"Energy and logistic are two major part constituting the input cost. Recent increase in diesel price and increase in rail freight in last budget has increased the logistic cost. It is not always possible to pass on the cost to customer. So company has to absorb the cost sometimes and as a result profit margin reduces. Increasing cost of fuel and power will further make input cost high.Imposition of custom duty on coal import in recent budget will put further pressure on input cost of cement."
Suman Mukherjee, Managing Director and CEO, SDCC – India, Votorantim Cimentos EAA, A Votorantim Group Company shares his views with Sandeep Sharma about his company, core competencies, market conditions, adoption of environmental friendly technology, challenges before the cement sector and steps to be taken by the Government to boost cement demand. Edited excerpts…
Tell us about your company, mission, objectives and core competencies?
Presently Shree Digvijay Cement is taken over by Votorantim a wholly owned diversified Brazilian group with operations worldwide. Votorantim Group’s activities are focused on key sectors of the economy that demand capital intensive and high scale production processes such as cement, mining and metallurgy (aluminum, nickel and zinc), steel mill, pulp, concentrated orange juice, and energy selfgeneration. In the financial market, the Group trades through Votorantim Finance and, through its New Business segment, we operate with a Venture Capital and Private Equity fund. In cement it has an installed capacity of 57 MT worldwide having presence in all continents. One of the main pillars of growth is the Group’s commitment to sustainability, which translates into the search to create value within economic, social and environmental spheres. As a short term planning we would like to maintain the market share in the region we operate. As a part of long term planning we are looking for an ambitious growth in India.
How did your company fare in FY2012-13 in terms of business achieved, operating profit and new initiatives?
Globally we follow Calendar year. Last year it was a mixed market condition. In the first quarter Jan-Mar 2012 demand was very good as well as price was also at peak. But because of patchy rainfall across the country and overall economic slowdown the second half was not so exciting. Also, because of diesel price hike and muted demand, profit margin was under pressure in the last quarter. Still I would say overall year 2012 was a good year for cement companies, having good operating profit and EBITDA margin.
Technological innovations are happening all the time. How far you have adopted environment friendly technology in your cement plants?
Last year we have started WHR power plant for captive consumption. This is a green initiative. We have also taken various measures like installation of VFD at various stages of the process. This will further improve energy consumption. We are also maximizing fly ash addition in PPC cement.
Could you comment on the demand/supply mismatch, increase in logistics/raw material cost affecting cement pricing?
India is the second largest cement producer after China where installed capacity stands around 360 million tons. The industry is expected to add 30-40 MT of capacity in 2013. The sector is set to see large scale merger and acquisition. Larger and global cement companies with superior cost position and pan India presence is expected to remain stable in 2013, whereas smaller companies with an unfavourable cost structure and regional concentrations are likely to face tough competition. Comparatively companies in northern and western markets are better placed regarding utilization signifying greater incremental demand compared to supply. Cement stocks have been in the limelight right through 2012. Patchy rainfall across the country coupled with a pick-up in the construction activity kept investor interest alive in the stocks from this sector.
With a global economic slowdown GDP of India is decade low at 5%. Cement demand was hit by the general slowdown in the economy. After impressive first half cement companies have seen a retarded growth in the last part of 2012. Despite dropping price the demand in few regions were not up to the expectation. We expect the demand will rise in remaining part of the year. Huge infrastructural projects are on hold because of economic slowdown and fiscal deficit. If Govt. initiatives make those projects to move it will be a positive indication towards cement industries.
Energy and logistic are two major part constituting the input cost. Recent increase in diesel price and increase in rail
freight in last budget has increased the logistic cost. It is not always possible to pass on the cost to customer. So company has to absorb the cost sometimes and as a result profit margin reduces. Increasing cost of fuel and power will further make input cost high. Imposition of custom duty on coal import in recent budget will put further pressure on input cost of cement.
As a combined effect of all these cement industry expected to go for price hike.
What are the core challenges faced by the cement sector in India?
Some of the core challenges faced by cement industries are i) Lime stone reserve ii) increasing cost of fuel and power iii) increasing cost of diesel iv) Making cement industries attractive towards the best talents of the country vi) over capacity etc.
What needs to be done by the Government to boost cement sector growth?
The Indian Economic growth for the FY 2012 -13 is going to be decade lowest 5%. Oct. – Dec. quarter has not seen the growth as it was expected to be, Jan – March comparatively better. Cement prices across the country is under pressure. Even as the peak construction period has set in, poor demand and inactivity in the construction space have hit prices.
According to ministry’s estimates, project worth Rs. 7.02 lakh crores are stalled at various stages. These projects in different sectors are held up at various stages due to reasons like absence of clearances, land acquisition hurdles etc. If all these projects can be revived it will be blessings for cement industry. Since elections are next year a slew of measures by Government may turn things around. Whether recent slew of Government will actually translate into growth is something that will emerge with time.
Keeping in mind the current market scenario, do you expect revival of overall demand in FY2013-14?
In line with global economic slowdown India GDP has dropped down to 5% in FY 2012-13. During the last quarter of financial year 2012-13 the market witnessed muted demand growth and several companies were forced to take price rises. Though double digit growth for the industry still looks distant, cement industry can expect a growth of between 7 to 8 %. As per the various assurances given by Government, if it is proved to be true, demand expected to grow. This would be the year of Lok Sabha election and Government spending is expected to increase. Infrastructure projects which are in slow growth are likely to gain momentum.
Could you provide us glimpse of your CSR initiatives?
We have an independent CSR cell which conduct lot of CSR activities throughout the year. CSR activities for the whole year are planned and included in our budget. Our CSR activities can be catagorised under different activities like
i) Rural Development activities
ii) Social work and woman welfare
iii) Various medical camps
iv) Educational and sports activities
v) General awareness and training programmes
vi) various community development programmes.
Under the above heads we take no. of camps / training programmes spread throughout the year. People from surrounding villages are involved in these.