Post the passage of Mines and Minerals Development and Regulation (MMDR) bill, the cost of mining is expected to go up because of the payment that miners would have to make to the District Mineral Foundation (DMF), which in turn could lead to higher coal prices and could impact industries that require coal as fuel for manufacturing. Cement is one such industry that could see price hikes.
Talking about this impact Jamshed Naval Cooper, CEO & MD, Heidelbergcement India in an interview to CNBC-TV18 said any hike coal prices would definitely be passed on to the consumers, which could be to the tune of Rs 3-4 per bag of cement. However, he clarified that the company has now moved its dependence to petcoke from coal. Sixty percent of company’s requirements are now met through petcoke.
Answering a query on demand, Cooper said there has been some improvement in month of March compared to February and January, which saw de-growth on a Year-on-Year basis. He also expects price hike to the tune of Rs 6 per bag in April 2015.
Although refusing to comment on specific acquisitions, Cooper says the group is actively looking at organic and inorganic acquisitions in India.
Cement prices across regions have remained weak during January-February 2015 with exception of South which saw a 34% Year-on-Year (YoY) price increase in February.
Below is the transcript of Jamshed Naval Cooper’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: Can you tell us what your own coal requirement is from Coal India and if and when prices do go up, will you pass it on to the consumer in terms of price hikes?
A: We use a blend of coal and petroleum coke (petcoke). So we have moved a little more to the petcoke side and reduced our dependence on coal. As we move forward we see that if the coal prices are moving up, finally it is going to be passed on to the customer. I think this is the industry wide issue, which is if the coal price goes up, it is to be passed to the customer.
Latha: How have you read the MMDR bill itself, have you consulted lawyers, have you been in touch with Coal India, what is the likely scenario, should we expect that the royalty is going to be passed on – any clarity on all this?
A: No, we don’t have much clarity on that right now. But we expect that the impact on cement will be about something like Rs 3 per bag to Rs 4 per bag, which will be passed on to the market.
Sonia: Will this be easy to pass on given that the demand situation has not picked up so much; experts have been telling us that on the ground things are not improving at all? Will you be able to undertake this kind of a price hike?
A: It is basically a supply-demand scenario. Right now since last two months January and February we saw bad months but from March we have seen some improvements in the demand, so prices should look up. Cement is very cyclical in demand and so we should not expect prices to remain subdued all the time. The prices do move up and that is an occasion when the prices go up when we pass it on to the consumers but normally passing on about Rs 3-5 per bag is not a big deal.
Latha: You said demand improved, can you give some idea, can you quantify somewhat how much demand went up in March vis-à-vis previous March, as well if the trend continues what kind of a price hike can one expect in April because it is the traditional time in price hikes, isn’t it?
A: What has happened in the past -January and February were negative months compared to the previous year. So we are seeing a flattish growth in the month of March. So if we can manage March similar to what last year was maybe about more than 3 percent, it should be a good sign I would say.
Latha: Therefore where may you see price hikes if at all in April, which regions, how much?
A: I think in the second half of April, we should see some increases by about Rs 5-6 a bag.
Sonia: You mentioned that you are more dependent on petcoke than coal, can you give us an exact break up of how much coal you used, how much is petcoke and how much comes in from Coal India?
A: It is about 60 percent of our consumption is about petcoke. So about 60 percent of our requirement is met through the petcoke fuel and balance is coal that we get from Coal India, which is about 13,000-14,000 tonne a month.
Latha: About the sector that sees a largest number of inorganic moves, mergers and buying is the cement space. We continue to hear the name of Jaypee group being mentioned in terms of sell of one plant or the other, are you a buyer?
A: I won’t like to comment on any of the industry rumours which take place. We follow a certain corporate governance, we don’t give any feedback or react to any information of the market.
Latha: Generally you are open to inorganic moves at this point?
A: In the earlier interview also I had mentioned that group is very much keen on India and we are actively scouting for any acquisitions both organic and inorganic growth we are both moving in the parallel direction.
Sonia: You said Rs 5-6 per bag is the increase that you are expecting, what would this do to your EBITDA per tonne, which was — the last time about Rs 560 per tonne?
A: You can compute that. It is not going to be much.
Sonia: Will there be an immediate impact in this next quarter itself?
A: Not really because it is just only a short period, which may happen. We don’t know what is going to happen but I am expecting that about Rs 5-6 prices may move up by end March and mid-April.