India Cements Ltd., which owns the Chennai Super Kings cricket team, says its association with the nation’s favorite sport is helping drive sales of the building material as it expands across the country.
India’s fifth-largest maker of cement, based in the southern city of Chennai, plans to build plants in Madhya Pradesh and Himachal Pradesh states, Joint President of Corporate Finance V.M. Mohan said in an interview. The Indian Premier League team, which the company bought in 2008, is led by the nation’s cricket captain Mahendra Singh Dhoni.
“Though we are a six-decade-old cement company, people now recognize us as an owner of a cricket team led by Dhoni,” Mohan said. The success of the team, which was the runner-up in this year’s tournament, has helped the company add stockists and establish its network of distributors, he said.
India Cements, which paid $91 million for the cricket team, is seeking to expand in parts of Asia’s third-largest economy where demand for the construction material is higher in a bid to boost profitability. Chennai Super Kings has won two of the five IPL tournaments, while Dhoni led the country to victory in the World Cup last year. That success helped the cement maker attract business partners, according to Ram Gudipati, managing director of Brand Harvest Consultancy Pvt.
“Cricket is almost omnipresent in this country and when you associate with cricket, then you are seen as a large-scale brand,” Gudipati said. Unlike other firms that own teams, such as Deccan Chronicle Holdings Ltd. and United Spirits Ltd., the India Cements brand is linked with Chennai Super Kings, helping the company ride “on the success of the team,” he said.
Deccan Chronicle had its contract to manage the Deccan Chargers franchise canceled by the Board of Control for Cricket in India after the company failed to sell the team to pay debt. The publisher of the newspaper by the same name is struggling to repay debt of 50 billion rupees ($930 million). The company said last month it’s facing a “liquidity crisis.”
Companies selling a product that “involves an impulse purchase,” such as a cola, are better suited to benefit from owning a cricket team, said Naresh Krishnaswamy, head of strategic planning at advertising company Draft FCB Ulka.
India Cements has gained 36 percent in the past year, exceeding the 12 percent increase in the BSE India Sensitive Index. The shares rose 4.2 percent to 96.4 rupees at the 3:30 p.m. close in Mumbai, its highest since April 29.
India Cements, led by N. Srinivasan, who’s also the president of the cricket board, has the “worst plant locations” among cement makers covered by V. Srinivasan, an analyst at Angel Broking Ltd. in Mumbai. Diversifying into Himachal Pradesh and Madhya Pradesh from the existing three states will improve margins, he said.
The company forecasts sales in the year ending March 31 will be unchanged at 9.5 million metric tons because of oversupply in its markets in Andhra Pradesh, Tamil Nadu and Rajasthan.
“The ultimate aim is that we should have our own manufacturing facility in every place where cement can be produced in India,” Mohan said. “Cement can be manufactured in seven or eight states in India. We would like to be a player in each one of these markets.”
The company reported an earnings margin before interest, taxes, depreciation and amortization of 20.5 percent in the year ended March 31. That compares with 29 percent at Madras Cements Ltd. and 22 percent at UltraTech Cement Ltd., India’s biggest maker of the construction material, according to data compiled by Bloomberg.
Cement demand in India may expand if Prime Minister Manmohan Singh’s government is able to attract investors to build roads, ports and power plants. India needs $1 trillion of investment in infrastructure by 2017 to boost economic growth, according to the nation’s Planning Commission.
India Cements has had some success in attracting dealers in Rajasthan because of its ownership of the IPL cricket team led by Dhoni, according to Vijayaraghavan Swaminathan, an analyst with Spark Capital Advisors Pte. “It has given a ready foothold for the company in northern markets.”
Dhoni, 31, has won 56 percent of the one-day matches he has captained for India, according to Cricinfo.com data. Chennai Super Kings has played in the finals of four of the five IPL tournaments since 2008, the most among the nine IPL teams.
Revenue from Chennai Super Kings was at 1.37 billion rupees in the year ended March 31, according to the India Cements annual report.
The IPL team “has given them the platform which is large enough from a brand visibility perspective,” Brand Harvest’s Gudipati said. Distributors are saying “there’s lot of recall for your brand and it is so much easier to penetrate in the market.”