www.sookshm.co.in | 1 REPORT- CEMENT INDUSTRY Construction construction construction India is the second largest producer of cement in the world and with the deregulation of the industry in 1982; it has attracted huge investments from both Indian and foreign investors. Apart from investments, government’s push for large infrastructure projects would surely push India’s demand for cement directing the industry into higher growth trajectory. This document gives a brief analysis of the Small And Medium Enterprises in the cement industry, containing assessment of the key success factors, opportunities, threats, industry trends, challenges, technological changes faced and much more.
Transcript
www.sookshm.co.in | 1
REPORT- CEMENT INDUSTRY
Construction construction construction
India is the second largest producer of cement in the world and with the deregulation of the
industry in 1982; it has attracted huge investments from both Indian and foreign investors.
Apart from investments, government’s push for large infrastructure projects would surely
push India’s demand for cement directing the industry into higher growth trajectory. This
document gives a brief analysis of the Small And Medium Enterprises in the cement industry,
containing assessment of the key success factors, opportunities, threats, industry trends,
challenges, technological changes faced and much more.
www.sookshm.co.in | 2
Contents
About the author .............................................................................................................................................................. 3
Cement Industry Market Overview .................................................................................................................................. 5
Industry Trend ................................................................................................................................................................... 6
Geographical distribution of major manufacturers .......................................................................................................... 8
Government Initiatives ..................................................................................................................................................... 9
Opportunities for SMEs: .................................................................................................................................................. 10
Challenges for SMEs ........................................................................................................................................................ 12
The Way Forward ............................................................................................................................................................ 14
www.sookshm.co.in | 3
About the author
Sohini Deb has 14 month of work experience in automationin TCS. She has keen interest in Marketing and Operationsarea and is currently pursuing MBA from InternationalManagement Institute (IMI) New Delhi. She did BTech inComputer Science from WBUT.
Kumar Rishi is a Post Graduate in Marketing from IMTGhaziabad and a Mechanical Engineer from ThaparUniversity, Patiala. He has experience in auto componentindustry and market research.
Ashwani Kumar holds wide experience helping SMEsgrowth in Steel & Automotive Component industries usingOperational excellence, LEAN & Six Sigma concepts. He is agraduate from IIM Rohtak with a Mechanical Engineeringbackground from IIT Delhi and currently running SookshmManagement Consulting Firm catering to SMEs.
www.sookshm.co.in | Executive Summary 4
Executive Summary
India is the second largest cement producer in the world after China and is one of the main contributors in the GDP
of the country. Ever since its deregulation in 1982, it has attracted both Indian as well as many foreign investors. This
industry hugely depends on the construction and the infrastructure sector. With a boost in the construction sector,
vis-à-vis initiatives like Modi government’s smart city initiative, the demand for cement would increase hugely. Apart
from the smart city initiative, government’s push for large infrastructure projects would also increase the demand
for cement by manifold.
The Indian cement industry is divided into two types of plants; the large plants with a capacity of 400 million tonnes
per annum (MTPA) and the mini plants with a capacity less than 2 million tonnes per annum. It is a highly
fragmented industry and is mostly dominated by the top 20 cement companies which accounts for almost 70 per
cent of the total cement produced. Also if we look at the demand drivers, the housing sector is the major demand
driver in the cement industry, followed by infrastructure, commercial and industrial. It accounts for nearly 64% of
the total cement produced in a year.
Cement is a bulky commodity and cannot be easily transported over long distances making it a regional market place
with the nation divided into five regions and each region is characterized by its own demand – supply dynamics.
While the southern region is excess in capacity owing to abundant availability of limestone, the western and
northern regions are the most lucrative markets on account of higher income levels. Geographically, Andhra Pradesh
is the leading state with 40 large cement plants, followed by Tamil Nadu, Uttarakhand and Rajasthan having 21, 21 &
20 plants, respectively.
With the rise in the demand and production of cement, there are huge opportunities for the small and medium
enterprises in this sector. Government initiatives like AMRUT and smart cities, availability of fly ash, investment in
infrastructural development, tie up with overseas players for technological advancements would surely create huge
demand for cement surging the growth of the cement industry.
The SMEs in the cement industry face a few challenges too along with the current opportunities. Challenges like
limited availability of coal and fly ash, an increase in the clean energy cess, limited supply of wagons, high tax, and
fall in exports. Though these threats are not so huge in nature, yet it would impact the growth of the SMEs in the
cement industry in the future averaging out their growth rate.
Considering India’s huge demand for real estate and uprising income levels, we at Sookshm believe that, for a
positive growth of the cement industry, below mentioned aspects are most crucial.
Use of alternate fuels to tackle the problem of acute shortage of coal supply
More usage of ready mix concrete (RMC)
Partnering with major and overseas players having R&D capabilities of their own
www.sookshm.co.in | Cement Industry Market Overview 5
64%17%
13%6%
Diagram-1: How industries consume cement
Housing Sector
Infrastructure
Commercial
Industrial
Cement Industry Market Overview
Market Size
Cement demand in India is expected to increase due
to government’s push for large infrastructure projects,
leading to 45 million tonnes (MT) of cement needed in
the next three to four years. As of 2015, India's
current cement demand was 324 million and is
expected to reach 550-600 Million Tonnes Per Annum
(MTPA) by 2025. To meet this rise in demand, cement
companies are expected to add additional capacities
over the next three years thus registering a growth of
8%.
The Indian cement industry is dominated by a few
companies. The top 20 cement companies account for
almost 70 per cent of the total cement production of
the country. A total of 188 large cement plants
together account for 97 per cent of the total installed
capacity in the country, with 365 small plants
accounting for the rest.
Large cement plants: All
those plants having
installed cement
production capacity of
400 MTPA or more.
Mini and White cement
plants: All those plants
having installed cement
production capacity of
capacity less than two
million tonnes.
www.sookshm.co.in | Industry Trend 6
Cement production increased at a CAGR of 6.44 per cent to 282.79 million tonnes over FY07–16
As per the 12th Five Year Plan, production is expected to reach 407 million tonnes by FY17
Industry Trend
The above diagram shows the supply chain of a typical
cement industry. It starts with sourcing of raw
materials like limestone from quarries or fly ash, and
fuel supply viz. coal, and ends with distribution to
either concrete companies or wholesalers or retailers.
Diagram-2: Overview of Supply chain
Figure-1: Production of cement
www.sookshm.co.in | Industry Trend 7
Fragmented:
The Indian cement industry has been characterised by
a high degree of fragmentation. As of March 2016,
there were a total of 210 large cement plants
accounting for a cumulative installed capacity of over
350 million tonnes, and over 350 mini cement plants
for an estimated production capacity of 11.10 million
tonnes.
Dependent on construction and development:
Demand for cement is highly correlated with activities
like construction & development. For example, Due to
environmental issues, Governments some time put a
ban on construction activities for a brief period. Such
bans had the potential to negatively affect the
demand for cement for a short period.
Apart from this, there is also a correlation between
gross domestic product (GPD) per capita and cement
consumption. The GDP of a country measures the
average living standard of a country. Economic
expansion leading to increased industrialization also
drives the amount of consumption of cement.
Localised Operations:
Cement, being a bulk commodity, is freight intensive
and transporting it over long distances can prove
uneconomical. Prices of most of the input materials
increased substantially due to increase in basic prices
and transportation cost. Major cost that impact the
margins are:
Energy cost
Freight and Handling expenses
Input material cost & packaging material cost.
To reduce cost, most companies, study and try to
optimize the fuel mix for the plant so as to reduce the
energy cost. Companies also try to reduce the
transportation cost by setting up plant closer to the
market they are catering to.
Cement is a bulky commodity and cannot be easily
transported over long distances making it a regional
market place with the nation divided into five regions
and each region is characterized by its own demand –
supply dynamics. While the southern region is excess
in capacity owing to abundant availability of
limestone, the western and northern regions are the
most lucrative markets on account of higher income
levels. However, northern regions will see major
capacity additions taking place in coming years.
Characteristics of the Industry
The cement industry has evolved in the form of
clusters across the country due to the concentration
of limestone reserves in certain states. The cyclical
nature of the industry, nature of the commodity and
transportation cost requires cement plant to be
located in the market it serves. Also, the availability of
Limestone, key raw material plays a vital role in the
location of a company’s plant.
Increasing presence of cement players
Presence of small & mid-size cement players
across regions is increasing, which helps to
diminish market concentration of industry leaders
A large number of foreign players have also
entered the market owing to the profit margins,
constant demand and right valuation.
www.sookshm.co.in | Geographical distribution of major manufacturers 8
Mergers and Acquisitions
In January 2017, JSW Cement bought 35.6 per
cent stake in Shiva Cement, for an estimate
amount of US$ 14.42 million.
In the year 2016, there were 2 huge mergers and
acquisitions:
Dalmia Bharat acquired Odisha Cement in Nov
2016 for US$2.54 billion.
UltraTech cement acquired Jaypee Cement in Feb
2016 for a value of US$2.38 billion.
Geographical distribution of major manufacturers
Major cement clusters for cement
production are-
Satna (Madhya Pradesh),
Gulbarga (Karnataka),
Yerranguntla (Andhra Pradesh),
Nalgonda (Andhra Pradesh)
Chandoria (Rajasthan)
Andhra Pradesh is the leading state with 40 large cement plants,
followed by Tamil Nadu, Uttarakhand and Rajasthan having 21, 21 &
20 plants, respectively.
The cement industry in south has the highest installed capacity of
132.7mtpa, approximately three times of that of the east.
Diagram-3: Geographical distribution of cement manufacturers
www.sookshm.co.in | Recent Developments 9
Recent Developments
Real Estate (Regulation and Development) Act, 2016(RERA)
Some of the major provisions of the Act, besides
mandatory registration of projects and real estate
agents, include depositing 70 per cent of the funds
collected from buyers in a separate bank account for
construction of the project.
Though this is a short term relief, yet it would ensure
timely completion of the project protecting the buyer
from any harm from the developers. These acts like
RERA protect the buyers from any harm from the real
estate developers and create confidence in them,
which causes demand for real estates and thus
indirectly causing demand for cement.
Demonetization
The India Ratings and Research has blamed
demonetisation and elections for a poor fourth
quarter for cement producers in FY 2017. Cement
production volumes fell by 15.8% year-on-year in
February 2017 and by 5% on a month-on-month basis.
India Ratings also reported that volumes for the major
cement producers contracted by 5% year-on-year in
the third quarter. On a regional basis it fell by 3% and
6% for producers in central and northern regions.
However, volumes rose sharply, by 21%, in the south.
Growth in the southern region has been supported by
increases in government spending in the states of
Andhra Pradesh and Telangana.
Pollution Norms
Even though the new pollution norms have relaxed
emission limits for sulphur dioxide and nitrogen oxide,
the industry complains they need more time. China,
which is the largest producer of cement, has set the
limit for sulphur dioxide to 200 milligrams per cubic
metre (mg/Nm3). India’s new norms, on the other
hand, stipulate the emission limit for sulphur dioxide
from 100-1,000 mg/Nm3.
Government Initiatives
In the 12th Five Year Plan, the Government of India
plans to increase investment in infrastructure to the
tune of US$ 1 trillion. Some such initiatives by the
The increased allocation to rural low-cost housing
under Pradhan Mantri Awaas Yojana- Gramin
scheme to Rs 23,000 crore (US$ 3.45 billion) from
Rs 16,000 crore (US$ 2.4 billion) in FY17 is likely to
drive a 2 per cent increase in cement demand,
Ambit Capital said in a report.
The Government of India plans to enact a law that
will allow the companies which have received
mining licenses without having gone through the
auction process, to transfer these leases, in a
move that is expected to make mergers and
acquisitions (M&As) easier in the steel, cement,
and metals sectors.
Opportunities for SMEs:
Government Initiatives towards New Schemes
Initiatives by the new government such as housing for all, smart cities, Atal Mission for Rejuvenation & Urban
Transformation (AMRUT), , infrastructure spending, concrete roads initiative & an increase in allocation of funds
to states are likely to see a positive impact on the industry in the next 3-6 months
The government’s recent focus on road projects & an increase in state allocations will drive infrastructure &
housing demand which will indeed drive the market for cement industry.
Government’s initiative ‘Swachh Bharat’ has built a total of 1.09 crore toilets in the past year, driving the
demand for cement.
Urbanisation and industrialisation development in the country
The new urban development mission will focus on development of cities and towns of religious and tourist
importance, thereby increasing the demand for cement.
Infrastructure is a priority for the government’s economic policy; funding from private as well as public sectors is
set to increase sharply in the near term which would anticipate the demand of cement industry in India
Availability of fly-ash (from thermal power plants) & use of advance technology has increased production of
blended cement
Unmet and Rising demand: As India’s current per capita consumption of cement (190 kg as of March 2015) is much
lesser than the developed & other developing economies, there is a significant business opportunity to cater to the
unmet and rising demand
Standardised technology: Cement manufacturing is a standardised and simple prospective, which does not offer any
technological advantage to specific players. The industry is characterised by matured and stable technology with
only minor improvements taking place over the years. The financial viability / profitability of a unit depends on
operational efficiency (both manufacturing and marketing) apart from general demand supply situation in the
region. Any innovations in the manufacturing process can be easily diffused across the industry. Thus access to the
latest technology is not an entry barrier for SMEs entering the sector.
Rapidly increasing real estate industry in India is expected to push the demand for cement
Residential real estate demand is driven by rising population & growing urbanisation
www.sookshm.co.in | Opportunities for SMEs: 11
Rising income levels are leading to higher demand for luxury projects
Demand for affordable housing is growing in order to meet the demand from lower income groups
Investment in infrastructure:
Tie – up with overseas players- Opportunities for emerging players
India has joined hands with Switzerland to reduce energy consumption & develop newer methods in the country
for more efficient cement production, which would help India meet its rising demand for cement in the
infrastructure sector
Adoption of cement instead of Bitumen
The Government of India has decided to adopt
cement instead of bitumen for the construction of all
new road projects on the grounds that cement is
more durable and cheaper to maintain than bitumen
in the long run. Again bitumen is generally imported
in crude form whereas cement is manufactured in the
country making cement more viable.
PM Awaas Yojana
With the proposition to construct one crore houses
by 2019 for homeless under PM Awaas Yojana raising
the allocation from Rs 15,000 crore to Rs 23,000
crore we expect to see a boom in the demand for
cement.
Infrastructure is the basic physical
structure like buildings, roads and
investment in infrastructure is the main
growth driver.
India’s investment in infrastructure is
estimated to double to about USD1
trillion which is about 9 percent of GDP,
during the 12th Five Year Plan(2012–17)
compared to the previous plan
“We have decided to now start using cement for all new projects that are in the pipeline as long as the cost of construction of a concrete road is not more than 20% higher than that of a road made using bitumen. The idea is that using cement will bring down the cost of maintenance significantly,”
-Government Official talking to a leading media house
“Cement is an indigenous product, available on demand throughout the country, whereas bitumen is only obtained from imported crude and its availability in future is uncertain and scarce. Thus, by adopting cement roads, more than Rs. 75,000 crores of FOREX, being currently spent on import of crude can be saved which would be helpful in improving our current account deficit,”
-CMA spokesperson.
Figure: 2- Infrastructure spending in % during 11th and
12th Five Year Plan
www.sookshm.co.in | 12
Amma Cement
The Government of Tamil Nadu has launched low priced cement branded 'Amma' Cement. The sale of the
cement started in Tiruchi at Rs 190 (US$ 2.84) a bag through the Tamil Nadu Civil Supplies Corporation (TNCSC).
Sales commenced in five godowns of the TNCSC and will be rolled out in stages with the low priced cement
available across the state from 470 outlets. This cement is provided in a subsidized rate by procured it from
manufacturers in the state. This scheme has the potential to create huge opportunities for manufacturers in the
state
Challenges for SMEs
Highly competitive industry
The industry is highly competitive in nature with the
bigger players being more dominant and calling the
shots. They fix the price of per bag of cement, thus
making the SMEs with no option than to reduce costs
by enhanced productivity, reduction in energy cost
and logistics expenses. Due to this, the profit margins
of SMEs are lower than the bigger companies.
Increase in Clean Energy Cess
The Schedule Rate of Clean Energy Cess, levied on coal
is being increased from INR 100 per tonne to Rs. 300
per tonne. The increase in the clean energy cess has
lead to rise of power and fuel cost in the cement
companies. This again has lead to reduction in profit
margins of the SMEs. The alternate way is to use bio
energy as energy but it still is costly and reduces profit
margins.
Acute shortage of coal
Coal is one of the major raw materials required in the
cement industry. In the last couple of years, there has
been a steep drop in the supply of linked coal to the
cement industry from 70 per cent in FY04 to almost
39% now, mainly due to diversion of coal to the
power sector. Cement companies, therefore, have
been forced to open market purchase or imported
coal which works out to nearly 2 to 2.5 times higher
than the domestic prices. With the increasing cost of
coal and other input materials such as diesel, etc. the
production cost of cement has gone up significantly.
Due to the increasing cost of coal, alternate fuels like
bio energy or Low Sulphur Heavy Stock(LSHS) sludge
can be considered in place of coal. But these alternate
fuels are costly and for SMEs with a capacity of only 2
million tonnes per annum(MTPA) this option is not
economically-viable.
www.sookshm.co.in | Challenges for SMEs 13
Inadequate availability of wagons
Rail is the ideal mode of transportation for cement
industry. However, there is a short supply of wagons,
particularly during the peak period. The detrimental
policies of the railways have been hampering the
planned movement of cement to the consumption
centres, adversely impacting the production schedule
and also increasing the overall transportation cost of
cement. Rail share for cement which was 53 per cent
a couple of years back has come down to 35 per cent
now. Bigger companies in this industry can also
transport cement through trucks but for SMEs this
option is not economically feasible.
Steep fall in cement exports
With the high incidence of government levies,
infrastructure constraints at ports and the regulatory
policies of the government providing encouragement
for import of cement with nil custom duty, the export
of cement and clinker from India has been steadily
and continuously declining from 9 million tonnes in
FY07 to 3.5 million tonnes in FY12, despite the fact
that Indian cement industry is presently having the
substantial excess capacity of cement and clinker.
.
Convenience and Cost
The cement industry, one of the highest polluting
industries, fails to comply by the new pollution norms
notified in May 2016, the deadline for which was 31st
March, 2017. And for SMEs to comply with the
pollution is expensive and reduces their profit margin.
.
Revival of state run cement factory
The Government of India is planning to revive the
state-run cement factories across India, in order to
give a boost to road and realty projects by bringing
down their construction costs. These state run
factories provide cement at a subsidized rate and thus
create huge competition for the SMEs.
www.sookshm.co.in | The Way Forward 14
The Way Forward
Though there are a few challenges that the SMEs face in the cement industry, yet the opportunities are way
bigger for the SMEs to grow positively in the future. Government initiatives like PM Awaas Yojana, to build 1 crore
houses by 2019, or the increasing investment in infrastructure, or the rapidly increasing real estate industry would
push the demand for cement helping the cement industry to grow further in future. We believe that the below
mentioned aspects are crucial for the future growth of the cement industry.
Use of alternate Fuels: Due to several environment concerns, use of the alternate fuels can be a viable option for
the cement industry in the future. This is also helpful in cutting costs.
Ready Mix Concrete (RMC) needs to be encouraged. This leads to bulk supply of cement and consequent
reduction in pack-aging cost.
Consolidation In 2016 alone the cement industry saw two very important mergers and acquisitions:
- Dalmia Bharat and Odisha Cement
-UltraTech cement and Jaypee Cement
With the law passed by Indian Government allowing companies which have received mining licenses without
having gone through the auction process, to be able to transfer these leases, the year forward could see a few
more consolidation in the industry.
Madras Cement’s Alathiyur
plant
Uses bioenergy like burning
coffee husk to generate energy
Annual Saving- USD1.7 million
UltraTech’s Gujrat Cement
Works
Uses tyre chips and rubber dust
as alternate fuel
Reduction in 30,000 tonnes of
carbon emissions annually
Company/Plant Strategies adopted Benefits
www.sookshm.co.in | The Way Forward 15
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