India Economy

‘Rising cement demand indicative of economic growth’

Parvatha Vardhini C Updated on September 16, 2018

Capacity utilisation improvement will play a bigger role than fresh investments: N Srinivasan

If cement demand can be considered a proxy for economic activity, growth is indeed picking up, says N Srinivasan, Vice-Chairman and Managing Director, India Cements. He also rates Tamil Nadu as one of the best investment destinations in the country, irrespective of the recent changes in the political landscape.

Excerpts from an exclusive interview with BusinessLine:

GDP growth has come in at a high of 8.2 per cent for the June 2018 quarter. On that ground, can we say that we have convincingly got out of the slowdown caused by demonetisation and the GST move?

In the western world, housing figures are taken as an indicator of the state of the economy. In India, you can take it as cement demand. Beginning the last three years of the UPA government, demand for cement had been sluggish. However, last year was slightly better, and this year, we are seeing a marked improvement in cement demand. That is an indication that, in relative terms, the economy is doing better.

Also, furthering this is the fact that even in the southern part of the country, where there is a lot of excess capacity in the cement industry, the capacity utilisation has improved. Now, which are the sectors that are contributing to the growth? While the individual house builder has always supported the cement industry, it is the infrastructure activity that is supporting the industry now. More than Tamil Nadu, Karnataka or Kerala, it is Maharashtra, Andhra and Telengana that are seeing a lot of infrastructure activity. So I would say that we are now entering a phase where the growth in demand is likely to be consistent and sustained.

But private capital expenditure has not picked up in tune with a growing economy…

Across industries, the capacity utilisation has not been great. So I think at the moment, capacity utilisation improvement, rather than fresh investments, will play a big role. I would say that for a company to make fresh investments today, it has to be very sure of what it is doing.

Whatever leeway was available earlier in the banking system is not there any more.

We hear about loan defaults by both big and small business groups and the pressure it is creating in the system.

Banks are not in a position to empathise even when the problem is not specific to the company, but to the industry. What I also understand is that they are slightly reluctant to lend, particularly to certain projects.

Since you broached the subject of loan defaults, the insolvency resolution process is bringing about consolidation in the core industries. Do you think the way forward is an oligopoly type of a market, where small players won’t find it feasible to exist?

As far as the cement industry goes, even a small cement company can exist.

There will always be a role and space. Today, what you call a small cement plant may have a capacity of 1-1.5 million tonnes.

A small cement factory is much larger than your traditional MSMEs; we are not talking of ₹10-20-crore projects, but of a turnover of ₹400-500 crore or more.

So they (small players) will not vanish. I think the cement industry has already gone through its worst period. So in the next 4-5 years, you will see good demand, good prices; so they will strengthen their position.

You have a coal mine in Indonesia. Does cost control necessarily mean backward integration?

An element of backward integration is essential in our industry. We (India Cements) generate about 170 MW of power and we need to do more.

Will we not get it (power) from the State? We will. But suppose, one fine morning there is problem, then I will be on the backfoot. We are a continuous process industry.

We can never allow the kiln to stop. As far as fuel is concerned, we are not able to use Indian coal at all. One, it is far away — delivered cost (landed cost) is high.

So we live on either imported coal or pet coke; now we have shifted back to coal.

We are using the Indonesian coal mine solely to bring coal to our power stations. What I gain from this is that I take the speculation out. If international prices rise, I don’t suffer. To me, it is now only the cost of production. I am insulated from freight or other charges rising.

The past two years have been politically unstable in Tamil Nadu. Industry lost Kia Motors to Andhra Pradesh; the Sterlite controversy came up afterwards. How do you see the current politico-economic situation?

Industry has always had to work with the government. The only difference now being that, with the reform process, there is gradually less and less control. Over the past 2-3 decades, economics is slowly detaching from politics.

I am a firm believer in investing based on viability.

There are many factors which go into someone deciding to set up a plant in a State.

Of course, for the handout in the form of tax concessions, every State is competing with the other.

But in the case of the cement industry, it is limestone-specific.

There are only seven States in India which produce limestone. So you cannot invest anywhere. Hence, I would go where I feel I am viable.

Compared with other States, I would say that Tamil Nadu possibly has the best industrial relations.

You have skilled and mature labour — you don’t have to grapple on the labour front at all. We have facilities in many States, but I would rate Tamil Nadu as the best.

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