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Star Cement Ltd.

BSE: 540575 | NSE: STARCEMENT | Series: NA | ISIN: INE460H01021 | SECTOR: Cement - Major

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May 26, 16:00
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Annual Report

For Year :
2018 2017

Chairman's Speech

Dear shareholders,

I am pleased to present a record 2017-18 performance for the attention of shareholders.

Even as the financial year under review was marked by three disruptions

- the spillover of the demonetisation impact, the GST implementation that affected trade sentiment and the RERA implementation that affected construction

- the Company reported unprecedented numbers.

Star Cement Limited reported a 4.2% de-growth in cement clinker production to 20.57 lac metric tonnes and 5.6% increase in revenues to Rs. 1,606 crore. The Company reported a 70% growth in profit after tax and 43% increase in cash profit during the year under review. This represents profitable growth

- the percentage increase in bottom line being higher than the percentage growth in topline - and is a validation of our business strategy and competitive advantage. As an extension, the Company reported its highest-ever EBIDTA per tonne at Rs. 2018, which was 38% higher than in the previous financial year.

On a consolidated basis, total clinker production during the year was at 20.57 lac metric tonnes in 2017-18 as against 21.46 lac metric tonnes during FY 2016-17.

Strategic direction

The higher profit reported by the Company at a time when volume sales reported a marginal decline was the result of a conscious strategy of the Company to protect the long-term health of its brand. The Star Cement brand is generally respected for being one of the best brands in the marketplace, preferred on account of its superior setting time and compressive strength. The result of this superior product attribute is that over the last number of years, the brand enjoyed a premium over competition and moved faster off retail shelves.

During the year under review, the 8 million Tonnes per annum cement market in North East India grew by around 7%, which increased our opportunities for sale. However, the Company took a conscious decision to play the game as per its established strengths: maximise cement sale within the core North East market, moderate logistic costs without selling too far from its plants, resist the temptation of maximising volumes at the cost of realisations and protect the integrity of its brand.

Reorganised market presence

This priority translated into some conscious initiatives.

The Company exited the Jharkhand market on account of logistical incompetitiveness and reduced its sales presence in West Bihar and South Bengal. On the other hand, the Company focused on the remunerative markets of East Bihar, North Bengal and the established North East market. The result is that sales volume from North East climbed from 63.5% of total sales volume in FY17 to 72.8 % in FY18; the proportion of non-North East sales volume declined from 36.5% to 27.2%.

This subtle change in our geographic mix may have resulted in a temporary decline in sales volumes but this decline was more than recovered by enhanced savings that translated into record profit per tonne of cement sold.

We believe that this contrarian decision helped protect the respect and personality of our Star Cement brand, which will translate into superior returns across the foreseeable future.

Business-strengthening initiatives

In addition to making a decisive change in the markets where we would be present, the Company strengthened its business in various ways.

At Star Cement, we believe that there can be no growth without making timely investments in people. In view of this, the Company strengthened its performance-linked incentive during the year under review. The incentive strengthened a focus on performance growth, linking individual deliverables (Key Performance Indicators) to the overall business plan. Besides, the Company strengthened training around individual development and the result was a decline in absenteeism and enhanced workplace discipline. A stronger KPI-based employee reward and recognition initiative strengthened productivity.

The Aadharshila programme addressed logistics associate payroll employees; the Sell to Succeed programme covered 100% sales officers.

The Company had commissioned 0.4 million tonnes per annum of cement capacity in March 2017. This incremental capacity enjoyed full utilisation during the year under review.

The Company leveraged its proximity to quality limestone and coal, helping control costs on the one hand deliver superior resource productivity on the other.

The Company strengthened its plant automation resulting in process efficiency that helped enhance equipment uptime and operating efficiency.

One of the biggest improvements that we reported during the year under review was a sharp decline in our interest outflow - from Rs 78 crore in 2016-17 to Rs 52 crore in 2017-18.

The Company utilised the substantial inflow of pending subsidy to repay debt and re-size the Balance Sheet. Rs. 427 crore of outstanding debt as on March 2018 as against Rs.800 crore in March 2017 and intends to become debt-free by 2018-19.

The Company continued to brand better in its preferred markets and I am pleased to communicate that the Star Cement brand remained the undisputed number one across various North East markets. The brand also retained its leadership position outside North East in Malda, Cooch Behar, Jalpaiguri and Darjeeling, while being a close number two in Kishangunj, Sikkim as well as North and South Dinajpur.

Taking the business ahead

At Star Cement, we are optimistic of the Company’s prospects for some good reasons.

One, we believe that demand in the North East cement market will continue to outperform the national cement growth average.

The pipeline of additional capacity coming into the region is expected to be limited. Besides, the usual commissioning time of a new plant is four-five years, by which time the region’s cement demand could be around 12-13 million metric tonnes, which would be considerably higher than the quantum commissioned in the interim. During the year under review, the Company reported a capacity utilisation of 55% of its cement capacity, which indicates extensive headroom to grow the business across the foreseeable future at attractive realisations.

Two, the East India market will continue to be deficit to the extent of 10 million tonnes per annum of cement, making it necessary to import cement from outside East India and other regions.

In view of this, the Company announced plans to build a 2 million tonnes per annum cement capacity in Siliguri, which should be ready for commissioning in 2019-20. We are optimistic of our prospects in North Bengal on account of our market leadership; besides, our presence in Siliguri will make it possible to address demand in Bengal, Sikkim, North Bihar and East Nepal. The Company has embarked on the process to debottleneck its Meghalaya clinker capacity, which will not only feed our growing clinker appetite in North East but also feed the clinker needs of our proposed Siliguri capacity. Since we are optimistic that this incremental capacity will be funded largely from our internal accruals with minimal debt, the capacity will minimise the load on the Balance Sheet and shrink the payback tenure.


The Company’s platform comprises a balance of logistic costs, conversion costs, stable focused geographic footprint, leadership in select geographies and brand loyalty. Following consolidation in 2017-18, the Company is attractively placed to build on this platform.

The Company is strengthening its market presence by venturing deeper, intending to open new demand pockets.

The Company will enhance output from its available capacity, report 15% volume growth and sell more without compromising the brand.

Based on these proposed initiatives, we are confident of enhancing volume growth by 15% in FY 2018-19, making it yet another year of profitable growth for our Company.

I am thankful to our shareholders for their support and expect to add significant value across the coming years.


Sajjan Bhajanka, Chairman