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Mumbai, August 25: The Associated Cement Companies (ACC), faced with a worst-ever recession in the cement sector and spectre of industry overcapacity, is weighing options to generate funds by unlocking investments in non-core businesses.
Mumbai, August 25: The Associated Cement Companies (ACC), faced with a worst-ever recession in the cement sector and spectre of industry overcapacity, is weighing options to generate funds by unlocking investments in non-core businesses.
The country's largest cement manufacturer, which has over the years several investments into unrelated areas such as tyres, float glass, has not yet decided to disinvest, but it is one of the options being considered to generate funds. "We will look at all businesses, concentrate on core businesses, and should get out of non-core areas," chairman Pallonji S Mistry said at the company's annual general meeting for 1997-98 in Mumbai on Tuesday.
When the company had diversified in the mid-90s, the management had stated that these were efforts at absorbing the cyclic fluctuations of the cement industry. If those investments are found to be prudent, they will still be retained, says the management, but if found to be less central to ACC than optimum, disinvestment is an option.
ACC's recent investments include Rs 26.14 crore in tyre-manufacturing joint venture Bridgestone ACC, Rs 2 crore in ACC Rio Tinto Exploration (formerly ACC-CRA Explorations), and Rs 17.95 crore in Floatglass India. The company's total investments aggregate Rs 189.46 crore.
ACC is, however, not shy of the acquisition bandwagon altogether. In response to a shareholder's query, Mistry said there were capacity-addition options, both greenfield and acquisition-based, under consideration.
Mistry attributed the company's dismal performance in recent years to the general slowdown in the industry. The ACC chairman pointed out that it was unfair to compare the 62-year-old company with relatively younger cement companies as it could not carry out the much-required modernisation and expansion till as late as 1989 owing to the enforcement of strict regulatory regime by the centre.
"The significant advantages enjoyed by some of the newer and relatively more efficient units stem essentially from local subsidies from the subsidies provided by the concerned state governments and the technological advantages that could be incorporated in the units that came into operation in the last 10 years," Mistry said.
The company, said the chairman, has done "reasonably well" since the deregulation in 1991 and has already modernised 50 per cent of its capacity.
Mistry said the cement industry faced the worst decline in 1997-98 due to a general recession in the core sectors, which has been further compounded by an unprecedented additional capacity of 13 million tonnes of cement per year between 1995-96 and 1997-98. ACC's net-sales realisation for the year was 7 per cent lower than the previous year, bringing down the operating profit by 24 per cent.
"We can hopeful of the current year only if there is a positive thrust from the government on infrastructure. Or else we are headed for troubled times," Mistry said.
At its AGM, shareholders ratified an enabling resolution authorising the management to buyback shares, once the law allows such a provision. Mistry, however, clarified that the company was not in a financial state to effect a buyback. "Right now, given the liquidity crunch, we are definitely not in a position to buyback shares in the near future," Mistry said.
Process reengineering exercise on the anvil
ACC, in an effort to improve operational efficiencies, has decided to initiate a holistic business process reengineering (BPR) exercise.
The BPR initiative, said ACC chairman Pallonji S Mistry, will strengthen the business processes, human resources, and organisational structure and design. Leading consultants will be given the mandate to guide the company in completing the restructuring process.
"This exercise would be worthwhile not only in terms of organisational excellence but would also improve profitability and result in savings," Mistry said.
Meanwhile, the company is engaged in finalising a strategic plan for implementation during 1998-2003. The company plans to build its largest clinkering unit at Wadi with an installed capacity of two million tonnes. Besides, the company has also decided to modernise and increase capacity at Gagal, Kymore, Chanda and Madukkarai.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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