This is an outstanding business to be in: N Srinivasan
16 Aug 16

India Cements Managing Director N Srinivasan walks

R Balaji through the company’s journey over seven decades.

How have India Cements and the domestic cement industry evolved over time?

Cement is a big success story of decontrol. Prior to the 1980s, cement was under price and distribution control. The decontrol started in 1982, giving industry an opportunity to grow.

India Cements started with a 1-lakh-tonne-a-year factory at Sankar Nagar, Tirunelveli, in 1949, expanded it in stages, and set up a second plant in 1963 in Salem. Between the two plants, the total capacity was about 1.5 million tonnes.

In 1968, my father (TS Narayanaswami, one of the founders) died and I joined the business. For some time I was not associated with the business, but re-entered it in 1989, and took over as Managing Director. We expanded steadily through greenfield projects and acquisitions. The capacity is now close to 16 million tonnes.

How did cement decontrol and economic liberalisation impact the company?

There were two phases of expansion: the partial deregulation in 1982, followed by full delicensing. India Cements missed out on the expansion opportunity between 1982 and 1989. This coincided with a period in India Cements when the promoters were not in management, financial institutions had a stake, and the perceived difference of opinion between promoters resulted in non-promoters leading the company. Since I was not there, it is difficult for me to say why they did not expand. Post-1989, our growth matched that of the industry.

The burst of expansion at India Cements was followed by a slide. What happened?

The problem for cement industry coincides with capacity creation ahead of demand.

Economic reforms created access to international funding; capital was available. Slowly, India started to change and, I think, lost its concern about the challenge of strategic players entering the market. Today there are cement industry giants, but we hold our own in efficiency.

By 2001, we were facing challenges. We went in for Corporate Debt Restructuring, came out of it, met the conditions of the CDR, raised money through GDR. Between 2005 and 2009, we saw good demand, and prices recovered.

The past five years have been a period of little or no growth. We are at 60-65 per cent capacity utilisation. If we could produce to capacity, we would be a different company. We are waiting for a demand pick-up.

In hindsight, could the expansion have been managed differently?

Expansions were fine because once out of CDR we emerged stronger. We took whatever opportunity we had; but for that, we would not be at this size. The problem is that in the past six years, we saw little growth. On balance, we are alright: debt levels are not high. If the demand had grown at 12 per cent as earlier, we would have by now thought of further expansions.

What is the outlook for the industry?

Cement is an outstanding business to be in — over a five-year span. Demand will come, and secondly it is a stable industry, giving steady returns. It is only the mismatch between demand and supply that is sometimes a challenge. After China, we are the largest producer. The 2009-10 phase of expansion has now been greatly absorbed. Our capacity utilisation is better than last year. Going forward, I am quite optimistic. In the past year and a half, we have put a lot of emphasis on cutting costs and more efficient use of equipment. Our results will prove that.
(This article was published on August 16, 2016) 

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