SUBMITTED BY:

NAVIN KUMARENROLMENT NUMBER # 947151143STUDY CENTRE # VMC, NEW DELHI

REGIONAL CENTRE # ITO, NEW DELHI

SUBMITTED TO:

SCHOOL OF MANAGEMENT STUDIESINDIRA GANDHI NATIONAL OPEN UNIVERSITY

MAIDAN GARHINEW DELHI.

EXECUTIVE SUMMARY

The project aims at analyzing the strategies adopted by various players in

cement industry – their structure, strategies that led to their growth, trends and

various issues related to it vis-à-vis the present day macro environment. The first

part of the study focusses on the cement industry as a whole, whereas the

second part focusses on the strategies adopted by Associated Cement

Companies (ACC) which is one of the major players in the cement industry.

The first part of the project deals with the growth of the cement industry, its

present scenario, the various forces acting on it and the various strategies that

the players are taking up to cope with the changing dynamic environment.

The cement industry is going through a crucial phase of recession owing to

several factors, which have been dealt with in detail. Despite the projections of

huge investments in the infrastructure sector, actual funding during the year was

rather meagre. This has resulted in recession in key industries such as steel and

cement. The lower-than anticipated demand, coupled with addition in capacities

during the year, had increased competition in the market. Though the input costs

were higher, with the added competition prices began to fall and pressures on

margins rose.

Although the industry is presently in a dire state, still there is a tremendous

potential for growth of this industry in the near future. Various strategies have

been discussed which are visible in the industry nowadays, the prominent among

them being acquisitions and mergers. The spate of takeovers in the industry puts

a question mark on its future. These acquisitions are giving promising returns to

the stakeholders in terms of:

A good cement plant at a very cheap price owing to the rock bottom prices of

the scrips.

Gain in terms of accelerated revenue generation.

Advantage in terns of selecting an appropriate location since the assessment

of the market, limestone quality, and competition is available on hand and the

risk of setting up a new plant is reduced.

In the light of the above discussions, I have studied Associated Cement

Companies (ACC group) in terms of its position, business, performance, and

implementing strategies in terms of expansion and modernization. The company

has been analyzed using Porter’s five forces model, which shows the position of

the company with respect to the factors in the environment, which influence the

capability of an organization to position itself to such advantage.

INTRODUCTION

Introduction on Indian Cement Industry

Cement is one of the core industries, which plays a vital role in the

growth of a nation. India ranks fifth among the cement producing

countries in the world. The present per capita cement consumption is

around 84kg, which is much lower than the per capita consumption of

the developed countries.

Recent Government pronouncements indicate that, the per capita

consumption will increase to 120 kg in the next three years.

With the tremendous growth potential projected, there has been and

will be a tremendous increase in the number of cement plants. The

cement industry is also highly energy intensive, with more than 40% of

the manufacturing cost being contributed by energy.

With this growth & increasing competitiveness and the increasing gap

between demand and supply of energy, there is an imperative need to

operate in an energy efficient manner. The best method to achieve this

energy efficient operation is, to incorporate energy efficiency at the

design stage itself.

The various energy conservation aspects to be considered, while

designing a new cement plant/upgrading an existing plant are

discussed. The electrical energy saving aspects are covered under the

following different headings

Mines, Crusher & Stacking

Mill

Blending and homogenisation

Kiln and cooler

Coal mill

Cement mill

Packing plant

Others

The thermal energy consumption in the cement plant is only in kiln

section. Thermal energy is also occasionally used in the hot air furnace

for drying of coal in the coal mill and for drying of slag/fly-ash in

cement mill.

The energy saving aspects and the specific energy consumption

figures mentioned is applicable to dry process pre-calciner plants of

more than 1500 TPD capacity.

The production technology has went up by leaps and bounds and many

modern million tonne cement plants have come up with world class

standards in productivity, quality, low energy consumption and

environment friendliness. Cement industry has had some problems of

infrastructure deficiencies in the areas of availability of good coke in

adequate quantity, movement by rail for both coal and cement, and

power from gird. These are threatening to become serious enough to

affect the healthy growth of the industry and call for early attention.

While the quality of the product at the manufacturing end can be world

class, consumer does not get the benefit of the same quality at his

since packing ,distribution and usage are still far below the best

practices in the world. There is need to introduce movement and

distribution of cement in bulk. This is cheaper and environment

friendly. The Consumer who is looking for concrete as the end product

is best served with high quality of service by bulk cement being

converted directly into Ready Mixed Concrete (RMC) of desired quality

and strength at his doorstep without the necessity of site mixing,

causing pollution and urban congestion.

BACKGROUND: THE CEMENT INDUSTRY

The winds of liberalisation have swept aside technological barriers age

old monopolistic practises introduced healthy competition in the

market and above all, the given the consumer a wider range of choice.

The cement industry was one of the few industries to be liberalised in

the 1980’s the government partially decontrolled the cement industry

in 1982. This act generated tremendous interest and within a decade

nearly 30 Mn tones capacity was added to the existing cement

production rate. This improved the availability of cement which

checked price rise and finally lead to improvement of the quality of

cement.

Till the year 1990-91, the demand for cement was mainly dependent

on government spending. The era of liberalisation brought with itself

novel ways of conducting business. It welcomed foreign investment

and technology into the Indian industry. The entry of the private

sectors into infrastructures and having development further helped in

reducing the dependence on government spending for purchase of

cement.

The country’s present per capita cement consumption is now at around

84 kg compared to the world average of 250 kg as compared to that of

the developing countries with their average being 150 kg . This leaves

a large scope for rapid and continued growth.

Today the infrastructures sectors is attracting huge private and foreign

investments for mega projects such as irrigation, power houses, roads,

railway bridges, housing and commercial establishments. This is

further expected to boost the increase in demand for cement at a

much faster pace.

There has been a spurt in construction activities in the Middle East and

Asian countries to add to the constantly rising demand in the

neighboring countries like Bangladesh, Nepal, Sri Lanka, Pakistan and

Myanmar.

Inspire of fragmentation along regional lines due to high freight costs,

regional disparities on growth, increase in cost of petroleum, coal,

power tariffs resulting into highest cost of production and cut throat

completion, the outlook for the industry seems to be bright in view of

the boom in construction activities, industrial growth and the

governments commitment to boost infrastructure development.

A plethora of schemes have been launched by the competitors and

special attention has been given to packing, prompt delivery,

advertising campaign and sales production activities for early

penetration and acceptance of their brand in the market Mason’s

conferences, seminars and exhibitions are held for retails stockiest,

dealers and architects to promote sales and distribution activities.

On the ecological front pollution being a major concern stringent

measure are taken to maintain the delicate ecological balance of the

nature and to prevent deterioration of the environment modern

technological equipment like the Electrostatic Precipitators, the Glass

Bag House and the Reverse Jet Bag Filters are installed at the cement

plants which has enabled them to reach almost zero levels of pollution.

As the cement industry continues to move into a phase of accelerated

growth, demand for cement will continue to outstrip supply for many

year to come.

The major landmarks in Indian Cement industry can be identified as under.

1913 First cement plant was set up in Gujarat

1936 Associated cement companies (ACC) was formed by merging 4 groups and 9 companies

1950 First attempt for bulk movement of cement was made at Okhla bulk depot by ACC. It was especially created to meet requirements of Bhakra – Nangal Dam

1951 Indian standard for Ordinary Portland Cement (IS 269) was published (now 33 grade OPC). It has since been revised in 1958, 1967, 1976 and 1989

1953 Indian Standard (IS 455) for Portland slag cement was published. It has since bee revised in 1962, 1967, 1976 and 1991

1962 Indian Standard (IS 1489) for Portland Pozzolana Cement was published. It has been revised in 1987, 1976 and 1991

1965 Cement Corporation of India was formed in Public sector and first CCI plant was set up at Kurkunta

1966 Cement Research Institute was set up at Ballabgarh (Haryana) and in 1985 it was named as National Council of Cement and Building Materials

1976 Indian Standard (IS 8112) was published for 43 grade cement and subsequently revised in 1989

July 1976 Vertical shaft kiln technology for mini cement plants was introduced

Sept’1977Government guaranteed 12% post-tax return on the net worth on new investments in cement thus accelerating the growth of cement industry.

1979 First one million ton capacity cement plant was set up by Corromendal Fertilizers at Chilampur near Cuddapah. Now it is controlled by India Cements.

Feb’1982 Introduction of Partial decontrol – portion of cement

production in each plant was subjected to Govt’s control on process and distribution and rest to be sold in open market. Licensing of new capacities continued to be under govts. control.

1983-1989

Unprecedented growth of Indian cement industry from (29.35 million tons to 61.55 million tons) due to entry of new industrial houses in cement business like L&T, Modis, JP, AV Birla Group (though Birlas are one of the earliest group in cement business), Ambuja, TATA steel etc.

1986 HDPE / PP bags were introduced to replace Jute bags

1985 Introduction of sleeper cement code by Indian Railways under ‘IRST – 40’

1987 Increase in strength of cement lead to 53 grade code (IS 12269) by BIS. It has not been revised since then.

1987 The installed capacity of Mini cement plants was raised from 200 tons per day to 600 tons per day. However for capacity beyond 300 tons per day, Mini cement plant has to use rotary kiln. The capacity of Mini plants further been raised to 900 tons per day in 1998.

March 1989

Announcement of total decontrol – Freeing of 100% of production from production and price control, end of freight equalization scheme

July 1991 Licensing system for setting up of cement plants abolished

1992 Bulk cement corporation (India) was formed

1995 First sea based bulk terminal was set up in New – Mumbai by Ambuja

1998 25 kg packaging was permitted by BIS

2000 a) IRST – 40 sleeper cement was brought under BIS perview and called ’53-S’ grade cement b) The limits of fly ash addition in PPC were revised by BIS from 10% - 25% to 15 to 35% and slag from 25% - 65% to 25% - 70 %

CEMENT INDUSTRY - PERFORMANCE &

PROSPECTS

The cement Industry in India has come a long way since 1914 when

the first successful cement plant was commissioned with the

production level of 1000 tonnes per annum. Since the partial de-

control of cement in 1982 followed by total de-control in 1989, the

cement industry has witnessed spectacular progress mainly due to the

forces of economic liberalisation and the jettisoning of price controls

and capacity restrictions. Today, India is the fourth largest producer of

cement in the world with 106 large plants belonging to 54 companies

having an installed capacity of 105 mil. tonnes. The industry which has

undertaken comprehensive modernisation and is equipped with state-

of-the -art technology, employs a work force of 1.3 lakhs and also

contributes in a very substantial manner by way of excise duty (Rs.

2500 crores) to the national exchequer. The industry is geared to reach

a production level of 100 mil. tones by 2010 A.D.

QUALITY

The wet process of the 70s has been replaced by the modern dry

process and today this accounts for around 85% of the total capacity of

the Industry. New technologies such as on line X-Ray analyser

preblending of coal, vertical roller mills for raw material grinding and

cement grinding, high efficiency separators, 5 to 6 stage pre-heaters,

and total computerised control of operations have led to increased

productivity and consistent quality.

TRANSPORT AND OPERATIONAL CONSTRAINTS

The Cement Industry has always looked to the Railways to transport a

major portion of their coal requirement and cement production.

However, owing to acute shortage of wagons there has been a

continuous decline in the transport of cement by rail and today it is as

low as 50%. This would mean that the balance 50% has to be moved

by road involving long leads. It is also expensive. The “Own Your

Wagon” Scheme introduced by the railways has not been successful

since the return on investment is not commensurate with the industry

expectations.

COAL

As against the industry’s coal requirement of 15 to 16 mil, tonnes per

annum, the availability is of the order of 10 mil. tonnes only. While

overall coal production is increasing, the surplus of coal is being taken

up by the power sector. A against an increase in production of 70 mil.

tonnes of coal during the last six years the supply to the cement sector

has not increased and has remained static at 10ml. tonnes. The quality

of coal also laves much to be desired, forcing cement companies to

resort to open market purchase and import of coal.

The answer to this problem lies in the privatisation of mining and setting up of washerie

on a “Build, Operate, Own” basis. In this connection the Central Mine Planning Design

Institute has identified 5 locations - Sasti, Deepika, Urimari, Vina and Bhyvaneswari for

setting up local washeries exclusively for the Cement Industry. These washeries are

expected to provide about 9.4 mil tonnes of coal per annum. The growth of Indian

Cement industry over the years is given below:

At the end of

Year

Installed

Capacity

(Million tons)

Production

1950 – 51 3.28 2.20

1955 – 56 5.02 4.60

1960 – 61 9.30 7.97

1965 – 66 12.00 10.97

1973 – 74 19.76 14.66

1978 – 79 22.58 19.42

1981 – 82 29.35 21.06

1984 – 85 42.00 30.13

1987 – 88 57.47 39.37

1989 – 90 61.55 45.41

1992 – 93 70.19 54.08

1996 - 97 105.25 76.22

1999 – 2000 119.10 100.45

2000 – 2001 130.40 97.61

2001 – 2002 136.50 104.50

POWR

As the manufacture of cement is a continuous process, the quality of

power affects production and hence cement companies have had to

invest in captive generating sets to meet a part of their power needs.

Over 15% of cement is produced with the help of captive plants.

CEMENT PACKING

Today, cement is mostly packed in High Density Poly Ethylene (HDPE)

and a small percentage in paper bags.

The Jute Packaging Act, 1987, requires the Cement Industry to pack

50% of its output in Jute bags.

The Cement Manufacturers’ Association (CMA) has represented to the

standing advisory Committee that jute is technically unsuitable for

packing cement on account of its hygroscopic nature and a 4-5%

seepage factor which would result in a loss to the country running into

a thousand crores every year. It would also entail a total cost increase

of Rs. 12/- per bag which will have to be borne by the consumer.

R & D

The cement Industry was one of the first to set up a research

organisation in the late 60s, for the benefit of every cement company

in the country. This research organisation now called the National

Council for Cement and Building Materials (NCBM) is funded through

the levy of chess on the Industry which ensures that the Organisation

caries out research of significant size and scale . The NCBM also

organises International Seminars and holds conferences.

In order to maintain the present trend of growth in the Cement

Industry, the research and development agenda should concentrate on

the following thrust areas.

1) Enlargement of raw material and fuel waste

2) Energy conservation

3) Promotion of Plant and Machinery design and home-grown

technologies

4) Newer applications of cement.

In keeping with the spirit of liberalisation and globalisation of the

Indian economy, the Indian Cement Industry which has attained

international stature now needs an extended horizon for its

ever0growing capacity and capacity. In order to integrate successful

with the world economy, the Industry has to develop an international

mindset and a global vision.

PERFORMANCE OF INDIAN CEMENT INDUSTRY

The Indian cement industry is the only industry in the infrastructure

segment that has shown good growth, clocking nearly 10-per cent

growth in the financial year 2001-02.

In the same period, the other core sectors have shown marginal or

negative growth. This is the first time in the history of the Indian

cement industry that annual production of large plants has crossed the

100-million mark.

During 2001-02, large plants have produced 102.40 million tonnes

(mt), an increase of 9.39 per cent over the previous year (93.61 mt to

102.40 mt). Also, cement production in March 2002 crossed the 10mt

mark — the highest ever in a month.

Cement despatches during 2001-02 have increased by 9.62 per cent

(93.44 mt to 102.43 mt) as compared to the corresponding period last

year. Cement consumption grew by 9.7 per cent (90.29 mt to 99.05

mt) in 2001-02 — a significant turnaround from 2000-01 where it

showed a negative growth of nearly 2 per cent.

A research paper brought out by Export-Import Bank of India (Exim

Bank) has analysed the competitiveness of the Indian cement industry

in major markets, and found that Indian cement is competitive in

markets like Bangladesh and Kuwait, but not in other major import

markets like Singapore, Sri Lanka, Malaysia and Philippines.

According to the study, technological advancement would reduce the

cost of production, improve quality and make Indian cement price

competitive in international markets. This should happen in both

stages viz., mining of raw material as well as kiln stage, the study

observed. The study outlined that Government also plays a major role

in helping the industry to reduce the production cost, by way of

reduction in royalty and cess on limestone and coal, meant for export

production.

If the existing capacity is utilised fully from the present utilisation level

of 80 percent, then exports can be aggressively priced on marginal

cost basis. The study observed that Thailand exports cement to USA at

a price of US $ 12-15 per tonne and even with a high transport cost of

US $ 30 per tonne, the export is profitable as price in USA is about US

$ 70 per tonne.

Government of India may also create enabling conditions for market

penetration, by way of rationalising tariff differentials and negotiating

for zero tariff dispensation of cement and clinker exports, especially

with neighbouring countries like Bangladesh and Sri Lanka.

Analysing the global market potentials, the study reveals that China

and Hong Kong tops the list with 567 million tonnes (34 percent of

world consumption) of cement usage. In terms of per capita

consumption, however, countries like UAE, Kuwait, Taiwan and Saudi

Arabia top the list, due to increasing construction activity. The study

found that Singapore, Bangladesh, Kuwait, Sri Lanka, Malaysia and

Philippines offer lot of potentials for export of Indian cement, provided

the production cost is brought down substantially.

Highlights:

The cement industry has seen a tremendous growth in it’s capacity

as compared to it’s demand. The prices prevailing in last two years

were lower than even the minimum required for a Greenfield plant

to break-even. This has been proved by the spate of acquisitions

and takeovers in the last year.

Indian cement industry with an installed capacity of 100 MTPA

(Million Tonnes Per Annum) is the fourth largest in the world after

China, U.S and Japan.

Industry Structure

Cement in India derives it’s demand as being the most preferred

building material. It is used extensively for household and

industrial construction.

The real driver of cement demand is creation of infrastructure,

hence cement demand in emerging economies is much higher

than developed countries as the infrastructural development in

these countries is higher than that of the developed countries.

India being one such economy has the potential for a high

demand in this sector.

The industry is highly competitive in nature comprising 59

companies operating 117 plants

Rural areas consume less than 25% of the total cement.

Availability of cheaper building materials non-permanent

structures affects the rural demand.

Per capita cement consumption in India is about 84 kg compared

to the global average of around 250 kg.

Demand Scenario

Demand for cement is price inelastic due to lack of substitutes, also

they form a very low part of the total cost. Small imbalances in

demand-supply result in a disproportionate change in cement prices.

As cement is a low value commodity, freight costs assume a

significant proportion of the final cost. This once again highlights

the regional nature of the cement industry.

In FY99, the industry witnessed a 6.3% growth in production and

7.5% in consumption.

Supply Capacity

With a production of 83mn tonnes in the year 1999-00, India is

the fourth largest producer after China (492 mn tonnes), Japan

(95 mn tonnes) and USA (84 mn tonnes).

The installed capacity of cement in India in FY98 was 100.3

MTPA, having increased by 4.3 MTPA from FY97.

The Indian cement industry is facing a glut because of

oversupply. Capacity addition in the last 5 years has been 34

MTPA. The installed capacity, which was 62 MTPA in 1993 has

increased to 100 MTPA in 1998.

The all India average capacity utilisation of cement plants is at

82%. The fall in utilisation levels (from 85% in FY95 on a capacity

of 71MTPA) has been on account of severe shortage of key

inputs/support requirements such as power, coal and rail

wagons.

EXPORT PERFORMANCE

PERFORMANCE OF CEMENT INDUSTRY

(CAPACITY)

Large Plants

(Large Plants means capacity more than 0.198 Mn.T. per annum)

Companies (Members) (Nos.) 54

Cement Plants (Nos.) 124

Installed Capacity (Mn. t.) 135.03

Cement Production (Mn. t.) 2001-02 102.40

Plants with Capacity of Million tonnes and above (Nos.)

64

Manpower Employed (Nos.) Approx. 1,35,000

Turnover in 2001-02 (Mn. US$) around 6,000

Mini Plants

(Mini Plants means capacity less than 0.198 Mn.T. per annum)

Cement Plants (Nos.) 300

Installed Capacity (Mn. t.) 11.10

Cement Production (Mn. t.) 6.00(P)

PERFORMANCE OF MAJOR PLAYERS

Production and consumption

During FY 2002, domestic cement consumption increased by 9.7 %, as

against a decline of about 2% in the previous fiscal. The demand

growth was driven by the construction activity in the road sector.

Housing demand and post-earthquake reconstruction activities in

Gujarat. Production and dispatches also witnessed an upward trend.

Production during the year was higher at 9.4% as compared to a

decline in the previous year. Demand growth was highest in the

eastern region (about 14%) followed by north (10%), South (9%) and

West (6%). States witnessing double digit demand growth included HP,

Delhi, Punjab, and UP. States reporting either stagnant consumption or

decline in consumption included MP (including Chattisgarh), Assam,

Meghalaya, TN, Kerala and Maharashtra. Cement and Clinker exports

were almost at the same level as in the previous year.

Sales Growth

Most of the leading players in the industry reported a growth in sales

as shown in the following table.

Growth in Sales volume

Group FY2002 FY2001

Acc Group 17.30% 0.70%

Gujarat Ambuja Group 14.90% 20.80%

Jai prakash Group 10.50% -0.20%

OCL Group 9.40% 8.40%

M.P.Birla Group 8.40% 0.10%

L & T Group 7.10% 0.80%

Aditya Birla Group 2.90% 6.80%

Dalmia Group 2.60% -1.80%

B K Birla Group 2.20% 1.90%

India Cement Group -8.80% -5.80%

All India 9.70% -0.50%

Price Realisation

Cement process had started weakening towards the second half of

RY2002 across regions. This was largely on account of weakening of

the demand supply position. However, the average retail prices during

Fy2002 were marginally higher than FY2001 across almost all the

regions except for eastern region.

Average cement prices (Rs./50 kg bag)

Averag

e

Delhi Kolkatta Mumbai Hyderaba

d

Bangalore Chennai

Q4-FY02 130 137 170 150 171 180

Q4-FY01 148 163 184 156 174 186

Change -18 -26 -14 -6 -3 -6

Q3-Fy01 141 133 168 153 165 175

Q3-FY01 142 147 156 156 175 187

Change -1 -14 12 -3 -10 -12

FY02 140 144 175 168 152 174

FY01 139 150 161 160 136 172

Change 1 -6 14 8 16 2

PERFORMANCE OVERVIEW

During FY2002, although price realizations were under pressure during

the later part of the year, higher volume sales and focus on improving

operating efficiency, has resulted in most cement companies showing

improved performance. While the results are still pouring in, a brief

overview of performance of some of the prominent players are

presented

Jaypee Cement limited

Jaypee cement Ltd. (JCL) is a new company, which was formed on April

1 2002 by hiving off the cement division1 of Jaiprakash Industries Ltd.

(JIL) and merging it with Jaypee Rewa Cement Ltd. (JRCL2) a subsidiary

of JIL. JCL was formed with the objective to consolidate the cement

business of the Jaiprakash Group under one roof. JCL has three cement

Plants with a combined capacity of 4.2 million tonnes located in the

Rewa district of MP. This is infact the single largest cement complex in

India. During FY2002, Cement production and sales by Jaypee Cement

was 4.23 million tonnes and 4.22 million tonnes respectively. Clinker

production and sales was 3.98mn. tonnes and 0.45mn. tonnes

respectively. The capacity utillisation during FY2002 was maintained at

over 100% at its cement units.

Year ending 31/3/1999 (12

months audited)

Year ending 30/9/2000 (18

months audited)

Year ending 31/3/2002 Provisional

Net sales 2594.5 4868.2 11768.9

Operating profit 298.3 420.3 1701.5

Other income 13.7 50.8 131.3

Interest 571.1 690.8 736.2

Depreciation -@ -@ 662.7

Profit (Loss) for the year

-259.1 -219.7 633.9

Depreciation for earlier years

- - 590.8

Profit (Loss) after Depreciation for earlier years

-259.1 -219.7 43.1

All figures in Rs. million

# the figures of year ending 31/3/2002 is not comparable to the

previous year as the figures for this year are of JCL (18 months of JRCL

and 12 months of Cement division of JIL), whereas the figures for the

earlier years are of JRCL only.

@ Depreciation amounting to Rs. 590.8mn. pertaining to JRCL during

the period has not be provided for . this has subsequently been

provided for the year ending March 31st 2002.

The enhanced benefits of consolidating the cement division are visible

in the results. While, JRCL was making operating profits, high interest

costs had resulted tin the company making losses at the net level. The

year ending 31/3/2002 shows the JCL has made profits both at the

operational level as well as after making provision for the fixed

expenses. Apart from improvements in the fundamentals of the

cement industry, focus on operational cost control and synergetic

benefits accruing on account of consolidating the cement business has

resulted in the strong performance of the company. The future may

also see further growth in sales volume and benefits of economies of

scale as the company is planning to upgrade its capacity.

Grasim Industries Limited

FY2002 Fy2001 Growth

Sales 43866 44715 -1.9%

PBIDT 9368 9115 2.8%

Interest 1903 2388 -20.3%

Depreciation 2517 2519 -0.1%

Current Tax 565 500 13.0%

Profit before deferred tax

4383 3708 18.2%

Deferred Tax 515

Profit after deferred tax

3868 3708 4.3%

Grasim witnessed a 1.9% decline in sales during FY2002 largely on

account of reduction in sales volume and realisations of Viscose Staple

Fibre. Sponge lron and Caustic soda. However, the cement division

performed well reporting a 6% growth in sales volume and 4% growth

in sales realisation. While the operating profit witnessed a modest

growth of 2.8% reduction of over 20% in interest cost resulted in the

profit before deferred tax witnessing a growth of 18.2%.

In the cement division, production at 9.53 million Tonnes and sales

volumes at 9.68 million tonnes were up by 5% and 6% respectively,

over the previous year. Capacity utillisation in the cement plants

during the year stood at 92%. During the year, the company has

commissioned 4 ready mix concrete plants of an aggregate capacity of

1 million cubic meters. At Hyderabad, Chennai, Noida and Bangalore. A

one million tonne cement-grinding unit at Bhatinda has been set up as

well. This has enabled the company to consolidate its position in the

lucrative northern sectors of the country. In addition. The company is

implementing various plans at a capex of Rs. 3440 million, as

indicated:

- Two poser plants of 23 MW and 12.5 MW at Aditya Cement

(Rajasthan) and Grasim Cement (Tamilnadu) respectively which are

expected to be operational by December 2002.

- Ongoing modernization of plants and capacity expansion through

de-bottlenecking – has resulted in capacity enhancement of 0.5 Mn.

MT so far. A further capacity addition of 1.8Mn. is expected by end

FY 2003. On implementation of these projects, Grasim’s cement

manufacturing capacity will go up to 13.2 Mn. Mt.

ACC

During FY2002, although sales realisation was under pressure. ACC reported a

9.1% growth in net sales due to over 15% growth in sales volume nevertheless,

enhanced focus on high growth markets in the northern and the eastern regions

of the country has resulted in relatively higher realisations for the company. The

operating profit of the company was higher by 24.9% indicating higher level of

operating efficiency (control on raw material and power & fuel costs) and

synergetic benefits on account of the strategic alliance with Gujarat Ambuja.

Interest costs of the company was also lower by 13.8% due to prepayment of

high cost debt and better working capital management. thus, higher volume

sales, control on operating costs, and lower interest cost resulted in a 128.1%

growth in profit after tax. During FY2002, the kiln at Wadi 9karnataka) was

commissioned.

FY02 FY01 Change

Net sales 28,106 25,764 9.1%

Other income 825 727 13.5%

Expenditure 23,950 22,435 6.8%

Operating profit 4,157 3,329 24.9%

Interest 1,467 1,702 -13.8%

Depreciation 1,511 1,413 7.0%

Profit before tax -360 -333

Extraordinary items

339

Tax 37

Profit after tax (Loss)

1,304 572 128.1%

Gujarat Ambuja Cements

FY 2002

(9 months)

FY 2001

(9 months)

Growth

Net Sales 11696.2 10177.2 14.9%

Other Income 185.5 105.7 75.5%

Total Exp. 8325.4 7037.3 18.3%

Op. Profit 3370.8 3139.9 7.4%

Interest 726.3 1032 -29.6%

Depreciation 1009.8 983.1 2.7%

Current Tax 127.5 120 6.3%

Def. Tax 167.5

Profit after tax 1525.2 1110.5 37.3%

All figures in Rs. Million

During the first 9 months of FY2002, Gujarat Ambuja has shown a

14.9% growth in sales. Although, sales volume was higher by over 20%

at 5.3 mn. Tonnes, pressures on sales realisation resulted in lower

growth in sales in value terms. The cement plant of the company at

Chandrapur (Maharashtra) has been completed and is currently under

trial production. As a result, the raw material expenses of the company

has increased by 89%. Inspite of this, the company was able to show a

7.4% growth in operating profit due to focus on cost reduction and

enhancing operating efficiency. Growth in operating profit coupled with

sharp reduction in interest costs resulted in a 37.3% growth in net

profit, even though the tax provision was higher.

Birla Corporation Limited

FY2002 FY2001 Growth

Sales 11239.1 10212.9 10.0%

Other Income 207.2 196.8 5.3%

Total Exp. 10739.8 9753 10.1%

Op. Profit 499.3 459.9 8.6%

Interest 362.1 437.1 -17.2%

Depreciation 351.6 350.7 0.3%

Profit before deferred tax

-7.2 -131.1 NA

Deferred tax 0.2

Wealth tax 0.2 0.2 0%

Refund of tax relating to earlier years

4.2

Profit after tax -7.6 -127.1 NA

All figures in Rs. Million

During FY2002, Birla Corporation witnessed a 10% topline growth

helped by higher sales volume and higher realisations in its markets.

Control on operating costs resulted in the operating margins being

maintained at 4.4%. This resulted in the operating profits improving by

8.6%. This coupled with reduction in interest costs by 17.2% resulted

in the net loss reducing from Rs.127.1 mn. In FY2001 to Rs.7.6 mn. In

FY 2002. During FY2002, Cement continued to be the dominating

business of Birla Corporation – accounting for 84% of turnover and 78%

of total capital employed. Further, Cement was the only profit making

division of the company during FY2002.

Profit before Interest and Tax (FY2002)

Cement 533.6

Jute -40.7

Others -65

Total 427.9

All figures in Rs. Million

Dalmia Cement (Bharat) Limited

FY2002 FY2001 Growth

Sales 4171.9 4117.8 1.3%

Other income 116.2 155.7 -25.4%

Total exp. 3434.2 3389.8 1.3%

Op. Profit 737.7 728 1.3%

Interest 298.1 324.8 -8.2%

Depreciation 202.2 197.7 2.3%

Profit before

deferred tax

286.1 288 -0.7%

Deferred tax 31.5

Profit after tax 254.6 288 -11.6%

All figures in Rs. Million

Despite over 2.5% growth in sales volume, sales in value terms

witnessed a nominal growth of 1.3% due to pressure on sales

realisation. Control on operating costs however resulted in a similar

growth in operating profit. Interest cost were lower by 8% during

FY2002. While profit before deferred tax was marginally lower than

that in FY2001, provision of Rs.31.5 mn. For deferred tax resulted in

the net profit witnessing a decline of 11.6%. During FY2002, Cement

continued to be the dominating business of Dalmia Cements –

accounting for 62% of turnover, 75% of profit before interest and tax,

and 51% of total capital employed.

Larsen & Toubro Limited

FY2002 FY2001 Growth

Cement Sales volume (mn. Tonnes)

Domestic

Exports9.53

2.40

8.95

2.36

6.5%

1.7%

Total 11.93 11.31 5.5%

Cement sales value (Rs. Bn.) 24.59 22.77 8.0%

Ex-Factory realisation (Rs./ tonne)

1303 1251 4.2%

PBDIT/ sales for cement div. 18.5% 16.9%

PBIDT/ sales (inc. fiscal benefits) for cement div.

19.8% 19.0%

All figures in Rs. Million

L&T reported strong performance by its cement division during

FY2002. The topline growth (8.0%) was on account of growth in both

sales realisation (4.2%) and sales volume (5.5%). Focus on cost control

and improvement in operational efficiency resulted in the operating

margin improving from 16.9% in FY2001 to 18.5%. Some key steps

initiated by the company in this direction included.

Reduction in heat consumption by 7 Kcal/ tonne of cement

Reduction in power consumption by 3 units/ tonne of cement

Switchover from imported coal to domestic coal. Further, purchases

were made from smaller coal miners to reduce purchasing cost.

Reduction of packaging costs by optimising specifications and

usage of laminated bags in place of pure paper bags.

Reduction in fixed costs by Rs.320 million in FY02.

Reduction in the number of stocking points and increase direct

despatches so as to reduce secondary freight, handling costs,

backtracking and operating costs of dumps.

Installation of Optimisation software to manage the network to

minimise total delivered cost.

Madras Cements Limited

FY2002 FY2001 Growth

Net Sales 7063.0 6183.3 14.2%

Other income 30.7 24.9 23.3%

Expenditure 5290.5 4426.4 19.5%

Operating profit

1772.5 1756.9 0.9%

Interest 775.0 654.1 18.5%

Depreciation 609.6 527.3 15.6%

Tax 150.0 116.4 29.3%

Net profit 268.6 484.0 -44.5%

Madras Cements Ltd. has reported 14.2% growth in net sales during

FY2002. Although, sales volume increased by over 20% to 3.26 mn.

Tonnes, pressures on sales realisation resulted in lower growth in sales

in value terms. Rise in operating costs by 19.5% resulted in a marginal

0.9% growth in operating expenses. All elements of the operating cost

witnessed an increase, with the largest rise experienced in Freight

costs (42%) followed by raw material costs (28.5%). Interest and

Depreciation charges were also higher by 18.5% and 15.6%

respectively on account of capacity expansion at the Alathiyur *TN)

unit. As a result the net profit declined by 44.5% to Rs. 269 mn.

Operating Cost

FY2002 FY2001 Growth

Raw material 1029.8 800.6 28.6%

Employee cost 358.9 328.3 9.3%

Power & Fuel 1645.9 1434.8 14.7%

Freight 994.4 700.2 42.0%

Others 1261.7 1162.5 8.5%

Total 5290.5 4426.4 19.5%

All figures in Rs. Million

PEST ANALYSIS

POLITICAL:

Rigid government policies in respect of price and distribution control. With a view

to give impetus to the growth of cement industry, government took the following

major decisions:

Percentage post-tax return on net worth (announced by government in

1977)

Partial decontrol w.e.f. 28th February 1982.

Complete decontrol w.e.f. 1st March 1989.

Delicensing of cement industry in July 1991.

Earlier In order to contain prices in shortage scenario, government continued

controls and thus cement shortage continued as there was hardly any generation

of reserves for the cement producers which could be invested in major expansion

and modernization.

ECONOMIC:

Cement production after liberalization grew at a compounded annual growth

rate (CAGR) of 8.4 percent. The demand for cement also grew at CAGR of

8.4%.

Cement production grew by negligible 0.2% in 1992-93, by 6.7% in 1993-94,

7.9% in 94-95, 10.5% in 95-96 – in consonance with the economic growth of

the country.

The recession in 1996-97 saw a drop in the growth rate for production to

8.5%.

Cement industry is dominated by the private sector. It not only holds the bulk

of the capacities (87%) but also produces 95% of the total production.

The capacity utilization of private sector is higher at around 86% as

compared to 40% in the public sector.

The multiplier effect of the cement consumption to GDP growth in India is

around 1.5 times and with current liberalization and opening of the economy,

the multiplier is set to grow to 1.7 times.

The multiplier effect on the basis of input stands at 0.95 times and is likely to

improve in the future as economic activity picks up.

Another driving force is expected to be on account of increased government

spending on infrastructure projects like roads, dams, and power projects.

Trend of takeovers instead of greenfield project in the present scenario.

SOCIAL:

Cement is a core sector and its development is of vital importance to not only

the national growth but also the growth of the society as a whole.

India being among the most populous countries and with the present growth

rate, an estimated 1 billion people will live in India by the year 2020. This will

put an enormous strain on the existing and future roads, rail network, power

sector, port facilities and on housing construction which will have to increase

dramatically if it is to meet the needs of the people.

Added to this will be the necessity to build improved sanitation, and sewage

disposal systems and to invest in water treatment works in order to provide an

adequate and clean water supply.

The above mentioned requirements in the infrastructure and other basic

facilities clearly indicate the growth prospects or requirements of cement

in the near future.

Due to increased concern towards the environmental pollution, the companies

are now using advanced technologies for pollution control. It is also a

mandatory clearance for setting up a new cement plant.

TECHNOLOGICAL:

The modernization process of cement industry included the following aspects:

Precalcination technology.

Computer controlled kiln operation

Centralized operation

Analog and digital display of process parameters

Electronic packing and

Conversion of old wet process plants into dry/semi-dry plants.

The trends, which are yet to be adopted in Indian Cement industry, are use of

Bulk cement distribution and use of Ready Mix Concrete.

INDUSTRY ANALYSIS using Porter's Diamond Framework:

Porter argues that there are inherent reasons why some industries are more

competitive than others in a framework called as Porter's Diamond model.

1. Factor Conditions: Specific factor conditions provide initial advantages

which are subsequently built upon to yield more advanced factors of

competition. Basic conditions that are advantageous to cement industry are

its immense potential for growth. The country is in a developing stage and is

presently poor in infrastructure facilities. The growth of the country's economy

depends a lot on the development of infrastructure facilities and hence a huge

potential for cement industry.

2. Home Demand Conditions: provides the basis upon which the

characteristics of the advantage of an industry are shaped. Demand patterns

and trends can be used to see how important cement would be in the years to

come.

Future Growth Needs:

National highway systems alone needs to be more than doubled, an

increase of 34,300 kms.

Ports will be required to improve the capacity to approximately 277 million

tonnes in order to cope with the increased coastal bulk freight.

Housing construction will need to produce an added 64.4 million new

homes by 2001.

The country needs to spend 10.75 billion dollars a year on new capacity.

Railway networking, state highways and sewage treatment works, airport

and other facilities needed to support an increasingly populated nation.

3. Related and supporting industries: The major impact on the cement

industry is from the construction industry which, right now is in the recession

in the overall economic growth. But once we are out of this recession, the

construction industry is bound to grow (as can be seen from the above

mentioned future needs) and thus cement industry will have a high time once

again.

4. Industry Strategies, structure and Rivalry: The prominent strategy visible

in the industry now-a-days is of going for mergers and acquisitions, which is

giving promising returns to the shareholder's value. The predators, mostly the

larger cement companies are in the expansionist mode. The industry today is

fragmented with about 115 plants spread across 50 business groups and the

prediction is that at least 20 business groups will move out of the industry- the

big contributor to this being recession.

Acquisition gives a company an advantage in terms of selecting an

appropriate location since the assessment of the market, limestone quality

and competition is available on hand and the risk of setting up a new plant is

reduced. An example for this is, when ACC acquired Damodar Cement, two

years ago, it had the first hand knowledge of the market potential and other

advantages.

Also the industry being raw material intensive, availability of limestone also

becomes a crucial factor.

Talking about the industry structure, the major competitors in the industry

are:

Birla Group

ACC

JK Group

L & T

Gujarat Ambuja

India Cements

Comprising about 65.6% of the industry's capacity.

In terms of rivalry, some sort of rivalry is existing in the industry owing to these

acquisitions. One such recent example is of India Cement and Raasi Cement.

India Cement's open offer to acquire 20% stake in Raasi Cement at a price of Rs

300 surprised the market. In return India Cements will get Raasi Cements which

has a capacity of 1.6 million tonnes , which is being expanded to 2.5 million

tonnes. By this, India Cements will be getting some of the most efficient

manufacturing plants at far below its replacement costs.

PRODUCT DEVELOPMENT

AND CONSUMER INTEREST

Ready Mixed Concrete and Bulk Cement

There is a need to encourage use of ready-mixed concrete bulk

movement of cement for quality and speedy construction at a

considerably reduced cost.

Hitherto, a large portion of cement production is utilised for urban

development activities and large construction projects. There is yet a

vast untapped market potential in the rural areas.

Consumer Interests

Presently, the cement producers are required to pack 50% of the total

cement production in jute bags. This is against the interest of the

consumer because jute bags are permeable in nature. Since, cement is

a hygroscopic product and has limited shelf-life, it needs to be

protected by superior packaging material viz Paper /HDPE /

Polypropylene, etc.

Consumer is becoming increasingly quality conscious and exercises his

choice regarding the particular brand of product and packaging . In a

situation where there are several manufacturers, it is necessary to

provide suitable identifications of colour and design for quality,

production and packaging. The would discourage adulteration of

cement, which is undesirable.

In the interest of consumer protection, the cement industry needs to

pack cement in superior HDPE/Paper bags of their own choice of colour

and design for easy identification by the consumer.

Suggestions and Recommendations

The following recommendations are need to be considered so as to

increase cement consumption.

Ready-Mixed Concrete (RMC) is produced under strict controlled

supervision and provides to the consumer a consistent quality product,

which improves the quality of construction RMC should be encouraged

by exempting it from Central Excise Duty and permitting tax holiday.

etc.

RMC should be specified all Government Tenders for their

projects.

Excise duty and sales tax on cement used for large construction

projects like concrete roads, canal linings, etc. should be exempted.

To encourage more bulk transportation of cement.

An excise duty differential of Rs. 50 should be introduced on bulk and

bagged cement.

MODVAT on packaging material, which is permitted by Government at

the Cement Plant, should also be extended to Bulk Cement Terminals,

if cement has been transported to the Terminals in bulk form by. Sea

or Rail and is packed at the terminals.

Most of the countries imparting cement have bulk handling facilities at

ports (on shore or even floating) and insist on importing cement in

bulk. Hence, bulk transportation and establishment of bulk terminals

would help in maximising exports. This will also help the domestic

market to grow qualityvelyin line with international standards.

To open up diversified uses for cement consumption, the construction

of concrete roads (National/State highways, Expressways, City roads),

canal linings, pre-fab elements and newer applications in rural areas

be given a thrust.

For all future construction projects, such as concrete roads, canal lining

etc. the economics of cement should be examined with alternative

materials and decision should be taken in favour of those which are

economical on life cycle cost basis.

A nodal agency be formed for the promotion of coastal transport

through establishment of terminals, bulk handling facilities, sea vessels

and other infrastructure facilities. Incentives should be offered for

attracting investment in this areas.

The Motor Transport Act restricting and reeducating the maximum axle

load to 9 tonnes should be re-examined to partly meet ever increasing

requirement of movement of cement and other goods.

Jute Packaging materials (Compulsory Use of Packaging Commodities)

Act 1987 needs to be modified in the light of the consumer interest, in

favour of alternative packaging materials which are superior in quality

and provide greater protection to cement, which is hygroscopic

product and hence has animated shelf-life.

In the interest of the consumer, cement producers should be allowed

to use superior packaging material of their own choice of colour and

design for easy identification, as per the quality requirement of the

customer, complying with BIS standards.

Cement Regulate Account Funds, lying idle with Government , may be

utilised for the benefit of the cement consumer in the promotional

activities concerning bulk transportation, redid-mixed concrete, rural

applications, training activities, creating consumer awareness, etc.

FIVE FORCES ANALYSIS FOR ACC

In the present day competitive scenario, the notion of strategy is more of a

search for opportunity to identify basis of advantage. There is a need to identify if

there are factors in the environment, which influence the capability of an

organization to position itself to such advantage.

Now, we will analyze the Associated Cement Companies (ACC) in Porter’s five

forces framework.

a) Threat of entrants

The threat of entry in cement industry depends on a variety of factors and the

extent to which they are a barrier to the entry of new companies.

(a) Economies of scale: Economies of scale in cement industry are very

important in the present scenario where only a few companies are able to

sustain which have a prominent presence. Until and unless you want to focus

on a very small, specific segment in the market, economies of scale are

important.

ACC, a cement major, operating mainly in North India has plants at

various locations in various states like Maharashtra, Rajasthan, Madhya

Pradesh, West Bengal, etc. At present, it has 13.1% share of the

industry's total production. Also ACC has a diverse range of business

activities as it manufactures and markets cement refractories and

refractory products and also provides consultancy and engineering

services.

(b) Capital requirements of entry : The capital cost of entry varies according to

technology and scale. The cost of setting up a new 1 million tonnes per

annum is of the order of Rs.400 crores. Also the technology requirements in

terms of the latest instrumentation systems so as to design the plant for zero

downtime, high product quality, and better throughput with minimum energy

consumed per unit of cement production.

(c) Access to distribution channels : Access to a wide and deep distribution

channel is important for any company to have a big share in the cement

market. The segments of cement markets are in diverse distributed areas so

a good distribution network is a must for any company to sustain in the

present scenario.

ACC has a deep distribution network in the state of Maharashtra,

Rajasthan, Madhya Pradesh, West Bengal, Tamil Nadu, Haryana, Bihar

and Andhra Pradesh, so has an access to diverse market opportunities.

(d) Cost advantages independent of size : It is difficult for a competitor to break

into a market if there is an established operator which knows the market well,

has good relationships with key players and suppliers and knows how to

overcome the market and operating problems.

ACC is in the cement industry since 1936 and has got diverse experiences

of growth and recession in the industry. It has a good distribution setup

and has good relationships with the suppliers and buyers especially with

the government, who is a major supplier and a major buyer since the ages

of regulation.

(e) Legislation or Government control : Earlier the industry was totally regulated

and licensed but now it has been de-licensed and decontrolled, so now it is

not a major deterrent to any new company to enter the cement industry.

(f) Differentiation : By differentiation, we mean the provision of a product or

service regarded by the user as different from and of high value than the

competitors. The organizations that are able to achieve strategies of

differentiation provide for themselves, a real barrier to competitive entry. ACC

is using the latest technology to provide the best of the product to its

competitors. ACC is the first company in India going for bulk transport at its

ACC Kalamboli plant.

All organizations have to maintain resources and provide goods or services, what

is known as the supply chain or the value chain of the organization. The

relationships of the buyers and suppliers can have an impact on constraining the

strategic freedom of an organization and in influencing the margins of that

organization.

2. Power of buyers

Cement industry is prominently a buyers market owing to the presence of a

large number of cement brands available in the market in case of the ordinary

Portland cement, which is the major chunk of cement production in India. Still

the companies having a strong brand name have a competitive advantage

because the customers generally go for a strong brand name rather than

price for the long run safety of their purposes.

3. Power of suppliers

Suppliers play an important role if they are less in number for a particular

commodity. The trend nowadays is of reducing the resource dependence

on the suppliers by way of backward integration. Generally, the companies

who are operating in the economies of scale go in for backward integration

by producing the required inputs themselves.

The supply requirements in the cement industry are mainly coal and power

and they also form a good chunk in cement production. The dependence on

power being reduced now a days by going in for captive power plants. ACC

too has gone in for captive power plants to reduce their dependence on

power, also owing to the erratic power supply.

Coming to the coal now the partial liberalisation in the coal sector by the

government, the dependence on government has been reduced to some

extent.

4. The threat of substitutes

The availability of substitutes can place a ceiling on the prices for a

company’s products, or make inroads into the markets and so reduce its

effectiveness.

Owing to the cost of cements, new innovative products are being built which

are much cheaper and provide more or less the same strength as that of

cement. Right now these products are not being commercially developed but

it may be a threat to the industry in the long run.

ACC has diversified itself into diverse areas and is also providing specialized

products and services like bulk transport etc. So presently, there is not much

threat to ACC from the substitute.

LEARNING ISSUES

Going for the new cement plant is not advisable in the present scenario as it

takes around 3 years to build a new green field project. In the mean time, the

environment may change, hence the risk of setting up a new plant is high as

compared to going for acquisitions.

Acquisitions give company an advantage in terms of selecting the appropriate

location since the assessment of the market, limestone quality and

competition is available on hand and the risk of setting up a plant is reduced.

Most of the cement companies are still sustaining owing to the growth in other

sectors of their operations. So the companies are not advised to focus on only

one particular product or service.

Cost effectiveness is the word of the day. The companies producing at a

lesser cost than their competitors have a strategic advantage especially in

adverse conditions.

So instead of going for expansion the companies should try to improve their

capacity utilization, so as to benefit most from its existing assets.

Focus of the company should be more on the value of their product than on

their price because a strong brand value indicates the strength, corporate

image, price, recommendations, availability, etc. itself. Since it is a buyers

market, the focus should be to build a strong brand image.

More emphasis should be laid on marketing since the cement market is a

buyers market. Almost every market has 10+ brands, as a result of which the

sales depend on the image that the company projects on the minds of the

customers.

STRATEGIES RECOMMENDED FOR ACC

In the light of the above learning issues that we have discussed, we put forward

certain strategies for ACC to face the challenges in the present scenario and how

to improve its market position in the coming years.

1. ACC should try to go for maximum cost efficiency in its Indian plants as it is

doing for all its overseas operations. This is because low cost production is a

major strategic advantage that the companies have in the level of competition

that exists today. This is so because even if the prices of cement go down

and other costs increase (which are common to all the players) ACC will be

able to cope with the dipping margins owing to this cost advantage.

2. Marketing focus : Marketing the cement today presents many challenges –

because at present the supply outstrips the demand, prices are stagnant and

the markets have failed to deliver the expected demand, thus making

marketing not only demanding but exhilarating. ACC is a strong brand name

and can do much better by extensive marketing.

3. Strategic Advantage from Bulk Cement and RMC : BCCI (Bulk Cement

corporation of India) is a wholly owned subsidiary of ACC. ACC can target

niche markets of Bulk Cement and can try to increase its awareness and

relevance wherever there are bulk requirements in the cement industry. ACC

should also try to build advantage on Ready Mix Concrete (RMC) as it is a

better option in the upcoming construction industry, the advantages of which

have been discussed before.

SWOT ANALYSIS OF INDIAN CEMENT INDUSTRY

PERSPECTIVE PLANNING: CAPACITY, DEMAND, PRODUCTION,

INFRASTRUCTURE AND EMPLOYMENT GENERATION

SECTION -1

CAPACITY, PRODUCTION, CONSUMPTION AND

DEMAND

Growth

Cement industry is a core sector industry and forms the backbone of

infrastructure development of the country. Industry has shown steady

and consistent growth in the last three plan periods. The easing of

controls which was initiated n 1982 culminating in total decontrol in

1989 and the implementation of policies of liberalisation put the

dormant cement industry on a vibrant growth path. The industry grew

3 times both in terms of capacity and production. The industry is

presently growing at the rate of 8% -10% per annum.

Cement consumption

Though the Indian cement industry with production of around 69 mil.t.

(2001-02), ranks fourth in the world, the country’s present per capita

cement consumption is low at around 82 kg. Compared to the present

would average of around 250 kg. Several developing countries like

Brazil, Argentina, Mexico, Malaysia etc. have per capita cement

consumption above 150 kg. This leaves large scope for rapid and

continued growth in the next two plan periods at least.

GDP Growth and Demand

Cement consumption is related to overall economic growth (GDP) and

has been growing at around 7.5% during the last two years. With the

GDP growth accelerating to exceed 6%, the cement demand also has

shown a sharp rise to above 11% in 2001-02 – three year moving

average crossing 8%.

Demand Forecast

As per studies done on forecasting of cement demand in the IX Plan by

NCAER and IIM. Ahmedabad, with a GDP growth of around 6%, the

cement is expected to grow around @ 8 to 9% annually to reach 109

mil.t. in the final year i.e. 2001-02. The grow could be even higher with

higher growth of economic development and Government taking up

large projects – concrete roads, canal lining, mass housing etc. The

production will have to reach 113 mil. T. for taking into account 8 mil.t.

of exports comprising of 50% cement and 50% clinker, expected in

that year. The growth is likely to be sustained at the rate of 8% over

the X Plan and demand is likely to reach 160 mil. t. in the year 2006-

2007.

See table I below :

(Mil.t.)

Year Demand Ex.

Growth (%)

Production Capacity

1996-97 73 7 76.0 105

1997-98 79 83.5 112

1998-99 86 90.0 120

1999-00 93 8.3 97.5 125

2000-01 101 105.5 130

2001-02 109 113.0 135

Investments

Cement capacity has also to suitably increase to a level of 135 mil.t. to

meet such growing demand in the IX Plan. This would mean an

investment of over Rs. 30,000 crores with current prices and similar

investment will be necessary in the X Plan too. This includes the

investment that has to be made in improving infrastructure areas of

coal, rail and power to support increased production. These investment

will be mostly in private sector.

Details given below:

Rs. Crores

Cement Capacity 12,250

Washeries 500

Captive Mines 2,000

Railways 12,750

Power 3,000

Total 30,500

Growth Scenario

The industry has plans to add a capacity of 30 to 35 mil.t. during the IX

Plan. Number of proposals have been initiated already.

The trends in setting up new capacities will be to wares increasing use

of pozzolana materials like fly ash, a bye-product of power houses and

blast furnace slag from steel plants. These will help a blast furnace

slag from steel plants. These will help a better environment on one

side by making effective use of the waster materials and also reduce

the cost of cement. These are also world wide trends.

There will be more of split location plants, with grinding units (built

away from the clinkerisation unit) nearer sources of fly ash or slag etc.

Hence some of the capacities are likely to come up in the

neighborhood of thermal power houses and steel industries to take

advantage of availability of fly-ash and slag. Some of the capacities are

also likely to come up at the coasts to exploit export potential both for

its own sake and as a hedge against fall in domestic demand.

Suggestions and Recommendations

There is need to improve the per capita consumption of cement to

match with higher standard of living and higher level of economic

development. The Government has to take steps like encouraging

private sector participation in concrete road construction, canal

lining provision of housing for the housing for the masses using

modern production technologies, prefabricated concrete

components, etc.

The healthy growth of cement industry in the IX Plan Would depend

largely upon expeditious removal of bottlenecks :

- Expeditious clearances for limestone mining; “Single Window”

approach.

- Ensure Parallel growth of infrastructure support particularly in

the areas of coal, railways and power to take place concurrently

to meet the needs of the industry.

As per the normal practice long term forecast would necessarily

need review and updating at regular intervals.

SECTION – 2: INFRASTRUCTURE (A) COAL

Short Supply of Coal

Performance of the cement industry entirely depends on availability of

adequate quantity and proper quality of coal. Coal supply to the

cement industry has not kept pace with the sharp increases in cement

production. On the other hand, supplies show an alarming downward

trend.

REDUCTION IN RECEIPT OF LINKED COAL

(Mil.t.)

Year Actual fact con. In. C.P.P.

Supply Ap. Lia.

Cost -----

La. Lig. --- (FW/Day)

1 2 3 4 5 6 7

1998-99 12.05 10.49 1.27 0.09 0.8 941

1999-00 12.78 10.34 0.86 0.12 0.7 963

2000-01 13.29 10.28 1.62 0.71 0.8 934

2001-02 14.07 10.00 2.00 1.00 0.8 824

The availability of rail wagons for coal movement is shrinking instead

of going up :

- The supply of coal to the cement industry (large plants) against

linkage has more or less remianant at 10 mil.t.

- The total production in the country has gone up about 240 mil.t.. in

1996-97 to 282(P) mil.t. in 2001-02i.e. an increase of about 42 mil.t.

in five years. This extra production has been absorbed growing

requirements of power sector only.

- The coal shortages are being made good by using imported coal,

procurement from open market at higher cost and lignite from NLC

by the Southern Cement plants.

- Main concern of the industry is that if coal problem is not tackled

urgently industry is bound to suffer a serious setback in the coming

years.

Estimated Coal Requirement

The cement production estimates and coal requirements (large plants)

based on consumption norm of 220 kg. Per tonne of cement emerges

as under :

Year Projected Production of

Cement (Large Plant)

Coal Requirement (Mil.t.)

Kiln Captive Power

Total

1996-97 70 15.50 1.00 16.50

2001-02 105 23.00 2.50 25.50

2006-07 150 33.00 3.00 36.00

It is expected that better coal will be available by way of imports /

Washeries / improved technology.

Ash content in Coal

With the ash content in coal supplies increasing to near 40%, the

efficiency of production goes down. The only solution is setting up

Washeries at pitheads. The cement industry is already going in for two

Washeries one at Sasti through Coal India Ltd. and other at Dipika

through a foreign Build Own Operate (BOO) entrepreneur. The industry

should set up early more such coal Washeries captive to them getting

allotment of coal and land from Coal India. They should own and

operate coal mines too, to overcome the shortages of coal supplies

from Coal India Ltd.

Suggestion and Recommendations

As import of coal becomes uneconomical due to high duties,

reduction of import duties has to be considered to help and sustain

growth in the coast based ad near coast plants. This will also relieve

the pressure on supplies and rail movement to other inland plants.

The southern plants are using lignite mainly for making up for the

shortage of coal. Regular change over to this fuel will mean putting

up additional plant and machinery. Plants can consider this only if

long term commitment for regular supply of lignite can be made by

Naively lignite Corporation or other supplies. Such commitment in

not available both in South and in West where the deposits of lignite

are yet to be systematically exploited.

Exploitation of lignite deposits in Rajasthan and Gujarate should be

accelerated and this would help plant in Rajasthan and Gurjarate to

utilise this alternate fuel. About 2 mil.t. of lignite each in South and

in West need to be set apart for cement industry.

Need to promote setting up of coal Washeries at the locations

identified by CMPDI (Sasti, Dipika, Urimari, Bina and Bhubaneswari)

to meet the quantitative and qualitative requirements of he cement

industry. While Sasti is being installed by WCL, Dipika by the

cement industry under BOO Scheme on priority basis to begin with.

Captive coal mines for the cement industry need to be set up. It will

provide reliability of coal supply.

Operation of industry’s own dedicated closed circuit trains for coal

from captive mines / Washeries to cement plants.

As per the normal practice long term forecast would necessarily

need review and updating at regular intervals.

SECTION – 2: INFRASTRUCTURE (B) RAILWAYS

The industry has been facing wagons shortage for moving cement to

markets and this has become steadily worse due to wagons shortage

with the railways. During 2001-02, the share of rail movement to total

dispatches of cement dropped to 45% from 50% in 2000-01 (rest

moving by costlier road route). Considering the higher cost for longer

distances by road trucks which also consumer higher energy than rail,

it is desirable that atleast 60% of the total dispatches move by rail at

macro level. Plants in cluster and million tonne plants will need a

higher 85% movement by rail due to longer average leads for such

concentration. Wagon supplies for coal movement is equally acute and

continues to hurt cement industry’s performance due to frequent

stoppages of kiln operations for want of coal.

Fall in Supply of Wagons For Cement

The industry is anxious to take advantage of the ‘Own Your Wagon’

scheme but could not progress much due to the present unattractive

terms. The industry in also keen to run captive trains both for coal and

cement movement in closed circuit fashion with captive rakes owned

by them. Suitable framework has to be developed by the railways and

industry.

Suggestions and Recommendations

Railway should plan increased wagon procurement and allotment of

wagons for movement of cement, coal and gypsum to the cement

industry to cover at least 60% of the production at macro level and

85% of production in case of plants concentrated in clusters and

million tonne plants.

Railways should consider providing large number of containerised

wagons for increasing cement movement.

More attractive terms have to be offered for ‘Own Your Wagon’

Scheme and dialogues are needed between cement industry and

Railways to implement the scheme.

Suitable incentives to the cement for running captive trains will

have to be worked out between Railways and cement industry.

There is need to upgrade the priority for movement of gypsum to

cement plants from priority ‘D’ to ‘C’. This will enable cement plants

all over India to get an increased supply of gypsum.

Moving cement and using it in bulk without packing is the normal

practice around the world. Bulk movement of cement is being set

up between Bombay and Wadi by a joint sector company with

Central Government participation. Similar steps are needed for

other cities which are ripe for such introduction.

Mechanisation : Special Cell in Railways be formed to co-ordinate

and direct efforts in the industry for mechanising terminals and

handling operation in a planned manner. Without mechanising the

operation, wagon availability problem cannot be solved.

As per the normal practice long term forecast would necessarily

need review and updating at regular intervals.

SECTION – 2: INFRASTRUCTURE (C) POWER

1. The industry has been facing continuous and increasing power

shortages for several years in different States.

2. The industry has already installed captive generating capacity of

1100 MW (2000-01). So far these are mostly diesel generators

amounting to 30% of the total requirement meant for limited short

term stand by short-term operations with the power cuts assuming

larger dimensions of even 80-90% at times and for long durations,

industry has plans to increase it further to about 60% or more with

mostly coal based thermal plants. By end of the X Plan this may

amount to 1300 MW needing 2.0 – 2.5 mil.t. of coal. There could

also be power generations at the planned coal Washeries using the

washery rejects.

Suggestions and Recommendations

The Centre and the State grids should improve power generation

and quality of supply without frequent tripping, I drop in voltage

and frequency which can cause damage to equipment.

For setting up captive power generating capacity, the cement

industry should be given incentives similar to Independent Power

Projects (IPP) Coal for power must be moved on priority as for other

power plants.

Parallel operations of grid and co-generation of power need to be

permitted as a policy.

As per the normal practice long term forecast would necessarily

need review and updating at regular intervals.

SECTION – 3

HUMAN RESOURCE DEVELOPMENT

AND

EMPLOYMENT GENERATION IN CEMENT INDUSTRY

The cement industry (large and mini plants) provides direct

employment today to 2.5 lakhs people. This will increase by about

24,000 by the year 2001-02. Besides it generates in additions

downstream indirect employment to about 20,000 men per mil.t. of

cement produced by the way downstream services like transport,

handling, distribution construction services. Additional employment

generated is given below :

Year Capacity Employment

Large Mine Direct (Persons in

Lakhs)

Indirect (Persons in

Lakh)

Existing 1995-96

88.23 9.0 2.25 20.0

Additional

2001-02

32.00 6.0 0.24 7.6

By the year

Indian cement industry has achieved a unique record of harmonious

industrial relations with labout – Tow Wage Board Awards in the sixties;

Two voluntary awards one in seventies and other in early eighties.

The last settlement of wage dispute in cement industry in 1992 is

unique in the sense that for the first time all the five union came

together and jointly signed a bipartite settlement before the Chief

Labour Commissioner (Central), New Delhi – an amicable settlement of

labour dispute across the table.

The Indian cement industry with aid of World Bank has set up four

Regional Training Centres (RTC’s) for development human resources.

They have been forwarded with ,modern teaching aids and computer

based learning modules.

Suggestions and Recommendations

The success of Japanese enterprises has been credited to their

distinctive pattern of work organisation. The social organisation of

production in Japanese plants based on team work, job rotation

continuous upgradation of skill and self management creates a

knowledge in workers and develops high trust relation. The cement

industry in India should implement similar policies.

While the training at technicians level appears to be provided for

there is been for trained managers particularly in the climate of new

technologies being introduced with automation central control

room, new techniques of quality management etc. A national forum

needs to be set up for the industry for periodical exchange of

experience an views on management of people in the light of new

technologies.

MODERISATION, TECHNOLOGY UPGRADATON,

POLLUTION CONTROL AND ENERGY

CONSERVATION

Mining

The use of modern techniques like photogrammetry and remote

sensing have become hand to discover virgin deposits especially in the

hilly and inaccessible regions. These are to be adopted for optimum

utilisation of reserves and steps should also be taken to encourage use

of low grade limestone and other raw materials to extend the life of

deposits of key raw materials for many industries.

Mining Equipment

Mobile crushes have high productivity, maximum utilisation and high

flexibility when used in conjunction with flexible belt conveyor systems

and should therefore find more application in the cement industry in

future.

Processes

The cement industry as it stands today is a combination of old and

small capacity wet process kilns and modern precalcinator plants

incorporating the latest technological advancements.

The plants built in the ‘80’s incorporated instrumentation, with

centralised plant operation through PLCs / computer. Specific

computerised software package like Raw Mix control, process control

and optimisation, refractory management system, Electrical energy

management system, etc. have been adopted by the plants for process

optimisation. These plants have fuel consumption in the range of 750-

800 kcal/kg clinker and power consumption about 95-120 Kwh / tonne

of cement.

Latest Technology Trends

The new built in the Plants incorporate the latest in hardware and aim

to achieve very low thermal and electric energy consumption and are

comparable to plants being built elsewhere in the world. Some of the

important technological advancements adopted by these plants, are :

Preblending beds for coal.

Roll Press for raw material grinding in finish mode.

Low-pressure grate Coolers with higher recuperation efficiency.

Roll Presses for grinding of slag in finish mode and Clinker with

Open / closed circuit Ball Mill together with high – efficiency

Separators.

Specially designed Computer Software Systems for Raw Material

evaluation and Management on – line Raw Mix control, refractory

management process control and optimisation electrical energy

management and plant maintenance management etc.

Captive power plants to ensure continuous operation by running

these in parallel with grid.

These plants have been able to achieve heat consumption level around

700-725 kcal/kg clinker and require 90-100 kwh of electrical energy

per tonne of cement.

Presently 85% of the cement production is being contributed by

modern energy efficient dry process plants.

New devices to reduce energy consumption are costly and

substantially imported, thus increasing their landed cost. This offsets

the gains of reduced power consumption and prohibits its application

on a wider scale in the industry. The world bank lines of credit I, II and

III have been offered largely for this purpose and industry has been

availing of this facility.

QUALITY UPGRADATION

Quality Control in Cement Manufacture

Following sophisticated controls are now being practiced by the

cement plants for quality control purposes :

Computerized mine planning and deposit evaluation.

Computerized fuzzy logic control system.

Computer Aided – Instrumentation and process measurements

using gas analyzers, temperature and pressure measuring devices

etc.

Use of flow control diaphragms classifying liners high efficiency

separators to ensure better particle size distribution for optimum

performance of cement.

On-line x-ray fluorescence spectrometer for raw mill control and raw

mix.

Quality Management and Assurance

Indian cement industry has recognized that ISO 9000 quality system

certification is extremely important for quality, reliability and

competitiveness. About 20 cement plants in India so far have been

awarded ISO 9000 certification and about 40 cement plants are at

various stages of quality system implementation.

After installation of quality system in line with ISO 9000 or

equivalent quality level stabilises at a defined level. However this

may not be sufficient as due to competitive environment the quality

level has to improve continuously keeping this in view a recently

introduced approach is total quality management (TAM) TQM

approach is also being put in practice and being used by few

cement plants ISO 9000 quality system installation is the first step

towards the TQM approach.

Research and Development

In today’s fast progressing world no industrial system can sustain

without R & D support. Also for desired results, research has to be

properly focused and mission-oriented. Further adequate funds have to

be made available for R&D.

R&D Units

During this decade a number of cement manufacturing organisation

have development their in house R & D units and today 12 such In-

house R & D units are recognised by DSIR. Data complied by Dept of

scientific and Industrial research on R & D units in India shows that In-

house R&D of units cement companies spends annually 0.08% to

0.57% of their turnover on technology development activities (average

0.29% of turnover), whereas R & D units of cement machinery

manufacturing companies spend 0.04 to 0.75% of the annual turnover

(average 0.55%). The manpower involvement in R&D is also very low

hardly 0.004%.

R&D Expenditure

The R&D expenditure in India as a percentage of the Gross National

Product (GNP) has been around 0.8% during last few years. For a

comparison most of the development countries spent between 2% and

3% of their GNP whereas some countries had spent even more than

4%. The expenditure on R&D as percentage of GNP for the whole world

was 2.55 in 2000; in the case of developing countries this being 0.64%.

R&D Personnel

India employs 4.50 scientific and technical personnel per thousand of

population as compared to about 185 for Canada and 111 for Japan.

Out of these only 0.27 S&T personnel were engaged in R&D activities

in India against 3.4 in Canada and 6.05 in Japan. These wide gaps in

manpower & capital investment on R&D needs bridging up because

the R&D can bring manifold returns to the industry.

TRANSPORATION AND HANDLING

Bulk Movement

In India less than 1 percent f the cement is transported in bulk while in

the industrially advanced countries, 70 to 80 percent of the cement

produced is transported in bulk. This has to be adopted in India as well

which would help in reducing the packaging, handling and

transportation cost besides reducing the load on rail and road transport

infrastructure.

The cement plants in India are concentrated in seven major clusters

near the large limestone deposits. In view of further capacity addition

in these cluster the conventional mode of cement transportation may

not be able to meet the increased demand. Therefore alternative ways

have to be developed for the transport of cement by bulk to the large

consuming centres like metropolitan cities and use of ready mix

concrete should be encouraged by government and concerned

agencies.

Raw materials conservation

Efforts should be directed to utilize marginal grade limestone to the

maximum possible extent in the cement manufacture. Benefaction of

limestone therefore is one area which deserves R&D attention.

Notwithstanding the above, the present raw material base for the

cement industry is not going to last forever and the use of various

agricultural industrial urban and rural waster generated to the tune of

2650 mt annually, need to be exploited as an alternate source of raw

material manufacture of fly ash and slag based cement should be

further encouraged to conserve limestone.

Present energy consumption levels

A study conducted by NCB, shows that the overall weighted average of

the studied units energy consumption is of the order of 880 kca/kg

clinker and 110.6 kwh/t cement.

Table below gives process wise energy consumption of Indian cement

industry from 1999-00 to 2001-02.

Energy consumption data

Item 1999-00 2000-01

2001-02

1. Heat consumption, kcal / kg cl. Dry process plants

855.83 827.82 814.87

2. Heat consumption, lcal / kg. Cl. Wet process plants

1319.39 1359.48 1339.54

3. Heat consumption, kcal/kg/cl. Semi-dry process plants

958.99 949.31 943.61

4. Power consumption, kwh/t cement Dry process plants

119.18 115.27 111.93

5. Power consumption kwh/t cement Wet process plants

108.68 108.18 100.65

6. Power consumption, kwh/t cement Semi-dry process plants

121.34 116.20 113.03

Note : Based on data of 33 dry process, 3 wet process and 3 semi-dry process plants.

Kcal / Kg. cl. Kilo Colories per kilogram of clinker

KWH/t Kilo Watt Hours Per Tonne

The average specific energy consumption levels of various countries

are given below :

ENERGY CONSUMPTION LEVEL IN CEMENT MANUFACTURE IN

DIFFERENT COUNTRIES

Country Specific Thermal Energy Consumption

(kcal / kg. CI)

Specific Electrical Energy Consumption

(Kwh/t Cement)

France 910 110

Germany 760 105

Japan 730 95

South Korea 790 120

Switzerland 825 95

Taiwan 850 120

USA 1080 135

Source : NCB

It could be seen that the energy consumption levels in cement

industry, when compared to some other countries like Japan are high

and there is scope for the industry to improve further. The NCB study,

however showed that the energy consumption levels over the years

have been going down.

Energy Conservation Action Plan

An action plan evolved for reducing the gap in energy consumption

between India and overseas countries and for achieving world

standards includes :

House – Keeping and operational control.

Process optimisation.

Technology upgradation.

Use of energy efficient equipment.

Fuel substitution by lignite, natural gas agricultural industrial and

combustible wastes.

Use of renewable energy sources like wind power solar energy etc.

Energy management which includes manpower training target

setting and regular monitoring motivational steps and regular

energy auditing.

Improving the quality of power to the plants.

Action plan should lay emphasis on periodic regular energy audit and

phased modernisation by retro fitting of energy efficient equipment

wherever feasible.

Incentives offered to power sector for power generation meant for

public distribution system may also be extended to those cement

plants which install their own captive power generation system for

cement plant operation.

Dust Emission Levels

The emission limits prescribed in our country and the limits laid down

in some other countries are given below :

Prescribed Dust Emission Limits in India and Abroad

Name of the Country Emission Limit mg/Nm3

India (for large plants only) 150/50 (for New Kilns)

Australia 50

Germany 50

South Africa 120

Switzerland 50

Japan 100

U.S.A. 100/50

Portugal 100 (existing kilns)

50 (new kilns)

In a survey conducted in 2002 the Central pollution control board

found that 55 cement plants are fully complying with the pollution

standards as given below ;

Pollutions Standards Compliance Status - 2002

Number of Units

Surveyed Fully Complying

Partially Complying

Not Complying

Not in Operation

97 55 23 12 7

Levels of permissible dust emissions in India for new capacities is 50

mg/Nm3. This is even lower than norms in some of the developed countries as indicated

below :

S. No.

Country Production of Cement in

concentrated zones Per. Sq. Km

(Tonnes)

SPM Norms Prescribed mg/nm3

1. India 385-880 50

2. Japan 3700-5400 100

Source : Pollution Control in Cement Industry – paramenters ands

programmes of FICCI 1999.

Therefore, there is need to have a fresh look at the recently prescribed

SPM levels by the authorities for new plants.

NB : Constraints faced by the cement industry in complying with the

emission regulations are manifold like poor quality of coal and power,

which need to be tackled.

In view the above it is suggested that the present SPM emission level

of 150 mg/Nm3 should be maintained for some more time and

gradually reduced to the ultimate target of achieving 50 mg/Nm3 and

he gradual achievement shall be possible over a period of 15 years.

Studies abroad have established that the Cement Kiln Dust (CKD) and

limestone dust are neither a hazard to health nor to the agriculture.

Rather, the KCD is an agricultural lime and fertilizer and allowed to be

used so in U.S.A. The US occupational health agencies have found in a

survey in 1999 that in general the cement workers are healthier than

the average for the population. It is however, suggested that some

studies be instituted in India also to examine the long term effect of

cement dust if any on workers and in population of nearby regions to

cement plants by the Indian Medical Council or other appropriate

agency.

Environmental Improvement and Environment Audit

The concept of environment, Audit (Statement) is comparatively new

to the Indian Cement Industry and the objective is to provide

assurance to top management that all stipulated regulatory standards

are being met in accordance with Central / State Pollution Central

Board norms.

A recently introduced Environmental Management Systems (EMS)

certification is an opportunity that can enable companies to acquire

the label of environmentally sound enterprises and also accrue the

benefits of improved performance. These EMS standards do not

letdown specific environmental performance criteria, but requires

organisation to formulate policies and objectives taking into account,

information about significant environmental effects. Indian Cement

Industry can also go in for this.

Man Power and Training

The introduction of new technology has reduced manpower per unit of

cement production the production results rely on the full utilisation of

the potential of all equipments and this can only be achieved by the

human resources applying good operation and maintenance

procedure. This calls for higher qualifications and continuous training.

Recommendations

1. The use of advanced computer aided software for mine planning are

suggested as this not only enables reliable estimation of mineral

reserves, grade effective blending and pit design but also facilitates

environment friendly and cost effective mining through optimisation

of production schedule.

2. The use of surface miners is recommended where ever possible as

drilling and blasting operations are eliminated resulting in cost

reduction in mining operation as well as avoiding noise and dust

pollution.

3. Mobile crushers have high productivity, maximum utilisation and

high flexibility when used in conjunction with belt conveyor systems

and therefore should be considered for application.

4. Conversion of existing wet process plants to dry process plants

should be speeded up by offering a special package consisting of

various concessions including fiscal and soft loans.

5. For upgrading the technology of existing plants, energy

conservation, pollution control and cost reduction the cement plants

should prepare “Technology Upgradation Plant” for their existing

operations.

6. Dispersal of Industry by developing new clusters like in North – East

etc. having substantial quantity of cement grade limestone, should

be considered to cut down on transport costs reduce strain on

Infrastructure like railways and roads.

7. From modernizing Cement dispatches the industry my go in for

Auto-feed of bags to packing machines.

Mechanical computer control loading of cement bags in trucks.

Palletisation of cement bags and loading of pallets instead of

individual ags in trucks and wagons.

8. Efforts should be made to utilise Inland River water Transport

system for the movement of cement from clusters to the large

cement consuming centres. Rivers like Ganga and Narmada can be

tapped for movement Eastward and Westward.

9. The cement industry should move towards Total Quality

Management for Quality improvement and better international

competitiveness, acceptability and business excellence.

10. Alignment of Indian Standards on cement with corresponding

International standards within a reasonable timeframe will give a

boost to export share of Indian cement in the international market.

11. Suitable package of incentives for R & D investments need to be

evolved common for all industries to boost R & D effort.

12. R & D in cement industry should be directed towards.

Technological developments in the process of cement manufacture

and related plant and machinery and systems design.

Operational improvements to ensure cost reduction, productivity

enhancement environment protection and quality improvement.

Proper grade of cement to be used in construction for ensuring

durability and identify areas for use of cement for newer

applications.

13. Efforts should be directed to develop technology to utilize

marginal grade limestone to the maximum possible extent in the

cement manufacture.

14. Energy conservations should be given further thrust.

15. Incentives offered to private sector for power generation meant

for public distribution system may also be extended to those

cement plants which install their own power generation system

exclusively for cement plant operation.

16. Levels of permissible dust emissions in India for new capacities is

50 mg/Nm. This is even lower than norms in some of the developed.

Therefore it is necessary to have a fresh look at the prescribed SPM

levels by the authorities.

17. Keeping in view the local conditions and other trade off’s

between cost and benefits, frequent dialogue between Industry and

Pollution Control Authorities is necessary to voluntarily evolve an

action plan and set a target for gradual implementation.

18. The present SPM emission level 250 mg/Nm3 and for existing

capacities may continue for some more time Gradual reduction in a

phased manner be allowed over a further period of say 5 years for

all the plants.

19. Before further reduction of SPM levels is considered it would be

prudent to ensure full compliance of existing regulations. For this

the industry may go in for :

Continuous stack monitoring installation with Data Logging facilities.

Interlocking of pollution control equipment and production line. This

needs detailed examination and defining of maximum allowed

Disturbance Time so that the continuously operated cement plants

are not made to trip frequently due to variations in quality of inputs

like coal and power.

20. A detailed inventory of SO2 and Nox generation from kiln stacks

of existing units should be carried out. These levels should be

considered as the basis for fixing norms for SO2 and Nox in

consultation with the cement industry in future.

21. State Pollution Central Boards should not insist for any specific

selection of air pollution control equipment and should leave in to

the judicious decision of the industry.

22. Studies be instituted to examine the effect of limestone / cement

dust on health of workers and surrounding populations by Indian

Medical Council or some appropriate agency as has been by US &

Britain.

TARIFF AND TAXATION

Role of Cement

Cement plays an important role in the development of social and

commercial infrastructures which are considered prime engines of

economic development.

Increasing per capital consumption

The economic status of any country is reflected in its per capita

consumption of cement steel and power. Though India is the fourth

largest producer of cement in the world, the average per capira

consumption of cement in India is approx. 71 kg. (world average

around 250 kg.), which is ver low as compared to developed /

developing countries. The consumption of cement in India has to catch

up with the level achieved in developed / developing countries. This

can be achieved by more efficient usage like laying concrete roads,

increasing availability of housing water conserving canal lining etc. An

additional capacity of about 35 mil.t. is expected to be set up I the IX

Plan to meet the growing needs of the economy and for this an

investment of the order of over Rs. 30,000 crores will be required not

only for expansion of capacity but also for improving infrastructure

support in the areas of coal mining rail transport power etc.

Contribution to revenue

The cement industry is a stable source of revenue to government

exchequer

Levies on Cement

The total levies / duties (Excise duty, Sales Tax Royalty on limestone / Coal, Govt. duty

on power tariff etc) on cement amount to Rs. 767 per tonne. The present scenario of tax

burden on cement in India in given below.

Taxes and Levies on Cement Rs. / Tonne of Cement

Royalty & less on limestone 38

Royalty on coal 20

Duties on Power tariff 16

Excise on stores & spares 4

Excise duty on cement 350

Sales tax on Stores & Spares / Raw Materials / Packing Materiel / Octroi etc.

20

Total 767

The incidence of taxes / levies on cement works out to about 60% of

average exfactory price of naked cement as shown below :

Incidence of Taxes and Levies

Items Rs / Per Tonne of Cement (Avg.)

Ex-factory price 1275

Duties / levies 767

Packaging 120

Freight 438

Total 2600*

(*Typical selling price excluding local transportation and dealers

margin.)

A comparative statement showing the tax burden on cement industry

in India vis-à-vis other developed / developing and cement exporting

countries is given below :

Specific or Ad valorem

There have been discussion whether excise duty structure for cement

industry could be Ad-Valorem. The cement industry represented to the

Govt. to continue excise duty at the specific rate. The plea of cement

industry is that cement production is continuous process and its shelf

life in silo/bags is limited. Therefore around 70-80% cement produced

in the factory is normally removed to sale depots on stock transfer

basis and its sale price is fixed at the time of its actual sale. Around 18

to 25% of vale constitutes freight. Therefore value for excise arrived at

by deducting transport and other expenses after leaving the factory

will vary considerably depending on the location of plant marketing

region mode of transport etc.

Also in case of cement industry the present regime with specific duty

has simplicity certainty and finality present in the system and there is

no leakage thus 100% compliance is assured with no litigation.

Cement intensive infrastructure projects

The ongoing economic reforms of the Govt. attach a high priority to the

better utilisation of existing infrastructure assets of existing

infrastructure assets and development of new infrastructure so that

infrastructure bottlenecks do not inhibit the overall economic growth.

Projects like concrete roads, concreate canal linings large Govt.

projects on housing are highly cement intensive and are also sensitive

to the cost of cement. A suitable remission of excise duty on cement

used for above projects would go a long way in spurring fast growth of

the most essential transport infrastructure ands vital social necessities

for country’s economic development.

Ready Mixed Concrete Plants

Many technological advances in construction industry prevalent all

over the world are yet to take roots in India. Ready Mixed Concrete

(RMC) is one such area. The concept of RMC is fairly new in India. It

envisages mixing cement with aggregates (stone), under controlled

conditions and moving the mixed concrete to the site instead of mixing

at construction site itself amidst other activities. The use of RMC avoids

pollution at construction site, reduces transport cost ensures uniform

and standard quality of consecrate according to customers

requirements does away with heaps of aggregates sands usual cement

bags ands dust nuisance etc. prevents congestion on the roads and

footpaths at the construction sites. Companies planning to enter the

field are suffering from fear psychosis over the levy of Central Excise

duty on RMC. As no excise duty is applicable on such site based RMC,

RMC should be exempted from the levy of Central Excise Duty.

Royalties

The Royalty on limestone works out to over Rs. 38 per tonne. The

pitmouth value of limestone on an average work out to Rs. 45 to 50

per tonne. The rate royalty on limestone should be a reasonable

percentage of PMV.

Import duty on Coal

The quality as well as quantity of coal supplied to cement industry is

worsening year after year. Also plants in South and West are located

farthest to coalfields and served poorly by rail. The industry has

managed to keep up the production by using partly lignite which is of

restricted availability and partly by importing coal in limited quantity.

However 35% import duty on coal makes it very costly. Therefore

import duty on coal may be brought down to 5% in line with coke

imported for steel plants. This will increase the efficiency of industry

and also reduce the pressure on rail movement as the railway wagons

released from serving these long lead plants can serve the other plants

better.

MODVAT

At present MODVAT on packaging for cement in given where the

packaging is done at the manufacturing end i.e. at factory. However

when loose cement or bulk cement is transported by sea or rail to a

bulk terminal away from the manufacturing unit and packaging is done

at the Bulk Terminal the MODVAT on packaging material is denied

because the Bulk Terminal is not considered as a part of the

manufacturing facility. It is fair that the same MODVAT facility that is

given for packaging at the manufacturing end should also be made

available when cement gets transported in bulk and unbarred from to

modern cement terminals and is packed at the terminals MODVAT

benefit be allowed on HSD/any used for generation of electricity in

outside the factory for production of the final product i.e. cement.

Limestone is a major raw material for manufacturing cement, for

excavating limestone huge investment on machineries have been

made by the industry. MODVAT Credit on such capital goods is not

being allowed on the ground that these goods are not used in the

factory but outside the factory. Mines are part and parcel of cement

therefore MODVAT Credit should be allowed on capital goods used in

the captive mines.

Promotion of Bulk Transportation of Cement

To encourage usage and transportation of cement in bulk the Govt.

should introduce differential excise duty of Rs. 50/- per tonne on bulk

bagged cement.

Incentive for Setting up Captive Power Plants

To insulate against the power shortage cement industry is installing

captive power plants by making huge investments. No incentives are

available for installation of captive power plants. Cement units

installing captive power plants should get same incentives as in the

case of installation of power plants by private entrepreneur.

Confessional rate of Import Duty

To make the existing and new cement units environment friendly and

energy efficient the custom duty on equipments and machinery used

for pollution control and energy saving devices be charged at the same

rate as for project imports.

Cement Regulation Account (CRA)

Around Rs. 60 crores are lying idle in the Cement regulation Account

(CRA). After making an allowance for the dues of certain cement

companies the Govt. many transfer the rest of the funds at the

disposal of Development Council for cement industry for its effective

utilisation in promotional areas like exploration of limestone reserves

modernising cement distribution and usage in bulk and improving

facilities for export and other similar areas for development of the

cement industry.

Sale Tax

Sales Tax on cement varies from State to State ; it ranges from 5% to

17%. Govt. may consider that cement be included in the list of

‘Declared Goods’ so that cement attracts a uniform low rate of Sales

Tax all over the country.

Suggestions / Recommendations

The continuation of specific rate of excise duty on cement should be

considered favorably by the Govt.

A suitable remission of excise duty on cement used for large

projects like :

Concrete Roads

Concrete Canal Linings

Government Housing Projects.

Would go a long way in spurring fast growth of the most essential

transport infrastructure and vital social necessities for county’s

economic development. To encourage private builders / individuals

building houses, Government should set up housing financing

agencies banking and mortgage facilities to make funds available at

low rate of interest in this sector.

Exempt Ready Mixed Concrete (RMC) from the levy of Central

Excise Duty Without incentives the concept of RMC will not take off

in India.

Royalty on Limestone should be livied primarily as a percentage of

Pit Month Value (PMV) and it should be reasonable.

Import duty on coal be brought down to 5% from existing 35%. This

will not only go a long way to increase efficiency of cement

production but also release railway wagons locked up in long

cirucits thereby easing movement in other areas.

MODVAT facility which is available for packaging cement at the

manufacturing end should be made available when cement gets

transported in bulk and unbarred from to modern cement terminals

and is packed at the terminals.

MODVAT benefit should be allowed on HSD / any fuel oil used for

generation of electricity in / outside the factory for production of

final produce.

MODVAT Credit should be allowed on Capital goods used in Captive

Mines.

Introduce a differential rate of Rs. 50/- per tonne excise duty on

cement between bulk and bagged cement.

Suitable incentives on the lines of power plants being set up by

private entrepreneur may also be considered by Govt. for he

Captive Power Plants being set up the cement industry in or outside

the factory.

Policy on Captive Power Plants should be made unambiguous and

clear.

The Import Duty on Cement project may be levied at the same rate

for power projects i.e. 20% against the present rate of 25% + 10%

CVD.

The Custom Duty on Equipment and Machinery used for Pollution

control and Energy Saving Devices be charged at the same rate as

for project imp[orts.

Govt. may transfer the surplus fund lying in Cement Regulation

Account to a development fund at the disposal of development

council for cement industry under the ministry of industry for its

effective utilisation in promotional area which are essential for the

development of cement industry in the country.

Govt. may consider that cement be included in the list of ‘Declared

Goods’ under the provisions of central Sales Tax Act. So that

cement attracts a uniform low rate of sales tax all over the country.