Sumit Banerjee, MD of ACC said they have not seen cement demand drop during the monsoon and the realisation has been stable. Though, he says there is a possibility of price pick up due to higher cost.
ACC will improve despatches by 15-17% (MoM) in September due to expansion. He said that prices are more or less stable throughout India.
ACC is looking at a capacity of 22Mt by 2008-end. A large capacity addition is likely only by 2009-end.
Below are excerpts from CNBC-TV18’s interview with Sumit Banerjee:
Q: How was the realisation picture and were they expected to hold at these levels for the next two-four quarters?
A: Realisation numbers were not any different from the last month. This whole monsoon, July-August, we haven’t seen a blip in terms of demand and therefore it has not impacted realisations. This I am talking about India as a whole, but there are pocket of diversity between east, west, south etc.
Q: Generally after the monsoon dip, the price picks up. This time there wasn’t a dip. Will there nevertheless be a small pickup in prices as we go out of the monsoon months?
A: There could be because if the cost moves up, the manufacturers would like to pass it on to the consumers and I do see continuous upward movement in cost in the coming months as well.
Q: What about despatches growth? Is it also growing at a fairly significant clip in your key markets?
A: The important thing is that in cement, the demand is mapped with despatches itself, because that’s the only indicator for demand and all of us in the industry. Even you will agree that the demand today is basically capped by our inability to service the requirements. So from that point of view, monsoon or no monsoon, August or September, the situation will remain the same that we will be able to sell everything that we produce and despatch.
The point is that traditionally during the monsoon months, most manufacturers have been planning their shutdowns etc., because old habits die hard and monsoons used to be the times when demand use to slack, but this time it is not so.
So we could see overall in the industry a slight drop in demand, but as far as ACC is concerned we may improve our despatches in September. Because we are now quite ready with our small expansion in Lakheri, it’s now stabilised and we may improve our despatches since September month on month by 15-17%.
Q: Which are the pockets where you have already begun to see or hear of a price pick up?
A: Price is a very complicated story. There are pluses and minuses - in the south, prices in some regions have picked up, and prices in some regions in south have dropped. In the east, the monsoon has been very intense and we see a drop in demand and therefore softening of prices.
But overall in Mumbai, in Maharashtra and other regions in the north, there has been no slackening of demand and prices have remained stable.
Q: Do you feel pressurised by issues like imported cement, which have been facilitated right now by the government through various channels or issues like ongoing MRTP probes? Is that restraining your ability or your willingness to increase prices at all?
A: The MRTP discussions are pretty old cases. They are mostly 90-92-95 and a few, in the domain of 2006. But firstly, let us talk about imports.
I think, the country needs more cement. We would also be happy to see cement coming in. We ourselves are in a very small way trying to bring cement in from Bangladesh into Tripura, because logistics favour that route. But it is all a small drop in the ocean. With the rupee hardening, and should imported cement become more competitive into India, I don’t see cement as a threat at all. In fact, we have stopped looking at imported cement as a threat, and we have started looking at it as a benefit for the consumer in a situation where we are not able to service the requirements of the country.
But the only place from where cement could considerably come in, in some significant numbers, is from Pakistan and the infrastructure bottlenecks are such that it will not make any significant impact on elevating or mitigating the demand-supply gap.
Q: What exactly were ACC’s expansions plans over this financial year and the next one and are you still going ahead with them?
A: In 2006 we ended with a stated capacity of about 20 million tonne. As we stand today in August-September, I can say that we have reached 21 million and by December 2008 probably we will land up with a capacity of 22 million. So that’s a very marginal increase considering the markets situation. While our plans are on track, I must say that the formulation of our plans themselves were late and not on track.
By the end of 2009 and beginning of 2010 our bigger capacity additions will come into play. But before that it is just bits and pieces of grinding capacity here or balancing capacity there, which will only give us incremental increases but those are on track.
Q: Sitting in September 2007, what is your sense of when this demand-supply gap gets filled up completely with fresh supply and by when you’ll get a bit of an excess supply over demand?
A: That’s a philosophical question. So much has been said about the supply being in excess in future and the other way round. I am new to the industry and I get a sense that I should express what I feel from what I have learned so far.
People have talked about 2009-10, demand being less than supply and there will be a slackening and there will be a downturn. The way I see things is that we have grossly underestimated the growth projections in infrastructure. This is not an industry view, not even an ACC view may be, but I don’t personally see that in 2009-10-11, there will be a dramatic change in the situation from where we are today.
Basically, what I mean is supply will continue to remain tight and demand will continue to outstrip supply. What we need to do actually is not just make cement duty free for imports, but what we really need to do if we want to help construction is help infrastructure to make things faster for cement industry.
Whether it is a coal policy, or railways, or fast track approvals, I strongly suggest as an individual that we should look at this, otherwise we have a crisis looming in 2009-10.
Q: Holcim’s come with a fairly aggressive offer to Gujarat Ambuja to cleanup some more stocks there. What are your deliberations with the management there suggesting on their strategy with ACC?
A: We belong to the same group and we do interact with each other in standardising our business processes. We share information about the market and we also try to synergise our strategies. We, Ambuja and ACC, have some kind of an understanding as to where we will expand, where they will expand.
So we have those discussions ongoing and that’s nothing to do with when Holcim acquired few percentage of extra shares. We have an adequate amount of interaction at different levels with Ambuja.