Heidelberg Cement's margins improve despite high input cost

On the back of cement prices rising across regions, Heidelberg Cement has seen a year-on-year growth in realisations. The cement major which saw a decent recovery in demand in the preceding quarter might see the trend continue.

In a chat with CNBC-TV18, Ashish Guha, managing director and CEO of Heidelberg Cement says his company has witnessed margin improvement due to improved realisations which currently stand at Rs 300/bag. Heidelberg Cement India Ltd, a subsidiary company of Heidelberg Cements which is one of the leading cement producers in the world,  recorded a jump of 308% in its operating profit for the preceding quarter despite higher raw material, power and fuel cost. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Q: Your margin performance is quite impressive. Is it because prices were higher or you could control costs? A: I think both. We did a bit on our optimization of fuel consumption, thereby not being affected by the 20% increase in fuel cost. Our cost increase was 8%. Obviously the market also helped, prices have gone up in all the markets especially in Central India, capacity utilization is being nearly 100%. Overall, it is a mix of both price and cost which helped us generate better results. Q: What are demand conditions like in Central India right now? A: MP saw growth of 22% in May year-on-year (YoY) whereas UP saw a growth of 3%. UP is understandable; with the new government, it will take some time to come up with its policies on infrastructure etc. The 22% growth in MP was unexpected and it is going higher YoY. Even if there is moderation, we expect it will be in a mid-teen kind of a growth situation for the year. Q: Where are realizations or prices per bag in your key markets? A: It is about Rs 300 plus-minus Rs 10 here or there; that is a kind of range. It had peaked to about Rs 325 in some markets. Bihar was Rs 375 but it has dropped from there by about Rs 15-20 in each of these markets. Q: It has not been a very strong monsoon this time around. Do you think it might be unusual that prices may hold up during this season this time around? A: Yes, but that is the only blip because it may hold out for one to 1.5 months. Thereafter, if monsoon is not good, we will get affected the whole of next year. So I would rather expect a good monsoon or rather a normal monsoon. Q: Are your capacity expansions on track when do you get to 6 million tonne? A: We start commercial production in September of this year - the initial two-three months of stabilization. So we should see about 75-80% of our enhanced capacity utilization next year, which should take us to about 2.25-2.5 metric tonne extra next year from the current 3 million tonne. Q: Will there be no difficulty with the new capacity being absorbed? A: Yes, we may have to square out a little to newer markets or distant markets. But we have been trying to control our logistics cost quite efficiently. We have done a great job of late in the last six months. We believe we will go to some fresh markets like Haryana, Uttaranchal etc but no major blips.