Expect price rise; power biz upping margins: Shree Cement

HM Bangur, MD, Shree Cements, says that the company posted its third quarter number where they reported a rise in net profit from Rs 114.3 crore to Rs 274 crore on (Y-o-Y) basis. The revenue of the company also increased to Rs 1471.6 crore on (Y-o-Y) basis.

Bangur further added that, power division was the main contributor to better margins and improved profitability, as margins from the cement sector remained at the same level of last quarter of last year. However, he expects volume in the cement space to increase by 10 percent and prices may by 5 percent. Below is the edited transcript of his interview to CNBC-TV18. Q: Your margins were ahead of street estimates, can you brief us about the margin performance in this quarter and what might have helped it?
A: The power sector contributed to margin performance and increased our profitability. Our cement margin remains almost the same as in the last quarter or the last year. Q: Is it because of lower petcoke prices?
A: Petcoke price is low because internationally commodity prices have come down and we keep our parity petcoke also, we import a lot of coal. All things put together, fuel price is real meritorious. Q: How do you see merchant power rates going forward? Have you been able to strike an arrangements, can you provide any clarity on that for future quarters including the current one?
A: We are not selling merchant power on a long-term basis. We sell on three months to six months basis, quarter-on-quarter (Q-o-Q) and month-to-month basis. This way   we feel sometimes the electricity remains unsold, sometimes we get much better rate. Long-term power right now will be sellable only at Rs 3.40-3.30 paisa or similar to this. Our average realisation is about 10 percent better due to just-in-time sale. Q: Cement margins were at 19 percent this quarter, lower than 21 percent last year, do you see any further shrinkage in cement margins in this quarter and the next quarter?
A: I feel the margin should be above 20 percent because it is a commodity. In commodity, sometimes the spikes can come but overall on a yearly basis, the volume should be higher by 10 percent, prices should be again higher by 5 percent on per tonne basis because of inflation and all put together, margins should be 20 percent or more. Q: What is happening in the north Indian market in cement, both in terms of volume offtake, demand and even pricing in the markets that you sell in?
A: The pricing in the market is more or less constant. Hardly, there is a variation of 5 percent from month-to-month and station-to-station. Overall, the market scenario is quite stable and demand/supply mismatch is not present. We are coming with three million tonne production capacity which is in the last stage, it should be coming by June or so. After that, we will be able to tap the additional demand if it comes.
Our policy has been to keep the production capacity a little higher when it grows less than 85-90 percent utilisation, we feel uncomfortable. We want our capacity only to use up to 90 percent on a yearly basis.