See total cement capacity at 10 mt by FY15-end: JK Lakshmi

Normally, Q1 of the new financial year is a good quarter but this year because of no Budget the company is unsure if the demand scenario will continue to remain optimistic.

Below is the interview of Shailendra Chouksey, Wholetime Director, JK Lakshmi Cement with Ekta Batra & Anuj Singhal on CNBC-TV18.

Ekta: There were some comments coming in on the wires saying that a couple of cement companies such as ACC, Ambuja Cements have hiked cement prices by Rs 10-15 per bag. Can you confirm whether JK Lakshmi has done the same?

A: The cement prices keep going up and down. We have seen a continuous fall in the price and the erosion of the profitability in the first three quarters. So, whenever there has been an appropriate demand situation, some correction in the price has taken place. In the last two months there has been an increase in about two-three tranches of about Rs 10-15 per bag; cumulatively we have seen a price increase in some of the markets by Rs 20-25 a bag.  However, this is on the back that earlier the prices had fallen by Rs 25-30 a bag and further there has been a fairly steep hike in the cost of the transportation and the cost of the fuel.

Therefore, in terms of net realisation of the company we are still not at the level at which we were operating last year. So, yes, there has been an increase in the price but this is basically the recovery of the earlier fall which took place.

Anuj: The demand remains quite weak in north India though so what is your sense, do you think the companies have the ability to increase prices any further or for that matter after the recent price hikes has there been further impact on demand?

A: The demand in the first three quarters has been definitely very bad but we have seen some movement in demand from January onwards. We have seen good despatch numbers both in January and February and by all accounts till Holi till about March 16-17, one expects the demand and the despatches to go up but thereafter there would be some period of sluggishness.

Normally the first quarter that is April to June is good but this year in the absence of a regular budget we are not yet sure whether this demand will carry forward. The other thing is that the demand supply equation improved a bit because there have been some slowdown in the production of the company, one or two units got closed and also because of fuel and logistics, some of the companies have suffered fall in the production. So, overall demand supply situation balance improved and that is what gave an opportunity to correct some pricing scenario which had eroded the profitability in the first three quarters considerably.

Ekta: What is the capacity utilisation that the plants are working at?

A: If I have to take an average then the capacity utilisation would be fairly low. It will not be more than 82-83 percent in the market that we operate, while on all India scenario it will be around 76-78 percent but considering the fact that some of the companies had a genuine issue in terms of production so the people who were operating, some of them have done well, JK Lakshmi for instance, we are currently operating in this quarter practically at 100 percent capacity utilisation.

We didn’t have that much of an issue of coal etc as we have migrated to pet coke concept long time back, so that way we were insulated though of course price increase, we have experienced there as well. So, while the cost pressure remains at least availability has been good. Therefore, we have not suffered any loss of production on that account

Anuj: What about your expansion plans? I believe there is still no environmental clearance so that’s been impacted and delayed?

A: We do not have any issue in terms of environment. We have a number of projects going on. Durg is our main greenfield site project of 2.7 million which is due for October. So, we are as per schedule and we expect that our first production would hit the market by October 2014 and do not see any delay there.

In terms of our capacity expansion at Jhajjar in Haryana – that capacity is already expanded in this month by 5.5 lakh tonne and similarly Jaykaypuram has been completed, so almost all our projects are very much in time and we will be over 10 million tonne by March 15 from a current level of about 5.3 million tonne.

Ekta: What do you expect to clock in terms of volumes in Q4 as well as realisations. What would the combination be and what would it mean for your margins also in terms of recovering possibly from 12 percent figure that you did in the previous quarter?

A: In terms of volumes, if I were to take cumulative for the whole year – the zone where we operate has seen a minus figure of 3-4 percent, so I do not expect that our overall volume would see a great jump especially in the first three quarters we were practically at the same as last year.

However, this quarter I definitely expect good growth which should see us through on a whole year basis of about 3-4 percent growth in the face of the market which has seen a decline of 3-4 percent. So that way comparatively we are better-off but overall volume may not be greatly satisfactory though the last quarter figure would appear attractive.

In terms of the country as a whole, I do not expect that the overall volume for the Indian cement industry to go up by more than 3-3.5 percent for whole year as such and in terms of realisation - the last quarter most of the market has seen some correction in the prices, so while they may not be as good as the corresponding quarter of the last year but certainly compared to the previous two quarters the realisation number should look much better.