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Orient Cement   's fourth quarter net profit declined, but it was expected because of higher finance costs towards expansion. Cement realisations have fallen to Rs 3,200 per tonne in Q4FY16 from Rs 4000 per tonne earlier, said Deepak Khetrapal, MD & CEO of Orient Cement. He further said the company is targeting sales volume of 14.5-15 lakh tonnes in coming quarters and also looking at higher usage of pet coke as cement plant stabilise. Below is the verbatim transcript of Deepak Khetrapal's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. 

 

Latha: If you can start by telling us volumes during the quarter and more importantly volumes in the new plant? 

 

A: The quarter, for which we have declared the result, we have done a total volume of nearly 13.9 lakh tonne. This basically means 40 percent growth over the same quarter last year and also 35 percent growth over the preceding quarter on a sequential basis. Obviously, large growth is coming on the back of new capacity that we commissioned recently and from that new capacity we have sold more than 3 lakh tonne in the quarter, which is giving us a capacity utilisation of about 45 percent in the quarter. However, the more important thing is that this 45 percent of the quarter does not reflect the full picture because month-by-month any new project, any new plant ramps up month-after-month. So, if we took standalone month of March, we have already crossed 50 percent utilisation. So, in a nutshell, yes, the new plant is shaping up very well. The volumes are being ramped up and all the efficiencies are settling down slowly gradually. As you said in the beginning the profits are looking lower than last year largely on account of the additional depreciation interest cost that we have booked in this quarter on the new project and also because of the fact that the prices that we have got in this quarter vis-à-vis same quarter last year, there is dramatic fall. Last year in this quarter our realisations were nearly Rs 4,000 a tonne whereas this quarter it is barely about Rs 3,230. So there is a huge decline in the realisation, but that largely we managed to cover through the cost management. If you look at our cost this year and especially in the quarter four, they have been very good. Therefore, that is the overall scenario, the explanation behind the financials. 

 

Latha: One point of detail, when you said 50 percent utilisation you meant at the new plant then what is the overall capacity utilisation? 

 

A: The older plants in quarter four delivered 86 percent of capacity and that new plant on its own delivered about 45 percent; overall about 74 percent. 

 

Latha: You reach 100 percent when in the new plant? 

 

A: We are not even targeting 100 percent in the next two years. The way the markets are today, I think this year we are targeting 60 percent utilisation for the year as whole. Not to forget that the month of March was very good because the demand overall has been good. However, in the New Year that has started we will have off season during the monsoon period, festival season. So, overall the target for this year of the new plant is 60 percent utilisation. The older plant will be about 86-88 percent. 

 

Sonia: What are the early trends that you are picking up on the demand situation for the months of April and May and on this base of 13.9 lakh tonne which you clocked in this quarter what kind of an upside do you see in the next two quarters? 

 

A: The quarter which is on currently-that is April to June, we are expecting very strong volumes. 13.9 lakh tonne in the last quarter was very good. We certainly will be looking at least that much volume and hopefully some growth on that. The month of July will hopefully bring us good monsoons which will slowdown the demand for season during the monsoon period but I am dreading that. I am looking forward to some good monsoon this year because we do need that for the cement business or any other business in the country to keep doing well. So, my own forecast would be that in the current quarter of April to June we should look at volumes in the range of about 15 lakh tonne for ourselves, between 14.50 and 15 lakh tonne. However, they will obviously fall in the July to September quarter because of the monsoon coming in. 

 

Sonia: What about the realisations? You said that they have fallen to about Rs 3,200 per tonne. In the coming two quarters what could the average realisations be? 

 

A: The price situation in the market has been very depressing. April despite the fact that we have seen some strong volumes, the pricing has been quite worst especially if you look at the markets in Maharashtra, Telangana and Andhra Pradesh. Those are the markets in which we are operating. April has not been good but in the beginning of May we are beginning to see some kind of uptrend in the prices. In the last two-three days prices in Maharashtra have moved about Rs 10-15 a bag and similarly Andhra Pradesh and Telangana also because last two months strong demand situation is leading us to believe that once the demand is up the prices should come back to what we call, the back to averages, back to mean kind of a situation which about Rs 3,900-4,000 a tonne is something which we do expect to come back. In April it has not happened but we are quite hopeful that in the months of May and June we will certainly see improved realisations. 

 

Latha: For the other cement companies even if realisations fell all of them reported higher margins both quarter-on-quarter and year-on-year because your costs have fallen faster than your prices. What about your own margins, net of the new plant? 

 

A: If you look at the reduction in the cost that we have had, we had exactly in line with what the other industry leaders have done. Where we have suffered more is the fact that the markets in which we operate like Maharashtra, Telangana and Andhra have suffered price erosion whereas some of the larger players who have declared results so far, they are the pan India players. However, price situation in north and east has been a lot better than what we have experienced in Maharashtra and Andhra so that is the difference. Cost wise we have matched the industry. 

 

Latha: Give us little more colour on your cost. How much exactly is the total fall in raw material cost and what is your fuel mix between coal and pet coke? 

 

A: As we have explained before, we were not equipped to use pet coke earlier but in this quarter, in the older plant we have already reached 37 percent of total fuel mix that we have consumed in this quarter and that's pet coke. In the newer plants we are still waiting for the new kiln to stabilise before we start feeding pet coke because pet coke is a slightly more volatile fuel and till all the performance guarantee and everything is fulfilled by the vendors of the new equipment we are not going in for alternate fuel. We are still sticking to coal. However, as the plant stabilise, all the performance guarantees are delivered and the vendor starts moving out of establishing the plant then we plan to use pet coke between 40 and 50 percent in the new plant. 

 

Sonia: If you can throw some light on your balance sheet because your finance cost are the big reasons why your profit has been curtailed? What is the debt on the books currently? How much do you plan to bring it down by and what will the average run rate of the interest cost be in the quarters to come? 

 

A: The total borrowing on the books as on date is about Rs 1,240 crore and with the net worth being what it is today, we have a debt equity of 1.2, which is very comfortable. In terms of reducing debt, from the beginning when we contracted this large loan for the new project that we have commissioned the repayment does not being for another 18 months. So, in the current year there is no plan to bring the debt down. We actually are conserving some cash to start addressing our growth aspirations that we have been declaring to the market that we would want to grow to 15 million tonne by 2020. So, debt will not come down in the current year and that is not the plan. However, hopefully we should be able to come back to the markets with our next project or the next acquisitions that we are planning.

Source: moneycontrol.com