Takeover bid

Much water had flowed under the bridge since he was ousted from ICL. The FIs had inserted its nominee T.M. Thomas, a retired GM of Southern Railways, as the MD of the company in 1981. A partial decontrol in 1982 saw ICL numbers improve. When Thomas’s five-year term ended, he was succeeded by P.V. Raja Raman, IAS. But a new policy allowing FIs to sell their stake in a company to another corporate body led to an attempt by FIs (LIC & UTI) to transfer a large number of shares of ICL (about 45 per cent) to ITC at a negotiated price of Rs30 per share.

But the move faced intense legal resistance from the promoters, who were negotiating with the institution to take charge of ICL. For reasons still in the realm of mystery, ITC backed out. And, the share sale by FIs was reversed. “The only thing I was certain of was that I wasn’t going to fail in my efforts to come back,” Srinivasan had said then. “Giving up was never an option. My father had worked so hard for the growth of India Cements; how could I let it go?” In the wake of the thwarting of ITC bid and his return to ICL in 1989, the promoter groups somehow or the other managed to co-travel for a considerable time.

Buying out Sankar

In mid-2000, Srinivasan and his brother Ramachandran bought out N. Sankar (son of K.S. Narayanan) of the Sanmar group (the other promoter) in ICL. That saw the first share consolidation in ICL. A few years down the line, in 2009, Srinivasan bought out his brother Ramachandran in ICL and became the sole promoter with over 28 per cent holding.

To be sure, the consolidation of his holdings on both occasions – buying out the co-promoter and acquiring shares of his brother – did not come about in a planned way. He somehow managed to buy them out and take effective control of ICL.

Aggressive instinct

Srinivasan was a lot more aggressive after his return to ICL. He exhibited a sense of urgency, and embarked on a series of daring takeovers and expansions that would give the company a significantly larger geographical presence in record time.

The first of these saw ICL acquire the one million tonne per annum capacity Chilamkur plant of Coromandel Fertilisers (now known as Coromandel International Limited), for Rs105 crore in 1990. This plant became the third plant of ICL and its first in the then composite Andhra Pradesh. The Chilamkur buy took the industry by storm. It was an audacious move by a company of the size of ICL in the face of intense competition from giants. An emboldened Srinivasan was clearly on a singular pursuit to solidify ICL’s position in the South.

In October 1994, the company made a $49.5 million Euro issue that gave it a resource cushion. The Euro issue came in handy for ICL to fund its expansion goals and set up a greenfield plant at Dalavoi in Tamil Nadu. Fund availability pushed ICL to acquire the under construction Malkapur cement plant from the Hyderabad-based Visaka Industries Limited for Rs60 crore in October 1997. Initially, it was a subsidiary known as Visaka Cement; later it was merged with India Cements in 2007.

The year 1998 saw the company make two acquisitions in the composite Andhra Pradesh. In January 1998, it first acquired 0.4 million tonne capacity Yerraguntla cement plant from the public sector Cement Corporation of India. Soon enough, it bought Hyderabad-based Raasi Cement Limited, which had an integrated cement plant at Vishnupuram in Nalgonda district with a capacity of 1.8 million tonnes a year.

By 1999, Raasi Cements’ acquisition also brought its subsidiary – Sri Vishnu Cements Limited – which also had an integrated cement plant at Sitapuram in Nalgonda district, with a capacity of one million tonnes. With this, India Cement’s total cement capacity had increased to 9 million tonnes.

Hitting roadblocks

The break-neck speed acquisitions subsequently put a heavy burden on the company. A combination of factors – excess capacity and falling prices in Andra Pradeh – pushed ICL into a tough corner. In January 2002, ICL sold Sri Vishnu Cements to Zuari Cements to ease its debt burden. In the face of debt default, it went in for a corporate debt restructuring (CDR) scheme, which came into effect from January 2003. The CDR brought some respite and helped the company to focus on operations.

In these circumstances, Srinivasan picked up the audacity to push ICL to go for a GDR issue. That was, perhaps, a turning point in the annals of ICL. The crisis taught a lesson or two to him “Never expand in a fractured market using debt. When you have no control over prices, your ability to service debt will be impaired,” Srinivasan had said then.

Risk-taker

All the same, risk-taking is a natural trait of Srinivasan. And, he exhibits an enormous inclination to be a national player. His tenure as the boss of BCCI (Board for Cricket Control in India) reveals this aspect of his personality. 

In 2009, ICL took controlling interest in a listed company – Indo-Zinc Limited, which later became Trinetra Cement Limited and a subsidiary. In January 2011, Trinetra commissioned its green-field integrated cement plant known as Mahi Cement Plant with a capacity of 1.5 million tonnes at a cost of R600 crore in Rajasthan. Since then, Trinetra has been amalgamated with ICL. Today, it has 10 cement plants, comprising eight integrated cement plants and two grinding units. These are spread across five states -- Andhra Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Telangana.

What has struck the long-time corporate watchers was the agility and nimbleness exhibited by Srinivasan in executing the takeover deals. Be it the Chilamkur buy or the acquisition of controlling stake in Raasi, Srinivasan outwitted the competitors hands down to win the bids. A sports lover, he has the uncanny ability to connect and network. That seems to have paid enormously for ICL in solidifying its position in the cement field.

 Relooking strategy

As time went by, his desire to make ICL a pan-India organisation grew. In October 2018, he quietly acquired Springway Mining Private Ltd. (SMPL) in October 2018 for Rs182.92 crore. SMPL owns limestone-bearing land in Madhya Pradesh, ICL was keen to up a cement plant. Limestone is an ingredient used in making cement. But that remained a pipe-dream for Srinivasan. On 10 October, ICL said it had sold Springway Mining – an idle asset – to Parth Jindal-led JSW Cement for Rs476.87 crore.

The sale may be a reflection of the reality faced by the largest cement producer in south India. A combination of factors -- poor demand in the south, escalating costs and high debt – are weighing on the minds of ICL bosses to revisit the business strategy. Though it has invested heavily on adjacent assets such as coal mines, shipping et al, the input cost remains largely outside the realm of its control. T

hat is impacting the critical numbers of the company. This has indeed forced ICL to get rid of SMPL. ICL had acquired SMPL in October 2018 for Rs182.92 crore. Its quarterly profit had been declining until March 2022. The company has gross debt of about Rs2,000 crore, which it intends to pare by Rs550 crore this year.

ICL reported a loss of Rs137 crore for the quarter ended September 2022, as against a profit of Rs22 crore in the same quarter the previous year. The company never reported such a loss in its 75 years of existence. In Q2, it reported an income of Rs1,259 crore – up from Rs1,193 crore in the same quarter last year. “The sale of SMPL addressed our liquidity issue,” says Srinivasan. “With that money, we could improve other plants. We have 26,000 acres of land – some precious and some not so precious. The sale of SMPL is sufficient for managing our liquidity situation. We took the step to protect the company. It was the right decision”.

Given the current scenario, industry analysts feel that it will do well for ICL to fortify its presence in its core region, which is the south.

Leveraged balance-sheet

“ICL group’s balance sheet remained leveraged in the past because of subdued performance and debt remaining high, despite no major capacity expansion undertaken,” informs rating agency Crisil, in a recent report. “Gross debt to EBIDTA ratio was above 5.5 times in fiscals 2019 and 2020 before improving to about four times in 2020-21. However, in fiscal 2022 it is expected to moderate. Overall leverage is expected to improve as ICL does not intend to undertake any debt-funded capex over the medium-term, along with significant debt reduction expected on account of scheduled term debt repayment. Gross debt to EBIDTA ratio reduction in the upcoming fiscals would remain a key monitorable”.

Srinivasan faces a challenge on another crucial front. The Sword of Damocles in the form of the Damanis hangs over his head. Damanis hold a little over 20 per cent in ICL. No doubt, the Damanis have largely remained as investors. Nevertheless, Srinivasan has to ponder over this. The arrival of the Adanis and their spreading interest, in the meanwhile, has indeed redefined the ecosystem in the cement industry. Read in that context, the Damanis’ investment in ICL is tracked with a lot more interest in the business world.

 Transformation phase

ICL is in the midst of a transformation. Many long-serving old guards will slowly move out. A new order is already emerging with the entry of fresh professionals in diverse departments. The dynamics of the cement business are vastly different from other fields. This poses a challenge as a new order slowly sets into ICL.

ICL at 75 is a heady cocktail of a story. The journey was full of action replete with entrepreneurial adventure, internecine fights, daring takeovers and missteps. Today, Srinivasan is the face of ICL and is a father figure for the cement industry in the south. Where does ICL go from here? His daughter Rupa Gurunath is active as a whole-time director. The business dynamics are changing in the cement industry which is undergoing a major metamorphosis. Well, Srinivasan has to contemplate a lot.

A turning moment

With the benefit of hindsight, it could be safely surmised that winning the Chennai franchise of the IPL (Indian Premier League) was a turning moment for ICL. When the BCCI launched the Indian Premier League closely after India won the inaugural T20 cricket world cup, none had an inclination that the 20-over tournament format would change the pace of cricket in the country. 

That was when India Cements got the Chennai franchise (Chennai Super Kings) for $91 million. CSK was a division of ICL. There were concerns from investors on the wisdom of ICL’s bid for the Chennai franchise. Many seasons have gone by since then. And, CSK has landed the IPL trophy four times and emerged as the strongest team.  Whenever CSK does better, the TRP ratings go up too. So much so that CSK has become an iconic brand and commands significant valuation! 

But the betting controversy and the subsequent two-year suspension on CSK put the focus heavily on Srinivasan and ICL. The issue of conflict of interest too has been getting debated extensively. Obviously, much of the management bandwidth was expended on fighting the negativity arising out of the controversy. In all the dust and noise surrounding them, modernisation of its old plants seemed to have been ignored.  

Got in a bind, Srinivasan-led management at ICL chose to palm off CSK into a separate company and all shareholders were issued shares in the newly-formed company. The objective was to disengage ICL from CSK. Today, CSK is an independent company run by a separate board.

“If you look at the history of franchise-based leagues in the US, it will outgrow everything. Passion for cricket is so much in India. The road between countries will see franchise-based leagues getting precedence as we go along,” Srinivasan told this correspondent sometime ago. He breathes cement and he knows the commodity inside out.

At the same time, he has tremendous passion for cricket too. For him, CSK is a priceless asset. Like father, like daughter. Both are avid golfers. Cricket and cement are challenging fields to manage, nevertheless.