Sale of illegally sourced cement is damaging market dynamics severely
TAlthough the cement sale this year is better than the one before, it is still too early to celebrate. The demand is yet to pick-up and the dealers are waiting optimistically. Anshay Sehgal talks with ICR about the challenges and threats faced by cement dealers in Chhattisgarh. Excerpts from the interview.
Tell us about your business and the geographical region that you cover.
We have been in the cement dealing business from last 26 years. We are based in Raipur, which is the state capital of Chhattisgarh, our market area is Raipur and upcountry areas. We are an exclusive dealer for Birla Gold, a product from Century Cement, with sale volumes reaching around 1,800 metric tonnes per month.
What are the threats faced by dealers in your region?
There are few threats faced by dealers in this region. One of the biggest threat is influx of cement from southern India. In the off-season period, during monsoons, when the cement demand is low, the cement companies from Andhra Pradesh are dispatching cement to Northern markets. We have seen well known brands of South Indian cement companies sold in Chhattisgarh.
Now that the demand has gone up in Andhra, the inflow has stopped for a while.
The cement was sold at very low prices. As a result the price structure here was disturbed badly. It was sold at Rs 4-5 less than the average market price.
How could industries in south afford to dispatch cement over such large distances?
One is that the south Indian region is saturated with cement companies, while the demand is low to due to lack of any prominent infrastructural activities there. These companies are already operating at half the installed capacities. So, they have no option but to explore distant markets to sustain the business. In off-season, when the demand is low, it becomes even more difficult to meet sale targets. Also, cement in a way is a perishable good. You cant stock it through the monsoons, waiting for the demand to pick-up. Chhattisgarh had a good to moderate demand this year as new infrastructure projects were initiated. Naturally it attracted cement suppliers from distant places with low cement demand.
I also suspect that these companies are evading state level taxes to manage with such low prices. We do not have any organised regional association of dealers that could protest strongly against this. Although, few regional cement manufacturers have taken strong objection against this.
You have been exclusive dealer for Century Cement for a long time. What has keeps you attached with this brand?
The company has a very good distribution network. If the order is to dispatched within Raipur, it is executed in four hours max. The company has four large warehouses in the four corners Raipur. If the order is from a nearby district, then the material is delivered to the site in not more than 10 to 12 hours. In our business quick delivery is very important and so we have stayed with the brand so long. It is a well known brand and the demand is good for this brand.
What is one thing that a cement company must do to keep its dealers happy?
Pay their dues in time. The company that we deal with (Century Cement) is very ethical and professional when it comes to meeting financial obligations. The company pays its dues to dealers systematically. I have friends that deal in cement from other companies. I have seen them fighting with cement companies throughout the year for payments.
Century Cement is the only company that I know in the cement industry, which settles all its dues before the financial year end. That means a lot to dealers. Some companies announce big discounts and incentives, but they keep the dues unpaid for more than two years at a stretch. If the money remains blocked with the cement company for such a longtime, it denies us from investing it into our business and growing it further. One loses at multiple levels when dealing with such companies.
How do you see the business growth year ahead?
There is huge potential for growth, but the challenges are equally big. The year ahead will be challenging as the market gets saturated with more cement dealers. Cut throat competition will make it tough for small players to survive. Big dealers are trying to grab retailers from small dealers. Currently we have 40 retailers working for us and we are aware of the attempts made by our competitors to absorb our retailers in their network. So maintaining and growing the network will be a tough in the coming year.
What is your strategy to counter this?
We are giving out systematically planned incentives to our retailers. Sometimes the cement companies too support us financially.
What must be done immediately to safeguard your business?
Some builders are bringing in cement from outer states and are selling it back in the regional cement market. These builders have received tax exemptions from government and are buying cement at subsidised rates. The cement is being sold in the market instead of being used for infrastructure projects.
The builders are only paying 2 per cent tax, while we have to pay 14.5 per cent tax. That is a gap of 12.5 per cent, which is huge. This malpractice should stop immediately. Complaints to tax authorities have not yielded any results and the illegal cement sale continues in Chhattisgarh.
All local cement bodies have tried their level best to thwart this activity but the problem still persists in this region. Sale of illegally sourced cement is damaging market dynamics severely.