All companies that are located in Andhra Pradesh are pushing material into other states. Growth may not be what it was last year in the South at close to 18%.
By Akhil Vishwanath
JSW Cement has deferred its plan for an intitial public offering (IPO) by a year as the economic slowdown continues to weigh on its growth strategy. The company plans to use the downturn as an opportunity to expand capacity to 25 million tonne. Parth Jindal, managing director of JSW Cement, in conversation with Akhil Vishwanath said that his ambition was to be among the top five cement players in India by 2023. Edited excerpts:
The new capacity expansion plan has been revised from the earlier 20 MT by 2020 to 25 MT by 2023. What were the factors that led to this revision?
Our original stated plan was to become a 20 million tonne (MT) cement company by 2020. Over the last six months, the slowdown has hit JSW Cement as well as most cement companies. So, we have delayed our expansion by about 12 months. Due to capacity expansion at Shiva Cement, we are increasing capacity in the east. Out of the 11 MT, we are adding 6 MT in the east, about 2.5 MT in the west and 2.5 MT in the south. In the east, we did not have certainty on clinker, which is a major raw material. Now that Shiva Cement project is going to commence, it has given us the added confidence to go from 20 MT to 25 MT.
JSW Cement’s presence in the north is relatively low. But, cement prices have been better in the north than in other regions of the country. What’s your pricing outlook for the rest of the year?
In the west and east, we are seeing construction activity pick up. We are seeing that currently prices are under pressure because all companies are trying to recover whatever volume loss they had due to poor demand and monsoon. Prices will start firming up by at least Rs 15-20 per bag from the January-March quarter. In the South, the problem is two-fold. One is we had the monsoon impact, which hit states like Karnataka, Kerala and South Maharashtra. Secondly, the new Andhra Pradesh government has taken time to restart some of the projects. Andhra Pradesh is currently operating at 30-40% of its normal demand situation. All companies that are located in Andhra Pradesh are pushing material into other states. Growth may not be what it was last year in the South at close to 18%.
Cement companies have cut their volume growth guidance by half to 4%-6% for FY20 against 13% achieved last year. Do you think volume growth could be higher as construction activity picks up over the next two quarters?
No, I don’t think so. In order for us to get to 4-6%, the next 5 months have to be outstanding. Currently, south is in de-growth on year-on-year basis. In east and west, there is 4-6% growth.
What is the capital outlay for additional expansion? How does the company plan to raise funds for this expansion?
The entire investment to go from 14 MT to 25 MT is about Rs 2,900 crore. We are looking at funding 50% through internal accruals and 50% through debt. We would also be paring down our existing debt. So, our ability to raise fresh debt should not be a challenge.
What is the current debt position of JSW Cement?
Currently, our debt is at Rs 2,600 crore. We would be at a debt-to-EBITDA of close to 3.75 times by the end of this year. In our plans, the peak debt would be around Rs 3,500 crore.
JSW Cement has deferred its plan to list on the exchanges by 2020. By when would the listing happen now that the capacity expansion to reach 20 MT will take longer?
We were planning to list at the end of calender year 2020, but we will now do it at the end of calender year 2021. The initial public offering will be pushed out by 12 months.
You have been expanding capacity in the south, west and the east. Why is it tougher to break into the north Indian cement market? What would be the more suitable route — organic or inorganic?
One of the biggest reasons for the IPO is to raise funds for our north India and central India expansion plans. We have been acquiring mines strategically through the auction process. We have acquired limestone mines in Rajasthan, Chhattisgarh and Gujarat. In terms of inorganic expansion, if you look at the demand-supply situation in the north, it is very healthy. The capacity utilisation levels are in excess of 85%. All cement companies are doing extremely well. There is no opportunity to acquire assets in the north.