A steep rise in cement prices have led to a hike in construction costs for builders. Cement companies have increased prices by Rs. 100 per bag in the last three months. In an interview to NDTV Profit, VM Mohan, CFO, India Cements, talks about the company's future plans and cement prices in southern India.
NDTV: What about the price outlook in South India as prices have increased by over 20 per cent in the last 3 months? What has the demand been like after the monsoons?
Mohan: Demand has not been increasing and we are still facing the negative growth that we faced through the last year for the first 6 months. The negative growth is still 4 per cent in the South region, lead by Aandhra Pradesh, which is having a negative growth of close to 17%, even Tamil Nadu and Kerala markets are really flat.
Karnataka is just going at 2 per cent, so over all we are seeing negative growth of about 4% in the South region. We will have to wait and see how the third quarter pans out and how the demand picks up post monsoon since the monsoon quarter for Tamil Nadu is the main market.
Traditionally, in the second half of the year, national demand for cement normally grows faster in the first 6 months, so we will have to wait and see if that happens in this year as well. We believe that we may end up the year with a flat growth as against a negative growth of 4 per cent.
NDTV: Corporates like Jaypee, Jindal have plants coming up in South, do you expect any impact on prices once their capacity commences in these plants?
Mohan: The actual effect of this capacity will come into play possibly in the next year because the capacity will have to stabilise as and when they go on production and it will take a while for them to stabilise.
At this juncture, we don’t know how these players will play out in the markets. As of now, the players are behaving in a mature fashion, so the prices are fairly steady in the last one year, despite couple of monsoons. I don’t see any reason why another 5-7 per cent capacity will impact these prices. But actually, we will have to wait and see.
NDTV: Despite a rise in prices in South India, the volumes for your company have been declining. So could you give us guidance for volumes for the coming years?
Mohan: We have improved our volume by 5 per cent quarter on quarter. We are likely to have a flat growth for this year. Last year, we did about 9.9 million tonne in India Cements. So this year, we are likely to end up with 9.9 million tonne as well.
We have a subsidiary in Rajasthan, which has gone on stream in the beginning of this calendar year, which will be producing close to a million tonne. We are likely to have an addition of 7-8 per cent in cement sales during the current year.
We will certainly be in-line with the growth in the industry for the next year. We believe in the next year, the industry will grow at a faster pace. Traditionally with 3-5 years, moving average of cement growth is about 8-9 per cent. Considering the last two years, we have not being doing well from the demand growth side, but it may possibly go up in the next year. Hence, we are likely to see 9-10 per cent growth in the next year which the company is also likely to experience.
NDTV: We recently had Jaypee group taking over Andhra cement, and there are reports that Jaypee Group may also sell stake in the plant. Do you think the time has come for consolidation in the Industry?
Mohan: Actually consolidation should be there, but unfortunately it is taking time. In the south, there are about 40 small and big players in the market because last couple of transactions have taken place at a very high rate, at about $170 - 180 a tonne.
Currently, no one is prepared to pay that much a price, so till somebody is there to pay at that level there is likely to be a delay. We don’t see anybody playing today at $170-180 a tonne for acquiring a capacity, especially when there is so much capacity in the industry.
NDTV: With an increase in the imported coal usage, you may face with an increase in coal prices. So what has been the impact of currency on the import of coal and what is the impact on EBITDA seen?
Mohan: The cost of imported coal has been fairly steady. It has been around $150-120 a tonne. The recent increase has been only been on the account of the rupee depreciation, which has depreciated over 10 per cent in a very short time.
Also, the problem of Terengganu agitation led to this increase but the matter has stabilised now. So, we will go back to our earlier levels of about 55 to 60 per cent of utilisation of imported coal. The increase in the imported coal price is very difficult to estimate at this juncture. We believe with the global economy being at the current levels, it may remain, but for any depreciation in the rupee, imported coal prices could be stable.
NDTV: There a lack of clarity regarding your plant in Rajasthan in which you own 60 per cent stake. Certain reports suggest you have converted your loan of the plant into equity. What is your current stake post the loan conversion and what has been the price of conversion?
Mohan: When we took over the cement company, the capital base of this company was Rs. 4.5 crore, so we acquired more than 60 per cent from the then existing promoters and afterward, we made the tender order of acquiring the balance shares.
However, we didn’t get a good response for the tender offer because not much of trading took place in this company. In fact, the trading was suspended for a long time, so probably the share holders were not there. Right now having invested the money in the form of loans into the company, which has enabled the company to commission the cement plant, we are in the process of converting those into equity. And as and when we complete this process, we are likely to be having 90 per cent of this particular company.
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