Orient Cement expects price hikes, higher volumes to aid margins in Q3FY22

Orient Cement posted its Q2 earnings, which came in below estimates as volumes were mildly lower while higher costs impacted margins. In an interview with CNBC-TV18, Deepak Khetrapal, MD & CEO of the company, shed light on the performance and outlook.

He said, “Demand has returned and we are working on adding 3 million tonne of cement capacity in the next two years. The company is also doing a lot of things to mitigate the cost pressures.”

He further said, ‘We had made a bold forecast at the start of the year of 6 million tonne of sales in this particular financial year, so far we are on track. Given the ratio between H1 and H2, we are still quite hopeful of being able to achieve the 6 million tonne mark.”

On price hikes, he said, “In October, the prices moved up; we were able to increase Rs 15 to 20 per bag in the month.”

On increasing capacity, he said, "We have made the announcement that within the coming two financial years, we will add capacity of about 3 million tonne.”

“In that direction, not only are we going to be putting additional 2 million tonne of clinker capacity at our Devapur plant but we have also signed an MOU with Adani Power Maharashtra Limited. We are going to be putting our split grinding unit next to the power plant near Nagpur,” he said, adding that some government environment clearances on that front are yet to come.

On volumes, he said, “Despite July and August being robust, rain in the month of September created a dip in volumes and sales. However, the good news is that post the month of September, although rains have not completely gone away, October is already looking a lot more robust than September was. We regret what happened in September, but we are hopeful of making up for the volumes.”

On margins, he said, “They are a challenge because of unavailability of coal and fuels costs. There is global pressure on energy prices. Moreover, domestic coal production has not been able to compensate for the imported coal on which the Indian economy had started becoming dependent, so it is hurting all of us. It is hurting almost everybody who is using coal.”

“However, we are partly mitigating the cost factor by becoming even more efficient in terms of the heat that we consume to produce clinker. We have increased the use of alternate fuels so that the dependence on coal goes down. It is a day-to-day dynamic but a large part of the solution has to come from the price that we can pass on to the consumer, which to a large extent has been happening, except in the month of September, where the pressure became quite severe on pricing because there were no volumes in the market,” said Khetrapal.

“By and large, we have been able to pass on the costs to the customers and therefore, while the EBITDA margins do look softer than the previous quarter, but in this quarter (Q3) with the volumes increasing, we should be able to put together a better performance. Ultimately, EBITDA is a function of not just the price and costs, but also the volumes,” said Khetrapal.

According to Khetrapal, the company's EBITDA is expected to stay in the range of Rs 1100-1200 per tonne in H2, taking costs into account.