The fast growing northern cement major Shree Cement, has significantly outperformed the industry’s quarterly performance by registering a 163 per cent rise in its bottomline. The company has earmarked Rs 1,200 crore for adding another 2.5 million tonnes of capacity in the north to take its total production capacity to 11.5 million tonnes by 2011. At the same time, the company is betting big on power business. HARI MOHAN BANGUR, chairman & managing director of the company and outgoing president of the Cement Manufacturers’ Association, spoke to CHANDAN KISHORE KANT on how the current year is expected to turn out. Excerpts:
After Q1’s robust performance, how do you foresee the cement industry’s growth in FY10?
We expect growth to be around 9 per cent. Normally, cement consumption growth is 1.3 times the GDP’s growth, which is projected at 7 per cent.
Will your company be able to maintain its sales growth trajectory of 30 per cent in the current quarter and the rest of the year?
The second quarter, as well as the entire financial year 2009-10, will be better for us than last year. Though the company will not be able to maintain the growth of 30 per cent, since this growth is mainly due to capacity additions after the June quarter last year. Nevertheless, in FY10, we expect a growth of 20 per cent.
How are the input costs expected to behave in the rest of the current financial year?
The cost of limestone should go up by 3-5 per cent on the back of a hike in diesel prices. The cost of gypsum will also increase because of transportation costs as well as non-availability of sufficient gypsum from domestic sources. We also expect coal costs to rise. Though, in the June quarter, energy prices came down compared with earlier years.
Last year, your company’s net sales grew by over 32 per cent. What is your projection for your topline in FY10?
We expect 20 per cent growth in volumes and, if the price rise is comparable to inflation of around 5 per cent, topline should grow by around 25 per cent, but this is subject to several assumptions.
You have ventured into Uttarakhand, the first step out of Rajasthan. How would this new plant (1.5 mt) help the company in the northern region?
Per capita consumption of cement in Uttarakhand is low. We are of the view that this will be the future market. Growth potential is there and, after 4-5 years, full capacity in Uttarakhand will be used. To start with, we expect 65-70 per cent capacity utilisation, also catering to nearby areas in UP.
Shree already had a dominant presence in the north and now, with two more plants, will it be rational to have over 10 million tonnes in a specific region, especially when several other cement makers are betting big on the north?
Shree is creating new capacity of over 2.5 million tonnes in north India. The northern region is a big and growing market. Highest per capita income in India is in Punjab and Haryana. Cement consumption there is expected to grow up substantially. With the growth in infrastructure in the National Capital Region, it is safe to assume that demand in north will increase sharply.
Is the company considering setting up plants in other regions of the country?
The company is considering and working on acquiring mining leases and land in various other parts of the country. At present, we are looking at ‘limestone-available’ states of Karnataka, Chhattisgarh and Andhra Pradesh. There is no timeframe by when we will commence building our factories in these areas. Things are still in the initial stage.
Will Shree take the acquisition route to ramp up its cement capacity?
The company will like to expand organically. The acquisition route is costlier and we would like to take it as a last resort. Acquisition will depend on the prices at which cement capacities will be available for acquisition. Right now, prices are unrealistically high. So, at these prices, it is unlikely that we would acquire more assets.
Shree is betting big on the power business too..
Our current power capacity is 115 Mw. By this year-end, our power capacity will reach 205 Mw. By 2011 March, it is going to be 255 Mw. Various power plants are in different stages of completion. For the year 2011-12, nothing has started yet but we are considering more power capacities. Size of the plant and location is still undecided, but we will like to expand further in the power business.
