Today, setting up a mini plant it is no longer economically viable
Today, setting up a mini plant it is no longer economically viable
Economy & Market

Today, setting up a mini plant it is no longer economically viable

Vikas Damle

TD Katwa
Chairman, Katwa Cements
The year 2013 was a year of mergers and acquisitions, when mammoth organisations joined forces to take advantage of scale and supplementary distribution networks that spanned over several continents. Industry experts in India reiterate that a cement plant with production capacity less than 2 mtpa cannot survive in today´s competitive market. So is this the end of mini plants in India? ICR interacts with TD Katwa to know how their mini plant is holding up against the odds. Excerpts from the interview.

Please brief us about your company and markets served?
We started Katwa Cements (KCPL) way back in 1985. The 0.2 mtpa plant has been running non-stop ever since. KCPL has its cement manufacturing plant at Belgaum in Karnataka. The plant is strategically located close to the limestone deposits of Yadwad village in Karnataka. The company serves the cement markets of northern Karnataka, southern Maharashtra and Goa. The dealers network, established three decades ago, is still in place and has only grown stronger with time.

What is the range of products offered by your company?
We manufacture both Ordinary Portland Cement (grades 43 and 53) and Portland Pozzolana Cement. We manufacture and sell cement under the brand names: Katwa Super, Katwa Cement and Katwa Suraksha.

Please brief us about the revenue gathered from your different product lines?
Of all our products, OPC 53 grade cement sales contribute to around 75 per cent of our revenue. OPC 43 grade contributes around 20 per cent and PPC grade contributes around 5 per cent.

What does the management structure at KCPL look like?
We are three directors in the business namely: TD Katwa, Chairman; Nitin T Katwa, Technical Director; Ravi T Katwa, Managing Director, who is also involved in R&D activities at KCPL.

How has KCPL performed in last 5 years in terms of growth and product launches?
KCPL has nearly doubled its production and sales capacity in the last 5 years. There was a strong demand for PPC grade cement indicated by our dealer network. To meet the demand we have launched ´Katwa Suraksha,´ a PPC product in the market.

How is the cement industry performing and what are the challenges faced by the sector?
Overcapacity is affecting the cement industry badly for more than half-a-decade now. Rapid expansions worth more than Rs 50,000 crore that were done during 2007-12 have doubled the production capacity from 180 mtpa to 360 mtpa, the fastest in the sector´s history. This is serving as a self-made trap for the cement makers as the demand is very weak, far from the expectations that had driven the expansions.

The cement demand from the infrastructure and real estate sector is very low in comparison to what we expect it to be in a typical summer season. Also, the industry has been grappling with cost pressures due to rise in raw material costs and freight charges.

How are you dealing with these issues?
Though the cement prices have been reduced to stay competitive, we have been able to maintain our sale volumes at good levels. Our volumes are keeping us in profits. One of our business strategies is to remain focused on rural markets. We regularly conduct on-site social gatherings with our customers and run loyalty reward programs to keep them bonded to Katwa Cements. Apart from this, we also keep introducing several annual target-based schemes for our dealers.

We do not compromise on quality and delivery, and make the product available to our customers at an affordable price, which is why our customers keep coming back to us.

Are you planning for any capacity additions or product launches?
Yes. We have identified a few locations and are planning to set up facilities there. We are also planning to introduce Portland Slag Cement (PSC) in the market.

Tell us about your company´s CSR activities
The three thrust areas of our CSR initiatives at KCPL are clean drinking water, health & medical care and good education. Some of our initiatives in these areas include; Clean drinking water: We have installed hand pumps, tube wells, submersible pumps and have constructed elevated water tanks. We have also made provision for water connection; and have installed aqua guard water purifiers, water coolers at schools and community centres, etc.

Health & medical care: Katwa has organised camps to create awareness about several diseases in the region. We also arrange for free medical consultation and medicine for the needy employees at the plant.

Education: We have set-up a nursery for the kids staying at the plant quarters and are providing them with free education.

In today´s market where cement companies are going ahead with mergers and acquisitions to maintain economic viability, what are the challenges faced by a mini plant?
The only problem in being a mini-cement plant is the high cost of production, since a mini plant is highly labour intensive. And nowadays getting labour and skilled manpower is a big challenge due to competition. Labour is in short-supply and has become costly.

In current market conditions, it is advisable to have a cement plant to the minimum at small scale level. With cement prices dropping rapidly and with larger organisations joining hands to take advantage of scale, newly set up mini plants are finding it very tough to sustain themselves. Some of them, which are surviving, are bearing huge debts on their assets. Today, setting up a mini plant is no longer economically viable.

So how is your plant holding up in this tough scenario?
We are free from all bank loans and liabilities, etc., for more than a decade now. This is mainly because of our early start in this business. Katwa brand is pretty old and well recognised in this region. We have focused on quality and quick delivery at affordable prices right from the beginning. Quick delivery and availability is very important for consumers. So, we have maintained strong relations with our dealers and have retained even those who had joined us right from the inception of our plant. Our dealer network and brand recognition has helped us to manage the business profitably.

The other significant factor is we have based our unit closer to the limestone deposits. This has helped in cutting down the cost of logistics, which is a major expense for any cement plant.

Of course we do feel the need to expand, hence looking at boosting our capacity and introducing new products to fuel our growth further.

Are there any benefits of having a mini plant?
Yes, you do get some tax subsidies. Central government offers excise cuts to the mini-cement plants. Besides, the technology applied in mini-plant is simple; we don´t need highly skilled manpower. That helps in keeping overhead costs low.

We do not compromise on quality and delivery, and make the product available to our customers at an affordable price, which is why our customers keep coming back to us.

Indian Cement Review