Dear shareholders I am pleased to present a record 2017-18 performance for theattention of shareholders.
Even as the financial year under review was marked by three disruptions thespillover of the demonetisation impact the GST implementation that affected tradesentiment and the RERA implementation that affected construction the Companyreported unprecedented numbers. Star Cement Limited reported a 4.2% de-growth in cementclinker production to 20.57 lac metric tonnes and 5.6% increase in revenues to Rs. 1606crore. The Company reported a 70% growth in profit after tax and 43% increase in cashprofit during the year under review. This represents profitable growth
the percentage increase in bottom line being higher than the percentage growthin topline and is a validation of our business strategy and competitive advantage.As an extension the Company reported its highest-ever EBIDTA per tonne at Rs. 2018 whichwas 38% higher than in the previous financial year. On a consolidated basis total clinkerproduction during the year was at 20.57 lac metric tonnes in 2017-18 as against 21.46 lacmetric tonnes during FY 2016-17.
The higher profit reported by the Company at a time when volume sales reported amarginal decline was the result of a conscious strategy of the Company to protect thelong-term health of its brand. The Star Cement brand is generally respected for being oneof the best brands in the marketplace preferred on account of its superior setting timeand compressive strength. The result of this superior product attribute is that over thelast number of years the brand enjoyed a premium over competition and moved faster offretail shelves.
During the year under review the 8 million Tonnes per annum cement market in NorthEast India grew by around 7% which increased our opportunities for sale. However theCompany took a conscious decision to play the game as per its established strengths:maximise cement sale within the core North East market moderate logistic costs withoutselling too far from its plants resist the temptation of maximising volumes at the costof realisations and protect the integrity of its brand.
Reorganised market presence
This priority translated into some conscious initiatives. The Company exited theJharkhand market on account of logistical incompetitiveness and reduced its sales presencein West Bihar and South Bengal. On the other hand the Company focused on the remunerativemarkets of East Bihar North Bengal and the established North East market. The result isthat sales volume from North East climbed from 63.5% of total sales volume in FY17 to 72.8% in FY18; the proportion of non-North East sales volume declined from 36.5% to 27.2%.
This subtle change in our geographic mix may have resulted in a temporary decline insales volumes but this decline was more than recovered by enhanced savings that translatedinto record profit per tonne of cement sold.
We believe that this contrarian decision helped protect the respect and personality ofour Star Cement brand which will translate into superior returns across the foreseeablefuture.
In addition to making a decisive change in the markets where we would be present theCompany strengthened its business in various ways.
At Star Cement we believe that there can be no growth without making timelyinvestments in people. In view of this the Company strengthened its performance-linkedincentive during the year under review. The incentive strengthened a focus on performancegrowth linking individual deliverables (Key Performance Indicators) to the overallbusiness plan. Besides the Company strengthened training around individual developmentand the result was a decline in absenteeism and enhanced workplace discipline. A strongerKPI-based employee reward and recognition initiative strengthened productivity. TheAadharshila programme addressed logistics associate payroll employees; the Sell to Succeedprogramme covered 100% sales officers.
The Company had commissioned 0.4 million tonnes per annum of cement capacity in MarcRs.2017. This incremental capacity enjoyed full utilisation during the year under review.
The Company leveraged its proximity to quality limestone and coal helping controlcosts on the one hand deliver superior resource productivity on the other.
The Company strengthened its plant automation resulting in process efficiency thathelped enhance equipment uptime and operating efficiency.
One of the biggest improvements that we reported during the year under review was asharp decline in our interest outflow from Rs 78 crore in 2016-17 to Rs 52 crore in2017-18. The Company utilised the substantial inflow of pending subsidy to repay debt andre-size the Balance Sheet. Rs. 427 crore of outstanding debt as on MarcRs. 2018 as againstRs.800 crore in MarcRs. 2017 and intends to become debt-free by 2018-19.
The Company continued to brand better in its preferred markets and I am pleased tocommunicate that the Star Cement brand remained the undisputed number one across variousNorth East markets. The brand also retained its leadership position outside North East inMalda Cooch Behar Jalpaiguri and Darjeeling while being a close number two inKishangunj Sikkim as well as North and South Dinajpur.
Taking the business ahead
At Star Cement we are optimistic of the Company's prospects for some good reasons.
One we believe that demand in the North East cement market will continue to outperformthe national cement growth average. The pipeline of additional capacity coming into theregion is expected to be limited. Besides the usual commissioning time of a new plant isfour-five years by which time the region's cement demand could be around 12-13 millionmetric tonnes which would be considerably higher than the quantum commissioned in theinterim. During the year under review the Company reported a capacity utilisation of 55%of its cement capacity which indicates extensive headroom to grow the business across theforeseeable future at attractive realisations.
Two the East India market will continue to be deficit to the extent of 10 milliontonnes per annum of cement making it necessary to import cement from outside East Indiaand other regions. In view of this the Company announced plans to build a 2 milliontonnes per annum cement capacity in Siliguri which should be ready for commissioning in2019-20. We are optimistic of our prospects in North Bengal on account of our marketleadership; besides our presence in Siliguri will make it possible to address demand inBengal Sikkim North Bihar and East Nepal. The Company has embarked on the process todebottleneck its Meghalaya clinker capacity which will not only feed our growing clinkerappetite in North East but also feed the clinker needs of our proposed Siliguri capacity.Since we are optimistic that this incremental capacity will be funded largely from ourinternal accruals with minimal debt the capacity will minimise the load on the BalanceSheet and shrink the payback tenure.
The Company's platform comprises a balance of logistic costs conversion costs stablefocused geographic footprint leadership in select geographies and brand loyalty.Following consolidation in 2017-18 the Company is attractively placed to build on thisplatform. The Company is strengthening its market presence by venturing deeper intendingto open new demand pockets.
The Company will enhance output from its available capacity report 15% volume growthand sell more without compromising the brand. Based on these proposed initiatives we areconfident of enhancing volume growth by 15% in FY 2018-19 making it yet another year ofprofitable growth for our Company. I am thankful to our shareholders for their support andexpect to add significant value across the coming years.
Sajjan Bhajanka Chairman