The year 2015-16 was a mixed one for the cement industry in India. On the one hand theindustry witnessed a marginal growth of 6% in demand due to subdued demand from keyconsuming industries (real estate and infrastructure). This resulted in lower capacityutilisation of 70% and a decline in cement prices pressurising margins. On the otherhand amendments in Mines and Minerals (Development and Regulation) Act are expected toopen up opportunities for consolidation enabling mergers and acquisition deals. Whileinput costs like limestone and rail freight increased international coal pet-coke androad freight costs declined.
Amidst this challenging scenario the Company managed to perform considerably well. Onoperational front clinker cement and power production increased 12.86% 22.96% and 9.05%respectively to 21.21 lacs metric tonne (LMT) 26.7 LMT and 1831.14 lac kWh respectivelyin 2015-16.
On marketing front the Companys cement sales increased 21.23% from 21.69 LMT in2014-15 to 26.30 LMT in volume terms. A major achievement during the year was theCompanys strengthening footprint in the north eastern region where sales grew by 38%- accounting for 35.22% of the Companys total sales compared to 30.93% in 2014-15.
On financial front the Companys total revenues increased 19.93% from Rs.1431.21 crore in 2014-15 to Rs. 1761.45 crore in 2015-16 driven by volume growth.However decline in cement prices and increase in logistics costs (due to split locations)led to 8.38% decline in EBITDA to Rs. 399.31 crore. The PAT for the year increased 10.23%to Rs. 91.97 crore.
Star Ferro and Cement Limited (SFCL) and the future
At SFCL we believe that in a commodity business there are two ways of operating - oneby just focussing on large-scale volume expansion and witnessing margin erosion; thesecond by being a niche player focussed on quality and growing volumes steadily. We chosethe second way - we focussed on one segment (A-grade quality cement) strengthenedcapabilities and developed business model to create a strong brand. The strong brand nameand quality of our products enable us to command higher prices resulting in increasedrealisations. The quality of our premium brand products is comparable to the leadingcement players in the industry. The success of our strategy is evident from our numbersand our relatively de-risked business.
Some of the highlights of this year are:
Making the worlds largest Durga idol
During the year the Company undertook a massive brand promotion initiative in thestates of West Bengal Assam Bihar and Jharkhand for creating the worlds largestDurga idol for Durga Puja 2015 in Kolkata (West Bengal) from itscement. Widespread media advertisements (video audio and print) was undertaken to promotethe campaign. The brand promotion was extremely successful leading to immense popularityof the Star brand and helped in creating a strong brand recall.
In 2015-16 the Company hired a new 0.33 MMTPA grinding unit in October 2015 (WestBengal) for catering to the local cement requirements. The unit shall focus on makingPortland Slag Cement (PSC) due to high availability of slag in the vicinity.De-bottlenecking of the 1.8 MMTPA grinding unit at Guwahati shall further enhance ourgrinding capacity by 0.3 MMTPA taking our total grinding capacity to 4 MMTPA (3.3 MMTPA inNER and 0.7 MMTPA in East).
Micro-level marketing strategies
The Company undertook significant efforts in understanding the market dynamics anddeveloped micro-level strategies to enhance sales across each small pocket in a particularregion. It follows a combination of push (through strengthening network and incentivisingdealer) and pull (through focus on product quality) strategy to enhance market share. TheCompany has dump points spread evenly across every district or a cluster of smalldistricts to ensure timely product availability in the remotest areas. Strong brandpromotion activities are one of the key focus areas of the Company.
The Company organises STARTECH (a technical programme) for masons andengineers who are indirect customers as a surrogate marketing strategy to influencetheir buying behaviour. These programmes provide technology knowhow and information onbest methods of using cement to derive maximum benefits. This has enabled the Company tocreate strong business relationships which in turn enhances business opportunities. Amonthly e-newsletter (Star Technopedia) covering new initiatives and developments inconstruction industry is also distributed to inform influencers as a marketing tool.
The Company provides various education and certification programmes to masons (StarPravin Mason Certification programme) and engineers (Star Stellar Club). These programmesenable the masons and engineers to sharpen their skills and at the same time strengthentheir relationships with the Company facilitating loyalty.
The revival of the real estate and infrastructure segments generates renewed optimismfor the cement industries especially in the NER that had been long ignored. Most of thegauge conversion and road construction projects in the NER were either stalled or movingslow. However with renewed interest from the Centre these projects were fast-trackedresulting in construction of 900 km of broad gauge lines in two years and speeding up ofroad construction projects. Despite this the region still lags behind in infrastructuredevelopment and to bridge the gap the Government of India has come up with variousinitiatives that include construction of houses smart cities Guwahati Metro airportshydel power projects and cross-country road connectivity projects.
I would like to thank all the stakeholders (shareholders bankers suppliers channelpartners and employees) for being an important part of our journey. We are very excitedand optimistic about the long-term prospects of the industry and our Company. We havedemonstrated our capabilities in a region outside our comfort zone strengthened businessmodel developed robust balance sheet and undertaken important strategies. From hereonwards we expect the Company to become stronger and grow faster than ever with theintention of providing superior returns to shareholders.