For the first time, the cement stakeholders have come together to take on the builders and Credai (Confederation of Real Estate Developers’ Associations of India) to express their grievances. This comes on the back of union minister Nitin Gadkari being vocal about cartels in cement and steel industry due to which prices of raw materials have shot up exorbitantly.
On Tuesday, the newly-formed SICMA or South India Cement Manufacturers Association chief N Srinivasan said it was grossly unfair to blame those in the cement business. It is a “responsible” industry that has been involved in nation-building efforts, besides being a mass employment generator.
In fact, the cost of a cement bag when seen in the context of per sq ft price of construction, works out to Rs 200 assuming that a bag of cement costs Rs 400. So even a marginal hike of Rs 50 or more in cement could in no way justify the unfair prices being charged by the builders, in the range of Rs 8,000 to Rs 10,000 sq ft and more.
Taking potshots at the builders for the highly-priced apartments/flats, Srinivasan explained that the rationale of forming a south association is to locally resolve issues. For instance, the Telangana government had a housing scheme for the economically-weaker sections, where players like India Cements were offering their products at a lesser price. The Vice-Chairman and MD of the company also said the availability of limestone in Andhra and Telangana made that region a raw material hub.
Bulk of cement came from these states besides Karnataka and Tamil Nadu. The country’s production capacity was 500 million tonnes, behind China at 2.5 billion tonnes but ahead of world’s third largest player the US at 70 MT.
Balaji K Moorthy, ED Marketing, Ramco Cements, said keeping the customer’s interest in mind, cement has always been available so that construction was not halted anywhere. Having said that it takes anywhere between 24 to 36 months’ gestation period for the capacity to be absorbed.
Since there was no question of anticipating demand, it has to be discerned that to create a one million tonne capacity called for an investment of Rs 350 cr to Rs 400 crore. Such a huge investment also meant that the company had to generate finance through financial institutions, manage and service debts well and be answerable to its shareholders too by managing the business well. In such a scenario, charging remunerative prices must not make it feel “ashamed.”
“It is my right to price,” Moorthy said, noting that the marketing and promotional costs involved in the brand building exercise has to be contextualised. If a company decides to add Rs 5 for a better product, it was absolutely justified, he reasoned.
Moorthy also said there was a wide array of brand choices before a customer, including those that were selling at Rs 100 lesser too. But even such products were conforming to BIS norms as no cement could do without that standard authentication. So, if a Rs 400 per bag cement player is asked to make it available for Rs 350 a bag, it was “unfair,” he sought to point out.
Meanwhile, Srinivasan also said SICMA had sent a letter to the Prime Minister, highlighting their key concerns, which included the exorbitant prices of real estate that had resulted in unsold inventories and the need to take the builders/realty players to task rather than training the guns on cement industry.