Getting ship-shape to sail on the winds of change

Sangeeta Singh

H S Bawa, Vice chairman, Zuari Chambal Group

With the government all set to come up with a new fertiliser policy, end of this month, the Rs 4,000 crore fertiliser major Zuari Chambal group is setting its house in order to make the most out of the policy. With almost 10 percent market share in urea, which has more than 50 players, Zuari Chambal, a KK Birla promoted but professionally-managed group, is repositioning itself to leverage the synergies between the fertiliser divisions of its two flagship companies, the Rs 1,803 crore Chambal Fertiliser and Chemicals and Rs 1,208 Zuari Industries Ltd.

“The repositioning is basically to take advantage of the combined strengths of the two individual divisions and make the organisation lean and mean,” says Mr HS Bawa, vice-chairman, Zuari Chambal group. With a total capacity of around 2 million tonne pa (per annum) of urea the company claims it is the largest fertiliser combine in the country and fifth largest in the world. However, fertiliser, though core, is not the only business of the group. It also has large presence in cement, seeds, finance, furniture, home finance, software, agritech and agrichemicals.

So, how is the company managing these varied businesses, some totally unrelated at the same time maintaining its position in the key areas of fertiliser and cement?

Banking on synergy in businesses
While the fertiliser division Zuari Industries is located in South Goa, Chambal Fertilisers is in Kota, in Rajasthan. This came up with the commercial availability of natural gas in mid-1980s when the government gave Zuari an opportunity to set up another unit in proximity to a gas pipeline. The current repositioning is aimed at both the units working in sync with each other even though they are geographically apart.

The Zuari Chambal group certainly seems to be enjoying the advantage of rural penetration. Its distribution network consists of 36,000 outlets spread over 10 major states. Besides, Chambal has a dealer network of 1,000 and Zuari of 2,000. “Our fertiliser brands Uttam of Chambal and Jai Kisaan of Zuari are household names and the companies’ identities come from these brands,” says Mr Bawa. Similarly, seeds for whole lot of products are sold under the Jai Kisaan brand. The group also uses the same network
to sells agrichemicals and extend loans and depository finance.”Our strategy in rural areas has been to do away with the layers of stockists and wholesalers and we make sure that only
one layer, ie, the dealer, works between the farmers and us and this concept has paid off,” says Mr Bawa.

The group also uses this network to sell cement to meet the housing needs of the farmers. “In coming couple of years I am sure we will be able to leverage the outlets to provide housing loan to farmers through our company Birla Home Finance,” says Mr Bawa. Though it may seem far-fetched at the moment, the company thinks that its major revenues in diversified businesses will come out of the rural markets using this very network.

Backward and forward linkages
The group seems to have made the right tactical moves by diversifying into areas where its existing infrastructure, network, brand positing and marketing strength could be utilised. These moves have also helped it reduce its dependence on the fertiliser business where prices are government controlled and margins have always remained under pressure. Its first venture outside fertiliser has been in cement and the second in seeds (both in 1995) which helped it take advantage of the existing infrastructure and network. Then came finance, for which again, the village outlets and dealer network came in handy. Later, the group diversified into software in 1998, which was the boom period for IT and home finance in 1999 when
the tax sops for investment in housing sector were announced and interest rates came down to realistic levels. Mr Bawa also says that
since the number of players in home finance is limited, Birla Home Finance is likely to tap a larger market.

For backward integration the company went in for oiltanking in 2000. A JV with Indian Oiltanking Ltd, Zuari Indian Oiltanking Ltd will transport petroleum products for Zuari Industries. Not only will Zuari Fertilisers get locational advantage (as this is off Goa port) but will also have its own source of feedstock. Besides, petroleum products can also be supplied to Indian Oil and other oil players.

Similarly the group set up a JV company, Indo Maroc Phosphore SA (IMACID) with Office Cherifien Des Phosphates of Morocco for phosphoric acid, a key raw material for DAP (dia-amonia phosphate) and other fertiliser grades being manufactured by Zuari thus bridging the demand-supply gap. The group is also intensifying its R&D to further its seeds business.

The JV route
The Zuari Chambal group has mostly banked on the joint venture route for its different businesses. “It gets us instant technology and the expertise and helps quick execution of projects,” says Mr Bawa. Way back in 1973, Zuari Industries went in for a joint venture with US Steel, now OSI, for the Zuari fertiliser plant in Goa. Similarly, for cement, the company entered into a 50:50 JV with Italcementi, a global cement player, in 2000. The company claims that this cement has higher strength, contains low heat of hydration for soundness and low free lime which results in soil cracking.

Again, for furniture the group companies, India Furniture Products and Gautier India Ltd, have a JV with France’s Groupe Seribo while its engineering and project management company Simon India Ltd is a JV with Simon Carves of UK. The joint venture route also gives it access to funds invested by the JV partner.

Focussing on cement
Though Mr Bawa agrees that with a combined turnover of over Rs 3,000 crore fertiliser is the the group’s core business, he makes it very clear that cement has never taken a back seat as far as the group’s focus is concerned even though the sector may be in the grip of recession. “We are very upbeat about our cement business and hope to be a major player in 5-6 years,” he says. He says the sector is bound to bounce back and Zuari Cement Ltd will be able move from being in the top ten to one among the top five or six. For this the group also expanded its plant capacity from 0.5 million tonne to 1.7 million tonne per annum.

People led group
Five business unit heads of the flagship Chambal Fertilisers and Chemicals and six heads of Zuari Industries Ltd report directly
to Mr Bawa. Isn’t that quite a handful? ‘‘Each one is a specialist in his field and I believe in delegating,” says the 65 year old Mr Bawa who has been with the company for over 25 years. He as well as his colleagues emphasise that the group is a professionally-managed entity where ownership and management have been well separated.
“I have never interacted with the promoter, Mr KK Birla. All I know is that I have to report to Mr Bawa and that we are a part of the
Zuari Chambal group,” says a senior employee.

It appears that the group is almost totally professionally run and promoter’s interference is minimal both in the day-to-day affairs as
well as at planning and conception levels. Besides, each business unit is an independent profit centre.

Future plans
The Zuari Chambal group is looking forward to divestment of PSUs like National Fertiliser and Paradeep Phospates. “This will not only make us the largest player in India but also a leading player in the world. We already have the customer base and rural reach and our expanded capacities will really help us make it big,” beams Mr Bawa.
In its cement business the group is hoping to enhance Zuari’s current seven percent market share to 20-25 percent by 2005, by when, according to Mr Bawa the oversupply situation will be past. The group also has high expectations from its IT business which is currently experiencing a lull due a slowdown in the
US market and its impact on the Indian IT industry. With operations in the US, Europe and Asia-Pacific, India Software Group, the software division of Chambal Fertilisers and Chemicals is into ERP implementation, decision support tools, productivity management tools, e-business and niche solutions. “I feel that our IT business will move very rapidly in the next 7-8 years,” says Mr Bawa.

With the Indian furniture market still dominated by the unorganised sector, Mr Bawa feels that the Zuari group has pioneered the concept of selling branded furniture under brands Gautier and Zuari. Although with a turnover of Rs 60 crore Indian Furniture Products is still small, Mr Bawa thinks it will grow very fast as there is no competition from other known brands.

However, if fertiliser is the group’s core business and also area of focus for future why is the bottomline not quite appreciable? For instance, last fiscal, Zuari Industries made a net profit of only Rs 24 crore on sales of Rs 1,208 crore and Chambal Fertilisers Rs 116 crore on Rs 1,803 crore. “Well there was a tax outgo of around Rs 16 crore in case of Zuari,” says Mr Bawa, hinting that what is more important in the current scenario is cash profit.

And like any other player in the fertiliser industry the Zuari Chambal group is also waiting for the retention prices to be announced by the government which will help a whole lot of them improve the bottom line. But its strategy of putting all its eggs in one basket through the diversification route may pay rich dividends in the long run. Now, it needs to make sure the omelette doesn’t spread out too thin.