Cement Industry may see 15-20% demand contraction in FY21: Mahendra Singhi, Dalmia Cement (Bharat) Ltd

Mahendra Singhi, MD & CEO, Dalmia Cement (Bharat) Ltd, talks about the Q1FY21 results and outlook for demand in future quarters during an interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: Your profit has seen a jump in the first quarter and there is an improvement in the margins. What led to this jump and also provide the highlights of the quarter?

A: Everyone knows that COVID-19 and the lockdown have reduced the demand for almost every product in the first quarter. If we look at the cement sector, the demand for overall Indian cement has declined by almost 36% and seeing the decline our team in East, South and North-East have done a good job, worked proactively and was well connected with the customers and logistics, which resulted in degrowth of 19%. It feels bad in terming it as degrowth but if seen in comparison to the major cement, then they have de-grown by 25-28% to 32-33%. It has helped us in increasing our market share. Secondly, the proactive approach of working has helped in increasing the prices of our products. If we have a look at our EBITDA per ton then it is Rs 1,675 per ton of cement, which is operating profit and this is the highest EBITDA for any cement company. Earlier, the EBITDA stood at around Rs 1,450 per ton, so far highest for us and it has crossed this time. There are some major reasons for it

The prices are slightly better in May and June and this increase in the prices has increased the EBITDA
The initiatives were undertaken to reduce the cost, like how to reduce the cost of power and fuel, increase the production of blended cement, to reduce the variable cost. We were able to reduce the cost by Rs 60-70 compared to the last year’s cost. Going forward, I think that these initiatives will help in a further reduction in the variable cost further.

We were not able to work on many fronts due to the lockdown and the major front was related to the marketing cost. So, the marketing cost has reduced in these three months at the same time, there is a reduction in travel cost and overhead cost among others. Along with this, the conscious decisions were taken to reduce the overhead costs and increase our efficiency. However, we ensured to pay the salaries of our workers and staffs at the right time and care for them. This too has been good in our oral objectives due to which our team has performed well in the first quarter.

Q: Going forward, what is your outlook and what demand situation is visible to you? Monsoon has resulted in a lean period but what is your expectation for demand revival and what is your view on prices?

A: Demand, generally, reduces in July, August and September. Secondly, these are uncertain times when new COVID-19 red spots are emerging due to which new containment areas are being created. This is leading to frequent lockdowns in different areas especially in Karnataka, Maharashtra, Bengal, Bihar and parts of Odisha leading to a reduction in demand since July 15. Demand was also impacted due to the foods in some parts of Bihar and Bengal. If compared to June then the prices have gone down by Rs 8 to 15 in some parts. Still, there is no certainty of demand due to which it is very difficult to gauge the kind of volume we will have. But one thing is sure that we will be better than the industry. We have been better from the industry in the past as well and if you have a look on our track record then our growth has been better than the growth of the industry.

Our capacity has also been better than the industry. We have always been among the first few may it be in terms of EBITDA per ton or growth. If we look at the overall industry in FY21 then it seems that there can be a demand contraction of up to 15-20% this year. Of course, it will depend on the kind of steps the government will take. It has already taken good steps in the last four months due to which the demand has increased in rural India. If we have a look at our share then our demand has increased in the rural areas. Our brand has strengthened more due to which our trade percentage in FY20 has grown a lot if compared to FY19. 

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So, I would say that there will be uncertainty in demand and the prices will move accordingly. As far as our variable and fixed cost are concerned, then it will be more efficient.