Dalmia Cement to go extra mile to save costs

Dalmia Cement (Bharat) Ltd (DCBL), the second largest cement player in the southern region, is looking at saving on production costs by setting up warehouses nearer to markets and is eyeing new rural markets to retain margins.

Also, Dalmia Cement Ventures Ltd (DCVL), its wholly owned subsidiary, will start setting up plants in Himachal Pradesh and Meghalaya during this fiscal, R Gurumoorthy, executive director, corporate communications, DCBL, said.

“We have tied up requirements such as power and mines. We are also processing clearances for our plants in Rajasthan and Madhya Pradesh which are in the final stages,” Gurumoorthy said.

DCVL will cater to the north-east region through the plant in Meghalaya, where the limestone quality is better. The MoU clearances and mining leases have been acquired swiftly in that state.

The company does not want the cement from its DCVL plant to travel more than 300-350 kms as it can raise freight costs. Production from Madhya Pradesh and Rajasthan may cater to the Mumbai market apart from Gujarat.

In South, DCBL is looking at a first-mover advantage and has been also able to cut costs as coal prices have fallen to $120 per tonne from their peak of $200 per tonne.

Cement prices in the region have fallen by Rs 10-15 per 50 kg bag and are now in the range of Rs 265-270 per 50 kg bag.

“We don’t expect prices to fall steeply. A drop of Rs 10 might be there but we don’t expect it to fall more than 5-6%. The important factor is how we save production costs and keep our margins high. This fiscal is all about de-bottlenecking.”

On cutting costs by getting closer to consumers, Gurumoorthy said, “What we have initiated is forward blocking. To reduce our fuel costs we are building warehouses or depots closer to the market, which is maximum 100 km away, for stocking cement. These feeder points, in turn, help in transferring in bulk quantity to the dealer. It reduces dealer inventory and helps in managing costs.”

He said the new strategy is to reach 500 km from the production point versus 300 km adopted by other cement manufacturers.

DCBL’s Ariyalur plant in Tamil Nadu will start production by the year end and its Kadappa plant has already started production with a capacity of 2.5 million tonnes. The capex for both plants was Rs 1,600 crore, of which Rs 500 crore is yet to be spent.

The company, which is expecting a capacity utilisation of 85% at its plants, sees prices remaining flat and operating margins under pressure. The southern market is betting on infrastructure projects in Andhra Pradesh and Tamil Nadu.

“The other factor working for DCBL is the retail and rural pick-up. The growth in South is 2% more than any other part in India,” he said, adding about 50% of the cement capacity is produced in south India.