JK Cement is constructing a 3.5Mt greenfield plant in Karnataka. RG Bagla, Group Executive President of JK Cement adds that the government took an assurance from industry that if there is any increase in the input cost, they will not jack-up the prices and the government in turn will also try its best to help the industry.
Below are excerpts from an interview by CNBC with RG Bagla:
Q: Can you put into perspective what you have heard from the policy over the last week and how this would impact players such as you because you are setting up about 3.5Mt as a greenfield in Karnataka?
A: Yes, we are putting up a 3.5Mt greenfield plant in Karnataka. Anyway last week was very hectic, but it ended in a very cordial atmosphere. So government took an assurance from industry that if there is any increase in the input cost they will not jack-up the prices and government will also try its best to help the industry.
Q: What are you currently selling at? What are the rates that you are selling per bag at this point of time?
A: We are presently a north Indian player; our cement does not go to Mumbai or the south. So we are basically in Delhi, Haryana, Punjab, Rajasthan, western UP and current prices in these areas hover round about Rs 210-220.
Q: Could you talk about the impact that we will see on your profitability going forward because the concern is not really about this quarter but really the quarters to come, with more supply kicking in. Do you expect prices to stay at these levels, or will there be correction?
A: We have got data up to February and we are happy to say that the consumption has gone up YoY basis by about 10%. Also, the production has gone up by 10%. So demand and supplies are just matching.
Q: In light of what you have heard, what is going to be the approach of the sector and specifically what actions will your company take when monsoons come around because typically prices soften? If you are not allowed to raise prices for a year, will you choose not to reduce prices as well, or is that something that you will go back to the laws of economics where demand and supply will take over?
A: We are taking two to three actions on our part and are trying to be more efficient in fuel and power. We are putting up a captive powerhouse, which will be operative in June. That will reduce our output cost by about 50% and that will be a good saving to us to counter any input increase, which comes up due to government action or whatever. Secondly the operating efficiency is also being increased, we have added 0.5 million tonne capacity at our Rajasthan plant. There we will become fully operative, so our fixed cost will also go down, which we hope will greatly help us.