Expect price correction soon: Heidelberg Cement CEO

Heidelberg Cement expects average realisations to gradually move above Rs 300/bag levels in near term as there is an uptick in demand post the slack rainy season.

In fact last month, the cement major hiked cement prices by around Rs 5-6/50 on each kilogramme per bag but that was to offset the recent diesel price hike. Diesel which is now dearer by Rs 5/litre will push up distribution costs for cement companies. Ashish Guha, CEO & MD, Heidelberg Cement in an interview to CNBC-TV18 said that of late there is a pick up in demand since this month. However, he pointed out that there is at least 5.5% hike in costs, sequentially and this has impacted margins. Below is the verbatim transcript of the interview Q:Your margins which have come up to 7.8 percent. Do you think these kind of margins are sustainable? A: If you look at our margins last quarter, they were much higher than this. We have been affected this quarter, if you look at sequentially by cost increase of 5.5 percent and the realizations remaining flat. But year over year, it has been a phenomenal performance. We are working on our consumption parameters. They have come down quite a bit. I don’t know how much more is left but we are squeezing every bit possible. We have no control over raw materials and fuel so every cost parameter goes up. We have been trying to increase prices at some places. Overall, year on year basis the prices have increased very well. But quarter on quarter basis it has been flat. So, that’s the issue with us in terms of margins, margins of last quarter versus this quarter. Q: Talking about no control over raw material, fuel supply as we were talking about, what is happening with your plans of upping sourcing of petroleum coke (Petcoke)? A: We have changed the fuel mix for petroleum coke. Petcoke is now cheaper than coal. We were earlier using 20 percent petcoke in our raw mix, now we are using 35 percent petcoke. It will change with a new line coming up. It will go up a little more than 35 percent. So, we may see the usage of petcoke rise to around 45-50 percent if the petcoke prices remain lower than coal. _PAGEBREAK_ Q: This time the monsoon pattern has been little odd and unseasonal. Given that, how was the central Indian market held up for you? A: Erratic, if I may say so. Madhya Pradesh was flooded for most of the days in August. We didn’t expect that kind of rains. Rains started late this year but the monsoon overall were good. We got hit in terms of volumes by about 50,000 tonnes in one month because of the erratic monsoon which happened unexpectedly. Q: Where are prices now in central India roughly? A: They are between Rs 275-290 range. Q: And now that monsoons are behind you, will you try and nudge it to Rs 300 in the next few weeks? A: We will definitely try and nudge every bit that we can. Price of Rs 300 is only a bench mark. It is a psychological barrier for people. Today, you can't put up a cement plant unless the prices go up to Rs 375. So, we are much below that. We’ll surely start inching up towards Rs 300 and cross that. Q: What about the west where you have a significant presence as well. How is that market held up? A: Western markets, in terms of prices are flattish. It is not going up significantly, neither is it coming down. In terms of volumes, this time we saw in Mumbai, because mostly in Mumbai, Ganpati festival has really affected our dispatches for 12 days in September. Usually, we get affected for three-four days. This time it was much more. In terms of volumes we couldn’t supply but we have seen uptick in volumes in the last few days beginning October. I am sure that will pick up. Demand is there but the prices have not gone up at all. Q: And the southern market? A: Southern market, prices are inching up, volume is increasing so we can see again a pick up in demand. Prices are flattish. It is going up very slowly in the last few months. But it has gone up.