Star Ferro expects cement prices & demand to be strong in H2FY17

Nigel: The big positive really for your numbers is the topline growth that has come in higher by closed to around 16 percent. Breakup your cement sales volumes for us and also what were your capacity utilisations and how did realisations pan out in the last quarter?

A: This quarter the volume growth has been around 28 percent. We have sold 600,500 tonne of cement as compared to 470,000 tonne of cement corresponding quarter last year. So, there is an overall growth of 28 percent. North east has grown at around 23 percent and rest of east, for us, which is Bengal, Bihar and Jharkhand, has grown by 36 percent.

In terms of overall pricing scenario, in fact the prices have dropped by around Rs 10-15 a bag, if I compare the same corresponding quarter last year, so the prices are under pressure but we are seeing good demand in the north east. On demand side of it north east has grown at around 13 percent in last quarter. Rest of east that is Bengal, Bihar, Jharkhand and Odisha, are almost flat, they are only seeing a growth of around 2 percent.

Overall demand growth in this quarter and in the last quarter, say in the first half of this fiscal year, has been very good in north east so it is coming to around 10 percent. We think that similar growth, since the monsoons are now over, the growth will continue and we may see a much better growth in quarter two. So, we may end up the year somewhere around 12 percent yearly growth in north east.

Nigel: What about capacity utilisations?

A: The capacity utilisations for cement this time was around 60 percent and for clinker it was around 72 percent. On half yearly basis we had capacity utilisations of around 66 percent and clinker was around 87 percent.

Reema: What about realisations. You spoke about prices being down Rs 10-15 per bag in the quarter gone by what has been the pricing trends this quarter and your forecast?

A: The prices normally tend to come down during the monsoon season, so that is what has happened. However, we have seen some reversal of prices in the month of October itself, so we feel that since the demand is very strong in north east, going forward we think that whatever drop we have seen, we will be able to recover it. Over next six months, over next two quarters these prices will see an uptrend from here on.

Nigel: I remember there were some newspaper reports saying that the Assam chief minister had called all the cement makers that is quite a big market for you and told you all that you should be cutting prices. Is there some kind of an impact playing out over there? Are there any other meetings that have happened, did you all cut prices in the first place after the chief minister called you all?

A: There was a meeting and chief minister has raised his concerns about the price rise particularly in Assam. The industry has responded very positively to this call for reduction. So we did reduce the price at that point of time. The prices are somewhere at the same level as of now. However, since the demand is very strong as I said right, the last quarter the demand has grown by around 13 percent in entire north east. In quarter one the demand has grown around 10 percent.

Therefore, we fell that quarter three and quarter four should be much better. Historically these last two quarters normally grow at round 10-12 percent. So, if that is the growth we expect to end the year by around 12 percent. So, with this kind of demand growth in the region we are seeing a lot of NHPC projects which are there in north east, the hydel projects have started lifting cement. We are seeing orders from roads projects; National Highways Authority of India (NHAI) contractors are picking cement. However, there is good demand from infra as well as from the retail side of it. So, we see that the prices will firm up from this level.Reema: What was your EBITDA per tonne in this quarter and how would it compare with a quarter ago and a year ago?

A: This quarter we have an EBITDA of Rs 970 per tonne as compared to corresponding quarter last year of Rs 1,130 per tonne. The last full year EBITDA was Rs 1,450 per tonne. We still maintain that with the volume pick up in next two quarters and some improvement in prices we will be able to repeat the EBITDA margin of what we had last year. As of now the EBITDA margins are around Rs 970 for the quarter.

Nigel: This is the lowest EBITDA number you have delivered since when. I do not remember you delivering an EBITDA per tonne less than Rs 1,000 in at least the last few years that I am tracking your stock - that is the first part of the question. Second, could you tell us the subsidy that is pending from the central government, how soon can you get that?

A: We have not received any subsidies in the last quarter but in respect of whatever discussions we are having with the government, they have been working on it and giving us the hope that definitely by end of December or January we are going to receive some substantial part of it. However, it will be very difficult to give a definite timing line to whatever subsidies we are going to receive.

As of now the subsidy outstandings which are there, are around Rs 700 crore with the government. Out of which Rs 200 crore is the capital investment subsidy and Rs 500 crore is the transport subsidy.