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How H.M. Bangur Made Shree Cement One of the Sector’s Largest Players

How H.M. Bangur Made Shree Cement One of the Sector’s Largest Players

H.M. Bangur has kept a close watch on costs to make Shree Cement -- which was on the verge of bankruptcy 25 years ago -- one of the largest players in the sector

AN EYE ON COSTS: H.M. Bangur, MD, Shree Cement AN EYE ON COSTS: H.M. Bangur, MD, Shree Cement

H.M. Bangur is a trifle embarrassed when you tell him very few in the cement industry can match his cost structure. “Yes, I think we do a good job. To hear that is flattering but also truthful,” says the MD of Shree Cement.

What is not commonly known is that the company was on the verge of bankruptcy 25 years ago. Shree Cement today has an installed capacity of 46.4 million tonnes, with a road map to get to 80 million tonnes in the next 4-5 years. Reflecting on the tough times, Bangur—a chemical engineering graduate from IIT Bombay—says there was no understanding of cost control at that point. “We thought setting up a plant was sufficient and nothing else needed to be done. It was that crisis that became an opportunity and made us a hero, else we were a zero.”

The management, during that difficult period, decided to take a hard look at the cost structure. What transpired was not just a huge move strategically but set a template for many others in the industry to follow. There were two key areas—coal and electricity—that were the monopoly of the government. Bangur says it was important to break this structure. First off was coal. “We decided to import coal from Indonesia. The quality was better and consistent plus at a reduced cost,” he says.

That’s not all. The bigger story lay in pet coke and the decision to replace a large part of coal with that. India was not a market for pet coke and Bangur decided to send four workers to Turkey to learn the process. “They were not even engineers... but I knew they could pull it off,” he says. Not only did they manage to do it, it also opened Bangur’s eyes to his firm belief now that hard work always wins over talent. Between 2000 and 2010, Shree Cement, on an average, saved 50-60 per cent on energy costs thanks to going with pet coke.

Then, there was the electricity bit. State electricity boards sold power at Rs 5 per unit and Shree Cement thought having a captive power plant could be the answer. “We disconnected our power connection in Rajasthan. Soon, our cost was at `2 and that saving went straight to the bottom line,” points out Bangur. The company’s approach has found favour among those who track it.

According to Rashesh Shah, AVP, ICICI Securities, other factors such as close proximity to high grade limestone have ensured that Shree Cement is one of the lowest in terms of costs. “80-85 per cent of the consumption of power is from its captive plants including usage of waste heat recovery power and renewable plants. The company has total power generation capacity of 752 MW including 211 MW of waste heat recovery. It gives them flexibility to switch to a grid to shut down a plant based on tariff and the ability to operate with multiple fuels results in a dynamic scenario,” he says. Bangur adds that 50 per cent of his power is “free of cost” due to the various initiatives taken. Another area it took the lead was to have split grinding units across many locations, with the north, its biggest market, having five. Shah says having them in strategic locations gives the advantage of proximity to user markets and efficiency when it comes to logistics costs. Above all, overall transport costs are down by 20 per cent.

This kind of attention to costs means a buyout must pass through many filters. If its rivals have been aggressively acquiring cement plants, Shree Cement is an exception. In mid-2014, it picked up Jaypee Group’s 1.5-million tonne grinding unit in Panipat for Rs 360 crore. That remains its only buyout. “There is no doubt that one saves time through a buyout but the asset has to be in line with our cost structure,” insists Bangur, the winner in the Cement category of the BT-PwC India’s Best CEOs ranking.

Expanding operations takes a good part of Bangur’s daily schedule. That means a good geographical presence outside the north. The capex outlay is Rs 4,500 crore over two years and the growth plan finds favour with Shah. “From FY07, Shree Cement has always reported double-digit return on equity indicating efficiency on both capital allocation and cost of operations. We believe the same is going to be maintained while achieving the aim of doubling the capacity in every seven years,” he says. To him, the surplus liquidity of over `8,000 crore now means the company is in a strong position to fund its new expansion.

For years, Bangur has had two things to keep him busy outside work. One is playing volleyball at his Kolkata home with a large group of friends, a tradition that remains. The other is to take the competitive Common Admission Test for various management institutes. His interest dipped since the time it moved online. “The paper and pencil format is easier since I am not very technologically savvy,” he says. Given that he runs a massive cement operation based on high levels of technology, that is a little ironic. But as long he keeps running a tight ship, it does not matter.

 

@krishnagopalan