Q3 of FY17 to be better than Q3FY16, says India Cements

Latha: Pre November 8 and post November 8, what has been the change in off-take and capacity utilisation?

A: I had the same doubt once demonetisation was announced. So, I made a tour of all our markets; most of our markets, I have visited over a 100 dealers myself in various states in Tamil Nadu, Kerala, Andhra Pradesh, Telangana, etc and I find that the trade has found its own way to cope with demonetisation. If you ask me to sum up, I will say that there has been no effect on our sale. Increasingly, the dealers are educating their sub-dealers to convert to payment by cheque, use a swipe card, etc.

So, up to now, from the time that demonetisation was announced until today, there has been no effect on us. Our sale has been normal. This is from firsthand knowledge; I am not talking from my air-conditioned room. I was out in the market, meeting dealers, asking them questions. In fact until I asked somebody about demonetisation, he doesn’t talk about it at all. It is all behind them.

Sonia: You said that there has been no impact on your own sales but can you extend this to the rest of the sector as well because from other parts like North India, etc, we are getting a sense that demand for cement has fallen at least about 5-10 percent since demonetisation drive began.

A: We operate in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Telangana, Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Odisha, West Bengal, etc; I am talking about these areas. Even in Rajasthan, for example our plant located in Banswara, is selling full. So, I think there maybe some areas, I do not know, but at least in the markets in which we are there, we have not seen any slump or sluggishness.

Latha: Let me just pin you down to some number. In Q3 of FY16 i.e. last year same quarter, your sales dispatches were 1.94 million tonne and your capacity utilisation was 50 percent. What would be the comparable numbers for Q3 FY17?

A: I cannot give you the number but I can say we will be better.

Sonia: Can you give us any kind of growth targets because in the middle of the year you had said that your overall sales for the full year for FY17 would be higher than 9.6 million tonne that you saw in FY16. Would you at least stay on with that guidance?

A: Yes. Whatever we said earlier, there is no reason to change any outlook we have given earlier. As I say, my sale is normal, there is no damage. People have not realised that the trade is adapting very well to this demonetisation. They are finding ways to continue their sale.

By converting to credit cards, to swipe cards, cheque payment -- I have quizzed many of them extensively and the trader, he will not lose his day sale because that is his bread and butter. He may sell 40-50 bags a day, he wants to complete that sale, and so, he will somehow find a way to do it.

Latha: We heard about contract workers not being able to be paid because of the cash crunch and that having a backward impact on cement off-take. You didn’t notice that?

A: I don’t know who is giving you this information. I am telling you my sale has not suffered because of demonetisation.

Sonia: Can you give us a sense of the kind of pricing movements that we can see over the next three to four months? You told us about how demand has not impacted but have you seen any pricing pressure at all lately and over the next three to six months what is your own analysis of how pricing could move?

A: Prices are quite reasonably stable and contrary to some reports which I read in the media, prices have not dropped or fallen anywhere. Prices in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Telangana are all reasonably stable. I expect this trend to continue.

Latha: We are reading out from a Motilal Oswal report, that is a brokerage, their channel checks have indicated that the demand outlook is grim. South players are relatively better placed but they expect all India cement demand to decline 1.6 percent in FY17 versus a growth of 5 percent that was expected earlier and therefore their overall decline is, from their original estimates a decline, of 7 percent. So, clearly they are saying South players remain relatively better placed and Andhra Pradesh and Telangana would drive a 50 percent incremental demand in the South. Is that a fair assessment?

A: I don’t know where they get their information from. All I can say is I am on ground. I am very close to reality. Our assessment is that in the first half of this year, there was growth in the South. I believe that our original forecast for the year will hold. There are maybe, I do not know, the areas in which we are operating in the North, for example Rajasthan and even Gujarat, the volumes are very good; price maybe slightly low but the volume is very good.

In Rajasthan also, there is full volume. In other parts of North also volume is decent. There are some areas where prices could be softer than others. I have not seen that Motilal Oswal report but all I can say is that I do not see any reason for concern.

Sonia: Let us move on from demonetisation and talk a little bit about the raw material cost and the spike that we have seen over there. Petcoke prices, I understand, has gone up more than 60 percent since Q4 of FY16. How much of an impact that would have on your own raw materials and the EBITDA per tonne over the next couple of quarters?

A: That is a guidance which I do not want to give now excepting I am saying is that maybe your assessment of what has been the increase in cost is maybe higher than what maybe on ground. Anyway we are in December; in January we will come out with Q3 results. So, I cannot be talking about cost increases now. I will discuss in greater detail when we analyse our results for this quarter.

Latha: I take your point about the trade adapting very well to demonetisation. At the moment the bigger fear is that going forward real estate companies who deal with a lot of black money or at least with some part of black money will perhaps not be able to have as many of project sales and therefore demand from housing may come down. Is that a fear?

A: You are talking maybe about large projects in metropolitan cities. However, a lot of the cement demand is driven by single house owners, small houses in rural India. That is going on very well. Even in the cities, we have not seen any great slump; at least we have not seen a slump in Chennai, Coimbatore, Tiruchirappalli, Madurai or any of the cities or Ernakulam in terms of drop in builder sales. It has not happened.