How Shree Cement became one of the most valued cement companies

If experience counts for something, it is the can-do belief that one gains over time. It is definitely so for Hari Mohan Bangur, Managing Director of the Kolkata-based Shree Cement. He had proved all the naysayers wrong in 2009 when he commissioned a brownfield clinker plant in just 367 days. He was then told that the average time required to set up such a unit is 630 days. In another year, he beat his own record to set up a similar unit in 330 days.

Today, at 62, with 36 years of experience behind him, Bangur heads the company whose market value is more than Rs 29,000 crore.

In the past four years, the company's profit has increased nearly fourfold from Rs 210 crore in 2010/11 to Rs 787 crore in 2013/14 (it follows a July to June financial year).

An operating profit margin of 29.47 per cent in the quarter through June points to company's sound pricing strategy and operating efficiency. This at a time when its market peers like UltraTech and ACC, despite their market size, has been pegged at 22.2 per cent and 15.94 per cent, respectively.

This is also one reason why the company's stock price has zoomed from Rs 50 to Rs 8,509 in 10 years. "The market is giving us a right value," says Bangur. Founded in 1979, the company had a production capacity of six lakh tonnes a year. In the early 90s, the family split. Till then the joint family used to run another cement business called Digvijay Cement.

Over the period, the production capacity of Shree Cement has touched 18.5 million tonnes with plants in Rajasthan, Uttarakhand and Bihar.

It is now setting up a new unit in Chhattisgarh. Nitin Bhasin, Head of Research at Ambit Capital, says the companys strength is threefold. "Strong logistics to meet market demand (80 per cent of its market is within 200km of plant locations), access to limestone reserve and ability to keep costs low in operations and expansions. The current valuation captures these advantages but there is scope for surprises from new geographies," he says.

As a leader, Bangur always wants to go the extra mile. For instance, a plant may initially have a target to generate 30 tonnes an hour. It may be found that on particular day it produced 35 tonnes an hour for a span of two hours. The plant then gets 35 tonnes as its new production target. Again the process is repeated and the next mark may be 40 tonnes per hour. In this way, every plant gets a dynamic target. Bangur says every small thing counts and so it is better to tabulate in hours rather than days and weeks. The estimated time required for maintenance of a kiln is 12 days. "We see 12 days as 288 hours and then aim to complete the maintenance work in 250 hours. If measured in hours, it is sharper and you are better off," says Bangur.

Like any growing venture, Shree Cement also had its share of tough time. In 1997, the company had expanded its production capacity from 1.2 million tonnes to 1.8 million tonnes. The capital expansion had eaten into its reserves so much so that the no-debt company was burdened with a loan. "The demand had dipped when we commissioned new capacity in 1997. Things were so bad that more than 10 per cent of revenue went as interest cost," says Bangur.

It forced the firm to look for external fund sources. Finally it decided to make Paris-based cement major Vicat an equal equity partner. The deal was finalised but before it could be inked, Bangur pulled back. "The simple reason was that none of us wanted to be a 49 per cent stakeholder," he says. So a 50:50 partnership was agreed. "But I was worried how differences between two equals will be resolved in decision-making. I could see that two veto powers would surely kill the company," says Bangur. And so he discussed the issue with the French company but could not hammer out a solution.

Moreover, both sides were not willing to be at 49 per cent and let the other have 51 per cent stake.According to him, the presence of two equal partners would have been a recipe for disaster. "Instead of certain death, we chose a possible death. We had hopes that the market will improve and the business will get revived," he says.

Petcoke as Fuel

While the market took time to get better, the company got a shot in the arm when it hit upon the idea of using petroleum coke (petcoke) as fuel. This implied that the company had to use less coal.

At a time when fuel accounted for 70 per cent of the cement production cost, petcoke was 40 per cent cheaper than coal. Bangur quickly grabbed on this opportunity and sent a team to Europe to check how feasible the idea was. When they returned and gave the thumbs up, he sent another team from the operations division.

Soon the company started using petcoke along with coal as fuel. But lack of expertise resulted in many hiccups. In the first year at least 10 breakdowns were reported. "At that time there was excess capacity in the system and these closures did not affect the sales. After a year of experimentation, we succeeded in using it properly," says Bangur. Shree Cement was the first Indian cement maker to use petcoke successfully and the fuel savings helped the company restore its financial health. Industry peers like Ultratech and Ambuja among others also use petcoke as a fuel but none does it at a scale comparable to Shree Cement.

The company today is not just self-reliant in power but also sells it. It generates 445 MW power while its own requirement is 140 MW. Of this 85 MW is generated through waste heat recovery process. The power sale contributes five per cent of its revenues.

"Outside China, we are the biggest power generator through waste heat recovery method," says Ashok Bhandari, who was the Chief Financial Officer since 1990 until August this year and is now an advisor to the company. He says it is the company's conscious decision not to dilute equity to raise funds. Promoters have 64.59 per cent stake. "We are a conservative company and fund expansion through cash and debt. Today, the cash flow is such that we don't need equity capital or debt," he says.

Meanwhile, over the last five years supply seems to have overshot demand. Industry players had stepped up capacity based on projections. But all that grand plans went haywire. Today the industry's overall capacity utilisation is 70 to 75 per cent and the company's at 80 per cent. The situation has deterred the company from capacity expansion. "However, we believe in creating capacity in advance. If there is a sudden spike in demand, we are prepared," says Bangur. The company aims to expand its capacity to 21 million tonnes by June 2015.

Smart Marketing

The company has been successful on the marketing front too. The company has three brands - Shree Ultra, Bangur Cement and Rockstrong Cement. "A marketing guru will tell you to advertise in cricket but that would have cost us 10 times more. We advertised in news channels and built successful brands by investing less," says Bangur.

The company, like many others, also has a long list of failures. "But that will be soon forgotten. The company tried to use oxygen in the kilns to up production. That was quite foolish. It was a total failure," he says. It had also started putting agro waste into kilns and that too was a failure.

The company, which had always followed an organic growth plan, last month decided to acquire a 1.5 million tonne grinding unit in Haryana from Jaiprakash Associates for Rs 360 crore. The company, however, has no plans to venture outside India at this stage.

Passing the Baton

Bangur's son, Prashant Bangur, 34, has been with him in the business for 12 years. A Calcutta University topper in BSc (Maths) and an Indian School of Business (ISB) graduate, he started as a trainee and is now a director. "I have found an equal in my son. He is a powerful link between me and my executives. He understands the technicalities better and translates them into the language which I understand," says Bangur.

For Bangur, a company's core lies in the culture that it propounds. "You have to act and you can be an example. If your dedication is one per cent less, it will be two per cent less at the next level of leadership and it keeps on increasing at each level," he says.

The industry too sees the company's efforts as commendable. "Its efforts in the current market scenario need to be appreciated. Apart from laying down new trends in the sector, they have also set new benchmarks," says Vinita Singhania, Vice Chairman and Managing Director of Delhi-based JK Lakshmi Cement.