It was inevitable. When it finally happened, however, it threw up a number of questions and possibilities in running a business in India.

When a gutsy and ageing N Srinivasan called it quits and sold his India Cements to the Birla-owned UltraTech, it exposed the limitations of a man who dominated the cement field in the south. Why did he give up? Apart from the business and economic reasons, the typical constraints of a family-run business did not help him either.

The ability of the next generation to carry forward is crucial for the longevity of family businesses.

Family businesses are quite common in this part of the world. What’s in a name? What’s in a brand? How does history matter? Time can just reduce all these inconsequential things. As the saying goes, change is the only constant in a dynamic business environment.

Nevertheless, it requires enormous courage to let go of something you hold very dear. No doubt, Srinivasan was caught in a compelling situation. Yet, calling it quits was a wise decision on his part. Srinivasan and others have indeed been compensated well for getting out of India Cements. Did UltraTech get India Cements at the best price? Time alone can answer this.

What does this deal signify? Are we going back in time? It appears so. Not surprisingly, both the Centre and States, in the past, encouraged SMEs (small and medium enterprises).

They had been particularly conscious that production should not be concentrated in a few hands. The MRTP (Monopolies and Restrictive Trade Practices) Act was in play to check-mate such concentration of production.

Industry rehaul

As things pan out, the emerging competition is leading to reorganisation of an unexpected kind in the cement industry. A consolidation is clearly in evidence and is happening at a hectic pace, especially in the southern cement market.

The two dominant players in the country — Adanis and UltraTech — have been on the prowl to expand their cement base.

In April, Ambuja Cement, an Adani Group company, had entered into an agreement to acquire My Home Group’s 1.5 million tonne per annum cement grinding unit at Tuticorin in Tamil Nadu.

Later, on June 13, Ambuja Cement signed an agreement to acquire Penna Cement Industries (PCIL). The deal is expected to help the group expand not only in south India but also gain access to the Sri Lankan market. Shree Cement had announced capacity expansion in Karnataka. Dalmia Bharat was in the process of setting up a cement mill at Ariyalur, Tamil Nadu.

Why is South India in focus? One, South India is where much of the country’s limestone deposit — critical input for the production of limestone — is located. Two, the industry in the South is largely fragmented.

The southern cement companies — going by their capacities — pale into insignificance when compared to the big players such as UltraTech and Adanis. India Cements is a comparatively smaller player when pitched against these majors who have deep pockets. Due to these factors the southern cement market is seeing a lot of action.

Surely, the focus is firmly on being big. If the focus now is on scale, the big consolidation under way points to the return of ‘dominant production’ ways, a far cry from the diversified cement manufacturing of the past.

The fragmented nature of the cement business in the South makes it an easy prey for the bigger companies. The industry in the south is already abuzz with such talks. The big players, seized by a sense of urgency, are speeding up their plans for south.

Coming events cast their shadows before them, it is often said. Are we returning to former times where a few dominated production? Well, the cement industry, especially in the South, is set for a lot of action ahead.

The writer is a financial journalist

Published on August 7, 2024