Dalmia Cement shifts to green fuel to rein in high input cost

Cement demand was not strong in the first half of FY22, but Dalmia Cement expects that to change from December as the vaccination drive ramps up

Dalmia Cement has turned to using biomass and industrial waste to protect itself from fuel price fluctuations that are eating into its margins.

The company is also looking to raise Rs 10,000 crore for capital expenditure between FY22 and FY24 after reaching a negligible debt level. “We are almost debt-free now. This capex will be a combination of internal accruals and debt,” said Singhi. The firm’s net debt to EBITDA ratio was at 0.48x as of September 30.

“We have increased the share of green fuel (biomass and industrial waste) in our total fuel consumption to 12 per cent and plan to take it to 20 per cent in a year. The idea is to gradually phase out the use of fossil fuels,” said Mahendra Singhi, managing director and chief executive at Dalmia Cement (Bharat).

The company’s green fuel is an industrial waste derived from chemical, pharma, and even automobile units through pyro-processing, which helps to reduce reliance on coal. “The overall cost of this green fuel is about 60 per cent lower than the normal fuel that we use,” said Singhi, without divulging much on total cost savings because the transition to green fuel is still in the initial stage.

Despite high coal costs, the company was able to manage the September quarter thanks to better inventory levels than the previous quarter. The gradual shift to green fuels would be able to keep the high input cost scenario under control. Dalmia Cement’s earnings before interest, taxes, depreciation and amortisation (EBITDA) fell 11 per cent to Rs 621 crore in the September quarter compared to the same period last year.          

About rising power costs, Singhi said changes to the existing clinker facility and adoption of newer technology at its plants led to a drop in power consumption. “Our per tonne of cement power consumption was 67 kwh per tonne of cement, which we have been able to bring down to 62 kwh now. This is one of the lowest not just in India but also globally.” 

While cement demand has not been too strong in the first half of FY22, Dalmia Cement expects the scenario to change from December as the Covid-19 vaccination drive ramps up. “We expect rural housing demand to pick up, which has been a laggard in the past year due to Covid,” Singhi said.

Even upcoming elections should prompt states to spend towards infrastructure, which will push up demand beyond pre-Covid levels,” said Singhi. Uttar Pradesh goes to the polls in 2022.The company is also gearing up to increase its capex to 48.5 million tonne from 36 million tonne now (after adding Maharashtra plant capacity which currently has trial runs on).