Shailendra Chouksey, whole-time director, JK Lakshmi Cement says that cement companies may increase prices by Rs 5-10 per bag and adds that cement companies are likely to pass on higher freight costs. "The company plans to achieve 50 lakh tonne in FY13 and expects to add 2.7MT in Q4FY14. There are also plans to take capacity to over 8 MTPA," he told CNBC-TV18.
Sales in February was flattish owing to slowdown in demand along with the slowdown in growth in FY13 compared to the year ago period. The company has been impacted by the increase in diesel prices and the slowdown in the infrastructure and realty sectors, Chouksey says.
Below is the edited transcript of the interview on CNBC-TV18
Q: The final dispatch numbers for February, including clinker, is 4.47 lakh MT and is similar to that in January. What is it compared to year-ago levels?
A: Unfortunately, February 2013 has not been as good as the last year. While there was growth of 4-5 percent in January, growth in February was almost flat and sales has not been as good.
Q: What would you attribute it to?
A: Though the weather did play truant, the decline was due to the considerable slowdown in the construction sector - the infrastructure and realty segments. We hoped that there would be a resumption of activity in the construction sector in the last quarter and estimated that the upward move in January was a precursor. Now all our hopes are pinned on the month of March. Overall, the cement sector would still register growth of 5-6 percent on an annual basis, which probably in the current circumstances, may not be as bad.
Q: What is the overall target that you are expecting to achieve in FY13?
A: We are expecting to touch 50 lakh tonne. We have already produced about 38 lakh tonne in the first nine months and recorded a growth of about 11 percent in the first six months.
Q: In the Budget, freight rates were increased by 5 percent. Is there a case for cement companies to pass on the increase in cost?
A: Of course. The Railways transports nearly 50 percent of cement output in the country and almost 20 to 25 percent of the raw material. So the increase in freight rates has caused a cost impact of 5.75 percent on the cement industry.
There is a very strong case for increasing prices. We hope that in March there would be some resumption in demand and the April-to-June period is normally a good quarter. So going forward there should be some correction in prices.
Q: By how much would the price increase?
A: It is very difficult to really predict the exact percentage of increase. But if the hike in diesel and freight costs is considered, there is a case for an immediate rise of Rs 5-10 per bag which is required to maintain a workable operating margin of 18-20 percent.
Q: The Q3 margins stood at about 19.9 percent which is lower than the year-ago margin of 21 percent. Would you be able to record a similar level in the final quarter?
A: We hope to ultimately record operating margins of 18-20 percent by the year end.
Q: With demand being weak, how much will the Rs 5-10 per bag increase in prices impact volumes which in Q3 were fairly anaemic at 2.7 percent?
A: I don’t believe that an increase in prices would really affect volumes. Cement constitutes a very small percentage of construction cost. In the NCR and
the metro cities, cement does not even constitute 6 percent of the cost of construction. So an increase of Rs 5-6 per bag doesn’t really affect the pace of construction. We have not been able to increase prices because the volumes have not been very encouraging. So it is due to our inertia than any fear of a fall in volumes.
Q: What is the schedule of your expansion initiatives?
A: Currently, our capacity is nearly 5.5 million tonne which we expect will touch 10 million tonne by October 2014. According to our schedule, a capacity of 2.7 million tonne is to be added by March 2014. Our Chhattisgarh project which has been delayed by 2-2.5 months will be implemented by February-March 2014 to take capacity to about 8.5 million tonne.
Then, a capacity of about 1.5 million tonne will be added with the revival of a sick unit, the Udaipur Cement Works by October 2014. That will take total capacity to about 10 million tonne. Besides, there are the two half-a-million tonne grinding units at Surat and in Haryana at Jhajjar. The Jhajjar unit will be completed by March 2014 and the Surat unit will be completed by October 2014.