Central India focussed cement player, Heidelberg Cement has plans to double its capacity from 3.4 million tonne to 6.3 million tonne by 2012. It is looking at expanding its capacity in Damoh and Jhansi. The company expects to complete its expansion by March 2012. Heidelberg sells 72% of its volumes to Central India. Cement demand in central India is expected to grow at a compounded annual growth rate of 12% for the 2008-2012 period. Capacities are expected to increase at a CAGR of 11%.
Some analysts looking at the sector reckon foreign companies are showing interest in some of the smaller cement companies in India. Industry analysts are however concerned about high valuations.
In an interview with CNBC-TV18, Ashish Guha, MD, Heidelberg Cements spoke on the company's expansion plans and gave an outlook on business.
Below is a verbatim transcript. Also watch the accompanying video.
Q: If you can first take us through your capital expansion plans. We understand that there is a plan to go from 3.4 million tonne to 6.3 million tonne. What is the timetable for this? Do you have all the money needed?
A: The timetable is that we expect to start commercial production in the first quarter of 2012. We have internal accruals. We still have money in our accounts. So we are using that first and we are tying up for our debt programme for which we are in discussion with banks. It's more or less all tied up and we are going ahead with the project at full speed.
Q: Just getting back to your capex plans then. What is the investment in terms of funds for this capex expansion and how exactly are you going to be raising these funds if you require it unless it’s from internal accruals?
A: The project cost is about Rs 1200 crore, of which about Rs 600 crore is what we have through internal accruals. The balance amount, we will be signing up loan agreements with banks in the next few months.
Q: What's the capacity utilization at this point in time?
A: In south we are at about 60%, in central India we are at between 85% and 90% and in the west we are about 75%.
Q: And where is the new unit coming up?
A: It's coming up in central India, in MP and UP.
Q: This pressure in the south, do you see ebbing at all because it does look like a lack of demand kind of pressure?
A: It’s all over. Actually, for the time being south is better held in terms of prices than in central India or other parts of the country, north and east. Some amount of pressure is there and it will be there for some time till demand picks up.
We had expected the demand to be about 10%. It’s currently at about 8.2%. So the incremental demand pickup should be able to absorb on the pricing pressure that we are seeing currently.
Q: Can you then just highlight the amount of prices you are working with in the central region because there are analyst reports indicating ranges between Rs 150 to Rs 180 per 50 kilogram bag and there is an upward bias expected also on it?
A: In central India, the price range is about Rs 200 to Rs 225 per bag. That’s the range and I don’t think Rs 150 to Rs 180 is anywhere near.
There is an upward bias provided demand picks up. We are not seeing that kind of demand pickup which we had expected after September. In October and November the first half was all of festivities and we thought from middle of November it should pick up. We haven’t seen such pick up as yet. So maybe it's a pickup which is coming later this year. If that happens the prices are obviously northwards bound.
Q: When do you expect this lack of demand pressure to ebb away? Since you are going ahead with a capacity expansion do you think that perhaps by the time you come to calendar 2011 you would be in a better position or would it take up until fiscal FY12 for the mismatch between supply and demand to correct?
A: Currently the capacity utilization if you see overall, all India is about 80% plus – minus 1% or 2%. This should continue if demand is growing by 10%, this should edge up a little next year. In 2012 this should move towards 83% to 85% kind of range. That shows some price pickup kind of range from 2012 onwards.
Going forward, from 2014 there should be a demand and supply match. If that happens the capacity utilization is about 90%, which means the prices should be northward bound. So from 2012 onwards there should be significant pickup in prices. That’s what our expectations are.
Q: There is some buzz that CEMEX is interested in acquiring an Indian unit. Cement has always been an interesting place for M&A’s and Heidelberg itself entered the space through such a route. Are you still on the look out for anything that you may pick up? Is there something in terms of a short list or something that we can expect shortly from your company?
A: We are in talks with various players who are in the play right now. But there is a mismatch in terms of valuation expectations and what we want to pay as fair value. So I don’t know how long it will take but we are definitely focused on acquisitions in India. You will surely get some news in the coming year if not months.
