Narotam Sekhsaria: "I was determined to get ACC back on the rails in as short a period as possible"

There was an essential reason for this. Cement is a capital-intensive business and therefore with rapid growth comes the requirement for capital, either debt or equity. Debt would determine the leverage of the business and equity would be at the cost of diluting the shareholders’ capital. Every business has to work around a perfect mix of debt and equity. Our strategy always has been to grow without taking on large debts. The only option left was to raise equity capital, which, in turn, would have diluted the equity capital of Gujarat Ambuja. Some of my investment-banker friends advised that I should go for a rights issue. But I felt that we had diluted our equity capital enough in the past for growth.

I took the more innovative approach of getting equity money into the company without taking on debt or diluting the shareholder capital of Gujarat Ambuja. I brought in strategic investors to take a stake in our subsidiary company which held the shares of ACC. We renamed Ambuja Cement Holdings Limited to Ambuja Cement India Limited (ACIL) and sold 40 per cent of its stake to two reputed global investors—American International Group (AIG), through its infrastructure fund; and the Government of Singapore, through its infrastructure investment arm, GIC. They saw a great future for the cement industry in India. They invested a total of Rs372 crore in ACIL. We sold Gujarat Ambuja’s 93 per cent stake in ACEL (the erstwhile Modi Cement) to ACIL for Rs415 crore, which resulted in a profit of Rs249 crore for Gujarat Ambuja.

My understanding with the investors was that ACIL would not be a passive holding company. It would set up new cement plants as well as acquire old ones, in which the three partners—Gujarat Ambuja, AIG and GIC—would invest within the proportion of their holdings in the company. We divided the country into two geographical zones to avoid confusion. Gujarat Ambuja Cements Ltd would expand in the north and west, while ACIL would invest in the east and south. Later that year, ACIL invested a further Rs483 crore to buy the Tatas’ remaining 7.2 per cent stake in ACC, thus completing our transaction with the Tatas as planned.

Next, ACIL took on the task of setting up a 2-million-tonne cement plant worth Rs600 crore, planned for Nadikudi in Andhra Pradesh as its first project. We had already procured land for it. I made sure I was not on the board of ACIL, since it was holding the ACC share and I was the ACC vice-chairman. The wonderful thing about this new structure was that the strategic investors would provide the additional capital for further expansions, allowing both ACIL and Gujarat Ambuja to grow rapidly. The advantage to Gujarat Ambuja shareholders was that ACIL was a subsidiary company of Gujarat Ambuja. Through the consolidation of accounts, everything came under the umbrella of their mother company.

At ACC, I discovered that years of underinvestment in the core cement business in the 1990s had left the company in a bad way. Its much-vaunted technical capabilities across the various plants were now subpar and there was a terrible shortage of good people to run them. The only good thing was that they had excellent plant locations. Most plants needed modernization and de-bottlenecking. The low cement prices through much of the early 2000s were not helping. For the year ending March 2000, the company made a loss of Rs59 crore.

We needed money for the modernization effort. The first thing that I suggested to the board was to get out of every other business except cement. By June 2000, we had decided to get out of all the non-core businesses set up by the previous MD. Most of these were loss-making or moribund. The money realized through the sale was put back into modernizing the cement plants. Mr Narula, who headed ACC’s cement operations, was among the most respected professionals in the Indian cement industry. An electrical engineer and an ACC veteran, he and I had known each other for a long time. In him, I found a kindred soul to rework the culture at ACC and make it a more cost-conscious and shareholder value-driven organization. For nearly a decade, his efforts at improving the cement operations were stymied because of excessive attention on the unrelated diversification. I assured him that the board would give speedy clearances and the funds for the various modernization projects he had in mind.

He told me about how corruption had become a problem at ACC and I made sure that the board gave him a free hand to get rid of anyone he thought was involved. In our Wednesday meetings, I provided advice and guidance based on our learnings in areas of productivity and efficiency. In keeping with my ethics and principles, I scrupulously kept Ambuja executives from getting involved in this effort. It was only Mr Narula, his boss Mr Nambiar, Mr A.L. Kapur our director at ACC and me.

With the board backing him fully, Mr Narula went all out. In the first year of my stint there, the company conducted as many as 1,700 management development and technical training programmes across all the plants to upgrade employee skills. He finally managed to commission the giant 2.6-million-tonne plant at Wadi in northern Karnataka after a long delay. That had a direct impact on sales and profit. In 2001, for the first time in seven years, the profit figure crossed Rs100 crore. We elevated Mr Narula to the MD’s post when Mr Nambiar retired two years later. Once in the saddle, he and I worked even more closely to accelerate the reforms. The progress was painfully slow due to ACC’s old plants and large geographical spread across the country.

It would be years before ACC’s profits rose to a level of my liking and the stock price rose beyond the Rs370 a share that we had paid the Tatas. By the time Mr Narula retired after five years at the helm, ACC was back to being the blue-chip stock that it was in the 1970s and early ’80s. Cement production reached 20 million tonnes. The stock was now trading in the region of Rs1,300.

Excerpted from The Ambuja Story by Narotam Sekhsaria, with permission from HarperCollins India.