New Delhi: For one of the world’s largest cement makers, France’s Lafarge Group made a relatively slow entry into India, the world’s second fastest growing cement market. It bought two cement plants—in Chhattisgarh and Jharkhand—in 1999 and then acquired Larsen and Toubro Ltd’s ready-mix concrete business. The company is now looking to grow organically, said Bruno Lafont, the group’s chairman and chief executive. Edited excerpts:
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How do you see the opportunity in India right now?
India is very important. We see a slowdown in the world that we mostly think is a short-term issue or challenge. The situation is different from one country to another, even in fast growing markets. It seems to me that India is very solid. Growth is solid, still very high. It is happening in a economy that needs still lots of construction. In the markets we are in, in the eastern part of India, we see a solid situation.
How critical is this market for Lafarge’s fortunes?
In the short-term, it is limited (2%). We are present in 80 countries. Our strategy is to be exposed to as many growing markers as possible. And the percentage (in India) should grow for two reasons. First, we are growing operations. Second, we are not yet finished with our strategy in India. India will do relatively more construction than other countries and the weight of India in the total (business) will increase.
You have less than 5% of the market here in production capacity. How do you see yourself addressing that?
First, we are operating in local markets. Our products are heavy, they cannot travel too much without adding to the cost heavily. Second, our strategy in new countries and especially large countries is progressive.
So, it’s better to have a strong and successful position locally than to be everywhere and achieving nothing. We have started with the east and I would say today that we are successful. The next step will be to grow organically by creating greenfields… For the time being, it’s more the north and the west.
At the same time, we made an interesting move last year, which is to buy out the ready-mix concrete business of L&T. That is an interesting move because it is the first time Lafarge made such an big move in readymix concrete in one market where it is at a starting point. So in a way it’s a major move... It allows us to have a large geographical spread of activities in India because our activities are in almost every city.
Ready-mix concrete is also a way to understand the construction market and get deeper and better understanding of the need of customers.
Looking for growth: Lafont says the group’s strategy is to select regions and to create excellent positions there. Ramesh Pathania / Mint
Will you not be looking at inorganic growth?
For the time being, our priority is... organic growth. We might consolidate... but our strategy is to select regions for cement and to create excellent positions there.
When do you think ready-mix concrete will become the mainstream product in India?
What we have seen in other countries is that the penetration of ready-mix concrete can go quite fast. In South Korea 70% is ready-mix concrete. In Malaysia it is 30%. In other countries, you have 10-15%. In developed countries you have between 70% and 80%. The potential is big. It’s an interesting business because you can differentiate by the way you run your business, by the way you invest, by the way you differentiate yourself by the quality and by the range of products you are ready to deliver. So you have to work on all these things.
We have reached a stage where some large infrastructure firms have their in-house ready-mix operations. How do you see this affecting your strategy?
That, in fact, is in all the markets we operate, so there is no problem.
Sometimes a big builder will find it interesting to have a ready-mix company to help him to sub-contract his concrete and sometimes, they will be interested to have our inputs and technical control on more sophisticated things.
Sometimes, it will be only marginal. They will use their things for 80% and our things for 20%.
What is your outlook for 2009?
We have not yet given our outlook because we believe the last quarter has been creating a lot of uncertainties. We see that there will be growth in India in 2009, even if it will be less that 2008. I think GDP should be (growing at) a minimum 6%.
It is enormous growth, you know, compared with the growth in the world. The last forecast I have seen on the world GDP is 0.8%.