Indian Cement Industry-An Overview

Submitted by:•Mihirkul Vikram•Anurag Agrawal•Prashant Gupta•Sachin Kabra•Shashank Kumar Singh•Rajeev Sharma

Pre Independence• First cement production dates back to 1889 when a Calcutta firm

produced cement from kankar.• In 1914,first commissioned manufacturing unit established by

India Cement Company at Porbandar.

Post Independence In 1969,full control exercised by govt. in production, capacity and

distribution. In 1982,quota system introduced by govt. with 66.6 % sales to

govt. and rest for open market.

Post Liberalization• Accelerated growth with foreign investments resulted in capacity

expansion.• Total production has increased from 43 Million tonnes in 1989-90

to 236 million tonnes in 2009-2010.

Industry Background

Global Cement Industry is ~3100 million tonnes (MT) with an installed capacity

of ~3900 MT

China accounts for nearly 50% of the total installed

capacity. India is the second largest cement

producer in the world, way behind China.

Recent growth in the global cement consumption is primarily driven by the

emerging markets, generating ~ 70% of the

demand.

India is among the fastest growing cement markets in

the world with a consumption CAGR of ~

10% (2005-10).

Global Cement Industry

Cement industry contributed 0.78% to GDP in 2009-2010.

Demand expected to grow at 10% per annum in foreseeable future on the back of 8% GDP growth

54 major companies who own more than 139 large cement plants.

Top 5 players account for 50% market share and remaining 50% market share is with more than 100 players.

Current demand estimated at 230 MT in 2011 & present capacity is 300 MT

Indian Cement Industry

Installed capacity was 236 MT in 2009–2010 and has increased at a (CAGR) of 8.8% between 2004–05 and 2009–2010.

The production of cement in 2009–2010 was 200.7 MT.

The turnover of the industry has been estimated at US$ 15.7 billion in 2009–2010.

The Cement Manufacturers’ Association of India (CMA) estimates the industry manpower at about 140,000 as on 31 March 2009.

Market Overview

Key Growth Drivers

Housing Sector: -

•Increased allocation to programes like RAY and IAY, likely to boost the demand in semi-urban and rural areas. Substantial increase in the number of households.

Infrastructure Opportunity: -

•construction and modernization of airports, seaports, railroad, and power plants are likely to boost demand for cement.

Commerc

ial Structures and Corporate Projects: -

•Industries like chemicals and plastics, textiles, metallic, non-metallic and mineral projects are operating at full capacity. Expansions in these sectors are likely to increase cement demand.

SWOT Analysis

•Low cost of production due to cheap and easy availability of raw materials and labor.

•Capital-intensive industry with long construction periods, creating natural barrier to new entrants.

Strengths

•High oil prices, significantly increased the transportation costs.

•High Interest rates on housing.

Weaknesses

•A number of M&A transactions might take place in the near Future

•Increase in infrastructure projects and the purchasing power of the middle class.

Opportunities

•Increased competition in local markets.

•Imports from Pakistan affecting markets in north

•Excess overcapacity can hurt margins & prices.

Threats

Porter’s Five Forces Framework

Rivalry among existing players (High)

Threat of New Entrants (High)

Bargaining Power of Buyer

(Low)

Threat of Substitute

products (Low)

Bargaining Power of

Suppliers (Low)

SPELT Analysiso Stands for Social, Political, Economic, Legal and Technological.o Helps the company to form the policies to grow in the industry.

Social: -o Shifting consumption pattern to fuel industry growth.o Creation of direct and indirect jobs each year.o Lifestyle and standard of living

Political: -o SEZ Act to improve Infrastructural Development.o Government participation.

Economical: -o Growth in Construction Activity improving GDP Growtho Increase in Per Capita Incomeo Rate hikes unlikely to slow down growtho FDI Liberalization to enhance industry growth

SPELT Analysis (contd…)

Legal: -o The Department of Industrial Policy and Promotion (DIPP),

under the Ministry of Commerce and Industry, is the nodal agency for the development of cement industries.

o Involved in monitoring the industries’ performance at regular intervals and suggesting suitable policy incentives.

Technological: -The technology up gradation has helped the cement

industry too increase the capacity of plantoDecrease the thermal energy consumption, electrical energy

consumption, cost of production of cement and energy cost.

• Share has increased marginally

1.Energy Cost

• Share in total operating cost has declined

2.Cement freight cost

• Remained constant

3.Other costs

1. Cost Analysis: -

Economic Analysis

Trend in cement capacity utilization: 100% in 2007 Export ban in 2008

2.Demand Supply Position

Demand Supply Mismatch

.

60%20%

20% Housing Sec-torIndustrial SectorInfrastructure Sector

Regional surplus or shortages

Per capita cement consumption

Demand Sources

2nd largest producer of quality cement

Very energy intensive with 3rd largest user of

coal in the country.

High industry potential because limestone of

excellent quality is available across the

country.

Uses best technology

in the world.

Current Scenario

Strong linkages to other sectors like construction, transportation, coal and power

Contd…

Year 2008-2009

Total cement consumption was

178 million tonnes.

Exports of cement and clinker around 3 million tonnes.

Year 2009-2010

Industry capacity 217.80 million

tonnes

Conclusiono Positive growth trajectory.

o Overall Industry growth stood at 3% with a long term projection of 8-9%.

o Industry has touched 300 mn benchmark and major players are in last leg of capacity expansion.

o Housing sector accounting for 60-70% consumption expects AAGR of 230% between 03-07 and 08-12 FY.

o 12th Five Year plan suggest 1 billion$ investment in Infrastructure directly benefitting companies with larger installed capacities

o Recommendations for the sector can be:• Expansion of customer base.• Minimization of production costs.

• Improved financial decision and capacity utilization.

Thank You.