Expect growth to sustain at 10% ahead: India Cements

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Expect growth to sustain at 10% ahead: India Cements

The company witnessed growth in southern markets after seven quarters and realisations in the region remained steady, VM Mohan, joint president - corporate finance of India Cements told CNBC-TV18.

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Cement player, India Cements' profit after tax rose 2.6 times in October-December quarter of FY12.  From Rs 21.5 crore in a year ago quarter, profits increased to Rs 56.3 crore led by higher cement prices on a Y-o-Y basis , which went up by 17% plus in South India.

Net sales rose 21% to Rs 941.5 crore from Rs 780.99 crore (Y-o-Y).

The company witnessed growth in southern markets after seven quarters and realisations in the region remained steady, VM Mohan, joint president - corporate finance of India Cements told CNBC-TV18. 

However, India Cements expects demand to pick-up in the southern market and aims to sustain growth at 10% ahead. "Tamil Nadu is planning to incur some expenditure on housing and Andhra Pradesh is planning to take up some rural housing works. We believe this trend could continue," he said.

Capacity utilisation for the company remained low due to adverse weather conditions in the region, he added.

Below is the edited transcript of Mohan's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: Can you take us through what is going on in the southern market right now in terms of realisations first?

A: In terms of realisations it has been steady since last one year, it continues to be steady. We have been able to put through some increases to pass on the cost increase that has taken place. We believe that we can continue to do so.

Q: Could you quantify the kind of prices you are seeing right now in the market in terms of where they are trading at per bag?

A: It trades at different prices in different markets. In Kerala it is around Rs 320 plus, Tamil Nadu and Karnataka it is around Rs 300 plus and in Andhra Pradesh it is about Rs 270-280 for a 50 kg bag.

Q: What does that mean in terms of realisation potential for India Cements because the south market is coming off what has been an extremely rough phase on pricing?

A: This quarter has been very good quarter for the industry in south. We are seeing growth nearly after six-seven quarters. We had a negative growth of 7.5% till September and this quarter had a growth of about 3.3%. We had our overall negative growth reduced to 4.5% till December.

In November and December the growth has been fantastic. We have had about 14% growth in November and December and Andhra in particular has also done pretty well. These are we believe mainly because of the base effect because last year's volume has been poor.

Slowly things are starting to take place, Tamil Nadu is planning to incur some expenditure on housing and Andhra Pradesh is planning to take up some rural housing works. We believe this trend could continue and we will be able to sustain 10% growth.

Q: You have been working on fairly low capacity utilisations. This quarter it improved somewhat. What do you see given the demand improvement that you are talking about, what kind of capacity utilisation levels do you see yourself taking it up to?

A: This quarter is a lean quarter for us because the industry in this part of the country gets affected by north east monsoon. In October-November we had decent rains and we have been affected by cyclone. So, we have achieved the capacity utilisation of 66% as against 60% achieved by the industry in south, which is fairly okay considering the surplus in the market. Going forward, there are some additional capacities coming in, growth will continue at around these levels. Unless some setback takes place, there could be some improvement in the capacity utilisation.

Q: Your interest cost also remained quite high, any plans of paring down the significant debt that you are carrying on your balance sheet?

A: Our interest cost includes nearly Rs 15 crore which is on account of the forex fluctuations. We have converted our exports as of December 31 at Rs 53 to a dollar. Considering the current exchange rate a substantial portion of this will get reversed during this quarter assuming the dollar rate continue till the end of this quarter. As far interest is concerned, it has gone up because we had refinanced our FCCB during this year with debt.

We believe these interest levels could continue till next year because we have ongoing capex programs. We have just commissioned captive power plant in Tamil Nadu and another would be coming up in Andhra Pradesh, for that we will incur another Rs 251 crore. Considering this, the debt levels could continue for a year more unless the industry performs very well. We will start seeing major reduction in debt from FY14.