Congratulations on India Cements turning 75! And you’ve been reappointed for five more years. Walk us through what that journey’s been like, and what’s your vision ahead is?
I’ve had the privilege of working with India Cement from the days when cement was under price and distribution control and entire capacity in the country was hardly 20-30 million tonnes; then, we had partial decontrol and then total decontrol in 1989. Today, capacities are closer to 400 million tonnes. Cement is a decontrol success story.
We are the second largest cement producer in the world, behind China. America is below us; we are so far ahead of all other cement producers plus we don’t have old plants. Our carbon footprint may be the lowest. We do more blended cement than any other country and our power and fuel consumption is also low. We have modern plants. This is the story of a modern cement country with modern cement plants and a low carbon footprint. I think there is a lot to be proud of. I’ve been part of this. I’ve seen this. This is because of government initiatives, ones that have nudged the industry in a direction that led to improvement.
It has been exciting going through this. The last few years we have been quiet but that does not mean we will not expand. India Cement’s expansion comes in bursts. So the next burst expansion will see us improve our capacity.
Comparing FY22 and FY21, the former saw surprisingly positive trends, with resilient demand, pricing trends. How did that happen? What were the key demand drivers? Is this fiscal going to be similar?
What we did last year when confronted by the COVID-19 crisis, we took a decision to sell, and go to cash and carry. We realised that our capacity utilisation would be low. In fact, if you take India Cement, in the first quarter our capacity utilisation was 38%. It went to 50% in the second quarter. It went to 63% in the third quarter and in the last quarter it was 77%. But, during the second wave, we would now be at 80-85% capacity utilisation.
The reason for it was that we had an expansionist Budget. People are forgetting the budget we had, there was a lot of emphasis on infrastructure. All good things for cement. Before that could be implemented we had the second wave, since that is now receding, pent-up demand will come up. I expect that this year would be a double digit growth over last year in terms of demand with an improvement in financials also. If you take our company, the first quarter of last year I had a capacity utilisation of 33%. This year, in spite of lockdown all over the place, in almost all our market we’ll have 48-49% capacity utilisation which is substantially better and going forward indications are that the quarters to come we will be better than last year.
What about post second wave complications? Where are we on that and what are some of the challenges that remain?
As far as the cement industry is concerned, being a continuous process industry even where there was a total lockdown, the factories could function. There is no problem in terms of ideal equipment. There is no problem in terms of supply chain. But what is also important to know is that the demand is there, the demand has not gone away. Once the lockdown is lifted, the demand is right there. This is why I say that this year we will have double digit growth, over last year.
Also coming to distribution, look at India as a whole; if you look at last year, the west produced about 45-46 million tonnes of cement, the north produced 80 million tonnes of cement, central India was 50 million, eastern India was 65 million, south was 80 million, the capacity utilisation of the south was still only about 50 million. So, with 35% of all limestone in the south, this was naturally be so. There will always be a situation where there will be surplus in south which will be taken to other parts of India.
In fact, towards the end of last financial year, we will be sending the least because there is not much limestone in those places and with the latest MMDR Act it takes a longer time to start a plant, the entry barriers are quite high and most of the limestone deposits in the north and central India have been spoken for. If at all you have some maybe still limestone in the south, otherwise we will soon reach a place where only existing people can expand.
What are the likely projections in terms of overall recovery for the industry going forward by FY22?
I think FY22 we will see a double digit growth over FY21. The south also is growing quite sharply. There are multiple indicators.
First, the on ground cement that is being consumed by infrastructure is incredible. In addition you have private sector housing that is taking a lot of cement and on top of it is the states like Andhra Pradesh the government is accounting for a lot of demand. For example, I will give you an idea, if you take the whole of Andhra Pradesh the cement demand estimated in a month is at about 10 lakh tonnes. Government alone has a programme to consume about seven to eight lakh tonnes. So as this year pans out, we will find it difficult to meet the government demand as well as the outside demand from private sector. So I think for the first time infrastructure spending is coming. I expect that very strong infrastructure plus government plus private sector demand for cement which is why I say double digit growth over last year.
What is the status of the current buying of cement by the Andhra government and what is the outlook in terms of the demand expansion?
Andhra government last year consumed about 1.5 lakh tonnes per month. This year I think they will consume at least 3 to 4 lakh tonnes per month so which will push the industry to effect supplies to the government as well as meet the demand outside.
Similarly, if you take south as a whole there is a pickup in demand in Andhra Pradesh it is a government, in Tamil Nadu it is combination of infrastructure as well as metro projects, even Kerala is growing so I think looking forward I am reasonably optimistic on the demand and I think this will be very good year for South India.
What is the current capacity utilisation trend? Generally, we have witnessed slightly lower trends in South India as compared to the national players so would you attribute this mainly to the pandemic or is there just reduced activity in South India?
See South has had even last year a lower capacity utilisation if you take the last FY21 whereas the capacity utilisation all India would be 70-75% depending on what you take as a capacity. See there are three capacity one is 530 million tonnes but if you take where the grinding units it comes to about 470-480. If I take 470-480 the total production last year was 324 million tonnes so therefore it comes to about 70% utilisation. Compared to that the south was only at about 55 so south the capacity utilisation will be lower because if total capacity is so high we are about 160 million tonnes almost 50% of India’s capacity is the south so naturally capacity utilisation can be lower but there is much greater pricing discipline in the south, the prices are better, compared to other regions and therefore the profitability will be on par.
