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Priority in India is greenfield projects

Priority in India is greenfield projects
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First Published: Thu, Jan 07 2010. 11 52 PM IST

Creating roots: Lafont says it’s important not to waste capital, and maximize efficiency to be able to earn higher returns. Rajkumar/Mint
Creating roots: Lafont says it’s important not to waste capital, and maximize efficiency to be able to earn higher returns. Rajkumar/Mint
Updated: Thu, Jan 07 2010. 11 52 PM IST
New Delhi: French cement maker Lafarge SA has completed a decade of operations in the Indian market, and reached an estimated $1 billion (Rs4,590 crore) in annual revenue. The company is now looking at building cement plants in Himachal Pradesh, Rajasthan, Karnataka and Meghalaya. Bruno Lafont, global chairman and CEO, Lafarge, said in an interview that while the company’s focus is on new projects, it continues to keep an eye out for any acquisition opportunities in the cement market. Edited excerpts:
What brings you to India?
I’m coming regularly to India and what I’m doing is, from time to time I spend almost half of my time in the operations and India is an important country for Lafarge—not only because it is large already, but it has growth potential and it’s important for me to see how the strategy is developing and how the landscape is changing.
Are you satisfied with the performance of the firm in India so far?
I do not measure market share nationally. When you are talking about a (sub)continent, you have to look at it regionally. So market share is important regionally and it is even more true for us as we are in a local business. It’s a large country we are in, so we are looking at it regionally—it’s true for the US, it’s true for Russia, it’s true for China—and if I look back, to 1999, I think we have invested very wisely and we have continuously improved the operation and continuously invested. We are achieving the results which we were expecting, may be more, and we are looking at opportunities, I think, wisely. Our goal is to be best building materials company in India. That requires a beginning and 10 years is not too much to create the roots, to make sure that your way to do business in the place is the right way and with that, having built strong teams and relying on strong and profitable assets then we can envisage growth with much more confidence.
Tell us about your regional performance and strategy.
We are present in India with our three businesses. So when you look at cement, it is true that the selected region in the beginning was the North-East. Our future developments will take us to other regions and we have selected one or two for the time being and we will grow through greenfield (projects) first. For ready-mix concrete, we made an acquisition last year and acquired the L&T concrete business, which has a national coverage with 78 different ready-mix concrete plants. With this, we have a base to tap the construction market, and the last business we are in is plaster board. Plaster board is a new product for India; we are at the beginning of the penetration of the new product. It is lighter and offers more insulation and is also more aesthetic. It’s also easy to install. We have started off our plant last year, around Delhi.
Hasn’t there been a delay in your expansion to other regions?
Creating roots: Lafont says it’s important not to waste capital, and maximize efficiency to be able to earn higher returns. Rajkumar/Mint
We are building our cement plants for 50 years, so we have to be careful and reasonable in computing growth. That is the first challenge. Second, it’s good to be on time but it’s also good to be not too early. It’s not good to be too late, but you’ve always some time to catch up if you’re delayed. What is important is really not to waste capital, to bring our operations to maximum efficiency, which we are doing, in order to be really able to maximize the return.
You have said that you expect consolidation in the Indian cement industry—are you looking at acquisitions yourself?
Lafarge, now worldwide, has a 70% of its capacity in growing markets and our first goal is to serve those markets and to increase capacity when needed, and that is what we say an internal development programme on a very well diversified and well-balanced portfolio. Our strategy is to give priority to cement in emerging markets so if we want to develop, we will use the money for cement in emerging markets. That means that for India we have selected to grow further through greenfields. Why? Because consolidation was not happening or was not happening in the way that would make sense for us. But that doesn’t mean that we will never take part in consolidation. Taking part in consolidation when you have a cement position somewhere is an opportunity because you can create synergies; because you can have economies of scale; you can optimise your network of production plants. You can spend more money to develop an efficient approach to customers and leverage also on innovation. That’s where it makes sense. I would say consolidation is always a quest. It doesn’t mean big acquisitions all the time but we do not define the timing of consolidation.
So, are acquisitions part of your growth plans in India?
It’s not our priority today. Our priority is greenfield (projects), but it doesn’t mean that if consolidation opportunities happen, we will not look them and take part in them. What is important for us is to extend our position and that can be by all ways. What I look at in the end is “what type of asset do I get?”. And an asset is one cement plant at least, with enough reserves with a potential to deliver (to) its market within a set cost and with a potential for us to improve the operations.
Are there any offerings in the market which you are looking at?
No, not right now. In fact, I do not expect a lot to happen very soon.
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First Published: Thu, Jan 07 2010. 11 52 PM IST