Rated as one of the most professionally managed companies, it is also one of the highest profit making companies in the cement sector.

GACL's chairman Suresh Neotia, who believes in keeping a low profile while letting professionals run the show, spoke to Veeshal Bakshi on the company's plans and issues facing the cement industry. Excerpts:

Cement production has grown by only 3.6 per cent in the first half ended September 2000. What is your prediction for the full year?
I believe that cement industry's growth this year will not be more than six to 6.5 per cent as compared to 15 per cent last year (1999-2000).

Would you term this fiscal as the worst year for the cement industry?
Of course, it is the worst year for the industry. If it is worse than this, then units will start closing down because they will not be able to pay for basic things such as power and wage bills.

What needs to be done to put cement industry back on fast track growth?
The government must immediately make large investments in infrastructure sector, specially roads and power projects. We expect a growth in demand with the creation of new states which will result in setting up of new office and residential buildings and other infrastructure. Things have been moving at a very slow pace. To give you an example, of the Rs 52,000 crore project cost of quardrilateral project, National Highway Authority of India has awarded contracts worth only Rs 4000 crore. I am told that the government has run out of Indian contractors because of qualification specifications of having previous experience of having constructed 100 kms of road. Tell me, how many 100 kms contracts have been awarded in this country before.

The government should also immediately get out of public sector undertakings, at least for which disinvestment has already been announced because it would make available money for development purposes. Valuation of several PSUs such as Indian Oil, Air India and Indian Airlines is coming down gradually. Either you don't announce sale of PSUs and if you have, then disinvest quickly.

The cement industry complains of overcapacity and yet major players have announced expansion plans. Isn't it a contradiction? What levels of capacity addition are we looking at over the next five years?
No, there is no contradiction. US, Japan and Europe are the most developed economies but cement consumption is still very high there. Even in a country like China, per capita cement consumption of cement is 280 kg per annum against 100 kg in India. Companies like us have to continuously think of expansion looking at future demand because of long gestation periods of setting up new projects. Today, it takes five years to commission a plant from the date of deciding on a project. It takes three years to get all clearances from various government departments and another two years to set up the plant from the date of groundbreaking. There are more problems in setting up a greenfield plant today than in licensing days.

Today we have to go to so many different departments at central and state government levels to get clearances that it takes nearly three years to complete this process alone. During the licence raj, all clearances were granted in the licence itself. On how much capacity addition would be made over the next five years, I think it will not be more than 10 million tonnes by 2005.

Then what exactly is the problem with the industry?
The overcapacity in the industry is not that big a problem as it is made out to be. I expect cement despatches to increase to 100 million tonnes during the current fiscal. This means that the extra capacity left is only around five million tonnes. The basic problem is the indiscipline within the industry. There is unhealthy undercutting of prices. We (cement companies) have had several meetings at which everyone agrees that no one will do it from now on but each time someone goes and does it, which forces others to follow suit. My point is that giving a product to consumers at a reasonable price is an ethical practice. But undercutting each other to sell your product without making profit will ultimately take down the whole industry. Profits are under tremendous pressure this year. Indian companies will become weaker which will expose them to takeovers from foreign companies.

Doesn't Cement Manufacturers Association (CMA) as a parent industry body play any role in putting things on the right track?
I don't think we have a strong and active Cement Manufacturers Association. It is not effective - neither in the government nor in the industry.

The years 1998 and 1999 saw a spate of acquisitions in the cement sector in which your company was also actively involved. Suddenly, all activity has come to a half this year?
The condition of the industry this year is primarily responsible for this. It is difficult to look at acquisitions when demand is slowing down and profit margins come increasingly under pressure. I don't see any consolidation happening in the next six months. Even foreign multinational cement corporations are not bullish on acquiring Indian companies at this moment.

Would you be interested in acquiring a stake in Larsen & Toubro's cement business when it disinvests?
We are not interested in Larsen & Toubro simply because I don't understand what they are trying to do by hiving it off into a new company and then selling a minority 26 per cent stake to a strategic partner. Any cement company which is interested in acquiring a stake would like to have a majority stake as well as management control. If L&T wants to keep the management as well as a majority stake, I don't understand why they are creating a new company out of cement business.

DLF Cement, which you acquired in December last year, continues to make losses. When will it turnaround?
DLF will report losses for the quarter ended September 2000 but should come out of the red from January 2001 onwards.