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00:00HM Bangur, Chairman of Srisimhan, now joins in.
00:02Good morning, Mr. Bangur.
00:04It's always such a pleasure to have you on the show.
00:06Mr. Bangur, the last time we talked, there was a sense that demand was slightly slow
00:11in the first quarter, higher temperatures, pre-election, there was so much going on.
00:16As we step foot into the second quarter, do you feel like demand will see a pickup?
00:22I guess there is some optimism around the infrastructure ministry, probably raw material
00:27cost.
00:28The next couple of years looks good in terms of outlook and hence in the near to medium
00:33term an uptick in demand is what we should be seeing.
00:36Between the last year and this year, first quarter, as I had said earlier, the demand
00:43is quite subdued.
00:44Hardly 1% growth or zero growth is there.
00:48But India is still growing at the same rate, about 7%.
00:52So cement demand for the year is expected to grow at 9% or so.
00:57Now if the first quarter demand is low, then all the pent-up demand of more than 9% low
01:04double digit growth is expected in the remaining nine months.
01:09Because the cement industry is a replica of the national growth.
01:14If GDP is growing, if India is growing, cement demand has to increase.
01:20Right.
01:21Sir, I believe in terms of data points, we've seen the transportation of cement through
01:27rail has actually gone up 11% month on month in the month of May.
01:31June also saw an uptick in terms of visible increase in demand.
01:38Historically, this is also a time when price hikes are undertaken by the sector.
01:43And with the continuity in terms of the fact that elections are behind us, is it a fair
01:49assumption for us that there will be aggressive price hikes coming in from the cement sector?
01:57Price hikes will be natural and as I feel that not the price hikes are taken, at some
02:05places demand supply will be mismatched.
02:08Road demand, as you rightly said, see cost increase is there because of more dispatches
02:15from rail.
02:16Roads cannot cope up with the demand which is there.
02:20Price rise is immediate.
02:23But I feel still that there cannot be a very big price hike.
02:27The price hike on the year as a whole will be slightly lower than the inflation.
02:33So price rise will be there, but it will not be able to beat the inflation.
02:39While I know there will be a price hike, the monsoon has set itself on us as well.
02:46These price hikes are sustainable because on the flip, pet coke prices have also reduced.
02:52So your input costs have come off, demand is expected to improve, but still not looking
02:58as good as the industry would have liked.
03:00So in case of a price hike, while it may be a one-off, do you feel like this could be
03:03sustainable in the next couple of quarters and then have a material impact on your numbers?
03:08That's what I said.
03:10Price hike will be there and the sustainable will be little below, not much below, little
03:16below inflation.
03:17So inflation if we think is about 6%, then the price hike of 5% is very much natural.
03:25It may be delayed by a month or it can be pulled by a month, but this price hike has
03:30to come in the year as a whole.
03:34Bangur Niraj here, there is of course a lot of consolidation happening as well.
03:39You are on record saying that you want to expand organically, maybe over 80 million
03:43tonnes by FY28.
03:46Would you pursue that strategy or are you actively looking at inorganic acquisitions
03:51as well?
03:52We are going to be 80 million tonne, as I said earlier, we maintain the same thing.
03:59And even after that, if we find some good opportunity, we are not totally off the radar,
04:06but with the aggressiveness in the market for acquiring capacity, our hands may remain
04:14full with 80 million tonne.
04:17We don't mind, our balance sheet can support 85 million tonne also with 5 million tonne
04:25or 7 million tonne takeover, but our own strategy of 80 million tonne and then we have not yet
04:33discussed, but things are under plan for 100 million tonne by 2030, till we can get
04:43the land and all the clearances, we normally don't announce.
04:47And that is why whatever we announce is never deferred.
04:52So sir, sorry, just to get the clarity, you are saying that for you growing this organically
04:56to 80 million tonne by FY28, give or take, is the strategy that you want to pursue right
05:01now because the aggression in the market would make you not very keen on inorganic
05:07moves?
05:08Yes, not very keen, but we will not be totally off the radar, conflicts may really come and
05:14then we will look at it.
05:17Got it.
05:18The other aspect, Mr. Bangur, is how efficiently can plants run and there are multiple layers
05:24to it.
05:25One is of course the efficiency that comes naturally by operations, but two, green power
05:29being added, other aspects too.
05:31Would you believe that the cost of operations and cost per tonne of manufacturing cement
05:36for you, or maybe for the industry as well, could head lower over the course of the next
05:4224 to 36 months?
05:43Lower cannot be there.
05:44How small the price increase will be there.
05:45You are with the time where everything is going northwards, that the price increase
05:46will be natural because of inflation and others.
05:47If you can stay at the same level or if the price increase is 5% you are only 2% up, that
06:04is good.
06:05But if you look at it, 3 cement has recently completed 1000 megawatts of our own capital
06:12power.
06:13And out of that 500 megawatts is green power, that is wind, solar and this co-generation
06:23of power, waste heat recovery.
06:28Got it.
06:29Okay.
06:30So you are saying that it can't go lower, even if you optimize costs, let's say, 150
06:34rupees per tonne because of various measures, costs will not go lower, but you will optimize
06:39the costs relative to what happens in the industry per se.
06:42Yes, that's what I mean.
06:44Got it.
06:45Okay.
06:46Sir Bangur, you know, I know we keep hounding you about these questions in terms of expansion,
06:51M&A, what are you eyeing?
06:53A couple of months ago you had, of course, I read, in fact, I read an article where you
06:58said that you were very keen on building and expanding in central India and maybe south
07:02India.
07:04At that stage, there were rumors, of course, in the rounds that you are going to be picking
07:07up India Cement.
07:08Now, of course, none of that's happened.
07:10But is south a market that you're tempted to venture into?
07:13And if yes, any sort of conversations on any sort of targets being identified in that sense?
07:18Because there are opportunities that are available at a pretty, relatively cheaper valuation
07:23than what we saw happening on India Cements yesterday.
07:26Only about a month back, we had started our U2 unit in Andhra Pradesh and there is enough
07:32limestone there.
07:33As the markets increase, at much lower cost, we can increase our own capacity.
07:39There are brownfield expansion positions in south India and the limestone reserves are
07:46high.
07:47So, still, if some company, we may find, we are not very keen, but we are open to the
07:54idea.
07:55That's all I can say.
07:57Just a quick update.
07:58How is it going with the inorganic expansion that you had undertaken in Dubai, in UAE?
08:03You want to bring us up to speed with how business is looking there?
08:06UAE, now the market is good.
08:09UAE economy has improved and UAE plant is running at almost 100% with reasonable margins.
08:22The belief also is, Mr. Bangur, as we come to the end of the quarter, that your quarter-on-quarter
08:29volumes, because of Navalgad, because of Guntur getting commissioned, might actually see a
08:34bump-up, but it's just hitting monsoon, maybe not in south, but otherwise.
08:38Would we see a substantial uptick?
08:41How has demand been in the quarter?
08:43The demand in the quarter was flat, but still we are up by about 6-7%, partially because
08:50of the new capacity.
08:51But new capacity, as soon as it is completed, doesn't come into full force.
08:58That will take about 6 months.
08:59You have to develop the market, you have to develop the logistics.
09:02Only production capacity is there.
09:04So it will take about 6 months or so before the new capacity can be fully leveraged.
09:14In which case will we continue to see, because you may not be at full capacity utilisation
09:18currently in quarter 1, will we continue to see this optimum capacity utilisation and
09:23thereby higher volumes in the quarters to come?
09:27Do you reckon that demand will support that?
09:28I know you started off talking about demand.
09:30I am just trying to understand because you have newer capacities coming on stream.
09:33Will demand support higher utilisation levels, sir?
09:37Demand in the country is dependent on GDP growth.
09:41As all sources say, GDP growth will be 6-7%.
09:45Demand earlier was about 1.5 times the GDP growth.
09:49Now it is 1.3 times.
09:51The GDP growth demand increase in cement can be a same bet.
09:57If 7% or 6% is there, 8-9% is the yearly growth expected.
10:05First quarter growth was subdued.
10:07It must be making up in the next quarter.
10:09So I expect 10% demand growth, which is substantial demand growth.
10:14All the production from everyone will be, the country will be able to absorb.
10:21So we are very bullish about the future demand.
10:25Will we see price hike, sir, if demand is so strong?
10:28I mean, in the near term?
10:31Price hike will not be there.
10:32Demand is very strong, but the capacity addition also has to be strong.
10:37So we will be expecting price rise of about 5% or so,
10:43little below the inflation rate, general inflation rate.
10:47That is what I expected.
10:48And that is what most likely, as per my understanding.
10:54Mr. Bangur, such a pleasure talking to you, sir.
10:57Thank you for taking the time out and all the best for the quarters ahead.
11:00Thank you, sir.