India: Sagar Cements to invest INR1200m in railway line

India: Sagar Cements to invest INR1200m in railway line
14 June 2013

Sagar Cements Ltd will invest INR1200m |(US$20.8m) in a private railway line to improve its market reach and cut freight costs. The 7km line will connect the company’s plant, near Matampally in Nalgonda district of Andhra Pradesh, with the main railway line.

Of the proposed investment of US$20.8m, INR980m (US$16.9m) is to come from debt and the remaining from internal accruals.

“Completion of this line will lead to better efficiencies and savings in costs. INR200m has already been invested in the project,” said Sreekanth Reddy, Sagar Cements' executive director. The line is expected to be completed by FY15 and dispatches by rail are expected to go up 20 per cent thereafter, he added.

In the year ended March 2013, Sagar Cements’ dispatches were 1.55Mt. Of this 39,449t were transported by rail.

On the revenue flow from the Sagar-Vacat joint venture cement plant, commissioned six months ago, Reddy said: “It was a long-term investment and we wanted to access certain markets through it.”

Sagar Cements’ sales outside Andhra Pradesh have been steadily increasing and accounted for 46 per cent of total sales in the last financial year. Capacity additions in the south continue to create an oversupply situation, dampening cement prices until recently.

“We have consequently been compelled to look at States outside Andhra Pradesh,” he said, adding: “Right from the beginning, we have been doing it consciously as a de-risking strategy and to broad-base our reach.”

On the outlook for the year, he said things would largely remain the same. “With domestic coal becoming more readily available, our dependence on high-priced international coal will become moderate. This, in turn, helps us manage our costs better,” he said.

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Tagged Under: Sagar Cements India