India is the second largest cement producer in the world, next only to China. India’s share in world cement output is around 6%. Most of the cement produced in the country is used for domestic consumption with very little being exported. Small quantity of cement is exported to neighboring countries like Bangladesh, Nepal, Sri Lanka, Maldives, Mauritius and UAE.
Indian cement industry is characterized by the co-existence of both large manufacturers (national players) as well as small players (regional players). Presently there are more than 65 cement manufacturers in the country. However, top four players, Big 4 – Ultratech Cement, Shree Cement, ACC and Ambuja Cement – together have 44.2% of the industry capacity. It should be noted that in FY 2008, their share was just 34.3%. However, Big 4 may have to cede some ground by 2021 when their share will see a slight fall to 42.4% due to capacity expansion by others.
In last ten years, cement manufacturing capacity has more than doubled which is mainly due to strong demand the industry had experienced till FY 2012 which in turn had helped the cement manufacturers with abundant cash flow and strong balance sheet.
Capacity addition in million tonnes
From the following table it is evident that most of the capacity addition is coming from East and the South where the prices are ruling high and also demand is robust. Further, abundant availability of limestone is another factor due to which major capacity additions are coming up in these regions. It should be noted that with 163 kg East has the lowest per capita consumption of cement in the country followed by Central region at 168 kg. These two regions have per capita consumption lower than the national average. On the other hand, North with per capita consumption of 308 kg tops the table.
Cement capacity addition by 2021
In addition to this, there is opportunity available on stressed assets front too. Lot of players had shown interest in acquiring stressed assets like JP Associates, Murli, and Binani. Ultratech finally bagged both JPA and Binani. While some have already been finalized, some are taking more time than anticipated. Though acquisition of these assets by new owners will not add to name plate capacity of the industry, they will add to the operating capacity as these were operating at low capacity utilization. Industry capacity utilization is expected to go up to 70% during the current financial year and further to 73% during the next financial year.
Interestingly, lot of expansion is taking place not because industry players are expecting demand revival in the near future but because of other reasons. Many leading cement manufacturers are flush with funds with little opportunity to spend elsewhere. Further, reduction in the cost of setting up new plants is also acting as an incentive for the cement players to go for new projects. In recent years, cost of setting up new plants has come down by 5-10%.
Limestone is the main raw material for cement manufacturing and cement units tend to concentrate around limestone mines. Therefore, in India we can see integrated cement plants located in and around these clusters in places such as Chittorgarh (Rajasthan), Solan (Himachal Pradesh), Balodabazaar (Chhattisgarh), Satna (Madhya Pradesh), Nalgonda (Telangana), Yeraguntla (Andhra Pradesh), Kutch (Gujarat) and Gulbarga (Karnataka). However, with the concept of blended cement fast catching up, clusters are getting slowly dispersed as some plants are being located near steel manufacturing units or thermal power generation units.
Southern region is the most important region for the cement sector as it accounts for one third of the total cement industry. Apart from this fact, Southern region is also important for the manufacturers as it commands highest realization among all the five regions in the country (with the exception of North Eastern region). Also, an important fact about Southern region is that it accounts for 33% of the total capacity while it produces only 23% of the total cement production in the country. In other words, supply demand gap can be filled up even without any further capacity addition in the short term. At the end of FY 2018, the region had surplus capacity of 83 million tonnes which is highest among the cement regions in the country. This figure of surplus capacity is unlikely to change much in the next few years, despite the region’s expected consumption growth rate of 8% pa over next three years. It is estimated that the region’s surplus cement capacity may slightly come down to 74 MTPA by 2021.
Uttar Pradesh, the largest state in terms of population, has traditionally been a cement deficient state and cement demand in the state was met through imports from neighboring states like Madhya Pradesh. Though new capacities have been added in recent years most of the new capacities are in in split grinding units. Therefore, even after the new capacities clinker will have to be sourced from outside the state, if not from the central region, then from states such as Chhattisgarh in the eastern (including north eastern) region or Rajasthan and Himachal in the northern region. Setting up a greenfield cement plant in UP is rather unviable considering the fact that the state doesn’t have enough limestone reserves.
On the other hand, in Maharashtra, the development of jetty facilities and addition of new capacities in the western region would reduce the region’s dependence on cement from other regions.
Some interesting facts about Indian cement industry
- Though cement is a bulk commodity, branding plays an important role
- Realizations vary across regions, states and cities. Also, realizations cement grades. Further, realizations vary from manufacturer to manufacturer.
- For cement manufacturers, retail sales fetches better realization compared to institutional sales.
- Freight costs are determined by the lead distance and road rail mix.
Cement producers have shifted from manufacturing ordinary Portland cement (OPC) to blended cement in the last five to six years. For example, the proportion of blended cement has increased from 60% in FY 2006 to approximately 70% in FY 2018, primarily due to its growing acceptability in the market. Also, it requires less limestone as it is mixed with either flyash or slag. By blending fly ash or slag with OPC, producers can lower power, fuel and raw material costs. Among the blended cements Portland Pozzolona Cement (PPC) has the highest share. While for Portland slag cement’s (PSC’s) proximity to steel plants is an important factor that ensures easy access to slag, PPC manufacturing units are usually located near the thermal power generation units. As a result, the production of PSC is concentrated in the eastern (including north eastern) and southern regions, as slag is available in these regions as there are steel plants in the area.
Cost factor in cement manufacturing
Variable costs dominate the cement business and therefore, operating leverage is of limited significance in the industry. Freight, power and fuel are the key variable costs that form more than 60% of total costs. Many manufacturers have improved their profitability by brining in efficiency in energy consumption and innovative logistic modes like bulk supply and coastal shipping.
Many cement companies use petcoke in the manufacturing and therefore, their profitability will be affected due to any changes in their prices. Most of the 2018 saw petcoke prices rising though towards year end they started softening. Since then they have been under control, much to the relief of the cement manufacturers. At the peak, petcoke price had touched $120-130 per tonne which has now come down to $95/tonne. According to some experts it may further come down to $92 level. Cement manufacturers are also impacted by the rise in diesel prices as most cement companies rely heavily on road transport. Last year diesel price was moving up till October while rupee was depreciating thus giving the cement manufacturers a double whammy.
Leading cement manufacturers
|JK Lakshmi Cement||11.9|
Cement production in million tonnes
|Year||Production||Growth in %|
In November 2016, the government demonetized certain denomination currencies which had a varied impact on the sector, depending on the region. Less cash in the system affected the cement demand and cement price crashed substantially. As the user markets of cement, viz., real estate and contractors depend heavily on cash system, finally had cascading effect on cement manufacturers too. It took nearly five months for the normalcy to return.
Real Estate (Regulation and Development) Act, 2016 came into effect on 1st May 2017 and with that cement volume growth collapsed, as demand from real‐estate construction came to avirtual standstill. Existing projects were tangled in legal formalities such as RERAregistration and redefining execution guidelines, etc. It should be noted that nearly 60% of cement demand comes from housing. Usually, period between January and June is considered to be peak season for cement manufacturers and last year, they registered one of the worst drops in volume during that period.
In July last year the government introduced GST which faced some initial teething troubles and a few structural changes in the distribution system. However, the rollout led to the proportion of ex‐factory sales increasing multi‐fold, as all buyers were inclined to take full credit bypaying the requisite GST on the freight component.
Strict adherence to overloading rules in various states was another systemic change which the sector took time to adjust itself. Further, GST (particularly after the introduction of E-way Bill System) has made it extremely difficult for cement manufacturers to avoid complying with truck‐loading norms, as the processes of invoicing and transportation have become much more transparent. This will, in turn have 1-4% impact on the final pricing.
Housing sector, both rural and urban, is the main consumer of cement in India. Rural housing contributes 35% to the cement demand while 30% of the cement demand comes from urban housing. Infrastructure segment, which includes roads, railways, bridges, dams, power plants, irrigation projects and others constitutes 15% of the total cement volumes. Rest of the demand comes from commercial segment like offices complexes, malls and others.
Phase of Consolidation:
Last one decade has seen several changes in the composition of the industry with some players exiting while new ones making entry. Stressed assets (JP Associates, Binani, Kalyanpur and Murli Industries) are being acquired by larger players. During the period the industry has also seen the entry of players such as JSW Cement, Nirma, Emami and Adani Cementation. However, these new entrants are just marginal players with their capacity share as of now is only 9-10%. Limited resources and high land acquisition costs makes the entry of new players prohibitive.
- Limestone is the main raw material required for cement manufacturing and availability of limestone mines is the biggest problem faced by the industry. Increasing competitive intensity in the limestone bidding process which in turn is making it costlier and land costs are adding to the entry barriers in the cement industry.
- With the implementation of the new Land Acquisition Act, cost of land has gone up substantially. According to industry sources, land cost has gone up by 150%between 2009 and 2015 and it has gone further up after the introduction of new law.
- Both fuel and freight costs are expected to move up for the industry due to increases in petcoke and diesel prices. Petcoke prices increased almost whole of 2018 negatively impacting margins. Similarly, all-India average diesel prices have been rising in sync with global crude oil prices, translating to increasing freight expenses as most cement companies rely heavily on road transport.
- Use of cement largely depends upon availability of sand. For producing concrete, the ratio is four tonnes of sand for every tonne of cement. For other generic usage, for every tonne of cement, nearly eight tonnes of sand are required. Various NGOs and environmentalists have raised regular concerns illegal sand mining. As a result, many states are now depending on M-sand or imported sand to fulfil their requirements. The problem is that all states do not have enough M-sand infrastructure and not all states canimport sand which in turn affectssand availability.
- Use of petcoke by cement industry has often become the subject of controversy. Environmentalists have been pointing fingers at petcoke users as one of the reasons responsible for air pollution in the NCR. In 2o17, the Supreme Court of India issued an order banning the use of pet coke by cement manufacturers in overall plant operations in NCR. Few other state governments informally asked the cement companies to stop using or avoid using pet coke. While many cement manufacturers voluntarily changed their fuel (to coal from pet coke), the industry filed a petition arguing that as long as emission norms of cement factories are within prescribed environmental norms, the industry should be allowed to use any fuel. This plea was partially successful and cement manufacturers were allowed to use pet coke in kiln operations, subject to the plant fulfilling environmental norms.
In recent quarters, eastern market has seen robust growth in cement demand, making up for some of the demand slowdown in other markets. However, demand for cement in Bihar remained subdued mainly due to non-availability of sand. With the sand issue being resolved in the state, demand from eastern market is expected to go further up. Central region too fared reasonably good in terms of demand during last few quarters. However, no major capacity addition is planned in the region in the near future and existing plants seeing 95-100% capacity utilisation which in turn may have impact on the pricing. Southern market is seeing huge capacity additions in next few years which may pull down the price. Already, pricing has become an issue in the southern market and there seems to be no solution for this problem in the near future. Northern and western market may remain dull for some more time till the realty sector recovers from slowdown.
ACC is the second largest cement manufacturer in the country. Though the company has PAN India presence, central and southern markets account for much of its revenue. ACC does not have any major plans to expand capacity in the next 2-3 years as of now.
Ambuja Cement is a multi-region cement manufacturing company and holds 50% stake in ACC. The company has significant presence in northern, western and eastern regions. The company does not have cement capacities in the southern and central regions. 85% of its sales come from retail segment. The company is expanding its cement capacity by 3.1mtpa in Marwar which is scheduled for commissioning in FY 20-21.
Dalmia Bharat Limited (DBL) is the holding company of Dalmia Cement Bharat Limited (DCBL), which together with its subsidiaries has clinker-backed cement capacity of 25mtpa. The company has presence only in eastern and southern markets. The company was recently involved in a pitched battle with Ultra Tech to acquire stressed assets of Binani Cement which latter won finally. The company has recently announced plans to add 7.8mtpa capacity in Odisha under its subsidiary OCL.
Founded in 1946, India Cements is a leading cement manufacturer of South India. However, with the acquisition of 60% stake in Rajasthan based Trinetra Cements, its dependence on southern market has come down from 90% to 75%. The company has followed both organic and inorganic route to add capacity. The company doesn’t have any scheduled expansion plans for next 2-3 years.
JK Cement, a Gaur Hari Singhania group company, has its presence allover India except eastern markets. JK Cement is one of the few companies who have presence in both grey cement and white cement markets. The company currently has capacity of 1.2mtpa for white cement. The company produces white cement at its plant located in Gotan, Rajasthan.
JK Lakshmi Cement
JK Lakshmi Cement, a Hari Shankar Singhania group company, has clinker capacity is 6.3mtpa and cement capacity is 8.7mtpa. The company derives sales volume from the northern, western, eastern and central regions. The company has not announced any major expansion plans for next 2-3 years.
Prism Johnson is a post liberalization era cement manufacturing company which also has tile, bath products, kitchen and RMC segments. The company mainly caters to central region markets.
Ramco Cements is a South based cement manufacturing company which derives nearly 90% of its revenue from southern markets. Ramco is a low-cost cement producer and has pioneered fly-ash-based cement in south India.
Shree Cement, a Bangur Group company, has the lowest per-tonne cost of production in the industry. More than half of its revenue comes from northern markets with central and eastern markets accounting for the rest. It is setting up a Greenfield cement unit in Karnataka to have its presence in the southern market.
UltraTech Cement, belonging to Aditya Birla Group, is the largest cement manufacturing company in the country. The company has a presence in all the regions in India. In FY18, UlltraTech expanded capacity by 25% by acquiring 21.2mtpa from Jaiprakash Associates. Its successful acquisition of Binani Cements has helped the company to have increased presence in Rajasthan and northern Gujarat. Also, recently, cement facilities of Century Textiles (a BK Birla company) was transferred to Ultratech.