Process

Need to evolve a new sales model

Published

13 years ago

July 31, 2012

admin

The current ‘del-credere agent’ sales model is unfavourable for the distributor and it offers a paltry margin to the distributor while exposing him to the risk of default by the customers. Jailesh Dalal, Managing Director, Jaycee Buildcon (India), comes up with a sales model which seeks to protect the interests of the distributor.India is the second-largest cement market in the world, accounting for 7-8 per cent of global cement production. The total cement capacity in India now exceeds 300 million tons per annum, with global cement majors like Holcim (ACC and Ambuja Cement – have largest combined capacity), Lafarge, Heidelberg, Vicat, Italcementi making strong headway into the market, along with home-grown players like Ultratech (single largest cement manufacturer), Binani, etc.The demand for cement is driven by real estate and infrastructure growth and exports. The recent policy paralysis has stinted demand growth, but it is temporary and would bounce back. From an economic standpoint, cement production of one million tonnes is estimated to generate downstream employment for 50,000 people. This reflects the significance of the cement industry in India.Even though the manufacturing facilities in the industry are world-class and the supply-chain is efficient, there is still a considerable amount of evolution that has to happen in the sales model.Sales Model in the cement industryAll cement manufacturers in India invest significantly on marketing, branding and technical support. While some of them sell directly to B2B customers (large consumers) and some sell on direct credit through cement distributors (sales agents), most of the manufacturers have adopted a modified version of the "del-credere agent" (DCA) model for sales.In this, the distributor acquires new customers, generates orders and coordinates for despatches. In addition, he pays the full invoice value to the manufacturer within 7-10 days from despatch, while offering open credit to the customer as the case may be.The distributor might receive payment from the customer as per agreed credit terms. But in case the customer doesn’t pay on time, the distributor has to pursue him and in the worst case, face bad debts.For B2C sales (retail), the manufacturers have adopted a simple trading model in which distributors purchase from manufacturers and sell to customers. However, all other aspects including logistics and pricing are managed by the manufacturer in all cases.Even though the distributor takes all the risk for a paltry operating margin of 1.5 per cent, his business growth is limited by the funding available with him as he is also playing the role of a financier.The current sales model gives customers the liberty to delay payments and default in some cases, considering the weak legal system in India and little recourse to payment default on open credit terms. The distributor has to bear the interest cost for delayed payments and risk of bad debts, both of which are significant.While ideal for the manufacturer, the current sales model is not sound and efficient as a whole. Effective steps need to be undertaken to protect the interests of distributors as well, which are an integral part of the business and an asset to manufacturers.Evolution of the Sales ModelSome ideas to improvise the current sales model and quickly implement changes are:1. Well-defined due diligence process for all new customers acquired by distributors. This should be standard across the industry, similar to the process employed by banks before they approve any credit limits.2. Tri-party, legally binding sales contract between manufacturer, distributor and customer for all orders (standard across the industry), with clear clauses and action in case of payment delays and defaults.3. Manufacturers should set thresholds for open credit terms offered by distributors to all customers compulsorily, so that the industry works in an organized and synchronized fashion and customers do not take undue advantage of distributors.4. Full support and assistance to be provided by the manufacturers in case of payment defaults by customers. The above would go a long way in preventing fraud.5. In case of large, reliable customers, the manufacturers should extend support to distributors and help them increase sales by offering special credit facility with respectable sales margins.6. Increase commission on sales reasonably for distributors (to at least 5 per cent) to keep the business interesting and profitable for them, as they invest funds and take all the risk.7. Increase the payment period between distributor and manufacturer to a minimum of 15 days to enable distributors use their funds more effectively.8. Not hold distributors accountable for any short-weight as they are not involved in logistical aspect (loading, transport, unloading) and there would always be differences in calibration and precision of weigh bridges.9. Exploit the potential of distributors by supporting them in using innovative ways to sell and add value to the transaction, rather than treating them only as financiers. And implement strict policies to avoid under-cutting of prices by distributors. This would create healthy competition amongst distributors and in turn, help achieve better sales and customer service.10. Manufacturers and distributors should form a common platform to fight payment defaults and bad debts, while publicly blacklisting customer companies involved in the same. A powerful law firm could also appointed on this platform, to fight all such cases. This would help preventing fraud and filtering unethical consumers in the industry.If the cement industry works cohesively, a lot of efficiencies could be created which would culminate into higher economic gains for all involved. Improvising the current sales model would be an important step forward, and the cement manufacturers should come together and implement standardized policies and procedures in the market for long-term, sustainable growth.(The author is the Managing Director of Jaycee Buildcon (India) Pvt. Ltd., a 29 year old company and leading player in the cement distribution, cementitious products and ready mix concrete industry in Western India. He can be reached directly on jaileshdalal@jaycee.in)

Process

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

Published

3 years ago

October 21, 2021

admin

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

Process

Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

admin

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

ETBrandEquity

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.

Process

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

admin

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.