HeidelbergCement sees capacity build-up, India

HeidelbergCement sees capacity build-up, India
Published: 26 May 2011

In an interview with the Economic Times (ET) of India, Ashish Guha, CEO & MD of HeidelbergCement India talked about talks about company’s financial health and prospect. Excerpts of the interview are below:

ET: Cement volumes on March-April were strong for large cement makers, how much have dispatches grown for you in this period? Do you expect more importantly the trend to continue in the demand scenario? 

Ashish Guha: For us, dispatches have not grown because we are flat out. So whatever we are producing, we are dispatching. At this point of time, we have a capacity constraint except in the west, where our dispatches were a little lower because we could not produce as much as we produced last year. 

ET Now: What’s the expectation on the kind of trend that you are looking at over the next two quarters? 

Ashish Guha: Yes, monsoon season has kind of a ritual, which we have to follow. We are slight driven on volume and then from the quarter following that, we should see a 10% growth in consumption, which should see demand coming back to the levels that they were in March-April. 

ET Now: What about pricing? Do you see some softening? How do you track the trajectory on that?

Ashish Guha: The prices have already softened hell of a lot from the peaks of March. It has come down by about INR20-25 in some regions, especially in Central India and where we have a major presence. Central India is 70% of our business. We do not see any kind of price decreases happening in that region. We see some price movement upwards after the monsoons. 

ET Now: Why cement is just completely out of favour? Is it essentially got to do with the perennially fear of oversupply, which somehow never comes into effect?

Ashish Guha: Yes, oversupply is an overhang, which carries on. We are seeing capacity build-up of about 20-25Mt his year. And that would take capacity utilisations in various reasons varying from 65-70% to about 100% in some regions. So cement if you have to look at it, you have got to look at it in a regional basis from a fund manager’s perspective, from an investment perspective. In Central India, it will be above 90-95-100%, that’s what we expect. More than that what has affected the dips in EBITDA margins for every company is because of the huge cost increases that have come up, essentially coming out of coal, power and other raw material. Then this was a year when CMA had to do the worker settlement, so one time impact of a huge wage settlement has also come across. So all these put together, cost increases, we have not been able to pass onto the customers despite growth in demand, etc. So that’s a scenario, I cannot figure out how to handle. Our costs are increasing, the government is getting more money out of various sources but we are not able to pass that on to the customers. 

ET Now: Would the cost pressures continue on you for the next say maybe three or four quarters at least if not more? 

Ashish Guha: I do not think so. We should be able to pass on some of it in the next few quarters to the customers. We have to face reality. If coal prices goes up one shot varying from 30% to 150%, then why would not people who are using coal pass on that cost to the customers. And there should not be any hue and cry about that because the inflation starts from there. Inflation starts from basic raw material and basic raw material is coal. If you are increasing the prices of coal by 30% to 150% one shot in India, okay whether you say it was subsidised earlier and the subsidies have lessened, etc., but that was the cost that we were taking into account. Then to cry when cement prices goes up, it is a bit unfair. 

ET Now: How do you believe even post monsoon, dispatches would shape up because while orders have maybe trickled in? 

Ashish Guha: This year we expect a lot more in infrastructure because this is the last year of the plan period. A lot of infrastructure projects have to be executed. And believing that, we expect the dispatches to be higher just after the monsoons and following up to March of next year.