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6,000 cement sector jobs to go in 2 yrs

Rumi Dutta

Cement prices are ruling firm. Any investment banker will tell you that all cement M&A deals have been put on hold as cement barons expect to ride the gravy train for some more months to come.

Glad tidings, however, has not kept the companies from contemplating the pink slip option. Over the next couple of years, up to 6,000 people from the industry-most of them from the management cadre-could lose their jobs as companies like Grasim Industries, L&T and ACC prepare to downsize.

ACC, mind you, has already downsized by 6,000 in the last three years.

Unlike other sectors, cement companies are targeting people from their management cadre to trim their flab, as offloading workers could lead to labour unrest at the plants. Industry sources say that the axe is falling on the middle-level management, which across the industry is estimated to be around 80,000.

The cuts already affected by ACC coupled with the cuts on the drawing board would mean a 15 per cent reduction in their ranks.

The 15.3 million tonne ACC, the oldest of all Indian cement companies, after reducing its rolls from 16,000 to 10,000, or 37.5 per cent, thanks to a voluntary retirement scheme which cost Rs 240 million, is planning further cuts.

"We are not yet through with our VRS plans and still have an excess of around 2000-3000 employees. We plan to reduce this in a phased manner," ACC officials disclosed.

The AV Birla group company, Grasim Industries, and Larsen & Toubro Cement too propose to cut their payroll strength.

Grasim Industries, which has a production capacity of 12 million tonnes per annum, is initiating a VRS scheme for its cement division. Within the next two years, it plans to reduce the payroll at the cement division by almost 1,000, from the present 4,000.

At L&T, which has a 15 million tonne cement capacity, VRS is seen more as a way of increasing efficiency than a means to reduce costs. L&T analysed its manpower requirements.

"A minimum of 10-15 per cent of the total employee strength is surplus in the first analysis," senior L&T executives said, though they did not disclose if the entire cuts would be made in the cement business. L&T has 25,000 plus employees, but the VRS will be offered only to its 13,200-plus strong management cadre.

If the axe falls only on the cement division, up to 2,000 of these could be handed the dreaded pink slip in the days to come.

One question needs to be answered here. If companies are making good money, why are they downsizing?

"It is a question of improving your profits," says OCL Ltd director Gaurav Dalmia. He adds that his company is not looking at downsizing as it never embarked on an expansion spree.

A look at the list of cement companies on the downsizing mode shows that these are companies of old reeling under the burden of a large workforce. According to industry insiders, the optimum employee strength of a cement company should not be more than 500 per million tonne of capacity -- the figure in the case of the old companies hovers around 800.

Compare this with the relatively new Gujarat Ambuja Cements, which has an employee strength of only around 2,347 for its 7 million tonne giving an average of 336 per million tonne.

Companies like Zuari Cements that have new plants too have smaller wage bills and, as a result, do not feel the need to downsize.

"The wage bill does not determine your profitability," Zuari Cements president O P Jagetia says. Adds Jaypee Reva Cement managing director Manoj Gaur adds: "Our manpower cost is just 2.5 per cent of the total costing. We would rather focus on power, raw material and freight which account for 65 per cent of the costing."

What could be alarming for the industry is that its manpower costs is on the rise. Consider this: the wage bill of 22 cement companies as a per cent of their sales, according to a Business Standard Research Bureau study, marginally rose from 7.07 per cent in 1999 to 7.14 per cent in 2000. The portents, indeed, are ominous.

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