Cementing Growth [May 2012]

In an interview with Subhajit Roy; Alok Sanghi, Director of Sanghi Industries underlines the current trend, growth potentials and obstacles within Indian cement industry 
Mr. Sanghi, please do share your perspective on the recent trend in cement industry in India.Growth in domestic cement demand is expected to remain strong, given the revival in the housing markets, continued government spending on the rural sector, and the gradual increase in the number of infrastructure projects being executed by the private sector. Thus, the trend in demand growth seen during the last five years is expected to continue over the medium term. Additionally, with the government targeting an over 8 per cent GDP growth rate, cement demand should grow at 8-10 per cent over the next few years.
Could you tell us about the major roadblocks that are hampering the growth of Indian cement industry?In the last quarter, there has been a significant rise in the prices of raw materials, which has in turn affected the prices of cement. Along with this, rise in diesel is leading to the rise in freight costs that in turn are impeding the development of existing cement companies. Also, new cement capacities may face the additional problem of not getting assured captive coal linkages due to the rise in coal prices. Furthermore, the spurt in interest rates over the last two years and higher prices of real estate projects have led to a significant slowdown in the realty sector, and this has consequently hit the consumption of cement. Apart from this, sharp growth in the cost of electricity and spiralling crude oil prices are becoming the major roadblocks that are hampering the growth of the Indian cement industry.
So, how is the road ahead for Indian cement manufacturers?The Indian cement industry is the second largest, preceded by China. As of the end of the 2010-11 financial year, its total capacity amounted to about 300 million tonnes (MT). The long-term growth for the cement sector is positive with the potential demand for cement to grow at 8-10 per cent in the coming few years. However, the current cement production capacities of over 300 million tonnes per annum (MTA) are significantly higher than the 220-240 MTA demand projected for 2012. We expect supply to outstrip demand for the next two years due to the significant capacity additions of approximately 75 MTA. At the current rate of demand, it will probably take another three odd years for the industry to absorb these supplies.
In the last 4 years, production costs of cement have risen by almost 50 per cent. Could you share your strategies to remain competitive?We do agree that the cost of production has increased drastically and as manufactures, we have limited choices like finding ways and means of cost reduction in various areas, investing in energy-efficient technologies along with investments in captive power generation, and passing on part of the cost increase to the customers. However, we do feel that cement being a core sector industry, Government will have to initiate measures to reduce the tax burden.
Could you share your comments on increase in excise duty during budget and its impacts over the cement industry?The 2012-13 Budget presented by the Finance Minister is a realistic budget. But, the higher taxation on account of excise and service taxes was unwarranted; especially at the time when freight costs have gone up recently. This will affect cement prices and will lead to inflationary trends. On the other hand, the focus of the government on demand generation with a special focus on infrastructure and low cost housing is commendable and shall lead to an increased demand for cement. Further, the abolition of customs duty on steam coal imports will bring some relief to manufacturers by bringing down their energy input costs.
How did the Sanghi Cement perform during FY 2011-12 and what are your targets for new fiscal? Share your strategic plans in achieving your target. For the latest quarter ended December 31, 2011, Sanghi Industries has posted a net profit of Rs. 3.04 crore. There was a significant rise in sales to Rs. 227 crore for the quarter ended December 31, 2011 as against Rs. 155.60 in the same quarter in 2010. We expect a significant improvement in our financials over the coming quarters as our operational efficiencies improve and the demand for cement picks up, especially in Western India.
Tell us about your production facilities. What is your current production capacity and what kind of capacity addition you are looking for?We have had a distinct infrastructure advantage from day one of our operations. Our plant is ideally located to have all the raw material required available within a 35 km radius. We have adopted the most eco-friendly mining techniques available. Direct access to the sea via our own jetty, helps us to cater to various markets effectively at a significantly lower cost. This includes direct access through the sea route to one of the biggest cement consuming markets of Mumbai. This jetty also allows us to import coal directly at our own jetty, minimising the cost of transportation. Our own power plant caters to our electricity requirements.
We plan to increase our current capacity of 3 MTPA to 7 MTPA over the next few years through a mix of debt and equity funding. We are constantly striving to give best services and help serve our customers faster and better, with a significant cost advantage.
Finally, Sanghi Cement is an established brand in Gujarat, what are your plans in increasing your footprint beyond Gujarat? Sanghi is what we proudly call a ‘5 STAR’ certified organisation in the Indian cement industry and has a strong foot-print in the sector. With our consistent superior quality and impeccable customer service, the company has evolved as the largest exporter of bagged cement and enjoys tremendous brand equity in several countries including Singapore, Middle East and West Africa, Sri Lanka etc.
Additionally, we also plan to increase our presence in the states of Maharashtra, Rajasthan and Madhya Pradesh.

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