Even as the cement industry faces a glut, H M Bangur, managing director, Shree Cement, tells Pooja Sarkar that it’s momentary. Increased capacity utilisation, greenfield projects and international presence are in the offing for the company, in tandem with the industry’s growth prospects. Edited excerpts:
The cement industry has been facing oversupply for the last two years, denting growth margins. Does it worry you?
There is surplus capacity but I don’t think it’s a long term problem. The rate at which India is growing, it is time to bring in more capacity. For six months, sales might be a problem, but a 10 per cent growth in cement consumption would be plausible after that. Everyone knows what the growth rate will be like this year. We already have 11 months’ numbers in place and it stands at 4.7-4.8. However, there are reasons to be enthusiastic. Though we expected 8-9 per cent growth, I will say 3-4 per cent is the base effect number, which is low. Next year, it growth is more likely to be around nine per cent. Also, one should not forget that cement is irreplaceable. It will never become obsolete. The manufacturing pattern and technologies can change but there will always be demand for cement.
Cement prices in the north have tapered off by Rs 3-5 in the last two weeks. How do you see it playing out in the coming months?
This is something nobody knows — the pricing, why it suddenly increases and drops. I have been working for last 20 years and yet, I can’t figure out. If we see our net realisation inspite of all cost increases, the ex-factory realisation of cement is lower than that in 2007.
What will be the difference?
It is a nominal difference. However, if after four years, the difference is negative, it should be a matter of concern. I have seen reports saying cement prices have increased by 60 per cent in the last four years. That may be due to an increase in transportation and input costs. Government taxes have also increased but realisations for cement companies have not. As far as prices are concerned, we talk about cement more than anything else. Most commodities depend on markets, which determine the price.
What is your present utilisation capacity? What is the industry average in the north? Do you think the calculated efforts of cement players to keep a check on production and capacity utilisation would sustain for long?
There is oversupply in the country but not in the northern region. Also, we are running at 85 per cent capacity utlisation. It is expected to be around 85 per cent this year. Last year, it was around 80-82 per cent. If the capacity utilisation crosses 90 per cent, it will be a matter of concern. However, given the levels at which we are producing, some shortage is expected in a few months. Also, because of the pressure, smaller players will be bought over. There will be a lot of consolidation and mergers and acquisitions. In the north, the average utilisation for various players ranges between 60 and 95 per cent and those with new plants have a little lower than that.
What are your present pet coke prices? How much have your input costs escalated?
Earlier, pet coke prices used to be 30 per cent lower than coal for the same calorific heat value. Now, the difference is hardly five per cent. Indian coal linkages used to be cheaper. Now, that has also shot up. Currently, we are paying Rs 6,000 a tonne, plus transport cost for pet coke.
More From This Section
All the cement biggies have been expanding across the country. Why is Shree Cement not looking at expanding in other regions?
We have been dominant in Rajasthan and, for the first time, are moving out and putting up a clinkerisation unit in Raipur (Chattisgarh). It will be a 2-mtpa plant with an investment of Rs 1,000 crore.
The 2150-Mw power plant was expected to be operational by the end of December 2011. Is it on track?
We are actually running ahead of time. Instead of December-end, it will get streamlined by September. Once the capacity is ready, we will go and sign contracts. Otherwise, if we commit an earlier date and are not able to provide power, the penalties are very high. We want to avoid that situation. As of now, we have 200 Mw of commercial power and 60 Mw of green power. The merchant tariff for power is Rs 4.2 a unit and we are selling it in most northern states, including Punjab, Uttaranchal, Delhi and Uttar Pradesh. On the other hand, the cost of power production is Rs 3 a unit.
How do you see your topline and bottomline for the quarter?
I can say the industry is expected to grow at eight per cent and we would like to grow at 10 per cent. We are not very aggressive regarding capacity addition but would like to maximise utilisation. In FY11 we were not able to utilise our capacity completely, which we would now like to do. Our average lead distance is around 350 km and we want to sell more in local markets. However, it is the time for consolidation for smaller players and we expect to see a lot of it.
You were looking at international presence. What has been the progress on that front?
We have not given up hope yet. We have been trying for the last two years. We are trying in a few countries in South Africa — in the southern and eastern parts like South Africa, Mozambique, Nigeria, Zimbabwe. Though they are interested, the bureaucracy there is worse than India.