Cement player, JK Lakshmi Cement is looking to raise capacity to 10 million tonne by end of next year.
Speaking to CNBC-TV18, Mr Shailendra Chouksey whole time director of JK Lakshmi said that their current capacity is 4.8 million tonne. The company is working on several projects to boost capacity.
He said that "We are on the verge of completing our new grinding unit in Haryana which is about half a million tonne. We are also working on Greenfield project in Durg. By October or December 13 we should be doubling our capacity to nearly 10 million tonne."
There have been reports about cut in cement prices in Himachal Pradesh. However, Mr Chouksey said that they have not seen any price cut at the moment in that region.
Below is the edited transcript of Chouksey’s interview with CNBC-TV18.
Q - Coal India has introduced a new pricing mechanism. What sort of price hike could we expect in terms of input costs for JK Lakshmi? How will you be passing it on?
A - Coal India would be pegging price through gross calorific value rather than useful hit value, companies which are using coal alone, for them it would tent amount to nearly INR 10 to INR 12 a bag, that is our calculation. However, we at JK Lakshmi Cement are using petcoke as our main fuel. We don’t see a much of an impact expect for about say INR 2 to INR 3 a bag, but larger on the industry the rise is much higher.
Q - A cut in Himachal Pradesh of INR 25 per bag, what exactly does that mean for the industry? What are the operations like for JK Lakshmi in that region?
A - Generally speaking, any pegging in price especially in an environment where there is a continuous cost escalation would be a very difficult proposition. In 2010-2011, when we saw a fuel price going up by almost 50 to 52% there was very little that the industry could do. It could not have passed on the cost increase because of the huge surplus that the industry was experiencing. So we could not increase or pass on the price. But now I don’t think the industry is in a position to absorb any further pressure.
In last 15 days we have seen three types of increases. Firstly, coal price itself went up, then there is a continuous increase in the interest rate which is affecting new projects and consumption. Thirdly, there is a change in the nomenclature of the coal. We have also seen railways levying service tax on rail freight. It has been differed by three months, but ultimately by April that burden too would come.
So, the industry is reeling through price increase, cost push from many directions. At this stage, I am not too sure whether the industry can absorb all of them. This example of Himachal may not really be workable, it will ultimately affect the productivity of the companies.
Q - Have you heard of any price cuts at this point in time in Himachal? If yes what is the quantum of the price cuts that people are talking about?
A - I am not sure whether there has been any price cut at the moment. However, what the industry has been assuring that they will not increase any further price in Himachal till the time there is some further new cost increase which comes place. Then they will have to take up with the state government and uprise them of the situation. Right now, I am not too sure if there has been any price cut there.
Q - Since you cater primarily to the western and the northern markets, what is the sense that you are getting about prices on the whole because like you mentioned not just higher input cost but there is over capacity in the system as well. What is the trajectory of cement prices that you are hoping to see in the western and the northern markets say in the next quarter?
A - The next quarter that is January to March, that is normally the best quarter as far as the consumption is concerned. Also during this year we saw there was a almost stagnant growth of 4-5% on all India basis in the first 6 months of the current financial year. In the north and west the situation was slightly better, it was 6-7% higher over the corresponding period last year.
But we have seen a revival of demands thanks to some of the activities which have now picked up in the months of November and December. Taking into account the next quarter increase which is normal cyclical phenomenon, I would expect that we should end at a positive note at about 8-9% growth especially in the north and the west.
If that happens, the industry would be in a position to pass on some of the cost increase which has taken place in last year and a half. I would expect a price increase of INR 10 to INR 15 a bag maybe possible in the coming quarter.
Q - If there is some amount of demand increase which you are seeing, is there any capacity expansion that JK Lakshmi has planned and if so by how much?
A - We have presently a capacity of 4.8 million tonne. We are on the verge of completing our new grinding unit in Haryana which is about half a million tone. So that will take us to 5.3 million tones by March. We are also right now working on greenfield project in Durg which should get materialized by October 13 and that will take our capacity to 8 million tones.
Besides this 8 million tonne on which the work is already going on and which is all sealed up, we are already working on another project. We are very hopeful that we should be able to take it through which will give us another 2 million tones in the course of next two-two and a half years. By October or December 13 we should be doubling our capacity to nearly 10 million tonne.
Q - Currently what is your capacity utilization of your plants and the second thing is how exactly are you funding this entire capex that you have planned?
A - As far as the capacity utilization is concerned, we are operating at about 92 to 95%. For the entire period April to December, it would have been around 92% but we will be ending this quarter with something like 95% as the demand has been good. We have done reasonably well, especially in a scenario where the industry is operating at about 76% capacity utilization.
We end up the year at 94-95% of capacity utilization, we will have a sense of satisfaction. As far as the funding of the new project is concerned, funds have been tied up and major part of it is coming from the internal accrual. Right now we have a free cash balance of over INR 500 crore and funds have already been tied up. We will be investing totally about INR 1,500 to INR 1,600 crore in all these projects.
Source - CNBC-TV18
