From a regional player that faced the ire of debtors in 2003 to a company that is aiming to be one of the leading cement players in India in the coming times, India Cements is planning a paradigm transformation. Can it go the distance? by Virat Bahri
The company posted a welcome growth in revenues for the year ending March 2010, with top line growing by 9.6% to reach Rs.38.05 billion. However, its bottom line was a casualty of declining realisations in the Southern market. For the fourth quarter, per tonne cement realisation declined by 19.4% yoy to Rs.2,488 while per tonne raw material costs, freight costs and power & fuel costs were all up - by 20.1%, 19% yoy and 11.9% respectively yoy. Demand grew by 11.1% in Tamil Nadu, 6.6% in Karnataka and 4.4% in Kerala, while declining slightly by around 1% in Andhra Pradesh for the financial year.
Geographically speaking, cement is a business that normally grows in a linear fashion around the areas where limestone deposits are present; and India Cements was content with its dominant position in South India till a few years back. But the above trends highlight the difficulties of being a regional player, and why going pan-India becomes important. Rakesh Singh, VP-Marketing, India Cements, comments to B&E, “We are seeing a huge rise in demand for cement with infrastructure expansions all over India. Besides, behaviour of prices is varying so much from region to region. Invariably, we have seen two cycles. When the north does well, the south does not and vice versa.” The crux is that a good cycle in one region can cushion a bad cycle in the other region. For comparison sake, national player Ultratech Cement saw its net sales and PAT increase by 10% (Rs.70.5 billion) and 12% (Rs.10.93 billion) respectively for the financial year.
The company is going ahead with its pan-India plans with heed to continuity and has slowly expanded its reach to Maharashtra, Gujarat, Rajasthan and MP. Through greenfield expansions and plant upgradation, the aim is to expand capacity to 16 mtpa by next year. It is expected to have a capex of around Rs.13 billion in the next three years. The plans include a grinding unit in Parli, Maharashtra, mining leases in the Rajasthan, Himachal Pradesh and Madhya Pradesh and construction of a new 1.5 mtpa cement manufacturing plant in Rajasthan by June this year (to cost around Rs.6 billion).
The company posted a welcome growth in revenues for the year ending March 2010, with top line growing by 9.6% to reach Rs.38.05 billion. However, its bottom line was a casualty of declining realisations in the Southern market. For the fourth quarter, per tonne cement realisation declined by 19.4% yoy to Rs.2,488 while per tonne raw material costs, freight costs and power & fuel costs were all up - by 20.1%, 19% yoy and 11.9% respectively yoy. Demand grew by 11.1% in Tamil Nadu, 6.6% in Karnataka and 4.4% in Kerala, while declining slightly by around 1% in Andhra Pradesh for the financial year.
Geographically speaking, cement is a business that normally grows in a linear fashion around the areas where limestone deposits are present; and India Cements was content with its dominant position in South India till a few years back. But the above trends highlight the difficulties of being a regional player, and why going pan-India becomes important. Rakesh Singh, VP-Marketing, India Cements, comments to B&E, “We are seeing a huge rise in demand for cement with infrastructure expansions all over India. Besides, behaviour of prices is varying so much from region to region. Invariably, we have seen two cycles. When the north does well, the south does not and vice versa.” The crux is that a good cycle in one region can cushion a bad cycle in the other region. For comparison sake, national player Ultratech Cement saw its net sales and PAT increase by 10% (Rs.70.5 billion) and 12% (Rs.10.93 billion) respectively for the financial year.
The company is going ahead with its pan-India plans with heed to continuity and has slowly expanded its reach to Maharashtra, Gujarat, Rajasthan and MP. Through greenfield expansions and plant upgradation, the aim is to expand capacity to 16 mtpa by next year. It is expected to have a capex of around Rs.13 billion in the next three years. The plans include a grinding unit in Parli, Maharashtra, mining leases in the Rajasthan, Himachal Pradesh and Madhya Pradesh and construction of a new 1.5 mtpa cement manufacturing plant in Rajasthan by June this year (to cost around Rs.6 billion).
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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