India’s GDP recorded a steady growth of over 7.5% in 2015. This growth was aided by the Government’s efforts to implement policy reforms, RBI’s focus on containing inflation, global commodity prices and a good monsoon.
The first half of 2016 saw an 8.5% growth in the demand for cement, accelerated by the Government’s policy initiatives and the implementation of the Seventh Pay Commission recommendations. The demand was subdued during the second half due to heavy monsoon conditions across the country. Another major factor for the diminished demand was the Government’s demonetisation drive in November that affected the construction cycle. This brought the yearly demand in 2016 to 5% above that in 2015.
The Company’s cement production in 2016 was 21.20 million tonnes. This was a marginal decrease of 0.3% against 2015 production. Net sales decreased by 2% compared to the previous year, down from ` 9,368 crore to ` 9,160 crore. However, we were able to optimise our fixed costs and reduce our operating expenses marginally compared to the previous year, and thereby post absolute EBITDA of ` 1,683 crore, an increase of 10% over the 2015 EBITDA of ` 1,531 crore. Profit before tax at ` 1,337 crore was up by 14% over the corresponding PBT of ` 1,172 crore in 2015.
Likewise, at ` 970 crore, our net profit was up by 20% over the corresponding value of ` 808 crore in 2015.
We continued our efforts at cost competitiveness by reducing costs, optimising the supply chain and boosting the productivity of our plants. Our EBITDA and net profit are testimony to our success, despite the minor drop in production.
Major raw material costs reduced by 5% compared to the previous year; despite the 6% increase in fly ash prices, the cost of consumption of gypsum fell by 10%, further mitigated by the use of alternative raw materials. The cost of fuel used in the kilns and in the captive power plants reduced by 16% and 14% respectively, mainly due to the use of petcoke and other low cost fuels. Alternative fuels accounted for 5% of the total thermal energy consumption in 2016. The use of captive power, 13% cheaper than that in the previous year, mitigated the cost of grid power that increased by 4% on a per unit basis. Seventy per cent of our total power used was procured from captive sources, and increased use was made of the waste heat recovery system. This helped reduce our overall electricity cost by 7%. The Company’s initiatives to optimise its fuel mix, and the increased use of captive power brought down our power and fuel costs by 12% compared to last year on a per tonne basis. Power and fuel costs account for approximately 22% of our total expenses.
Increased use of green fuel helped reduce our energy costs and our carbon footprint. Our initiatives to enhance fly ash consumption in PPC continued. Our ability to switch to the most economical fuel mix helped us reduce the risks of the dynamic fuel market. A new e-mill for grinding petcoke was commissioned at Darlaghat. This increased the petcoke consumption in the Suli kiln. A limestone feeding system was initiated in the captive power plant boilers at Rabriyawas and Bhatapara, to increase the petcoke consumption and maintain the SOx limit. At Bhatapara, a waste liquid feeding system increased the use of alternative fuel. Carbon black usage was increased through the commissioning of a carbon black bulk unloading system.
The decrease in PP granule prices brought down the cost of packing bags by 9% over the previous year. This, along with our fixed cost optimisation programme, restricted the increase of the 23% share of ‘other expenses’, by just 1%. Although diesel costs went up by 5% over the previous year, our freight and forwarding costs, which constitute 29% of our total costs, rose by a mere 1% due to our logistics optimisation efforts. The ongoing railway siding project at Rabriyawas, that connects the plant with the nearest railway junction, is part of this initiative. A brown-field expansion project of master packer and auto wagon loading, that will enhance dispatch capacity by 1.8 million tonnes, has been commissioned at Sankrail.