower commodity prices,
even as core inflation is likely to decline slowly.
Chinas reopening in November 2022 brought back a positive
sentiment for the manufacturing sector along with easing out of logistical challenges. The
manufacturing cost has increased globally, driven by higher raw material and energy costs,
as well as supply disruptions. Despite these challenges, businesses particularly in
manufacturing and services have been working hard to maintain their profitability and
competitiveness. By adapting to changing market conditions and implementing new
strategies, many companies have been able to weather these challenges and continue to
thrive in todays economic landscape.
Indian Economy
In the above background, India witnessed a remarkable recovery in the
post-COVID world, delivering one of the best performances in terms of economic output. The
economy is experiencing sustainable growth, as evident from the countrys estimated
6.9% growth rate in FY2023 that surpasses that of other major economies. The service,
manufacturing and export sectors sprung back to action in the post-COVID environment. The
revival facilitated by the governments spending on infrastructure and other key
economic drivers yielded positive results, with almost all sectors of the economy
experiencing a robust recovery.
To contain inflation, the government pursued supply-side reforms,
promoted exports and tightened monetary its policy.
During FY2023, the government increased capital spending by 37%. Its
priorities remain on critical infrastructure projects such as expressways, high-speed
rail, mass transit systems, airports, and affordable housing. The spending in these areas
also contributed to normalising the allied sectors that were affected by the pandemic,
and, in turn, led to investments and job creation.
With a nominal GDP of US$ 3.53 trillion, India is the fifth largest
economy in the world. According to the forecasts by IMF, by 2030 it will surpass Japan and
Germany as the third-largest economy and the fastest-growing major economy. As part of the
Indian governments Atmanirbhar
Bharat initiative, the PLI scheme aims to make India a manufacturing
powerhouse by reducing imports and incentivizing local production.
Outlook
The International Monetary Fund (IMF) has projected Indias GDP
growth to be 5.9% in FY2024, and 6.3% in FY2025, driven by strong private sector
investment and supported by improvement in transport infrastructure and logistics. The
Union Budget 2023-24 has allocated a record amount of 10 Lakh Crores for capital
expenditure, which will boost infrastructure development, create jobs, and stimulate
demand in the economy.
Indias economic growth rate is outpacing many advanced and
emerging economies thanks to a strong emphasis on domestic consumption. The
governments strong infrastructure push under National Master Plan for Multimodal
Connectivity, logistics development, and industrial corridor development will help drive
market competitiveness and fuel future growth. The improvement of labour market conditions
and consumer confidence will increase private consumption. Additionally, contact-intensive
services have already on a rebound, nearing pre-COVID levels.
Despite this, potential risks still exist for Indias growing
economy. OPEC production levels could push up oil prices, possible issues with financial
sectors of advanced countries could increase risk aversion across financial markets and
impede capital flows, and an the El Nino event may weaken Indian monsoon rains, thus
affecting food security.
Industry Overview
India is the worlds second-largest cement producer, and this is
attributed to an ever-increasing investment housing sector and infrastructure investment.
Between 2013 and
2022, 217 MT of capacity were added, raising the installed capacity to
570 MT from 353 MT in 2012. Despite the challenges due to the pandemic, cement producers
have been able to deleverage on positive demand and make profitable gains.
The primary demand driver for the cement industry will continue to be
Indias expanding housing sector, which normally accounts for 65% of the
countrys total cement consumption. The Union Budget for the year 2023-24 has an
outlay for PM Awas Yojana, which is being enhanced by 66% to over 79,000 Crores (US$
9.6 billion) to build affordable houses in urban and rural India. India built 12,000
kilometres of roadways in 2022, and this momentum is projected to continue in 2023 and
2024, supported by a number of governments programmes, which would further increase cement
demand.
The cement demand in FY2023, though started on a mute note because of
the inflationary environment, picked up pace in the second half as global raw material
prices stabilised. Cement volumes grew by 8-9% in FY2023 to 380-385 million tonne, driven
by housing demand, both rural and urban, and the infrastructure sector. Cement
manufacturers are wary of further increasing their prices and this is leading to an impact
on their profitability margins. Cost optimisation through tech enablement and innovating
manufacturing processes have become extremely important for firms to sustain in the long
run.
Indias cement manufacturers are known to be the greenest in the
world, with their emphasis more on producing cement that has a lower carbon footprint in
the manufacturing process. They recycle industrial waste and use less energy while keeping
the CO2 emissions at a low level.
Outlook
Capacity expansion for 2023-2027 is estimated at 145-155 MT, with a
CAGR of 5%. This can be attributed to population growth and government investments in
infrastructure projects. A CAGR of 6-7% in cement over that time will likely drive the
supply increase. Demand for cement will be driven by infrastructure upgrades, rural
housing and urbanisation. With the next general elections in India to be held in 2024,
government spending on critical infrastructure will likely to be high.
Performance Review on Consolidated Basis
Operational Performance
Our cement production increased by 32% in FY2023, driven by production
from new plants and higher utilisation of existing plants. Our consolidated sales grew to
4.8 million tonnes in FY2023 (FY2022: 3.6 mnt), led by increased volumes in South India
and additional volumes from the newly commissioned plants in Madhya Pradesh and Odisha.
With the recent acquisition of Andhra Cements Limited in March 2023, we
are able to increase our production capacity to over 10 MTPA, ahead of our target in
FY2025. We have also successfully expanded our customer base to newer markets in
Maharashtra and Odisha.
However, our operating margins took a hit due to the high costs of
input materials like coal, coke and diesel.
Particulars (tonnes) |
FY 2023 |
FY 2022 |
| Cement production/ |
48,25,480 |
36,08,163 |
| purchases |
|
|
| Cement sales volume |
48,17,675 |
36,03,754 |
Financial Performance
Our revenue/income increased by 40% to 2,230 Crores led by higher
volumes and higher pricing. The EBITDA declined during the year by 44% to 153 Crores due
to higher inputs costs. PAT for the year was 9 Crores, down by 86% from a year ago, on
account of lower profitability and higher interest expense. expense.
Particulars ( in Lakhs) |
FY 2023 |
FY 2022 |
| Total income/revenue |
245,224 |
1,61,029 |
| Total Expenses |
243,377 |
1,50,629 |
| EBITDA |
15,318 |
27,577 |
| Profit Before Tax |
1,847 |
10,400 |
| Profit After Tax |
850 |
5,915 |
| Basic & Diluted Earnings Per Share of
2 each ( per share) |
0.66 |
5.03 |
Financial ratios
Sr |
|
|
|
|
|
FY 2023 |
FY 2022 |
No |
Particulars |
|
|
| 1 |
Debtors Turnover Ratio |
15.96 |
13.22 |
|
(Sales of Products and Services / Average
Trade Receivable) |
|
|
| 2 |
Inventory Turnover Ratio (Sales of
Products and Services/ Average Inventory) |
9.04 |
9.23 |
| 3 |
Interest Coverage Ratio |
1.98 |
2.64 |
|
[Cash profit after adjusting depreciation
/ Interest expense during the period] |
|
|
|
[Cash profit after adjusting depreciation:
Profit After Tax + Interest + Depreciation] |
|
|
| 4 |
Current Ratio |
1.68 |
1.92 |
|
(Current Assets / Current Liabilities
excl. Current Borrowings) |
|
|
| 5 |
Debt Equity Ratio |
0.87 |
1.15 |
|
(Debt / Net Worth) |
|
|
|
[Debt: Long term secured loans + Current
maturities of long-term debt + Long term |
|
|
|
unsecured loans+ Cash credit facilities] |
|
|
| 6 |
Operating Profit Margin* (%) |
7.00 |
17.00 |
|
[(Profit before Depreciation, Interest,
Tax and Exceptional Item Less Other Income)/ Sales of |
|
|
|
Products and Services] |
|
|
| 7 |
Net Profit Margin* (%) |
0.40 |
4.00 |
|
[Profit after tax/ Sales of Products and
Services] |
|
|
| 8 |
[Return on Net worth* (%) (Net Profits
after taxes)/ Average Shareholders Equity] |
1.00 |
5.00 |
* During the financial year ended 31st March 2023 due to increased
power & fuel costs, operating margins were impacted, resulting in variations in
ratios.
Sustainability
Sagar Cements always has high regard for the natural ecosystem. FY23
marks yet another milestone with our ESG vision document. We have laid out a roadmap on
our performance on various ESG parameters and have set medium to long term targets to
achieve it. It is a testament for our commitment to be net zero by 2050. Read more about
our ESG vision on page 30.
Technology
Sagar Cements is leveraging its advanced technology to manufacture
high-quality cement at cost-effective prices, resulting in a compelling value proposition
for its customers. Our commitment to innovation and continuous investment in research and
development are enabling us to introduce distinctive products and solutions that cater to
the evolving needs of our customers belonging to a sector that is striving to reduce its
carbon emissions.
Outlook
We continue to create consistent value through capacity expansion,
technological innovation, and sustainable manufacturing techniques. Our plants spread
across south, central and eastern India help us optimise our costs while contributing for
our expansion in newer geographies.
We are committed to increase the share of green cement in our portfolio
through technological innovation that would limit our impact on the environment.
The steadfast trust of our stakeholders makes us a preferred brand
among all our customers, suppliers, contractors and the communities we operate in. This
trust also gives us wings to grow sustainably. We remain strongly optimistic about future,
where we can strategically capitalise on the growing demand for cement in Southern,
Eastern and
Central India.
Risk Management
As a cement manufacturer, we are subject to internal as well as
external uncertainties that shape our risk management policy. While internal risks can be
managed with stringent compliance systems, external risks depend on multiple variables
beyond our control. Robust risk management ensures we anticipate problems and mitigate
them effectively. Our risk management committee monitors any emerging risks that might
prove to be a hindrance in the future.
We are responsive to newer opportunities that would create greater
value for our shareholders. However, every significant proposal is scrutinised at all
levels to identify any risks involved. It is approved only after the management ensures
the necessary risk assessment has been done.
Any financial risk management pertaining to operations is implemented
through internal, statutory and cost audits. These audits are periodically carried out by
verified auditors. The JMD heads the risk management committee that reviews the day-to-day
risks of the organisation.
Risk review meetings are conducted to analyse the implemented plans and
the identification and mitigation of newer areas of concern.
Read more about our risks management on Page 26.
Internal Controls and Audit
The Board of Directors are satisfied with the adequacy of the internal
control system currently in force in all our major areas of operations, supported by an
ERP and Compliance Management Systems. The Audit Committee assists the Board of Directors
in monitoring the integrity of the financial statements, reservations, if any, expressed
by our auditors including, the financial, cost. Our internal controls are adequate and
effective.
Note: Human Resources, Environmental and CSR initiatives have been
covered in detail in the Integrated Report section.
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