CEMENT - IBEF

CEMENTNovember 2010

Advantage India

Market overview

Investments

Policy and regulatory framework

Opportunities

Industry associations

Contents

CEMENT November 2010

2

Advantage India

Advantage

India

Substantial

capacity

expansion

The sector is expected to add

an additional capacity of 92.3

MT by 2013. As a result, the

industry will have a total

installed capacity of 383.5 MT

by March 2013.

Second-

largest cement

producer in the

world

India is the second-largest cement producer in the world, with an installed capacity of

about 236 million tonnes (MT) in 2009–2010.

Total FDI in the cement sector between April 2000 and August

2010 stood at US$ 1.9 billion.

Increasing interest

from foreign players

The cement industry

employed 140,000 people in

2009.

Modern and

eco-friendly

technology

The industry has witnessed

continuous modernisation and

adoption of new technologies.

Almost 93 per cent of the total

capacity is based on eco-

friendly dry process

technology.

Industry

performance

indicators on an

incline

Between 2005–2006 and 2009-

2010, domestic sales and

realisation of cement has been

estimated to have grown at a

CAGR of 18.4 per cent and

10.6 per cent, respectively.

Sources: ―Industry‖, Cement Manufacturers Association of India website, http://www.cmaindia.org/portal/industry/highlights.aspx, accessed 10 November 2010;

IAS, 10 November 2010, Centre for Monitoring Indian Economy

―Fact Sheet on Foreign Direct Investment (FDI)‖, Department of Industrial Policy and Promotion website, www.dipp.nic.in, accessed 10 November 2010

Cement November 2010ADVANTAGE INDIA

Employment

generation

3

http://www.cmaindia.org/portal/industry/highlights.aspx

http://www.dipp.nic.in/

Advantage India

Market overview

Investments


Opportunities


Contents


4

• The installed capacity in the Indian cement market was 236 MT in 2009–2010.

• Installed capacity has increased at a compound annual growth rate (CAGR) of 8.8 per cent between 2004–05 and 2009–2010.

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

• The turnover of the cement 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.

• Cement players in India produce different types of cement, based on different compositions such as ordinary portland, portland pozzolana, portlandblast furnace slag cement, white cement and specialised cement.

Market overview

Sources: CMIE, Cement Manufacturers’ Association; Ernst &

Young analysis

MARKET OVERVIEW

All-India cement installed capacity growth

(in MT)

154.3 160.2168.0

198.3211.8

235.9

0

50

100

150

200

250

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

All India cement capacity growth

Cement November 2010

5

Market segments … (1/2)

MARKET OVERVIEW

Cement industry

Central North SouthWestEast

• The cement industry in India can be divided into five geographical zones of India — north, south, east,

west and central — based on localised variations in the consumer profile and supply-demand scenario.


6

• The south zone is the largest market, with the

highest installed capacity of 67 MT, followed by

the north zone with about 48 MT, in 2009.

23%

16%

14%14%

33%North

West

Central

East

South

Regional share of installed capacity (2009)

MARKET OVERVIEW

Market segments … (2/2)

Sources: CMIE; Ernst & Young analysis


7

• Key markets in northern India include the states of Rajasthan, Punjab, Haryana and the National Capital Region (NCR).

• Demand in this region is being driven by growth in infrastructure, and residential and commercial construction. In the past few years, demand has been fuelled further by the metro project in Delhi NCR.

Sources: CMIE; Ernst & Young analysis.

MARKET OVERVIEW

22.8 24.227.0

29.833.5

35.1

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

2004 2005 2006 2007 2008 2009

25.2 26.729.7

32.1

36.5

41.2

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2004 2005 2006 2007 2008 2009


Market segment — North

Cement consumption — north zone

(in MT)

Cement production — north zone

(in MT)

8

• The states of Maharashtra and Gujarat are the key markets in this region.

• Over the past few years, growth in housing and commercial real estate has augmented the demand for cement in this region.

• The western region also exports cement to countries in the Middle East.


MARKET OVERVIEW

22.524.5 25.9

28.3

32.233.9

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

2004 2005 2006 2007 2008 2009

21.022.7

24.927.3

28.7 28.4

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2004 2005 2006 2007 2008 2009


Market segment ― West

Cement consumption — west zone

(in MT)

Cement production — west zone

(in MT)

9

• The state of Uttar Pradesh is the key market in this region.

• The demand for cement in this region has primarily grown due to an increase in the number of housing and infrastructure projects.


MARKET OVERVIEW

18.920.4 20.5

22.423.7

26.2

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004 2005 2006 2007 2008 2009

18.5 20.4

22.3 24.0 25.0 26.1

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004 2005 2006 2007 2008 2009

Cement production — central zone

(in MT)


Market segment ― Central

Cement consumption — central zone

(in MT)

10

• The key markets in the east are the states of West Bengal, Orissa and Bihar.

• Growth in housing and industrial activity are primarily driving demand for cement in this region.


MARKET OVERVIEW

17.4

20.322.6

23.925.3

28.2

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004 2005 2006 2007 2008 2009

16.618.7

20.022.0

23.825.9

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004 2005 2006 2007 2008 2009


Market segment — East

Cement consumption — east zone

(in MT)

Cement production — east zone

(in MT)

11

• Key markets in the southern region are the states of Tamil Nadu, Andhra Pradesh and Karnataka.

• The south zone has witnessed increased capacity in last few years due to its rich limestone reserves.

• Growth in the real estate market in the region, coupled with the development of key infrastructure projects such as airport and metro rail, has resulted in increased demand for cement in this region.


MARKET OVERVIEW

31.9 31.5

39.344.4

49.254.3

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2004 2005 2006 2007 2008 2009

36.1 36.944.9

49.854.2

59.7

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2004 2005 2006 2007 2008 2009


Market segment ― South

Cement consumption — south zone

(in MT)Cement production — south zone

(in MT)

12

• The housing segment accounts for a major portion of the total domestic demand for cement in India.

• According to the Eleventh Five Year Plan (2007–2012), housing demand is estimated to increase from more than 24 million units in 2007 to more than 26 million units at the end of the Plan period.

• Growing urbanisation, an increasing number of households and higher employment are primarily driving the demand for housing.

• The Government of India (GoI) initiatives are expected to provide impetus to construction activity in rural and semi-urban areas through large infrastructure and housing development projects.

Growth drivers

• The GoI is strongly focusing on infrastructure development to boost the growth in the economy. It plans to increase investment in infrastructure to US$ 1 trillion in the Twelfth Five Year Plan (2012–2017), as compared with US$ 514 billion under the Eleventh Five Year Plan (2007–2012).

• Infrastructure projects such as the Dedicated Freight Corridors (DFCs) as well as new and upgraded airports and ports are expected to further drive construction activity.

• The GoI intends to expand the capacity of the railways and the facilities for handling and storage to ease the transportation of cement and further reduce its transportation costs.

• The demand for commercial real estate (CRE) segments, comprising retail space, office space and hotels, as well as civic facilities including hospitals, multiplexes and schools, has been on the rise due to growth in economy.

• The demand for office space in India is being driven by the increasing multinational companies and the growth of the services sector.

• Strong growth in tourism, including both business and leisure travel, has increased the construction of hotels in the country.

• With the rise in population and change in consumer behavior demand for civic facilitates has been witnessing a trajectory growth.

Housing Infrastructure Commercial real estate

MARKET OVERVIEW


13

Changing technological profile

• Technological profile of the cement industry has changed significantly in the last two decades as a result of the increased adoption of energy efficient technologies and processes. The Indian cement industry has become a forerunner in energy-efficient cement manufacturing in the world with some of the plants operating at the lowest energy consumption levels. Notably, about 93 per cent of the total capacity is based on eco-friendly dry process technology.

Volatile cement prices

• Cement prices have witnessed an upward trend across regions over the past few years due to a constricted supply scenario and an increase in input costs. However, prices are expected to stabilise or decline in the near future, as supply rises as a result of capacity expansions and players focus on captive power generation to reduce input costs.

Key trends


MARKET OVERVIEW


14

• The Indian cement industry comprises 148 large and around 365 mini cement plants, including public sector units. Large producers contribute about 95 per cent to the installed capacity, while mini plants account for the rest.

• Industry comprises a few large players with a pan-India presence as well as several regional and stand-alone players. There are primarily two groups with pan-India presence ― Holcim Group (comprising ACC and Ambuja Cements) and Aditya Birla Group (including Grasim Industries, UltraTech and Century Textiles).

• Shree Cement, India Cement, Lafarge, Jaypee Group and Binani are regionally focused players.

• Holcim Group and Aditya Birla Group have emerged as the largest players in the Indian cement industry, with a market share of 46 per cent and 38 per cent, respectively, in 2009.

Key players

Sources: CMIE, Ernst & Young analysis; Cement

Manufacturers’ Association of India website,

www.cmaindia.org/industry.html, accessed 10 November

2010.

Market share (production) of key players

(2009)

38%

11%

46%

5%

Aditya Birla Group

India Cement Group

Holcim (F) Group

Jaiprakash Group

MARKET OVERVIEW


15

http://www.cmaindia.org/industry.html

Advantage India

Market overview

Investments


Opportunities


Contents


16

• Between April 2000 and August 2010 total FDI in the cement sector was US$ 1.9 billion.

• Most cement companies have announced expansion plans for 2010–11, which is expected to result in a fresh capacity of more than 40 MT in 2010–11. Some new cement projects in the pipeline expected to be completed by March 2013 include:

Company ProjectInvestment

(US$ million)Capacity (MT)

ABG Cement Ltd Cement plant at Kutch, Gujarat 380.4 3.3

Jaiprakash

Associates

Clinker and cement plant in

Jaggayyapeta, Krishna, Andhra Pradesh358.7 8.6

My Homes Inds LtdCement project in Guntur, Andhra

Pradesh239.1 3.0

Cosmos cement Ltd Jaintia hills green field cement projects 210.2 3.4

J K Cement Ltd Mangrol cement expansion project - 2.2

Sources: CMIE; Fact Sheet on Foreign Direct Investment (FDI) from August 1991 to August 2010, Department of Industrial Policy and Promotion.

Investments

INVESTMENTS


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Advantage India

Market overview

Investments


Opportunities


Contents


18

• Regulatory scenario

• The Ministry of Mines regulates the mining sector, while the states own the minerals sector in their respective territories in India

• FDI of up to 100 per cent is allowed in the mining sector under the automatic route for cement production.

• National Mineral Policy (NMP) 2008

• The NMP aims to achieve the twin goals of large-scale prospecting with optimal mining and attracting investments with the latest technology.

• To implement comprehensive reforms stated in the NMP, the GoI has proposed a new legislation and amended the existing Mines and Minerals (Development and Regulation) Act. This legislation is expected to enhance the country’s regulatory environment by making it simple and transparent.

Policy and regulatory framework … (1/2)

POLICY AND REGULATORY FRAMEWORK


19

• The impact of the Union Budget 2010–11

• Excise duty has been increased by 2 per cent.

• A budget allocation of US$ 36.16 billion has been made for India’s infrastructure development. Heightened focus on railways, housing, urban infrastructure and continued easy financing of the projects is expected to give impetus to the construction sector.

• Further, the additional deduction available for investment in long-term infrastructure bonds for individuals is expected to speed up the execution of infrastructure projects.

Sources: Ministry of Mines, Government of India, ―Doing Business in India, 2010‖, Ernst & Young report; ―India Budget,‖ 2010, Ernst & Young.

POLICY AND REGULATORY FRAMEWORK

Policy and regulatory framework … (2/2)


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Advantage India

Market overview

Investments


Opportunities


Contents


21

Opportunities

Increased

government focus

on infrastructure

development

Increased demand

for housing segment

Sources: ―Industry,‖ Cement Manufacturers Association of India website, http://www.cmaindia.org/portal/industry/highlights.aspx, accessed 11

November 2010

―Eleventh Five-year plan (2007–2012),‖ Planning commission, Government of India website, http://planningcommission.nic.in/, accessed 11 November

2010

―Fact sheet,‖ Special economic zones in India website, http://www.sezindia.nic.in/index.asp, accessed 10 November 2010

―Economic Survey 2009–2010‖, Union Budget & Economic Survey Website, http://indiabudget.nic.in, accessed 10 November 2010.

―Industry overview,‖ Confederation of Real Estate Developers’ Associations of India website, http://www.credai.org/,accessed 10 November 2010

The Indian cement industry has been on a high-growth trajectory led by buoyancy in sectors such as real

estate, infrastructure and construction.

Cement November 2010OPPORTUNITIES

• The GoI plans to increase its investment in infrastructure to US$ 1 trillion in the Twelfth Five Year Plan

(2012–17) as compared with US$ 514 billion expected to be spent on infrastructure development

under the Eleventh Five Year Plan (2007–2012) .

• Union budget 2010–11 plans a total outlay of US$ 6.4 billion on rural housing, roads and bridges.

• Formal approval has been granted to 577 SEZ proposals and 363 have already been notified as SEZs, as

of August 2010.

• Infrastructure projects such as the dedicated freight corridors (DFC), upgraded and new airports and

ports are expected to enhance the scale of economic activity, leading to a substantial increase in

demand.

• According to the Eleventh Five Year Plan (2007–2012), there is an increasing demand for housing in the

country, especially in the economically weaker section (EWS)/low-income group (LIG).

• The housing segment accounts for major proportion of the total domestic demand for cement in India.

Given the intense shortage of housing in the country, this segment has been the primary demand driver

for the industry.

22

http://planningcommission.nic.in/

http://www.sezindia.nic.in/index.asp, accessed

http://www.credai.org/,accessed

Opportunities

Sources: ―Industry,‖ Cement Manufacturers Association of India website, www.cmaindia.org/industry.html, accessed 11 November 2010

―Industry overview,‖ Confederation of Real Estate Developers’ Associations of India website, http://www.credai.org/,accessed 12 August 2010

―Fact Sheet on Foreign Direct Investment (FDI)‖, Department of Industrial Policy and Promotion website, www.dipp.nic.in , accessed 10 November

2010

Increase in

development activity

in commercial real

estate (CRE) and

other segments

Huge potential for

growth to increase

per capita

consumption of

cement

Cement November 2010OPPORTUNITIES

• The demand for office space in India is being driven by the influx of multinational companies and the

growth of the services sector, especially the IT-BPO industry. Progressive liberalisation and easing of

FDI norms in various sectors paved the way for growth in FDI, which led to a burgeoning demand for

office space from MNCs and other foreign investors.

• Growth in organised retailing and the entry of international retailers into India has fuelled the demand

for good quality mall space.

• Strong growth in tourism, including both business and leisure travel, has increased the construction of

hotels in the country.

• The real estate sector contributes 5 per cent to India’s GDP and is expected to reach a size of US$

180 billion by 2020.

• Upcoming industrial clusters and infrastructure development in emerging tier-II and tier-III cities are

also likely to fuel demand in the sector.

• The growing population and increased urbanisation in the country has increased the need for more

civil facilities.

• Though India is the second-largest producer and consumer of cement in the world, there is a

significant potential to increase the per capita consumption of cement in the country in comparison to

other countries. The per capita consumption of cement in India is 143 kg, as compared with other

countries such as China (1,014 kg) and Japan (524 kg), which indicates significant potential for growth.

23

http://www.cmaindia.org/industry.html

http://www.credai.org/,accessed

Advantage India

Market overview

Investments


Opportunities


Contents


24

Cement Manufacturers' Association

CMA Tower, A-2E, Sector 24 NOIDA – 201 301

Uttar Pradesh, India

Phone: 91-120-2411955, 2411957, 2411958

Fax: 91-120-2411956

E-mail: [email protected]

Website: www.cmaindia.org/index.html

National Council for Cement and Building Materials

34th Milestone, Delhi-Mathura Road, Ballabgarh – 121 004 Haryana, India

Phone: 91-129-2242051/52/53/54/55/56; 4192222

Fax : 91-129-2242100; 2246175

E-mail: [email protected]; [email protected]

Website: www.ncbindia.com

Industry associations … (1/2)

INDUSTRY ASSOCIATIONS


25

mailto:[email protected]

http://www.cmaindia.org/index.html



http://www.ncbindia.com/

Indian Concrete Institute

Ocean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai – 600 020

Phone: 91-44-24912602

Fax: 91-44-24455148

E-mail: [email protected], [email protected], [email protected]

Website: www.indianconcreteinstitute.org

Industry associations … (2/2)

INDUSTRY ASSOCIATIONS


26




http://www.indianconcreteinstitute.org/

Note

Wherever applicable, numbers in the report have been rounded off to the nearest whole number.

Conversion rate used: US$ 1= INR 48

NOTE


27

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CEMENT - IBEF