Re fall to hurt P&L by Rs 30cr per annum: India Cements

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With the rupee crossing the 54 per dollar level today, companies that import raw materials are having a tough time maintaining their margins. Speaking to CNBC-TV18, the joint president of corporate finance at India Cements , VM Mohan, says that the depreciation of Rs 5 in the rupee has hurt their P&L by Rs 30 crore per annum.

"Every drop in the rupee hurts us by Rs 10 per tonne. So for 600,000 tonne a year, and for Rs 5 depreciation, close to be Rs 30 crore will be charged to our P&L account," he said.

On the positive side, the company will not face trouble repaying its external debt as majority of it has already been availed. The company currently has USD 80 million, of which USD 20 million has already been swapped. "The remaining USD 60 million was availed recently and this is reasonably long-term, so we believe the rupee will stabilize by then," he explained.

Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: Roughly 70% of your coal requirement comes from overseas, so what will be the impact of the depreciating rupee?

A: Actually we will be importing in a year about 60% of our fuel requirement, which approximately is 600,000 tonnes a year. Every rupee depreciation will impact us by nearly Rs 6 crore to our P&L. The coal price is about USD 100 per tonne, so every drop in the rupee will hurt us by Rs 100 a tonne. And for 600,000 tonne a year, it will be about Rs 6 crore per annum. If its Rs 5 depreciation, close to be Rs 30 crore will be charged to our P&L account.

Q: Coming to the other important raw material for you, power, can you tell us what percentage of the total requirement comes from your captive power plant? What is the progress in setting up a new power plant and what is the cost of power turning out to be?

A: We are covering nearly 50% of our requirement through low cost power. We have got a gas based power station in Tamil Nadu, which is about 25 mega watt (MW), and we also have participated in collective capital power plant in Andhra Pradesh which is based on gas, where we have about 21 MW of power. We also have wind power to the extent of 20 MW. Totally, all this accounts for close to 50% of our requirement. We are actually drawing the rest from the grid, both from Tamil Nadu and Andhra Pradesh state electricity board.

Currently, we are setting up two power plants of 50 MW each in Tamil Nadu and in Andhra Pradesh. The one in Tamil Nadu is under commission as we speak and will be fully commissioned by January. So we will be protected against any major power cuts or increase in power costs from the grid as far as Tamil Nadu is concerned. As far as Andhra is concerned, we have already placed the EPC contract with Thermax. We expect this plant to be commissioned sometime end next financial year.

As far as our subsidiary Trinetra Cements is concerned, there also a power plant of 20 MW capacity is getting commissioned as we are speaking now.

Q: You articulated the impact of rupee depreciation on your raw material cost. How does it impact your debt and what kind of forex losses are we likely to see?

A: First I would like to mention that nearly Rs 600 crore is interest free sales tax debt and also we have close to about Rs 500 crore of working capital debt. Of the remaining, we have close to USD 80 million which we have availed in the form of foreign currency loan. Out of the USD 80 million, USD 20 million we have actually swapped fully and we will not be having any impact of rupee depreciation.

Remaining USD 60 million was availed recently and this is a reasonably long-term loan repayable within three-nine years. We expect that by the time the repayment commences, rupee will stabilize and probably could also improve once the global situation stabilizes.

Q: You had a loss of about Rs 25 crore in the Q2. Would we be working with similar figure this quarter or would it be lower?

A: This Rs 25 crore includes a portion which comes to about Rs 16 crore relating to our coal purchases. The rest of that relates to our foreign currency loans which is the notional provision as far as loan is concerned. That will be there as far as there is depreciation in the rupee. But actually, the cash flow depends on when we need repay and by that time whether rupee could appreciate. There is a view that once the global situation improves, there is a possibility that rupee could also appreciate and we only hope and believe that we will be able to pay at better rupee levels.

Q: What is the current percentage of capacity utilization?

A: We are currently operating at close to about 70% considering the surplus that is available in the industry. We expect it is reasonable so long as we are able to get reasonable prices in the market and make profit. The demand has been negative in the south for the last year, so it may take a little longer for the industry in south to increase its utilization levels.

But the good thing is that the growth has been reasonable for November and it has been positive as far as south is concerned. Across the country, we believe the demand is possibly growing at double digits. Hopefully, we will catch up with some shortfall in demand growth in the months to come and we will be able to improve our utilization faster than what we were thinking a little while ago. We believe utilization levels of 80-85% are possible about five to six quarters away as far as south is concerned.

Q: Prices have increased by about Rs 20 per bag in November in many parts of the country, but south has seen only Rs 5 increase. How will you forecast prices in the near future?

A: In the south, prices have been fairly steady for more than a year now. Considering we have passed through two monsoons. We don't see any reason why it should be different in the months to come. The only thing is that we are expecting two more capacities to get commissioned which possibly will come on stream in three-six months from now. How this will impact we will have to wait and see. It depends on how the players are going to play it out. We believe prices can be stable in the months to come as well.