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Reverse auction system for bulk consumers must stop

Published

3 years ago

October 14, 2021

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H L Jain, Advisor, Hi-Bond Cement (India) Hi-Bond is a leading producer of PPC Cement, OPC cement, clinkers, etc, in the Rajkot region of Gujarat. Promoted by the Kishan Industries group, the company has a production capacity of 1.2 million tonnes per annum.

H L Jain, Advisor, Hi-Bond Cement (India), makes clear the stand that cement manufacturers must take to survive the current tough times. Excerpts from the interview.

What factors must be considered while chalking out a media plan?
Media plays a very important role in building a brand image for the product. It has to be structured properly to suit the marketing goal. The plan will depend on the targeted geography, the quantum of product to be sold, the target consumers, and the budget allotted. It must be understood that promotion channels like television and national newspapers must be resorted to only if you are trying to promote a premium product with a substantial profit margin, since these modes of promotions are very expensive.

What are the challenges in marketing and how do you tackle them?
Challenges are always to be kept in mind while designing marketing strategy. For example, if you have to compete with an international brand or a well established, famous, national brand, you have to convey how your brand is superior to others. You must communicate effectively how your product is better than its competitors in terms of product quality and allied services that come with it. Your marketing should prove your product`s superiority to its consumers.

Has cement production remained as profitable a venture as it was in the past?
Cement manufacturers have barely recovered any profits due to sky-rocketing prices of raw materials. Added to it, there is the extra cost of transportation and logistics. This has impacted the profit margins drastically. Cement demand has not grown to the extent we had expected it to grow in the last two years; demand had been less with respect to the production capacities we have built up. There is a huge gap between supply capability and the actual demand from the market. As a result, cement manufacturers are forced to reduce prices.

Which is the better strategy, distributing through few large dealers or routing it via an extensive network of small dealer outlets?
Distributing cement through large dealers is a thing of the past. Now almost every producer has an extensive network to reach not only the smallest dealer but also the end consumer directly. This strategy in the commodity market always works better as we are able to give better value to the end user.

What are different modes through which cement is sold in India?
Cement is in essence a commodity, although some producers are branding their product, trying to convince people that the product is different from the general commodity available in the market. However, some consumers see it more as a commodity. This has led to a price gap between different brands. However, now the government has introduced a two- tyre excise duty, one for the general consumer based on MRP and the other for largescale consumers, at a concessional rate. The second type of sale is like a commodity sale and usually there is not much difference in the prices of two separate brands. That is because the largescale consumer buys only at the lowest possible price and no producer can afford to lose this consumer. Secondly, this type of deal cannot be made through dealers as the product is to be sold directly to the consumer. The dealer is restricted to the role of being only a canvasser.

How do you reach construction professionals ranging from civil engineers and consultants to contractors and masons, at different levels?
From time to time, companies organise engineers meets, contractors meets and masons meets in every area that is targeted for product sale. The meets share technical presentations that educate these professionals about the characteristics of their product.

Quality perception of cement varies from customer to customer. How do you factor this in your marketing plans?
Quality perception varies from brand to brand, application to application and at times, from customer to customer. The requirement of the precast or prefabricated product customer is different from construction contractors and therefore, if one has to be popular among all sectors then the product has to be good in all respects; even its one- day strength has to be more than 21-22 and so on, and fineness has also to be very good, that is +3000.

Other than price and quality, which other factors influence buying decisions?
For some customers, credit facility and timely deliveries are important factors. A few producers offer credit facility to largescale consumers if they provide bank guarantees or other financial instruments that ensure return of credit.

What is your mantra for surviving the tough times?
Today, the cement industry is passing through a very critical stage, particularly after the decline in GDP growth consecutively over the last two years. Cement demand is now at its lowest, new capacities are being added, which is pushing cement prices lower.Cement companies can no longer make sufficient profits. The situation will worsen if this continues.

The reverse auction system for bulk consumers must stop. Just as it is wrong to take advantage of the market and sell products at abnormally high rates, it is also wrong to sell products at grossly unjustifiable low prices and consequently, become defaulters with shareholders, banks, suppliers, contractors. After all, it is the hard-earned money of the common man which is invested in these companies. The marketing people have no right to play with their money and sell products at their own price.

I remember in 1997, such a situation prevailed in the cement industry when cement was being sold on a Â´payable when ableÂ´ basis. At that time we rose to the occasion and said that we will sell material only on a Â´cash and carryÂ´ basis. That changed the trend in the entire cement market in India and the whole cement industry started selling on a cash- and -carry basis. The need of the hour is to sell cement at a reasonable cost with a reasonable level of profit.

Cement manufacturers have barely recovered any profits due to sky-rocketing prices of raw materials.

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

3 years ago

October 21, 2021

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Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

Source:moneycontrol.com

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Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

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The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

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Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

3 years ago

October 21, 2021

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Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.