CEMENT INDUSTRY:CHANNEL STRUCTURES

• You have a product that in expensive to make and has a phenomenal demand. so have you hit the jackpot?

Not quite….

What takes away a chunk of the winning is the disproportionate transportation cost.

This is the dilemma which cement makers in India face.

GROUP NO.7

Piyush Chouradiya RMM 02Shardha RMM 24Punita Gabba RMM 29J. Soujanya Haripriya RMM 31Larrisa D’mello RMM 32Deepti Upendra RMM 42

Channel management, as a process by which a company creates formalized programs for selling and servicing

customers within a specific channel.

Dalmia cement

Chettinad

CEMENT PLAYERS IN INDIAN MARKET:

Major players

• Over 370 companies in the organized sector

• However, industry dominated by 20 companies who account for over 70% of

the market • Individually no company accounts for

over 12% of the market

Cement : Industry Structure

• Cement industry is considered as one of the core infrastructure industries

• Cement industry in India dates back to 1914, first unit in Porbunder

• Indian cement industry is the fourth largest in the world

• Fragmented industry : 56 cement companies in India operating 124 large plants & 300 mini plants

• Total Capacity in cement industry– Large Plants = 137 million tonnes)– Mini Cement Plants = 11.1 million

tonnes)

Common method

• Transportation • Transportation costs high - freight accounts for 17% of the production cost • Road preferred mode for transportation for distances less than 250kms. 

However, industry is heavily dependant on roads as the railway infrastructure is not adequate - shortage of wagons.

• Capacity additions • Acquisitions have been the mainstay of the business • Regional imbalance resulting in cross regional movement -

limestone availability in pockets has led to uneven  capacity additions • Capacity additions have slowed down

Cement : Market Size & Demand Trends

• Estimated market size - Rs. 290 Bn. (2001-02)

• Industry grew by 10 percent growth during 2001 - 02

– Production rose from 93.6 Mn tonnes to 102.4 Mn tonnes

– Attributed to a host of factors including slow progress of major infrastructure projects

Production

Consumption

29.9

28.7

12.1

12

23

25.5

29

25.7

Mn Tonnes

Capacity & Production

Mn. tonnes (2001-02)

Installed capacity 137.0

Production (Large Plants) 102.4

Production (Mini Plants) 6.0

Consumption 102.4

• Till the mid nineties most of the excess capacity was added in North-West India, in Maharashtra, Gujarat. Madhya Pradesh and Rajasthan.

• MP, Rajashtan & AP account for 53 % of production

• Today the excess capacity is a major problem - resulting in low cement prices in most parts

• Capacity utilisation : 75 %

Sales & Distribution

• Cement in India is primarily sold through a distributor - dealer network

• Total margins for the distribution channels - 17 to 18 %

• Direct sales less than 2 % of total sales

• Managing the distribution network & strong working relationships with distributors, contractors etc., critical .

15

TRANSPORTATION ROUTES

COMPANY

C & F AGENTS

OWN ORGANISATION GOVERNMENT

Cement reaches nearest port and is then transferred to importing country.

Via roadways or railways

FOR EXPORTS:

FOR DOMESTIC MARKETS:

C & F agents /Warehouse

Dealers or distributers

Sub-dealers

End Users

Government Policies

1940-1981 : Price and Distribution controls

1982-1988 : Partial Decontrol

1989 :

Total Decontrol

• Cement an essential commodity

• Very slow growth

• Capacity in 1980-81 : 27.9 mt

• Levy cement quota was fixed for the units and the balance could be sold in the open market

• Led to rapid growth

• Capacity grew by 110 % to 59 mt by 1989

• Rapid growth in sales & profits

• Slow down during recession of early nineties

• Rapid growth after 1992-93, with large capacity additions

KEY CHALLENGES

• TRAVEL PATTERN:

• In India…..

Distributed in 50 kg bags

Once bagged cement becomes a perishable commodity

A bag of cement cost Rs. 100-160

Out of this Rs 21-35 per bag goes for transportation (around 25% of total cost)

• Before 1980

• After 1980

• TRAVEL TYPE

• Gujarat cement & L&T cement plants experimented with the sea transportation of cement

• Private jetty- they transport cement to deficient states likes Kerala, Mumbai, Goa and Mangalore

YEAR RAIL % ROAD % KMS

1995-1996 29.2 45.3 32.6 50.5 NA

1996-1997 31.1 44.5 38.8 55.5 566

1997-1998 32.6 42.5 44.0 57.5 568

1998-1999 32.8 40.0 49.1 60.0 568

1999-2000 38.7 41.2 55.3 58.8 NA

2000-2001 36.7 39.4 56.7 60.1 571

TRAVEL MIXCEMENT DESPATCHES BY RAIL AND ROAD

LOGISTIC DYNAMICS

• Rail transportation- longer distances i.e. above 350 kms.

• Many plants ‘own your wagon’ scheme with govt.

• Pilferage is more in railways• total cement loss is 2%• Because cement handling

occurs twice as against single handling in truck transportation.

STATE 96-97 97-98 98-99 99-00 00-01

NORTH 63 63 67 67 68

EAST 51 55 50 49 49

WEST 66 63 66 64 63

MP 92 91 90 88 87

SOUTH 94 93 95 94 94

SHARE OF REGION CONSUMPTION MET BY ITSELF

SHARE OF REGION DISPATCHMENT TO ITSELF

NORTH 90 88 89 90 90

EAST 90 90 93 95 100

WEST 84 80 86 85 88

MP 23 22 24 22 23

SOUTH 84 84 84 84 83

MASTER MARKETING

• Marketing & Distribution• Company is not able to

achieve the least distributed cost, when:– not marketed – Improper location– market is not

penetrated , resulting in use of less than full truckload

• V SAT COMMUNICATION• Optimum logistic mix

SUPPLY CHAIN PRACTICES

• Stop production• Pack faster• Grind next to the market• Bulk transport• Ready-mix concrete• Inland water transportation

Competitive Scenario : Consolidation Time

• Industry has witnessed consolidation through a spate of take-overs and mergers

– Gujarat Ambuja (GACC) picked up 11.4 % stake in

ACC at Rs. 5201 / tonne from Tata group– GACC also bought out DLF Cement– Grasim Industries acquired Reliance’s 10 percent stake in L& T

recently• Major action expected from MNC’s

– Lafarge acquired Tisco’s cement division at Rs. 3555 / tonne– Lafarge acquired Raymond Cement at Rs. 3500 / tonne– Cement Francais Italia picked up 50 % stake in Zuari Cement at

Rs. 4000 / tonne– Holderbank and Cemex may come in– All have eyes on 37.5 % stake in L&T’s cement business– Share of MNC’s in Indian Cement Industry has rose to 40% while

the Indian majors incl. GACC, ACC, L&T hold the rest 60 %

• Logistics• Cement, being freight intensive industry, various initiatives

had been taken up by GACL to streamline its logistics.

GACL was one of the first cement producers of the country to introduce an Integrated Logistics System (ILS). At each manufacturing unit, a cross functional committee was responsible for the efficient management of logistic functions.

The committee met at regular intervals and reviewed the working of the total system. The recommendations were forwarded to the top management for immediate action.

• Order Processing Systems

Order Processing Systems involved the flow of information about the orders from generation to order fulfilment. Orders once received, had to be processed quickly and accurately. GACL had linked all the major offices through a Wide Area Network (WAN). Electronic Data Exchange (EDE) and Material Resources Planning (MRP) systems facilitated timely and accurate processing of orders...

• Future Outlook• In line with the company's vision to become the leader in

Indian cement industry, GACL had been pursuing a combination of strategies like strategic alliances, capacity expansion, new plants, and aggressive takeovers. The company had set up a two million ton Greenfield cement unit in Maharashtra at an investment of Rs. 500 crores...

Future of Cement Sector is as follows:

• 1. Steady price growth over the next 2-3 years

• 2. Housing and government infrastructure spending to translate into an 8 per cent CAGR in demand

• 3. Greenfield/Brownfield capacity additions of around 35 million tonnes will be required to match the

robust demand growth

• 4. Blending to contribute around 10 million tonnes of capacity

• 5. Operating rates to touch 88 per cent by 2006-07

• 6. Production costs to increase moderately

CONCLUSION

• It is evident that there is huge potential for the cost saving in the cement industry. However this will require a structural shift in the market place which might not be possible in the short run

• Players like Ambuja cement and L&T have been successful in making the best out of their location advantages and developed means of transport cement.

• In the future as international players get stronger hold of the market some of the best international practices might emerges

• It will be very difficult for the companies to completely eliminate bagged cement sales. But even if a substantial portion moves to bulk, it would in considerable cost saving

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