Cement industry analysis

By Abhinav kpMBA batch a

Cement sector notably plays a critical role in the economic growth of the country

 Cement is vital to the construction sector and all infrastructural projects.

 Occupies an important place in the Indian economy because of

Construction Transportation Coal Power

 

INTRODUCTION

Concrete is the second most consumed material after water, with nearly three tones used annually for each person on the planet.

One of the basic elements for setting up strong and healthy infrastructure cement plays a crucial role in the economic development of any country

The Indian cement industry is the second largest producer of cement in the world after China 

Cement industry in India comprises 183 large cement plants and over 365 mini cement plants

 There are 40 players in the industry across the country.

 Has high correlation with GDP, it grows at the rate of 1.2times that of GDP

In India, cement production normally peaks in the month of March while it is at its lowest in the month of August and September .

Indian cement industry is involved in production of several types of cement such as 

 Ordinary Portland Cement (OPC) Portland Pozzolana Cement (PPC) White Cement, etc…..

Produced strictly as per the Bureau of Indian Standards (BIS) specifications and their quality is comparable with the best in the world.

Indian cement majors—ACC Ltd, Gujarat Ambuja Cements ,Ultratech

 It is the combination of the mini and large capacity cement plants, where majority of the production of cement (94%) in the country is by large plants. 

One of the defining features of the cement industry is the location of the limestone reserves in selected state has resulted in its evolving in the form of clusters

STRUCTURE OF INDUSTRY

Proximity of coal deposits constitutes another important factor in cement manufacturing

 Since cement is a high bulk and low value commodity, completion is also localised because of the cost of transportation of cement of distant markets often results in the product being uncompetitive in those markets.

At present there are seven clusters: SANTA (Madhya Pradesh) CHANDRAPUR (North Andhra Pradesh and Maharashtra) GULBARGA (North Karnataka and East AP), CHANDERIA (South Rajasthan, Jawad and Neemuch in MP), BILASPUR (Chhattisgarh), YERRAGUNTLA (South AP), NALGONDA (Central AP).

Cement has been heavily taxed sector with both the central and the state government levying the taxes which amount to around 30% of the selling price of the cement or around 70%of the ex-factory price

The structure of the industry can be viewed as fragmented, although the concentration at the top has increased, as the top 10 players control around 73% of market share, which was 70% during 1990-91, whereas the other 27% of market share is distributed among 32 players . This is also confirmed by the results of Herfindahl Index 22 (HI).

 Major players are ACC Ltd, Ambuja Cements Limited, Ultratech Cement Ltd, India cements Ltd, Jaiprakash Associates Ltd, Shree cement Ltd.

The shares, in terms of all India cement production, of these top companies have fluctuated by small amounts in the last six years.

MAJOR PLAYERS

 Industry is split into five geographical segments named as ◦ North ◦ South◦ East◦ West ◦ Central

GEOGRAPHIC DISTRIBUTION

Rajasthan has the highest installed capacity in north India, accounting for 66.5% share in capacity in the region in 2011.

Chhattisgarh leads the eastern region with a share of 32.6% of total installed in the region in 2011.

Andhra Pradesh has the highest installed capacity in the southern region, 53.5% share of total installed capacity.

Madhya Pradesh leads the central region in installed capacity while Gujarat leads the pack in west India.

ACC Ltd acquire the significant market share of cement industry because it maintain high quality in cement production

ACC Ltd was established in1936 and has Headquartered in Mumbai.

Is the highest producer of cement in india

ACC Ltd

Regional distribution of ACC

established in 1986 and has over 20 years of experience in cement industry.

has production units in Gujarat,Maharashtra, West Bengal, Himachal Pradesh, Rajasthan and Chhattisgarh that has total capacity to produce 160,00,000 tons of cements

2nd largest producer

Gujarat Ambuja Cements

established in 1987 UltraTech Cement is the part of million

dollars Aditya Birla group Headquarters Mumbai, Maharashtra.

UltraTech Cement

Market Share of the companies

Bargaining power of buyers: moderate◦ In the cement industry, the bargaining power buyers is

moderate because the majority of buyers are bulk buyers.

◦ These buyers can bargain with the cement companies. However, their bargaining power is not very high as their purchases form a small part of the total production of the companies.

◦ Hence, they cannot exert much influence on the manufacturers. Moreover, one potential bargaining power with the buyers is the threat of importing cement. However, this threat is limited to an extent as the cost of import will increase the overall cost of the project.

Porter’s Five force analysis of cement industry

Bargaining power of Suppliers: High◦ In this industry, the suppliers exert a very high power◦ This is so because the raw materials form a very large part of the

process in the manufacturing of cement.◦ Shortage in supply of raw materials can cripple the whole plant

and can lead to huge losses.◦ When the suppliers demand something, the negotiations have  to

be completed quickly and the result is more or less in favour of suppliers.

◦ For example, if the coal suppliers stop supplying coal to the plant, it cannot function and production  will come to a standstill. The supply of coal has to resume as quickly as possible. Hence, the suppliers exert a great amount of influence in the decisions of the cement manufacturing companies.

Threat of substitutes: Low◦ In India, cement is the ultimate material used for

almost all type of construction work.

◦ Bitumen is one of the substitutes of cement but these days cement is even replacing bitumen.

◦ Another substitute for cement is engineering

plastic. This also cannot replace cement in many areas of work.

◦ Hence, there is practically no material to substitute cement.

Threat of new entrants: Low◦ Cement industry is a highly capital intensive industry with long

gestation period.◦ Also, the market is experiencing the problem of over-capacity in

recent times.◦ The existing players are also expanding their production capacity

to meet future demand.◦ All these factors act as a deterrent to new entrants even though

labour and manpower is freely available.

Inter-Firm Rivalry: High◦ Cement industry is one of the highly competitive markets in India.

◦ Many players in this industry are large scale players with huge capital invested in setting up the production units.

◦ This factor raises the exit barrier for the companies. Hence, they stay in the industry and start aggressive competition.

◦ Also, the differentiation in types of cement is marginal, hence the switching cost to customers is not high, so firms compete intensely to gain market share. Also, sometimes problem of overcapacity comes into play. This leads to a price war and competition intensifies.

THANK YOU ……