FDI in retail to boost cement growth: Heidelberg Cement CEO

Heidelberg Cement has hiked cement prices by around Rs 5-6/50 on each kilogramme per bag to offset the recent diesel price hike. Deisel which is now dearer by Rs 5/litre will push up distribution costs for cement companies.

Ashish Guha, CEO & MD, Heidelberg Cement in an interview to CNBC-TV18 said, "The recent Policy decision to allow foreign direct investment (FDI) in multi-brand retail will boost growth for cement companies." It may be recalled that recently even other cement makers indicated that they will have to raise prices as it is not possible for them to absorb the increased freight charges on account of the hike in diesel price.  They also said that the increased freight will impact on the distribution of finished goods. Also, following the Rs 5.62 a litre hike in the price of diesel recently, the apex truckers body the All-India Motor Transport Congress (AIMTC) effected a 15% increase in the freight charges across the country. AIMTC claims to have around 80 lakh trucks under its fold. Below is the verbatim transcript of the interview Q: What is the trend you are witnessing in cement prices right now? Has there been a hike that has been executed? A: Yes, there has been a recent hike about a couple of days back. This has been on the back of the diesel price increase, which happened last week. But it is marginal and there was a reduction in price end August- early September from the peaks that we have seen this year due to the heavy monsoons that hit us suddenly in Central India. We are hoping to pass on some price increases in the near future to the customers. Q: Normally in the monsoons, you tend to cut your prices because demand begins to ebb. With this increase in prices, are you coming back to pre-monsoon levels? A: Not really. We had cut prices by about Rs 20 in August. From there, we have taken an increase of about Rs 5-6, which is not going back to the levels that we had seen earlier. But in the near future, we are contemplating taking some price increases. Q: There is a suspicion that there would be demand resistance. Are you confident that price hikes can be taken? A: It depends on the demand. We expect some demand to come in higher than last year. We have already seen in the first half that the demand rose by 9%, and in August, there was a slight dip. But September again, we see there is a demand pick up. If that continues, we will be able to take price increases. But on the other hand, if demand doesn’t pick up then the price increase will be muted. _PAGEBREAK_ Q: On the back of this, what kind of realization improvement are you hoping to see in the next couple of quarters? A: We don’t give guidance. It is very difficult to say for me to say what kind of margins at this point of time. Earlier, cement prices used to change once a month. Now over the last couple of years, we have seen it changing once a week, now we are seeing it changing once a day. I won’t be surprised if we are going to changes in hours. So it is very difficult to predict at this point of time. But I am very hopeful and optimistic based on whatever come out of the government on FDI in retail. It will be a leading edge for us in cement, because if retail has to grow, it will require a lot of building, and therefore, cement. 11,500 kilometres of road contracts have been signed, that’s another indication of moving forward. I just read today that in UP, there has been expressway order between Lucknow and Agra. These are all positive indications. UP has not seen any growth at all in cement or any construction growth in the last 6-7 months. We were expecting that to come earlier. It is coming now and we are hopeful that we will be able to see tremendous growth coming out of UP and overall in India. Q: The entire cement space saw a decent improvement in margins when you reported your numbers last time. Is there an improvement in margins likely or will you see a trimming of margins because costs have gone up? A: I have said we had taken Rs 20 cut in prices earlier. Therefore, there is a dip in margins and we are trying to take price increases. Q: How much of an incremental price hike would you have to take to cover up the hike both in power fuel cost as well as the hike in freight rates? A: I know the answer, but as we don’t give guidance, I won’t like to comment on that. Q: What about your capex plans and the money you need for them? We have seen the stock market and the general mood in equity is a little kinder. Will you be tapping equities in some fashion? ECB loans are a tad cheaper with the Withholding Tax down, are you tapping any of these sources? A: At this point of time, we are not looking at equity. We have funded our project mainly through internal accruals and debt. We can look at equity if we are looking at a major acquisition, and at that time, we may consider an equity infusion. Q: When will your expansion plans be completed and what kind of a capacity are you looking at right now post-expansion? A: In terms of our expansion, soft commissioning is starting early next month. Commercial production will start before December of this year so that will take our capacity from 3 million tonne to 6 million tonne.