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Lease financing is still at a nascent stage



Partha Mookherjee, Head – Mining Equipment Business, Larsen & Toubro LimitedHow do you view the immediate and long term growth prospects for the Indian cement industry? How important is the cement/limestone market for your organisation? What is the share of contracts from new projects vis-a-vis replacement requirements?
We have a very positive outlook of the Indian cement industry. The per capita cement consumption in India is much lower than world average (200 kg vis-a-vis world average of 500 kg). With major spend taking place in affordable housing, road construction and civil infrastructure, we anticipate a fillip in the demand with expected compounded annual growth of 7 to 8 per cent in next few years. Limestone segment comes next only to coal segment in machinery consumption. We supply mining machines like hydraulic excavators, dump trucks, crawler dozers, wheel loaders, motor graders of Komatsu brand, who are world leaders in construction and mining equipment. We also offer Scania Tipper Truck, which is ideal for the mid-mining segment. We offer complete mining solutions for limestone segment right from application engineering, optimum fleet requirement, cost per tonne analysis, lifecycle costing and crushing solutions. Currently, the capacity utilisation in the cement industry ranges from 65 to 75 per cent depending upon geographical locations; but we see a continuous appetite by our customers in both brownfield and greenfield expansions. Our share is about 50:50 for expansion and replacement requirements.
Given that the cost of energy and fuel are escalating, have you seen a shift to Life-cycle cost as against initial capital cost as the major procurement decision criterion? How do your machinery/ equipment designed for the cement sector, fare in this respect? What competitive advantages do your customers gain when they choose your products over your competitors?
The industry has shifted to lifecycle costing as a major procurement decision criterion unlike past scenarios where only the capital cost was the key factor. The industry now appreciates that initial capital cost contributes only 15 to 20 per cent of the lifecycle cost whereas fuel and spare parts form over 60 per cent of the lifecycle costing. Komatsu machinery operates in the premium market and we still enjoy a very high market share because of much lower lifecycle costs. While choosing our products, our customers gain in terms of higher productivity in tonne/litre basis thus making us cheaper on cost per tonne basis. Over the years, our customers have gained confidence in Komatsu products due to their high reliability and unmatched support extended by L&T from its nationwide workshops and service infrastructure which results in highest availability and utilisation.

We have today a heightened sensitivity towards environmental issues, and mining activities in particular have attracted some amount of negative attention. How do your designs build in environment-friendly features into your machines? Kindly share some details with our readers.

With increased sensitivity towards the environment and negative impact of global warming, it is but imperative that we need to have a clear focus on environment conservation. Mining, being a contributor to global pollution, it is but natural that all of us should move towards sustainable mining. L&T, being an environmentally-conscious company, have always been in the forefront of nature conservation. Komatsu equipment incorporates all the latest features that are environment friendly like lead free radiators, emission compliant engines, low noise cabins etc, which meet the most stringent pollution norms applicable anywhere in the world.

There has been a trend of lease-financing of the mining assets, by some customers, instead of outright purchases, which one may even call "hire-purchases". Have you encountered such choices being made by some owners, and if so, how have you been able to service such financing needs?
Presently, most of our customers are going for outright purchases only. However, there is shifting trend towards lease financing though still at a nascent stage in the mining asset purchase.

We have tied up with leading banks and NBFCs who have partnered with us and ready to offer tailor made financing options which suit our customers’ requirements.

Our country has been witness to sharp changes in the mining regulatory framework in the last few years, around prospecting schemes, award of leases, auction of concessions, as well as compliances. What has been the impact of all these changes on the mining sector overall, and per se, on the limestone mining sub-sector? How have these shifts influenced your business?
Yes, there has been a disruption in mining activities starting with Supreme Court judgement in the coal and mining sector coupled with adoption of stringent norms in LA and R&R which had slowed down the overall process of new projects coming up. We are, however, hopeful that with the overall positive business scenario and growth prospects, the industry shall revive sooner than later. The slowing down of the industry has impacted the offtake of mining machinery but things have started looking up of late with enquiries and overall buoyancy. In the limestone industry, the impact was minimal for two reasons: the industry was operating at 70 to 75 per cent of their capacity and the brownfield expansion kept the clock ticking along with debottlenecking. However, the greenfield projects took a backseat for a while.
What are the latest introductions by you into the mining machinery market? Are these superior product offerings from technology, environment, energy or productivity perspectives? How has the market accepted such new products? Are there newer products on the drawing board?
As authorised distributors of Komatsu, Scania and our own range of equipment in the Indian market, we offer world-class products in terms of latest technology and meet environment standards. Our equipment are highly productive and fuel efficient and provide better availability to the customers. Customers across user segments have shown wide acceptance of equipment in the Indian market.
Quite a few of your machines cater both to mining sector as well as the construction. So, with your wide-angle view of both these industries, how do you assess their current growth performance, relative to each other?
The mining sector is currently sluggish due to judicial intervention, which has impacted the mining equipment business. However, construction sector in India is doing good due to increased demand from real estate, roads and infrastructure projects. Due to high priority of he Government of India, infrastructure segment has created big market for these equipment.
How does L&T stand out in terms of offerings in the mining market?
L&T’s strengths lie in its ability to remotely manage large assets in various projects across India with full maintenance contracts and site support agreements. Our service engineers are well equipped and trained to rapidly assemble large machines at project sites in shorter lead times. Besides, L&T provides training and expertise to the operators to handle Komatsu, Scania and L&T machines.

B.S. Srinivasalu Reddy

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings




Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

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Wonder Cement shows journey of cement with new campaign




The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…


Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)




Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.

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