Gujarat Ambuja - Redefining Operational Efficiency
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THE FUTURE
The continual capacity build-up in the Indian cement
industry led to an excess capacity situation by the beginning of the 21st
century. During the same period, growth in the cement industry declined from
21% (April-September 1999) to 11% (October 1999-March 2000) because of
drought in many parts of the country.
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Prices dropped because people feared that construction
activities would decline due to the drought. At the same time, the cost of
production continued to increase because of hikes in power, rail freight,
and coal and diesel prices. As a result of the above factors, cement
companies were affected negatively.
According to some analysts, even GACL seemed to have exhausted its armory of
cost-cutting and productivity enhancing strategies. For the third quarter
ended March 31, 2002, the company registered a 9.27% decline in net profit.
Its profits had come down from Rs 600 million to Rs 544 million in 2002 for
the same period last year.
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This was despite a 11% increase in turnover: Rs 4.3
billion in 2002 as against Rs 3.9 billion in 2001 for the corresponding
quarter. The operating margin also came down to 32% as compared to 38% in
the previous year. Critics even commented that GACL's cost efficiencies were
more driven by market compulsions rather than a strategic cost focus.
GACL however did not seem to be very worried, because the decline in
profitability was caused by factors that were beyond its control. Singhvi
said, “We have put up a good show despite low cement prices during the
quarter by around Rs 300 per tonne. Lower cement prices have not been
reflected in the bottomline.” At the same time, the company was not taking
things lightly.
GACL realized that while its traditional cost-saving methods would continue
to prove valuable, they were not enough. As stated in the company's
Director's report, “The route to higher profitability lay elsewhere: Namely,
better sales realization.” Thus, GACL's marketing team began focusing its
attention on the retail market. The company believed that the retail market
offered it the opportunity to build loyalty through higher standards of
service. The company asked its marketing teams to push for better prices.
Because of these marketing initiatives, GACL was able to maintain its market
share in Gujarat, even while commanding a high price. The company posted an
increase in sales in the highly competitive and complex Mumbai market even
as demand growth slowed down and prices declined. Similarly, this focus on
marketing led to an 8% increase in sales in the northern region during
1999-00.
GACL continued to seek ways to reduce costs. It planned to use a captive
thermal (coal-based) power plant to meet the power requirements of its
Chandrapur plant. As the power plant was close to coal mines, the company
expected the variable cost of power to be significantly lower.
Refuting the claims that the company's drive for achieving operational
excellence was totally market-driven, Singhvi said, “We eat, live and
breathe cement and we are completely focused on the business. We try and
bring in global best practices into a commodity business. This obsession is
important for survival.”
EXHIBIT I - GACL - STATE WISE PLANT CAPACITY
EXHIBIT III - VARIOUS AWARDS WON BY GACL
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