Ground Zero spoke to Mr. Atul Desai, the Whole-time Director and Chief Marketing Officer (CMO) at Reliance Cement (RCC). He joined the Company in 2013 and leads the marketing, logistics, and sales operations, product management, partnership marketing, customer service, and customer retention. As a part of the marketing operations, he also takes care of RCC’s media and industry relations, advertising, interactive programmes, communications, and market and customer research.
Mr. Desai brings has been in the industry for over 30 years. He started his career as a Graduate Engineer Trainee with Gujarat State Fertilizers and Chemicals Limited and subsequently served other leading companies including Star Cement and Ambuja Cement as Head of Operations & Marketing.
Mr. Desai is a B.E. (Chemical) from Gujarat University and holds an MBA (Marketing) from South Gujarat University. He has also undergone a Senior Executive Programme at London Business School and Senior Leadership Programme at IMD Luccane, Switzerland.
Cement is a very attractive business opportunity mainly because it supports infrastructure and housing,and in both these areas, our country has a huge deficit. We are very bullish on the cement sector, both medium term and long term. In the next couple of quarters, we expect 7-9% yoy growth and once the projects take off and the investment cycle starts (next year), cement consumption growth should be double digit (10-11%). As far as industry dynamics are concerned, in our region in central India, no additional capacity is coming up and we are very optimistic about growth in this region. Low base of cement consumption and high deficit of housing and infrastructure will be key factors that will drive the growth. Forthcoming elections in Bihar and Uttar Pradesh will also provide momentum for higher cement demand in our regions, driven by pre-election demand.
As of now, we have a 5.5-million-tonnes-per-annum cement capacity and we also have a marketing arrangement with a cement grinding facility of 300,000 tonnes per annum in Durgapur. In total, we have 5.8 million tonnes of grinding capacity. We have plans to expand our capacities further in Maharashtra (site at Vani) and at our existing site at Madhya Pradesh. Reliance Cement will also explore expansion opportunities in other states such as Karnataka, Rajasthan, and Himachal Pradesh. It will add another 10 million tonnes of capacity and will eventually have a total capacity of 16 million tonnes in the next three years, as per the current roadmap.
We are exploring this and if we find any attractive opportunity in the global space, we will go for it. We will explore all opportunities, including bidding for assets of Holcim and Lafarge, which may go for sale in the global space (or even in India). We are already exporting cement to Nepal and we are currently experimenting in this territory. With positive outcomes of this experiment, we may explore an opportunity of permanently entering into this territory.
It all depends on the right option. If the options are favourable to the company, we will evaluate it, but the key will be the management control, and we will not part with that. We have an open mind about this, but we will not depend on any external management control. We are in the cement business for the long term, and we have no plans to divest or sell or exit. We believe it is a natural extension and backward integration of our existing business lines such as infrastructure and power.
As of now, we have one kiln of 10,000TPD and we are running our capacity at about 40%, but by end of March 2015, we intend to reach utilisation of 80-85%, which is in line with the industry standards of other capacities in our operating regions. We have 4 grinding facilities – Integrated plant in Maihar (2.8mn tn p.a.) – Satna, Madhya Pradesh; Kundanganj in Raebareli (2.2mn tn p.a.) – Uttar Pradesh; Butibori near Nagpur (0.5mn tn p.a.) – Maharashtra and in Durgapur (0.3mn tn p.a.) in West Bengal. All these facilities are completely operational. We are selling all makes of cement – PPC (85%), OPC (10%) and PSC (5%) and this mix will remain the same. The Durgapur grinding facility is a dedicated PSC facility. In fact, we entered the West Bengal market with the intention of extending the product line to PSC from this facility. In Bihar and few other Eastern States, PSC is a preferred product. Notably, West Bengal is the most lucrative market of East India. We get slag from Durgapur Steel Plant and slag is freely available these days. Prices of slag have come off from Rs 1,050/tonne to touch Rs 575/tonne. New facilities of Tata Steel, which are expected to commence operations shortly, will further increase the availability of slag
We have only one brand ‘Reliance Cement’ for all our product varieties – OPC, PPC and PSC, across all markets. On the quality front, Reliance Cement is well appreciated, accepted, and well positioned in the market place. We have clearly positioned ourselves on “perfection on quality” and “perfection on services” and our strategy is to give the best quality at the right price. We want to grow, we do not believe in selling cement at distress prices, and we will always sell our products at a premium. In all our markets, we are amongst the first two on the pricing front and we are very well established as a premium brand. We are selling our cement in Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand, West Bengal and Maharashtra.
Reliance Cement will definitely be a margin-conscious player but at the same time, we will definitely focus on capacity utilisation. The difference in the existing strategies of cement majors is driven by capacity additions. Players who have added aggressive capacity will have to be driven by utilisation while players who have not added capacities will remain margin-oriented and conscious of profitability. Reliance Cement has now completed its phase-1 capex and will remain margin conscious. Having said that, it is a bottom-line centric company and hence for us absolute EBITDA will matter more than the margins. We may compromise partially on margins for gaining absolute EBITDA with better volumes.
Our current trade and non-trade mix is 95:5 — we aim for 90:10 in the longer run. We will be a trade-centric company because we are in Madhya Pradesh, Uttar Pradesh, and Bihar, where the trade segment is larger than non-trade. Peers have a different market mix and hence their mix will differ.
Across the six states, we have 2,100 dealers / channel partners and more 5,000 counters from where we sell our product. On the logistic front, though we may not set up terminals, we are working on setting up for packing plants and blending units near Gondavali (near Shasun) and this will be a very strong logistic advantage. This is a reverse-logistic advantage and will help save freight cost. Fly ash, on which the freight cost is around Rs800-1000/tonne currently, will come off significantly. Shasun is at a distance of around 180kms and because of empty reverse load, the freight costs are high currently and we will be able to derive freight benefits with this proposed blending unit. We also have railway connectivity at Gondavali. Railway connectivity is also functional at Maihar and it will be functional at Kundanganj in a couple of months. At Butibori we have rail connectivity at the power plant, which is next door. At Durgapur railway connectivity is not required as this is a very small facility, and moreover, a marketing arrangement.
We have launched our product in a Laminated Polypropylene (LPP) bag for the trade segment, which is tamper proof, moisture proof, and which is a preference of customers as well due to no loss of weight in the bag. We are the only company to sell our entire trade sales in LPP bags (around 90%). Peers do not sell the entire quantity in LPP bag (less than 10%). LPP is always considered a premium packaging product.
After a long time, a large group has entered cement. Every peer looks at us as a serious and level-play competitor. Competition is observing our every step very seriously. Comparison of market shares to understand our say in various states will not make much relevance at this point of time as we are in the launch phase in most states.
The international scenario is not very comfortable for global players to do M&A in India, and we believe they will focus in the near to medium term to stabilize their existing global operations. We do not believe any major new competitors will enter the cement business in India, both global and domestic. India is the second-largest consumer of cement across the globe and all companies would like to be part of it, but the Indian market has peculiarities — there are large numbers of players and very severe competition. Globally, the competition within countries is not necessarily this severe. Interestingly, in India, even if new global majors come, the competition will remain regional as most multi-regional players are holding good balance sheets and are unlikely to enter into deals. Moreover, most cement plants in India are cost efficient as compared to global standards and cost is strictly in control and hence local players may not look at foreign partners to gain on technology and move on the better edge of the cost curve. The cement industry in India is a highly channel-centric business vs. B2C business models in many other countries. In developed countries, most sales happen directly to consumers or RMX plants in the form of bulk cement sales. Brand building is not necessarily very important for cement sales in many of the developed global countries. In India, the importance of channel, distribution chain, and network is very important. Hence, we remain quite sure that no “game changer” move will be seen in the Indian cement industry.
Consolidation is definitely on the cards. The leading cement major of India may benefit from few assets within the family while global majors Holcim and Lafarge have already announced concrete plans of a merger. This will provide more pricing power to the industry and more discipline is likely amongst the players.
We are open to evaluate proposals. Reliance Cement remains ambitious on growth opportunities.
At an appropriate time, a decision will be taken on this.
As of now, we do not have any risk on this. Our coal requirements also remain limited to the extent of kiln operations, as we do not have a power plant. Madhya Pradesh has surplus power and we get power at about Rs 5/unit.
We are currently making an EBITDA of Rs 550-600/tonne and we target an EBITDA of Rs 900-1000/tonne as we scale up of our operations.
We are planning for a waste heat recovery plant in the next phase. The selection of equipment and designing is over. This will be an 8-9MW capacity plant. At other sites, we may plan WHR plants along with the cement plant. We will have 30,000TPD of clinker capacities (10,000TPD*3). We will have more grinding stations and look forward to developing hub-and-spoke models with our capacity expansions. We will also explore opportunities in the PSC segment in West Bengal. We will definitely have cost leadership in the industry because we have a state-of-the-art and modern-technology plant. We are aiming at power consumption of 60-65 units per tonne of cement with full-scale operations. We also have captive fly ash at most sites, which will help to keep our costs on the better side vs. industry.
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