We focused on how to create cost efficiency in system: K C Birla

Q&A with Chief Financial Officer UltraTech Cements

UltraTech Cements, part of the Aditya Birla group, had a tough time in Q1 of FY14. The company, with a consolidated debt of Rs 2,500 crore on its books, has drawn road map for expansion by adding additional 10 million tonne by FY15. The company's chief financial officer (CFO) K C Birla says that cutting costs and better efficiency is the road ahead. The company already decreased its energy costs by 10% in Q1 by increasing pet coke as fuel. Edited excerpts:

How is the current quarter (July-September) going to turn out for cement demand?

There is slowdown in infrastructure sector and slowdown in government spending the cement demand is down. And we are expecting the demand during this quarter will be 3-4% as it is linked with GDP. Q2 is a rainy season whereby demand comes down. We are expecting Q2 will be like Q1. Having said that, in second half of FY14, we are expecting some pre-election spending that should boost demand growth.

How much surplus is there in the cement sector?

Currently, there is a surplus of around 90 million tonne capacity. Further, added with lower demand this has put pressure on the cement prices. In Q1 our realisation was down by 6%. And as a result of this lower volume and lower realisation dented the profitability for this quarter.

How are you addressing the rising input cost issue?

We are focused on how to create cost efficiency in the system. On the cost front we did all managerial efforts and therefore our energy costs during the quarter was down 10%.  Imported coal prices have softened compared to same period last year. We are continuously focusing on increasing consumption of cheap fuel that is pet coke.

It is cheaper than imported coal. During Q1 our pet coke consumption increased by 10%, and currently it is 46% of our coal requirement. In fact, our costs during this quarter was down 3% (y-o-y) on the back of continuous optimisation on our energy front. So, our costs per tonne is better than the industry's expectations.

We could curtail our energy costs by optimising the fuel mix in our cement plant and power plant. On the logistics front, though we can reduce the logistics distance by better optimisation, but what is worrying is the continuous rise in diesel prices.

Because of the increase in diesel prices (year-on-year), the diesel prices have gone up by 25%. We are currently supplying 60% of cement by road, 3% by sea and rest by rail. We have around 5-6 ships - which operate from our Gujarat plant to Sri Lanka, Mangalore and Ratnagiri.

All our integrated plants are served by our captive power plants. For the grinding units, we have a small requirement of the power. So, grinding units depend on open market purchase of power from state electricity boards (SEBs). Combining together, grinding units and the mother plant, our self-sufficiency power ratio is 80%.

Where do you stand in terms of capacity utilisation vis-a-vis industry?

Particularly, in the southern market where there was lot of additions in the last three years, the capacity utilisation there is 59%. And as a result of this poor capacity utilisation in the south, overall India's utilisation has come down to 71%.  In the west and north, it is around 82-85% while in the eastern part it stands around 75%. For UltraTech Cement, the capacity utilisation for Q1 was 80%. If industry-wide capacity utilisation is 80%, it is acceptable norms. Internationally it is around the same.

How much is your consolidated and standalone debt on your books currently?
 
There is consolidated debt of Rs 7,000 crore on UltraTech's books while standalone debt figure is at Rs 4,900 crore. At the same time, we have cash and cash equivalent of Rs 4,400 crore. So, that way our net debt on standalone basis is Rs 500 crore while on consolidated basis it stands around Rs 2,500 crore.

Earlier, the Aditya Birla group had said of adding 25 million tonne of capacity to take it to 75 million tonne. But now the target appears to have been cut to 65 million tonnes.

Land acquisition is taking longer time. And, therefore whatever plan we had...but it is a question about long time taking to acquire land for our greenfield projects. Our aim is to grow better than the industry. We are open for inorganic and organic growth. We have an expertise in growing both via - inorganic as well as organic growth. We are continuously evaluating various options.