Cement Industry_Group 3

8/13/2019 Cement Industry_Group 3

1/13

REPORT

ON

ECONOMY INDUSRTY ANALYSIS

ON

CEMENT INDUSTRY ANALYSIS

Presented By

HARSHIKA TIBREWAL010111079

NIKHIL KEDIA 010111170

SOURABH SONI 01011109

Prerna Mundhra 010111172

Sounik Das 010111100

Milind Sarkar 010111038

Jasleen Oberoi 010111050

Ujjal Kumar 010111074

Biswajit Roy 01011110


2/13

ACKNOWLEDGEMENT

It is not possible to prepare a project report without the assistance & encouragement of

other people. This one is certainly no exception.

On the very outset of this report, we would like to extend my sincere & heartfelt obligation

towards all the personages who have helped us in this endeavor. Without their activeguidance, help, cooperation & encouragement, we would not have made headway in theproject.

We are ineffably indebted to Professor J.N.Mukopadhyay for conscientious guidance andencouragement to accomplish this assignment.

We are extremely thankful and pay our gratitude to our faculty Professor Prithviraj Banerjeefor his valuable guidance and support on completion of this project.

We extend our gratitude to Globsyn Business School for giving me this opportunity.

We also acknowledge with a deep sense of reverence, our gratitude towards our parents andmember of our family, who has always supported us morally as well as economically.

At last but not least gratitude goes to all of our friends who directly or indirectly helped us tocomplete this project report.

Thanking You

Learning Group 3


3/13

ContentsExecutive Summary .................................................................. 4

GLOABAL ECONOMY .......................................................... 5

GLOBAL TRENDS IN CEMENT INDUSTRY ..................... 6

INDIAN ECONOMY ................................................................ 7

INDUSTRY OVERVIEW ........................................................ 9

CEMENT ................................................................................. 10

CEMENT MANUFACTURING PROCESS ........................ 10

INDUSTRY CHARACTERISTICS ...................................... 10

INDUSTRY STRUCTURE & MARKET PLAYERS.......... 11

MARKET SIZE ...................................................................... 12

CONCLUSIONS: .................................................................... 13


4/13

Executive Summary

India is ranked as the second largest producer of cement in the world, only behind China. The production of

cement in India has increased at a compound annual growth rate of 9.7% in the period 2006-2013. The

production is expected to increase from 272 million tonnes in 2013 to 407 million tonnes in 2020. This

growth rate is due to:

The governments high level of infrastructure spending The countries increasing number of residential and commercial construction activitiesThe large scale investments on various infrastructure projects, including roads, railways, bridges and

ports, will generate a huge demand for cement over the years. Shorter deadlines for builders to complete

projects, labour shortages, space constraints in large cities, the growing need for mechanization and the

backlog of infrastructure project are the main factors leading to the increase in the use of ready mixed

concrete in India. The Indian government has invested US$ 500 billion on infrastructure during the

Eleventh Five Year Plan (2007-2013) and has planned to invest a further US$1 trillion on infrastructure

during the Twelfth Five Year Plan (2012-2017).


5/13

GLOABAL ECONOMY

The growth of both mature and emerging markets (EM) in global economy has been consistent witha projected growth in 2014 with a increase in momentum in mature economies.

Central banks continued to take out insurance against disinflation risks. Federal Reserve is alsocautious about the slow pace of asset purchase.

Policy makers of economies worry about the disinflationary pressures.

Capital flows in emerging market economies are recovering and tightening in funding conditions willcontinue to weigh on growth in some countries by increasing lending standards.

IIF expects global growth to increase by 3% in 2014 from 2.3% in 2013 by acceleration measured inmature economies. However, it is concerned by downside risksboth affecting global growth as

well as individual countries.

Substantial impacts on capital flows in emerging markets because of US monetary policy(uncertainty surrounding). However, Indian and Indonesia would directly affect further detoriation in

external financing conditions because of rising U.S interest rates.

In short, global economic recovery remains modest and uneven with growth trends in advanced and

emerging economies. Developed economies are gradually rebounding. Emerging markets are still strugglingwith slow growth and restrictive financial conditions.


6/13

GLOBAL TRENDS IN CEMENT INDUSTRY

Through the global trends we are trying to analyse the scenario of the global cement industry. The global

cement production has grown at the Compounded Annual Growth Rate (CAGR) OF 7.7% p.a in the last 6

years. The developing markets are increasing rapidly. By developing economy we mean countries like

Chile, China, and Pakistan etc. The largest consumers and producers of cement in the world are India and

China. The demand for cement is highly localised since the transportation cost is very high the industry tries

to meet it demand through the local producers. Cement export accounts for only 7 % of the total global

cement.

Demand for cement is directly related to overall economic growth which differs from country to country

which varies according to the level of industrialisation in that country and the infrastructure facility of that

nation. If we see the global cement major like Holcim which is trying to strengthen its production base in

India by acquiring to mitigate the locational risk which is associated with operating in individual countries.

This has led to an increase consolidation activity in the global cement industry, which means that if we see

the last years performance the top 6 global player accounts for around 28% of the entire global cement

capacity this feature of consolidation is going to continue.

Global cement major like Holcim for example have adopted the inorganic route to gain entry into the Indian

Cement Industry. Now they control a substantial part of the cement capacity in the country.

If we see the above figure we can find that production major China with 59.3% followed by India 6.6% Asia is

having a higher % of 11.9%.

Production

Domestic

prduction

Export


7/13

INDIAN ECONOMY

Indias economy is the third largest by GDP in terms of purchasing power priority but, with a large

population, it ranks only 165thin GDP/capita terms. The agricultural has reduced the dependency which

resulted in decrease in the contribution of agricultures income.

Topic projected to growth in 2013-2014 Growth rate in 2012-2013

Manufacturing 1.50% 1%

Services 6.60% 7.10%

Agriculture 4.80% 1.90%

WPI Inflation 5.5% 5.7%

Current Account Deficit 3.8% of GDP($70 billion)

4.8% of GDP ($88.2

billion)

Investment Rate 34.7% 35%

Domestic Savings 31% of GDP 30.2% of GDP

Merchandise trade deficit 10.1% of GDP($185 billion)

10.6% of GDP($195.7

billion)

Net invisible earning 6.3% of GDP($115 billion)

5.8% of GDP($107.5

billion)

Net Capital Flow $61.4 billion $89.4 billion

Net FDI Inflows $21.7 billion $19.8 billion

Net FII Inflows $27 billion $17 billion

Fiscal Deficit 4.8% of GDP 4.9% of GDP

The economy will grow in the second half because of the following reason:

The full impact of various measures taken over the last six months will be reflected later in this year Strong emphasis is being laid on improving the performance of key infrastructure sectors that lie in

the public domain such as coal, power, roads and railways

Continuous efforts are being made to remove the bottlenecks in the implementation of projects Between 2010-11 and 2012-13, the combined impact of higher net oil and net gold imports on the

CAD was almost $57 billion or 3.0 percentage points of GDP. This was equivalent to 87 percent of

the aggregate deterioration in the merchandise trade balance of $65 billion during the period.

The CAD may go even below $ 70 billion in 2013-14 if the recent trends in exports and imports aremaintained through the year.

During 2013-14 the good performance in agriculture will have a moderating effect on food inflation;depreciation of the rupee may put some upward pressure.


8/13

Measures Suggested to Improve Economic Conditions

I Growth friendly measures taken over the last year

Liberalizing FDI investment norms Resolution of some tax issues of concern to industry Fast tracking of public sector investment: focused attention on coal, power, road, railways

Initiating construction on the dedicated freight corridor Improved investment policy regime across a number of sectors like sugar, urea, gas, roads, banking,

etc.

II Medium to Long-term Measures

(A)improving manufacturing capabilities Improving domestic supply chains Addressing specific tax issues in sectors like electronics Facilitating productivity shift through assured supply of skilled labor Encourage ease of doing business by streamlining procedures(B) Foreign Investment

Stable, non-reversible policy regime Early resolution of transfer pricing issues(C) Lower Current Account Deficit

Focused strategy to improve export competitiveness to take advantage of rupee depreciation Simplifying export related procedures

Boost domestic coal production and reduce oil subsidies to make them more price elastic Pro-active implementation of modified gold deposit scheme.


9/13

INDUSTRY OVERVIEW

The cement industry in India has shown a steady growth following the economic growth pattern over the

past few decades. The Industry eventually grew so big that producers started building capacities to capture

Future Demand.

India is currently the 2nd largest cement producer in the world after China with total capacity over 300

MMTPA. The industry is growing rapidly with various development activities in sectors like housing, power

and road.

The industry was initially controlled by Government. The industry was liberated in 1982 allowing the

producers to sell 33% of their production in open market. The industry was fully Liberated in 1989 and ever

since the industry has seen rapid growth with capacity addition targeting future market.

The cement Industry surpassed economic growth rate of the country in FY 2006 and registered an average

multiplication factor of 1.32 times the GDP growth rate. In FY 2007 the multiplier factor was 1.4. Later the

industry watched a slog over phase due to delay of various infrastructure projects however the industry grew

at CAGR 5.6% every year.

The top five players account of 48% of the industry, with Ultra Tech Cement as the largest player. Many

small players have also entered the market and consolidated their position in the industry.

The industry has observed a capacity addition of 158 mn tonnes in FY 2008-2013. Due to this the industries

capacity utilization has gone down from 93% to 73%. However the cement prices kept on rising by 13%.

The industry is one of the basic infrastructure industries and is contributing in terms of employment

generation, tax, revenues and industrial growth. The per capita consumption of cement is considered as an

important indicator in countrys economic development.

The nature of the industry is oligopolistic in nature, however it shows a degree of fragmentation. Around

60% of the total capacity is scattered among approximately 50 large cement companies over 200 mini

cement plants.

Currently the industry is in midst of an interesting phase of robust demand, very high capacity utilization

and firm prices. The government has a keenness to improve the infrastructural facilities in the country hence

promoting the industry towards satisfying higher demands.

This industry is heavily investing in increasing production of cement capacity to cater the expected rise in

demand. However, capacity additions likely to miss scheduled deadline due to delay on environmental

clearances and delay in supply equipment.

Inputs like availibility of adequate quantity of coal are a major problem in the industry. Government has

reduced assured coal supply to 75% of cement industrys total coal requirements. Cement industry are

resorting to coal imports by use of alternative fuel like lignite to meet fuel requirements.

Distribution cost is another major concern in this industry. Companies are working towards strengthening

distribution network and also bring down distribution cost.

Cement price has risen sharply since March 2006. Due to this the government has adopted various measures

to facilitate imports. This attempt is to ease cement supply and reign cement prices.


10/13

CEMENT

The word cement is of ancient cement origin, the Romans made a kind of structural concrete composed of

broken stone or similar material with burned lime as the binding medium. This form of construction was

called opus caementitium.

CEMENT MANUFACTURING PROCESS

TYPES OF CEMENT

Cement is classified into various categories based on its composition and specific end uses. Primarilycement is classified into Portland, blended and specialty cement. The cement industry has seen some majorchanges as far as production of various varieties of cement i.e. OPC, PPC, PBFSC is concerned. Cement

producers have shifted from manufacture of OPC to PPC in the last 6 years. The proportion of blendedcement has increased due to better margins offered in PPC, growing acceptability in the market and less

pressure on the natural reserves of limestone.

INDUSTRY CHARACTERISTICS

a. Regional in nature Cement is a high volume commodity; transporting it beyond adistance makes it non-remunerative for end users, making itregional in nature.

b. Seasonality of demand andcyclicality of the industry

Demand declines during monsoons due to slowdown inconstruction activity, consequently, making demand for cementseasonal in nature. In addition, the cement industry, like mostcapital-intensive commodity industries, is cyclical in nature,especially with respect to supply.

Mining &

Crushing

Raw Mill

Grinding

Raw Meal

Homogenizati

Pyro

Processing

Final

GrindingPackaging

Crushed Limestone

Coal, pet coke

and alternative

Clinker

1) Gypsum

2) Flyash / Slag

1) OPC

2) PPC

Cement

Correctives i.e. iron

ore, flue dust,

sweetner and gypsum


11/13

DISTRIBUTION NETWORK OF THE CEMENT INDUSTRY:

The main players in the cement industry value chain are the raw material suppliers, manufacturers,distributors and end-users. Given below is a brief summary of the characteristics of each party:

Raw Material SuppliersMost of the raw material suppliers are either in the public sector domain or controlled by the central or

state governments.

ManufacturersAs cement is a bulky commodity, outward freight costs account for a large share (22% approx.) of

production costs. Hence cement units prefer not only being close to the limestone quarries but also to themarkets. Depending on the location, the manufacturers are called cluster or coast based.

DistributorsThese constitute the important link between the manufacturer and the end user. The main intermediariesin the distribution chain include:

Wholesalers:The wholesaler is a large trader, who handles sale of 800-20,000 tonnes of cementper month and earns a margin of Rs.1- 3 per bag. He maintains liaison with retailers and effectsales to the institutional customers.

Retailers: A retailer is a small trader, who stocks 20-500 tonnes of cement per month and earns amargin of Rs.5-6 per bag. A retailer does not prefer any particular wholesaler.

Wholesaler-cum-Retailers: A wholesaler-cum-retailer would operate in markets, which havelow off take levels and limited access to cement. Typically, these markets are small towns andrural areas

End usersThe main end users are government, institutional buyers and retail buyers. The Government

purchases cement either by floating tenders or through The Director General of Supplies & Disposals(DGS&D).Institutional buyers purchases either directly from the companies or from the wholesalers.

INDUSTRY STRUCTURE & MARKET PLAYERS

Cement Industry in India is fragmented, with around 172 major cement plants (capacity of more than equalto 2MMTPA) and around 365 mini cement (capacity of less than 2MMTPA) plants. The industry can be

broadly classified into:

Pan-India Players (34% share in total capacity):include large players like Holcim group companies-ACC and Ambuja and Aditya Birla group company-UltraTech Cement

Regional Players (53% share in total capacity): playerswhose presence is restricted to one or two regions, with astronghold in the markets of their respective operations e.g.Jaiprakash Associates (North and Central), Lafarge(concentrated in the East), India Cement (South), ShreeCement (North), Binani Cement (North), Kesoram Industries

(South), OCL (East), Chettinad Cement (South), DalmiaCement (South & East), Madras Cement (South) etc.

34%

53%

13%

% OF TOTAL

CAPACITY

PAN INDIA

REGIONAL

PLAYERS


12/13

Marginal Players (13% share in total capacity):owing to their largely local reach, these players runthe risk of being marginalized and are classified as marginal players. E.g. Panyam Cement, PennaCement, etc.

IMPORTANCE CEMENT INDUSTRY TO INDIAN ECONOMY: Basic ingredient in construction work. Generation of employment. Contribution to national exchequer. Contribution to Indian railway revenues. Helpful in the development of other industries. Enhancement in the national income. Huge export potentialities and quick marketability.

MARKET SIZE

Indian cement sector demand to increase at a CAGR of around more than 8 per cent in the FY 2013-14 to FY 2015-16 expected to show positive growth in the coming year, according to Indian Cement

Industry Outlook 2016. It also says that Indias southern region is having maximum demand for

cement which will increase in future.

Indian cement sector has foreign direct investments of US$ 2656.29 million in the year April 2000August 2013, as per Department of Industrial policy and promotion.

FUTURE PROSPECTS OF CEMENT INDUSTRY Cement Industry showing a fast growth the industry will boom. The cement production might be

more than 400 million tonnes in the next 10 years as the demand would increase 8-10 percent. The

major Brands could increase their production to 50-60 crore tonnes per year.

However the industry will face change in nxt few years from bags to Ready Mix Concrete (RMC). Itwill be tailor made concrete to suit various infrastructure needs. RMC market is still at initial stage

will slowly but steadily gain market. The advantage of RMC is that it is economical, stronger and

Environment Friendly.

50-60 per cent of cement is consumed by the housing sector. As the emphasis on infrastructuredevelopment like road, bridges and railways it is expected to change and will consume significant

percentage of cement product. In future it is expected that agriculture sector will also need cements

for Second green revolution to build warehouses and other logistics.

It is expected that eastern states of India along with the border States will be newer market forcement companies. In next few years India will be the main exporter of clinker and gray cement.

Cement plants in Gujarat and Visakhapatnam, will have advantage for export and will be armed to

give stiff competition.

Foreign players are expected to enter the cement sector in following years, owing to the profitmargins, constant demand and right valuation.

With the help of government laws, lower taxation and more infrastructures spending the sector willgrow rapidly and will take economy forward along with it.


13/13

CONCLUSIONS:

Competition in the cement industry has intensified in the last two years , the global cement major has gained

a foothold in the country. Cement manufacturing companies are trying new strategies like non-price

instruments such as branding, greater expenditure on advertising, innovative packaging, strengthening of

their distribution networks as well as several customer-focussed initiatives. in order to capture a substantial

share in the market. These strategies even include giving benefits to the various people involved in the

distribution network .

Companies are also integrating vertically by moving into the ready-mix concrete business in an attempt toretain their clients. Regional players are also moving out of their regions in an attempt to establish a pan-India presence. This is expected to intensify the level of competition in the industry.

Though there is immense growth potential, the Indian cement industry does face some risks. These includepoor infrastructure facilities in the country, possible slowdown in implementation of government policiesregarding infrastructure, among others. There are also concerns of a situation of overcapacity emerging inthe industry leading to a fall in capacity utilisation rates.

In a nutshell we can conclude that the cement industry has witnessed tremendous growth as it is:

Driven by a booming real estate sector Global demand Increased activity in infrastructure development such as state and national highways

As various infrastructure projects, road networks and housing projects are coming up, many of whichare backed by the government, the cement industry in India is growing at a great pace these days. With thecapacity of 151.2Million Tons (MT), the Indian cement industry is truly big in size and henceaccommodates a number of cement companies in the market. Not only that, more growth is further expected inthe coming years, which will also lead to the growth of top cement companies in India.

Date post:	04-Jun-2018
Category:	Documents
Upload:	ritu-shaw
View:	218 times
Download:	0 times

Cement Industry_Group 3

Documents