TBY talks to Mohammad Reza Montazeri, Managing Director of Fars & Khuzestan Cement Company (FKCC), on the company’s strategy to emphasize work in producing blended cement, increasing market share, and distinguishing FKCC from the competition.
THE BUSINESS YEAR You’ve been in the business of cement production for over 60 years now. What are some highlights from 2011?
MOHAMMAD REZA MONTAZERI Fars & Khuzestan has been in the business for 62 years—since our first plant was established in Fars. Throughout that time, we have been continuously growing. In 2011, our production grew at a rate of about 6%. In that same time, overall cement production in Iran has grown from 56 million tons to 66 million tons annually. We are still the number one cement producer in Iran with 17 plants all over the country. Right now we are focusing on productivity and increasing the capacity of the machinery in our plants. We are also following a strategy of focusing more on producing blended cement.
Taking this into consideration, what are Fars & Khuzestan’s current objectives in terms of growth?
There are a number of companies under Fars & Khuzestan Holding, some of which are active in areas such as consultancy and cement plant construction. However, the Board of Directors has now decided to sell a number of these companies so we can focus solely on cement production and trading. Many of the companies in Fars & Khuzestan Holding were founded to provide specific services that were needed to support the work of our main cement business. However, in recent years, it has become easier for us to obtain these services more competitively from outside providers. Our focus now is on maintaining and growing our market share in cement production. We are also looking to increase our share of the export market. Right now about 14% or 15% of our production is exported to other countries. We now own 55% of production plants in Iran and we own shares in 55% of the cement market. Our goal is to increase our market share and right now we are in negotiations to purchase shares in a number of other producers, which would bring our market share up to about 60%.
How is the growth of the construction sector affecting your business?
The construction industry is mainly divided into two sections. The first is government infrastructure projects, which are very important for the cement industry. The second is the housing industry. For the last 10 years the construction sector has been growing at about 5% to 10% annually. As a result, local cement consumption has been increasing every year—last year at about 6%. Our strategy for now is to increase our exports so that we can adjust to changes in local cement consumption each year.
Do you work mostly with the government or with the private sector?
It varies from year to year depending on the amount of investment from both the government and the private sector. Through 2010 and 2011, the government has been involved in housing projects all around the country, so for the past few years, we have been working primarily with the government. However, in 2012, as these government projects have been completed, we have begun to work more heavily with the private sector.
How would you assess the cement industry’s future growth prospects in Iran?
Iran is still a developing country. That means that construction and infrastructural projects are still active. This will translate into a big demand for cement for at least the next 10 years. With our wealth of raw materials, Iran has the capacity to easily produce more than enough cement to meet domestic demand. That said, I don’t know how much more scope there is for further expansion of the cement industry in Iran. There are 15 plants under construction right now. Once they are completed, cement production capacity in Iran will increase to 92 million tons per year, which should meet domestic consumption needs. Instead, the future may lie in blended cement, which could increase existing capacity by a further 150%, bringing our future capacity to 135 million tons. That’s a huge amount of cement. Instead of building new plants, we should focus on productivity and capacity, both of which can be increased by producing blended cement. Blended cement also has environmental benefits because it saves energy. That is why it is important for us to move in this direction. Switching to blended cement production will lower costs and be more environmentally friendly. In my opinion, it is the way we should be producing all cement right now.
You mentioned that your exports vary across different years. Which countries are the main recipients of your cement?
Iran is in a strategic location. Not only do we benefit from oil wealth, but also neighboring countries all have massive construction plans. For example, Qatar is planning to host the World Cup in 2022, and has a 10-year construction plan in place. Iraq, Afghanistan, Azerbaijan, and Turkmenistan also all have big construction plans. In addition, we are seeing increasing demand for cement in Africa, although, at this point, we are not in a position to export massively to Africa.
Currently, the cement industry in Iran is dominated by local producers. Do you see room for foreign investors to enter the market?
Right now Holcim, which produces about 10 or 11% of the cement in Iran, is the only major foreign producer in the country. There is not necessarily room for new plants, but there is certainly scope for foreign companies to invest in increasing the productivity of existing cement plants.
How has the cement industry changed over the past two years and how have you adapted in order to maintain your market share?
Two years ago, cement demand was higher that production; Iran faced a shortage of cement. Now, supply has surpassed demand. Two years ago, there was no need to expand or diversify production. Now you have to spend money on introducing your brand to the market. It is more difficult to sell cement now than it was two years ago. Now if you want to be competitive, you need to distinguish yourself from the competition with quality and variety in order to meet customer demand. That is why we are now focusing on building our brand—something that didn’t mean anything three years ago. Right now, branding, packaging, and quality are the major factors that determine whether or not you will be able to compete in the Iranian cement market.
What are your expectations for the next three years?
We are focusing on following our strategic plan. We have doubled our capacity in the past eight years, so I don’t think we need to invest in more plants. Our focus now is on quality, branding, and costs, all of which will help us stay competitive and maintain our market share. Our goal is to ensure that our investors are earning more than long-term bank deposit interest rates, which right now are at about 20%.
This interview will be published in 'The Business Year: Iran 2013'. To pre-subscribe please e-mail us at firstname.lastname@example.org
© The Business Year - October 2012