A good monsoon and a rise in realisation for farm produce will boost rural spends in Indian’s housing housing sector, however, rising raw material prices and a fall in demand have put cement companies margins under pressure. However, hopes of revival in demand have brightened with monsoon season ending. But challenges are aplenty with no major let up in high coal and fuel prices.
ACC, one of the largest cement producers which has withstood more testing times, More so, with the company has just stabilised operations of the world’s largest kiln of 12,500tpd in Karnataka.
Mr Ramit Budhraja, Chief Executive of ACC South West Region), is optimistic of the road ahead and below is an excerpt of an interview conducted with Business Line of India on the future of the company.
Q: When do you see a revival in cement sales?
A: With monsoon receding, we expect revival to pick up in coming months. Demand has moderated since February. We expect a growth of 8-10 per cent from the December quarter against 5-6 per cent registered in preceding two quarters.
Though concerns over economic developments remain, we see a revival in demand after monsoon from the realty sector, especially in the rural areas. The good monsoon and increase in realisation for farm produces will boost rural spends in the housing sector.
Q: Why demand in the southern markets is lower than other regions?
A: The southern market has stagnated and in fact it had seen a fall in growth. It has been affected by addition of fresh capacity in excess of demand.
With the issues in the global arena settling down and the information technology sector gearing to bag new business, we see a faster revival in the southern markets where the housing demand is largely led by employees of IT companies.
The Government has also turned proactive and its investment plans in infrastructure will soon become a reality.
Q: Builders complain cement companies hike prices without rational. What is your response?
A: We have little comments to offer on prices except that they are driven by demand. In fact, prices have fallen substantially in few regions during the monsoon due to poor offtake. With the revival in demand, we expect prices may take its course.
Q: If demand drives prices, how did you manage to hike prices when demand was lower?
A: The price of any product is derived after considering its cost matrix. Every raw material used in cement making has moved up. The Government coal supply through linkages has shrunk due to strike in select collieries. We had to substitute the coal short supply with high cost imports.
Shortage in availability of iron ore, hike in limestone royalty rates, increase in fuel prices and mark up in lending rate by banks had squeezed the sector profit margins of cement companies. In fact, most companies are working at a much lower margin than last year.
Q: Is the merger of Ambuja Cement and ACC in the offing?
A: We do not foresee a merger in the near future as both brands are strong in their own regions. For instance, ACC commands a big premium in the South where Ambuja is not present. In fact, ACC is testing new markets where supply was discounted earlier.
We restarted supply to South Kerala after a gap of 6-7 years. After the encouraging response in South Kerala, we have already doubled our sales target to 40,000t a month.
Q: How do you see competition with new capacity addition and tapering demand?
A: Luckily for us, we were little affected by the growing competition. Our brands are very strong in the rural regions than in cities where the economic downtrend has taken a heavy toll on demand. In contrast, the good monsoon and better realisation for farm commodities has protected rural economy. ACC has a presence in almost every village. Cement demand in these regions has been better than the industry average.
Q: Has the shortage of railway wagons eased?
A: Yes, it is much better than before. Our plant in Wadi is more dependent on railways for transporting cement. We send 60 wagons of clinker and receive 15 wagons of gypsum and 45 wagons of coal a month, besides we send one wagon of bulk cement a day. The plant has its own special purpose railway wagons and rakes and its own railway siding.
The Wadi plant supplies bulk cement to our Kalamboli terminal in Navi Mumbai. We prefer road transport up to 250km to 300km beyond which railways suits best.
Q: How has the parentage of Holcim helped you?
A: It has helped us to improve our efficiency at every level, right from gaining technical knowledge to servicing customers to developing new products. We have already started benchmarking ourselves with global companies in all our green initiatives. Holcim also help us to develop new products.
The recently launched eco-friendly Concrete Plus and Coastal Plus that can withstand use of salty water and remains unaffected by sulphate and nitrate present in the coastal atmosphere. Coastal Plus enhances the longevity of buildings.
Our brands are very strong in the rural regions than in cities where the economic downtrend has taken a heavy toll on demand.