Captive power help Madras Cements to manage cost well

The low-key Madras Cements, part of the Rs 4,500-crore Ramco group, is now getting noticed for how smartly it is managing its operations. It is setting some industry benchmarks on cost management.

Brokerage Motilal Oswal, in a recent report, has pointed out how on a five-year basis, Madras Cements has generated the highest average Ebitda per tonne of cement produced in the industry.

Madras Cements' figure of Rs 1,190 is 19 per cent higher than the nearest rival Ambuja Cement. Ultratech Cement (Rs 913), ACC (Rs 881) and India Cements (Rs 800) follow. So, what's Madras Cements' secret? Well, its power strategy. This is what helps it make 30 per cent more Ebitda than India Cements despite clocking 20 per cent lower sales.

Dharmakrishnan, CEO and a three-decade veteran of Madras Cements said that the company planned to have captive power in the 1990s. At that time, the idea was to reduce dependence on costly diesel genset power. Since then the company has installed a whopping 160 mw of windmill capacity, spending some Rs 1,000 crore in the process, something that even an independent power producer will be proud of. Of this, it uses only 20 mw and sells the rest to the grid.

Dharmakrishnan and his team, who were monitoring power cuts, coal supplies and the planned power capacity expansion, saw a mega power crisis looming for Tamil Nadu and Andhra Pradesh — and they were right. The company decided on captive thermal plants, which now churn out 121 mw of power.

PR Venketrama Raja, Director, Madras Cements, says that this is thanks to Dharma krishnan, who bet on setting up captive power plants and convinced our board about it. Brokerage Emkay says this is what helped Madras Cements in reducing its dependence on outside power and de-link itself from the expensive grid power of Rs 5.50-6 per unit in Tamil Nadu. Savings were at least 15 per cent per unit.

What's more, the captive wind power it doesn't use is sold to the grid. The company makes Rs 120 crore annually in the process.