Heidelberg Cement sees major price hikes post monsoons

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Cement prices are expected to recover after the monsoon ends due to a likely pick-up in construction activity.  Sales during the wet season have also been hit on account of rising input costs.

Most of the cement companies were unable to pass on the price hike to its customers. The despatches in South India also suffered due to trucker's strike.

Speaking to CNBC-TV18, Ashish Guha, managing director and chief executive offier of Heidelberg Cement India said, the company plans a significant hike in prices post the monsoons. "We have been trying to increase our prices because of the cost increase but have not been able to do so," he said adding, "...high raw material costs, price correction hurting margins."

Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: What are your thoughts on the cement prices and do you see some sort of elevation in prices post the monsoon season?

A: Every year, cement prices increase post monsoon. This year we have been hampered by a few issues. Our costs have been rising up exponentially over the past few months and we have not been able to pass on the rise in cost to the customers.

We expect prices to rise significantly over the next few months. We have been trying to increase our prices because of the cost increase but have not been able to do so in a manner, which would help us offset the cost price. However, we are looking at all the options to raise prices.

Q: What sort of interest foreign players have towards the Indian cement space at this point in time and can we expect any deals going forward?

A: All major players will be interested in looking at India. India is on the radar of any multi national company because India promises great future. Cement growth has been significant over the last few years and it is expected to rise with infrastructure spend increasing over the next few years.

These companies are looking at options in India, but there are not too many options here. We don't have too many sellers and even if there are, they are all in one region or the other, and are not very attractive.

So deals are likely to happen; consolidation will take place in a larger scale in the years to come. Today it's a very fragmented market but we have more than 50 players in the cement industry. The last couple of years have been quite dry in terms of cement transactions, but I expect to see many more transactions happening over the next few years.

Q: Do you think the quantum of the price hike would be enough to compensate for that high raw material cost?

A:  We saw raw material cost getting hiked, and then we had the fall in cement prices. So both ways we were losing. We will try and make up for the price loss and the cost increase. So, our efforts would be to see significant increases in the cement prices in the next few months.

Q: So give us some numbers, where are the cement prices currently and how much do you think they could rise?

A: It's very difficult to give a number. We will go by our profitability. We will see where we left it from in March when the cement price was at its peak this year to where we are today and what were our costs then. It will ultimately boil down to margins, etc. So it's very difficult to put a number on the table and I don't want to misguide anyone.

Q: What sort of capacity you have on stream. There is some amount of commissioning expected by March 2012. Do you think that amount of capacity could actually be absorbed? What are your expectations in utilisation levels and volumes as well?

A: We are expecting our capacity increase to be in place by March 2012. We will go up to about 5 million tonne and our capacity utilisation for the first year will never be 100%. In Central India, the trend has been that capacity utilisation is between 95% and 100%.

In the first year, it will be between 60% and 70% and we expect that will be absorbed in the market by 2012 and going forward, in 2013, greater chunk will be absorbed.

Q: You have a unit in Tumkur, Karnataka and there was a mining ban over there. What was the situation, how much in terms of losses if at all did you see because of that and now that the ban has been lifted, what is the current status?

A: We didn't lose anything; our mining work didn't see any impact. It was not a ban on limestone mining; it was a ban on iron ore mining. So, we are neutral on that.

Q: What about coal prices and what sort of impact could we see in FY12 for the industry?

A: We go by calendar year and 2011 has not been a very good year for us so far. We should be in a better position in the next few months, but I don't want to give any guidance. We expect 2012 to be significantly better for the industry.