‘Udaipur Cement expansion reflects demand spike driven by infra spend boost’

Udaipur Cement Works Ltd (UCWL), a subsidiary of JK Lakshmi Cement Ltd, has doubled its production capacity to 4.7 million tonnes per annum (mtpa) with the inauguration of its Cement Mill IV at the Dabok Plant in Udaipur, Rajasthan on Thursday. In an interview with businessline, Shrivats Singhania, Director and CEO, Udaipur Cement Works, spoke about the capacity ramp up, demand and price outlook and how these impact operations at JK Lakshmi Cement. Excerpts:

What sort of capacity addition has happened? The current capacity of

Udaipur Cement Works Ltd stands at 4.7 million tonnes per annum (mtpa), post inauguration of the newly installed cement grinding and packaging section at the Dabok plant. This addition has effectively doubled the cement production capacity from 2.2 mtpa.

Moreover, the expansion extends beyond mere volume enhancement. Alongside the cement grinding and packaging section, we’ve introduced a new clinker unit, elevating our clinker capacity to 3 mtpa from the previous 1.5 mtpa. In parallel, we have integrated a Waste Heat Recovery System (WHRS) which has seen its capacity enhanced to 12 MW, doubling its previous output.

How does this ramp-up help?

The need for expansion at Udaipur Cement Works (and JK Lakshmi) is primarily driven by escalating demand for cement due to massive increases in investment in public infra and housing schemes by the government and private entities. By expanding the clinker facility (from 1.5 mtpa to 3 mtpa) we are aiming to take up the current capacity to 4.7 mtpa by FY24end. Both companies are positioning themselves to meet market demands effectively and capitalize on growth opportunities. This expansion enables us to address increasing market demand for cement products, ensuring a consistent supply to meet the needs of customers in the region and beyond. As mentioned, expansion contributes to operational efficiency optimising production processes, reducing lead times and enhancing overall productivity. This operational streamlining allows us to maintain a strong foothold in the competitive cement market.

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What is the estimated cost?

The rough calculation for any cement plant expansion, brownfield or greenfield, is between $120 and $160 per million tonne. Since this is a brownfield expansion our cost is below industry norms. The expansion has been funded with a mix of internal accruals, capital infusion and raising debt through banks.

How does this change Udaipur Cement Works’ contribution to JK Lakshmi’s top line and bottom line?

Udaipur Cement Work reported a turnover of ₹1031 crore for FY23; which contributed more than ₹50 crore at the profit before tax level to JK Lakshmi Cement’s bottom line. That is likely to go up for the coming fiscal, with the commissioning of this new production line.

What is the demand and price outlook for the cement sector now, especially with 2024 being an election year? The Indian cement sector is poised for strong growth in general but there may be a temporary dent in the Government or infrastructure spending due to forthcoming general elections. This may affect the Q1 performance of FY25. Analysts are optimistic and have predicted a demand growth of 1012 per cent for the next few years driven by spending across sectors like infrastructure and housing. However, it’s important to note a balancing factor.

The Indian cement industry is also expected to see a substantial increase in production capacity over the next few years. Additional capacity across the sector is estimated at 150160 million tonnes by FY28, and this might limit the potential for significant price hikes here.

Analysts are optimistic and have predicted a demand growth of 10-12 per cent for the next few years driven by spending across sectors like infrastructure and housing.

SHRIVATS SINGHANIA

Director and CEO, Udaipur Cement Works