See demand pick-up, higher sales volumes in H2FY17: Shree Cement

HM Bangur, MD, Shree Cement is upbeat on seeing an uptick in demand in the second half from November 15 onwards.

According to him, now that the festival season is over, stability will come back into the market and demand will pick up. He expects sales volumes in the second half o FY17 to be around 7-8 percent.

The second quarter profit for the company grew by 18.3 percent year-on-year to Rs 291.5 crore on strong topline as well as operational performance. EBITDA (earnings before interest, tax, depreciation and amortisation) shot up 57.7 percent to Rs 656.6 crore and margin expanded by 740 basis points to 29.1 percent on yearly basis, aided by power business.  

The year-on-year EBITDA per tonne for the quarter, too, increased from Rs 800 to Rs 1300, said Bangur. However, giving guidance for EBITDA/tonne would not be possible because the fuel costs have globally gone up now, he said. However, it would definitely be better than last year, he added.

With regards to power business, Bangur said it was weak. Realisations too were under pressure. The variable cost of power segment currently is higher than realisations, he said.

Power business grew by 5 percent year-on-year to Rs 396.3 crore but its EBIT surged 58.25 percent to Rs 170.60 crore in Q2.Below is the verbatim transcript of HM Bangur's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: I just want to start off by talking about the topline which is very healthy at almost 20 percent. Can you take us through what the volume growth has been in this quarter and how does the second half of this year look?A: First of all we talk about the past. If the quarter volume growth is around 9 percent cement price growth is about six percent. So, both put together it is around 20 percent including the power sector. Per tonne earnings before interest, taxes, depreciation and amortisation (EBITDA) also has come up significantly because of the low power and fuel cost from Rs 850 to Rs 1,300.Anuj: Since you operate in north India I wanted to know what has been the pricing trend and do you have any kind of pricing power with you?A: Pricing power is not there, was not there earlier as these were the slack months. But because of the low cost of fuel and because of the overall economy being weak we were able to have good profit because of higher volume.Now, in the second half the demand will be good, it is the peak months. All our festivals are over by now and from November 15 onwards we think good demand will be there.Sonia: I just wanted to clarify the numbers, you said the EBITDA per tonne has risen from Rs 850 to Rs 1,300 per tonne, is that correct?A: Yes.Sonia: What do you think the EBITDA per tonne on an average could be say for the second half of the year, Rs 1,300 is this something which you can maintain?A: No, definitely not. This is a very tricky question because nobody knows how the market will behave. Cost increase is definitely there now as the fuel cost world over has increased and demand also is expected to remain good. How the prices will behave nobody knows. So, I will not guess about the EBITDA. I guess still that the volume increase will be there. That is all I can say.Anuj: So, for volume increase is there any number that you can give us?A: 7-8 percent volume increase is expected in the second half compared to first half.Sonia: How is the pricing situation in certain parts like north India? Has it improved compared to what we have seen in the last 3-6 months?A: Pricing definitely is more or less stable. But in the second half because of the cost push we will like to see the price increase but it will all depends on the market. Things will become clearer after November 15 when all the festival seasons are over and market gets stabilised, the consumption starts picking up.Anuj: If you could just give us some kind of estimates on your earnings per share (EPS) numbers because your stock has been a rank outperformer, in fact one of the best cement stocks.A: Any number of profits is dependent on sales price. I can tell about the volume, I can tell about the costings but profit number is a derivate of sales price and sales price we really don't know. But we expect definitely better than last year.Sonia: Just wanted to get an update on the power business as well?A: Power business right now is weak. Power prices have come down. Whatever shortages were there in India peak shortages has come down and somehow prices of power is below variable cost. So, we are lying low.Sonia: So, what has been the merchant power sale been this quarter?A: Merchant power sale in this quarter they are 53.8 crore unit, same as in the last year same quarter - 53.9 and 53.8 it was zero percent plus or minus.