Rivalry is moderate, the effect of substitutes is weak, buyer power is minimal, supplier power is high, and entry/exit barriers are both high. In essence, the vertical supply chain has pricing power over final consumers, whereas the horizontal dimension of competition is lacking due to lack of the possibility of differentiated advantages in production. Inelastic demand neutralizes the consumer power associated with product standardization, whereas proximity of raw materials to production sites generates regional cement clusters.
The Indian cement industry is still highly fragmented with over 52 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. The cement industry is highly regionalized and due to high transportation cost producers always prefer to set up manufacturing units close to the raw material source (lime stone) and the final product is also sold in adjoined markets of the manufacturing units.
production of cement increased from 2.20 MT in 1950-51 to 216.28 MT in 2010-11. Capacity utilization, which was 92 % during 1955 -56, gradually decreased to 66.83 % in 1980 – 81 and later it took reverse direction in the eighties and started increasing slowly. The capacity utilization in the year 2010-11 is 73 %.
Real Estate Sector• The real estate industrys growth is depends on the developments in the retail,hospitality and entertainment (hotels, resorts, cinema theatres), hospitals, schools andIT enabled services• The Government of India has allowed FDI up to 100 percent in the automatic routein townships, housing, built-up infrastructure and construction development projectsto increase investment, generate economic activity, and create new employmentopportunities.• Driving Forces –• Developments of large captive units of major players include GE, Prudential,HSBC, Bank of America, Standard Chartered and American Express.• Rise in disposable income and growing middle class, increasing the demand forquality residential real estate and real estate as an investment.
Core Sectors Performance• Industries which support the infrastructure are crude oil, petroleum, refineryproducts, coal, electricity, cement and finished steel having weight of 37.9 % in theindex of Industrial Production(IIP) and shown the cumulative growth rate of 3.9 % inJan 2013 increased from 2.2 % in Jan 2012.• The most affected sector whose growth hampered adversely in FY13 (Jan 2013) wasnatural gas with a growth rate of -16.8 % (FY12 -10.4 %) followed by crude oil withgrowth rate of -0.2 % (Jan 2012 -2.0%), Cement -6.6% (Jan 2012 10.9 %) and Coal2.3 % (Jan 2012 7.7 %), Fertilizers with growth rate of -9.1 % (Jan 2012 4.0%) andremaining sectors shown the growth moderately.
Benefits of the construction industry to the society-• Absorbs rural labour and unskilled workers (in addition to semi-skilled and skilled)• Provides opportunity for seasonal employment thereby supplementing workersincome from farming.• Permits large-scale participation of women workers.• Development of Infrastructure, thereby sustaining the growth of economy.
Overview of Indian Cement IndustryCement IndustryMajor Cement Plants- Companies: 59- Plants: 183- Installed capacity per plant: ~1.5mtpa- Total Installed Capacity: ~330mtpa- Production: 168.3mtpa- All India Reach through Multiple Plants- Export to Bangladesh, Nepal, Sri Lanka, UAE- Strong marketing network, tie ups withcustomers, and contractors- Wide spread distribution network- Sales primarily through the dealer channelMini Cement Plants- Companies: 365- Installed Capacity: ~11mtpa- Production: ~6.2mtpa- These re meant to tap scatteredlimestone reserves.- Most are set up in Andhra Pradesh- Most use Vertical kiln technology- Production Cost: Rs 1000- Rs 1400(per tonne)
Key Points•Second largest cement producer in the world after china, and has grown at a very fastpace in recent years.•Since 1992, Indias cement production has increased from ~50 MT/year to ~320MT/year in 2013.•97 percent of the installed capacity is accounted by large producers(around 42).•21 top companies control 90 percent of the market.•40 percent of the market is controlled by two groups Holcim (ACC Ltd & AmbujaCements) and Aditya Birla Group (Grasim industries & UltraTech Cement).•The industry is self sufficient and imports of cement are negligible.
Evaluation of Cement Industry in IndiaEra Year Remarks about capacity, Growth, ConsumptionDominant Imports 1914-1924 Cement consumption was around 2 million tones during this period of 10 years; 50% was through imports. Production in the year 1914 was 10,000 tonnes and in1924 production was around 0.26 million tonnes a year against capacity of halfmillion tonne.Struggle andSurvival1924-1941 Indigenous production went from 3.66lakh tones in 1925 to 18.30lakh tonne in1941. Imports contributed to less than 7 % of total cement consumption during1924-1942.Price in Control 1942-1951 Production stepped up from 1.8 million tonnes in 1942 to 3.28 million tonnes in1951. Imports dwindled to less than 2 % of total consumption.Planning andControl1951-1982 Growth in cement capacity but not at requisite pace. Capacity was 29.26 milliontonnes in 1981-82.Partial Decontrol 1982-88 Quantum jump in capacity and production during 1982-88. (57.47 Million tonnesin 1987-88) Cement became surplus from 1987 onwards.Total Decontrol March1989onwardsDuring the period 2009-10 capacity rose to 236 million tonnes.
Global cement industry• The world combined cement production all over the world accounted for 3.78 billiontonnes in the year 2012 (3.60 billion tonnes in 2011).• China has contributed substantially to the world production. China and Indiavirtually have reached the stage of self – sufficiency related to production of cement.USBrazilChinaIndiaIranJapanPakistanRussiaTurkeyVietnam05000001000000150000020000002500000
Top Cement Consumers• China leads the way in cement consumption and production around the world due tothe large scale developments and infrastructure build-up projects• The majority of the production is locally consumed, a good chunk of the cementproduced is exported.
Exports• Indian cement accounts for not more than 0.2% of total world cement exports.• The export of cement (total) increased considerably to 3.61 million tonnes in2010-11 from 2.69 million tonnes in 2009-10. Exports of cement in 2010-11were mainly to Nepal (49%), Sri Lanka (26%), Iraq (5%), Egypt & Maldives (3% each).Imports• Cement imports in 2010-11 decreased sharply to 1.1 million tonnes from 2.11million tonnes in 2009-10. Main suppliers in 2010-11 were Pakistan (54%),Bangladesh (26%) and China (16%).
Cement Market Division in India -The Cement industry is fragmented into five different regions because of the followingreasons:• Bulky nature of cement and limestone (key ingredient in manufacturing cement)makes it very hard to transport over long distances.• High freight costs involved in transportation of these commodities.• A cement plant is generally located near limestone deposits and cement produced ina particular region is mainly consumed in that region.
Industry SegmentsCementIndustryNorthSouthEastWestCentralInstalled Capacities Key Markets66.4126.943.544.137.3Rajasthan, Punjab,HaryanaTamil Nadu, AndhraPradesh, KarnatakaWest Bengal,Chhattisgarh,Orisha and JharkhandMaharashtra and GujaratUttar Pradesh andMadhya Pradesh
Structure of the Industry•The private sector dominates theIndian cement industry, both in termsof size and numbers. About 3% ofthis installed capacity is owned bythe Union and state government whilethe lions share 97% lies with theprivate sector.•UltraTech cement, the countryslargest firm in terms of cementcapacity, holds ~25%of the domesticmarket, with ACC(50%-owned byHolcim) and Ambuja (50% owned byHolcim) having 15% and 11% sharesrespectively.24.8215.4318.104.22.1685.714.443.452.793.11UltraTechACCAmbujaPrisamShreeIndiaMadrasJ K CementChettinadBirla Corp
Profitability of Cement CompaniesACCLtdUltraTechAmbujaShreePrismIndiaMadrasJKCementChettinadMangalam-20246810121416Profitability (%)• Profitability of cement sector has considerably eroded in the last two years with amoderation in demand, low capacity utilization and increase in wages.• The Indian cement industry has undergone ritual changes through technological up-gradation in the pursuit of cost efficiency. Modernization at the plants and theimprovement of plant processes have helped reduce manpower requirements.UltraTech and Ambuja Cements are the most cost efficient firms in the India.
Types of Cement•Cement is categorized into differentvarieties based on its compositionand its specific end use.•Cement is broadly classified,depending on the percent of clinkerused, under portland, blended andspecialty cement.
•The investment in the sector lead toadoption of new generation technologylike dry process technology, which cutthe energy consumption of cementcompanies and enabled them to set uplarge capacity plants.•Single kiln with capacity of 3000 TPD.•Dry process kilns Capacities in rangingfrom 300-8,000 tpd. While capacities insemi-dry kilns range from 600-1200 tpd,capacities in wet process kilns rangefrom 200-750 tpd.
Per capita consumption• Indian cement industry an attractive investment destination with the combination of alower per capita consumption and a faster growth rate.• Despite having high demand in India. Per capita cement consumption is very low,where the world average is 396 kg, in India being the country of young populationhas a huge potential and its ushering social & economic base will improve thedomestic consumption.
•Cement consumption varies across regions due to the differences in the demand-supplybalance, per capita income, the level of industrial development and Governmentinvolvement in each state.•In 2010-11, south India accounted for the highest proportion of cement consumptionfollowed by western India, Eastern India, Central India and Northern India.•Demand in the South, West and North have been driven by the Urbanization andhousing sector. Where as East region has been driven mostly by road construction.
Cement Capacity, Production and Utilization in India1950-511955-561960-611965-661973-741978-791984-851989-901996-972001-022006-072007-082008-092009-102010-1105010015020025030035001020304050607080901003.285.029.31219.7622.584261.37105.26145.99177.83209.4230.61276.77296.422.214.171.12410.9714.6619.4230.1345.4276.22106.9161.66172.31185.61204.95216.2867928691748672 74 72 739182 8074 73Capacity (M.t.) Production (M.t.) CapacityUtilization (%)
Cement Consumption6320134Cement Consumption (%)Residential Real-estate Infrastructure Commercial Real estate Industrial Construction
Demand Drivers• Long term GDP growth of ~7% leading to multiplier effect for cement demandgrowth of ~8%.• The government of India plans to increase its investment in infrastructure to US $ 1trillion in the twelfth five year plan.Infrastructure-Construction linked sector account for 8.3% of 12thfive year plan spend ~850 bn.Infrastructure development – Roads, ports, power etc.Increased investment in infrastructure by Government expected investments of 1trillion USD in five year plan.Projects in the pipeline such as dedicated freight corridors, development of newindustrial cities under the Delhi – Mumbai industrial corridor, National investment &manufacturing zones under the national manufacturing policy, up gradation ofexisting and the new ports & airports.
Demand Drivers (Cond..)Commercial/Industrial-High growth In retail, commercial and institutional sector In Urban and semi-urbanareas.High growth in industry segment.More than 500 SEZ proposals.Housing-Population growthFavourable demography and higher disposable incomeUrbanizationDecrease in number of people per household with breakdown of the joint familysystem into nuclear families.Thrust by Government o Rural/low cost/ mass housing.
The Union Budget 2013-14 give more impetus to infrastructure sector -• IIFCL to offer credit enhancement.• Infrastructure tax-free bond of 50,000 crore in 2013-14.• Build roads in North Eastern states and connect them to Myanmar with assistancefrom WB & ADB.• Raising corpus of Rural Infrastructure Development Fund (RIDF) to 20,000 croreand 5,000 crore to NABARD to finance construction for warehousing.• Window to Panchayats to finance construction of go downs.
Major Projects Sector Wise• Roads & Highways-• 3000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthanand Uttar Pradesh will be awarded in the first six months of 2013-14.• Target of covering length of 8,800 kms under National Highway DevelopmentProgramme (NHDP) during FY13.• 247 PPP projects were awarded under NHDP.• Railways• Indian railways is going to initiate PPP projects to maintain & develop railwaystations. it has identified 22 stations across India that will be modernized intoworld class facilities.• Ports -• Two new major ports will be established in Sagar, West Bengal and in AndhraPradesh.• A new outer harbour to be developed in the VOC port at Thoothukkudi, TamilNadu through PPP at an estimated cost of 7,500 crore.
Major Projects Sector Wise (cond..)• Power• Government of India announced 14 Ultra mega power projects to meet 12 %peak hour power shortages.• Oil & Gas• Projects include an 18 MMTPA refinery being setup by Indian Oil Corporationand a cracker unit of 5 MMTPA capacity by Reliance Industries Limited inJamngar.• Airports-• With prospects for growth in tier II and tier III cities, the Ministry of CivilAviation (MoCA) has approved new Greenfield airports.• The Navi Mumbai airport is to be the largest Greenfield airport in terms ofcost and capacity.
• Price is not uniform throughout the country and varies from region to region. Price ofcement also depends on the distribution channel – whether it is sent directly to theproject customer or through the dealers outlets.• Predicting change in prices of cement is difficult as supply and demand of cement ina particular region greatly influences price. Input materials that go into themanufacture of cement are mainly controlled by the government and hence there isno scope for negotiation.
• All India prices at Rs 294/bag declined by ~Rs 4/bag or -1.3 percent m-o-m inMarch. Sharp decline seen in south India (-3.2 percent m-o-m) & central region (-2.8percent m-o-m) followed by east (-1 percent m-o-m).
Cost Analysis• Major cost compresses of the cement industry are energy (power & fuel), rawmaterials, indirect taxes and distribution cost. These components add more than 50 %of the total cost of the industry.• According to industry estimates about 90Kwh of power & 250 kg of coal are neededto produce 1 tonne of cement.• 1.5 tonnes of limestone is needed to produce 1 tonne cement.• The cost associated with moving limestone from the mine the production site is huge& adds to the raw material cost.• Governments royalty & cess on limestone makes it more expensive to the cementproducers.
Excise duty structureSl.No.Item Rs./tonne of cement1. Average Excise duty 4902. VAT 5003. Royalty & Cess on limestone 844. Royalty on Coal 845. Electricity Duty 236. Others 30Total 1160• Cement is highly taxed commodity in India (30 %) compared to 19 % in China andalmost negligible in Thailand.• Excise duty on cement is currently being levied at mixed rates i.e. Ad valorem (ontransaction value) plus specific (specific rate to be charged on the basis of MRP)• There is no import duty for import of cement into the country.• The rate of VAT charged on cement is 12.5 % even up to 15 % in some of the stateson cement and clinker.
Recommendations• All manufacturers should Endeavour to set up and strengthen R&Dinfrastructure particularly aimed at absorbing /adapting/developingnewer technologies for better energy efficiency, quality enhanced andoptimum operating efficiency.• Cement industry should be provided with access to inputs, particularlycoal, pet coke and gypsum at nil rates of customs duty• The import of duty of cement should also have a duty.• Being energy intensive, the energy conservation and alternate cheaper,renewable and environment friendly sources of energy have assumedgreater importance for improving productivity.
• The application of nanotechnology to cement and concrete is expectedto result in development of eco-friendly, high performance cements /binders and concrete with improved durability characteristics.• To sustain the level of competitiveness, government needs to providelevel playing field in terms of• Improved Infrastructure• Lower Taxes• Ensure quality coal• Consistent power supply• Exploring export market
Future outlook• Despite apprehensions about the impact of inflation and a slowdown inindustrial production and overall economic scenario, the outlook forthe cement sector remains positive in respect of growth in demand inthe foreseeable future. Infrastructure and housing are still movingapace. However what is of concern to the industry are staggering risein input costs and pressures to cap selling prices at the same time.• Consolidation of the cement sector too will take place and cementplants producing less than 1 million tonnes will find it difficult tosurvive in this market. Cement companies will go for global listingseither through the FCCB route or the GDR routes.• The companies have to get a higher share of sales in the market. Thiswould require multi-product entities. Indian companies need to focuson products other than just cement like RMC (Ready Mix Concrete),and research new building materials that will create a niche for them inthe market
Future Outlook (Cond..)• To gain a high visibility in the market and pose stiff competition tomost multinational brands, research is going to be the key. Research todevelop newer, cheaper and more efficient technologies for creatingcement and other products. Niche products like cement with fragrance,pre-collared plasters can also be developed for increased consumption.• With the general elections slated in FY14. The government may doleout higher benefits to the low and middle income groups. The increasein the disposable income of these groups might trickle down to higherhousing demand in FY14-15.• In the next 3-5 years, the thrust of the government on infrastructureconstruction along with rising real-estate penetration could lead Indiato be one of the most lucrative cement markets in the world.• With the pace of infrastructure development in the overall economyexpected to increase over the next 3 to 5 years• Many global players are very small players in India and hence theymay use inorganic route to establish their presence on one of thelargest and fastest growing markets.