Dalmia Bharat expects energy costs to remain high for one or two quarters

Abhishek Law | | Updated on: May 18, 2022

Hyderabad, Telangana, 21/05/2019: Standalone Picture: Cement prices are ruling high as summer witness to more construction work, in Hyderabad May 21, 2019. Though not a conducive time to work, it is when more work is taken up as there is less traffic on the road, people are away on vacations in the neighbourhood and day light is longer. Photo: Nagara Gopal / The Hindu | Photo Credit: NAGARA GOPAL

Cement maker on track with its capacity expansion plans

Dalmia Cement (Bharat) expects petcoke and coal prices to remain high for one or two more quarter(s) before pressure starts reducing.

Cost inflation is expected to be around 10 per cent with volatile fuel prices.

In FY22, the company’s operational expenditure per tonne was up 10 per cent y-o-y due to a 21 per cent increase in variable costs led by higher pet coke price; and an 8 per cent y-o-y increase in freight expenses. Employee costs other expenses per tonne declined 1 per cent and 6 per cent y-o-y, respectively.

However, with demand improving pan-India, the company is confident of increasing prices, especially in select markets. Hikes announced so far have not necessarily offset the input cost rise. Government’s infra push, demand for affordable housing and a revival in real estate sector are seen as key drivers.

Price hikes (for the company) in April were market specific - in the range of ₹10–20 per bag in April; and remained flat in South and Central India markets, Mahendra Singhi, MD and CEO, Dalmia Cement (Bharat), said.

“As demand picks up in May and June, price hikes could come into effect. Hikes will be market specific. For instance, in the east, where hikes were moderated in line with slower than expected demand, there could be an increase in hikes over south, where demand seems to be good at the moment,” he told BusinessLine.

For the full year, Dalmia Cement (Bharat) expects demand to grow at 7–8 per cent.

Margin pressure

Singhi said, margins may come under pressure in H1FY23 due to continued inflation in energy costs and a time lag to pass on the cost increases. He expects the company to have an EBITDA of “20 per cent or less” unless energy prices soften.

For FY22, EBITDA margins dipped to 21 per cent versus 27 per cent.

“Maybe another quarter of high energy price and then some stability perhaps. So H2FY23 is when margins improve. But, we are working on cost optimisation to ensure costs remain under control, while there is a push towards premium offerings,” he said.

The share of premium product (DSP) has increased to 20 per cent of turnover in FY22 versus 18 per cent in FY21.

“Currently, Dalmia Bharat holds a three month fuel inventory of $220-230 per tonne,” YES Securities said in a report adding that the Brinda & Sisai coal block with extractable reserves of 15 mt would further ensure long-term raw material & fuel security, thereby improving efficiency

Capacity expansion

According to Singhi, the company continues to be on track with its announced capacity expansion plans. Capacity in FY22-end was at 35.9 MTPA.

By end-FY23, the cement-maker plans to take up total capacity to 40 million tonnes per annum (MTPA) through debottlenecking across facilities. While its upcoming greenfield plant in South India and brownfield projects in East would take up the total capacity to 48.5 MTPA by FY24.

Dalmia Bharat is likely to augment 41 MW of Waste Heat Recovery System and 66 MW of solar, which would take total renewable capacity to 170 MW by FY23-end.

Published on May 18, 2022
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