The Indian Cement Industry Had Witnessed an Incredible Growth Journey in the Past Few Years

8/4/2019 The Indian Cement Industry Had Witnessed an Incredible Growth Journey in the Past Few Years

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The Indian cement industry had witnessed an incredible growth journey in the past few years,

led by the growth in the real estate, infrastructure and industrial construction. The domestic

cement demand growth had surpassed the economic growth rate in the period FY 06-10.

However, in FY11, cement demand growth is expected to take a slight breather. During the first

nine months of FY11, the cement demand growth has slowed down to about 6% on a yoy basis.

The cement industry has registered a substantial drop in margins in FY 11 mainly due to input

cost rise and lack of pricing power.

Where the cement industry is headed from here? Is the surplus situation inevitable in the

industry? Will the cement industry be able to hold the prices? Whether the cement industry will

be able to cushion its margins from spiraling cost? Which sectors would continue to drive the

demand of cement? Is the consolidation in the cement industry inevitable? The authors have

attempted to address these queries using most pragmatic approach.

This report on the Indian Cement industry contains comprehensive data and analysis of the

sector apart from giving the authors outlook on the sector. With its established network of

primary and secondary sources, the authors have captured exhaustive data on the various

parameters to analyse the industry. The author has also forecasted the future demand of cementand regionwise demand supply scenario.

Consolidation, an open opportunity Foreign players bargain hunting, domestic players staying

away

The Indian cement industry witnessed a buoyant cement demand growth in FY10 at 11.1%

recording a multiplier of 1.4 times with the economic growth rate. Delayed monsoon, peaked

construction activities related to commonwealth games and also the low base of the previous

year led to the double digit growth in demand during the last fiscal. However, in FY11, cement

demand growth has taken a slight breather. During the first nine months of FY 11, the cement

demand grew at 6% on a yoy basis. Construction activities remained subdued during this fiscal

on account of the prolonged monsoon, heavy winter, delay in execution of infrastructuralprojects due to environmental clearance hurdles etc.

The capacity utilisation rate of the industry has shown a steep decline to a level of 75% in FY 11

as cement manufacturers have resorted to production cuts on the back of the slowdown in the

cement offtake. Lower utilisation rate can also be attributed to the substantial capacity addition

witnessed by the industry. In the first ten months of FY 11, the industry has witnessed a capacity

addition of about 25.5 mn tonnes.

On the regional front, the Southern region took the worst hit in FY 11. Due to notable capacity

addition of about 8.4 mn tonnes and subdued demand, the operating rate of the Southern region

declined to the level of about 66%. The Eastern region operated well above the industry average

on account of the robust demand growth.

During FY11, cement prices have remained under pressure owing to the slowdown in the cement

offtake and an incremental growth in capacity over demand. In FY11, average cement prices

witnessed a decline across regions barring the Eastern region. Considering first ten months of

this fiscal, average cement prices have dropped by about 2% on a yoy basis to `251 per bag.

Considering the first nine months performance of this fiscal, the cement industry has registered a


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substantial drop in PBDIT margin to about 19% mainly due to input cost rise and lack of pricing

power. During this period, the per tonne power & fuel cost and freight cost have increased by

about 21% and 11% on a yoy basis, respectively.

Going forward, cement companies will lack pricing power given the supply glut situation in the

country. However, the cement industry is in a better position to operate at a lower utilisation

rate and avoid substantial price cuts, thanks to the comfortable break-even cushion value

(defined as the ratio of overall capacity utilisation rate of the industry to the utilisation rate at

the break-even point in a particular year) at two times. The authors do not foresee a drop in

average realisation of the industry in FY12. However, the per tonne freight cost and power & fuel

cost is expected to increase at a CAGR of 8.3% and 12.6%, respectively during the period of

FY10-12. As a result, PBDIT margin is expected to remain under pressure and drop to a level of

16% in FY12.

The authors estimate that the cement demand is expected to grow at a CAGR of 9.8% in the

period FY11-14. Going forward, cement demand will largely be driven by the increased focus of

the government on the infrastructure development and promotion of low-cost affordable housing

in the country.

Demand for cement depends on industrial activity, real estate and construction activity. Indian

cement industry has grown largely due to the rising demand from the housing sector, increased

activity in infrastructure and construction recovery. Even in the tough conditions, Indian cement

industry has been able to sustain its growth. Production and capacity of cement has been rising

over the years. Number of plants in cement industry with more than one million tones capacity

have also increased. However, the exports have been decreasing over the years.

Cement industry has a large number of fragmented firms. The large firms are consolidating by

acquiring smaller players ones. High debt levels have adversely impacted the profitability of

several cement companies.

Enterprise Values per tonne of some major domestic cement companies are quoting anywhere

from 1 to 2 times the replacement cost. With the fall from peak valuations reached in FY 07-08,

many acquisition opportunities are available in the domestic market. Many midsized cement

players in the country, which are unable to compete because of rising input costs, constraints in

passing on the incremental cost, subdued demand etc. would be eager to sell their assets.

However, having seen the deals at extremely higher valuations, none of the cement makers,

however small, are willing to sell below US $140-150 per tonne and are demanding a hefty

premium over the replacement cost. Domestic cement companies are clearly unwilling to pay

such a huge premium. However, foreign players, who are keen about strengthening their

foothold in the Indian cement market would continue to hunt for lucrative deals.

Executive Summary

Outlook

- Overall projected Demand-Supply situation

- Region-wise projected Demand-Supply situation

- Cement demand drivers


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- Capacity addition and operating rate

- Cost structure and Margins

- Valuation & Consolidation

Section A

Overview

- Cement industry expected to miss the growth multiplier in FY11...

- Growth in capacity over striping demand in past three years...

- Cement price growth moderated in FY10 and remained under pressure in FY 11...

- Status of top 10 players (capacity-wise)

- Product mix still dominated by blended cements...

Demand Supply Analysis

- Overall Demand Supply scenario

- Region-wise Demand Supply scenario

- Detailed Regional Analysis

- Inter-regional cement movement

Cost Analysis

- Power & Fuel cost

- Freight cost- Raw Material (RM) cost

Market Competition & Industry Averages

- Industry Averages

- Market Share of major players

Company Profiles

- Associated Cement Company Ltd. (ACC)

- Ambuja Cements Ltd.

- India Cements Ltd.

- Shree Cement Ltd.

- UltraTech Cement Ltd.

Section B

Cement Industry Basics

- Types of Cement

- Cement Manufacturing Process

- Industry Characteristics

Key Statistics Financial Performance

Key Statistics Operational Performance

Capacity Expansion Projects by Major Companies

Raw material / Power & Fuel costs and consumption

List of Figures & Graphs

CARE Research's OutlookPlanned investments under different infrastructure sub-segments

Trend of capacity addition

Projected Capacity Utilisation Trend

Break-even Cushion

Trend of International coal prices

Trend of diesel prices

Projected Power & fuel and Freight cost

Trend of realisation


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Trend of PBDIT margin

Valuations of major cement companies as at the end of December 31, 2010

Section A

Overview

Growth trend of GDP and consumption (FY06-FY10)

Trends of Capacity, Production and Capacity utilisation

Region-wise yearly average cement price trend

Region wise monthly price trend in FY11

Change in Product mix

Trend of Conversion Ratio


Trend of capacity addition

Region-wise capacity utilisation rate

Regional statistics FY 10

Regional scenario in FY 10

North - Overall scenario

North - Position of top players at the end of FY 10 (based on capacity)

Price trend in DelhiSouth - Overall Scenario

South - Position of top players at the end of FY 10 (based on capacity)

Price trend in Chennai

West - Overall scenario

West - Position of top players at the end of FY 10 (based on capacity)

Price trend in Mumbai

East - Overall scenario

East - Position of top players at the end of FY 10 (based on capacity)

Price trend in Kolkata

Central - Overall scenario

Central - Position of top players at the end of FY 10 (based on capacity)

Cost Analysis

Industry Cost Breakup

Cost per unit - Industry Average

Trend of bifurcation of captive power capacity of the industry

Consumption and import of coal by cement industry

Trend of cement dispatch mode mix

Distribution of proven reserves of limestone


Trend of industry averages

Market Share of Major Players in FY 10

Overall market share of top five players

Regional scenario Market share of top five playersSection B


Types of Cement

Cement Manufacturing Process

List of Tables

Outlook


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Overall projected demand-supply situation

Region-wise projected Demand-Supply situation

Cost Structure

List of major deals witnessed by the cement industry in the last decade

Section A

Overview

Status of top ten players (capacity-wise)

Capacity addition by small /medium players


Cement demand statistics

North Inter-regional cement movement

South Inter-regional cement movement

West Inter-regional cement movement

East Inter-regional cement movement

Central Inter-regional cement movement

Overall Inter-regional cement movement

Cost Analysis

State-wise power tariffCost comparison of grid and captive power

Company-wise Captive Power capacity addition announced

Trend of government linkage of coal

Alternate fuel consumption

Dispatch mix for cement companies

Per tonne freight cost in FY 10

India's Limestone position

Limestone cost


Industry averages

Change in market share of cement companies

Section B


Per capita consumption

Duty structure

Key Statistics Financial Performance

Net Sales

Operating profit

Net profit

Operating profit margin

APAT margin

Interest coverage ratio

Key Statistics Operational PerformanceRegion-wise/state-wise production & capacity

Region-wise/state-wise cement consumption

State-wise surplus/deficit scenario

Company-wise capacity

Company-wise production

Company-wise dispatch

Total export scenario

Company-wise exports


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Region-wise product mix

Company-wise product mix

Overall product mix

Company-wise dispatch mix

Cement dispatch mode

Average cement prices

Changes in Duty structure

Company-wise dispatch

Capacity Expansion Projects by Major Companies

Capacity Expansion projects

Raw material / Power & Fuel costs and consumption

Limestone cost

Gypsum cost

Fly Ash cost

Limestone consumption

Coal consumption

Power consumption

Power consumption patternCost per tonne of cement produced

1. Cement Industry

1.1 Introduction

1.2 Manufacturing Process for Cement

1.3 Global Cement Market Overview

Production Volume

Regional Breakdown

2. Cement Industry in India

2.1 Market Overview

Demand Growth

Production Volume

Capacity Growth

Export Volume

2.2 Key Statistics about Cement industry in India

Debt Level

CapEx

Key Financials


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Company Overview

Key Financials

Business Strategies

Focus on Excellence

People-centric approach

Learning Culture in Organization

7.3 UltraTech Cement

Company Overview

Key Financials

Business Strategies

Internal Control System

Focus on Human Resources

Research & Development Activities

7.4 India Cements

Company Overview

Key Financials

Business Strategies

Value Enhancing

Adequacy of Internal Control System

Maintaining Industrial Relations and R&D

Key findings in the report include:

- Supported by increased investments in infrastructure by both the private sector and the

Government, India is projected to remain one of the largest cement producer and consumer in

the world- Driven by the rapidly growing economy, expanding consumer market and supportive regulatory

environment a number of cement manufacturers such as Associated Cement Companies, Ambuja

cements and UltraTech Cement have embarked upon capacity expansion plans. For instance,

Madras Cements Ltd is planning to invest US$ 178.4 million to increase the manufacturing

capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by April 2011

- With the increase in the demand of housing units which is projected to grow at an average

annual growth rate (AAGR) of approximately 230 per cent between FY 2003-07 and FY 2008-12,

India is all set to witness an exponential growth in its cement demand

- The Indian cement industry is slowly moving on the path of consolidation. The leading

companies are aggressively looking for merger and acquisition (M&A) opportunities in the key

cement markets of the country. These M&As are not only providing access to the new prospect

markets, but are also balancing the rivalry level in the market. For instance, India's state-run

power utility NTPC is planning to set up a cement plant in a joint venture with National

Aluminium Company

The Indian Cement Industry Had Witnessed an Incredible Growth Journey in the Past Few Years

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