• In Conversation

As Managing Director of Dalmia Cement (Bharat) Ltd., Puneet Dalmia has taken production capacities in the cement business to almost 10 million ton per annum, with aspirations to double that and target $10 billion in sales by 2015.

Shereen Bhan (SB): Let me start by asking you about your Mission Everest: you have got a target of touching $10 billion by 2015 in sales. Where are you currently—at the base camp or you have moved beyond that now?
Puneet Dalmia (PD): We are at the base camp right now. In 2004, we were a $100 million revenue group and we set an aspirational target for ourselves, to do $1billion in sales by the end of the decade. This is our first year. I think we are going to miss that target by about 15 percent, so we will do $850 million in sales as a group. A lot of things have happened in the company and the family, which have been fairly transformational in nature. We are hoping in the next five-seven years, we can do a repeat performance.

SB: In an earlier interview you said you wanted the family to actually be a dispassionate, unemotional capital allocator. Have you been able to achieve that?
PD: The earlier organization structure was that the family was heading individual strategic business units (SBUs), so Gautam [cousin Gautam Jindal] looked after the sugar business, my father looked after the cement business and my uncle looked at the refractory business. Within these three business lines we now have external CEOs who run the business. They are fully empowered to run the P&L and formulate a future strategy for the business and the family’s decision. The family’s role is to look at where we can allocate available capital best, so we are not allocating capital to ourselves but the CEOs are putting projects up for approval.

SB: Let us talk about the road ahead now. You want to double your capacity in the next four years—you’ve already lined up about Rs. 3,000 crore through a consortium of banks. What about the rest?
PD: We are very close to it. We have to raise about $100 million-$200 million in equity depending upon our comfort level and the pricing that we get. We should be able to make an announcement in this quarter as we are very close to concluding the process.

SB: Earlier there was a possibility of an FPO (Follow-on Public Offer) of offloading some stake as far as Dalmia cement venture was concerned. What is your most preferable option now?
PD: We are doing a mix of options at the moment. We will raise some capital at the Dalmia Cements Ventures level. We will also raise some private equity capital at Dalmia Cement level.

SB: At the Dalmia Cement Ventures level you are speaking with financial investors. At one point there was a buzz of RNRL possibly being brought on board but you denied that possibility. You are talking to a clutch of financial investors as far as Dalmia Cement is concerned?
PD: Yes. There is always speculation on the strategic investors and we do not like to comment on speculation. We had never spoken to RNRL. But we have been in touch with financial investors  and these are global private equity funds who believe in the long-term India story. They believe that we have the capability to execute our business plan in the cement business and we are going to raise capital.

SB: So even as far as Dalmia cement is concerned, it will be private equity that you are looking at now?
PD: No. At the Dalmia Cement level it will be more FII type investors. We have been in touch with the best in India and the best in the world.

SB: How much are you willing to offload now as far as Dalmia Cement is concerned?
PD: We own 57 percent in Dalmia Cement now. Currently we are not are not looking at more than 10-15 percent dilution.

SB: Will you make these announcements in parallel or will they be individually made?
PD: We cannot comment on what the timing of decision making would be for each of these. But all these announcements will be made probably within this quarter.

SB: A possible IPO for Dalmia Cement Ventures was also considered, or will you push that back now, given the fact that you are offloading stake to financial investors?
PD: Yes. We initially thought that we can do an IPO of a Greenfield project. But given the fact that many IPOs which had Greenfield projects went public and then did not match investor expectations because of the meltdown, we believe that we still want to start our construction, build these projects with more visibility on commissioning, and then we will evaluate our IPO timing. Right now we are not looking at an IPO in Dalmia Cement Ventures Limited.

SB: We are seeing a recovery in the real estate cycle; how are things looking on the cement side? What about pricing because we have seen some degree of price hike coming into the market?
PD: In the next two years we are going to have volatility in pricing. We saw that in November and December prices went down almost 20 percent but prices have now bounced back up 10 percent. So the net correction has been 10 percent since November. So for the next two years, we are cautious on pricing but on the demand side we are very bullish. We believe demand will continue to grow at 8-9 percent and if the infrastructure programs take off, it could even grow in double digits.

SB: You have stayed away from acquisitions on the cement side but I remember you saying that perhaps this is the right time to think about the inorganic route on the cement side. Are you now open to these inorganic strategies?
PD: M&A in cement is going to be difficult because this time round balance sheets of most players are very strong. It is not easy to do controlled deals. So our view is that our base case plan is greenfield, but if some acquisition opportunities present themselves, we hope that we will create a balance sheet which will be able to take advantage of such opportunities. But there’s nothing at this point.

SB: What is the biggest challenge you are facing as far as your greenfield expansion is concerned?
PD: Over the next 10 years, getting land, raw materials and energy security is going to be our biggest challenge. We also have to create a great team which can continue to execute on the promises we make. So we are on an aggressive investment plan, we have to scale up the systems and processes in the company.

SB: You are on track to double by 2014?
PD: Yes, that is something we are ready for but our plans are that India will be a 500 million ton market by 2020 so we would like to have between 8-10 percent market shares by that time.

SB: You’ve said you miss not having a presence in the services side of the market. Has the family council arrived at any decision?
PD: No. We want to first make sure that we consolidate our existing position. We have a lot on our plate now and for the next one-two years we are going to just focus on great execution.

SB: What about your rock star model where you would bet on other people’s ideas and put your money on that?
PD: There is a systematic business plan and then there is an opportunistic one. So, on the systematic side we are in four business lines; cement, sugar, refractory and power. These are the four businesses which we will continue to focus on and develop. But on the opportunistic side, if something comes our way, we will not hesitate to look at it.

SHEREEN BHAN is the Executive Editor, CNBC-TV18.

©Entrepreneur April 2010

Tags:
cement, Dalmia, Mission Everest, Puneet Dalmia