Cement firms step up capex as upcycle seen

This story first appeared in DNA Money edition on Tuesday, April 23, 2013.

Cement companies are planning new expansions and going full steam with the ongoing ones despite market concerns of an emerging glut situation on hopes of demand reversal in the future.

UltraTech Ltd, the Aditya Birla group cement firm, is expanding its unit in Rajasthan by 2.9 million tonne at a cost of Rs2,000 crore.

“In this quarter, the board has decided to enhance capacity at Aditya Cement Works in Rajasthan by 2.9 million tonne, including the setting up of two grinding units,” said K C Birla, chief financial officer, UltraTech.

This expansion will be funded through a mix of internal accrual and borrowings. The additional facility is expected to be commissioned by March, 2015.

Similarly, another leading player Shree Cement, which spent Rs800 crore towards capex last year, is increasing its capex to Rs1,000-1,200 crore this year.

Currently, the company is setting up a 4 million tonne per annum (mtpa) clinker plant in North India and corresponding grinding unit, industry sources said.

“Out of this, 2 mtpa will be commissioned in June-July 2013 and the balance in July 2014. This apart, a Rs300 crore grinding unit is coming up in Bihar, which will get operational by July 2014. The company is not holding back any capex and all the investment that has been committed will be met with,” said the source.

Cement sector analysts concur.

V Srinivasan, research analyst-cement, Angel Broking, said, “Any expansion takes a minimum of two years depending on the type of project. We have had a downturn situation for the past three years and are only expecting an upcycle from here. In such a scenario, companies will come up with new capex and I don’t see any cutback.”

On Monday, Reuters had reported that Indian cement companies are planning to slash their capital expenditure over the next 12 months.

In 2011, UltraTech had announced mega capex plans around of Rs11,000 crore, to be spent over the next three years. The plan then included Rs5,600 crore for clinker plants at Chhattisgarh (4.2 mtpa) and Karnataka (5 mtpa) and remaining along with grinding units, bulk packaging terminals and ready- mix concrete plants at various location across India.

Recently, ACC had announced capex of Rs3,300 crore (to be spent over three years) for a new manufacturing (5 mtpa) plant at Jamul in Chhattisgarh. The unit is scheduled to start production in 2015.

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