The Hindu Business Line : We've more room to grow than others: Gujarat Ambuja Cement

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Mumbai Feb. 5 The cement majors have done phenomenally well this year. But the industry cannot depend on high prices alone and has to deal with rising costs and levies, says Mr Anil Singhvi, Managing Director, Gujarat Ambuja Cements Ltd.

How do you sum up your company's performance during the quarter and the year?

I think we have done very well, both in terms of our operational situation and the pricing situation. Operationally, because of improvement in blending we could increase our productivity by 11 per cent, which is very large.

In fact of the large players, we are the only ones who have kept our market share alive, growing by 11 per cent in volumes.

The other larger players have grown by 8 per cent or less.

We have more room than the other players to do additional blending, especially at our plants in Gujarat and Maharashtra.

And blending gives you a better realisation than if you go through the clinker route.

So the year ahead will bring even better margins for your company?

Today, the cost of production of clinker including fixed costs is going to be Rs 1,000-1,100 per tonne. Whereas fly-ash - if we are close to the source - will cost Rs 150-200 for the same volume.

So moving forward in 2007 our productivity growth will be on account of blending and our profits will show a `disproportionate' growth.

The second thing is we are upgrading one of our plants in Rajasthan.

It will produce approximately half a million tonnes more of clinker by June.

With a good blending ratio, this could result in 8 lakh tonnes of cement on an annualised basis, all at a capital cost of just Rs 125 crore.

The cement industry keeps complaining about costs and levies.

The demand for cement is good but we must not be swayed by the external factor of cement prices remaining high.

So we are also looking at how to reduce logistics costs that have gone up dramatically this year after a Supreme Court order not allowing overloading of trucks.

The same truck for the last 20 years was carrying 15 tonnes, and you are suddenly asking the truck to carry nine tonnes.

This has come as a rude shock to us because we have always felt that Indian trucks are capable of carting more than what the Motor Vehicles Act permits.

Even if the Supreme Court order is there, that does not mean the doors are closed. One can review this and go to the state governments to review the Motor Vehicles Act.

Mr Chidamabaram should take up the matter with the Road Transport Ministry and the State Governments.

Will the cement sector ever see the 30 per cent price growth that it did in the last year?

There is no way that 2007 will see the price rise of 2006. But let us not look at 2005 and compare 2006 against it, the results are very misleading. We had a bad 2003, 2004 and 2005.

Over the last five years, cement prices have moved less than the rate of inflation, not even risen at 5 per cent CAGR.

The Government and the construction industry do think that cement prices have risen too much.

Today real estate prices have gone up threefold. Is cement to be blamed? Now if I sell cement at static prices, would real estate guys reduce their prices?

Somewhere it must be taken in the right context that if they desire to pay any price - obscene prices, as we have seen for land sold in the textile mill areas - what will be the cost of real estate?

Whatever the argument, the Government seemed to be sending a message through withdrawal of import duty on cement?

Is it feasible or viable to import cement? Are Indian cement prices that much higher than imported cement? None of the ports can receive bulk cement so you will have to get bagged cement. One shipload will be 35,000 tonnes. In Mumbai, we are the largest player with a market share of 26 per cent.

My largest customer on a monthly basis gets only 8,000 tonnes and he is exclusively buying from us. Would the importer get into six months of inventory, and where is he going to store the bags?

Finally if import margins were better, would I not rather import than produce cement?

If there is one Indian company capable of importing cement and has a port, it would be Gujarat Ambuja.

There are larger issues for the Government to look at. The cement industry today contributes the highest amount by way of excise duty, even higher than cigarettes. Why, is cement injurious to health?

In 2006-07, we would be contributing Rs 6,500 crore to the exchequer.

If we are becoming a whipping boy for the Finance Ministry how can anyone expect that cement prices will be low?

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