We are expecting a turnover of Rs 400/450 cr after completion of Phase-1
New capacity additions are becoming difficult due to regulatory hurdles in land acquisition, mining leases and environmental approval, says RP Gupta, Chairman and Managing Director, Shiva Cement. In an exclusive chat with ICR, he elaborates on the company's expansion drive. Excerpts from the interview.
Could you throw more light on the current expansion plan, Phase I and Phase II?
We had signed MOU with the Odisha government for expanding plant capacity up to 2.6 mtpa with an investment upto Rs. 800 crore in two phases. Currently, Phase I plan is under implementation up to 1 mtpa with a capital outlay of Rs. 270 crore. Commercial production of Phase 1 is likely to commence from Jan 2015 and thereafter Phase 2 expansion shall be taken up.
What will be the total investment and how do you plan to raise the capital?
Phase 1 shall be financed through a debt of Rs 170 crore and balance by equity and cash accruals. The lead bank has already sanctioned term loan of Rs 70 crore. Consortium members are in the process of sanction of balance 100 crore which will be completed by 1st week of July. Promoters have already brought in about Rs 30 crore.
Will ACC be taking more shares in SCL and how it is going to help its shareholders?
ACC has nominated directors in SCL's Board and the total production of cement is marketed under ACC brand. They also provide technical and managerial guidance. Equity participation by ACC shall be negotiated only after sanction of loan. Shareholders shall be certainly benefited after expansion out of increased volume and efficiency. Several surplus assets shall be put to productive use after expansion.
What is your take on the current demand-supply mismatch?
In the recent past, substantial capacity was added in the country in anticipation of growth in demand. Unfortunately, demand is sluggish due to the slowdown in infrastructure and economy as a whole. However, such cyclical effects have been witnessed in the past also. Cement industry being a core sector, the medium and long- term view should be taken, which is certainly promising. Demand growth will certainly bounce back and excess capacity shall bottom out in the next two years. New capacity additions are becoming difficult due to regulatory hurdles in land acquisition, mining leases and environmental approval. If these issues are not addressed, it can create huge shortage and price hike, which is otherwise not desirable. It is understood that the domestic players do not enjoy a level playing field vis- a- vis global players, especially when it comes to import of cement. Yes. Input costs like fuel, energy and logistics cost is high in India, as compared to several other countries. All these are directly/indirectly controlled by the government. Yet India will always remain a net exporter of cement and clinker. The Indian cement industry is quite matured and adopting the latest technology in a quick manner. But the real worry is paucity of fuel and energy. We must liberalise the primary energy sector and create competition for improving supply with affordable cost and reducing dependency on imported energy. Competition is also needed in the secondary energy distribution and cross subsidy to be removed. Otherwise, the cement price will keep on spiralling.
Brief us on the steps you have taken to optimise fuel/energy efficiency.
Saving fuel and energy is most vital not only for the profitability but also for addressing environmental concerns. After expansion, our fuel and energy consumption-per-tonne of cement shall be much lower than the industry average due to adoption of latest technology.
Where does the company see itself five years down the line, in terms of reducing its carbon footprints?
After expansion, carbon emission per tonne of cement in SCL could be lower by about 40 per cent in comparison to industry average due to saving in fuel, energy and limestone consumption. The major reduction will be on the account of lowering clinker consumption through latest technologies.
How do you assess the challenges on the logistics front?
Logistics costs in our country are too high. Inadequate capacity in railway aggravates the problem for long- distance despatches of bulky product like cement, coal and minerals. Fortunately, our plant is located in the vicinity of market and raw material source. Therefore dependency upon rail despatch is quite low which provides us with an edge over other. However, in the larger interest of the country, we must transfer goods traffic from road to railway for cost- efficiency and reducing burden of imported energy. This needs a major restructuring of railway and augmenting investment of Rs.12 lakh crore in 12th Plan as against 2.6 lakh crore in 11th Plan. Details of such restructuring and financing solution are discussed in my book æTurn Around India.'
What steps does the company take to reduce the impact on the environment?
Environmental concern is one of the aspects of CSR and not the core issue, in my personal opinion. Rather, the core aspect is protecting the interest of shareholders, employees, customers, suppliers and neighbouring villagers. Environmental concern has been over politicised in our country. India's per capita GHG emission is about 1.43 T as against world average 4.74 T. The industry's share of GHG emission in the country is barely 21.7 per cent as against 17.6 per cent by agriculture, 10.2 per cent by domestic and 7.5 per cent by transport. It requires a separate debate while focussing on industry alone. This is elaborated in my book æTurn Around India,' recently launched by Narendra Modi. Any growth and development is bound to damage environment; maybe in less or more proportion. We must not compromise with growth and development till our per capita income comes near to the world average and current account deficit is brought to nil. Thereafter, we should increase spending on green technology as a part of global mission. Every developed country has adopted a similar strategy during their development phase. Hence, we should also take a rational approach on this front.
What is your take on the usage of AFR?
Currently, we are not working seriously on alternative fuel, since our plant is located in the coal belt. However, some trials were conducted on the use of CHAR, a waste product of sponge kilns. It needs extensive study before putting into commercial use.
Brief us on the challenges faced by the cement industry today. How has SCL been able to sustain the growth momentum?
The immediate challenge is sluggish demand but it is a temporary phenomenon. The regular challenge will be escalating cost of fuel and energy for which we have taken adequate care in our expansion plan to reduce consumption. Another challenge is logistics cost and shortage of railway rakes arising due to lack of investment in railway and cross subsidy on goods freight. Fortunately, this is converted to our advantage due to market vicinity. But these issues need a pro-active policy for public interest.
In a very intense competitive market, what makes SCL different?
The core strength of SCL owns limestone mines. Existing integrated cement plants in this region do not have surplus limestone to expand the capacity and there are no virgin limestone deposits in the eastern zone. The other advantages are vicinity of market and vicinity of slag. We have adopted latest technology in the upcoming expansion with maximum use of slag which reduces production cost to significant level. Of course, our 26 years' experience in the cement manufacturing and alliance with ACC are the added advantages.
Is there any plan to broaden the product basket?
Not at present