The More, The Merrier

Driving its diversification gambit is the belief that cement is a cyclical business. "We are building a buffer to make up for the lean period in cement says T M M Nambiar, the ACC managing director. On an average, the industry works on two-year cycles. According to a recent study by Prashant Reddy of ICICI Securities, cement prices have enjoyed a good run in the past two years and although a crash is not imminent, the industry is heading for a sluggish growth phase. And this is precisely what ACC expects to combat by getting into a host of new ventures.

 

The company has already spread out into the area of refractories and synthetic ferric oxide and research and consultancy. It has also picked up a stake in a number of joint ventures in fields unrelated to its main line of operations like float glass, soft ferrites and tyres. ACC has announced that it intends to tie up with Bridgestone and Telco in a tyre joint venture. By the year 2000, it says it will invest close to Rs 400 crore in the refractories business, Rs 500-550 crore in engineering, Rs 200-250 crore in advanced materials and Rs 300 crore in the consultancy business. In cement, which will continue to its core area, the company will put in Rs 5,000-5,500 crore during the same period.

Most analysts endorse the ACC gameplan. While some may doubt the company's move into non-synergistic businesses like tyres, the unanimous opinion is that all pure cement companies haveto go the ACC way to counter the industry's cyclical nature. However, Anil Singhvi, treasurer with Gujarat Ambuja, a major competitor to ACC, disagrees. His company, he says, has proved that there are no lean seasons in the Indian market. All that a company must do, according to him, is streamline itself and market its products aggressively "" in other words treat cement as any other business.

As ACC peels off its blueprint for a diversified future, from the drawing board, we take a close look at the whether the move is the company's best business bet.

ACC is the largest cement company in the country with 11 plants spread over nine states. It has the largest distribution network with 160 warehouses. Recently, it hooked up all its warehouses and dealers in an intranet whereby it has online, the demand-supply positions at all times in all its markets. Says Prashant Reddy: "It has allowed the company to optimise its freight costs as the computer helps identify the cheapest route options. Even so, the company does not want to rely on cement alone.

A look at some of its reasons: According to a recent study by the ICICI Securities and Finance Company Ltd, the supply of cement would outstrip demand in the next two years. Demand is expected to grow at an average of 8 per cent in the next couple of years but this is far lower than the expected supply growth at 13-14 per cent. While some companies could look at exports to absorb the surplus, these will not be enough "" export of cement is expected to grow by 39.2 per cent during the same period but domestic demand will have to grow by over 10 per cent if the entire cement supplies are to be mopped up.

Mohan Karnani, executive director and president (operations), Larsen and Toubro Ltd, admits. "We have to face the lean period and wait for good times ahead. Companies and industry analysts are however divided over whether the impending glut is an all-India phenomenon or restricted to the northern states. According to one study, overall supply will grow at 13 per cent b/incs/right.asp"-->