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Overview on indian Cement Industry

The file explains a brief overview on the Indian Cement Industry in the year 2013-14. The file explains the global scenario of the Indian Cement Industry, Major organisations and the Major players in the Indian Market and their market s

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Overview on indian Cement Industry

  1. 1. Table of Contents History..................................................................................................................................... 4 Overview ................................................................................................................................. 5 Major Organisations affecting the Cement Industry........................................................ 7 Product Profile of Industry .................................................................................................. 8 Major Players in the Cement Industry in India................................................................ 10 PESTLE Analysis of Cement Industry............................................................................... 12 Porter’s Five Forces Model for Cement Industry............................................................ 13 Cement industry - Future forecasts ................................................................................. 14 Cement industry - Conclusion............................................................................................ 15 Bibliography.......................................................................................................................... 16
  2. 2. History The indigenous Indian cement industry traces its history back to 1914, at a time when the market was dominated by imports. In that first year the industry produced just 1000 T of cement, but over just 10 years this figure increased to 0.26 MT in 1924. In the same 10-year bracket, India consumed a total of 2 MT of cement, with around half imported. From a modern perspective, the need to expand the industry is clear. However, the industry was fighting against poor public perception surrounding not only domestic Indian cement, but cements itself. Many producers went out of business as a result of price-wars between Indian producers who were aiming at a bigger slice of the future market. To end the uncertainty surrounding the industry and to campaign for tariffs on imported cement, the Indian Cement Manufacturers' Association (ICMA) was set up in 1925. This subsequently transformed into two connected groups. The modern Cement Manufacturers' Association (CMA) was reformed in 1961. Between 1925 and the early 1940s, the capacity of the Indian cement industry gradually increased to 1.8 MT in 1942, with imports dwindling to just 1000 T/yr over the same period. However, all was not well with the industry, which, like many industries across the world, suffered due to the Great Depression in the United States and the run-up to the Second World War in Europe. To combat continued price wars, Associated Cement Companies (ACC) was formed from 11 competing firms in 1936. In 1942 all of India's cement capacity came under the control of Defence for India rules as part of the war effort. With up to 90% of cement heading directly to defence purposes, the apparent private market shrank by a factor of 10. After the conclusion of the Second World War, during which capacity reached 3.2 MT/year, controls stayed in place. From 1945 to 1956 the government regulated prices directly. However, it became increasingly obvious that regulated prices from central government could not provide the cement that the country was demanding. The controls were relaxed in steps, with a free market from 1989 onwards. The result of de-regulation was a massive expansion of cement capacity, which has since only accelerated as the country has developed and opened up its economy. (Word Count: 380)
  3. 3. Overview Today, the Indian cement industry is very large, second only to China in terms of installed capacity, and has grown at a very fast pace in recent years. The rate of growth over the past 20 years has been phenomenal, as shown by Figure 1.3 Since 1992 India's cement production has more than quadrupled from around 50 MT/ Year to 220 MT/ year in 2011. Although the Indian cement industry has some multinational cement giants, like Holcim and Lafarge, which have interests such as ACC, Ambuja Cement and Lafarge Birla Cement, the Indian cement industry is broadly home-grown. Ultratech Cement, the country's largest firm in terms of cement capacity, holds around 22% of the domestic market, with ACC (50%-owned by Holcim) and Ambuja (50%-owned by Holcim) having 15% and 13% shares respectively. Many of the remaining dozen top players are Indian and are (in order of diminishing market share); Jaiprakash Associates (10%), The India Cements Ltd (7%), Shree Cements (6%), Century Textiles and Industries (5%), Madras Cements (5%), Lafarge (5%), Birla Cement (4%) and Binani Cement (4%). Between them the top 12 cement firms have around 70% of the domestic market. Around 100 smaller players produce and grind cement on a wide range of scales but are often confined to small areas. Following Table will give a brief about the Statistics of Cement production capacity Industry in India: Large cement plants 1 Installed Capacity (MT) 244.05 2 Turnover in 2011 (Million US$) around 19,500 3 Manpower Employed (Nos.) Approx. 1,20,000 4 Plants with Capacity of Million tonnes and above (Nos.) 102 5 Cement Production (MT) 2011-2012 179.87 6 Cement Plants (Nos.) 144 7 Companies (Members) (Nos.) 42 Mini & White Cement Plants 1 Cement Production (MT) 2011-12 6.00 (P) 2 Cement Plants (Nos.) Approx. 365 3 Installed Capacity (MT) 11.1 (Source: (Word Count: 690)
  4. 4. Facts of Indian Cement Industry (1982 – 2013) · The Industry recorded an exponential growth with the introduction of partial decontrol in 1982 culminating in total decontrol in 1989. · The capacity, which was 29 MT in 1981-82, rose to 219 MT at the end of FY 09, while it took 8 decades to reach the 1st 100 MT capacity, the 2nd 100 MT was added in just 10 years. · The Industry has been facing a chronic problem of insufficient availability of the main fuel coal, driving the manufacturers to resort to use of alternatives at steep cost. · Taxes and Government levies on cement are high compared to countries in Asia pacific region. · Cement Industry, which was branded as the highest polluter of environment, now meets the pollution standards, and no longer a polluter today. · Contributes to environmental cleanliness by consuming hazardous wastes like Fly Ash (around 30 MT) from Thermal Power Plants and the entire 8 Mn.t of granulated Slag produced by Steel manufacturing units. · As a part of Corporate Social Responsibility (CSR), the Cement Industry employs around one lakh people and takes care of the social needs not only of the employees but also adopts several villages around the factories providing free drinking water, electricity, medical and educational facilities. · The Cement Industry produces a variety of cement to suit a host of applications matching the world’s best in quality. · Exports Cement/Clinker to around 30 countries across the globe and earns precious foreign exchange. · The core sector Cement Industry deserves due support from the Government by avoiding imposition of high levies and duties, making available various inputs like fuel, power, transport etc. at reasonable prices and in required quantities and help its growth and improve competitivity both in domestic and international markets. (Word Count: 990)
  5. 5. Major Organisations affecting the Cement Industry o National Council for Cement and Building Materials (NCB) o Construction Industry Development Council (CIDC) 1. National Council for Cement and Building Materials (NCB): Established in 1962, as Cement Research Institute of India and redesignated as National Council for Cement and Building Materials in April 1985, NCB is an apex body dedicated to continuous research, technology development and transfer, education and industrial services for the cement and building material industries. The entire range of services of NCB is delivered by eight Corporate Centres through its units in Ballabhgarh and Hyderabad. The main laboratories of the Council are located at Ballabhgarh, about 35 kms south of New Delhi. National Council for Cement and Building Materials (NCB) is the largest Industrial Support Organisation of its kind in India, with units in the various regions of the country and in the field of Cement, Building Materials and Allied Areas. 2. Construction Industry Development Council (CIDC): The Planning Commission, Government of India, jointly with the Indian construction industry has set up CIDC to take up activities for the development of the Indian construction industry. The Council, for the first time in the country, provides the impetus and the organisational infrastructure to raise quality levels across the industry. This helps to secure wider appreciation of the interests of construction business by the government, industry and peer groups in society. CIDC is a change agent to accelerate a process of self-reform that should enable the industry to answer the challenges of the future. 3. Cement Manufacturers’ Association: Cement Manufacturers’ Association (CMA), the apex representative body of large cement manufacturers in India was established in 1961. It is a unique body in as much as it has both the private and public sector cement companies as its members. It is a registered body under the Societies Registration Act XXI of 1860. Its registered office is in New Delhi, while the Corporate Office in Noida with Branch offices in Mumbai and Hyderabad. Main Objectives: · To promote Indian cement industry’s growth. · To protect consumer interest. · To identify newer usage of cement. · To establish contacts with similar bodies abroad for exchange of information, data, publications etc. (Word Count: 1350)
  6. 6. Product Profile of Industry Cement is a mixture of limestone, clay, silica and gypsum. It is a fine powder which when mixed with water sets to a hard mass as a result of hydration of the constituent compounds. It is the most commonly used construction material. Different types of Cement There are different varieties of cement based on different compositions according to specific end uses namely Ordinary Portland Cement, Portland Pozolona Cement, Portland Blast Furnace Slag Cement, White Cement and Specialized Cement. The basic difference lies in the percentage of clinker used. · Ordinary Portland Cement (OPC) OPC, popularly known as grey cement, has 95% clinker and 5% of gypsum and other materials. It accounts for 70% of the total consumption. White cement is a variation of OPC and is used for decorative purposes like rendering of walls, flooring etc. It contains a very low proportion of iron oxide. · Portland Pozolona Cement (PPC) PPC has 80% clinker, 15% Pozolona and 5% gypsum and accounts for 18% of the total cement consumption. Pozolona has siliceous and aluminous materials that do not possess cementing properties but develop these properties in the presence of water. It is cheaply manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. It has a lower heat of hydration, which helps in preventing cracks where large volumes are being cast. · Portland Blast Furnace Slag Cement (PBFSC) PBFSC consists of 45% clinker, 50% blast furnace slag and 5% gypsum and accounts for 10% of the total cement consumed. It has a heat of hydration even lower than PPC and is generally used in construction of dams and similar massive constructions. · White Cement OPC: clinker using fuel oil (instead of coal) and with iron oxide content below 0.4% to ensure whiteness. Special cooling technique is used. It is used to enhance aesthetic value, in tiles and for flooring. White cement is much more expensive than grey cement. · Specialized Cement Oil Well Cement: is made from clinker with special additives to prevent any porosity. Rapid Hardening Portland cement: It is similar to OPC, except that it is ground much finer, so that on casting, the compressible strength increases rapidly. Water Proof Cement, OPC with small portion of calcium stearate or non- saponifibale oil to impart waterproofing properties. (Word Count: 1730)
  7. 7. Manufacturing Process in brief: There are two general processes for producing clinker and cement in India: a dry process and a wet process. In general, the dry process is much more energy efficient than the wet process, and the semi wet somewhat more energy efficient than the semi-dry process. The semi-dry process has never played an important role in Indian cement production and accounts for less than 0.2% of total production. Over the last decade, increased preference is being given to the energy efficient dry process technology so as to obtain a cost advantage in a competitive market. In 1960 around 94% of the cement plants in India used wet process kilns. These kilns have been phased out over the past 46 years and at present 96.3% of the kilns are dry process, 3% are wet and only 1% are semidry process. Dry process kilns are typically larger with capacities in India ranging from 300- 8,000 tons per day or tpd (average of 2,880 tpd). While capacities in semi-dry kilns range from 600-1,200 tpd and capacities in wet process kilns range from 200-750 tpd (average 425 tpd). The following Diagram shows a brief manufacturing process of the cements: (Word Count: 1840)
  8. 8. Major Players in the Cement Industry in India Here is a list of Top 10 cement companies in India; these are the best companies in cement manufacturing field. 1. ACC Limited Corporate office - Mumbai, Maharashtra Establishment – 1936 ACC cement limited is one of the top cement company in India established in 1936 which is also a leading player in ready mix concrete. It is part of the world’s leader Holcim Group. 2. UltraTech Cement Corporate office - Mumbai, Maharashtra Establishment – 1987 UltraTech cement is largest clinker producer and exporter which has an annual capacity of more than 50 million tonnes. It is a flagship company of Aditya Birla group and leading cement company which acquired all ISO and OHSAS certifications. 3. Ambuja Cement Corporate office - Mumbai, Maharashtra Establishment – 1983 Ambuja Cement is among of the top 5 cement companies in India. It was founded in year 1983 and formerly known as Gujrat Ambuja cement Ltd. Company has an annual capacity to produce more than 27 million tonnes. 4. Jaypee Cement Corporate office - Noida, Uttar Pradesh Establishment – 2001 Jaypee is a well-known corporate group in the business of power, infrastructure, construction and highway. Company started cement business in the year 2001 and has annual capacity to manufacturer almost 35 MTPA. 5. India Cement Corporate office - Chennai, Tamil Nadu Establishment – 1946 India cement is leading cement manufacturer in southern region of India which was established a cement plant in Sankarnagar in year 1946 and since then setup total 7 plants in various part of Andhra Pradesh and Tamil Nadu. Company has an annual capacity to produce 15 MTPA cement. (Word Count: 2120)
  9. 9. 6. Ramco Cement Corporate office – Chennai, Tamilnadu Establishment – 1957 Ramco cement is a group company of Madras cement which is also a front leader in Ready mix concrete. It has total 5 cement units spread across the southern states of India. It has an annual capacity to manufacture 13 MTPA cement. 7. JK Cement Corporate office – New Delhi, India Establishment – 1975 JK Cement Ltd was founded in year 1975 and established first cement manufacturing in Rajasthan. It is second largest white cement manufacturer in India having a capacity of almost 3 lakhs tonnes per annum. 8. Prism Cement Corporate office – Mumbai, Maharashtra Establishment – 1997 Prism cement is managed by Raheja group a largest integrated building material company established in the year 1997. Company has significant market share in UP, Bihar and Madhya Pradesh. It has an annual capacity to produce more than 5.5 MTPA. 9. Rain Cement Corporate office – Hyderabad, Andhra Pradesh Establishment – 1986 Priya Cement formerly known as Rain cement is a subsidiary of Rain commodities. It produces 3.12 MT cement per annum and leading cement company in south India which was established in the year 1986. 10. Shree Cement Corporate office – Kolkata, India Establishment – 1970 A Bangar group company Shree cement is a leading cement manufacturer in northern India. It has three major brands in market named Shree ultra, Bangar cement and Rockstrong cement. (Word Count: 2350)
  10. 10. PESTLE Analysis of Cement Industry PESTLE analysis is a useful tool for understanding the big picture of operating and takes advantage of opportunities. Pest analysis includes political, environmental, social and technological factors which affects both the companies as well as industry. Ø Political The price of cement is primarily controlled by the coal rates, power tariffs, railway tariffs, freight, royalty and cess on limestone. Interestingly, government controls all of these prices. Government is also one of the biggest consumers of the cement in the country. Most state governments, in order to attract investments in their respective states, offer fiscal incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on power tariff for 5 years, while Gujarat offers exemption from electric duty. Ø Economic The industry is on the boom, with a lot of government infrastructure and housing projects under construction. The export segment of the industry is expected to grow again on account of various infrastructure projects that are being taken up all over the world and numerous outstanding cement plants coming up in near future in the country. Ø Social The cement industry in India consists of both the organized sector and the unorganized sector. Organized sector comprises of the well-known cement manufacturing companies while the main players of the unorganized sector are the regional and local cement-producing units in various states across the country. Indian consumers prefer buying branded cement like Ultratech, Jaypee Cement, Lafarge Cement etc. A population of more than 100 billion people, it is expected that cement industry will create another 25 lakhs jobs in the next 4-5 years. Ø Technology The Government of India plans to study and possibly acquire new technologies from the cement industry of world. The government is discussing technology transfer in the field of energy conservation and environment protection to help improve efficiency of the Indian cement industry. Cement industry has made tremendous strides in technological up-gradation and assimilation of latest technology. At present 93% of the total capacity in the industry is based on modern and environment-friendly dry process technology. (Word Count: 2750)
  11. 11. Porter’s Five Forces Model for Cement Industry (Word Count: 2920) Bargaining Power of Suppliers - High: GOI exercises excessive control on Coal and Power Prices & Supply. Govt. authorities also control the transportation sector. Threat of Substitute – Low: Use of Bitumin in Road construction and Engineering plastic in Building creates some concern for the industry. Barriers to entry – Medium to High: High Capital Investment (Rs. 3500 per Tonne), Distribution Network and Oversupplied market deters new entrants. However, Technology and Manpower are easily available. Bargaining Power of Buyers – Low: In recent past the cement industry is witnessing major change in purchase Quantity. Now the share of Retail Purchase has been rising as compared to bulk. Now with the industry operating at 90% level increases the bargaining power of manufacturers. Rivalry among the Firms - High: Large number of players, overcapacity, High degree of product homogeneity, High storage cost and high exist barriers, creates intensive rivalry among the firms.
  12. 12. Cement industry - Future forecasts Given the rampant growth of the Indian cement industry, few are betting against continued capacity additions in the short- to medium-term. The extent of capacity addition, however, and whether or not demand will rise to match it more closely than at present, is up for debate. In November 2012 the India Brand Equity Foundation (IBEF) said that it expected double-digit growth in the cement industry for the 2013 and 2014 fiscal years, which end on 31 March 2013 and 31 March 2014 respectively. It reported that the cement industry would increase production by around 71 MT/year over the same time-frame to reach over 300 MT/year in 2014. Meanwhile, the Indian Government's 12th Five-Year Plan, which runs for 2013 to 2017, states that India will require a cement capacity in the region of 480 MT/year by the end of 2017.12 It states that a further 150 MT/year of capacity will be required to accomplish this. Separately, ACC expects India to have a capacity of 500 MT/year by 2020. This represents more than twice the cement that India currently consumes in a year and so it is worth asking, if this capacity is reached, what will the capacity utilisation rate be? The government promises significant investment in infrastructure, although bureaucracy has hampered such investments in the past. "Land acquisition is a big issue," said H M Bangur, chairman and managing director of north-based Shree Cement, in August 2012. "No state government is providing land to set up units. Greenfield expansion is tough." Sunil Singhania, equity head at Reliance Mutual Fund, said, "Capacity creation in India is very difficult because there is no land (in some places) and no limestone deposits at others. Several cement companies have written down assets. I believe capacity additions going forward will not be as aggressive as in the past. Expansion will be slower than demand growth." With prices remaining low due to overcapacity and low demand, the potential for future collusion between producers and the difficulty of setting up new capacity, it is possible that producers, under pressure to meet the expectations placed on them by the Five- Year Plan, will see increased pressure on margins in the next few years, especially if fuel prices continue to rise. In the midst of this, smaller companies are likely to suffer more than most, possibly making them acquisition targets for better-equipped multinationals. Indeed, in January 2013 Prism Cement, one of India's smaller cement producers, actually reported a net loss for the quarter to 31 December 2012. It cited low demand, high fuel costs and increased electricity prices. (Word Count: 3320)
  13. 13. An academic report carried out for the Competition Commission of India in 2012 hints at this possibility of future consolidation in the industry. The study found that, despite capacity utilisation falling across all cement producers in India from 2006 to 2011, it was those with the smallest market share that experienced by far the worst reduction. Binani Cement, for example, recorded utilisation rates of only around 55-60%. Conversely mega-players like Ultratech have been more stable, with rates of 80-95%. In January 2013 India Ratings reported that smaller businesses were less likely to benefit from the expected improvement in the industry. A major reason behind this phenomenon is rising fuel costs, which have hit producers from two directions in the past year. Firstly, demand for power in India is high and domestic fuels are dedicated predominantly to electrical generation. Industrial companies are forced, in many cases, to import costly foreign fuel, which must be shipped inland to be used. A second effect of increased fuel prices is that cement is more costly to transport once it has left the factory. Due to their size allowing greater economies of scale, larger cement companies are better positioned to import fuel on a large scale and are more likely to have flexible vehicle fleets to respond as demand fluctuates in different areas. Another crucial difference between the larger and smaller companies is that larger players are more likely to have a pan-Indian presence. This enables them to ride-out periods of difficulty in one area while maximising margins elsewhere. Local producers do not have this luxury. Smaller local producers are less well equipped to deal with expansion and their relative size will gradually diminish compared to the top 12 producers. As this happens, it is likely that they will become the acquisition targets of the larger firms. Cement industry – Conclusion The Indian cement industry is large, growing and, with consumption of just 185 kg/ capita /year in 2011 (compared to global average of 300 kg/capita/ year) the country itself has the capacity to demand significantly more cement as it develops. However, the industry is at a tricky point in its development. Capacity is way ahead of actual consumption. However, cement producers are keen to maintain their market share and so expand to secure future demand. Producers in this situation should bear in mind the Indian cement industry of the early 20th Century, when companies expanded, lowered prices and, in many cases, went out of business. Some have cautioned against rapid capacity addition in the coming years. It is foreseeable that the Indian cement industry will see consolidation over the coming years. Producers that can differentiate their cement from others or can make savings on production costs by, for example, using alternative fuels, will be able to take advantage of increasing demand while remaining ahead of their competitors. (Word Count: 3930)
  14. 14. Bibliography industry smaller-cement-players-India-Ratings/5582688342 Books: Global Cement Magazine: January 2012 - January 2013.