Cement Industry is growing positively in several states: Shailendra Chouksey, JK Lakshmi Cement
The cement industry was not growing as per our expectations, which stood between 8-10%, for the past three years. However, the picture has changed in past one year and the demands have gone up to 12-14% across India.
Shailendra Chouksey, CMA President and Whole-time Director, JK Lakshmi Cement Ltd, speaks about the demand pattern in cement industry, outlook on cement pricing and expectations from government among others during an interview with Swati Khandelwal, Associate Editor, Zee Business. Edited Excerpts:
What is the demand pattern in the cement sector?
The cement industry was not growing as per our expectations, which stood between 8-10%, for the past three years. However, the picture has changed in past one year and the demands have gone up to 12-14% across India. Government initiatives, like the push to infrastructural development and housing for all, has had a considerable contribution to the growth. Other participants of this growth include the development of a new capital in south India and ongoing construction works in Telangana and Andhra Pradesh and metro projects. Besides, the low base effect has also played a leading role in this growth.
What is the cement pricing scenario? What is your outlook on cement pricing, as per demand-pattern, in southern India?
There is a demand-supply mismatch in the industry, which has restricted capacity utilisation to 70%, .i.e. 30% capacity is lying idle. This is why the industry is not in a position to exercise its pricing power, which can return back if we are able to maintain the ongoing growth of 12-14%.
Talk about the ongoing growth in states like Andhra Pradesh, Telangana and Kerala?
A: They, these states, are doing well in terms of growth. At the same time, there is a pick up in few North Eastern and Eastern states of India like Bihar and West Bengal. Probably, this growth is backed by the ongoing assembly elections and upcoming general elections but one can't deny the second factor that is contributing to the growth and they are infrastructure build-up and GDP growth.
Any expectations from the government amid upcoming budget and the general elections?
We, the cement industry, had expectations from the government at the time of presentation of the annual budget and GST council meetings. We thought that Cement, a core-infrastructure item, will be taken out from the 28% bracket that is slapped on luxury items but it was not met.
Amid the kind of contribution, which stands around Rs50 crore, that is made by the cement industry to the exchequer, we can't hope of something big but expect rationalisation of taxation. This rationalisation can be achieved by doing away additional components like royalty that is slapped on the cement industry. In addition, it should slap duty on import of cement, maximum comes from Pakistan, at a time when our country is 30% surplus in cement production can support us.
What is expected from other regions on the front of volume growth and demand?
Cement industry is growing positively in every state except few like Punjab, Haryana and Maharashtra among others.
There is a liquidity crunch in the market. Update us on the kind of impact that this liquidity crunch has had on the cement and infrastructure industry?
Housing segment plays an important role in the growth of the cement industry as about 60% of cement is consumed in this segment only. Liquidity crunch has a huge impact on housing finance, which can also reduce the cement demand in the market.
Similarly, contractors involved in infrastructure works are dependant on bank finances and any impact of their finances, due to liquidity, may halt their growth prospects. This halt can also have a negative impact on the cement sector.
Increased energy cost had an impact on the margins. Will this have any impact in Q3 & Q4 results? What is your outlook on energy costs and its impact on pricing and margins?
You have reminded me of the problem being faced by the industry. At present, we are at the junction where the industry can't exercise its pricing power and cost is going up. The fuel prices have had an impact of about 42% on our company in past one year. Similarly, companies with dependency on Petcoke have seen a price rise by about 70%. This increase was backed by international fuel prices and depreciation of rupee value against the dollar.
There is a slight softening in the two, the fuel prices and rupee value against the dollar, but its impact can be felt on the results in the next quarter because companies functional in cement industry has a practice of securing or signing its contract for fuel supply for next three months.
Any target on capacity utilisation in future as it stood at around 70% in Q2?
New capacities, which are entering into the industry, will help in increasing capacity utilisation of the industry to 75-76% and this growth will be reached to about 78% in the northern region. It has been seen that the pricing power starts returning back to the industry after capacity utilisation reaches a mark of 80%. I hope that we will be able to get rid of the problems after reaching the mark.