India Cements is proposing to invest ₹1,500-1,600 crore to refurbish its vintage cement factories as the cost pressures mount and dent its margins on the back of capacity overhang in the South.
Though the company was hoping to refurbish the factories sometime in the future, the elevated costs on account of an unprecedented increase in coal price and a spike in power costs have resulted in higher variable costs, thereby denting the margins and bottom line in the past few quarters. It is estimated that India Cement’s cost per tonne is at least ₹500 more than its competitors now.
The cost difference was not high between India Cements and its peers when the coal price was at $60 per tonne. But coal prices shot up to $300 as a result of the Russia-Ukraine war and the price of Indonesian coal was hovering at $270-280 in December 2022.
With the war situation dragging and no sign of a sharp drop in coal prices, the company has decided to take up the efficiency improvement project now.
“Demand is fine, but costs are out of control. We have engaged FLSmidth and Krupp Polysius for this refurbishment project and they will shortly submit their report. The estimated cost is ₹1,500-1,600 crore,” said N Srinivasan, Vice-Chairman & Managing Director of India Cements.
The company has eight integrated cement factories. It has three units in Tamil Nadu (Sankarnagar, Sankari, and Dalavoi) and two units in Andhra Pradesh (Chilamkur and Yerraguntla). It also operates two plants in Telangana (Vishnpuram and Malkapur) and one plant in Rajasthan (Banswara). Its two grinding units are located near Chennai and at Parli in Maharashtra. Refurbishment work will cover all old plans except Sankari in Tamil Nadu and Banswara in Rajasthan.
The company is proposing to generate resources to fund the renovation project by selling some parcels of its lands and is unlikely to go for borrowings. “The project may take 15-18 months to refurbish the old units,” he said.
Srinivasan also said that going forward the company would also focus on pushing volumes, which it avoided in the past.
Cement companies in the South, including India Cements, have been battling with lower capacity utilisation due to a huge capacity overhang. India Cements’ capacity utilisation was 56 per cent in Q3 of this fiscal.
Q3 net up
For the quarter ended December 31, 2022, the company reported a net profit of ₹91 crore, boosted by profit on the sale of investments, when compared with a net profit of ₹3.3 crore.
It reported a negative EBIDTA of ₹66 crore on the back of a cost increase of ₹1,000 per tonne of cement due to the higher cost of fuel and power. In the year-ago quarter, its EBIDTA was ₹110 crore. Its revenue grew to ₹1,219 crore from ₹1,108 crore in the year-ago period, aided by a marginal increase in the sale of cement during the quarter.
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