Cementing Consolidation

It was inevitable. When it finally happened, however, it has thrown up a number of questions and possibilities in running a business in India. When a gusty and aging N. Srinivasan called it quits and sold his dear India Cements to the Birla-owned UltraTech, it exposed the limitations of a man who dominated the cement field in the south like nobody else's business. Why did he give up? Notwithstanding the business and economic reasons, the typical constraints of a family-run business did not help him either. The propensity of the generation next to carry forward is critical for a family business to live long. Family businesses of well-known kinds are dime a dozen in this part of the world.

 What's in a name? What's in a brand? How does history matter? Time can just reduce all these to inconsequential things. As the saying goes, change is the only constant in a dynamic business environment. Nevertheless, it requires enormous courage to let go of something you hold very dear. No doubt, Srinivasan was caught in a compelling situation. Yet, he proved wiser in calling it quits. Srinivasan and his ilk have indeed been compensated well for getting out of India Cements. Did UltraTech get India Cements at the best price? Time alone can answer this.

Going back in time

What does this deal signify? Are we going back in time? It appears so. Small is beautiful, it is often said. Not surprisingly, rulers of the past - both at the Centre and States - assiduously encouraged SMEs (small and medium enterprises). They had been particularly conscious that production should not be concentrated in a few hands. The MRTP (Monopolies and Restrictive Trade Practices) Act was in play to check-mate such concentration of production.

Toward consolidation

 As things pan out - especially in the cement business - the emerging competition of the intense kind is sort of pointing to a reorganisation of an unexpected kind in the cement industry. A consolidation is clearly in evidence and is happening at a hectic pace, especially in the southern cement market. The two dominant players in the country - Adanis and UltraTech - have been on a prowl to expand their cement base. In April, Ambuja Cement, an Adani Group company, had entered into an agreement to acquire My Home Group’s 1.5 million tonne per annum cement grinding unit at Tuticorin in Tamil Nadu. Later, on June 13, Ambuja Cement signed an agreement to acquire Penna Cement Industries (PCIL). The deal is signed ostensibly to help the group expand its presence not only in south India but also gain access to the Sri Lankan market. Shree Cement had announced capacity expansion in Karnataka. Dalmia Bharat was in the process of setting up a cement mill at Ariyalur, Tamil Nadu.

South focus

 Why is South India in focus? The reasons are not hard to find. For one, South India is where much of the country's limestone deposit - critical input for the production of limestone - resides. For another, the industry in the South is largely fragmented with myriad players. Also, the cement demand is much more up North. In the modern context, the southern cement companies - going by their capacities - pale into insignificance when compared to the big players such as UltraTech and Adanis. A player like India Cements can easily fall into the realm of SSIs when pitched against these biggies, who have deep pockets. All these factors have now conspired to make the southern cement industry scene a lot more exciting. The name of the game, all of a sudden, is getting re-defined. Surely, the focus is firmly on being big. If scale defines the new focus, the big consolidation under way points to the return of 'dominant production' ways, a far cry from the diversified cement manufacturing. The fragmented nature of the cement business in the South is an easy facilitation for the biggies to get in. The industry in the south is already abuzz with such talks. A sense of urgency is making the big boys fidgety, and is reportedly forcing them to hasten their action plan in the south. Coming events cast their shadows before them, it is often said. Are we returning to former times where a few dominated production? Well, the cement industry, especially in the South, is set for a lot of action ahead

(This was published in The Hindu BusinessLine on August 8, 2024)