Aim to add 2-3 million tonne capacity every year: Shree Cements

Shree Cements, which saw a robust 20 percent volume growth in first quarter of FY17, is expecting slightly lower volume growth in quarters ahead. Addition of a new geographical area - East - added to volumes during the June quarter, HM Bangur, Managing Director of Shree Cement, tells CNBC-TV18.East business is expected to grow faster than the company’s main north business.Cement demand, Bangur says, will rebound strongly post monsoon as the rural income rises. The company is further expanding its reach to the southern part of India with a plant in Karnataka. This will however take two years, he says.Shree Cement is aiming to add 2-3 million tonne capacity every year for next three years. It is currently operating at 27 million capacity. Cement price have corrected 10-15 percent because of monsoons, which causes a slowdown in construction work.Below is the verbatim transcript of HM Bangur’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: The volume growth has been very healthy at almost 20 percent to more than 5 million tonnes. Can you tell us what the volume and realisations could be for the next couple of quarters and how much has demand picked up compared to the last time we spoke?A: Volumes are there because of the eastern region. We have started in one more region, which was not there earlier or the base was very minuscule. So, volume growth of 20 percent is because of new geographical location and next quarter also we expect not as robust but a good volume growth and price we will not be knowing. Commodity markets are normally weak in July-September period. This year it is good rains. So, little bit less demand is there but good rains means from October onwards demand will come as rural income will rise.Anuj: So, as of now your geographical breakup is 80 percent north India and 20 percent east India. Does that mix change a bit going forward?A: East will be somewhat increased only. It can be 78:22 or because north is more or less the potential will be coming only by volume growth. We have capacity but in east we are yet to set up our full strength. So, east will be definitely growing faster than north.Anuj: South market has seen phenomenal growth. Do you have any plans to enter that?A: Yes, we are putting up a unit in Karnataka. Work has started. It will take us about 2 years -- 24 months before we can come up in production. It will take that much time.Sonia: So, coming back to the volume growth, you did mention that 20 percent looks tough to sustain but what could the realistic volume growth be and your current capacity is somewhere around 30 million tonnes per annum. By the end of FY17 what could the targeted sales look like?A: Our capacity right now is roughly 27 million tonne and capacity increase is a continuous process. We will be coming not with a big bank but continuous one unit or two units. We expect 2-3 million tonne capacity addition every year for next three years. So, in next three years our capacity will be 35-40 million tonnes.Sonia: Can you tell us a little bit about what the prices have been over the last three months or so. How much have the price hikes been in the northern region and have you taken any recently?A: Price keeps on moving. Prices were better in April-June quarter. In July because of the monsoon the prices are continuously sliding, about Rs 10-15 correction has taken place and nobody knows about the price in commodity market. Suddenly if the demand is good prices will go up again.As far as east region is there, prices were low and are maintained at that level as they had not increased, they had not fallen sharply in the rainy season.Anuj: Some of these numbers might be tough to predict but your earnings before interest, taxes, depreciation and amortisation (EBITDA) per tonne was startling for this quarter, highest since FY11. Can you tell us what kind of numbers can your shareholders expect going forward?A: This has been a phenomenal quarter. Going forward our energy cost will be lower. But such EBITDA number cannot be multiplied by four for the yearly profits. This has been a phenomenal quarter and we can moderate a little for the full year EBITDA.Anuj: By moderate what do you mean if you could give us some ballpark number?A: As far as ballpark number is there it all depends on sale price. I know about my costing and volume. There I can be reasonably sure but the prices are dependent by the market. So, market moves in a commodity totally in a rollercoaster way. You don't know what will happen in next week.Sonia: Can you tell us what were the exact prices on an average in the northern market, say in Q1 last quarter and where does it stand at currently?A: Currently last quarter in the northern market it was around Rs 290 or so. Northern market seems to be very high but it is lower than the east, west or the south market. Still the prices seems to be high because the northern market has been traditionally low but now the prices are around Rs 280-275 something like this -- any new capacity on these prices will not be viable. So, these prices are not as high as to ask for many new capacities to come up.Sonia: Can you tell us a little bit about the pet coke as well. How much has pet coke prices increased from 2016 lows and what is their low cost pet coke inventory?A: The prices have gone up from about USD 44 to about USD 75. Prices have almost doubled and low cost pet coke is not the way we look at it. We always purchase six months in advance. We have an inventory including the contracts of six months. So, every month we purchase for one month. So, gradually, it will increase the prices, so we will be at par with the market in long-term. Pet coke prices had not been very low earlier, will not be very high because we don't take a view. We purchase every month for about 30 days, every month we purchase the pet coke.