Orient Cement reported a weak set of quarterly earnings. The company saw weakness in realizations, with an 11 percent year-on-year fall in prices, said Deepak Khetrapal, MD and CEO of the company.
In particular, the firm saw weakness in the Western region of India, which is one of its key markets.
"Our total costs have come down by 3 percent but prices fell 5 percent," he said.
Below is the verbatim transcript of Deepak Khetrapal's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: It was a disappointing set of numbers, maybe because you have capitalised the interest expenses of your new plant. Can you take us through how much of volume of cement was sold, how much did realisations fall?
A: The quarter is disappointing but not on the account of what you mentioned just now. We did sell total volume of 10.5 lakh tonne in Q3 of FY16. That represents over 2 percent growth over the same quarter last year and over 4 percent growth over the previous quarter.
In terms of pricing, we have suffered a huge decline. The pricing realisations for us are dropped by about 5 percent over the previous quarter but the drop is 11 percent over the same quarter last year.
More than the volumes, the pricing and largely the price erosion that we have suffered in our operations from the Maharashtra market where we normally end up selling between 55 percent and 60 percent of our total volumes into Maharashtra and in last two-three quarters now, the weakness has largely been coming from the western markets where especially for us the Maharashtra market is the most valuable market.
Latha: But your raw material cost has also fallen so could you not buffer your margins?
A: Our total costs have come down by about 3 percent but the prices have fallen by 5 percent. So that means a huge impact. Not that we will not improve our cost, we have definitely improved our cost but not as much as the price erosion.
Sonia: Even your volume growth is quite sub-par. At 2 percent volume growth, compares to some of your larger peers like Ultratech doing, 7-8 percent in this quarter, I wanted to understand in which geographies are you seeing some pressure as far as volume growth is concerned and what were the target be for the full year and for the first half of FY17?
A: When you talk about our growth been subpar, what you have to remember is that the industry till about December end -- in the first nine months of the year -- the entire industry has grown by just over 2 percent. When we are seeing some of the large growth, we have reported, it is largely coming from players who added capacity in the last one year.
We have seen some results of the industry leaders, Ultratech for example but if you look at their details, you will find that during the year the capacities have been added either through acquisitions or through putting up more capacities.
Same thing with Shree Cement, largely the growth has been coming because they have been adding capacity.
In our case, the growth will follow, we have just commissioned our new capacity which is still under stabilisation and the growth that we have got has come from the capacity. In the existing market we have suffered a degrowth.
Existing markets that we have been servicing for long, the volumes have dropped by about 9 percent but because we got some small volumes from the new plant, the overall company level growth is about 2 percent.
As the new capacity ramps up and as we keep increasing the capacity utilisation -- the new capacity while hurting us in the short-term in terms of additional interest cost and additional depreciation cost, it is a platform for growth. Any large investment that you make, which is the total investment that we made in this project is higher than the total balance sheet size that we have. So we have added that, it will cause a little bit of grief on the profit and loss (P&L) for a while.
Latha: Can you give us some guidance? Has demand picked up, should Q4 be better than Q4 last year and Q3 as well how do you see demand picking up in FY17, give us an idea therefore what sales and revenues you may do?
A: I can talk about volumes with a little more confidence, sales purely because it is also a function of how do market prices behave, but in terms of sales, I can indicate to you that our Q4 will be definitely be significantly better than our Q3. At the same time, it will be also be significantly ahead of the same quarter last year.
That is a given. In terms of pricing, we still have to see because Maharashtra pricing -- all of us know that these prices are completely unremunerative but they lasted for more than three quarters now. So I am not in a position to comment on the market prices but volumes wise we will definitely be showing significant growth.
Sonia: In which quarter of FY17 can we see optimum capacity utilisation since you have plants have come onstream?
A: Optimum obviously we would be wanting normal 80 percent utilisation. I don’t think we are getting there anytime soon, but we do expect that within the next six months, we will cross utilisation of 50 percent.
Latha: The net loss will get wiped out when?
A: Within this quarter, we are targeting to at least have a cash breakeven. That means we should be able to recover the full interest of the entire investment during this quarter and hopefully as the capacity utilisation is near 60 percent, it will be positive.
(Copy edited by Nazim Khan, interview transcribed by Sonal Jadhav)