MANAGEMENT DISCUSSION AND ANALYSIS REPORT
ECONOMIC SCENARIO AND OUTLOOK GLOBAL ECONOMY
Global economic activity is experiencing a broad-based and sharper-than-expected
slowdown, with inflation higher than seen in several decades. The cost-of-living crisis,
tightening financial conditions in most regions, continued Russias invasion of Ukraine,
and the lingering COVID-19 pandemic all weigh heavily on the outlook.
However, despite several headwinds, global gross domestic product (GDP) growth forecast
for 2023 was revised from 2.7% to 2.9%, signaling that the expected global recession will
not be as severe as previously feared. According to the International Monetary Fund (IMF),
"adverse risks have moderated" since its previous World Economic Outlook,
released in October 2022. Global inflation is expected to be lower on-year in 2023 but
will remain above the pre-pandemic average and higher than central bank targets.
While risks have reduced, the global economy remains vulnerable to the geopolitical
fallout from the Russia-Ukraine conflict. Increasing crude oil and food grain prices and
formation of trade blocs due to intensification of the conflict remain risks to the
economy.
The global cement market size reached US$ 363.2 Billion in 2022. Going forward, it is
expected that the market will reach US$ 518.5 Billion by 2028, exhibiting a CAGR of 6.11%
during 2022-2028.
INDIAN ECONOMY
Indias recovery from the pandemic was relatively quick, and growth in the upcoming
year will be supported by solid domestic demand and a pickup in capital investment.
Incipient signs of a new private sector capital formation cycle are visible and more
importantly, compensating for the private sectors caution in capital expenditure, the
government raised capital expenditure substantially. According to the Economic Survey
2022-2023, budgeted capital expenditure rose 2.7 times in the last seven years, from FY16
to FY23, re-invigorating the Capex cycle. In Union Budget 2023-24, Capital investment
outlay has been increased steeply for the third year in a row by 33% i.e. Rs. 10 Lakh
Crore, which would be 3.3 per cent of GDP. This will be almost three times the outlay in
2019-20. Structural reforms such as the introduction of the Goods and Services Tax and the
Insolvency and Bankruptcy Code enhanced the efficiency and transparency of the economy and
ensured financial discipline and better compliance.
Strong domestic demand amidst high commodity prices may raise Indias total import bill
and contribute to widen Current Account Deficit (CAD). These may be exacerbated by
subduing export growth on account of slackening global demand and the Indian currency may
come under depreciation pressure due to widening CAD. Entrenched inflation may prolong the
tightening cycle, and therefore, borrowing costs may stay higher for longer. In such a
scenario, global economy may be characterized by low growth in FY24 and will also impact
the Indian Economy. However, the oil prices may stay low, and Indias CAD may be better
than currently projected.
The Impact
Higher Oil Price: The crude oil price had touched 130 dollars a barrel earlier this
year. It fell later and went below $85 per barrel in September 2022.
Rise in crude oil prices has in the past, led to rise in underrecoveries as the
government did not want the retail prices to rise sharply. Under-recovery refers to the
difference in the cost of producing petroleum products, and the price at which they are
delivered to consumers. It indicates the loss incurred by oil marketing companies while
supplying these petroleum products. The central government compensates these oil marketing
companies (OMCs) by sharing some of this incurred loss through a burden sharing mechanism.
Higher Inflation: International Energy Agency has said that a 10% increase in crude
oil prices in India will lead to an increase in the Wholesale Price Index (WPI) by nearly
0.9%. There is also a significant impact on the consumer price index (CPI) with increasing
crude oil prices. Hence, inflation increases with a rise in crude oil prices. The RBI and
the Indian government are trying hard to bring inflation below the 6% threshold, but if
oil prices increase, controlling inflation wont be easy.
GOVERNMENT INITIATIVES
In order to help private sector companies, thrive in the industry, the Government has
been approving their investment schemes. Some of the initiatives taken by the Government
off late are as below:
• As per the Union Budget 2022-23:
o Higher allocation for infrastructure- US$ 26.74 billion in roads and US$ 18.84
billion in railways is likely to boost demand for cement.
o Under the housing for all segment, eight million households will be identified
according Rs. 48,000 crore (US$ 6.44 billion) set aside for PM Awas Yojana.
o The government approved an outlay of Rs. 199,107 crore (US$ 26.74 billion) for the
Ministry of Road Transport and Highways, and this step is likely to boost the demand for
cement.
• As per Invest India, National Infrastructure Pipeline (NIP) expanded to 9,305
projects from 7,400 projects.
• In October 2021, Prime Minister, Mr. Narendra Modi, launched the PM Gati Shakti
- National Master Plan (NMP) for multimodal connectivity. Gati Shakti will bring synergy
to create a world-class, seamless multimodal transport network in India. This will boost
the demand for cement in the future.
• The Union Budget allocated Rs. 13,750 crore (US$ 1.88 billion) and Rs. 12,294
crore (US$ 1.68 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission
and Swachh Bharat Mission.
G20 PRESIDENCY LEAD BY INDIA : 1st December, 2022, is a momentous day as
India assumed the presidency of the G20 forum, taking over from Indonesia. As the largest
democracy in the world, and the fastest growing economy, Indias G20 presidency will play
a crucial role in building upon the significant achievements. In Indias G20 Presidency
will work to promote this universal sense of one-ness. Hence our theme - One Earth, One
Family, One Future as emphasised by the Indian Prime Minister. India is on a mission to
bring about a shared global future for all through the Amrit Kaal initiative with a focus
on the LiFE movement which aims to promote environmentally conscious practices and a
sustainable way of living. With a clear plan and a development-oriented approach, India
aims to promote a rules-based order, peace and just growth for all. The 200+ events
planned in the run up to the 2023 Summit will strengthen Indias agenda and the six
thematic priorities of Indias G20 presidency.
INDIAN CEMENT INDUSTRY : OUTLOOK AND OPPORTUNITIES
India is the second-largest producer of cement in the world. It accounts for more than
8% of the global installed capacity. India has a lot of potential for development in the
infrastructure and construction sector and the cement sector is expected to largely
benefit from it. Furthermore, on the back of rising rural housing demand, the consumption
of cement in India has been growing consistently. Strong expansion of the industrial
sector, which has fully recovered from the COVID-19 pandemic shock, is one of the main
demand drivers for the cement industry. As a result, there is a strong potential for an
increase in the long-term demand for the cement industry. Some of the recent initiatives,
such as the development of ninety-eight smart cities, are expected to significantly boost
the sector.
Currently, the installed cement capacity in India is 553 MTPA with a production of 298
MTPA.
As India has a high quantity and quality of limestone deposits through-out the country,
the cement industry promises huge potential for growth. India has a total of 210 large
cement plants, of which seventy-seven are in Andhra Pradesh, Rajasthan, and Tamil Nadu.
Nearly 32% of Indias cement production capacity is based in South India, 20% in North
India, 13% in Central, 15% in West India, and the remaining 20% is based in East India.
Indias cement production is expected to increase at a CAGR of 5.65% between FY16-22,
driven by demands in roads, urban infrastructure and commercial real estate. The
consumption of cement in India is expected to grow at a CAGR of 5.68% from FY16 to FY22.
As per Crisil Ratings, the Indian cement industry
is likely to add ~80 million tonnes (MT) capacity by FY24, the highest in the last 10
years, driven by increasing spending on housing and infrastructure activities.
Robust Demand & Attractive Opportunities
As per ICRA, in FY22, the cement production in India is expected to increase by ~12%
YoY, driven by rural housing demand and governments strong focus on infrastructure
development.
As per Crisil Ratings, the Indian cement industry is likely to add ~80 million tonnes
(MT) capacity by FY24, the highest since the last 10 years, driven by increasing spending
on housing and infrastructure activities.
Long-Term Potential
Indian cement companies are amongst the world greenest cement manufacturers. With high
allocation under the Union Budget 2023-24 for infrastructure, affordable housing schemes
and road projects to fuel the economy, the domestic cement industry is poised for a volume
surge.
Increasing Investments
FDI inflows in the industry, related to manufacturing of cement and gypsum products,
reached US$ 5.49 billion between April 2020 and September 2022.
The demand for affordable houses, with a ticket size of <Rs. 4050 lakh( US $ 53,694
-67,118), is expected to rise in Tier 2 and 3 cities, leading to an increase in demand for
cement.
COMPANYS PERFORMANCE
During the year under review, earnings before interest, tax and depreciation (EBITDA)
of the Company recorded Rs. 10,759.78 lakhs as compared to Rs.12,106.36 lakhs in the
previous year.
The reduction in EBITDA was mainly due to high cost of Coal and Crude Oil and intense
market competition, which has impacted the margin of cement industry. These increases were
caused largely due to external factors beyond control.
The demand for cement may continue to be driven further by the pick-up in the
infrastructure projects viz. bridges, roads, ports, metro rails and low budget housing
segment, bringing opportunities for growth in this sector. The long-term outlook for
cement is expected to be positive.
Despite the very high cost of coal that has impacted the margins of cement industry,
the Company performed well by improving plant performance and keeping the cost under
control. The Company has recorded operating profit of Rs. 10,759.78 lakhs with an EBITDA
margin of 15% . Concerted efforts throughout the year resulted in higher sales volume,
cement and clinker production. The Company continues to focus on optimizing costs,
improving operational efficiency, blended and special products sales and strengthening the
brand.
OPERATIONAL PERFORMANCE: Operational Performance:
| Particulars |
Current Year Ended 31.03.2023 |
Previous Year Ended 31.03.2022 |
| Production (lakhs TPA) |
|
|
| Clinker |
9.74 |
9.58 |
| Cement |
12.74 |
11.99 |
| Sales Volume (lakhs Ton) |
|
|
| Domestic |
|
|
| - Cement |
12.58 |
12.02 |
| - Clinker |
0.09 |
0.39 |
| Export |
|
|
| - Cement |
0.01 |
- |
| - Clinker |
0.00 |
- |
Financial Performance:
|
|
(Rs. In lakhs) |
| Particulars |
Current Year Ended 31.03.2023 |
Previous Year Ended 31.03.2022 |
| Revenue from Operations (Gross) |
72,234.88 |
62,494.87 |
| Add: Other Operating Income |
252.55 |
439.17 |
| Less: Total Expenditure |
62,432.04 |
51,226.59 |
| Profit before other income, interest, depreciation
& tax |
10,055.39 |
11,707.45 |
| Add: Other Income |
349.05 |
98.52 |
| Profit before Interest Depreciation & Tax [PBIDT] |
10,404.44 |
11,805.97 |
| Add: Interest Income |
355.34 |
300.39 |
| Earnings before Interest, Tax and Depreciation (EBITDA) |
10,759.78 |
12,106.36 |
| Less: Interest Expense |
133.67 |
145.62 |
| Less: Depreciation |
3,525.96 |
3,140.28 |
| Profit before tax |
7,100.15 |
8,820.46 |
| Less: Tax Expenses |
1,328.85 |
3,291.37 |
| Profit for the year |
5,771.30 |
5,529.09 |
Details of significant changes in key financial ratios are as given below:
| Sr. No. |
PARTICULARS |
UOM |
Year Ended1 31.03.2023 |
Year Ended 31.03.2022 |
Growth YOY |
| 1 |
Contribution to Exchequer |
Rs. in lakhs |
23,839.58 |
22,132.64 |
8% |
| 2 |
Revenue Growth |
Rs. in lakhs |
73,191.82 |
63,332.95 |
16% |
| 3 |
EBITDA |
Rs. In lakhs |
10,759.78 |
12,106.36 |
-11% |
| 4 |
EBITDA MARGIN |
% |
15% |
19% |
-4% |
| 5 |
PBT |
Rs. In lakhs |
7,100.15 |
8,820.46 |
-20% |
| 6 |
PAT |
Rs. In lakhs |
5,771.30 |
5,529.09 |
4% |
| 7 |
Net Worth |
Rs. In lakhs |
32,469.02 |
31,223.36 |
4% |
| 8 |
ROE |
% |
18.1% |
17.7% |
0.4% |
| 9 |
NET DEBT |
Rs. In lakhs |
- |
- |
- |
| 10 |
Debt |
Weight |
- |
- |
- |
|
Equity |
|
1.0 |
1.0 |
- |
| 11 |
Working Capital Ratio |
Times |
2.1 |
1.9 |
8% |
| 12 |
Fixed Assets Turnover Ratio |
Times |
3.7 |
3.2 |
17% |
| 13 |
Inventory Turnover Ratio |
Times |
6.0 |
6.3 |
-4% |
| 14 |
Debtors Turnover Ratio |
Times |
41.8 |
52.6 |
-21% |
| 15 |
Days Sales Outstanding (DSO) |
Days |
9 |
7 |
-26% |
SEGMENT REVIEW AND ANALYSIS
Operating segments are reported in a manner consistent with the internal reporting
provided to the Chief Operating Decision Maker (CODM). Chief Executive Officer (CEO) and
Managing Director (MD) of the Company has been identified as CODM who assesses the
financial performance and position of the Company and makes strategic decisions.
The Companys CODM has identified one business segment viz. Manufacturing and Sales of
Cement and its only production facility is located in India. There are no other reportable
segments.
COST AND PROFITABILITY
On the cost front, the Company witnessed significant pressure over the course of the
year due to the increase in crude oil and coal prices impact on each cost element. These
increases were caused largely due to external factors beyond control.
Controlling costs is an on-going exercise of your Company. The Company continues to
focus on cost reduction through procurement sourcing, increasing power sourcing of green
energy (wind, solar and power through Waste Heat Recovery), which is eco-friendly and
cheaper source of power, better use of alternative fuel, optimising logistics operations,
debottlenecking & asset optimisation, capacity utilisation to optime fixed cost and
increasing sales & marketing footprints with better blended and special product mix to
improve the overall performance and profitability of the Company.
OPPORTUNITIES, THREATS, RISK & CONCERN
The Company has well defined structure which enable and empower management to identify,
assess and leverage business opportunities and manage risk exposure in the organization
effectively.
As per Risk Management framework and procedures, management treat various category of
risks and take appropriate actions for its mitigation. For example, for higher priority
risks, the Company has developed and implemented specific risk management plans that
supports management in strategic decisions and funding considerations, if any. Lower
priority risks are also monitored as per plan. Company has the process of communication,
consultation, monitoring and periodical review of the risks and effectiveness of the
mitigation plan.
Raw material risk
The cement industry depends primarily on limestone and other raw materials. However,
availability of limestone from nearby sources is limited and thus, it is essential to
promote the use of blended cement, which uses alternative raw materials such as fly ash
and slag. The increase in the cost of these alternative materials and availability of
those materials may further increase the production costs.
Competition risk
The cement industry is witnessing a significant imbalance in its total installed
capacity vis-a-vis the capacity utilization which presently is 67%. Despite the
capacity overhang, capacity expansion still continues, resulting in intense competition
and adverse impact on the Companys market share, sales volume and profitability. To
improve the presence in the market and reducing the competition risk, Company has planned
to expand its capacity and got significant approval of Environmental Clearance (EC) from
the Government.
Cement capacity additions on a spree; likely to add 130-140 MT incremental capacity
in next 5 years Improving demand outlook over the medium term and push to gain market
share have triggered a wave of capacity addition announcements by cement manufactures,
especially large players. Over fiscal 2024-28, CRISIL MI&A Research expects the
industry to add 130-140 million tonne per annum (MTPA) of grinding capacities, taking the
countrys total installed capacity to 730-740 MTPA by fiscal 2028. In fiscal 2023, though,
the cement industry is estimated to have added 30-32 MT (inclusive of grinding and
integrated units) vs ~34 MT added in fiscal 2022, as higher input costs in the form of
elevated power and fuel prices have dented players profitability, leading to lower cash
flows and capex slowdown. Fiscal 2024 is expected to witness a similar trend of capacity
additions, estimated at 30-32 MT. CRISIL MI&A Research estimates overall installed
capacity to reach ~600 MT as of fiscal 2023.
Large players to account for almost half of total capacity addition in the next five
years :
CRISIL Research expects bulk of the capacities (~88%) up to fiscal 2028 to be added by
large- and midsize players, as these have better finances to sustain in challenging times.
Large companies will be able to fund capex through internal accruals. Also, their
comfortable gearing levels give them the financial flexibility to raise debt, if required.
New wave of consolidation on the cards for cement industry: The sector has witnessed
consolidation, with large cement makers taking over regional heavyweights as well as
struggling companies through competitive bidding under the Insolvency and Bankruptcy Code.
Considering the capex plans of the large players, the cement industry is on the road to
becoming more competitive, with more consolidations expected. Indeed, while most of the
stressed assets have been acquired over the past five years, we anticipate an acceleration
in consolidation where other relatively weak midsize and small assets will be the focus.
Infrastructure Risk
Infrastructure sector drives overall development of the economy and is a major focus of
the Government of India. Any pullback by
the government on its initiatives will result in de-growth for the cement industry.
Moreover, too many regulatory approvals and compliances might be a hindrance to the
segments progress.
Power, fuel and freight risk
The production cost has seen an adverse impact due to the increased cost of power &
fuel and freight cost. Fuel cost has gone up by 44% compared to the previous year.
During the year, the Company has noticed high volatility of fuel prices in the
international markets coupled with uncertainty over availability of domestic and linkage
coal continue to pose challenges in regard to coal availability and pricing to the cement
industry as well as the Company. During the year, almost 58% of the Companys requirement
for kiln fire is met by Coal. Thus, any rise in international coal prices will adversely
impact the operating costs of the Company.
The cement companies have so far managed to mitigate its impact due to the availability
of substantial inventory at their disposal. However, that comfort is gone now. It has
exposed the companies to the volatility in raw material prices.
The cement industry is highly energy intensive and close to 42% of its total
expenditure consists of power and fuel costs. Out of 42% of power and fuel expense, about
10.50% of the cost relates to power. However, its Companys endeavor to continuously
focus on green energy with cheaper sourcing and becoming a self- sufficient Company in
current energy scenario.
During the year, the Company consumed 38% of total power requirement from Green Energy
Sources like Wind and WHRS.
At Digvijay Cement, we currently use railways for a limited use for despatches. With
the rise in diesel prices, the cost of road transportation has increased. The cost
increase and huge dependence on road transportation is having an adverse impact on our
operational costs.
Marketing Risk
Due to increased demand for cement, intense competition is expected, which may
adversely impact on the Companys market share, sales volume, and profitability.
Cyber Security:
In the last few years, technology has evolved manifold and so have the risks attached
to it. The proliferation of business data beyond data centres to the cloud, social media
and digital platforms for B2B and B2C connect are impacting cyber security.
In addition to data loss, cyber-attacks can impact business operations, machinery and
human assets, and result in legal and regulatory liabilities.
Appropriate controls (technology and governance) are being planned and implemented.
Strategies:
The Company has followed two strategies. First is a short-term strategy, aimed at
health, cost and cash to mitigate immediate risks. We focused on ensuring the health and
safety of our employees, suppliers and channel partners, while initiating stringent
measures to control costs and strengthen cash flows.
Secondly, long-term strategies include increasing our market reach through capacity
expansion, launch of innovative and superior quality products; enhance efficiency through
digital transformation, cost optimization and logistics efficiency; and achieve our
sustainability goals through our targeted initiatives across four pillars of our
sustainable development plan.
The Company successfully integrated its environmental, social and governance (ESG)
plans and targets across all functions and continue to give top priority to improve upon
in all ESG parameters.
DIGITAL TRANSFORMATION AND AUTOMATION
We have seen an uptick in the adoption of digital means for doing business across all
the functions after the setback caused by the pandemic. This has led us to realign our
strategy around digital transformation and automation. Our digital transformation and
automation strategy was targeted at making our digital assets more functional so that we
could better serve growing customer needs. We comprehensively rebuilt our digital strategy
to build new capabilities during the year. The digital transformation encompasses the
entire value chain, including manufacturing, logistics, sales and marketing, consumer
connect, finance and human resources. Digital elements are intertwined in the business
processes as a major media for capturing and disseminating information, analyzing
operational parameters and engaging with all stakeholders.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company is following a proper and adequate system of internal controls in respect
of all its activities including safeguarding and protecting its assets against loss from
unauthorized use of disposition. Further, all transactions entered into by the Company are
duly authorized and recorded correctly. M/s RSM Astute Consulting Group (RSM), Chartered
Accountant has been working as the Internal Auditor of the Company for FY 2022-23. The
Internal Auditors are submitting reports to the Company on a Quarterly basis.
INTERNAL CONTROLS OVER FINANCIAL REPORTING (ICFR)
The internal financial controls within the Company are commensurate with the size,
scale and complexity of its operations. The controls were tested during the year and no
reportable material weaknesses either in their design or operations were observed. The
Company has robust policies and procedures which, inter alia, ensure integrity in
conducting its business, the safeguarding of its assets, timely preparation of reliable
financial information, accuracy and completeness in maintaining accounting records and the
prevention and detection of frauds and errors. The operating effectiveness of such
controls are in accordance with the Guidance Note on Audit of Internal Financial Controls
Over Financial Reporting ("the Guidance Note") and the Standards on Auditing
specified by the Central Government in accordance with Section 143(10) of the 2013 Act and
other authoritative pronouncements, to the extent applicable to an audit of internal
financial controls over financial reporting, both issued by the ICAI.
HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS
The Company continued with efforts to ensure that its pool of human resources is
"future ready" through its robust processes of learning & development,
capability building and its development programmes. Efforts were taken to develop
leadership lines as well as to enhance technical and functional capabilities with special
focus on nurturing young talent, in order to face future challenges that may arise. The
Company organized several training, awareness and coaching programs to develop the
leadership, technical and management skills of employees. Employee engagement programs
were organized to create openness and sharing ideas by employees. This learning journey
includes formal, informal and highly interactive components that would help in honing
their leadership, and coaching skills. It will ensure that the development initiatives
result not just in better skills but in enhanced performance and higher engagement.
The total number of employees on the rolls of the Company as on 31st March,
2023 was 241 (Previous year as on 31st March, 2022, number was 259).
Industrial relations during the year under report remained cordial.
EDUCATION
The Company has been providing primary/secondary education for the children of the
employees and local community staying in nearby areas of Factory / Mines. The Company has
provided educational kits to needy children in the nearby villages. More details on this
is covered in the Annual Report on CSR activities forming part of the Directors Report.
ENVIRONMENT, SUSTAINABILITY AND GOVERNANCE
The Company has been continuously contributing towards environmental sustainability.
Continuous improvement, enhanced process efficiency and periodic capital expenditures have
helped us position "KAMAL Cement one of the most responsible cement manufacturers in
the country.
The Company has been periodically reviewing the criteria of Environment, Sustainability
& Governance (ESG) as per its ESG Policy with a focus on continuous improvement in
Environment Sustainability. During the year, the Companys efforts continued with the same
rigour. It conducted its business maintaining high standards of governance, respecting
nature and demonstrating social responsiveness towards its communities & people.
Under its ESG Implementation plan, the Company has identified 14 key areas viz. water
management, circular economy & waste management, energy & climate change,
atmospheric emissions, biodiversity management & greenbelt development, sustainable
mining, product quality management, health & safety, transparency, ethical practices
& corporate governance, innovations & digitalization, sales & supply chain,
human resources, community engagement and corporate social responsibility under which key
initiatives are undertaken. Despite a challenging year 2022-23, we were able to achieve
considerable improvements across the targets and are on track with the agenda of the
Company.
More details on the Companys ESG initiative and performance during the year is annexed
to this MDA and BRSR forming an integral part of the Annual Report.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis describing the Companys
objectives, projections, estimates, expectations or predictions may be "forward
looking statements" within the meaning of applicable laws or regulations. Actual
results could differ materially from those expressed or implied. Important factors that
could make a difference to the Companys operations include global and domestic demand-
supply conditions finished goods prices, raw materials costs and availability,
fluctuations in exchange rates, changes in Government regulations, tax laws, natural
calamities litigation and industrial relations, monsoon, economic developments within the
country and other factors.
| For and on behalf of the Board |
| Anil Singhvi |
KK Rajeev Nambiar |
| Executive Chairman |
CEO & Managing Director |
| Place: Mumbai / Digvijaygram |
|
| Date: 27th April, 2023 |
|
+91-9892691696
