Conducting an Industry Analysis Indian Cement Industry Prepared for academic purpose by SUDEEPPANICKER [email_address]
<ul><li>1. What are the industry dominant economic traits? </li></ul><ul><li>Market-Size </li></ul><ul><li>Global Cement Consumption Increased at a CAGR of 6.8% from 2000-2010 to reach 3,120 million tonnes, the growth being primarily fueled by the growing demand in developing countries especially China and India. Despite the negative impact of financial crisis global cement consumption increased by 4.9% in 2008-10. </li></ul>
Scope In the Market Although the cement ind began the year 2010 on a low note .Global cement consumption is expected to rise at a CAGR of 4.5 % between 2010-1012.primarily driven by strong growth in emerging markets including BRIC economies.
Scope -Scenario in India With 153 cement plants and a total installed capacity of around 209 million tonnes per annum (MTPA) both as of March 2009, the Indian cement industry is the second largest in the world, the largest being China, which produces over 1 billion tonnes of cement annually. According to the study of planning commission the demand of cement can be categorized in to Housing-64%,Industrial -6%Commercial & institutional-13%,and infrastructure-17%.( 95 th Performance report of cement ind presented in Rajya sabha24-2-2011).
<ul><li>Growth Cycle </li></ul><ul><li>Indian cement industry witnessed 03 different stages:- </li></ul><ul><li>Control period 1969-1982 (13 yrs )-During this period many plants started off but growth wasn’t there, because of differential pricing mechanism. </li></ul><ul><li>Partial decontrol 1982-1989 ( 7 yrs)- Quota system imposed which enforced 66.6% of sales to govt and small house builders rest (33.4%) for open market sale. </li></ul><ul><li>Total decontrol period 1989 …( 22 yrs ongoing)- Free market competition allowed,which enabled free market pricing mechanism.Govt norms were fulfilled by subsidies. </li></ul>
<ul><li>Product Differentiation </li></ul><ul><li>There are five general types of cement. First, </li></ul><ul><li>Type 1 cement is general cement for general use, typically the type used in construction. </li></ul><ul><li>Type 2 cement is still a general cement, but it has resistance to sulfates and heat of hydration. </li></ul><ul><li>Type 3 cement is for high strength properties in the early stages of the cement's life. I.e., immediately after curing. </li></ul><ul><li>Type 4 cement is used where very low heats of hydration are desired. </li></ul><ul><li>Type 5 cement is used where a very high sulfate resistance is required. </li></ul>
What competitive forces are at work in the industry and how strong are they? Entry barrier – Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be - economies of scale which would favor the bigger players - Brands are not so critical. price plays a big factor - Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders Supplier power – Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies
What competitive forces are at work in the industry and how strong are they? Buyer power – Very low to no impact Substitute product – Almost no substitute product Rivalry – High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. However local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops, the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs). Not an ideal industry for long term investment (except if one can find a player with a sustainable low cost position)
Q4. Which companies are in the strongest/weakest competitive position List of Top players in the cement industry in India: • ACC Limited- ACC Limited is the one of the prominent manufacturers of cement and concrete in India and they have several zonal officer, 19 sales officer, 19 ready mix concrete plants and 14 modern cement factories in different parts of India. They have more than 65 years of experience in cement and concrete production. • Gujarat Ambuja Cements Limited- They are presently producing nearly 160 lakhs tons of cement and they are owning some of the state-of-the-art manufacturing facilities with advanced technological instruments Read more here: ?
• Ultratech UltraTech is a popular name in the cement industry in India and they have production facilities spread over eleven integrated plants and most of their plants have received ISP 14001 and 9001 certifications and OHSAS 18001 certifications as well. Some of their products include:- • Portland Pozzolana cement • Portland Blast furnace slag cement • Ordinary Portland cement • Grasim- India cement is not only a leader in the cement industry in India, but they have also made their mark in the real estate and infrastructure sector in India. They are one among the preferred cement companies mainly because of their quality product offered at affordable cost. • India Cements- India cement is not only a leader in the cement industry in India, but they have also made their mark in the real estate and infrastructure sector in India. They are one among the preferred cement companies mainly because of their quality product offered at affordable cost.
<ul><li>JK Cement Limited- </li></ul><ul><li>JK Cement Limited began their operations in the year 1975 and they are leaders in the cement production in the Northern part of the country. </li></ul><ul><li>The company began its operations with a production capacity of 0.3 million tons of cement and now they have a production capacity of 2.8 million tons of cement </li></ul><ul><li> Jaypee Group – </li></ul><ul><li>The Cement Division of the Jaypee Group has 7 state-of-the-art , fully computerized integrated Cement Plants(ICPs), 6 Grinding Units & 2 Blending Units with an aggregate capacity of 21.3 millions tonnes per annum(MTPA) at present. </li></ul><ul><li>The Group is in the process of setting up new capacities across the nation and is targeting a capacity of 37.55 MTPA by 2012 . along with Captive Thermal Power Plants(CPPs) totalling 702MW . </li></ul><ul><li>Once the expansion plans have been implemented, the Group will have 12 ICPs supported by 702 MW of captive thermal power , 9split location plants , 11Railway sidings and a jetty, giving the former a pan-india prescence in cement sector. </li></ul><ul><li>• </li></ul>
<ul><li>• Century Cement- </li></ul><ul><li>This company is a flagship of the popular BK Birla Group, who has made their presence felt in different industries like chemicals, rayons, textiles, etc…in India. One of their popular brand Birla Gold has acquire a very good name in the construction industry in India. </li></ul><ul><li>Therefore, the cement industry in India is growing considerably with the help of the heavy contributions made by these top players and this industry is expected to grow further, which in turn can improve employment opportunities in the country as well. </li></ul><ul><li> </li></ul><ul><li> </li></ul>
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 cement selling firm in the Indian markets of West Bengal, Bihar, Jharkhand and Chhattisgarh
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).
Opportunities The cement industry is going through its boom period with full capacity utilization. Powered by the GDP growth of 8-9%, the annual demand for cement in the country continues to grow at 8- 10%. As per NCAER study, under high growth scenario, the demand for cement (including exports) is expected to increase to 244.82 million tonnes by 2010-11. Threats- The materialization of production capacities, however, is likely to be delayed due to a number of factors including – timely delivery of equipment and construction of the plant due to the heavy order book position of the suppliers. It is expected that demand growth will outstrip supply till the materialization of such new capacities
<ul><li>Risk & Concerns </li></ul><ul><li>3 rd most energy consuming industry ( product)-Ash free coal after Power and Steel. </li></ul><ul><li>Fluctuations in coal supply hikes production cost. </li></ul><ul><li>Government Emission regulation ( if imposed in future ) </li></ul><ul><li>Stringent mining laws ,tough regulations for the grant of Mining leases. </li></ul><ul><li>However, the current high level of international crude prices and its impact on the domestic prices of petroleum products is likely to make a dent in the profitability but its impact will have to be seen depending upon the ability of the economy to pass on such cost increase to the consumer. </li></ul><ul><li>The Government’s continuing efforts to rein in cement prices by freeing imports and banning exports could artificially disable the normal market price mechanisms for determining the price </li></ul><ul><li>. </li></ul>
SWOT STRENGTHS Second largest in the world in terms of capacity Low cost of production WEAKNESS Effect of global recession on Real Estate and Infrastructure. Demand-Supply gap, Overcapacity Increasing Cost of Production High Interest rates OPPORTUNITIES Strong growth of economy in the long run. Increase in infrastructure projects Growing middle class Technological Changes Increase in govt spending THREATS Imports from Pakistan affecting markets in Northern India. Excess over capacity can hurt margins as well as prices
Industry Attractiveness- The rise in the price of cement is because of the gap of demand & supply in the market. The demand for cement is much higher than its actual supply. But with the production maximization, which can be encountered in next few year, this gap may narrow down, that may ensure the market to be in equilibrium. Decreasing per capita consumption doesn’t affect the total consumption for the cement. It means the infrastructure; contracted housing is using the bulk of the production. In spite of High price of the product, the hick of demand because of the increasing rate of infrastructural development. Domestic price of cement is rising as well as the imported cement price is lowering. So altogether the supply of the cement, which is affordable, will increase. This may in decrease the gap between supply and demand. Major Demand was from the housing sector, which may shift to infrastructure as lots of infrastructural development processes has already being taken up & due to the increased price, housing segment started showing a slowdown.
Attractiveness - Cement consumption in India is forecasted to grow by over 22% by 2010-11 from 2007-08.Among the states, Maharashtra has the highest share in consumption at 12.18%,followed by Uttar Pradesh, In production terms, Andhra Pradesh is leading with 14.72% of total production followed by Rajasthan. Cement production grew at the rate of 9.1 per cent during 2006-07 over the previous fiscal's total production of 147.8 mt (million tons ).
<ul><li>Strategies adopted by key players of Industry . </li></ul><ul><li>B USINESS S TRATEGIES FOR THE I NDIAN C EMENT I NDUSTRY </li></ul><ul><li>- We will look at the business strategies specifically in terms of - </li></ul><ul><li>Consolidation and Globalization. </li></ul><ul><li>There is an expectation that more global players would come into India as they would like to get a foothold in the market as the demand will propel in the emerging economies. Acquisition appears a good route primarily because a Greenfield cement plant takes 3-4 years to build and another 3-4 years to break even at an operating level of even 70-75 %. </li></ul><ul><li>Eg:- The acquisition of the Larsen & Toubro cement (UltraTech Cement limited) business by Grasim Industries Limited in 2003-04 is a case in point. Till 2010, The Aditya Birla Group, has increased its capacity to 31MT and is currently a </li></ul><ul><li>market leader in India and tenth in the World. </li></ul><ul><li>. </li></ul>
B. Process Automation Higher levels of technology, its seamlessness and functionalities that have wider acceptance and usage will also bring down operating costs considerably. It is envisaged that Indian companies, which operate several plants across states in India, will need to monitor plant operations on a centralized basis through the use of process automation. C. Technology- Concepts will emerge such as phone-a–cement, or portraying a 3-D animation of the house prior to its construction in a library, providing responses to customers through mobile technology. D. Cement Economics- Power and fuel costs have a strong influence on the operating expenditure of the company as they would account for about 32 % of total production costs. Companies such as Lafarge and Cemex fare better on energy costs and raw material costs when compared with Indian players. E. Corporate Governance and Branding- Corporate governance is as a set of systems, processes and principles, which ensure that a company is governed in the best interest of all stakeholders. It is everything that the buyer needs to know before buying the product to suit his expected result
D. Cement Economics- Costs have a significant bearing on the performance of an industry and cement is no exception. The uptrend in costs is likely to continue, although the increase in input costs is expected to be neutralized by rise in prices owing to higher demand. F. R&D and Innovation- Companies do not have much of application-oriented research and development efforts but this will become critical for future success. Companies will need to create niche products and develop the market for such products by providing solution-based offerings to the customer.
Product level Strategies.( product segments) There are five general types of cement. First, Type 1 cement is general cement for general use, typically the type used in construction. Type 2 cement is still a general cement, but it has resistance to sulfates and heat of hydration. Type 3 cement is for high strength properties in the early stages of the cement's life. I.e., immediately after curing. Type 4 cement is used where very low heats of hydration are desired. Type 5 cement is used where a very high sulfate resistance is required. With the many fold increase in the production of cement, cement manufacturers adopted and aggressive marketing strategy, each projecting their product as the best. Manufacturers of 53 grade cement invaded the market and created an impression amongst the consumers that 53 grade OPC could be used by them as it is the best cement and grade 33 and grade 43 cements, are inferior.
<ul><li>Corporate level Strategies- In order to safeguard the market position in the long term, cement have readjusted their corporate strategy: Besides the traditional core business of cement, aggregates (sand, gravel and crushed rock) have become a second strategic pillar. </li></ul><ul><li>Indian main players are pursuing a clear dual external growth strategy: expansion of the cement business in growth markets and focus on aggregates and downstream activities in mature markets . </li></ul><ul><li>Some of the main strategies adopted by them are- </li></ul><ul><li>Focus on quality and customer satisfaction </li></ul><ul><li>continuous innovation and improvement . </li></ul><ul><li>Our foundation – committed and qualified </li></ul><ul><li>Sustainability </li></ul><ul><li>Responsibility for the environment . </li></ul><ul><li>Social responsibility on a local level </li></ul><ul><li>Mergers & Acquisition- </li></ul><ul><li>Heidelberg Cement - Indorama Cement Ltd. </li></ul><ul><li>Holcim Cement - Gujarat Ambuja Cements(GACL) </li></ul><ul><li>Italcementi cement - Zuari Cement Limited </li></ul>
Steps taken in the Union Budget 2011-12 include: Allocation of Rs 2, 14,000 crore (US$ 46.5 billion) for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11. Government to come up with a policy for developing PPP projects. IIFCL to achieve cumulative disbursement target of Rs 20,000 crore (US$ 4.3 billion) by March 31, 2011 and Rs 25,000 crore (US$ 5.4 billion) by March 31, 2012. Under take out financing scheme, seven projects sanctioned with debt of Rs 1,500 crore (US$ 325.6 million). Another Rs 5,000 crore (US$ 1.1 billion) will be sanctioned during 2011-12. To boost infrastructure development, tax free bonds of Rs 30,000 crore (US$ 6.5 billion) proposed to be issued by Government undertakings during 2011-12.
Road Ahead Growth in domestic cement demand is likely to remain strong, given the revival in the housing markets, constant government spending on the rural sector, and due to rise in the number of infrastructure projects being implemented by the private sector. Furthermore, it is expected that the industry players will continue to increase their annual cement output in coming years and India’s cement production will grow at a compound annual growth rate (CAGR) of around 12 per cent during 2011-12 - 2013-14 to reach 303 Million Metric Tons, according to Indian Cement Industry Forecast to 2012. A large number of foreign players are also expected to enter this industry in the coming years as 100 per cent FDI is permitted in the cement industry.