The cement space has been at the receding end of investor selling. One of the reasons is the recent hike in the raw material prices.

Talking about the hike in coal prices, Mr Ashish Guha MD of Heidelberg Cement said that the company sees a rise of about 30% in the raw material prices for cement due to the hike in coal prices.

He said that “A and B grade coals have gone up by almost 150%, while the C,D,E and F grade coals have gone up by 30%.”

He further says that the price hike in cement sector is to counter the rise in raw material costs. He said that “Over the last year, we saw huge dip in margins that no company can sustain. Hence, we are trying to improve our margins by passing on the costs that are going up.”

Below is a verbatim transcript of Mr Ashish Guha’s interview with CNBC-TV18’s Latha Venkatesh and Gautam Broker.

Q - Coal India has increased coal prices. Generally, that would be in bad news for cement companies. How much are raw material costs going up for you in particular? What would the impact be on margins in particular?

A - With effect from 26th February, the coal price increase is anywhere from 20% to 30% for most of the people. We are yet optimize the coal situation with this change. A and B grade coals have gone up by almost 150%, while the C,D,E,F grade coals have grown up by 30%. Hence, the weighted average will be slightly higher. We will be able to tell the impact only after the basic optimization.

Q - What is the weighted average across all the varieties that you use? What percentage of your raw material cost would be comprised of coal?

A - We see an increase of about 30% in our raw material cost on account of the hike in coal prices.

Q - What is the check on cement prices at the moment?

A - It has been stable. There has been marginal increase lower than INR 10.

Q - Is it because of rationalized production or to counter the cost hike?

A - No, we are going flat out. We produce about 100% of the capacity utilization.

Q - Is the price hike to counter the cost hike you have been seeing?

A - Yes, it is to counter the cost hike. Over the last year, we saw huge dip in margins, which no company can sustain. So, we are trying to improve our margins by passing on, at least, the costs that are going up.

Q - Do you expect any demand resistance? Have you already encountered or experienced anything?

A - No, we haven’t seen any demand resistance at all. Demand is going at about the same 9% to 10%. It is essentially the supply that has come up. The supply mainly has come up in the South of India, and partially, in the North of India. In South India you will see massive price cuts.

Q - Would not under cutting take away some of your buyers? Is there any demand resistance to your end?

A - There is no demand resistance at our end at all. We are flat out on production.

Q - Just take us through your expansion plans, when do they come up?

A - The expansion plans are scheduled in the first quarter of 2012. Also, we are on time schedule at this point of time.

Q - Do you think you will be able to maintain a 5% OPM this quarter?

A - We have rationalized and optimized our efficiency levels, hence it should be higher.

(Sourced from CNBC-TV18)