How Puneet Dalmia is steering growth at the cement major Dalmia Bharat?

2023-05-16

May 14, 2023 - "It was a mess,” says Puneet Dalmia in a calm voice. Dressed casually in a T-shirt, the Managing Director of Dalmia Bharat Group is all keyed up when he talks about the cement business. The “mess” he is referring to is in connection with the buyout of Murli Industries, a Nagpur-based company, announced in late 2017 through the IBC process. The Rs 402-crore acquisition brought to the table capacity of 3 million tonnes per annum (mtpa) in Maharashtra’s Chandrapur region. From a strategic point of view, it was a necessity. The cement major needed a presence in western India, which was a weak link in Dalmia Bharat’s portfolio.

But, as Dalmia says, the plant was a mess. While he and his team knew that it had been shut for four years, what they saw was shocking. “Gearboxes and transmission lines had been stolen. It was clear that the capex needed would be more than what we had in mind.” Banking on their expertise as turnaround specialists, the team worked hard for the next 12 months. Money was put in to correct a host of issues, including those related to mining leases and sourcing raw material.

Puneet Dalmia, who is steering growth for Dalmia Bharat primarily through buyouts, says cement is a pennies business that has to be earned every day

"We managed to increase the life of the mine. Today, we are at 50 per cent utilisation and it has taken 18 months to get there,” says Dalmia, an alumnus of IIT Delhi and IIM Bangalore, who is also the winner in the Cement category of the Business Today-PwC India’s Best CEOs ranking.

Dalmia, 50, picks four areas that make his company stand apart. “We take a long-term view since yearly returns are very volatile. On top of that, we are consistent on our conviction both about the cement sector and India’s ability to build world-class infrastructure,” he says. The second part relates to scale. “Geographical diversification is a key part of this,” he says, adding that was why Dalmia Bharat bought out Jaiprakash Associates’ (Jaypee) plants in Madhya Pradesh, Uttar Pradesh and Chhattisgarh. The Rs 5,670-crore deal, announced last December, gave Dalmia Bharat a foothold in central India, with a capacity of 5.2 mtpa. Soon after, a report by research firm Emkay Global said Dalmia Bharat’s capacity mix after the buyout will be 52 per cent in the East, 26 per cent in the South, 16 per cent in the central region and 6 per cent in the West. From 38.6 mtpa, Dalmia Bharat, after the transaction concludes, will have a capacity of 46 mtpa, making it the fourth largest cement maker after UltraTech, ACC and Ambuja, and Shree Cement.

A  substantial part of the growth has come through buyouts. Besides Murli Industries, the other deal through the IBC was the 1-mtpa Kalyanpur Cement in Bihar, bought in early 2018 for Rs 353 crore. Dalmia says a mix of organic and inorganic growth results in not just synergies, but also helps in fast-tracking entry. “But you must know how to integrate these acquisitions and quietly turn them around. We are very good at that,” he says. According to Dalmia, his strengths lie in reducing costs “dramatically”, increasing capacity utilisation and improving brand positioning. And after years of doing this, the time to integrate a buyout has come down from 36 months earlier to 12-18 months now. The last component of his strategy is to live in harmony with nature and as he says, ESG at Dalmia Bharat was imbibed much ahead of time. “It [Dalmia Bharat] has not just moved from a capacity of 9 mtpa in 2012 to almost 40 mtpa now, but with that are sustainable revenues and quality financials. The inorganic route has helped [Dalmia Bharat] increase market share and become the fourth largest player in India,” says Sanjay Shyam Moorjani, Research Analyst at Samco Securities. He adds that the company has outperformed in the last decade with revenue growing faster than the demand for cement. Moorjani says that a focus on premium products, manufacturing plants located close to the source of raw material and the thrust on renewable energy leading to lower power and fuel costs as being strategic differentiators for Dalmia Bharat.

Dalmia wants his company to have a pan-India presence, and that is part of a 10-year commitment he has made to its investors. “We have to grow in the North and West,” he says, explaining that margins are thin in the cement business and the cost structure must always be tight. “This is a pennies business and you have to earn that every day,” he sums up.