If we are provided a level playing field, we can compete with most cement producers
There are three major areas which we are concentrating on: logistics, energy efficiency and balancing the finance cost. This will help us cope with the reduced demand, and at the same time, help maintain profitability, says Alok Sanghi, Director, Sanghi Industries, in a chat with ICR. Sanghi shares his views on the current scenario of the cement industry, the strategies of the company. Excerpts from the interview.
How do you assess the current scenario regarding the Indian cement industry?
Currently, the cement industry is going through a somewhat challenging phase. There is oversupply in the market. The demand rate is also slowing down, putting some supply pressure and price pressure on the cement. We believe that this will continue for another year after which things will start improving; if the government policies take off, the demand should improve faster. The supply- demand mismatch should reduce this year and possibly by 2015, we should see it become equal. As far as we are concerned, the earlier capacity utilisation was 90 per cent. However, in the last couple of years, the ultilisation has come down to 72 to 73 per cent.
Has the slump in demand affected your performance?
Till 2009, we focused on capacity expansion. As there is already an over- capacity, it is illogical to increase capacity further. So our focus is more on cost reduction. There are three major areas which we are concentrating on: logistics, energy efficiency and third is balancing finance. This will help us cope with the reduced demand, and help us maintain profitability.
How has the company kept pace with the latest technologies?
The technology does not change all that rapidly in heavy industries. The only thing is, we need to keep upgrading the efficiency level within our plant, which is what we are doing. The technological advancement which has happened is in the product range. Instead of selling OPC which was the norm earlier the companies are now diversifying into blended cement. So they are making PPC, slag cement, and various other range of blended cement. All this really helps reduce the carbon footprint and achieve the path of sustainability.
What are the sustainability initiatives taken by Sanghi Industries?
We use fly ash generated from the thermal power plants and also use waste from steel plants. By manufacturing blended cements, we are adding to the sustainability of the country. We are one of the few companies in the country using the most eco-friendly mining technique. Instead of drilling and blasting, we use surface miners which have near zero pollution and have dust free emission techniques. Moreover, surface miners help reduces noise pollution. We operate in the region of Kutch where we face a lot of water scarcity, and we have promoted rain water harvesting there.
What are the measures taken by the company to maintain the standard and quality of the cement produced?
Most cement plants have a technical lab and are equipped with the latest technologies to test the product. Since BIS is mandatory in the cement industry, most of the companies maintain the standard. However, we use advanced processes; our equipment vendors are one of the best in the country, in the world. We have an X-ray analyser, a robotic lab, and various other facilities which allow us to maintain quality. We are authorised to sell our product in the European and African markets, thanks to our stringent quality control policies that get upgraded every year.
What was the motive for erecting Terminal C near Navlakhi Port?
The C Terminals are always closer to the markets and that helps give better service. It also helps us to have better control of the freight cost. In a nutshell, investing in the C Terminal helps reduce costs considerably. Wherever we have invested in C terminals we have saved about 20 per cent of costs. So we are very confident about this strategy. The sea route will be used to cost-effectively increase our geographical reach and grow our markets. At present, the company is serving Gujarat, Rajasthan, Madhya Pradesh and Maharashtra. The focus is to expand in the central and western regions, and in the coastal states.
What are challenges facing the cement industry currently?
The greatest challenge today is managing the demand-supply mismatch. The spiralling raw material costs, including coal and diesel, are other major challenges. The rise in the price of coal is due to the depreciating rupee, which is why we need to invest more in energy-efficient equipment.
What support would you require from the government at the policy level?
The excise duty on steel is just four per cent whereas for cement it is 12 per cent. My question is why should there be such a difference in excise duty between two building materials which are used for the same purpose? Ultimately, the cost of housing is increasing because of the increase in taxes. If you look at the ex- factory cost of cement and if you add the taxes which we are paying, it is equivalent to the luxury goods; and cement is essential goods. So I think the government really needs to focus on how they can reduce the cost of cement, either by reducing the royalties, or reducing the excise duty, VAT, etc.. As per my view, the most important thing the government can do is to increase the percentage spent on infrastructure development. For example, China spends almost 12 per cent of its GDP on infrastructure development whereas India spends less than 5 per cent of its GDP. So if the government increases its infrastructure spend, it will automatically have a huge impact on the demand for cement and that obviously will help in capacity utilisation.
There seems to be lot of demand for Pakistani cement. The general perception is that it is of better quality and cheaper too. What is your take on this?
I completely disagree with this. Pakistani cement is no way cheaper than Indian cement. It is the taxes that you pay that make the difference. When you import cement, the amount of taxes you are paying is less than what an Indian cement producer is paying. The government is giving a subsidy to Pakistani cement in form of exemption of taxes. Indian cement manufacturers are not permitted to sell cement in Pakistan, so should our government provide subsidy to cement manufacturers from Pakistan? Whatever facilities or provisions are being provided by the Pakistani government should be reciprocated by the Indian government. Or let us say, even if you are allowing Pakistani cement to come into India, put them on a level playing field; peg them at the same tax levels which we are subjected to, and then I don't think there will be any problem in competing. But let me also tell you, the world over, we are competing with Pakistani cement, Iranian cement... Thailand, Malaysia, China, Japan etc. Indian cement quality is one of the finest in the world and is therefore widely accepted across the world. We are one of the largest exporters; and the technology we use is the latest in the world. So if we are provided a level playing field, we can compete with most cement producers.
Brief us about the company's future plans.
We are not focused on expansion, since the companies are already on an expansion mode but are interested in ensuring that we are more profitable; thereby, the company is focused on reducing its debt, energy consumption and improving its logistics cost. These are the three focus areas for the company. However, to sell its additional volumes, we are looking at expanding our market. We are also opening up some markets in the south and going to MP.
Are there any acquisitions on the cards?
No, nothing really. We don't have any plans to either acquire or diversify from cement as of this moment. The next two years will be a consolidation phase for the cement industry and we are very keen to remain in this business. I believe it is ultimately survival of the fittest. You must survive this downturn to even consider expansion and things like that.