Star Cement is looking to invest close to ₹1,700-1,800 crore for doubling the clinker capacity and adding 4 million tonne (mt) grinding capacity over the next two years.
The company currently has two clinker units in Meghalaya with a combined capacity of 2.75-2.8 mt. It plans to put up another kiln of 3 mt capacity thereby taking up the total clinker capacity to 5.75 mt in the next two years.
According to Sajjan Bhajanka, Chairman and Managing Director, Star Cement, all approvals from the State government and other local bodies are in place and work has already commenced in the clinker unit. The company has also ordered all the machines.
The clinker unit is likely to entail an investment of around ₹1,000 crore and the two grinding units are likely to come up at an investment of around ₹700-800 crore.
“It (the clinker unit) is likely to be operational by March-April 2024. A majority of the investment will be funded through internal accruals and we may also look to raise some debt,” Bhajanka told BusinessLine.
Star Cement, which claims to be a zero debt company, is sitting on a cash pile of over ₹700 crore. The company is generating a cash surplus of more than ₹400 crore every year. “With the existing surplus and two years’ accrual it should be enough to fund the expansion,” he said.
The company’s grinding capacity at present is around 5 mt but the operating capacity is 4 mt due to off-season impact and limited availability of clinker. Sales drop to as low as 60 per cent during off-season and hence the capacity utiliSation of its grinding unit is around 80 per cent.
With the new kiln for clinker, the company would be able to run its existing plants at a much larger capacity. It is also adding two more grinding units in the northeast.
“We have one grinding unit in Guwahati, we are doubling capacity there as we have surplus land. We are planning another grinding unit of 2 mt in Silchar. So it will become a composite plant of 9 mt and we should operate at 7-7.5 mt. It should be noted that no plant in the country can achieve full capacity utilisation due to off-season factor because cement cannot be made and stored,” he pointed out.
Robust demand backed by infrastructure and real estate sector
Bhajanka expects cement demand to be robust on the back of growth in the infrastructure and real estate sectors.
In its latest transcript of a conference call with analysts, the company said it was very positive about the growth in the northeast. The kind of investment, which is coming from the government at the moment, is expected to drive up the aggregate demand around that area.
“A lot of the growth story which is going to come out in the next 4-5 years or probably like the decade in the northeast would be government intervention in that area and the infrastructure development which takes place. Of course, cement being away is a critical element of that and we do see a direct increase in demand for cement. I think this is truly the reason that motivates us to kind of put up a higher kiln. The second reason to put up a 3 mt versus a 2 mt is the efficiencies that the larger size gives us,” the company said in the analyst transcript.
Apart from the northeast, the company also plans to grow in the North Bengal and the east Bihar market.