Cement demand remains muted across India with prices largely stable after rising by about Rs 10-15 per bag, says Jamshed Naval Cooper, CEO and MD of Heidelberg Cement India.Speaking to CNBC-TV18, Cooper says construction demand will pick up post the Shradh period, but there may be a pullback due to sand unavailability.With an 85 percent exposure to central India, he believes the company will grow 4 percent, against a flattish industry growth. Heidelberg will pass on the price rise — coming from district mineral fund (DMF) and value-added tax (VAT) — to customers, Cooper adds. Below is the verbatim transcript of Jamshed Naval Cooper's interview with Latha Venkatesh & Sonia Shenoy.
Sonia: Can you give us a sense of how prices have panned out in the cement space and whether there is any improvement you have noticed in demand?
A: India's demand is more or less flattish on an overall basis in all the regions. However, little bit of improvement in east but otherwise everything is virtually flattish; the demand has not picked up. The prices had moved up some times in the last month but it has come to a stable level. I think demand should pick up post this 'shraddha' period.
Latha: Are you getting that kind of a feedback from your stockists and your retailers that ahead of the festival season demand will recover?
A: This is not a feedback. It is more of a trend, every time it happens so we expect that there is no real requirement for an assumption for that. It should move up. The only limitation which will come is a little bit of sand availability in some of the states where National Green Tribunal is having some issues and mining of sand has stopped.
Sonia: You have 85 percent exposure to central India, what is the price situation over there? You were telling us that demand is flat but what are the prices now and how much have they moved in the last couple of months?
A: We saw about Rs 10-15 increase in the last three months and it has sustained at that, it is more or less stable now. So, central India is flattish with price also quite stable. Prices are at a level where I do not think they can dip. They will only move north.
Latha: How much might you end this year with in terms of volume growth?
A: HeidelbergCement would be about 4 percent growth at the moment.
Latha: And the industry?
A: Industry would be very flattish.
Sonia: I want your view on the battle that is taking place between the Confederation of Real Estate Developers' Associations of India (CREDAI) and the cement manufacturers. CREDAI has made this allegation or moved the Competition Commission of India (CCI) against many cement manufacturers for alleged price manipulation. What is your view on that?
A: I have read this news where CREDAI has moved against through the CCI. I do not know what will be the outcome of it but it's all left to be seen. This is something which we are not aware of on quite a few fronts so I will not be able to comment much on this.
Latha: Is it casting a moral pressure or just a pressure on prices. Usually at the end of monsoons, cement makers have found some elbowroom to raise prices. Is that getting stymied because you could be at the receiving end of some investigation by the CCI?
A: As far as HeidelbergCement is concerned, not an issue but when prices go up, there is normally resentment at various levels in the industry where buyers do create a bit of noise. So when the prices go to a level where it cannot be sustained. Now you have a District Mineral Fund which has come, the implications of that, the prices have to go up. We are paying some royalty on limestone which has retrospective effect from January 1, so there is a pressure on prices, companies will have to recover this money. In some states there is an increase in value-added tax (VAT), so that also has to be passed on to the customer. So it is very natural. However, from my viewpoint, I would like to pass it on to the customer as much as possible if the demand allows me to do that.
Latha: Will margins be under pressure if there are so many commitments from the government, District Mineral Fund, limestone charges, VAT. Will you have to take something on your margins? Will they be less than last year?
A: So far we have been able to pass it on the customer._PAGEBREAK_
Sonia: Can you throw little more colours on what the margins could look like going ahead because in the quarter gone by your margins had fallen quite a bit to sub-12 percent versus 17 percent that you use to enjoy same time last year. Given that you have taken some amount of price increase, where do you see the margins stabilise at for the rest of the fiscal?
A: I won't be able to give an indication on this but prices should remain flat, the margins would remain flat. However, you mentioned about our margins coming down. If you compare the industry, our fall has been little lesser than the industry overall average.
Sonia: Since your volume have been doing better than a lot of other peers in the industry. What could the average volume growth be? You are sitting at around 1 million tonne or 1.1 million tonne as of last quarter which was 14 percent growth. You expect to sustain this 14-15 percent growth in the next couple of quarters?
A: I expect that.
Latha: What is your debt and do you have to make any lump sum payments?
A: As I said payments will be due from January onwards, so we start making our foreign currency loans payment from January onwards.
Latha: It's a manageable outflow. How much is it?
A: It's a manageable outflow. It will be about Rs 400 crore in next year
Latha: I want to ask about your acquisition plans as well. You have always said that you been open to inorganic moves. Should we hear about something before the calendar year or the fiscal year is out?
A: On global basis the group has acquired Italcementi, which is about 71 million capacity and about 6 million tonne happens in India, which is Zuari Cement. So we will be busy with that integration because the CCI has given the go ahead on this for a combination, so we will be busy with that.
Latha: It gets merged into your company?
A: We will have to see that. It's not yet clear.
Sonia: A lot of people are hoping for higher demand to come through because of higher infrastructure spending by the government. On the ground have you noticed any increase in public investments?
A: Not really too much but hopes and expectations are still there.
Latha: What about Lafarge when you speak about inorganic moves?
A: Lafarge is already settled. Birla Corporation is already in that.
Latha: Are you still very keen to takeover any other units?
A: As I said the group is keen on India and it will continue to expand. So we will keep looking for opportunities.
Sonia: When you told us about your margins and the fact that you will perhaps see a tad bit of an improvement. What about EBITDA per tonne. In Q1 of FY16 your EBITDA per tonne fell to Rs 450, much lower than Rs 600 that you saw in the previous quarter. So in Q2 and Q3 what would the average be?
A: I won't be able to give a comment on that. The result will be there at the end of this month, so wait for that.
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