OCL India - South Based Cement Pick

OCL India has declared its FY10 results. The company’s revenue was at Rs 1522 crore versus Rs 1276 crore.

Its net profit was at Rs 164 crore versus Rs 116 crore.

In an interview with CNBC-TV18, MH Dalmia, President, OCL India, speaks about the results and his outlook for the company.

He says, current margins may not be sustainable with input cost going up. “In this period, we are able to pass on all the cost increases to the market, this will not be feasible in the coming months.”

Here is a verbatim transcript of the exclusive interview with MH Dalmia on CNBC-TV18. Also watch the accompanying video.

Q: You said that your Q4 revenues are at Rs 465 crore, that compares with Rs 320 crore a year ago and the net profit is more than double from Rs 23 crore to Rs 55 crore. This is a sizeable jump that you have reported even quarter-on-quarter (QoQ) in your revenues?

A: Rs 465 crore versus Rs 387 crore last quarter.

Q: If I looked at the quarter ago numbers, your revenues were Rs 315 crore, in any case this is a sizeable jump that you have reported, is this because of any expanded capacity or is it all because of higher realisations?

A: Nothing significant on expanded capacity.

Q: So it was entirely because of realisations?

A: Improvement in the performance because the capacity was added and then gradually performance has improved.

Q: Are you now producing to full capacity?

A: Yes and no. In a way we are producing full capacity, but the potential is to go upto almost 5.5 or 6 million tonne for which we will need certain marginal investments. So that we have not yet done. So, although we say that our capacity is 5 point some million tonne, that can only be achieved either if we bring down the certain quality parameters, but that we do not want to do. Therefore if we want to maintain the same quality parameters then we will have to make sizeable investment in order to reach 5.5-6 million tonne.

Q: You plan to do that in FY11 in the current year?

A: No. We may launch something maybe in the latter part. The market is somewhat saturated and we will wait for a time when we can be one year before the cycle is likely to turn. Today, we can do something like 3.8-4 million tonne. We are still only at 3 million tonne.

Q: You have shown a significant improvement in your margins at 29%, are they sustainable or are you worried about the over capacity which will come into the cement space?

A: No, these may not be sustainable with input cost going up. In this period, we are able to pass on all the cost increases to the market, this will not be feasible in the coming months. After that when the substantial capacity is there, in monsoon the demand also tends to slow down then there could be some pressure on prices. But infrastructural support may or may not be available for the higher volumes. To that extent it can come to the rescue of the industry as a whole that even the people are in a position to produce, they are not in a position to send it to the markets.

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