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Kiran Kabtta Somvanshi
Dr. Kiran Somvanshi is a data journalist at The Economic Times. She has been a part of the Economic Times Intelligence Group, the research wing of ET since the past 15 years - writing extensively on Indian companies especially in the healthcare and consumer goods sectors. Telling insightful stories from data is her forte with corporate governance, gender, corporate social responsibility and public policy being her prime areas of interest. Kiran is a Salzburg Global Fellow and has been a Fulbright Humphrey Fellow as well as a Chevening Fellow. Kiran has had short stints with the World Bank, UNDP and also collaborated on research published in the Brookings Institution. She has a PhD from TISS and is a qualified Company Secretary, Cost Accountant with a bachelor's degree in Law and Psychology. Twitter handle: @Kiran_ET
For a building materials manufacturing MNC to pull the plug on a country where around 10-15 million households still live in kutcha and semi-pucca dwellings that have mud, wood or bamboo flooring is as baffling as it is bold. But Holcim CEO Jan Jenisch saw the writing on the wall and roof quite early to figure out cement and climate are increasingly becoming incompatible. And he didn't have to look far. His own group's history gave him his answers.
Holcim's founders, Switzerland's Schmidheiny family, were not able to extricate themselves early enough from a scandal caused by the Italian asbestos company Eternit Genova that was found to cause the deaths of more than 2,000 people allegedly exposed to the toxic material. Stephan Schmidheiny was Eternit Genova's majority shareholder and he was initially found guilty by a Turin court in 2012 of refusing to install measures that would have prevented workers and residents from being exposed to asbestos. The Italian Supreme Court overturned the ruling two years later, but the reputational damage was done.
Coming out of the aftershocks of that lingering scandal - and the 2016 revelation that the then-post-merger entity LafargeHolcim had paid 'taxes to Islamic State (IS) middlemen in 2013-14 to keep its factory in Jalabiya, Syria, running - Jenisch and his shareholders wouldn't want another malignant pain point.
So, Jenisch has begun building the foundation of a new Holcim - weaning away from past obsessions with cement, aggregates and ready-mix concrete, towards a more sustainable and green future. Cement-making demands high temperatures, and it belches serious amounts of greenhouse gases.
To counter its polluting credentials, Jenisch is not shying away from divesting Holcim's sprawling India operations - along with similar sales in Brazil, Mozambique and Northern Ireland - to accelerate its transition towards a green corporate striving to more than halve its cement revenue share by 2025 while ratcheting up its greener portfolio more than 3.5 times.
But if not cement, then what? Before he was hired to salvage the integration of Lafarge and Holcim that came together in 2015 to create a $60 billion global colossus, Jenisch cut his teeth in a chemicals company, Sika, where he rose from the ranks to the top job.
Sika makes a range of specialty chemicals for the construction and automotive sectors that are downstream from the raw cement or aggregate materials that Lafarge Holcim, renamed Holcim last year, makes. And, these cement additives, adhesives or sealants could be key to buttress Jenisch's green credentials.
In today's era of 'conscientious capitalism', it also makes commercial sense to promote ESG (environmental, social and governance). The shift from a pure commodity player to offering solutions or by branching out to construction chemicals can translate to a valuation bump up for Holcim that trades at 12.8 price-to-earnings (PE) multiple. In comparison, Sika trades at nearly four times higher multiples. And, if you take Pidilite, the Indian adhesives giant, currently at 97.9 PE, then the valuation gap is eight times.
More and more manufacturing companies globally, including in India, will adopt this Holcim playbook. Asian Paints has graduated to becoming a home makeover specialist, while cement-makers JSW and JK have diversified into paints and other value-added services, just as the Aditya Birla Group that runs UltraTech, India's largest cement company, has. Last year, Mukesh Ambani laid down a $10 billion renewable energy (RE) roadmap, while Gautam Adani is also pivoting from coal towards solar and hydrogen.
Managing such transformation needs buy-ins from major stakeholders. Holcim's potential exit from a high growth emerging market like India, 17 years after making a big-bang entry, would mean a lost opportunity for its legacy operations to be part of a more sustainable business ecosystem. Rather, most traditional businesses functioning in the environment-unfriendly industries run a threat of being sold, broken up or sidelined in the backdrop of stringent regulations and increase in opportunity costs.
Using the moat of predictable cash flows generated from legacy operations could be a middle path. Ambani's foray into telecom and retail was initially funded by its traditional petrochemicals business much the same way ITC piggybacked on tobacco to bankroll its hotels, FMCG and paper verticals.
JSW's Sajjan Jindal and Adani have individually adopted aggressive positions on decarbonisation. While they can still want to be in cement - and are reportedly in hot pursuit of Holcim's India portfolio - as they want to be in coal, they would do it opportunistically, knowing that it's perhaps going to be a liability, not an asset, to the next generation. Just like asbestos was for the family that used to own Holcim. After all, everything boils down to the right chemistry.
Holcim's founders, Switzerland's Schmidheiny family, were not able to extricate themselves early enough from a scandal caused by the Italian asbestos company Eternit Genova that was found to cause the deaths of more than 2,000 people allegedly exposed to the toxic material. Stephan Schmidheiny was Eternit Genova's majority shareholder and he was initially found guilty by a Turin court in 2012 of refusing to install measures that would have prevented workers and residents from being exposed to asbestos. The Italian Supreme Court overturned the ruling two years later, but the reputational damage was done.
Coming out of the aftershocks of that lingering scandal - and the 2016 revelation that the then-post-merger entity LafargeHolcim had paid 'taxes to Islamic State (IS) middlemen in 2013-14 to keep its factory in Jalabiya, Syria, running - Jenisch and his shareholders wouldn't want another malignant pain point.
So, Jenisch has begun building the foundation of a new Holcim - weaning away from past obsessions with cement, aggregates and ready-mix concrete, towards a more sustainable and green future. Cement-making demands high temperatures, and it belches serious amounts of greenhouse gases.
To counter its polluting credentials, Jenisch is not shying away from divesting Holcim's sprawling India operations - along with similar sales in Brazil, Mozambique and Northern Ireland - to accelerate its transition towards a green corporate striving to more than halve its cement revenue share by 2025 while ratcheting up its greener portfolio more than 3.5 times.
But if not cement, then what? Before he was hired to salvage the integration of Lafarge and Holcim that came together in 2015 to create a $60 billion global colossus, Jenisch cut his teeth in a chemicals company, Sika, where he rose from the ranks to the top job.
Sika makes a range of specialty chemicals for the construction and automotive sectors that are downstream from the raw cement or aggregate materials that Lafarge Holcim, renamed Holcim last year, makes. And, these cement additives, adhesives or sealants could be key to buttress Jenisch's green credentials.
In today's era of 'conscientious capitalism', it also makes commercial sense to promote ESG (environmental, social and governance). The shift from a pure commodity player to offering solutions or by branching out to construction chemicals can translate to a valuation bump up for Holcim that trades at 12.8 price-to-earnings (PE) multiple. In comparison, Sika trades at nearly four times higher multiples. And, if you take Pidilite, the Indian adhesives giant, currently at 97.9 PE, then the valuation gap is eight times.
More and more manufacturing companies globally, including in India, will adopt this Holcim playbook. Asian Paints has graduated to becoming a home makeover specialist, while cement-makers JSW and JK have diversified into paints and other value-added services, just as the Aditya Birla Group that runs UltraTech, India's largest cement company, has. Last year, Mukesh Ambani laid down a $10 billion renewable energy (RE) roadmap, while Gautam Adani is also pivoting from coal towards solar and hydrogen.
Managing such transformation needs buy-ins from major stakeholders. Holcim's potential exit from a high growth emerging market like India, 17 years after making a big-bang entry, would mean a lost opportunity for its legacy operations to be part of a more sustainable business ecosystem. Rather, most traditional businesses functioning in the environment-unfriendly industries run a threat of being sold, broken up or sidelined in the backdrop of stringent regulations and increase in opportunity costs.
Using the moat of predictable cash flows generated from legacy operations could be a middle path. Ambani's foray into telecom and retail was initially funded by its traditional petrochemicals business much the same way ITC piggybacked on tobacco to bankroll its hotels, FMCG and paper verticals.
JSW's Sajjan Jindal and Adani have individually adopted aggressive positions on decarbonisation. While they can still want to be in cement - and are reportedly in hot pursuit of Holcim's India portfolio - as they want to be in coal, they would do it opportunistically, knowing that it's perhaps going to be a liability, not an asset, to the next generation. Just like asbestos was for the family that used to own Holcim. After all, everything boils down to the right chemistry.
