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November 2016 Corporate Focus

Published on: 2016-11-24 16:21:20     1583 times read    0  Comments
Siddhartha Group: Striving for Quality and Consumer Satisfaction

From making its mark in cement, one of Nepal’s southern based business groups is eyeing to make more, once the country starts fully developing its industrial base.

 Rajesh Kumar Agrawal, Director, Siddhartha Group
Rajesh Kumar Agrawal
Director
Siddhartha Group

Despite the country’s struggling business environment, the Bhairahawa-based Siddhartha Group is looking to expand its businesses. A leading industrial conglomerate, the Group is introducing a new footwear brand within the next two or three months in the market. As an initial step, the company has been producing shoe soles. It also provides the soles to other footwear makers as well.  “We have introduced Italian technology for the production of the soles,” says Rajesh Kumar Agrawal, Director of Siddhartha Group.  “We supply high quality soles in the country and people are admiring our product.”

According to him, there are around 5,000 handmade shoe factories in Nepal where the soles are needed to make the shoes.

The Start
Established in 1994, the group was founded by Rajesh Kumar Agrawal and his cousins Jagdish Agrawal and Krishna Murari Agrawal. “We had no thought about establishing an industrial conglomerate at that time. Basically, our family business was in clothing and grains,” recalls Agrawal. The Group started its industrial journey with Siddhartha Flour Mill in 2052 B.S. “We named it Siddhartha to represent the name of our city,” he mentions. Five years after starting the flour mill, the Group got into the edible oil production business with Siddhartha Oil Industries in 2056 BS. It produced products including mustard oil and de-oiled mustard cakes. Another big moment came in 2060 BS when Siddhartha Cement Industry was established. The booming construction sector led the Group to enter the cement production business. And five years after starting production, Siddhartha Group ventured into the production of clinker.  “In 2065 BS, we established the clinker factory,” says Agrawal. The Group bought the VKS technology from an Indian company named Dynasty Industry which was producing clinker in Krishnanagar.

Turning Point
According to Agrawal, the turning point for the Group came in cement. “We were handling our family business and ventured into the construction material production which was new for us,” he shares. 

The Group also has a refinery industry as well where they import crude soybean and sunflower oils from Brazil and Argentina. “We have been running the industry since 2062 BS,” informs Director Agrawal. 

Likewise, the Group also owns Siddhartha PET Plast where industry-grade PET bottles are produced. “We have advanced technology L&T plant to produce quality goods,” he says. The Group has been upgrading the technology and the capacity of its industries to maintain a smooth momentum in the market according to the needs of the time. 

Market Strategies
Agrawal considers the quality and price of products as factors essential in gaining the trust of consumers. “In terms of quality, we are giving our 100 percent to the consumers with products at very affordable price points.”

Siddhartha Group’s business activities cover the whole of Nepal. Nonetheless, its core activities are centered in the Lumbini Zone as the Group’s production bases are mostly set up in Bhairahawa and adjacent areas.  According to Agrawal, more than 70 percent of edible oil produced by the Group is consumed in the Lumbini Zone. “We have also maintained a strong presence in the cement market here,” he mentions. According to him, the Group is moving ahead focusing on markets in the western districts of Kapilvastu, Rupendehi and Nawalparasi.  

Diversifying Investments and Other Plans 
From manufacturing to trading and real estate, hydropower and trading, the Siddhartha Group maintains a sizeable business portfolio. The Group is looking to tap into the tourism and hospitality sector in an attempt to diversify its business. As Lumbini, Bhairahawa and Butwal have become the major tourist destinations of Western Nepal with some key connectivity infrastructures being developed, the Group has investment plans in the tourism and hospitality business. “We are thinking of entering the hospitality sector as the second international airport of the country is being constructed here,” Agrawal says.

Meanwhile, it also has plans to start the production of steel. “Due to the cement, our market network is strong and we are also starting a steel production plant,” says  Agrawal. Furthermore, the Group has also plans to open two new industries in Bahirahawa Special Economic Zone (Sez). 

Agrawal views the rising demand of construction materials in the country as elemental for the Group to increase its business. “We have become self dependent in cement. Cement produced in Nepal counts for 80 percent of the total supply while 20 percent is being imported,” he notes. “We have also become self-reliant regarding the iron rod market. “The iron rods produced within the country accounts for 70 percent of the market supply whereas, the remaining 30 percent is being imported from India.”According to him, the Nepali iron and steel producers have the potential of covering 100 percent of  the market if the power crisis is resolved. 

In the meantime, Siddhartha Group also has indirect investments in the hydropower sector. “We have invested in shares of various hydropower companies,” informs Agrawal, adding, “As hydropower projects are far away from here and we have our industries in this region, we could not get directly engaged in the power sector.”The business house also has investments in hospitals, BFIs and some real estate projects across the Kathmandu Valley, Lumbini and Bhairahawa. 

The Group’s growth rate over the last five years has been satisfactory. Last year, however, was a troubling time for the business house. “We could not achieve our target last year due to the earthquake, border blockade and political instability,” says Agrawal. 

Problems
The Group is more into manufacturing than trading contributing to the country’s industrialisation. Nevertheless, the present gloomy scenario of the industrial sector is impacting the Group’s potential. “The continuing electricity shortage and lack of a favourable investment climate are ultimately fueling the growth of import-based trading business,” feels Agrawal. “And because of trading businesses, it is becoming hard for us to compete with imported products in the market.” He sees an immense possibility for the country to industrialise which can create employment opportunities if proper policies are introduced and the business climate improves for the manufacturing sector. 

Agrawal reveals that one of its factories which has been operational for over three months is still not connected to the electricity line. “We have applied for the electricity connection six months prior to the opening of the factory and the Nepal Electricity Authority had promised us to connect within the three months. But we are still compelled to use generators for power,” he says.“It is hard to establish a new industry in such a situation. But we are somehow managing and will continue our manufacturing activities.”

The establishment of the Special Economic Zone (SEZ) in Bhairahawa by the government is the next opportunity that Agrawal finds attractive for export-based industries. “As the industries operating there are required to export 75 percent of their products, it is an opportunity for business houses like us who are eying the international market. But again the electricity shortage holds us back to explore our export potentials,” opines Agrawal. 

All these problems have led to an increase in production costs eroding the export potential of Nepali industries. According to Agrawal, the increasing production costs are mostly due to the huge logistics expenses in the import of raw materials and use of diesel generators for producing goods. “Given all these factors, export-based manufacturing is not viable at present as the products produced here are very less likely to be competitive in the international market,” he says.  “Beside herbal items, iron and copper products, it is hard to export other products in the current situation.”

He also stresses the need for proper infrastructure in order to improve the business environment. “The Bhairahawa-Butwal Highway is still not finished even after starting construction five years ago. It should have been completed three years after the commencement of construction as per the deadline,” he cites. Similarly, Agrawal also urges the government to move fast regarding the construction of the Integrated Check Post (ICP) in Bhairahawa SEZ and Gautam Buddha International Airport.

Human Resources
Currently, Siddhatha Group has around 1,500 staff who work across various units on a contract basis. However, the Group is coping with the deficiency of a skilled workforce like other industrial conglomerates in the country.   “The availability of trained manpower for the industrial sector is literally zero at present,” he says. According to him, finding trained and qualified workforce these days has become a difficult task for companies. “The limestone transportation drivers in our cement industries, for example, are getting a salary ranging from Rs 35,000 to Rs 40,000 per month. Despite the higher salary range, we cannot find adequate people for the jobs,” he mentions. As per him, the lack of a practical-oriented education system in the country is among the factors behind the deficiency of a skilled workforce for the industrial sector despite the 300 percent growth in the salary structure over the last five years. 

Export Plans
Currently, Siddhartha Group is exporting preforms to manufacture PET bottles. Similarly, the Group is also planning to export shoes soles.

Market Share
According to the Group, both of its cement brands Siddhartha and Argakachi covers five percent of the overall cement market of the country.  

CSR
Siddhartha Group since its inception has been providing support to the public education system. “We provide financial support to the educational institutions that are financially weak,” says Agrawal. 

SWOT Analysis

Strength
•    Honesty in business
•    Quality of products
•    Trust of consumers

Weakness/Areas Need to Improve
•    Upgradation of tools and technologies in accordance with time

Opportunity
•    High potential of natural resources
•    Tourism opportunity

Threats
•    Unhealthy market competition


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