Cement prices in central India are currently the worst hit, Heidelberg Cement India which has maximum exposure in that region has seen a drop of INR20 per bag from November till now.
Ashish Guha, managing director and chief executive officer, Heidelberg Cement India in an interview to CNBC-TV18 said, "In the beginning of the year, we had expected somewhere around 7.5-8% growth in cement consumption which is kind of flat right now. So that’s the reason that prices are not going up."
Despite sluggish demand, Heidelberg Cement is undertaking capacity expansion and expects the first quarter to be better. "We see India as one of the major markets for investments, Indonesia and China being the other two where we are. So, India story remains intact," he added.
Below is the edited transcript of Guha’s interview with CNBC-TV18.
Q: Could you give us an outlook on what the prices have been in central India where you have got maximum exposure?
A: In central India we have seen a price drop about Rs 20 per bag from November till now. We haven’t seen any updates in cement demand as yet.In the beginning of the year we had expected somewhere around 7.5-8% growth in cement consumption which is kind of flat right now. So that’s the reason that prices are not going up
Q: Are we likely to see more cuts after this Rs 20 per bag? Is it likely to go down further from here given the demand has been so slow?
A: We were expecting some changes. There was shortage of labour in central India. We were expecting labour to come back by about December 10 which hasn’t happened as yet. We expect them to come back soon. Soon enough we should see some activity in UP because the elections are nearing. So, I am a little more hopeful than what we are seeing right now.
Q: You mentioned sluggish demand and that of course would be also affecting the capacity utilization for the industry, it’s roughly at about 75% which isn’t great in itself but can you tell us what it is for Heidelberg?
A: In central India, capacity utilisation is around 95% and our capacity utilisation will be between 90-95%. So, capacity utilization is not bad in central India. In south, the capacity utilisation is badly hit, it is about 65%. Otherwise in other parts, in north India I am told it has moved up to 80% from 73-74%.
There has been some uptake in the capacity utilisation. Having said that, unless there is real demand coming up in the numbers that we have seen earlier in 2008-09 of about 8-10% we are in a weak market because the costs have also gone up.
Q: In the month of November your dispatches had grown quite a bit, I think about 37% on a year on year basis. What have been the dispatches after that?
A: At the moment I won’t be able to tell you because we don’t calculate on day to day basis on dispatches. We do a monthly growth figure, but it is as per our forecast for this year. We are going at that rate. It’s not great.
Q: Despite this sluggish demand, you are still undertaking some capacity expansion. Are you expecting perhaps growth to pick up sometime in 2012, maybe the first quarter?
A: First quarter should definitely be better but we don’t plan our expansion depending on a quarter. We plan our expansion depending on what we believe India has in store for any investor. We are strategic players, long term investors. We don’t believe in one or two quarters.
We believe in the long run and are we going to see some serious return on capital. We see India as one of the major markets for investments, Indonesia and China being the other two where we are. So, India story remains intact. There might be a slight time lag for that.
Q: What will this fresh capex take your productivity to? What would be your output capacity?
A: It can go up from the current three million tonne to about six million tonne.
Q: Could you tell us what the entire calendar year will look like for you all with respect to margins and even revenues?
A: We don’t give guidance.