Why Shree Cement’s H.M. Bangur is sitting out of India’s aggressive cement bidding wars

Bangur sat down with Mint for a rare interview at his house near Mumbai’s Peddar Road—other residents in the area, also called the ‘billionaires row’, are Mukesh Ambani and Sajjan Jindal.

Unlike the skyscrapers that dot the neighbourhood, Bangur’s home is a two-storeyed haveli called Mohini Mahal. Dressed in a fading lavender polo shirt and black, loose-fitting trousers, one would be forgiven for mistaking the septuagenarian businessman for a retired professor sharing his time-tested thesis with the three scribes. But under that mild demeanour hides one of the corporate sector’s shrewdest strategists.

In a 90-minute conversation, Bangur spoke at length about his business philosophy and why Shree Cement—the third-largest cement maker by capacity in India—hasn’t joined the top two players in their inorganic expansion spree. Edited excerpts:

How would you describe the present phase in the cement sector?

For the past four years, the cement industry has been expecting a demand revival, but growth has remained weak. Traditionally, cement demand grows 1.3-1.4 times India’s GDP (gross domestic product). With GDP growing at 6-7%, cement demand should have grown close to 10%. But, instead, volume growth has been only 4-5%. This suggests demand may not just be delayed; there may also be structural weaknesses we have yet to fully understand. Even though margins look healthy at 25-30%, long-term cement prices have risen slower than inflation. As a result, profitability remains under pressure.

Returns are also low because cement is highly capital-intensive. A ₹3,000 crore plant generates only about ₹1,000 crore in revenue, while Ebitda is ₹250 crore at a margin of 25%. So in reality, it is just a 7-8% return on capital, which is barely enough to service debt and interest. In our case, in the absence of interest outgo, there is no major cash strain. While the industry may be going through some bad times, we are insulated from it.

You seem to have been conservative in making acquisitions compared to your peers…

Even at normal prices, setting up or buying a cement factory does not generate enough returns. That is why we have largely avoided inorganic growth. Many companies have expanded through acquisitions, and while it looks impressive in newspapers and on social media, the real issue is debt. How much debt can you take on, and how much capacity does it actually give you?

Inorganic growth is expensive. On average, you have to pay a 50% premium compared to setting up a new plant. In the short term, you may get capacity faster, but over 10 years, the same money can give you more capacity through organic growth. Another issue is that with acquisitions, growth depends on what assets are available and where. With organic growth, you choose the geography and plan ahead. I can pay at most a 10% premium over the cost of setting up a new unit. Anything beyond that I will not be able to pay.

There are rumours that the next generation of promoters at some cement companies is not interested in running the business. Would you look at acquiring those?

Nothing will come cheap. Assets may be available, but someone will always be willing to pay a premium, and I will not be one of them. When I talk about increasing our capacity from 68 million tonnes to 80 million tonnes, I am talking about nearly 20% growth over two-three years. That is good enough. Our growth plans are not weak and we are simply choosing a different route. The real question is how we reached 68 million tonnes from 30 or 40 million tonnes, and over how many years. We also need to see whether those who have grown through acquisitions have grown faster than us, or if our growth rate is below the industry average. That comparison matters more than the method.

There is an overemphasis on acquisition-led growth in many people’s minds. But with acquisitions, my normal investment plan gets disrupted. My energy suddenly goes into managing the acquired plant, and setting up a new plant becomes a non-starter. In the end, overall growth suffers.

As consolidation picks up and cement companies aim to become pan-India players in what is essentially a regional business, what real advantage do you see them gaining from this strategy?

If there has been no clear advantage over the last 15 years, it is hard to see how one will suddenly emerge later. It may appear that Shree Cement has not done much, but earlier we were the 10th-largest player and today we are the third-largest without any acquisitions. We failed in all subjects but passed with distinction (laughs).

Our growth rate is much better than the industry. That itself shows whatever we are doing is working. Our advantage lies in low-cost production and continuously upgrading and building new, modern plants with the latest technology. I don’t think I will ever be able to buy old capacity, unless it is available at a clear discount.

Then why do you reckon your competitors are willing to pay for it?

The point is, nobody is wrong. Every company has its own philosophy. They want to grow immediately and don’t want to wait. They have the confidence and the muscle power to revive it (old plants). We don’t. UltraTech is the only company with such a high bandwidth of management. Even if it takes a company five years to revive, they will be able to take care of it. Second, for Adani, who came into the industry in September 2022, it is too early. Without a 10-year history, we cannot say whether they are doing good work or not.

But Adani claims to have an advantage as they have synergies and they look at cement as a logistics play…

Of course, they have many advantages. They have synergies from their other businesses like ports, power and coal, but those advantages have to reflect in their (financial) numbers. Their profit numbers are normal. The advantage is not visible yet. Still, my previous statement stands: three years is a small time frame. Let us give them 10 years before we judge. Only the future will justify whether paying such a high premium (for acquisitions) makes sense.

What is your business philosophy?

Success has two keys; one is hard work and the other is luck. Hard work is continuous, and luck keeps changing. You have to prolong your good luck. That’s all. Secondly, I strongly believe that in bad times, a company will survive. It is only in good times that bad decisions are taken. So you have to be careful in good times. We were very careful in good times. We conserved our money. We did not go overboard with any acquisition. All the money was spent on creating the right assets. Today we have 16 kilns. But right after we made the second kiln, the market collapsed. We were on the verge of selling our full company to Vicat (a French cement maker). We were in Paris. Champagne was uncorked. The deal was to be signed the next morning at 9am. I went to my father’s room at 6am and said that I didn’t feel like selling the company. I asked for his advice. He said he had no advice, but whatever I decided, he would support me. So we didn’t sell.

How do you see the smaller cement players? Will they survive this competition?

It is never a question of size. It is a matter of efficiency. Smaller player or bigger player, if you are efficient, you will survive. Smaller companies have many advantages too. Everything is in their control first hand. Freight goes up immediately and the bell rings in the owner’s mind and you can take immediate corrective steps. As you grow bigger, efficiencies and inefficiencies both build up. We talk only of the efficiency that size brings, but size inefficiencies are also there.

A trend we see is that cement makers have a lot of adjacencies. For example, the Aditya Birla Group, through Grasim, has entered the paints industry, Adani is into cement-consuming industries, and JSW is into steel. What about Shree?

Whether it is UltraTech, JSW, Adani…everybody has multiple businesses, whether related to this or not. Our company has only one business. Our family also has one business. We will not like to diversify. Because sometimes you see that all your profit is coming from one business, and feel that it may be risky. But most of the time, when a group has three or four businesses, the main business drives almost all the profits and other businesses may be losing money. We will continue to focus on cement and ready-mix concrete (RMC), which is essentially cement, too. In India, only about 8% of cement is currently sold as RMC. In the UAE, 70-80% of cement is sold as RMC. This is the model India must adopt. RMC is the future, and without it, cement cannot be sold efficiently.

Do you see any competitive strength in diversifying into adjacent businesses?

No, nothing like that. DLF is an example. They came into the cement business. The biggest builder of North India… They consumed so much cement that people assumed they would get a lot of advantage. Nothing like that happened. Every business is independent. If we have cement, and we want to sell steel, either the cement will subsidise steel or the steel will subsidize cement.

You prioritize raw material security a lot. Can you elaborate on that?

If we are using 35 million tonnes of limestone, we have to add at least 500 million tonnes to our reserve because this is a non-renewable resource. Once the limestone is finished, it is finished. We may consume in Rajasthan and add in Maharashtra. Overall, in India, we want to have 10 times more limestone reserves (than what we consume). For this reason, if I acquire one or two mines every year; that is more than sufficient.

What would be a comfortable plant utilization rate for you? It’s roughly just under 60% right now…

It is low. Over the last year and a half, we were selling cement in good volumes but at the cheapest rates. Because our costs were low, we were able to pass on the benefit and still make a reasonable profit. But then we suddenly realized that India has changed. Consumers now seem to believe that only things that are more costly will be good. So, we increased our prices. Our price journey has now stabilized. Now we will increase our volume. We will maintain these prices so the volume will pick up again. When we have sufficient volume, we will see if we can further reduce the price gap.

The 60% capacity utilization will not increase much, as we are continuously adding many plants. Old plants will have a higher capacity than new plants. If the plant started in the last three months, its capacity utilization will be 5-10%, so overall capacity utilization will be 66% for one or two years.

The government and the Competition Commission of India have kept a tight leash over the industry. Your thoughts?

Let them, but it is bad for the Indian economy. Companies should be allowed to earn a normal profit, as is done in the airline industry. After a certain point, a higher cap was set. However, micromanaging prices should not be the government’s job. The government should simply say that prices must remain within a certain range. The consumer lobby and the builder lobby believe that cement prices will affect their profits, but in reality, neither consumers nor builders are significantly affected by cement prices. Capital investments made by cement companies should yield a normal return. Unfortunately, the return on capital employed is pathetic.

Do you see price discipline coming in the industry due to consolidation?

Price discipline is effectively the same as price control or price manipulation. There is no such thing in reality. Every company is at a different stage. Someone may need cash tomorrow for wealth distribution, and will they listen if I tell them not to sell at a discount tomorrow, since prices might be a little higher the day after? Price discipline will never truly exist. Ultimately, prices are determined by market supply and demand.

Reports say you took the CAT (Common Admission Test, an entrance exam for top MBA colleges) every year until recently. Why?

Yes, the entire environment seems to praise you for being exceptionally intelligent, be it your son, employees or friends. Because they only count my successes. So, an independent test gave me enough confidence—whether I can still work or if I should retire. I have stopped now because the course has changed. So many new things have come up. (After taking the test) I suddenly feel semiliterate from highly literate (laughs).

People say you are a good investor and that you follow Warren Buffett’s investing style...

Buffett is a much higher grade (investor). My success story is that I bought 5% of Orient Cement and kept it for 4-5 years. I purchased it at a very low price and after the company changed hands (acquired by the Adani Group in 2024), I sold it for ₹350 a share. My thesis was simple. It was a good company with a very low market cap. I knew Mr (C.K.) Birla would never be a desperate seller, but he would sell one day because of succession planning.

I have met Warren personally though. He had invited about 30 students from the management school of IIT (Indian Institute of Technology), Kharagpur. I offered to sponsor their tickets if me and three of my friends could also join. The IIT dean said this won’t be allowed. So I leaked this information to the students—that this is my offer and your dean is saying no. The dean was then pressurized into agreeing. It was much cheaper (laughs). Going to the (famous Berkshire Hathaway) AGM (annual general meeting) would have been four times more expensive. And here, he met everybody individually. He gave us a lot of time. This was about 12 years back.

So, at that time, I asked, ‘Why don’t you invest in India, sir?’ He said ‘Whatever I invest, the returns won’t move the needle on my overall portfolio. It is such a small market. Why should I invest here?’ It is a different story today.