Shree Cement plans to increase the contribution of premium products to its total sales gradually by focusing on the “right pricing”.
The cement maker expects the share of premium products in its total trade sales to rise to 12 per cent in the next six months from 9.5 per cent in the second quarter this fiscal. Sale of premium products stood at 7.5 per cent of trade sales in the second quarter last fiscal.
“Regarding premiumisation, our focus is on the right pricing. The volumes will come later. But if the prices are diluted to get the volume much faster, then you win the sprint race but lose the marathon. So our volumes will grow very gradually, but our prices in premiumisation are at the level at which we wanted. EBITDA is better,” Shree Cement Chairman, HM Bangur, said during the company’s second quarter earnings conference call.
Led by a strong performance on volumes, the company’s net revenue rose 21 per cent year-on-year to ₹4,585 crore for the second quarter this fiscal (₹3,781 crore). Total sale volume increased 10 per cent y-o-y to 8.20 million tonnes (mt) during the period under review (7.46 mt). EBITDA was up 66 per cent y-o-y to ₹870 crore (₹523 crore).
“Premiumisation for the sake of premiumisation by investing more, giving a higher cost material with lower realisation, lower EBITDA is not the idea. So we are focusing on the right pricing, which is there,” Bangur pointed out.
The company’s capacity utilisation improved to 71 per cent for Q2FY24 (65 per cent).
“In Q2FY24, cement volume for our coverage universe grew 14 per cent, driven by better demand from both trade and non-trade segments and we expect volume growth of 14 per cent for our coverage universe in FY24,” Axis Securities said in its report on the cement sector.
The domestic brokerage house said demand remained robust in the cement sector on account of higher government spending on infrastructure, housing, and residential projects, robust real estate demands, improvement in individual home buyers demands and lower cost of construction.
Currently, cement prices are trending higher by 3-5 per cent. “Price hikes were taken in the months of September and October, with slight roll back in some regions,” Axis Securities said, adding that sustainability of cement prices is crucial for better profitability as fuel prices were up 25-30 per cent from their recent lows.
Shree Cement is planning to increase its production capacity to 56 mt by the end of the current financial year from 46.40 mt last year.
“The company is on the track to attain a capacity of 80 mt by March 2028, achieving a CAGR of 12 per cent capacity in the next five years. The company has decided to merge its two cement subsidiaries with itself for better synergies, simplicity, and compliance,” Bangur said.
The company’s board of directors has approved merger of Shree Cement East and Shree Cement North, the two wholly-owned subsidiaries, into Shree Cement, subject to applicable regulatory requirements and approvals by the National Company Law Tribunals.
The company’s board has also approved setting up of a brownfield cement grinding capacity of 3.40 mt per annum capacity at its existing facilities at Baloda Bazar district of Chhattisgarh with an estimated capital expenditure of around ₹550 crore. This project is estimated to be completed by September 2025.