INDIA: JK Lakshmi Cement to Expand Capacity

NEW DELHI – India's JK Lakshmi Cement Ltd. plans to invest 20 billion rupees ($386 million) next financial year to set up new plants and expand production capacity, as it bets on the current phase of sluggish demand to abate in the long term.

The company's managing director, Vinita Singhania, said Thursday it plans to expand annual production capacity to eight million to nine million metric tons by the end of the next fiscal year, which starts on April 1.

The company's current capacity is 4.8 million tons, and is likely to rise to 5.3 million tons by March 31.

The company is setting up a new cement plant in central India which would likely start operations by October or November 2013, Ms. Singhania said. She added that the company also plans to set up facilities to make ready-mix concrete.

"I think the fundamentals of the Indian economy are strong, and cement demand is bound to increase once infrastructure spending by the government picks up," she added.

Indian cement companies are having a tough fiscal year, as demand has slowed due to weaker construction activity while costs have continued to rise because of higher prices of fuel.

"Profit margins of cement companies, including JK Lakshmi, are under pressure, especially due to the high cost of coal," said Ms. Singhania, who is also the president of the Cement Manufacturers Association of India.

She said a move by state-run Coal India Ltd. on Jan. 1 to link domestic prices to international rates has raised production costs by seven to eight rupees per 50-kilogram cement bag.

Coal is the key fuel for operating cement-producing kilns.

"The overall cost of production has gone up. However, companies are finding it difficult to pass on the costs to consumers as demand remains sluggish," she said.

Ms. Singhania said that while cement demand grew a modest 5% in 2010-11, it has been even lower at 3% in the April-December period this fiscal year.

"The government has slowed spending on infrastructure projects, while demand for housing has been hit by a sharp rise in interest rates. However, I am hopeful that spending by the government could revive in January-March and we can at least have 5%-6% growth this fiscal year," Ms. Singhania said.