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Analyst Meet / AGM - Analyst Meet

Demand outlook improves in H2FY14 on good monsoon, election led spending

Sagar Cement

21-Oct-2013, 10:54
The company held its Analyst meet on 18^th October 2013 to discuss the results for the quarter ended 30 September 2013 and way forward. Mr. Sreekanth Reddy, Executive Director of the Company; Mr. K Prasad Asst. Vice President Finance; Mr. P S Praasd, Vice President Marketing; Mr Rajesh Singh, AVP Marketing; and Mr. R Rangrajan, Company Secratery, addressed the conference call.

Key highlights

The challenging macro environment coupled with early onset of monsoon casted a shadow on the cement sector in Q2FY14, particularly in the South. Utilization levels remained low due to an oversupply situation. This translated into lower sales volume besides the realization cost during the quarter also cast pressure which impacted the earning of the cement companies.

The company net sales from the operation decreased by 25.4% to Rs 1013 million in Q2FY14. EBITDA was negative at Rs -4 million in Q2FY14 from Rs 163 million in Q2FY13. Operating margins for the quarter at -0.37%. Net loss during the quarter was at Rs 11 million, compared to profit of Rs 48 million in corresponding last quarter. Plant operated at around 42% capacity.

The company incurred lower cost on the fuel in Q2FY14 compared to corresponding last year as reasonable quantity of coal requirement sourced from domestic Singareni coal. Domestic: International coal mix was 70%:30% in Q2FY14 compared to previous sequential quarter;s Domestic: International coal mix of 55%:45%. The supplies of Singareni coal is improving and the trend in fuel cost expected to continue improving going forward.

The company average fuel cost per tonne of clinker production during the quarter at Rs 908 as compared to Rs 984 per tonne in the corresponding quarter in previous year.

The company freight cost was higher during the quarter compared to corresponding last year. Total freight cost per tonne of cement for the quarter stood at Rs 766 as compared to Rs 704 in the previous corresponding quarter. The increase in freight cost was due to higher diesel prices prevailing during the quarter. Additionally, approximately 58% of cement dispatches was going to various markets outside home state which also increased the cost.

The company operated at lower utilization level during the quarter, resulting in lower raw material costs consequent to lower production. The raw material cost during the quarter was at Rs 101 million compared to Rs 128 million in corresponding previous quarter.

The company employee cost increased by almost 11% in Q2FY14 due to salary increment and other benefits.

The company plant operated at reasonable utilization levels in Q2FY14, with utilization level of Matampally plant stood at 48% for clinker and at 42% for cement. Total of 238620 tonne of clinker and 279886 tonne of cement were during the quarter. Approximately 58% of cement dispatches was going to various markets outside the home state (Andhra Pradesh) such as Maharashtra (18%), Tamil Nadu (17%), Karnataka (14%), Orissa (6%) and others (3%).

The company planned to invest Rs 120 crore for new railway line which is expected to complete by FY15. The company expected that completion of the new railway line would enhance cost efficiencies once operational, with dispatches by rail expected to increase by 20%.

The company sales and production both ramped-up in JV plant at Vicatsagar. During the quarter, production stood at 231577 tonnes and sales stood at 240330 tones. The company expected further ramp-up in capacities to end of this fiscal year.

The company gross debt as on 30 September 2013 stood at Rs 1959 million out of which Rs 1159 million is long term debt with the remaining constituting working capital. The Net Worth of the Company as on 30 September 2013 was Rs 2606 million. Cash & Bank Balances held by the company at the Balance Sheet date was Rs 58 million. Investments stood at Rs 860 million. Debt: Equity Ratio as on 30 September 2013 stood at 0.44: 1.

The company forecasted that cement demand in India would be incrementally better in H2FY14 consequent to election led infrastructure spending, improved farm output amid current good monsoon and low base effect. Given such a situation, the effective utilization rates are expected to bottom out and improve gradually to ~75%. Capacity utilizations in Southern markets however are likely to remain subdued at 55 - 60% due to demand-supply mismatch in the region. Further aiding performance is the uptick in pricing across regions.

Cement prices increased by nearly Rs 30/ bag in the western region in the first week of October 2013. Average Prices in the Western region stood at Rs 315/ bag, with prices in Mumbai & Pune stood at Rs 325 and Rs 300 per bag respectively. In Southern region, average prices in the Southern market were at its all-time high in the first week of October 2013 at Rs 330/bag, with prices in Hyderabad rose by Rs 50/bag to stood at Rs 310/bag from Rs 260/bag in October 2012.