Vinita Singhania, Managing Director, JK Lakshmi Cement Ltd, and President, Cement Manufacturers’ Association (CMA) in an e-interview with Indian Cement Review, explains her priorities, defends accusations and puts forth her suggestions for the growth of Indian cement industry.
Now that the Budget 2011-12 has been announced, what are your priorities for the Indian cement industry?
My main priority for the cement industry is to arrange/mobilise adequate raw materials and infrastructure so that the industry can grow at the required rate to meet the emerging demand of the nation in the next one decade. Indian cement industry today faces acute shortage of fuel for production as well as for its power requirement, wagon for its movement of cement and more importantly, bulk handling infrastructure at the cement unloading/consumption points. Further, since the Budget has not addressed the long pending concern of the industry with respect to the high taxation burden, the priority to sensitise and convince the authorities about the same remains an important item on the Industry’s agenda.
What has the Budget badly missed out, which would have propelled the industry to greater heights?
As mentioned earlier, the issue of high taxation on cement industry which results in high cost of cement to the end-consumers needs to be looked at by the government afresh, recognising that cement is an essential input for the country’s infrastructure development as also for common man’s housing requirement.
The Budget does not incentivise efficient working in the cement industry atleast. Neither it has encouraged the modern method of construction/products like RMC, AAC blocks etc, which are not only environment-friendly but if which encouraged can reduce the load on the country’s resources and infrastructure. Instead of any incentive products like fly ash, slag, RMC are now being subjected to excise rate of one per cent. With imaginative use of taxation on these products their consumption could have been encouraged.
What is your opinion on the reduction in import duty on pet coke and gypsum? What would be its impact on production cost?
Reduction in import duty on pet coke and gypsum is a positive move though the reduction is still only half way meeting the industry’s requirement which faces an anomaly of cement being imported at zero per cent import duty while the import of its raw material was being subject to 5 per cent import duty which has been reduced to 2.5 per cent in the Budget. It can possibly impact the production cost by about one per cent to those units who are dependent on imported coal or pet coke and who are situated closer to the ports. The rest of the cement plants which form a major chunk remain unaffected.
The government has restructured the excise duty by bringing in composite rates having an ad valorem and specific component. What would be its impact on the cement price?
The dual system of excise on cement is now prevalent for the fifth year. The bigger question is not that one of ad valorem vs specific rate. The issue is that since in a commodity like cement post manufacturing expenses are very high, notably that of freight, the excise duty if charged on ad valorem rate, should also have a provision for abatement on such post manufacturing expenses. In fact, the government has been providing abatement to many industries, including white cement. The cement (grey) industry, however, continues to remain deprived of this abatement causing hardship to the industry.
The surcharge limit on corporate tax has been brought down to 5 per cent from 7.5 per cent and the minimum alternate tax (MAT) has been increased to 18.5 per cent from the existing 18 per cent. What would be its impact on the industry?
The reduction of surcharge on corporate tax by 2.5 per cent and increase in MAT rate from 18 to 18.5 per cent has resulted in increase in overall MAT rate by 0.08 per cent and decrease in corporate tax by 0.77 per cent. This has widened the gap by 0.85 per cent in normal corporate tax and MAT rate.
The resultant gap between the normal tax and MAT will negatively impact the capital investments as also the cash flows of companies on MAT.
There is always an accusation of cartelisation in the cement industry, which leads to artificial hike in price. Your comments on this allegation.
The accusations of cartelisation, if any, are totally incorrect and ill-founded.
On one hand, a price hike is announced every alternate week while on the other, the industry faces a serious under-utilisation of capacity. Can you explain this anomaly?
It would be incorrect to say that price hikes are announced every alternate week. For instance, in the area where our company JK Lakshmi Cement operates, we have not seen any price increase from March 2010 to January 2011 though, yes, we did see price declining a number of times. The industry normally faces this dilemma that whenever the prices decline the capacity utilisation also declines. This is understandable as cement prices are a direct off-shoot of demand and supply and whenever the supply increases on account of new capacity creations the overall capacity utilisation falls if the demand is not able to keep pace with the addition in the capacities.
Since the capacity is under-utilised, are there any plans to bolster the export?
The exports this year are at about the same level as last year. Indian cement industry is a marginal player in the international cement trade on account of its high inland cost of transportation. Also in the recent times consequent to the recession of 2008-09 the international demand for cement continues to be at low ebb. The Indian cement industry, therefore, has been finding it difficult to even maintain its previous level of exports.
Coal being the main fuel for the industry, its availability is depleting at a faster rate. How the use of alternate fuel can be encouraged?
Cement industry has been experimenting with alternate fuel for last many years now. Many cement plants in the country, including ours, have taken lead in working with alternate fuel like pet coke, lignite, agricultural waste, biomass, etc. One obvious way to encourage the use of alternate fuel would be to offer excise duty concession to the extent cement produced from the alternate fuel and if that alternate fuel is an industrial waste then the waste generating industry must compensate by some levy mechanism to promote utilisation of such industrial wastes.
With conventional source of energy getting dearer and environmentally risky, how is the industry embracing renewable source of energy?
One of the methods increasingly being resorted to by the cement industry is by greater usage of waste heat from the kilns and convert it into power.
How do you see the acceptance and evolution of blended cement in India?
By and large, the blended cement is now well accepted in many segments of the users. Surprisingly, the greater resistance comes from the public sector or government departments who for reasons best known to them continues to insist on usage of OPC. I feel there would have to be greater intervention by the government to ensure that usage of blended cement is made compulsory.
Cement companies are selling PPC at the same price as they would have sold OPC by adding flyash and hence there is more margin for cement companies in selling PPC. Your comments.
It would be incorrect to generalise that cement companies are selling PPC at the same price as that of OPC. In major parts of our markets, for instance, OPC commands a premium of Rs 15 to 20 a bag over PPC. In the markets where the price gaps are lower cement companies lose by selling more of OPC. In a way it is only appropriate that the cement companies should gain by manufacturing PPC and that is the only way the industrial waste like fly ash, slag, etc can be utilised in greater quantity.
RMC, being value-added product, is still in its nascent stage. What steps can be taken to encourage the use of RMC?
RMC off late in mature market is showing a trend of good growth. We expect this trend to continue and the use of RMC to grow in Tier II and III cities. The industry has to take certain steps to make RMC available, acceptable and affordable to the customers in Tier II and III cities.
Cement demand is driven by the housing market to the extent of 70 per cent and balance by infrastructure, etc. Given the pace of investment happening in infrastructure, do you foresee a shift in demand drivers?
To the best of our judgement, the consumption of cement in building construction is about 60-65 per cent and that would include building for housing as well as for commercial and infrastructure. Clearly, with greater emphasis on infrastructure development there would be gradually higher requirement by the infrastructure sector.
Many cement companies have reported loss in Q3. What are the factors affecting the companies? What remedial measures would you suggest in this regard?
Cement industry in the Q2 and Q3 has faced twin pressures, viz, falling cement prices and increasing cost of production. Fuels, both nationally and internationally, have seen a great upsurge in its prices thereby putting pressure on the cost of production while additional capacities which have created a situation of surplus, impacted the prices negatively.
Do you see mergers and acquisitions happening in near future? Is the cement industry ready for consolidation?
The current level of valuations do not make mergers and acquisitions attractive as the cost of acquiring capacity is higher than the cost of creating new capacity. In the past mergers and acquisitions have taken place as many MNCs who were wanting to establish themselves/or expand in India paid premiums. In immediate future with the current level of valuations I do not see much activity on this front but there could be surprises, I can’t be sure.