India Cements plans Rs 1,600 cr refurbishment

India Cements is proposing to invest Rs 1,500-1,600 crore to refurbish its vintage cement factories as the cost pressures mount and dent its margins on the back of capacity overhang in the South.

Though the company was hoping to refurbish the factories sometime in the future, the elevated costs on account of an unprecedented increase in coal price and a spike in power costs have resulted in higher variable costs, thereby denting the margins and bottom line in the past few quarters. It is estimated that India Cement’s cost per tonne is at least Rs 500 more than its competitors now.

The cost difference was not high between India Cements and its peers when the coal price was at USD 60 per tonne. But coal prices shot up to USD 300 as a result of the Russia-Ukraine war and the price of Indonesian coal was hovering at USD 270-280 in December 2022.

With the war situation dragging and no sign of a sharp drop in coal prices, the company has decided to take up the efficiency improvement project now.

“Demand is fine, but costs are out of control. We have engaged FLSmidth and Krupp Polysius for this refurbishment project and they will shortly submit their report. The estimated cost is Rs 1,500-1,600 crore,” said N Srinivasan, Vice-Chairman & Managing Director of India Cements.

The company is proposing to generate resources to fund the renovation project by selling some parcels of its lands and is unlikely to go for borrowings. “The project may take 15-18 months to refurbish the old units,” he said.

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