India: Kesoram expansion on hold

India: Kesoram expansion on hold
Published: 06 July 2011

Kesoram Industries, the flagship of the Basant Kumar Birla group, has put its cement capacity expansion plan on hold because of excess capacity in the market.

The company had decided to set up a 2.5Mta plant in Karnataka and an associated power plant for INR11.6bn (US$261m). The new capacity was to come online in 2012-13. “Given the market condition, we are not taking it up now. There is no point in creating fresh capacity in a market like this,” said KC Jain, whole-time director and in charge of the Kesoram’s cement division.

Kesoram has expanded capacity to 7.2Mta in Karnataka and Andhra Pradesh for INR12bn.

Last year, it was forced to operate at 75% capacity because of a glut, though this was higher than its rivals in the south. Jain said demand had grown just 2%, while excess capacity was as much as 16%. “It will take two to three years for demand to catch up,” he said at the 92nd annual general meeting of the company today.

In addition, sluggish demand meant a squeeze in margins as the company also saw fuel costs rise with a hike in coal prices. Production costs went up 12-13% during last fiscal.

Manjushree Khaitan, daughter of BK Birla and a director on the Kesoram board, said global consultancy firm McKinsey had been appointed to develop an organisational strategy.