binu cement ind
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Cement sector and the corporate's operating in cement line and their contribution to the economyTRANSCRIPT
Cement IndustryAn In-Depth Study
PROJECT BY:
Pillai Binu BhaskaranTYBMS (SEM V), 2006- 2007
Project Coordinator: Anup. Munshi.
DATE OF SUBMISSION: January,2007
VIVEK COLLEGE OF COMMERCE GOREGAON (WEST),
MUMBAI – 400 062.
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Cement Industry
An in – Depth Study
Submitted by: Pillai Binu Bhaskaran
TYBMS [Semester V] 2006 - 2007
Vivek College of Commerce
Project Coordinator: Anup. Munshi.
Submitted on : January,2007
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Declaration
I Ms. Binu Pillai of Vivek College of Commerce of TYBMS (Semester V)
hereby declare that I have completed this project on “Cement Industry” – An
In-depth Study” in the Academic Year 2006 – 2007. The information
submitted is true and original to the best of my knowledge.
Signature of Student.
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Certificate
I, Mr. Anup. Munshi. hereby certify that Ms. Binu. Pillai. of Vivek College
of Commerce of TYBMS (Semester V) has completed project on “Cement
Industry” – An In-depth Study” in the academic year 2006 – 2007. The
information submitted is true and original to the best of my knowledge.
Signature Signature Signature
of Project coordinator of Principle of Coordinator
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ACKNOWLEDGEMENTS
Before going on with the project study, I would like to extend my sincere gratitude to a few
people without whom this project just wouldn’t have been possible.
First and foremost I would like to thank my Project Guide Mr. Anup. Munshi for having
spent considerable time and providing very useful insights in to the world of Cement
Industry.
It was an amazing experience working on this project and I would once again wish to thank
all the people related to it for making the task worthwhile and so much fun.
I would also like to thank Principal SUNIL B. MANTRI for providing the best of the
facilities in this college which served as a platform for me in doing this project.
I am also thankful for Prof. MONA THAKKAR-PANDYA, our coordinator of BMS for the
tremendous help in the project. I would like to also like to acknowledge the different
websites which helped me immensely in completing the project.
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Indian cement industry
Profile of cement industry
Salient features of cement industry
Quantitative details
Where is it Heading
Nature of industry
Groupwise installed capacity
Statewise installed capacity
Regionwise installed capacity
Seven clusters
Indian cement industry current scenario
Why India
India: Competitiveness & comparison with world market
Profitability of major cement companies
Policy
Working of cement plant
Trends & players
Market opportunities for investment
Conclusion
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20 Bibliography 66
Indian Cement Industry - An Overview
Cement is the preferred building material in India. It is used extensively in
household and industrial construction. Earlier, government sector used to consume over
50% of the total cement sold in India, but in the last decade, its share has come down to
35%. Rural areas consume less than 23% of the total cement. Availability of cheaper
building materials for non-permanent structures affects the rural demand.
Demand for cement is linked to the economic activity in any country. Broadly, it
can be categorized into demand for housing construction (homes, offices etc.) and
infrastructure creation (ports, roads, power plants etc). The real driver of cement demand
is creation of infrastructure, hence cement demand in emerging economies is much
higher than developed countries where the demand has reached a plateau. In India too,
the demand for cement will be affected by spending on infrastructure (including
housing).
With the boost given by the government to various infrastructure projects, road
network and housing facilities, growth in the cement consumption is anticipated in the
coming year. The favourable housing finance environment is expected to fulfill the vast
housing requirements, both in rural and urban areas. The increase in infrastructure
projects by the government coupled with the construction of the Golden Quadrilateral
and the North-South and East-West corridor projects have led to an increase in
consumption of cement. This increase is expected to continue in the future. The
reduction in import duties is not likely to affect the industry as the cement produced is at
par with the international standards and the prices are lower than those prevailing in
international markets.
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Profile of Cement Industry:
The Indian Cement industry is the second largest cement producer in the world,
with an installedcapacity of 144 million tonnes. The industry has undergone rapid
technological upgradation andvibrant growth during the last two decades, and some of
the plants can be compared in everyrespect with the best operating plants in the world.
The industry is highly energy intensive and theenergy bill in some of the plants is as
high as 60% of cement manufacturing cost. Although thenewer plants are equipped with
the latest state-of-the-art equipment, there exists substantial scope for reduction in
energy consumption in many of the older plants adopting various energyconservation
measures.
The Indian cement industry is a mixture of mini and large capacity cement
plants, ranging in unitcapacity per kiln as low as 10 tpd to as high as 7500 tpd. Majority
of the production of cement in the country (94% ) is by large plants, which are defined
as plants having capacity of more than 600 tpd. At present there are 124 large rotary kiln
plants in the country.
The Ordinary Portland Cement (OPC) enjoys the major share (56%) of the total
cement production in India followed by Portland Pozzolana Cement (PPC) and Portland
Slag Cement (PSC). A positive trend towards the increased use of blended cement can
be seen with the share of blended cement increasing to 43%. There is regional imbalance
in cement production in India due to the limitations posed by raw material and fuel
sources. Most of the cements plants in India are located in proximity to the raw material
sources, exploiting the natural resources to the full extent. The southern region is the
most cement rich region while other regions have almost same cement production
capacity.
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The Indian cement industry is about 90 years old and its main sources of energy
are thermal and electrical energy. The thermal energy is generally obtained from coal,
and the electrical energy is obtained either from grid or captive power plants of the
individual manufacturing units.
Salient features of Indian cement industry
Indian cement industry is the second largest in the world with an installed capacity
of 135 MTPA. It accounts for nearly 6% of the world production.
There are 124 large plants and around 365 mini plants. The industry presents a
mixed picture with many new plants that employ state-of-the-art dry process
technology and a few old wet process plants having wet process kilns.
Production from large plants (with capacity above 1 MTPA) account for 85% of the
total production.
The cement industry has achieved significant progress in terms of reducing the
overall energy intensity.
Dry process plants that the weighted average thermal energy consumption was
734 kCal/kg clinker and weighted average electrical energy consumption was
89 kWh/tonne of cement. The best energy consumption are 692 kCal/kg. clinker
. and 66 kWh/ton of cement
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Quantitative details:
The energy intensity of the all the dry process plants (cost of energy as
percentage of total production cost of packed cement) varies from 29 to 61%. This is
observed to vary with the vintage of the plant, the technology employed by the plants
and the type of cement produced. Specific thermal and electrical energy consumption for
the plants ranges between 692 – 879 kCal/kg. of clinker and 66 – 127 kWh/ton of
cement produced (product mix) respectively. The specific electrical energy also includes
the energy consumed in packing, plant utilities and plant lighting. The reasons for wide
range in specific energy consumption can be mainly attributed to the differing equipment
configuration employed in different sections of the plants by various cement plants. For
example, plants employing ball mills for grinding have reported higher specific electrical
energy consumption as compared to plants having vertical roller mills. In addition, other
factors like the plant capacity, its capacity utilisation, vintage, product mix, process
control system, maintenance aspects, raw material characteristics and above all the
management’s attitude and operational practices of plant personnel are also important.
Besides, various external parameters like quality of coal, raw materials and power
supply have their own repercussions. A large number of plants have put in vertical roller
mills for raw meal section. The balls mills are still operating in the clinker grinding and
coal milling sections in some of the plants. Some of the newer plants have installed
roller press and vertical roller mills in the clinker grinding section as well.
Comparison of energy performance of Indian cement industry with other
countries reveals that there exists scope for improving the energy performance of the
Indian cement industry. The best reported (as per CMA data) energy performance
figures in the world re 65 kWh/t of cement and 650 kCal/kg of clinker whereas the best
in India is 69 kWh/t of cement and 665 kCal/kg of clinker.
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This clearly bring out the fact that although we have some of the best plants in
the world in terms of energy performance, there are many plants where there exists
scope for reducing energy consumption.
Where Is It Heading ?
Cement is a typical cyclical industry, characterised by the boom-and bust
syndrome. A huge potential market and rapid growth in the early stages lead to a surge
in interest and a flurry of research. The projected growth rates point to a lucrative
market. The buoyant markets and huge profits raked in by players tempt more players
into the market. Capacities increase in excess of demand and a glut in capacity is
created. Competition increases, prices fall and margins come under pressure. Capacity
addition comes to a halt; weaker players shut shop or sell off to larger ones. Demand
catches up and the cycle is repeated all over again. Perhaps, of all the cyclical industries,
the Indian cement industry exhibits this boom-and-bust cycle most visibly.
Consider the following:
Temptation
A huge potential market, easy availability of raw material and cheap labour leads
to a flurry of activity and a surge in interest. The easiest way to estimate the potential
that exists is the per capita consumption of cement, which is abysmally low in India at
82 kgs as against a world average of 255 kgs and the Asian average of 200 kgs.
Although the growth of the industry depends more on the level of consumer spending
rather than on the per capita consumption, nevertheless, it serves as an easy benchmark
to estimate the potential that exists.
Fuel to Fire
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The projected growth rates in demand (based on the potential per capita
consumption growth or other demand drivers like the expected GDP growth rate) fuels
stock market rallies. Consider the boom in cement stocks in 1994. Every cement
company was attracting valuations it never dreamt about. Scarcity induced by lower
capacities and to a large extent on non-availability of power, drove cement prices to the
hilt. The kind of money minted by most cement companies as well as investors in that
period made strategists plan enormous increases in capacity. This explains why capacity
creation starting 1994, was so enormous.
The Rush
The amount of profits being raked in tempts more players to enter the industry.
Contagious enthusiasm sweeps the industry and suddenly there is a glut of new players.
Capacities start increasing at a rate greater than the demand growth rates. A scenario of
excess supply to demand becomes imminent. Average annual capacity addition during
the three-year period 1994-95 to 1996-97 was 8.33mn tons at 86.4mn tons, while that for
the five years till 1994-95 was just 3.3mn tons. The capacity further increased to
104.51mn tons in 1998-99 and reached 130mn tons in 2001-02. In FY02 the production
increased by 9.39% at 102.4mn tons from 93.61mn tons being produced the previous
year. At present the annual capacity is around 135mn tons.
The Anguish
With competition increasing and growth in supply exceeding demand growth,
prices begin to fall. This is also the time when players realize that greenfield capacity
addition would be to their own detriment. Consolidation within the industry starts. Most
of the players weakened during the excess supply induced recession sell off to larger and
stronger players. Hostile takeovers are also witnessed during this period as the only way
to expand is by takeovers. The slew of takeovers in the last two years culminating in
Gujarat Ambuja taking a stake in ACC, the largest cement company in India bears ample
testimony to this fact.
Government Policies
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Government policies have affected the growth of cement plants in India in
various stages. The control on cement for a long time and then partial decontrol and then
total decontrol have contributed to the gradual opening up of the market for cement
producers. The stages of growth of the cement industry can be best described in the
following stages:
Price and Distribution Controls (1940-1981)
During the Second World War, cement was declared as an essential commodity
under the Defence of India Rules and was brought under price and distribution controls
which resulted in sluggish growth. The installed capacity reached only 27.9 MT by the
year 1980-81.
Partial Decontrol (1982-1988)
In February 1982, partial decontrol was announced. Under this scheme, levy
cement quota was fixed for the units and the balance could be sold in the open market.
This resulted in extensive modernization and expansion drive, which can be seen from
the increase in the installed capacity to 59MT in 1988-89 in comparison with the figure
of a mere 27.9MT in 1980-81, an increase of almost 111%.
Total Decontrol (1989)
In the year 1989, total decontrol of the cement industry was announced. By
decontrolling the cement industry, the government relaxed the forces of demand and
supply. In the next two years, the industry enjoyed a boom in sales and profits. By 1992,
the pace of overall economic liberalization had peaked; ironically, however, the
economy slipped into recession taking the cement industry down with it. For 1992-93,
the industry remained stagnant with no addition to existing capacity.
Government Controls
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The prices that primarily control the price of cement are coal, power tariffs,
railway, freight, royalty and cess on limestone. Interestingly, all of these prices are
controlled by government.
Coal
The consumption of coal in a typically dry process system ranges from 20-25%
of clinker production. This means for per ton clinker produced 0.20-0.25 ton of coal is
consumed. This contributes 35-40% of the production cost. The cement industry
consumes about 10mn tons of coal annually. Since coalfields like BCCL supply a poor
quality of coal, NCL and CCL the industry has to blend high-grade coal with it. The
Indian coal has a low calorific value (3,500-4,000 kcal/kg) with ash content as high as
25-30% compared to imported coal of high calorific value (7,000-8,000 kcal/kg) with
low ash content 6-7%. Lignite is also used as a fuel by blending it with coal. However
this process is not very common.
Electricity
Cement industry consumes about 5.5bn units of electricity annually while one
ton of cement approximately requires 120-130 units of electricity. Power tariffs vary
according to the location of the plant and on the production process. The state
governments supply this input and hence plants in different states shall have different
power tariffs. Another major hindrance to the industry is severe power cuts. Most of the
cement producing states like AP, MP, experience power cuts to the tune of 25-30%
every year causing substantial production loss.
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Infrastructure
To reduce uncertainty relating to power, most of the leading companies like
ACC, Indian Rayon, and Grasim rely on captive power plants. A few companies are also
considering power-generating windmills.
Limestone
This constitutes the largest bulk in terms of input to cement. For producing one
ton of cement, approximately 1.6 ton of limestone is required. Therefore, the cement
plant location is determined by the location of limestone mines. The major cash outflow
takes place in way of royalty payment to the central government and cess on royalties
levied by the state government. The total limestone deposit in the country is estimated to
be 90 billion tons. AP has the largest share -- 34%, Karnataka 13%, Gujarat 13%, M.P
8%, and Rajasthan 6.5%. The plants near the limestone deposit pay less transportation
cost than others.
Transportation
Cement is mostly packed in paper bags now. It is then transported either by rail
or road. Road transportation beyond 200 kms is not economical therefore about 55%
cement is being moved by the railways. There is also the problem of inadequate
availability of wagons especially on western railways and southeastern railways. Under
this scenario, manufacturers are looking for sea routes, this being not only cheap but also
reducing the losses in transit. Today, 70% of the cement movement worldwide is by sea
compared to 1% in India. However, the scenario is changing with most of the big players
like L&T, ACC and Grasim having set up their bulk terminals.
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Infrastructure for Future
The consumption of cement is determined by factors influencing the level of
housing and industrial construction, irrigation projects, roads and laying of water supply
and drainage pipes etc. The level and growth of GDP and its sectoral composition,
capital formation, development expenditure, growth in population, level of urbanization,
etc, in turn, determine these factors. But the domestic demand for cement is mainly from
the housing activities and infrastructure development. The government paved the way
for the entry of the private sector in road projects. It has amended the National Highway
Act to allow private toll collection and identified projects, bridges, expressways and big
passes for private construction. The budget gave substantial incentives to private sector
construction companies. Ongoing liberalization will lead to an increase in industrial
activities and infrastructure development. So it is hoped that Indian cement industry shall
boom again in near future.
Incentives in States
Most state governments, in order to attract investments in their respective states,
offer fiscal incentives in the form of sales tax exemptions/deferrals. In some states, this
applies only to intrastate sales, like Madhya Pradesh and Rajasthan. States like Haryana
offer a freeze on power tariff for 5 years, while Gujarat offers exemption from electric
duty.
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Nature of the Industry
Installed Capacity
India is the world’s second largest cement producing country after China. The
industry is characterized by a high degree of fragmentation that has created intense
competitive pressure on price realizations. Spread across the length and breadth of the
country, there are 120 large plants belonging to 56 companies with an installed capacity
of around 135mn tons as on March 2002.
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Group-wise Installed Capacity
Companies mn tons
L&T 16.00
ACC 15.00
Grasim Industries 13.00
Gujarat Ambuja 12.5
Indian Cements 8.06
J.K.Group 5.87
Lafarge India Ltd. 4.49
Madras Cements 4.82
Century Textiles 4.70
Jaypee Cements 4.20
Birla Corp. Ltd. 4.11
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CCI Ltd 3.85
Zuari Agro 3.15
U.P. State Cements 2.59
Mehta Companies 2.36
Kesoram Industries 2.10
Mysore Cements 2.10
Orient Paper Ind. 2.00
Andhra Cements 1.24
Mangalam Cements 1.00
Tamil Nadu Cements 0.90
HMP Cements 0.67
Chettinad Cements 0.15
Others 15.99
L&T, with 16 MT, accounts for 11.88% of the total cement production capacity
in the country. It is followed by ACC, with 15MT, accounting for 11.15%. Grasim
Industries with a production capacity of 13mn ton has 9.66% of the total cement
production. Gujarat Ambuja has a production capacity of 12.5mn tons (including its
plant in Chandrapur, Maharashtra). It took a 14.4% stake in ACC and together they
account for 27% of the total cement production capacity in the country. Grasim
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Industries has 10% stake in L&T, and together they account for 29% of the total cement
production capacity.
Statewise Capacity
As cement is a low value commodity, freight costs assume a significant
proportion of the final cost. Transporting costs render the prices of cement in distant
destinations uncompetitive. For instance, it is financially infeasible to transport cement
by road over 250 kms. Railways are mostly used to transport cement over longer
distances. However, its bulky nature and infrastructure bottlenecks render even rail
transport unviable over very long distances (that is why Madras Cements or India
Cements, located in the south, can hardly make a difference to the fortunes of west-
based companies like Gujarat Ambuja). Therefore, manufacturers tend to sell cement at
the nearest market first and sell in distant markets only if additional realization is greater
than freight costs incurred.
Regionwise Capacity
The Indian cement industry has to be viewed in terms of five regions:-
North: - Punjab, Delhi, Haryana, Himachal Pradesh, Rajasthan, Chandigarh, J&K and
Uttranchal
West:- Maharashtra and Gujarat;
South: - Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry, Andaman &
Nicobar and Goa
East: - Bihar, Orissa, West Bengal, Assam, Meghalaya, Jharkhand and Chhattisgarh and
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Central:-Uttar Pradesh and Madhya Pradesh
Northern Region
Punjab 2173.34
Delhi 500.00
Haryana 172.00
Himachal Pradesh 4060.00
Rajasthan 16299.34
J&K 200.00
TOTAL 23404.68
West
Maharashtra 8950.00
Gujarat 12937.00
TOTAL 21887.00
South
Tamil Nadu 12913.18
Andra Pradesh 19831.02
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Karnataka 9744.00
Kerala 420.00
TOTAL 42908.20
East
Bihar 1000.00
Orissa 2761.00
West Bengal 2291.66
Assam Meghalaya 400.00
Jharkhand 3475.01
Chattisgarh 11287.33
TOTAL 21215.00
Central
U.P. 6297.00
M.P. 16185.00
TOTAL 20482.00
South accounts for 33.03% of cement production capacity of the country, with
Andra Pradesh accounting for 15.27% of the total production capacity of India. It has an
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installed capacity of around 20mn tons of cement and ranks first in the country, followed
by Tamil Nadu with 9.94% of the total production capacity. North accounts for 18.02%
of the total production capacity, with Rajasthan at 12.55% of the total production
capacity of the country. West accounts for 16.85% of the total production capacity.
Maharashtra and Gujarat have production capacity of 6.89% and 9.96% respectively.
East and Central Regions account for 16.33% and 15.77% of the total production
capacity of the country respectively.
Trade between these regions is on a very low scale mainly because of the
transportation bottlenecks and uncompetitive cost of transportation. This apart, there are
other factors that determine the location of a cement plant. Proximity to limestone
deposits, availability of coal and power and the markets the plants cater to, are some of
the critical factors that determine the viability of a cement plant.
Seven Clusters
Cement and its raw materials namely coal and limestone, are all bulky items that
make transportation difficult and uneconomical. Given this, cement plants are located
close to both, sources of raw materials and markets. Most of limestone deposits in India
are located in Madhya Pradesh, Rajasthan, Andhra Pradesh, Maharashtra and Gujarat,
leading to concentration of cement units in these states. This has resulted in ‘clusters’.
There are seven such clusters in the country and account for 51% of the cement capacity.
There is a trade-off between proximity to markets and proximity to raw materials due to
which some cement plants have been set up near big markets despite lack of raw
materials.
Exports
The cement sector is relatively insulated from international markets. This is
largely due to inadequate infrastructure to carry on international trade. Being a very
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bulky item, international trade is very limited and only between neighbouring states.
This is amply borne out by the fact that cement accounts for not more than 0.20% of
total world exports. Although India has been consistently exporting cement in the past,
the volume of exports took a beating after the Southeast Asian crisis. From a peak of
2.68mn tons in 1997-98, cement exports from India have slid down to 2.06mn tons in
1998-99. However the situtation has improved gradually. In FY02 the exports were
2.77mn tons as against 2.37mn tons in FY01, an increase by 16.87%.
Having a long coastline, India is well positioned to export cement to the Middle
East and Sri Lanka. However, congestion at the Indian ports and lack of cement handling
facilities restrict the free movement of cement out of India. Hence, only those companies
who have their own jetties are able to export. Moreover, currently, prices in the
international market too are at unremunerative levels. Nevertheless, companies like
Gujarat Ambuja and L&T are major exporters, who export mainly to get incentives like
duty-free import of high grade coal and oil. This apart, large scale cement exports are
possible only when cement prices in the international market look up.
Capacity Utilization
The installed capacity, which was 62 MT p.a. in 1993, has increased to 134.59
MT in March 2002. The all-India average capacity utilization of cement plants is at 85%.
The fall in utilization levels has been on account of severe shortages of key raw
materials such as power, coal and rail wagons.
Reasons for Full Capacity Utilization vis-à-vis Demand
The basic reason for not keeping production low or reducing production and
inter-alia utilization is due to the incidence of high fixed costs. The cement units
continue to operate at rated capacities to cover their costs. This can be gauged by the fact
that most units had installed captive power generation facilities to reduce dependence on
the grid.
Cost Components
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Energy (including the landed cost of coal which is about 26%) and freight (15%)
are the major cost components. Interest and depreciation account for 25-30% of costs,
depending on the age and capital structure of the plant. Another important cost element
is taxes levied by the government. Most of the companies prefer to maintain their
capacity utilization and hence, sell cement in the nearest market to increase their net
realization. However, if there is less demand in adjacent states, cement will inevitably
have to be transported over longer distances. This squeezes margins.
Key Indicators of Profitability
Given the cost structure, the key indicator of the cement sector profitability is the
cement prices. The entire sector valuations will be driven by outlook on cement prices.
Given the role the government has in fixing key input costs, it is very difficult for a
company to minimize costs beyond a point. The key driver of profitability is cement
prices, which fluctuate depending on outlook on demand-supply gaps.
Per Capita Cement Consumption
Per capita cement consumption in India is 82 kgs against a global average of 255
kgs and Asian average of 200 kgs.
Consolidation
A peculiar factor of the cement sector has been the high degree of interest that is
being shown by international cement giants in acquiring domestic companies.
Consolidations has become a prominent activity as both domestic and international
companies try to consolidate their positions in one of the most promising cement
markets worldwide. Lafarge has already acquired 4.5mn tons capacity in India through
acquisition. Among the others that are believed to be eyeing domestic companies include
Holderbank and Cemex.
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Indian Cement Industry – Current Scenario
Overcapacity Blues
Since the stock market boom in 1994, there has been hectic activity in the cement
industry in terms of capacity addition. After the boom, when cement prices began to
scale new highs, investors rushed in to set up new capacities. In the period from 1993-94
to 1996-97, cement capacity increased by over 35%, with an annual addition of 8.3MT .
The annual compounded growth in capacity at 10.54% outpaced the consumption
growth of 8.8%. This resulted in capacity being created far in excess of requirement,
especially in the northern region of India. The north was the worst affected as most of
the cement capacity addition took place in the limestone rich Madhya Pradesh. Gujarat
and Maharashtra also took the heat with large capacities being set up by Gujarat Ambuja
and Larsen and Toubro. Both these states suffered not only because of excess capacities
within the states, but more so due to the surpluses in neighbouring states. The flow of
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surplus cement from Madhya Pradesh and Rajasthan made matters worse in Maharashtra
and Gujarat, respectively.
Towards the end of the boom and bust cycle, cement prices fall taking down with
it the cement companies’ profitability. The profitability of cement companies suffered
and the scrips took a beating on the stock markets. But the good part is that the glut in
the industry and the resulting crunch in profitability deterred many entrepreneurs from
entering the sector. As it requires at least two years for a cement plant to commence
production from the time orders for plant and machinery are placed and another six
months to stabilise production, major capacity creation was restricted.
New Capacities 1999-2000
Companies mt
Madras Cement 0.20
Grasim-Dharani 0.90
ACC 0.30
ACC 0.30
ACC 0.20
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New Capacities 2000-01
Companies
Madras Cement 0.60
ACC 0.40
Sanghi Cement 2.61
Saurashtra Cement 1.00
New Capacities 2001-02
Companies
ACC 2.00
GACL 2.00
GACL 1.00
Zuari 0.50
Raasi Cements 0.50
Sri Vishnu Cements 0.20
Visaka Cements 0.30
India Cements 0.12
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Highlights of Financial Year 2001 and 2002
The consolidation in the sector gained pace. Among the most visible was the deal
between GACL and Tata Group whereby the latter would sell its 14.4% stake in ACC to
GACL. Among the other companies that acquired capacities were Grasim and Lafarge.
After a healthy performance in FY2000, the cement industry began on a very
sombre note in FY01, owing to the drought conditions prevailing in parts of Gujarat,
Rajasthan and Andhra Pradesh. The first two months of FY01 have affected cement
producers in two ways. First, lower demand and second, still lower cement prices. After
having witnessed a growth of over 15% in FY2000 (though prices continued to remain
under pressure), cement demand has declined dramatically. In fact, cement despatches
declined approximately 2% during this period (there was sharp decline in April, but May
witnessed a recovery of sorts). This however, did not deter cement producers from
increasing their production. On the contrary, the utilization rate of the industry touched
90%.
During FY02, the cement industry witnessed a 9.6% growth. The annual
production increased to 102.4mn tons from 93.61mn tons the previous year, a growth of
9.39%. The cement production in the month of March crossed the 10mn ton mark – the
highest ever in a month. The annual despatches for the year was 102.38mn tons, an
increase of 9.7% yoy (93.3mn tons in FY01). The price decline during the Q4FY02 led
to sharp contraction in the profits of the cement companies, even though the volumes
were higher. With the economy in a downturn, investment demand continued to remain
low, resulting in sharp decline in the prices during the year. The major demand drivers of
cement during the year were the reconstruction activity in the earthquake hit Gujarat,
road development project announced by the National Highway Authority of India
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(NHAI), the Golden Quadrilateral highway connecting the four major metros.There will
be nominal growth on account of regular housing and construction needs, low real estate
prices plus good tax incentives will ensure healthy housing demand. There have been
vital changes in the Indian Cement Industry, like technological upgradation in the pursuit
of cost efficiency and drive for consolidation (as seen in the entry of multinationals such
as Lafarage, Cemex etc). Moreover modernisation at the plants and improvement of
plant processes have helped bring down manpower requirements.
The reduction in import duties on cement and clinkers from 25% to 20% is not
likely to affect the industry as the cement produced is at par with the international
standards and the prices are lower than those prevailing in other international markets.
With the demand-supply mismatch that will benefit prices and increasing
consolidation that will improve the pricing environment, the cement sector offers some
interesting investment opportunities. Among others, a pick-up in economic activity and
investment in infrastructure is expected to further buoy demand for cement in coming
years.
The financial year 2003 has began with a positive note with production
increasing by 11.1% in April’02 and 9.6% in May’02 compared with the corresponding
period in FY02. The production was around 9.42mn tons and 9.86mn tons during these
months. The despatches totalled to 9.58mn tons and 9.69mn tons in April’02 and
May’02 respectively, as against 8.59mn tons and 9.01mn tons in the previous period.
The western region has emerged as the biggest market for the sector, the demand drivers
being the housing sector which includes construction and repairs
30
CEMENT
A report by Crisil for IBEF The Indian cement industry with a total capacity of
151.2 million tonnes (including mini plants) in March 2003 has emerged as the second
largest market after China, surpassing developed nations like the USA and Japan. Per
capita consumption has increased from 28 kg in 1980-81 to 110 kg in 2003-04. In
relative terms, India’s average consumption is still low and the process of catching up
with international averages will drive future growth. Infrastructure spending (particularly
on roads, ports and airports), a spurt in housing construction and expansion in corporate
production facilities is likely to spur growth in this area. South-East Asia and the Middle
East are potential export markets.
Low cost technology and extensive restructuring have made some of the Indian
cement companies the most efficient across global majors. Despite some consolidation,
the industry remains somewhat fragmented and merger and acquisition possibilities are
strong. Investment norms including guidelines for foreign direct investment (FDI) are
investor-friendly. All these factors present a strong case for investing in the Indian
market.
31
WHY INDIA
World cement production (2003)
Million tonnes
0
50
100
150
200
250
300
Ch
ina
Ind
ia us
Jap
an
S.K
ore
a
Sp
ain
Ru
ssia
Itla
y
Bra
zil
Tu
rke
y
Ge
rma
ny
Fra
nce
Million tonnes
Source: United States' Geological Survey.
32
A global heavyweight
India is the second largest cement producing country in the world.Cement
demand in the country grows at roughly 1.5 times the GDP growth rate. The industry
had a turnover of around US$ 7.8 billion in 2003-04 and according to CRISIL is
expected to grow at a CAGR of around 7 per cent in the next five years.The demand for
cement is closely related to the growth in the construction sector. Consequently, cement
demand has been posting a healthy growth rate of around 8 per cent since 1997-98,
propelled by the increased thrust on infrastructure development, and the higher demand
from the housing sector and industrial projects. This trend is likely to continue in the
coming years.
Low per capita consumption - a long term opportunity
33
Source: United States' Geological Survey and CRISIL.
Another factor that makes Indian cement an attractive investment destination is
the combination of a lower per capita consumption and a faster growth rate. The Indian
cement industry has registered a production of more than 100 million tonnes
Since 2001-02. The per capita consumption of 102 kg as compared to the world
average of 260 kg, 450 kg in China and 631 kg in Japan underlines the tremendous scope
for growth in the Indian cement industry in the long term. Prices and profits to be firm
Major players in the industry are not planning any significant capacity
addition for the next two years. Considering the gestation period of setting up a cement
plant, additional supply from new capacities, if any, will arrive only from 2005-06
onwards. Limited capacity additions and high demand will narrow the demandsupply
gap, improve price realisations and lead to higher profitability.
Any further reduction in import duties on cement and clinkers is unlikely to
affect the industry as the cement produced is at par with the international standards and
the prices are lower than those prevailing in other international markets.
34
INDIA: COMPETITIVENESS ANDCOMPARISON WITH
WORLDMARKETS
35
.
Global cement production was 1,860 million tonnes in 2003, with China
accounting for nearly 37 per cent of the total output followed by India accounting for a 6
per cent share. The US accounts for a 5 per cent share in world cement production. India
is not only a large producer, but also the fastest growing market in the world. Cement
production in the country during 1994-2003 grew at a CAGR of 8.2 per cent as
compared to 7.2 per cent in China and the world average of 3.5 per cent.
Growth in world cement production (CAGR: 1994-2003)
Profitability of major cement companies
36
The cost advantage
The Indian cement industry has undergone vital changes though technologica
upgradation in the pursuit of cost efficiency and the drive for consolidation.
Modernisation at the plants and the improvement of plant processes have helped reduce
manpower requirements. The Indian business group, Grasim, is amongst the top ten
companies in the world. Indian major, Gujarat Ambuja is one of the most cost efficient
firms in the world. Most Indian cement majors in fact compare favourably to the world
cement majors in terms of profitability.
Gujarat Ambuja - the cost leader
Gujarat Ambuja Cement Ltd (GACL) is widely considered to be the producer
with the lowest costs in the Indian cement industry. It has won various awards for
management excellence, quality, and environmental management. GACL's quest for cost
leadership had been driven by various productivity improvements and cost cutting
measures. The company's modern plants, large kilns, high degree of automation, low
power and fuel costs has helped it to control costs in a way which was unmatched in
industry. GACL had cut energy costs by reducing the usage of coal through use of
37
substitutes like crushed sugarcane. GACL operated most of its plants at above 100 per
cent capacity utilisation. The company's engineers have absorbed the best practices in
mining and manufacturing during visits to overseas plants in countries like Japan and
Australia. The company pioneered the use of ship transportation to cut freight costs and
also established the necessary infrastructure like ports, freight and handling terminals.
Low-cost funds helped GACL to cut the cost of capital.
The export potential
India has an immense potential to tap cement markets of countries in the Middle
East and South East Asia due to its strengths of locational advantage, large-scale
limestone and coal deposits, adequate cement capacity and world-class cement
production with the latest technology. India has an estimated total of 90 billion tonnes of
limestone deposit in the country.
POLICY
38
Opening up the FDI channel
The impact of government policies on cement demand has been steadily
decreasing with the sector being gradually deregulated. At present, 100 per cent foreign
direct investment (FDI) is permitted in the cement industry. Lafarge was the first foreign
company to enter the Indian market in 1999.
The French Connection: Lafarge in India
Lafarge, the French company, became the first multinational to enter India's
cement industry. The group entered India by launching its brand in the eastern part of the
country on November 1, 1999 through its acquisition of TISCO's 2 million tonnes
cement operation. Three financial institutions, ICICI, HDFC and State Bank of India,
together extended a loan of US$ 50 million to Lafarge India to fund its TISCO
acquisition. This was followed by its second major acquisition of Raymond's Cement
Division in eastern India at a price of US$ 180 million. The Cement Division of
Raymond had a plant with 2.24 million tonnes capacity located at Bilaspur in Madhya
Pradesh. This helped Lafarge emerge as an important player in the East Indian markets.
Lafarge currently has a total cement capacity of 5 million tonnes. Its current cement
operation comprises a modern split location cement facility located at Sonadih (District
Raipur, Chhattisgarh) and at Jojobera (District Singhbhum, Jharkhand) and an integrated
cement facility located at Arasmeta (District Janjgir-Champa, Chhattisgarh). It has an
extensive dealer network in the eastern states of West Bengal, Jharkhand, Bihar, North-
Eastern States and Chhattisgarh. Its products are available in parts of Orissa, Madhya
Pradesh and Vidarbha (Maharashtra). It uses India as a base to export high quality
clinker and cement to Bangladesh and Nepal. As a result of the conducive Indian
policies, Lafarge has been able to spread its operations across India and increase its
market hold from 0.9 per cent share in 1999-00 to 3.2 per cent in 2003-04.
Easing environment norms
39
To set up a cement plant in India, with an investment of over US$ 22 million
entrepreneurs are required to obtain environmental clearance from the Ministry of
Environment. 100 per cent FDI is also allowed for private cement companies to set up
power projects as well as coal or lignite mines for captive consumption.
State policies and export norms to encourage investment
Both the state and export policies promote cement production. Exporters can
claim duty drawbacks on imports of coal and furnace oil up to 20 per cent of the total
value of imports.
Most state governments offer fiscal incentives in the form of sales tax
exemptions/deferrals in order to attract investment. In some states, this applies only to
intra-state sales, like Madhya Pradesh and Rajasthan. States like Haryana offer a freeze
on the power tariff for 5 years, while Gujarat offers exemption from duty on electricity.
Urban Land Ceiling Act repeal could be a driver
The Urban Land Ceiling Regulation Act (ULCRA) enacted to control and
prevent the concentration of urban land, has been repealed in many states. This could
facilitate the development of such land for housing and other construction. Targets set in
the Union Budget 2004-05 such as an impetus on rural housing, raising the rural housing
target to 250,000 houses and accelerating the completion of irrigation projects will also
drive cement demand.
40
Working of Cement plant
41
Stored Raw materials brought in thru the conveyor belt
42
Raw materials mixed in certain proportions stored in
different bins before being processed
43
Separation of dust from the raw materials
44
After the dust separation process by hot air and cyclone
action, the mixture is passed on thru the kiln (shown in
the picture) to be heated at a high temp.
45
Cooling of the clinker coming out from the kiln in bins, by
passing air
46
Cooled clinker in bins, taken up to the storage area in
conveyor belts
47
Clinker storage area (bin)
48
Gypsum to be added to the clinker to make Portland cement
49
50
TRENDS AND PLAYERS
Cement production in India has increased at a CAGR of 8.1 per cent during the
last decade with a production level of 117.5 million tonnes in 2003-04. The cement
industry comprises 125 large cement plants (capacity more than 0.198 million tonnes per
annum) with an installed capacity of 148.28 million tonnes and more than 300 mini
cement plants (capacity less than 0.198 million tonnes per annum. The industry worked
at an estimated 80.2 per cent capacity in 2003-04. Small plants, however, work at an
installed capacity of around 40 per cent. Among the different varieties of cement, India
produces Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC),Portland
Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland
Cement and Sulphate Resisting Portland Cement. The share of blended cement in total
cement production has increased from 29 per cent in 1997-98 to 54.5 per cent in 2003-
04.
Cement - Varieties and Technology
There are different varieties of cement based on different compositions according
to specific end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement,
White Cement, Portland Blast Furnace Slag Cement and Specialised Cement.The basic
difference lies in the percentage of clinker used.
51
Ordinary Portland Cement (OPC):
OPC, popularly known as grey cement, has 95 per cent clinker and 5 per cent
gypsum and other materials. It accounts for 70 per cent of the total consumption.
Portland Pozzolana Cement (PPC):
PPC has 80 per cent clinker, 15 per cent pozolona and 5 per cent gypsum and
accounts for 18 per cent of the total cement consumption. It is manufactured because it
uses fly ash/burnt clay/coal waste as the main ingredient.
White Cement:
White cement is basically OPC - clinker using fuel oil (instead of coal) with an
iron oxide content below 0.4 per cent to ensure whiteness. A special cooling technique is
used in its production. It is used to enhance aesthetic value in tiles and flooring. White
cement is much more expensive than grey cement.
Portland Blast Furnace Slag Cement (PBFSC):
PBFSC consists of 45 per cent clinker, 50 per cent blast furnace slag and 5 per
cent gypsum and accounts for 10 per cent of the total cement consumed. It has a heat of
hydration even lower than PPC and is generally used in the construction of dams and
similar massive constructions.
Specialised Cement:
Oil Well Cement is made from clinker with special additives to prevent any
porosity.
. Rapid Hardening Portland Cement:
Rapid Hardening Portland Cement is similar to OPC, except that it is ground
much finer, so that on casting, the compressible strength increases rapidly.
Water Proof Cement:
Water Proof Cement is similar to OPC, with a small portion of calcium stearate
or non- saponifibale oil to impart waterproofing properties.
The major expansion plans announced by Indian cement companies include
Dalmia Cement's capacity expansion plan of 2 million tonnes; Ambuja Cement Eastern's
50 per cent expansion plan; ACC's plans of increasing its capacity at Jharkhand to 1.5
million tonnes and an increase in IDCOL's capacity by 35 per cent
52
Consolidation to continue
The cement industry in India is still highly fragmented with over 50 players. The
presence of excess capacity in the industry has triggered large-scale consolidation, a
trend expected to continue during the next 3-4 years.
A shift in use pattern
The end-users of the cement industry include housing, infrastructure and
corporate segments. While government demand (for infrastructure) accounts for around
25 per cent of the total demand, the share of the housing sector accounts to more than 50
per cent of the total cement.
53
Deconstructing costs
Energy (including the landed cost of coal), freight and limestone costs are the
major cost components of the cement industry.These costs account for around 35 per
cent, 22 per cent and 9.5 per cent of the total production costs respectively.
Indian cement companies have been able to curtail costs through the setting up of
captive power plants. There has been a decline in the average coal consumption from
0.18 tonnes per tonne of cement to 0.17 tonnes per tonne due to pyroprocessing systems,
increased usage of imported coal (with higher calorific value) and the higher production
54
of blended cement. The switch from the wet process to the dry process of cement
manufacturing has also aided in saving energy costs.
Regional dimension
Transporting cement, a bulk commodity, it over long distances is uneconomical.
This has resulted in cement being largely a regional play with the industry divided into
five main regions. north, south, west, east and the central region. The southern region
accounts for the largest share in overall production (29 per cent) due to the vast
availability of limestone. This is followed by the northern (21 per cent) and the western
regions (19 per cent)
. Cement consumption varies across regions due to the differences in the
demand-supply balance, per capita income and the level of industrial development in
each state. In 2003-04, northern India accounted for the highest proportion of cement
consumption (32 per cent), followed by the southern (28 per cent), western (25 per cent)
and eastern regions (15 per cent). Over the years it has been observed that demand in the
east has been driven by the housing sector, whereas infrastructure, investments in
industrial projects and the housing sector (in varying proportions) have propelled
demand in the western, northern and southern regions. The western and northern regions
are the most lucrative markets due to their higher price realisations.
55
Indian technology advantage
The manufacturing process of cement consists of the mixing, drying and grinding
of limestone, clay and silica into a composite mass. The mixture is then heated and burnt
in a pre-heater and kiln to be cooled in an air cooling system to form clinker, which is
the semi-finished form. This clinker is cooled by air and subsequently ground with
gypsum to form cement.
56
Regional consumption
The dry and semi-dry processes are more fuel-efficient. The wet process requires
0.28 tonnes of coal and 110 kWh of power to manufacture one tonne of cement, whereas
the dry process requires only 0.18 tonnes of coal and 100 kWh of power. Coal and
power costs account for 35 per cent of the total cement production costs. With 95 per
cent of the total capacity based on the modern dry process technology, the Indian cement
industry has become more cost efficient. Top companies in the cement industry match
quite well with world standards in terms of energy (thermal energy Kcal/kg of clinker -
India 665 against 690 of Japan) and pollution norms (SPM of 40 in India against 20 in
Japan).
Process-wise cement in 2003-04
Source: CMA
There are three types of processes to form cement - the wet, semi-dry and dry
processes. In the wet/semi-dry process, raw material is produced by mixing limestone
and water (called slurry) and blending it with soft clay. In the dry process technology,
crushed limestone and raw materials are ground and mixed together without the addition
of water..Technological development in the future indicates a tremendous scope for
waste heat recovery for co-generation of power, use of industrial by-products as a raw
mix component, incineration of combustible wastes in kiln, production of reactive belite
clinker, increasing manufacturing of blended cements, use of energy efficient
equipment/systems as well as the use of solar and wind energy in order to reduce the
carbon dioxide emission level.
57
Exports
Cement and clinker exports have grown at a CAGR of 18.1 per cent since 1995-
96 with total exports of 9 million tonnes in 2003-04. This accounts for 7.7 per cent of the
total production. As cement is bulky item, those companies who have their own jetties
have a higher share in exports. Trade in cement is underway with the neighbouring
countries and countries in Africa and West Asia. L&T (now a part of Grasim), Gujarat
Ambuja Cements Ltd and Jaiprakash Industries are the top exporters. The western
region, due to its proximity to the coasts, accounts for 92.4 per cent of total exports, of
which Gujarat holds a share of 76 per cent. There is a significant growth potential in the
international market, particularly in South East Asia and the Middle East. According to
CRISIL estimates, exports are likely to grow at a CAGR of 10-12 per cent over the next
4-5 years.
58
Domestic players
Associated Cement Companies Ltd (ACCL )
Associated Cement Companies Ltd manufactures ordinary portland cement,
composite cement and special cement and has begun offering its marketing expertise and
distribution facilities to other producers in cement and related areas. It has twelve
manufacturing plants located throughout the country with exports to SAARC nations.
The company plans capital expenditure through expansion of existing units and/or
through acquisitions. Non-core assets are to be divested to release locked up capital. It is
also expected to actively pursue overseas project engineering and consultancy services.
Birla Corp
Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting,
cement, jute goods, yarn, calcium carbide etc. The cement division has an installed
capacity of 4.78 million metric tonnes and produced 4.77 million metric tonnes of
cement in 2003-04. The company has two plants in Madhya Pradesh and Rajasthan and
one each in West Bengal and Uttar Pradesh and holds a market share of 4.1 per cent. It
manufactures Ordinary portland cement (OPC), portland pozzolana cement, fly ash-
based PPC, Low-alkali portland cement, portland slag cement, low heat cement and
sulphate resistant cement. Large quantities of its cement are exported to Nepal and
Bangladesh. Going forward, the company is setting up its captive power plant to remain
cost competitive.
Century Textiles and Industries Ltd (CTIL)
The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper,
shipping, property & land development, builders and floriculture. Cement is the largest
division of CTIL and contributes to over 40 per cent of the company's revenues. The
company has an installed capacity of 4.7 million tonnes with a total cement production
of 5.43 million tonnes in 2003-04. CTIL has four plants that manufacture cement, one in
Chhattisgarh, two in Madhya Pradesh and one in Maharashtra. Going forward, the
company has scripted a three-pronged strategy closing down its shipping business,
59
continuing with its chemicals and adhesive division, and focusing on cement, rayon and
paper as its long-term business plan.
Grasim-UltraTech Cemco
Grasim's product profile includes viscose staple fibre (VSF), grey cement, white
cement, sponge iron, chemicals and textiles. With the acquisition of UltraTech, L&T's
cement division in early 2004, Grasim has now become the world's seventh largest
cement producer with a combined capacity of 31 million tonnes. Grasim (with
UltraTech) held a market share of around 21 per cent in 2003-04. It has plants in
Madhya Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu and Gujarat among
others. The company plans to invest over US$ 9 million in the next two years to augment
capacity of its cement and fibre business. Its also plans to focus on its international
ventures, ramping up the capacity of Alexandra Carbon Black in Egypt to 1,70,000
tonne per annum (from 1,20,000 tpa) and raising the capacity of the carbon black plant
in China from 12,000 tpa to 60,000 tpa.
Gujarat Ambuja Cements Ltd (GACL)
Gujarat Ambuja Cements Ltd was set up in 1986 with the commencement of
commercial production at its 2 million tonne plant in Chandrapur, Maharashtra. The
group has clinker manufacturing facilities at Himachal Pradesh, Gujarat, Maharashtra,
Chhattisgarh, Punjab and Rajasthan. The company has a market share of around 10 per
cent, with a strong foothold in the northern and western markets. Its total sales
aggregated US$ 526 million with a capacity of 12.6 million tonnes in 2003-04. Gujarat
Ambuja is India's largest cement exporter and one of the most cost efficient firms.
GACL has a 14.45 per cent stake in ACC, making it the second largest cement group in
the country, after
Grasim-UltraTech Cemco.
The company has free cash flows that it is likely to use to grow inorganically.
The company is scouting for a capacity of around two million tonne in the northern and
western markets. It has also earmarked around US$ 195-220 million for acquisitions
60
India Cements
India Cements is the largest cement producer in southern India with a total
capacity of 8.81 million tonnes and plants in Andhra Pradesh and Tamil Nadu. The
company has a market share of 5.4 per cent with a total cement production of 6.36
million tonnes in 2003-04. Its product portfolio includes ordinary portland cement and
blended cement. The company has limited its business activity to cement, though it has a
marginal exposure to the shipping business. The company plans to reduce its manpower
significantly and exit non-core businesses to turnaround its fortune. It also expects the
export market to open up, with the Gulf emerging as a major importer.
Jaiprakash Associates Limited
Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is part
of the Jaypee Group with businesses in civil engineering, hospitality, cement,
hydropower, design consultancy and IT. It has an annual capacity of 4.6 million tonnes
with plants located in Rewa & Bela (Madhya Pradesh) and Sadva Khurd (Uttar Pradesh).
The company has a market share of 3.8 per cent with the cement division contributing
US$ 172 million to revenue in 2003-04. The company is upgrading its capacity to 6.5
million tonnes through the modernizing of the existing units and the commissioning of a
new grinding unit at Tanda (Uttar Pradesh) with an investment of US$ 163 million.
Jaiprakash Associates has decided to concentrate on its core business of construction and
engineering and leave its cement plant to its subsidiary Jaypee Rewa Cement Ltd. The
company manufactures a wide range of world class cement of OPC grades 33, 43, 53,
IRST-40 and special blends of pozzolana cement.
JK Synthetics
JK Synthetics, a Singhania Group company, started manufacturing nylon at Kota
in 1962. Subsequently, it diversified into PSY/PFY, nylon tyre-cord, cement (in 1975),
acrylic and white cement (in 1984). The company has a market share of 2.7 per cent. JK
Synthetics Limited is restructuring its business divisions into two separate entities- JK
Cements and JK Synthetics. After the restructuring, it will be left with a cement plant at
Nimbahera in Rajasthan, with a capacity of 3.26 million metric tonnes and
manufacturing white cement.
61
Madras Cements
Madras Cements Ltd is one of the oldest cement companies in the southern
region and is a part of the Ramco group. The company is engaged in cement, clinker,
dolomite, dry mortar mix, limestone; ready mix cements (RMC) and units generated
from windmills. The company has three plants in Tamil Nadu, one in Andhra Pradesh
and a mini cement plant in Karnataka. It has a total capacity of 5.47 million tonnes
annually and holds a market share of 3.1 per cent. Madras Cements plans to expand by
putting up RMC plants. As Karnataka is a promising market, the company is further
expanding its capacity from the present 1.5 million tonnes to 3.4 million tonnes through
an investment of US$ 9 million.
62
Foreign players
Holcim
Holcim, earlier known as Holderbank, has a cement production capacity of 141.9
million tonnes. It is a key player in aggregates, concrete and construction related
services. It has a strong market presence in over 70 countries and is a market leader in
south America and in a number of European and overseas markets. Holcim entered India
by means of a long-term strategic alliance with Gujarat Ambuja Cements Ltd (GACL).
The alliance aims to strengthen their clinker and cement trading activities in South Asia,
the Middle East and the region adjoining the Indian Ocean. Holcim also intends to use
India as an additional base for its IT operations, R&D projects as well as a procurement
sourcing hub to generate additional synergies and value for the group.
Italcementi Group
The Italecementi group is one of the largest producers and distributors of cement
with 60 cement plants, 547 concrete batching units and 155 quarries spread across 19
countries in Europe, Asia, Africa and North America. Italcementi is present in the Indian
markets through a 50:50 joint venture company with Zuari Cements. All initiatives in
southern India are routed through the joint venture company, while Italcementi is free to
buy deals in its individual capacity in northern India. The joint venture company has a
capacity of 3.4 million tonnes and a market share of 2.1 per cent.
Lafarge India
Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement
capacity of 5 million tonnes and a clinker capacity of 3 million tonnes in the country.
Lafarge commenced operations in 1999 and currently has a market share of 3.4 per cent.
It exports clinker and cement to Bangladesh and Nepal. It produces Portland slag
cement, ordinary portland cement and portland pozzolana cement. The Indian cement
plants are located in Chhattisgarh and Rajasthan. Lafarge Cement has become the largest
63
cement selling firm in the Indian markets of West Bengal, Bihar, Jharkhand and
Chhattisgarh.
64
MARKET/OPPORTUNITIES FOR INVESTMENT
According to CRISIL estimates, given the demand-supply gap of roughly 40
million tonnes, capacity addition is expected over the next five years. Of this, almost 30
million tonnes will be met through greenfield/brownfield expansions and 10 million
tones through blending. The capacity addition of 30 million tonnes would require an
investment of around US$ 2.2 billion.
P: Provisional
Consolidation opportunity: Mergers and Acquisitions
Consolidation is expected to increase further in the cement industry. Around 23
million tonnes of additional capacity could be sold simply because on a stand-alone basis
these units are unviable. As part of a larger group, their operations could be cost
effective. This opens up a number of possibilities for acquisitions and merger
65
The infrastructure opportunity
The National Highways Development Project (NHDP) includes the 5,846 km
Golden Quadrilateral (GQ) and the 7,300 km North-South, East-West (NS-EW) corridor.
In addition, upgradation of rural roads, upgradation to four/six lanes of about 13,000 km
of National Highways and 10,000 km of additional highways have been initiated. The
NHDP is expected to lay a significant part of the roads in cement concrete. Thus, if 25
per cent of the roads of East-West corridors are laid by concrete, it is likely to lead to an
incremental demand of 5-6 million tonnes of cement per annum. Likewise, the Golden
Quadrilateral is expected to add 4-5 million tonnes of demand per annum. The total
demand from these road projects is expected to generate an incremental growth of 4-5
per cent per annum over the next 2-3 years. Among other infrastructure sectors,
construction and modernisation of four airports and two seaports, railroad, power plants
and water management systems are also likely to boost the demand for cement, in
particular the ready-mix cement.
Push from housing
Over the next five years, the numbers of households are expected to increase at a
CAGR of 2.3 per cent, against a population growth rate of over 1.7 per cent. The growth
in urban households will be higher than rural households, shifting the rural-urban
household ratio from 70:30 to 67:33. As the growth in households is higher than the
66
population growth, it will accelerate the demand for new houses. Higher demand and
greater affordability due to lower interest rates and tax breaks is expected to trigger an
unprecedented housing boom. The housing finance industry has estimated a latent
demand of 33 million houses and forecasts a growth of 50 percent per annum till 2007.
With the housing sector accounting for 50 per cent of the current cement demand, this
boom is expected to propel even higher cement demand.
Commercial structures and corporate projects
With most industries like textiles, chemicals and plastics, ferrous and non-ferrous
metals and non-metallic and mineral products operating at close to full capacity, large
investment in capacity expansions across sectors is likely to boost cement demand.
Strong off take is also expected from select segments such as commercial complexes and
multiplexes in important centres such as Bangalore, Hyderabad and Ahmedabad.
67
Conclusion:
The Indian cement industry is about 90 years old and its main sources of energy are thermal and electrical energy.
Indian cement industry is the second largest in the world with an installed capacity of
135 MTPA. It accounts for nearly 6% of the world production
India is the world’s second largest cement producing country after China
Majority of the production of cement in the country (94% ) is by large plants, which
are defined as plants having capacity of more than 600 tpd. At present there are 124
large rotary kiln plants in the country.
The real driver of cement demand is creation of infrastructure; hence cement demand in emerging economies is much higher than developed countries where the demand has reached a plateau.
Government policies have affected the growth of cement plants in India in various stages.
The amount of profits being raked in tempts more players to enter the industry
The consumption of cement is determined by factors influencing the level of housing and industrial construction, irrigation projects, roads and laying of water supply and drainage pipes etc.
Low cost technology and extensive restructuring have made some of the Indian cement companies the most efficient across global majors
100 per cent foreign direct investment (FDI) is permitted in the cement industry.
Factor that makes Indian cement an attractive investment destination is the combination of a lower per capita consumption and a faster growth rate. The Indian cement industry has registered a production of more than 100 million tonnes
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