Shree Cement eyes growth in H2FY13; 100% prod capacity

Shree Cements reported a better than expected second quarter performance in the financial year 2012-13 with a 3.67 times rise in net profit to Rs 217 crore. The company’s net sales grew by 19.4 percent to Rs 1,428 crore from Rs 1,195.8 crore during the same period.

HM Bangur, MD of Shree Cement said traditionally, the cement sector performs better in the second half of the financial year as compared to the first half. He also told CNBC-TV18 that their power segment has posted good results in the current quarter despite the fact that the plant is mainly dependent on imported coal and pet coke. Lower prices of imported coal have largely benefitted its power operations, he added. Going forward, Bangur expects the second half of FY13 to be better than the first half in terms of the company’s overall performance. Shree cements is also confident of running its cement business at 100 percent capacity. Here is the edited transcript of the interview on CNBC-TV18. Q: Can you take us through the power segment before we get to the cement segment because that actually seems to have surprised the analyst on the upside. Can you give us a guidance in terms of how exactly the second half of FY13 would pan out for you all? A: This quarter we had produced 100 crore units, 101 crore to be exact and our power EBITDA is Rs 67 crore for the quarter. The second half will be better than the first half and we expect around 1500 million units, that is 150 crore units of power and EBITDA of power should be around Rs 150 crore or so. I would say, it would be around Rs 180 crore for the whole year. Q: All power producers, standalone power producers are struggling with fuel supply issues. You don’t see any problems of fuel for your power plant? A: No. We have to import our fuel time and again. Right now the fuel prices are low because of the global slowdown. This time our fuel has been low and our power profitability is good. Q: You are largely run on imported coal, is that what you are saying? A: Yes. We are running on imported coal as well as pet coke. Q: Can you take us through your cement revenues as well. Cement was up only 3.2 percent in terms of revenue growth. In terms of volumes of production as well as revenues, how do you think the fourth quarter will pan out? A: For the cement sector also, the second half is normally better than the first half. In the second half, we should be running our capacity at 100 percent. So we aim to produce 6.75 million tonne in the second half along with 12.8 million tonne to 12.7 tonne of cement. Q: That is for second half, can you tell us for the fourth quarter. I cannot subtract the third quarter, if you can just tell us what you are expecting in the fourth quarter? A: In the commodity market, it is hard to talk about third quarter profitability. We can talk about the production and it will be around 100 percent or a little more in the January-March quarter. That is all I can say. Q: Can you just give us some perspective of how exactly the EBITDA per tonne would then pan out for the second half for the cement business considering that you are expecting a pickup and a capacity utilisation of around 100 percent? A: Our EBITDA which is around Rs 1100 per tonne should go up to Rs 1250 per tonne or so and that is only because of the variable cost of production. But, the price is a volatile matter. Nobody knows how the prices of cement will move in the next one month. Diesel prices have increased and it will definitely have some impact and we don’t know whether we will be able to pass it on to the market or not. The diesel price hike for bulk consumers is not 50 paise, it is actually Rs 10. _PAGEBREAK_ Q: You are a bulk consumer of diesel so it will be Rs 10 for you, is that what you are saying? A: Yes. We are a bulk consumer and there is an increase of Rs 10 per litre for us. Q: Then in that case, will you be able to pass on that cost since that is a very obvious cost? A: We do not know how the market will pan out. It has to be passed on to the consumers, but not immediately. It will be a matter of time. The cost push has to be passed on. How soon we will be able to do it, we cannot comment on that now. Q: Considering that your power business is picking up quite significantly for the company, do you expect a revenue mix to change at all going forward and more impetus coming into the power segment as opposed to cement? A: We are not extending the power segment as it is not our core business, rather we produced power for our own use. As our new units will be coming in the April-June quarter, more power will be consumed by us. The ratio of cement to power will be more favourable towards cement, which is the peak ratio of power turnover for this quarter. We don’t think we will be having such ratio ever. Q: Can you tell us about your expansion plans in cement? One of the units in Rajasthan were to be commissioned in June 2013 and one in June 2014. Can you tell us your timetable, are they all on track? A: No. These are the things on which we have started working. The rest are on the drawing board. So till they start, it will not be right to predict when they should be completed. We have not yet started the job for any other unit. Only these two units are there and then we are planning to do something in Chhattisgarh in Bihar. But, the physical job is yet to start. Q: I thought you bought land in Karnataka also? A: Yes. We have purchased part of the land and a part is still pending. We do not know by when it will be completed. Q: With regards to the consolidated margins, considering that you are now going to be buying diesel at bulk rates etc, you had margins of around 26 percent for this quarter. Can you give us some idea with regards to where the blended margins would stand at going forward? A: The blended margin and most of our margins are coming from the cement division. But, cement price is volatile and I will not be able to talk about the margins.