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Gone past peak cost; no margin contraction on the cards: Shree Cement MD

We have cash pile of more than Rs 5,000 crore. With a loan, we can acquire about 10 million tonnes of capacity. Our preference is for central India, but south India is not off the table

July 29, 2022 / 08:51 PM IST
Shree Cement Managing Director HM Bangur.

Shree Cement Managing Director HM Bangur.


Shree Cement is not expecting any further contraction in margins as it is past peak cost, said managing director HM Bangur. The company expects to maintain its margin, or the unitary EBITDA performance, at Rs 1,000 per tonne.


The cement manufacturer maintained guidance for a price hike of 3-4 percent for the financial year, akin to the trend witnessed over the past few years. Bangur said there was no change in the growth strategy despite Adani’s foray into the sector and the huge capacity expansion announced by Ultratech Cement.


In a post-earnings conversation with Moneycontrol’s Nickey Mirchandani,  Bangur said that it was open to acquisitions in central and south India, preferably at a valuation of $120 per tonne.


Below are edited excerpts:


Q. What kind of unitary EBITDA performance is expected in Q2?

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A. Both price and cost pressures are very high due to international coal and diesel prices, among other things. The extent of this depends on how much coal is bought by Europe. But yes, we think there should not be any problem in maintaining the margin. Cement prices have come down in a small way since June due to a dip in demand because of the monsoon. But, we hope to get the right prices in the peak season.


Q. When you say prices have come down in  June, by how much? Also, would you like to maintain the guidance of a 3-4 percent price hike every year for the sector?


A. I still maintain that 3-4 percent will be the quantum of price increase every year. So prices are a small factor, but the efficiency with which modern technology is being harnessed by the cement industry is key. This efficiency lowers costs and helps maintain the margin.


While we would like to increase prices even as we speak, there are challenges. In the absence of demand, these price hikes would not fructify. And the sale is also equally important — a balance needs to be established between price and demand.


Q. What is the quantum of price reduction undertaken in July?


A. July opening prices have come down by Rs 5 to Rs 10 per bag in the south markets, and by another Rs 1-Rs 2/ bag in the north. But that is temporary.


Q. Have cost pressures peaked or do you expect further compression of your margins?


A. I think we are past the peak. Prices have started falling now, pet coke, for example, has come down from $220 to  $190 or so per tonne. The international futures market is also not very tight. Similarly, diesel prices have come down. So we think margin contraction is not on the cards.


Q. Could you talk about your capacity expansion plans?


A. Our policy is to announce capacity expansion only when the work has commenced. It takes three years or so — for one to procure the land, get the permissions in place and start the project.


Right now, we have two big plants which are coming up. One in Rajasthan and the other in Guntur in Andhra Pradesh. Both would commence operations by March 2024.


Q. Any plans of inorganic growth?


A. We have a cash pile of more than Rs 5,000 crore. With a loan, we can acquire about 10 million tonnes of capacity. Our preference is for central India, but south India is not off the table. We will be a little more careful about purchasing in the south though. We have to see the price. But we will be aggressive in central India.


Q. What kind of valuations are you looking at for assets in the central region?


A. A replacement cost of $120 per tonne will be a reasonable benchmark figure for central India.


Q. What kind of capacity would you be looking in the central region?


A. We are far from closing anything. So it will be total guesswork. I do not want to give the wrong impression...


Q. Any change in the growth strategy after Adani’s foray and Ultratech expansion plans?

A. No change in strategy. As a commodity company, should be prepared to meet the market demand, and Shree Cement will not be unprepared. We are preparing ourselves to meet the future.

Nickey Mirchandani Assistant Editor at Moneycontrol covering Materials and Industrials space which includes Metals, Cement and Infrastructure sector. She’s a presenter and a stock market enthusiast with over 12 years of experience who loves reading between the lines and scanning through numbers. Before joining Moneycontrol, she was an Associate Research Head at Bloomberg Quint/ BQ Prime, where she wrote analytical pieces, anchored multiple interviews and a show called “ Market Wrap”.
first published: Jul 29, 2022 08:51 pm
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