K M Birla says all is not rosy for economy, warns of near-term headwinds

Bharatmala, new airports and metros, along with affordable housing and smart cities will stoke growth in the medium-term, says Birla

Industrialist Kumar Mangalam Birla on Wednesday warned of near-term headwinds for the economy saying the rising oil prices, spiralling inflation, firming bond yields and a widening current account deficit are areas of concern.

The present positive outlook gets a bit dimmed when one views the increasing trade protectionism, rising crude prices, geo-political risks and the uncertainty about tightening monetary policies in the advanced economies, Birla told the shareholders at the annual general meeting of the group flagship Ultratech Cement here this evening.

Noting that the economy has shown considerable resilience to the transitory effects on demonetization and GST rollout, he said infrastructure projects like Bharatmala, new airports and metros, along with affordable housing and smart cities will stoke growth in the medium-term.

"However, there are near-term challenges. Rising oil Prices and inflation, firming bond yields and a widening current account deficit are areas of concern. The ongoing global trade wars, more so between the US and China, are worrisome and will have a spillover negative effects on our economy," Birla warned.

Noting that the domestic cement industry has seen demand pick-up of late, he said after seven years the industry is likely to report good growth this year. Government thrust on infrastructure development remains the key growth driver. Revival of rural housing demand and push to low-cost housing have supported strong volume offtake, Birla said.

In FY18, the industry was hit due to the ban on sand mining and pet-coke in major states impacted construction activities. The massive duty hike on imported pet-coke from 2.5 per cent to 10 and the increase in diesel prices pushed freight cost upwards. This resulted in higher operating costs and impacted the margins, he said.

However, the cement industry is expected to post 8 per cent growth in FY19 due to slew of infrastructure projects, Birla said.

Meanwhile, Ultrarech on Wednesday reported a 30 per cent plunge in consolidated net at Rs 6.31 billion in the June quarter from Rs 8.98 billion a year ago, despite a robust jump in net sales to Rs 88.41 billion from Rs 69.38 billion.

Acquisition of 21.2 million tonne cement assets of Jaiprakash Associates and Jaypee Cement, and the successful commissioning of a 2.5-mt greenfield clinker capacity at Dhar in MP, have helped the UltraTech to become the third largest cement company globally, ex-China, and the largest domestic player, Birla said.

The demerger of group company Century's cement business into UltraTech is expected to be completed within the ensuing two-three quarters, he said.

Century's cement business comprises three integrated units in MP, Chhattisgarh and Maharashtra with a total capacity of 12.6 mt.

"This transaction will provide an opportunity for strengthening our presence in the highly fragmented, competitive and fast-growing Eastern and Central markets. It also extends its footprint in the Western and Southern markets," he added.

Birla also informed that the company has submitted a resolution plan for acquiring Binani Cement and if goes through it will help the company meets its the long-term strategy of expanding, growing and consolidating its business in Rajasthan and Gujarat.

The Ultratech counter closed 1.3 per cent down at Rs 3,852.55 on the BSE against a 40 bps correction in the benchmark.