Indian cost-cutting measures

Indian cost-cutting measures
Published: 30 June 2004

For local cement companies innovation may be the key to cost competitiveness. Hence, larger cement companies such as Grasim and Gujarat Ambuja are seen to be shifting to a number of innovative cost-cutting measures to enhance bottom lines.  These include bypassing the dealers to sell cement directly to the customer, shifting from the traditional rail-road option to cheaper sea transportation to target distant markets and even using crushed sugarcane for meeting fuel requirements.

According to an ICRA analysis, over 80 per cent of the cement is sold currently in India is through the dealer route. "The bigger cement companies are now shifting towards a dealer-free route to supply to bulk consumers, including builders and infrastructure companies to save on the dealer margin," an industry source said. Customers are encouraged to contact the cement companies directly with their requirements, following which the manufacturer delivers the requisite quantity of cement to their doorsteps. The move also gives the companies better price competitiveness as compared to those servicing customers through the dealer route, industry players said.

Bigger players are also saving on logistics expenses, which is one of the major operating costs faced by the industry. Companies such as Gujarat Ambuja are extensively relying on the coastal transportation route to service the southern market, rather than on rail or road, according to industry analysts. Several cement companies are also using high capacity trucks for road transportation to cut down on costs, industry sources said.

In order to bring down energy costs, most of the cement companies have already shifted entirely to captive power stations and are using a variety of fuels, including pet coke and lignite. Gujarat Ambuja, in fact, has partially replaced coal with crushed sugarcane as a fuel for its Gujarat plant, according to analysts.

Cement companies are also tracking the international polypropylene prices to strike deals with manufacturers of polypropylene bags, used as packaging material in the country, according to ICRA. The scope for saving through this route is enormous, since in India cement is almost entirely sold in 50 kg bags, as opposed to it being sold in bulk in most other countries. Some of the domestic cement companies are also reportedly considering the bulk-sale route to optimise costs, industry sources said.