Madras Cements plans expansion

Madras Cements plans expansion
Published: 26 March 2008

Madras Cements of India will spend INR1524 crore by the end of this year to boost capacity.

It will expand cement capacity to 10Mta by 2Q09, from the current 8Mta. It is also raising grinding capacity by 1Mta each at its Kolaghat (West Bengal), Chennai and Salem facilities.

In addition, the Chennai based company will step up wind power capacity from 64MW to 120MW by the end of financial year ’08. It targets to generate 123m units per annum from this low-cost source of power.

Wind power is cheaper than grid power and is an attractive option at a time when coal prices are over $135/t.

“The total capital expenditure for the expansion is around INR1524 crore. The grinding units are located near fly-ash sources and consumption centres and the increased capacity will significantly reduce freight costs. On the other hand, the 2Mta capacity expansion at Jayanthipuram is nearing completion and the plant should commence operations by the last quarter of financial year 2008,” said an analyst with a local brokerage who can’t be quoted due to compliance reasons.

Analyst J Radhakrishnan of IIFL Research said in a note to clients on March 7 that these expansions should help accelerate volume growth in FY09 and FY10. He estimates a 20% volume growth each in FY09 and FY10.

Given the high effective tax rate of 34% for Madras Cements in FY07, the wind power facility will provide higher depreciation and thus tax benefit, Radhakrishnan added.

Cement dealers in the south say prices in the region have remained unchanged despite the surge in demand. Over the past three months, cement prices in the south have stayed at Rs 245-250 a bag.