Dalmia Cement (Bharat) Ltd, which is amongst the top five cement-makers of India, is on track to up capacities to 48.5 million tonnes per annum (mtpa) by March FY24. While ₹1350 crore was made for nine-month period April to December 2021, another ₹800 crore is expected to be made in Q4 FY22 for this purpose.
“Substantial investments” are expected in the coming fiscal, which will be rejigged accordingly to aid capex plans. The company’s current capacity stands at 35.9 mtpa and clinker of 18.8 mtpa.
Organic capex for Dalmia Cement (Bharat) would include an ongoing addition of 7.75 mtpa across Odisha, Maharashtra (commercialised in January) and Bihar. Another 10 mtpa is to be added through new expansion which include 3 mtpa greenfiled expansion in Tamil Nadu, 1.7 mtpa addition in Jharkhand and 5.2 mtpa through debottlenecking at various plants.
The total capex allocated is close to ₹9000 crore which also include clinker capacity expansion, green initiatives and maintenance capex/ROI expenses.
“A further outlay of ₹800 crore is expected in Q4. While, absolute expenditure was lower than expected, we remain on-track to complete the capacity expansion of 48.5 million tonnes and plant commissioning by March 2024,” Mahendra Singhi, Managing Director and CEO, Dalmia Bharat (Cement) Ltd, told BusinessLine.
Pan-India player
Meanwhile, the company is also eyeing a pan-India play. It recently entered the west India markets – that include Maharashtra – through acquisition and operationalisation of the Murli Cement plant.
“Plans are afoot to improve limestone linkages for the Murli plant,” Singhi added. Limestone is a key component needed to manufacture cement.
The company has also won a limestone mining lease in Nawalgarh area in Rajasthan, that has a reserve of 160 million tonnes (as per government records) and capacity addition from this reserve to come beyond 60 mtpa (FY25) announced expansion. The area is located close to the Delhi – NCR region.
Cost pressure
According to Singhi, cost pressures are expected to continue into the quarter (January – March) especially with energy costs that include coal prices remaining elevated. Packaging and transport costs are up too.
Typically, the company is said to hold 45–60 days of raw material stock and in Q4FY22, some of these “high cost inventory” is expected to be consumed.
Analysts say, cost inflation in energy prices impacted margins in Q3 FY22. Raw material cost was flat year-on-year (Y-o-Y)due to lower slag cost.
The increase in cost was mainly led by increase in pet coke ($83/tonne to $164/tn Y-o-Y); consumption rate for coal saw an increase from $130/tonne to $160/tonne quarter-on-quarter.
Freight cost increased as lead distance moved up to 298 kms in Q3 FY22 coupled with 21 per cent Y-o-Y increase in diesel cost. Cost of pp granules increased by 40 per cent from ₹90 /tonne to ₹120/tonne Y-o-Y.
“These elevated cost will remain at the same level in Q4 FY22 as well due to the impact of high cost inventory but it will taper down in Q1 FY23,” analysts say adding that “EBITDA/tonne can go back to previous highs only when energy cost comes down”.
According to Singhi, while it is difficult to predict impact of cost pressure on margins, demand is improving in Q4. After November was completely washed out by extended monsoon (in East and South) and sand mining issues (East), December saw a recovery in demand and the trend is continuing in January.
“Capacity utiliSation was 69 per cent in Q3 FY22, stood at 83 per cent in December; and is expected to be in the 70-75 per cent range for Q4 FY22,” he added. Volume increase and price hikes are expected to offset some raw material cost pressures.