A distributor of cement is an extremely important link in the overall cement business. Nikesh Parekh has been associated with cement distribution through Span Cements and Harjivandas Mohandas & Co. Harjivandas Mohandas is a company which is more than 100 years old. Parekh is also is the Secretary of the Cement Stockist and Dealers Association, Bombay. He spoke with ICR on all aspects regarding cement distribution.
How has the cement distribution channel changed over the years?
The cement distribution channel is functioning in the same way as it used to function, say, 10-15 years before. But the role of a distributor has expanded. Today we operate in the same way, at the starting point we have the manufacturer and transporter, then we have the distributor, then the retailer and at the end, we have the end customer or user. Servicing the retailer is a challenge because the quantity of bags is very small ù it could be a mere 60 bags; the location of shops could be such that a big truck cannot move there; delivery is expected in the shortest possible time because the shop does not have space to stock more material. Sometimes, the shop owner occupies a space on leave and license and relocates to another place. In short, the role is more challenging than in the past.
Tell us something on the practices being followed for trade and non-trade business in and around Mumbai.
In case of a non-trade company, billing is possible even for 200-300 bags which ideally should be for 1,000 bags or more. In a non-trade business, the contractor buys from us because he gets extended credit terms. He gets time to settle our bills whenever he gets his funds. However, there is always a fear that the contractor who is dealing with me today can go to another distributor any time. In non-trade channel, we are working as a financing company. In short we work as an insurance company for the manufacturer and as a financier for the client.
How will the advent of E-commerce impact your business?
The advent of E-commerce on the scene will impact us. A non-trade consumer may get connected with the company directly and the bigger players will be serviced directly by the manufacturers against, say, a bank guarantee. We may then become redundant for those buyers. We can connect with those buyers only if the manufacturers want us to get involved for collecting the payment or if a buyer has difficulty in paying the manufacturer upfront. So E-commerce will make a dent in the cement business in the years to come, just like what has happened in airline tickets.
What is the payment cycle now?
We used to get our payments from the market in about 20 to 30 days. But now we get our money from the market only after about 70-75 days, making the interest cost go up. If I do not make payment to my principals, my supplies are on hold. It is a difficult game now. We have to get funds from somewhere. It has become very difficult to increase the volume of business. We were expecting the business climate to improve after last Diwali, but then the monsoon was bad, so it did not happen. At present the world over, commodity market is down, China is dumping materials in the global markets, and crude price is at the lowest level.
What is your take on GST?
In the beginning (after the rollout) it may be difficult but later on, it will become easy. For manufacturers it will be slightly difficult. They will have to work on dynamic pricing. I can get materials from Pune, Nasik, Daman or where ever the price is better, I can get the material for my client. We need to educate our dealer community on the subject.
What is your area of operations?
As a distributor I can do business all over India, and that is my market, where ever my principal is present in the market. In a few cases my payment will come from a company either from the local office or from the corporate office.
What about the prices in the non-trade or institutional market?
The Net Cement Realisation (NCR) which companies talk about is more for them but the price in the market has nothing to do with NCR. When the price of a bag of cement is below Rs 250, companies are losing money. Today the price difference in trade and non-trade is between Rs 40 to 60, for ´A´ class of brands.
Can you compare the distribution channel in FMCG and cement business?
FMCG has a different kind of system. The quantities are small, distributor is very important. He directly distributes the product. He has the transport network under his control, while in cement, the distribution is done by the company. Quantities are very large. In case of companies like Dr Fixit, though it is in the construction chemicals business, it works like an FMCG company. The distributor has to stock the full range of products which either may be fast moving or slow moving. UltraTech brings material to 6-7 railway destinations in Mumbai. So they are looking at just in time commodity distribution. They have planned new a packing/grinding plant at dock location in south Mumbai and another at Mira Bhyander in North Mumbai. In short, distribution points are increasing.
Hooking of bags has reduced. UltraTech, Ambuja and ACC are paying more to the loaders for handling. The look of the bag is important for the trade market, when the bag moves in wagons, it is not possible to have the bag look neat and clean. Where the packing plant is close to the market, the bag will look good. The loose cement which seeps from the bag spoils the look of the bag when cement travels a distance of about 500-600 km. Looks do not matter for non-trade users.
Today the Mumbai market is around 7 lakh tonnes per month, players are eating into each other´s market. The number will still go up, with new Metro work, Coastal Road, Navi Mumbai Airport, etc.
What are the hurdles in front of distribution?
There are many hurdles to get cement to Mumbai from outside. Wagon shortage takes place due to food grain movement, fertilizer movement. Railway engines also do not function properly in summertime.
For non-trade the minimum quantity is 1,000 bags but it comes down if the client is also buying RMC. Servicing so many products is not difficult because these are handled by different verticals in the company. For products like plaster mortar, AAC blocks, sand etc., I was dealing with these separately.