Interview: Vilas Bakshi, Armacell
Armacell explains why it is building a new factory in Bahrain
Armacell has been operating in the Middle East for more than 25 years through various distributors and opened its first office in Dubai in 2006. Over that time it has established itself as one of the leading suppliers in the region of thermal insulation for pipes and duct.
Like any regional supplier, however, it has not been immune to the challenges faced by the construction industry over the last 18 months as the global oil price plummeted and political uncertainty took hold.
Vilas Bakshi, Armacell’s business head for the Middle East and Africa region, says the company is realistic about the current state of the market.
“We see some challenges in some execution of projects and we feel that it might slow down towards the second half of this year,” he says. “We see that 2017 will be challenging because when we talk to consultants they say new projects being designed are getting less and less.”
With fewer projects to chase, there is pressure on suppliers to secure orders – but the challenge is to keep prices at sustainable levels even if it seems tempting to simply undercut the competition, Bakshi says.
“What we are working on is to try and secure as many projects as possible in the first half of the year. We have a factory in Dammam and it needs to be running at a minimum capacity utilisation to cover fixed overheads.”
Even though the market is slowing, Armacell is building a new factory in Bahrain to boost overall capacity to 90,000 cubic metres. It is expected to be operational in the first half of 2017. Initially both plants will operate in tandem before full production is eventually switched to Bahrain. The Hidd-based facility is currently in the design phase with Tebodin and a main contractor will be appointed this year.
“Last year we had surge in orders and since we have only one manufacturing line in the region, we ran out of capacity. This forced us to look for sourcing from our other plants. And since the lead time was longer and costs of transportation/duties were also more, we faced some challenges in meeting the customer demands,” Bakshi says. “We are hopeful to stabilise this in this current year.
He added: “There’s a lot of scope for construction activities to continue once oil prices stabilise and improve, and we’ll be in a better position to meet this additional demand with our new plant.”
Last year Armacell recorded record regional revenues and wants to replicate that this year.
“Our main goal for 2016 is to maintain our market share and maintain our turnover,” Bakshi says. “We would be happy with that this year given the challenges in the market.”
He says Armacell has suffered from late payments, particularly in Saudi Arabia and Kuwait.
“Probably in Saudi Arabia and Kuwait clients did not pay the contractors and it trickled down to our distributors and then to us,” he says. “We see this stabilising now but it’s still not at the levels where we want it to be.”
In such situations, Armacell works closely with distributors, and in most cases has bank guarantees in place to tackle such problems.
But how much does it continue to charge contractors when projects are delayed?
“We try to get some price revision wherever possible if the contractor is able to negotiate that with its customer – otherwise, if they don’t get that, we try to support them.”
Bakshi believes that tenders should contain an escalation clause as standard practice, which would cover exchange rates and commodity price changes.
“That would help the entire industry,” he says. “In Europe and India we’ve seen it being more commonplace.”
Armacell is close to finalising a major project in Dubai and is currently working on: Doha Festival City in Qatar and King Abdullah Prison projects in Saudi Arabia, to name a few projects.
It will shortly be opening offices in Morocco, Kenya or Tanzania with two additional sales staff.
“The great thing for Armacell is there is lots of scope to improve on what we are already doing through raising our production capacity but also through expanding our operations,” Bakshi says. “Regardless of the state of the market – now or in the future – we will strive to remain competitive and offer our customers the best products and services possible.”