The road ahead for Gujarat Ambuja

The road ahead for Gujarat Ambuja
10 April 2006

After Holcim acquired a 14.8 per cent stake in cement major Gujarat Ambuja Cements Ltd (GACL) in January this year from the promoters, the Sekhsaria family, the suspense surrounding the India strategy of the global cement giant was finally set at rest.

Anil Singhvi, for long the face of GACL as its executive director, has been elevated as managing director of the Holcim-controlled company. In this interview, with Sourav Majumdar of Financial Express, Singhvi discusses the road ahead for GACL, the complexities of the Indian cement market and the India story. Excerpts:

What has changed after the Holcim entry into GACL? Let’s not restrict ourselves to GACL and ACC. It has been a major call for Holcim as part of its India strategy. ACC and Ambuja are constituents of that strategy. I think it has worked very well for them because they are one of the very few companies globally who understand the emerging market scenario very well. Their mindset is not suffering on account of their European background. Unless you understand the emerging market scenario, it could be a complete disaster.

You talked about the risks in an emerging market. So what kind of risks are you looking at, and how do you plan to tackle them?

The emerging markets are not completely mature scenarios and therefore there are advantages and disadvantages. The political scenario is very important, and so’s the economic scenario. A crowded market is a major risk. The overseas players are normally used to three or four types of scenarios, here there are 40. So they have to get used to the situation and understand the dynamics of the market, the cut-throat competition.

Sometimes the prices can take a complete dip, and then how do you react? The most important factor is it’s not a bulk market, it’s not an industrial product. It’s a consumer product. The focus has to be retail. This whole understanding of the market and associated risks has to be made. Today Holcim is the only company which has put in US$2bn into India through the ACC and GACL deals. It’s a big leap of faith.

Size is an important factor for the industry in which you operate. Now, integration is an obvious question which will be asked now that ACC and GACL are both with Holcim. Will there be a merger of the two?

No, I think they will remain as two distinctively separate entities. They may work on a common platform but they will remain separate. This is because the two are very powerful brands. There is no point in making a single corporate entity. If you have two separate brands, your marketing, distribution and brand expenses will remain for both. Then cost optimisation in that scenario is not so great for you to go through the process of merging the two. Besides, there will also not be any major advantages in terms of the scale of operations. That would have been the case if the factories of the two companies are located close to each other. But I have five locations, he is in 15 other locations. It does not make any sense. There’s no economy of scale. There’s very little justification for a merger. We are anyway jointly working on procurement, projects, R&D, blending, looking at alternative fuel etc. There’s complete commonality on these fronts.
Published under Cement News