, cement industry , analysis , india , 2015 , MBA , mg university , Acc cements highly useful porters 5 forces

1. By Abhinav kp
MBA batch a

2.  Cement sector notably plays a critical role in
the economic growth of the country
 Cement is vital to the construction sector
and all infrastructural projects.
 Occupies an important place in the Indian
economy because of
 Construction
 Transportation
 Coal
 Power

3.  Concrete is the second most consumed
material after water, with nearly three tones
used annually for each person on the planet.
 One of the basic elements for setting up strong
and healthy infrastructure cement plays a
crucial role in the economic development of
any country
 The Indian cement industry is the second
largest producer of cement in the world after
China
 Cement industry in India comprises 183 large
cement plants and over 365 mini cement
plants

4.  There are 40 players in the industry across the
country.
 Has high correlation with GDP, it grows at the
rate of 1.2times that of GDP
 In India, cement production normally peaks in
the month of March while it is at its lowest in the
month of August and September .
 Indian cement industry is involved in production
of several types of cement such as
 Ordinary Portland Cement (OPC)
 Portland Pozzolana Cement (PPC)
 White Cement, etc…..

5.  Produced strictly as per the Bureau of Indian
Standards (BIS) specifications and their quality
is comparable with the best in the world.
 Indian cement majors—ACC Ltd, Gujarat
Ambuja Cements ,Ultratech

6.  It is the combination of the mini and large
capacity cement plants, where majority of the
production of cement (94%) in the country is
by large plants.
 One of the defining features of the cement
industry is the location of the limestone
reserves in selected state has resulted in its
evolving in the form of clusters

7.  Proximity of coal deposits constitutes another
important factor in cement manufacturing
 Since cement is a high bulk and low value
commodity, completion is also localised
because of the cost of transportation of
cement of distant markets often results in the
product being uncompetitive in those
markets.
 At present there are seven clusters:
 SANTA (Madhya Pradesh)
 CHANDRAPUR (North Andhra Pradesh and Maharashtra)
 GULBARGA (North Karnataka and East AP),
 CHANDERIA (South Rajasthan, Jawad and Neemuch in MP),
 BILASPUR (Chhattisgarh),
 YERRAGUNTLA (South AP),
 NALGONDA (Central AP).

8.  Cement has been heavily taxed sector with both
the central and the state government levying the
taxes which amount to around 30% of the selling
price of the cement or around 70%of the ex-
factory price
 The structure of the industry can be viewed as
fragmented, although the concentration at the
top has increased, as the top 10 players control
around 73% of market share, which was 70%
during 1990-91, whereas the other 27% of
market share is distributed among 32 players .
This is also confirmed by the results of
Herfindahl Index 22 (HI).

9.  Major players are
 ACC Ltd,
 Ambuja Cements Limited,
 Ultratech Cement Ltd,
 India cements Ltd,
 Jaiprakash Associates Ltd,
 Shree cement Ltd.
 The shares, in terms of all India cement
production, of these top companies have
fluctuated by small amounts in the last six
years.

10.  Industry is split into five geographical
segments named as
◦ North
◦ South
◦ East
◦ West
◦ Central

11.  Rajasthan has the highest installed capacity in
north India, accounting for 66.5% share in
capacity in the region in 2011.
 Chhattisgarh leads the eastern region with a
share of 32.6% of total installed in the region in
2011.
 Andhra Pradesh has the highest installed
capacity in the southern region, 53.5% share of
total installed capacity.
 Madhya Pradesh leads the central region in
installed capacity while Gujarat leads the pack
in west India.

12.  ACC Ltd acquire the significant market share
of cement industry because it maintain high
quality in cement production
 ACC Ltd was established in1936 and has
Headquartered in Mumbai.
 Is the highest producer of cement in india

14.  established in 1986 and has over 20 years of
experience in cement industry.
 has production units in Gujarat,Maharashtra,
West Bengal, Himachal Pradesh, Rajasthan
and Chhattisgarh that has total capacity to
produce 160,00,000 tons of cements
 2nd largest producer

15.  established in 1987
 UltraTech Cement is the part of million
dollars Aditya Birla group
 Headquarters Mumbai, Maharashtra.

18.  Bargaining power of buyers: moderate
◦ In the cement industry, the bargaining power buyers is
moderate because the majority of buyers are bulk buyers.
◦ These buyers can bargain with the cement companies.
However, their bargaining power is not very high as their
purchases form a small part of the total production of the
companies.
◦ Hence, they cannot exert much influence on the
manufacturers. Moreover, one potential bargaining power with
the buyers is the threat of importing cement. However, this
threat is limited to an extent as the cost of import will
increase the overall cost of the project.

19.  Bargaining power of Suppliers: High
◦ In this industry, the suppliers exert a very high power
◦ This is so because the raw materials form a very large part of the
process in the manufacturing of cement.
◦ Shortage in supply of raw materials can cripple the whole plant
and can lead to huge losses.
◦ When the suppliers demand something, the negotiations have to
be completed quickly and the result is more or less in favour of
suppliers.
◦ For example, if the coal suppliers stop supplying coal to the plant,
it cannot function and production will come to a standstill. The
supply of coal has to resume as quickly as possible. Hence, the
suppliers exert a great amount of influence in the
decisions of the cement manufacturing companies.

20.  Threat of substitutes: Low
◦ In India, cement is the ultimate material used for
almost all type of construction work.
◦ Bitumen is one of the substitutes of cement but
these days cement is even replacing bitumen.
◦ Another substitute for cement is engineering plastic.
This also cannot replace cement in many areas of
work.
◦ Hence, there is practically no material to substitute
cement.

21.  Threat of new entrants: Low
◦ Cement industry is a highly capital intensive industry with long
gestation period.
◦ Also, the market is experiencing the problem of over-capacity in
recent times.
◦ The existing players are also expanding their production capacity
to meet future demand.
◦ All these factors act as a deterrent to new entrants even though
labour and manpower is freely available.

22.  Inter-Firm Rivalry: High
◦ Cement industry is one of the highly competitive markets in India.
◦ Many players in this industry are large scale players with huge
capital invested in setting up the production units.
◦ This factor raises the exit barrier for the companies. Hence, they
stay in the industry and start aggressive competition.
◦ Also, the differentiation in types of cement is marginal, hence the
switching cost to customers is not high, so firms compete intensely
to gain market share. Also, sometimes problem of overcapacity
comes into play. This leads to a price war and
competition intensifies.