India Cements to build Rs 10-bn plant in MP, expects growth to pick up soon

India Cements Ltd is planning to set up a new cement manufacturing facility in Madhya Pradesh with a total investment of around Rs 10 billion, with the company expecting a better capacity utilisation from the next financial year. The company is expecting prices in South India to also pick up from the fourth quarter of the year, improving its performance from there on.

The company recently announced the acquisition of the entire shareholding of Springway Mining Pvt Ltd, in a phased manner, at a total cost of Rs 1.82 billion with an objective to set up a cement plant in Madhya Pradesh.

N Srinivasan, the vice-chairman and managing director of the company, said, "Our objective is to set up a cement plant. The investment will be around Rs 9-10 billion. Mostly, we will fund it internally." The company may also look at further expansion plans going forward, he added.

With the new plant, India Cements' total manufacturing capacity will go up from 15.5 million tonnes per annum at present to around 17 million tonnes per annum as the new facility will have a capacity of around 4,500 tonnes per day.

The new facility is expected to be ready for operation by January 2021.
It will be dedicated to producing Pozzolana Portland Cement (PPC). The new plant will help the company supply cement to central and eastern parts of the country.

After years of sluggish growth, the company is expecting the pick up in demand to continue on the back of the increasing consumption from infrastructure projects, roads, irrigation projects and private sector housing, besides the government's push for affordable housing projects.

"The October to December quarter may be the last difficult quarter we see. We are expecting that from January onwards, we will start seeing better growth," said Srinivasan, who added that the growth is expected to continue for the next three to four years.

At present, the company's capacity utilisation for clinker is around 80 per cent as compared to 67 per cent last year, and it is expecting that metric to hit 100 per cent by the beginning of the next financial year.

The company has registered a decline of 93.9 per cent in net profit to Rs 14.3 million during the quarter ended September 30, compared to Rs 236.7 million net profit registered during the same quarter last year. The decline in net profit was owing to the decline in net plant realisation, which had an impact of Rs 380 million on the bottomline, along with the increase in variable cost, which went up by eight per cent compared to the same quarter last year.

In South India, while capacity utilisation increased and volumes grew, prices did not go up. With other geographies seeing a price increase, the company said that it is confident that the price will go up in the near future, which will improve its performance.

The regional imbalances in capacity and the steep increase in the prices of fuel and petroleum products, along with the depreciation of the rupee against the dollar, had an impact on the operating performance of the company during the quarter.

The total income grew nine per cent to Rs 13.91 billion during the quarter, compared to Rs 12.75 billion in the same quarter of the previous year.

The country's cement industry has seen a growth of 14 per cent during the first six months of the financial year and South India has posted a growth of 23 per cent, backed by demand growth in Andhra Pradesh and Telangana, said the company.
Kerala has seen demand for cement quickly picking up after the heavy floods in August and the prices are almost stable at around Rs 390 at present, which amounts to a drop of just Rs 10 from the previous year.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.