The Adani Group’s cement businesses are looking to cut their reliance on distributors or wholesalers as the country’s second-largest cement maker looks to boost its profitability.
As part of a pilot project, Ambuja Cements Ltd and ACC Ltd have reduced the number of distributors from 12 to three in the south Gujarat region, which is home to half of the state’s small and medium industries and a fifth of the state’s population. Both cement firms are expected to reduce the number of distributors across the country in the coming months, according to an executive briefed on the development.
“The profitability of the distributors is more than some of the cement manufacturers,” said an executive privy to the development. “This needs to change. Once you have fewer distributors, they can continue making more money on volumes, provided they aggressively seek discounts.”
“Both Ambuja and ACC are very strong brands and can do even better if we build an even better engagement with retailers,” said the executive.
Adani’s strategy to build a better relationship with the last point of sales for the cement business appears to be similar to Asian Paints’ direct-to-dealer strategy in the past, under which the country’s largest paint manufacturer did away with wholesalers and distributors.
“Additionally, all institutional sales will be done by ACC or Ambuja. So, if there is a large requirement for, say, a flyover project, instead of a wholesaler seeking a bulk order, the cement manufacturer will directly provide to the needs of the contractor.”
An email sent to the Adani Group on Tuesday seeking comment went unanswered.
Adani’s latest efforts to improve profitability are in addition to three measures—bringing down energy expenses, improving transportation costs and having one team to run both Ambuja and ACC—which have been outlined in the past by Ajay Kapur, chief executive officer of the cements business at Adani.
Another executive said steps such as these, aimed to break the monopoly of some of the distributors, would have proved to be difficult had Adani been part of the Cement Manufacturers’ Association. In June, Adani Cements walked away from this lobby group comprising 40 of the largest cement manufacturers.
Gautam Adani-owned Adani Group became India’s second-biggest cement maker in May last year after it paid $10.5 billion to Holcim to buy Ambuja Cements and its subsidiary ACC.
In August, Ambuja Cements agreed to spend $295 million to buy 83% shares of promoters and some shares of public shareholders in Sanghi Industries, which has an annual capacity of producing 6.6 million tonnes.
Over the last two months, the group has already built a conveyor system to transport finished cement from the Sanghi factory to the Sanghi port and has done away with the need for using hundreds of trucks that were deployed in the past.
Some of these cost savings have already helped improve its earnings before interest, tax, depreciation, and amortization, or Ebitda, margin from 15.5% in the June quarter of last year to 22.2% at the end of June this year.
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