Ramco seeks to cement a place in the east; focus to be on quality and costs

Doorstep customer service is also at the core of Ramco's expansion strategy

The Ramco Cements (TRCL), among the top three cement players in South India, is seeking to widen its base in eastern India with quality, penetration and customer service at the doorstep forming the core of its expansion strategy.

Ramco, which has a production capacity of 16.5 million tonne (MT) per annum, has reported robust growth in sales volume for the fifth successive quarter. According to analysts, one of the key reasons is its foray into new markets, which led to 9.5 per cent year-on-year (YoY) and 14.5 per cent quarter-on-quarter (QoQ) growth in its sales volume which rose to 2.28 MT (including 0.03 MT exports). An Equity Bulls report showed TRCL’s volumes increased 10 per cent YoY driven by steady volume uptick in the east.

Amid muted or weak demand in Tamil Nadu and Kerala, TRCL has been steadily increasing its sales in Odisha and West Bengal and in Andhra Pradesh (AP)-Telangana. The eastern markets accounted for 25 per cent of its sales in the fourth quarter of 2016-17 as against 22 per cent in FY17 and 16 per cent in FY16. Ramco has been focused on south where it has about 10 per cent market share, according to research reports. Its foray into West Bengal and Odisha, according to CEO A V Dharmakrishnan, is a “natural” expansion. It has a facility in West Bengal, and is looking at setting up one in Odisha.

The company has five cement factories, three in Tamil Nadu and one each in AP and Karnataka, and four grinding units (two in Tamil Nadu, one in West Bengal and one in Vizag). The spread has lent it cyclicality so that the company is not reliant on a single market. In recent months, due to drought, political developments and slowdown in projects, cement demand has been fluctuating in South India.

The industry in south, more so in Telangana and AP, is facing a capacity overhang with an installed base of around 150 MT against overall demand of around 60 MT. TRCL’s market expansion is aimed at helping it to increase its capacity utilisation.

Odisha and West Bengal lack integrated cement manufacturing units since the states don’t have limestone reserves. While demand is high, for any company logistics cost, market penetration and taking the brand to the customers remain the challenge. Dharmakrishnan says Ramco faced this initially, too, and it took time to build the brand. “Our philosophy is simple — best and consistent quality.” The company has adopted latest technology with sophisticated control equipment to ensure consistent quality of cement and raw materials and reaching the market on time.

IT has become the lifeblood of Ramco, helping forecast demand, produce quality products and enhance customer experience. The CEO monitors everything from his iPad in real time, from productivity at manufacturing facilities to sales and service.

The distance between TRCL’s mother plant at Vizag and its clinker plant at Bengal is 1,250 km, which resulted in high logistics cost. The operating costs were also going up since the sales tax benefit was exhausted. To bring down logistics costs, TRCL decided to opt for coastal shipping, which led to substantial savings especially after the Centre’s incentives for the same. It is now moving the cargo from Karaikal port, near Puducherry, to Haldia, West Bengal.

According to the company, given its focus on quality Ramco’s research development centre took samples of its product as well as those of competitors to assess them on a daily basis. In time it has won quality accolades. For example, its Alathiyur plant was awarded by the National Council for Cement and Building Materials for best energy performance in manufacture of blended cement for the fifth consecutive year while the Quality Circle Forum of India has given a 5S certification to its Jayanthipuram plant.

TRCL also emphasises on its MACE division, which consists of a technical service team that travels to the doorsteps of customers to prove the quality of its brand. It offers technical services for free to professionals in the construction industry to help them make better and durable concrete.

Ramco’s products are sold through 800-odd sales points in West Bengal and Odisha.

“Our ability to innovate, implement the latest technology in cement manufacturing and commitment to sustainability has ensured that Ramco Super Grade is among the top choices for civil engineers,” says Dharmakrishnan, adding the company believes in giving customised and cost-effective solutions.

While the overall Bengal market grew by around 18 per cent in 2016-17, Ramco grew by around 25 per cent. The Bengal market is estimated to be around 14 lakh tonnes and is dominated by ACC, Ambuja, UltraTech and others. New brands include Emami, Dalmia and Shree Cement.

A big challenge is competitive costs. TRCL is looking at setting up a facility in Odisha to ease this problem. The company is selling around 70,000-75,000 tonne a month in Odisha, catered to by Vizag.

Ramco sells around 1.5-2 lakh tonne in Odisha and West Bengal and is targeting to grow its sales by around 20-25 per cent. It is also planning to enter Jharkhand and set up a facility there.

An Equity Bulls analyst has predicted good demand outlook (across south and east) and QoQ price recovery in Q1 FY18 (in both regions), operating leverage gains and Ramco’s brand premiumisation in the east to drive steady margin expansion during 2018-19, boosting its cash flow.