Get back to work
As the lockdown eases, cement companies will be able to run at an increased level of operation but this will not be a return to the way things were. With the Coronavirus likely to persist throughout 2020 and probably beyond, companies will need to adapt to a new normal. Physical distancing rules will need to be maintained, resurgences of the virus may lead to a re-introduction of restrictions, and cement demand will remain below potential as the economic impact of the crisis plays out. Indian cement companies need to start preparing to cross this coming chasm today.
To think and act along this time horizon, a second task force of the COVID-team needs to focus on reviving revenue and ensuring cash conservation. This challenge will require major inputs from sales & marketing, finance, manufacturing, and supply chain to help adapt the business model to the new operating climate.
The lockdown and ensuing economic slowdown will lead to an acceleration of some earlier demand trends as well as emerging new trends. After years of sluggish growth, construction in the residential real estate sector will likely further retrench as consumer demand for new housing falls. In addition, the commercial real estate market which was an earlier bright spot is expected to contract sharply. Therefore cement demand is likely to become more dependent on government spending on infrastructure and affordable housing. Demand may also shift geographically away from harder hit urban areas to rural regions where restrictions on activity may be more limited.
As well as identifying and targeting the most attractive customer segments during this period, cement companies will also need to track and tap into emerging trends in construction practices. One leading Indian cement company expects the combination of scarce labour availability in urban areas and the need for physical distancing to accelerate the demand for ready-mix-concrete (RMC). Companies may need to fast-track existing plans or pivot to new opportunities to revive revenues in the coming quarters.
Finally, in light of lower cement demand, companies will also need to review their capital investment and market entry decisions. Many Indian cement companies had earmarked substantial investments for new plants as well as entry into new geographies. Those plans will need to be urgently revisited given lower expected capacity utilisation at existing operations over the next year.
Build a new road to resurgence
Although a post-COVID landscape may seem far away today, cement companies need to start thinking about the new world that will emerge once the pandemic abates - and the challenges and opportunities that will come with it. Cement companies will emerge from the crisis to face a very different scenario in terms of the competitive landscape, customer behaviour, and employee mindset.
The fundamental shifts that Coronavirus will bring about require the focus of a dedicated team within the COVID-19 task force charged with thinking on a longer time frame and building a new road to resurgence. This requires a team with an aptitude for visioning, strategic insight, and large-scale change management.
Topics such as digitalisation, technological and product innovation, sustainability, and cultural transformation will come to the fore as cement companies look to reimagine their business models for a new world.
By thinking and acting concurrently along these three time horizons and committing dedicated resources to each of them. Indian cement companies can mitigate the impact of the current lockdown, revive revenues in the coming quarters, and chart a new path to sustainable success in the post-COVID world.