Hyderabad: City-based IVRCL Infrastructure and Projects Ltd, which earned Rs2,379 crore in revenues last fiscal year, will build a cement factory byallying with other builders to tackle short supply and rising prices, said its top executive.
“Our requirement of cement is around 50,000 bags per day and sometimes we hardly get 6,000-10,000 bags a day despite having entered into long-term supply arrangements with the cement producers,” IVRCL chairman and managing director E. Sudhir Reddy told Mint.
Reddy said the scarcity of cement, a key raw material for builders, was hurting growth. “We thought we will grow 80% this year, but we are growing at around 40% only. For outsiders, 40% growth looks great but we know internally what we are missing out.”
IVRCL Infrastructure and Projects chief executive E. Sudhir Reddy. The company will team up with other builders to produce cement for its projects to meet the huge demand. (K Sudheer / Mint)
He said IVRCL is unable to buy the required quantities for its daily operations although it was ready to buy the cement at higher prices.
“We don’t mind buying cement at higher prices but the supplies have become a major constraint. Sometimes, the cement companies with whom we have agreements of long-term supplies do not honour the deal.”
The company has been importing cement from Pakistan. “This is not going to solve our problems. We cannot buy large quantities because we may incur huge losses if the consignment is spoiled withmoisture due to delays in the ports”
A cement manufacturingfacility with a capacity of 1 million tonnes (mt) of ordinary Portland cement or 1.25mtof blended cement involvesan investment of aroundRs400 crore, said Ramesh Chandro, managing director of the city-based Coromandel Cements Ltd.
“Raising funds is not an issue for setting up the cement facility. Today, each one of the construction companies (the firm is talking with) can cough up Rs25-50 crore to set up four-five small cement units and leave them to professionals to run,” said Reddy.
He also pointed out that some construction firms such as the MyHome group already has a captive cement plant to meet its needs. Janapriya Engineers Syndicate Ltd, another Hyderabad-based construction firm, also has a captive cement factory.
IVRCL’s demand will be met with a 1mt facility that can deliver 20 million bags a year.
The firm currently operates in infrastructure segments that include water and environment, transportation, buildings and industrial structures, and power. It has orders of Rs11,000 crore at the end of December.
On 31 March last year, India’s installed cement capacity was 177.83mt, while production was 161.66mt, according to industry body Cement Manufacturers Association.
Although an analyst called the construction firms’ strategy of entering cement manufacturing a smart move, he advised caution.
“It takes at least two years to set up a cement unit. But by then, the country is likely to witness enough capacities, if not excess capacities, to meet the demand, since several existing players have gone in for expansion,” he said, on condition of anonymity.