See good demand growth despite cost hike: Heidelberg Cement

Despite the recent cost increases, Heidelberg Cement expects to see double digit demand growth this year.
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Mar 23, 2012, 02.32 PM | Source: CNBC-TV18

See good demand growth despite cost hike: Heidelberg Cement

Despite the recent cost increases, Heidelberg Cement expects to see double digit demand growth this year.

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See good demand growth despite cost hike: Heidelberg Cement

Despite the recent cost increases, Heidelberg Cement expects to see double digit demand growth this year.

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Ashish Guha, MD & CEO, Heidelberg Cement
Despite the recent cost increases, Heidelberg Cement expects to see double digit demand growth this year. “A lot of talk has been on infrastructure and roads, so we expect demand growth to be in the double digit number for this year after having been kind of slow for the last two years,” said chief executive and managing director Ashish Guha.

The freight hike and the excise duty hike announced in the Budget have added a total of Rs 15 per bag to the price of cement. “We have been able to pass this partially, and we are looking for some more price increases in the coming days,” said Guha.

Over the past two years, Heidelberg has not been able to pass on the rise in input costs due to which margins have fallen from 23% in 2009 to 7.5% last year.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What exactly is the impact for cement companies like yours post the announcements both in the Budget and the Rail Budget in terms of rate hikes?

A: The freight hike came a few days before the Rail Budget, and that’s been about a 20-22% hike in trades. 2% in excise translates to about Rs 7-10 per bag depending on the markets that we are supplying to, so that’s the impact. For the Rail Budget it is about Rs 7 for us, so overall it’s about Rs 14-15 per bag.

Q: How much have you been able to pass down already in price hikes that you may have taken?

A: We have been able to pass partially but we have not been able to take on the whole thing, pass it on to the customers as yet. We are looking for some more price increases in the coming days.

Q: Can you just give us some details on how much prices have gone up by and whether you need to absorb some of this remaining in margins or you think you will be able to pass down the entire Rs 14-15?

A: 2009 EBITDA margin was 23%. 2010 it was 13.5% and 2011 which is closing in December is about 7.5%. So we have not been able to pass on any input hikes over the last two years and this year also its becoming a little sticky.

Having said that, we expect in some markets we should be able to pass on the whole hike that has come in and some markets we will have to absorb it partially.

Q: You are currently in central, south and west. Can you just give us a sense of what prices are at per bag in these regions just to understand whether there is a great disparity or they are more or less similar?

A: West and south are more or less similar at about Rs 300, plus minus Rs 10. In central it’s between Rs 260-280 depending on the markets. So in Central India we are far lower than what we are in south and west. So hopefully we should be able to cover up the gap in the next few months.

Q: Do you see elbow room for price increases should you choose to do it or is demand as well a little bit sluggish?

A: Over the last couple of months, demand has been a little strong. We are seeing double digit demand growth after a 5.5% kind of growth which came in whole of last year, so I am hopeful that demand will continue. A lot of talk has been on infrastructure and roads, so we expect that demand growth to be in the double digit number for this year after having been kind of slow for the last two years.

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