ACC Ltd , India?s second largest cement manufacturer, in which Swiss cement major Holcim holds 46% stake, is all set to expand its capacity to 30 million tonne this year. The company expects demand in the long term to be driven by a 25% growth in infrastructure, commercial and industrial segments. Sumit Banerjee, the company?s MD, talks about trends in cement demand and pricing, and the company?s plans for organic and inorganic growth, in a t?te-?-t?te with FE?s Shobhana Subramanian and Smita Joshi Saha . Excerpts:

What are your plans on the captive power front? What is the capacity now and what will be the increase?

We are adding several power plants. In Bargarh (Orissa), we are adding two power units of 15 mw each. In Wadi (Karnataka), we are adding two plants of 25 mw each, that will actually take Wadi to 150 mw, making it the largest captive power plant in ACC. We will also be adding a 25 mw plant in 2010 in our Chanda (Maharashtra) plant. All this, to be added in 2010, will mean that we can meet 80% of our power requirements internally. If we add our wind turbines to this, it will be another 2-3% more.

Have you passed on the entire excise duty hike proposed in the budget to customers now?

The objective was to pass on not only the increase in excise duty, but the diesel price hike, cess on imported coal and other inflationary impact, also. In some regions of the country, we have been able to do it immediately. The ability to pass on the price depends a lot on what the market situation is in that region. There are some regions where the increase has been accepted in the market, while in some others, dealers are not able to sell at high price and, therefore, we have made some adjustments. We have raised prices by Rs 10 per bag in many districts in the east, north and in Maharashtra.

You have pricing power in at least 30-40% of the markets that you operate. What kind of impact would you have, as in 60% of the market you are not able to pass on excise hike, cess, inflation, etc?

The effort will always be to try and pass on. We will keep trying again after 15 days as the objective is to pass on the hike of Rs 10.

In your assessment, at what rate is the demand growing at?

My personal assessment is that the average demand growth in India in cement should be 14-15%.

In which regions will it be higher?

It will be higher in south because the base is lower in the south. It will be at the average value in north and east.

What is the pricing trend you see?

I am very bullish about cement, not only in the long term but also in the short term. I am expecting the prices to be firm on an average. There can be marginal erosion of pricing power in some regions, but at the same time, huge upside of prices can happen in some of the other regions. The right average price for cement in India should be Rs 350 per bag, but we are not there. Today, the average cement price is about Rs 260 per bag.

Any market where you think it will be really firm?

Both east and north will be firm.

Where is the demand coming from?

Demand is driven more by real estate and construction than individual home building segment. The growth of individual home building segment is at 7-8% but my estimate of 14-15% cement growth is coming from infrastructure, industrial projects and commercial activities.

Do you see the demand really picking up? Do you see the infrastructure actually happening?

The real estate activities are in the metro cities. After much discussion with consumers, we have estimated that the infrastructure, commercial and industry segment is probably going to grow upward at the rate of 25% per annum. The consumption of steel and cement has remained a very realistic indicator of progress. Our per capita consumption is 150 kgs per person per year. In China, it is 900-1,000 kgs per person, while Malaysia?s is 500 kgs. So, there is headroom to move from 100 to 500, and this will be in infrastructure and by replacing rural housing construction with cement concrete bricks.

How do you see the demand shaping up in the southern market?

Cement is a cyclical business and southern markets are going through that phenomenon now. There are some states like Karnataka and Andhra Pradesh which are flush with lime stone, whereas other states do not have limestone. So you cannot produce clinker in all the states in India.

How are your margins?

Our margins were handsome at yesterday’s cost. But if you look at our fourth quarter, the ebidta margin was less than 20%. And this is not OK, because at this type of ebidta margins no reinvestment will take place.

What is the capex you are looking at?

Capex for 2010 is actually the follow through of the projects, which are ongoing. This is about Rs 1,300 crore.

So you won?t be borrowing in 2010?

Nothing that I can talk about.

ACC?s capacity additions are a bit slower compared to your peers and you are also losing market share. What is the reason?

Well, our market share is alright but yes, capacities are much lower. Capacity additions in cement plants take 2.5 to 3 years to fructify and the result that you are seeing today is the fallout of what we have done or not done right 2-3 years going backward. Obviously, we did not do some things right. We did not trigger our projects in time, we had not evaluated all the projects, we had not taken projects to their logical conclusion through the internal processes and so that is why we have lost this opportunity that was there in 2008 and 2009.

I would have loved to have added capacity in 2009, but you can?t change history.

So are you making amends?

We will be setting up more capacities which will be announced in the second half of this year, after getting board approval.

There were reports that ACC is looking to set up a greenfield plant in West Bengal…

We are looking at Kharagpur as a possible site for a grinding plant where we will take out clinker from either our Bargarh or Chaibasa plant. We will set up a grinding plant there with the available flyash or slag and we will market that in Kolkata. Today, our cement comes to Kolkata from our far-away plants. So, we want to cut the distance and also serve the growth centres in Haldia and markets around Kolkata. However, nothing is finalised yet.

Given that you are a near zero-debt company and your cash flows are pretty strong, have you evaluated inorganic growth opportunities?

At this point, we may be discussing one or two opportunities but I cannot reveal that now.

Are there enough targets?

No, there are not too many targets. In general, there will not be too many acquisition deals in the next one or two years. There are people who have experienced good returns in the last few years and can hold on.

Are you looking at small acquisitions like Encore and Asian Concrete and Cement Pvt Ltd?

We are not running after small companies. The locations and position of companies are of main interest for us. Encore?s location is interesting to us as we had no position on the costal Andhra Pradesh market. We want to position ACC?s slag cement as premium cement in costal Andhra Pradesh area. Second, acquiring 45% stake in Asian Concrete in Himachal Pradesh is a logistic gain for us. Both the acquisitions are small but interesting from the point of view of distribution cost, logistics cost and market rational.

What are the projects that the company is looking at?

We are looking at a number of projects. We are today looking at two projects which are in advanced stage of consideration. We are considering another 3-4 projects. These are both greenfield and brownfield.

What is the status of your RMC expansion?

The year 2010 is a capex holiday for us, because capacity utilisations have really fallen and we had shut down all our plants in Bangalore last year. So this year, we are reopening our Bangalore plants?one plant has already been reopened and another will reopen very soon.

The markets are showing signs of revival. This year being a capex holiday in RMC, we will try to improve our utilisation of existing capacity and we will look at making investments again in 2011. We have a long-term view of our RMC business but in 2010, we will be looking at improving our efficiency.

Are you looking at entering Gujarat?

Yes, we are looking at entering Gujarat. In our long-term pipeline of projects, we are applying for mining leases in Gujarat as well. We are applying for limestone deposits there, but that is a long-term plan.