Polls to drive cement demand towards bumper yr: JK Lakshmi

Shaheen Mansuri
Moneycontrol.com

Amid concerns pertaining to rising raw-material and transport costs, factors such as better demand and improved pricing seem to have cheered the cement sector.

Construction activities have picked up phenomenally well after the government upped infra spend at the onset of assembly elections in various states this year. "We have left an over-supply scenario behind and further price hike cannot be ruled out," said Shailendra Chouksey chairman and managing director of JK Lakshmi Cement, who is confident of logging in atleast 12 percent growth this year.

Despite demand seen improving in medium term, Chouksey believes, it is better to maintain caution and hence the company has neither revised its Rs 2,000 crore capex plans, nor it is keen to enhance capacity aggressively.

We will go slow in capacity addition as demand is yet to come at par with supply. Our 2.7 million tonnes capacity in Chattisgarh will come on stream this year, taking our total capacity to 5.3 mtpa, he said. "Our current capacity is capable of catering to higher needs,"  he said.

Last year, cement companies took a hit on their earnings as prices across states declined over 5 percent year-on-year after the industry fair trade watchdog, The Competition Commission of India penalised 11 companies by over Rs 6,000 crore on cartelisation charges.

Companies have taken up the case with the Competition Appellate Tribunal and have sought stay on the CCI order.

Though JK Lakshmi was not one of the 11 companies that were penalised, Chouksey defended industry players by stating that price
always moves in tandem with demand and companies have minimum control over it. "We hope for a favourable response from the Appellate Tribunal,"  he said.

Chouksey also expressed concern on higher taxes hurting sector profitability. Currently, industry pays around 26% tax (including value added tax and excise duty). "We hope, the government rationalises taxes in the Union Budget 2013-14," he told moneycontrol.com in an exclusive interview.

Below is the edited transcript of Chouksey's interview to moneycontrol.com

Q. Overall, it was a subdued quarter for cement companies including J.K Lakshmi. Are rising raw material and freight costs adding up to your worry in current quarter as well?

Rising raw material and rising diesel costs are a concern for the industry, but demand is seen  picking up after the government has
upped infra spend due to general elections scheduled during the year. In Q2 and Q3 there was a continuous decline in demand. However, March quarter will be good as even corporates are hiking their budget on infra activities. Cement demand is a very good indicator of how infrastructure activities are looking up in times to come.

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Q. Demand is showing signs of revival since last month. How much headroom do you see for hike in key markets?

Since July last year, companies could not undertake any price hike as the Competition Commission of India (CCI) had penalised eleven companies on cartelisation charges. Along with this development, sluggish demand was responsible for volatile pricing regime. But now, after a long time we announced hike last month. As demand is seen improving, there could be another round of hike if situation demands so.

Q. How is the demand--supply match looking for the rest of the year?

Demand is yet to see meaningful recovery, hopefully soon. in the medium term, demand should gain momentum, as the approaching general elections will lead boost government spending.

Q.When is your Chattisgarh capacity going on-stream? Are there more capacities coming in?

We will go slow in capacity addition as demand is yet to come at par with supply. Our 2.7 million tonnes capacity in Chattisgarh will come on stream this year, taking our total capacity to 5.3 mtpa, he said. We will double our capacity by FY15.

Q. Are you revising your capex for FY14?

We shall stick to our previous capex of around Rs 2000 crore.

Q. How confident are you of the industry getting free of cartelisation changes? When is the next hearing coming up?

Last year, cement companies took a hit on their earnings as prices across states declined over 5 percent year-on-year after the industry fair trade watchdog, The Competition Commission of India (CCI) penalised 11 companies by over Rs 6,000 crore on cartelisation charges.  Companies have taken up the case with the Competition Appellate Tribunal and have sought stay on the CCI order. Though JK Lakshmi was not one of the 11 companies that were penalised, I would like to point out that price always moves in tandem with demand and companies have minimum control over it. We hope for a favourable response from the Appellate Tribunal.

Q. Cement companies have been crying hoarse about high taxes across states. What is your expectation from the upcoming Union Budget?

Higher tax regime is hurting sector profitability. Currently, industry pays around 26% tax (including value added tax and excise duty). We hope, the government rationalises taxes in the Union Budget 2013-14

shaheen.mansuri@network18online.com