Star Cement has a target to have 10 million tonnes capacity in the next five years: Sanjay Kumar Gupta, CEO

Sanjay Kumar Gupta, Chief Executive Officer (CEO), Start Cement, talks about, his outlook for the company in the New Year 2021, cement prices, demand recovery, expansion plans, CapEx and export opportunities among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:  

Q: We have seen momentum in the sector and your company has shown good growth in the last few months of 2020. Do you think that the momentum will continue and what is your outlook for 2021 for your company from the point of view of growth?

A: It is so that the growth of the cement sector is good. After the first quarter of lockdown, we have seen good growth in the second quarter and the growth is visible in the third quarter as well. So, demand is intact and largely more demand is coming from retail. But, overall, I think, the institutional demand has also started picking-up from the months of November and December. So, there is no issue of growth in the cement sector and I don’t think that growth will be an issue in the coming year and I expect that in the cement sectors growth will remain almost flat at the end of the financial year 2020-21 and overall growth of 2-3% will be seen across India. It will happen mainly due to April, May and June. But in 2021-22, we expect that overall demand for cement will be around 5-6% at India level, however, the overall demand in the East will stand around 7-8%.

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Q: Cement price increase has been in talks for a long time now. Have you increased your prices recently? Going ahead, what kind of price trend is visible and do you have any room to increase the prices, if yes, then what can be the quantum?

A: North East market is the biggest market for the company and prices are still stable in the North East, however, we took a small price hike in the month of November. Overall, prices are still muted in the East largely because December is the year-end for many companies like Ambuja, ACC, so everyone has to push volumes in the market, so, a price uptick has not been seen in the Eastern sector, largely in West Bengal, Bihar, Jharkhand, Odisha. But I feel, once the December quarter ends, slight price uptick will be seen in the months of January, February and March due to the robust demand mainly in the Eastern areas. In overall India too, I feel a price movement of at least 2-3% should be seen amid a pick-up in demand

Q: Update us about your expansion plans? You are most focused in North East or East areas, so, do you have any plan to change your strategy to expand your business in some other areas, as well? Also, tell us about the kind of capacity expansion that will be seen at the company level and what is your vision for the company in the next five years?

A: We have set a target for ourselves that we will stay in East now. So, we don’t have any intention to move out to some other region. However, we have increased our existing capacity of 4 million tonnes by another 2 million tonnes. The plant established in Siliguri has started in the month of December. With the addition of this 2 million tonnes plant, our capacity will go up to around 6 million tonnes. Going forward, we have plans to set-up a 2 million tonnes clinker plant in Meghalaya, which will be a backward integration because we have a clinker capacity of 3 million tonnes at present. With the addition of this 2 million tonnes, our capacity will go up to 5 million tonnes.

Besides, we have a grinding facility of around 1-1.50 million ton in Guwahati, which will be increased. In the next five year horizon, we have thought of developing an overall 10 million tonnes capacity in the Eastern sector for the company under which we may set-up one more plant in Durgapur, Bihar each and a clinker plant in Chhattisgarh or Madhya Pradesh, just to feed the Durgapur and Bihar plant. So, we have an overall thought of creating a 10 million tonnes capacity. 

Q: What kind of CapEx has been used for the expansion that you have done? And, how will you fund the future expansion plans?

A: Our Siliguri plant is a Rs 400 crore plant, which has been funded through internal accruals. Even today, cash of around Rs 450 crore is available in the books of the company and it is getting an EBITDA of around Rs 450-500 crore annually. So, its cash flow stands around Rs 400 crore. In the next three years, the company’s CapEx plans stand around Rs 1400 crore and the company will be able to generate cash of around Rs 1200 crore in this period. So, I don’t think that there will be a need for any additional funding as sufficient internal accruals will be available with the company. At least for the next three years will be taken to complete the CapEx and after that, we will definitely look at it. At times, there is lumpiness because money is invested in a project at once, while the cash flows come every quarter. So in order to even out that lumpiness, we might have to take some debt in any one quarter. But otherwise, we have plans to remain debt-free in the coming next three years. 

Q: What is your outlook on the export markets, what growth is expected from there and do you have any plans to enter some new markets or will have focus only on the domestic market?

A: Scope for export is not very big in the case of Cement and North East is a landlocked position for us. In the East, West Bengal is connected with the sea but cement is not exported largely. But, Bangladesh can be market for us and we can look towards it. We are studying the market as it is a big market of 35-40 million tonnes and our Meghalaya plant is overlooking Bangladesh. So, definitely, expect that one country, largely cement is a domestically driven sector. So, I don’t think that in future, whether in India or in the North Eastern sector, there can be any improvement in the export.