‘IPL will help us build brand image at no cost’

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After lying low for a few years, Chennai-based India Cements Ltd has not only become a major player in the cement industry in the country but has also attained the third slot (after Holcim and Grasim) under the leadership of N Srinivasan, its vice-chairman and managing director. Through its sheer cost control measures, strong brands and wider distribution network, the company has outpaced its peers, reporting better EBITDA margins quarter-after-quarter for the last two years.

Having set a target to become a pan-India player, the company has embarked upon capitalising on the increasing demand and gap supply by almost doubling its capacity to 18 Million Tonne (MT) in the next three years with a marked presence in the northern parts of the country. To further position itself as a major contender in the Indian cement industry, the company is understandably cashing in on the advantage arising out of becoming a franchisee of the Indian Premier League (IPL) of BCCI. In the recently held auction of teams and players, India Cements shelled out $91 million for the Chennai team and another $1.5 million for India’s T20 and one day captain MS Dhoni. The company expects its brand equity to grow manifold across India. Srinivasan spells out his gameplan for his company and the cricket team in an exclusive interview with FE’s R Ravichandran. Excerpts:

Experts believe that the current demand and supply gap in the cement industry will narrow down in the coming years. What do you think about it?

The industry has been growing at 9-10% for the last two years and operating at 95% capacity utilisation. It is unprecedented and we had not seen such a trend in the past. Taking into account the recent government estimates, the average requirement of cement by 2011 is estimated at 250 mt. The requirement can go up to 291 mt. If the industry's capacity utilisation comes down from the current 95%, the requirement will further shoot up to 325 mt by year 2011.

There are two factors, which will determine the demand-supply gap scenario. Firstly, the industry can no longer run at a peak capacity utilisation (it’s 95% today) given the age and equipment of the plants in India. Secondly, there is this impact of the delay in project execution due to the requirement of large investment.

The industry needs to add up to a maximum of 150 mt in the next three years, which it’s unlikely to do due to the non-availability of required coal in the domestic market, skyrocketing coal prices in the overseas markets, logistics constraints like shortage of wagons, delay in equipment supply, cost overrun and other factors. So, the demand will continue to be on the higher side, at least for the next three to five years.

There is a strong feeling among consumers that the prices will come down slightly in the future. Do you foresee prices actually coming down? If yes, when?

There may be a price fluctuation in the industry. Aberration will surely take place when the bunching of capacity takes place. It is likely to happen in those places where capacity addition is more at a given point of time. So, the price fluctuation is purely dependent upon how much capacity is added and at what time.

You said that India Cements will be doubling its capacity to 18 mt by 2011 and wants to become a pan-India player. Is it a viable option?

As explained earlier about the demand and supply gap, we believe it is a viable option for us due to various factors. We are involved in two phases of expansion. The first is to increase the capacity to 14 mt by December 2008 from 9 mt by expanding the Rassi plant, new line at Tandur in Visaka plant, setting up two new grinding units in Chennai and Parli (Maharashtra) and upgradation of existing plants.

The second phase involves setting up of two greenfield units in northern India with two million tonne capacity each. This phase also include setting up of a captive power plant of 40 mw. These volumes are expected to fall in place by mid-2010. The total investment is estimated to be around Rs 2,000 crore.

By entering into the northern region, India Cements will not only increase its market share substantially but also become a pan-India player. Our strategy is to grow slightly ahead of others at all times with better EBITDA margins. After Holcim and Grasim, we are the third largest manufacturer in India.

You offered cement to the Tamil Nadu government at a subsidised rate at a time when the commodity is garnering huge premium due to a rise in demand from across all the sectors. What was the motive behind this move?

We have a reputation for meeting requirements of consumers and builders in whichever positive way we can do. So, we responded to the situation in a positive manner both at an individual as well as the company level.

You have recently become the Indian Premier League (IPL) franchisee for Chennai. What is the gameplan?

India Cements has been promoting and managing many games including cricket over the last 40 years. The company is involved in the development of cricket by sponsoring tournaments, maintaining a number of teams participating in local league matches, identifying talents at young age and giving them opportunity to make it big at the national level. So, it is only natural for India cements to be associated with IPL, which will help the company to bring quality cricket to Chennai. As it is, everyone is very excited about the league.

What kind of impact will your association with IPL bring to the company’s table?

It provides an excellent platform to build corporate and brand image at virtually no cost especially at a time when the company is planning to be a pan-India player. It also provides an opportunity to galvanise the supply chain and the large dealer network of the company by involving them, which will result in increased goodwill and loyalty of these constituents to the company. Apart from this, the association with IPL represents an exciting value creation opportunity and finally it is a revenue positive proposal for us.

You named the team as the Chennai Super Kings. Why ?

Everyone is excited about Chennai Super Kings. In fact the people of Chennai have suggested 26,000 names for the team. This shows the public involvement in this game. India Cements believes this will be a great sporting event and a source of entertainment for the public, particularly since world’s top cricketers are participating in the league.

What are your future plans for Chennai Super Kings?