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CEOs speak: Reactions to the Railway Budgetnews
25 February 2006

Excerpts from CNBC-TV18's exclusive interview with C R Pradhan, chairman and managing director:

Nalco CMD, C R Pradhan says that if freight rates are reduced in the Railway Budget, it would have a positive effect He also expects a 5 per cent cut in customs duty, though he adds it would not benefit them to a great extent.

Are you expecting any cut in customs duty for aluminium in the Budget, including on the excise front as well?
Nothing can be said as of now but there maybe a cut in customs duty.

What are your expectations, do you think the government will slash customs duty from the existing 10 per cent to 5 per cent?
For our benefit, we don't expect it to be decreased, but it is the government's decision. So there may be a decrease of up to 5 per cent.

How are aluminium prices shaping up because you did not hike them in February when your counterpart Hindalco had done so?
Actually, there was an accidental drop in the LME price, so when we later reconsidered and thought of increasing, the increase was not possible.

How have you been reading the moves on the LME in the last 10 days, because aluminium has corrected quite a bit? Would it force you to revise prices downwards in the month of March?
We won't be able to say anything now, but it depends on the duty structure and the LME price. So by the end of the month we will take a view.

You have been raising prices and when asked why, you say it is because prices are going up on the LME. Now that prices have come down will you cut prices as well?
We hope the LME prices will be stable around Rs2,350, and if it stays around that mark, then we may not revise the price either way. But if the duty structure is revised, then we will have to take a re look into our domestic price.

If the custom duty is reduced, then comparatively how will you be compared to imports of aluminium?
If the import duty is reduced then we have to revise the price downwards because we keep a gap of Rs5,000-Rs6,000 of the import and domestic price.

Have you collated what 5 per cent might mean in terms of your prices and by how
much you would have to cut them?

We may have to cut prices by around Rs3,000 or so.

Any expectations from today's Railway Budget from Laloo Prasad Yadav?
If the freight rates are reduced, then it will have a positive impact on us, because we transport raw material, and our output is around 34 lakh tonnes / annum, and this reduction might be advantageous for us.

Why do you think there was a sudden slide in aluminium?
Something may have happened with major producers, as they sometimes start stocking products all of a sudden. This was because the rise was abnormal from Rs2,300 to Rs2,600 in less than a month. Due to this hoarding, the rise could have gone up and again, when they started dispersing the materials, the prices came down.

It's a good Rail Budget for Shree Cements: M K Singhi
Executive director at Shree Cements M K Singhi says that the Budget has proved that the government is working more on efficiency improvements and capacity additions. Excerpts:

Share your thoughts on freight rate cut, particularly on the off-peak season and what impact it have on Shree Cements now?
I would like to congratulate the railway minister and the whole railways team for giving people a economy-friendly budget. The budget has proved that they are working more on efficiency improvements and capacity additions. As regards to the cement industry, there is no freight hike for cement, coal and petroleum coke.

The other good thing they have announced is about the 20 per cent freight discount in the peak season for incremental traffic, and 30 per cent discount on incremental traffic during non-peak season.

What does this kind of a Budget mean for players like Shree Cements? Does it mean that you are going to change your mode of transport or are you going to shift more to the railways? What will it do to your margins?
It is a good budget for Shree Cement and it will give a boost to Shree Cement's logistic cost deduction. In the last ten months of 2005-06, we were not loading anything on rail as road was cheaper. But after restrictions on overloading, we started loading in January, so our base loading is zero.

We will also get 20 per cent and 30 per cent discount in freight on peak and non-peak season respectively. The best part is that we have full railway loading facility, due to this we will be able to shift about 50 per cent to 60 per cent on railway loading and save our cost by Rs2 to Rs3 in freight cost.

Will not shift to road due to freight hike: Monnet Ispat
Ex vice chairman and MD at Monnet Ispat, Sandeep Jajodia says that the increase in freight rates of sponge iron will not have major impact on the bottom line of sponge iron companies, since Rs50-Rs100 is easy to absorb. Jajodia also denies any possibilities to shift to road transport because of this hike. Excerpts:

The classification for sponge iron is exchanged from Rs150 to Rs160, which means that you are going to be charged more for moving sponge iron via the railways. How stiff is this increase? Can you quantify that for us?
On an absolute amount, probably, it is going to be between Rs50 and Rs100, depending on how long you are carrying the sponge iron. So, there is not really a major impact on the bottom line of any sponge iron companies. However, I think it is quite unwarranted.

Is it easy to absorb this increase?
Yes, it is small. It is Rs50 to Rs 100, is not very big.

Would you shift your freight medium because of this hike or are you likely to see the similar hike from the competing freight providers?
No, there is no question. Actually, railway is much cheaper as compared to road transport. So, with the Rs50 or Rs100 impact, there will be no shift to road. And I think we will continue with railways.

Any changes on the other iron related products?
Iron ore freights and coal freights have been left untouched, which is welcomed, even though iron ore freight rates had gone up consistently in the last one year from Rs140-Rs180.

Can't clip our wings, will axe fares to compete: SpiceJet
If you thought the cuts in first class AC and second class AC fares, announced in the Railway Budget today, will draw air passengers towards train, then find out what Ajay Singh, director, SpiceJet, has to say.

He says that, the railway minister has made a welcome move. The cut in fares will stimulate the travel market as a whole. There will be more people who will start travelling.

However, he ruled out fears that air passengers would now be flocking towards railway station by saying that they can counter by realigning fares. When translated, this means the low cost airlines are ready to beat the Indian Railways at its own game by going in for further cut in airfares. Excerpts:

Do you see people are now moving away from airlines to railways?
Not at all, we think that what the railway minister has done today is a welcome move. The cut in fares is going to stimulate the travel market as a whole. There will be more people who will start travelling and certainly the low cost airlines will greatly benefit from this fare cut because people who travel by train, are going to get some of the spillovers and we will get more traffic.

Certainly, as fares go down we will see that some of our lower buckets fares are actually aligned with the railway fares. This is something we have always done and continue to do. So, if they drop fare in the 1st or 2nd First or 2nd AC, we will try and respond by keeping certain fares that will compete.

The railway minister has dropped the fares of 1st AC by 18 per cent and 2nd AC by 10 per cent. Can you give us some idea of around how much you may have to drop the fares?
For a start, in many of the markets we are new, hence we do not compete with them head to head. If we feel that there is any impact at all on these cuts, we will certainly respond with cuts in our lower buckets to match these fares.

We believe that cuts will stimulate and expand the markets for the look of carriers like ourselves. We have a great advantage of taking the passengers from Delhi to Chennai in two hours, while a train takes 36 hours.

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CEOs speak: Reactions to the Railway Budget