Shree sees upturn ahead, India

Shree sees upturn ahead, India
19 November 2010

HM Bangur, MD of Shree Cements in an interview on CNBC-TV18 said the cement industry was still expecting a good recovery. "From December we expect the market to grow better as the worst is behind us," he said.

With the Indian economy poised to grow at 8-9%, he expects the cement industry to grow at the same rate. He sees Shree Cement’s volumes going up only by 2-3% due to the addition of new players in the cement space.

He also sees margins for FY11 to be substantially lower on a year-on-year basis.
Below is a verbatim transcript of HM Bangur’s interview with CNBC-TV18’s Latha Venkatesh and Gautam Broker.

Q: In the past few days we have seen a fairly spirited recovery in cement stocks that’s leading us to believe that perhaps something is going right for the industry itself? Are things shaping up for the better as the rains come to a close?

A: Things are not yet better, in fact November; the sales are lower, the prices are under pressure compared to this October to last year November. We feel that from next quarter onwards or December onwards things will be better. The worst is behind us that is what can be expected.

Q: Do you think that November was bad because of the one-off unusual November rain throughout the country, something we have never seen in the past. Is that the only reason why November was tepid in terms of both demand and prices? What gives you this positive feeling about December?

A: The unusual rain is definitely there when you compare this November to last year which is affecting the business apart. When we compare October to November, November sales are down but from December onwards the Indian economy is growing at 8-9%, cement industry should be growing along with it. Up till now total demand growth is about 8%, we expect to 8-9% or 9-10% for the year as a whole.

Q: The Street is a bit perplexed. We always keep talking about the overcapacity in the cement space but there have been periodical price hikes the stock been suggesting. Is it the case that many of the cement makers have jointly tried and adjusted their operating capacities in order to maintain the price levels or is the fact that there is genuine demand which is leading to some bit of a price hike?

A: Demand is low and below some prices. You have seen the results, some of the companies are losing money so it doesn’t make sense to produce more and lose more money. Demand is already so one way that people have to cut production because more production means only more stocks but no more sales.
Periodically, either companies A, B or C, somebody has to close the capacity as there is no other way. From December onwards, we expect market to grow a little better, the demand from December to June is always better.

Q: What is your estimate, how much do you think the capacity utilisation is in the cement sector at this point in time? At Shree Cement itself, what is your capacity utilisation and for the year how much do you think sales will improve in terms of volume if at all?

A: Industry volume will be increasing by about 8-9%. Shree Cement’s volume should increase by 2% or so as so many new players have come we will be getting only partial share of the new additional market.

As far as capacity utilisation is concerned, it will be around 80% for the year as the industry has created capacity a bit ahead of demand and with the Indian economy growing, one-year down the line, the capacity utilisation will definitely be much better.

Q: For the moment you could also be badgered by higher raw material costs because fuel costs could go up the way in which we are seeing crude prices trend. How do you think you will do in terms of margins this year?

A: This year margins will be heavily down compared to last year for the whole cement industry. First quarter was a little better but from the second quarter onwards, the capacities which were in the pipeline have come up and in commodity markets it is very difficult when you can pass on the price. When the cost increases, there is a gap. When we increase the price, at that time the price increase or cost increase may not be there. This is all part and parcel of the game.
Published under Cement News