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Last Updated : Sep 17, 2014 04:35 PM IST | Source: CNBC-TV18

Strong Q2 margins seen, modest volume growth: Orient Cement

Deepak Khetrapal, managing director, Orient Cement says the company has seen good demand in the past few days owing to late rains and there has been a marginal softening of prices- Rs 10 per bag.

Deepak Khetrapal, managing director, Orient Cement expects to see strong margins in the upcoming Q2 results ( Jul-Sept).

Khetrapal says the company has seen good demand in the past few days owing to late rains and there has been a marginal softening of prices- Rs 10 per bag.

Also read: Expect EBITDA/ tn to move to Rs 750/tn ahead: Orient Cement

“The benefit of better pricing came in June, so Q2 will post better numbers,” he adds.

Below is the edited transcript of Deepak Khetrapal's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.


Anuj: The market has been having high hopes from Orient Cements but Q1 numbers were slightly disappointing especially on the net profit front. Do you think it was one-off and would you resume your growth projected from Q2 or would Q2 also be tough?

A: I personally do not believe that the Q1 numbers were disappointing. If you look at our company per se the capacity utilisation that we always had even last year, even now has been very high. When you are already using your capacity so high, the room for growth to come from existing operations is that much small. So people who understood and watched our company very closely, I don't think anybody would say that our Q1 was disappointing. We did capacity utilisation of 86 percent with EBITDA margins which are completely inline with the industry if not better.

Based on that when we spoke last when we were asked about the outlook for the current year, we were very clear that given the very high existing capacity utilisation the volume growth for our company this year would remain modest because there is not too much room to grow, there is no headroom. Our growth story will actually kick in when we have the new capacity under construction. When that starts hitting the market we will see market growth. With 86 percent or thereabouts of capacity utilisation there is not too much of volume growth that we can deliver to the market.

Ekta: So when you say modest volume growth, what you are envisaging for FY15?

A: About 2-2.5 percent.

Ekta: What would your realisations be and what is the capacity utilisation that you are currently working at?

A: The first quarter capacity utilisation is 86 percent. Second quarter typically is a quarter when because of the monsoon impact most of us at cement plants we actually schedule all over maintenance activity, the annual shutdowns of kiln or of the boilers in the captive power plants, we actually schedule in this quarter. Given that we had planned and we will be having capacity utilisation in high 70s, 77-78-79 percent thereabout for the current Q2.

Anuj: What's been the trend in cement pricing in the regions that you operate in?

A: We have seen fairly steady prices, given the very heavy rainfall in Telangana region in last two weeks. It’s been a bit of dampener on demand. July-August remained strong because the rains were delayed but the arrivals of rains in late August; early September definitely has reduced the demand a little bit in the market and we are seeing marginal softening of prices of about let say Rs 10 per bag.

Ekta: Can you just give us a sense in terms of the power and fuel cost for the company then. Is that still trending higher because in the previous quarter it was up 9 percent on year on year basis? What would it trend that in Q2 for you or what must it have trended at or any sort of indicators you can share with us?

A: Power and fuel costs are actually only going up by the increase in coal prices that we get from the market. We are buying coal through e-auction and when the coal prices go up that impacts our power and fuel cost because fuel directly is coal and power again we are buying coal to generate our own power. So having registered the large increase in cost in the Q1 we are not seeing a similarly increase beyond the Q1 but whatever hit us in Q1 obviously that continuous in this quarter as well.

Ekta: So your margins would trend at around 17 percent odd if not for Q2 then may be for the fiscal as a whole as well.

A: Margins should get better because in Q1 the benefit of better prices came to us only for 1 month that was month of June and that also not the whole month. Whereas in the second quarter in July and August the prices have remained reasonably firm for most of the quarter we are talking today on the September 15, only two weeks to go. With the improved prices in the market our margins should look significantly better.

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First Published on Sep 17, 2014 12:00 pm
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