’We’re determined to maintain 30 per cent profit margins’

’We’re determined to maintain 30 per cent profit margins’
20 August 2008

Government-directed prices, rising fuel and freight costs have severely impacted the cement industry’s prospects after more than four profitable years. The industry’s average margin has reduced to a little over 20 per cent as compared with 40 per cent a year ago.

In a tête-à-tête with Chandan Kishore Kant, the country’s third largest cement-maker Ambuja Cements’ 73-year-old managing director, A L Kapur, says he is determined to maintain his company’s 30 per cent margins.

How do you assess the first-four months of the financial year?

Very tough. Barring the South, everybody has suffered and seen a dip in their operating margins. Costs have escalated and cement prices are under pressure, resulting into a severe strain on profitability. Moreover, imports of cement from Pakistan have risen, which is having its own impact.

How is import from Pakistan impacting Ambuja?

Ambuja, ACC and Grasim have reasonably large exposure to the northern market and increased import from Pakistan into Punjab is having detrimental impact on prices. Four months ago, the quantity of the imported cement was not an issue but today, it has touched 90,000 tonne a month, grabbing nearly 12 per cent of the market share in Punjab. Their prices are Rs 30 less than ours on a bag; therefore, there is no question of increasing prices in those markets. Even sustaining our prices is a big challenge.

What measures are being taken by Ambuja to offset the impact?

We are trying to raise productivity of our operations. The other thing we are attempting to do is run our plants uninterruptedly to get the maximum throughput. At the same time, we will increase our blending factor by adding about 2 per cent more of fly ash subject to its availability. We are also setting up captive power plants. At the same time, we will continue our efforts to increase prices.

What impact will it have on your margins?

All these measures will have positive impact. We are not short of resources and it is our determination to maintain our profitability at 30 per cent.

When and how much stake will Holcim pick up in ACC Concrete through Ambuja?

The board will have to take a decision on it. The company is already in existence. I do not know how much the stake holding will be, but if we go for it, we will be equal partners. However, whether we take 10 or 50 per cent, it matters little as the company belongs to Holcim.

Against the backdrop of the government intervention in April, what is your export strategy?

You never know when the domestic market can go bad and so we are maintaining a permanent outlet in West Asia. Exports have enabled us to survive at times when local prices collapsed. In the present time, prices are bound to collapse as every body wants to capture market share. If Gujarat continues to consume 12Mt of cement, where will the the additional cement go?

The industry has seen many new players in the recent years.
They will stay for a while. It is easy to put up a new capacity but it is difficult to sell cement. The good thing is that there is a general perception in the industry that if you are not able to sell cement, you can sell your plant. So, one is not a loser at the end of the day.
Published under Cement News