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Cement cess won't help: Dalmiya

May 13, 2006 14:51 IST

The cement prices are just going north and there is no immediate possibility of its relenting. Given this, the government has decided to act tough and has asked the cement industry to come out with the steps to check the prices.

The industry has been given a deadline until Monday to address the issue.

But Dalmiya Cement's vice president Puneet Dalmiya says that given the gap between the supply and demand situation the efficacy of any measure is doubtful.

He, further, adds that imposition of cess won't serve the purpose either, as cement is perhaps one of the most taxed industries in the country.

Excerpts from CNBC-TV18's exclusive interview with Puneet Dalmiy

How exactly would you react on the Monday? You do not have too much time? Will you cut prices?

We are studying this as an industry. I personally believe that given the demand-supply situation even if we cut the prices, it is not going to help. The retail prices are not going to come down, if there is a demand supply gap. So it will lead to more black marketing. I am not sure whether that is a right response. We are going to evaluate this jointly as an industry and then take a call.

The call has to be taken in the next 24-48 hours. The time for rationalising or explanation is gone. The minister has come out and spoken tough. You need to take a call. What is the likely call do you think on Monday?

As I told you I think we are going to decide this jointly and then we are going to take a decision. Right now we have not reached the decision.

What are the options that the association is looking at this point?

We can examine as to what the issues raised by the minister are. We will come back with the joint response on this. I don't think I can make any more comment at this stage.

Do you have more details on the options the government has put forward because they have talked about perhaps banning exports, putting a cess on that?

I think that they are looking at banning exports. But that will push the material back into the domestic market, which is going to have some impact on the western region because most exports are happening out of Gujarat at this point of time. However, there is so much construction activity going on in India that I don't know whether that is going to be a sustained measure.

We are not clear about the proposal on cess. If more taxes are imposed on industry, which is already one of the highest taxed industries in the country, I don't know how that can help in cutting prices. I cannot react to that right now because there is no clear proposal from the government.

Do you find it disturbing that the Minister says that prices should go up only to the extent of cost pressures and no more than that?

Certainly, because we cannot control the market forces beyond a point. The government's intervention should be there to ensure that there is a fair and transparent competition and consumers have choice.

Cement does not have one market all across India. There are 10-12 players, which are competing for the market across the four regions and so there is a fair degree of competition.

Even if one looks at the returns on capital employed of '06 numbers then we are in the range of 13-17%, which is not a high number, if one considers the interest rates, which are at 10-10.5%.

If companies are earning in the mid teens then I don't think the companies are earning too much money. All these companies are public limited companies with international audit firms auditing their accounts.

I am not able to understand how the minister is saying that we are making excess profits. I also think that if we benchmark our prices with the neighbouring countries like Pakistan and Sri Lanka then the Indian prices are still 20-30-% lower.

I certainly believe that the industry has to earn enough to reinvest. For the last three years, the industry was doing so badly that there has been no investment in capacity. That is the reason why there is some temporary shortage. But given the capacity that is coming in the pipeline, there should be enough cement available over the next 2-3 years.

Stock

Open: 12-May-06

Close: 12'-Apr-06

% Change

Dalmiya Cement

Rs 383

Rs312.75

22.46%(UP)

Was there any communication on the quantum of decrease the government wants from cement manufacturers?

I think the minister has already said that he wants the cost escalation to determine prices. I don't know what that translates into, as there are different cost escalations at company level in different regions. So there was no real communication on what the quantum should be.

Do you think the industry can take a confrontational approach with the Minister because at the end of the day you are privately done companies and there is no government shareholding in any of your companies? Or do you think then the government will come down heavily on taxes and you would not want to incur the wrath of the government?

I don't think we are looking at confrontation. Rather we are looking to understand each other. We would support any measure wherein we could understand. But I really don't think there is a perception being created that there is abnormality.

Even if one looks from 2001-2006, the way the constructions materials have behaved on inflation-adjusted basis, cement is much lower than steel or real estate. I think we do need to understand each other. I don't think we are in any way going to confront the government.

But we would like to do whatever is right in the national interest. If the government has a point of view then we need to understand and appreciate, we would certainly make efforts to do the same.

For more on cement news log on to www.moneycontrol.com