Cementing the Growth
Infrastructure has become a key growth driver and focal point in India’s growth story. The increased focus, flowing investments and attention has benefited and motivated numerous sectors to explore and broaden their growth prospects. Walking on similar lines is India’s cement industry. The country though stands as the second largest producer of cement in the world; the industry has been facing its share of ups and downs owing to the market and economic uncertainties.
However, despite the numerous growth hurdles and growth hiccups, an optimistic wave surfs around the industry to tackle each challenge with a novel business approach. A recent business tactic highly being seen is on the increasing number of mergers and acquisitions…not just among the majors but also among the regional manufacturers.
The cement industry has been a major contributor and an unavoidable element in each stage of infrastructure development. Be it the large-sized public projects or the small-sized or individualistic infra-constructional activities, cement has been a vital component. The country’s total cement production capacity stands at about 465 million tonnes. Owing to the increased infra-focus and spending on construction activities, market analysts expect the sector to grow at least by around 4.5 per cent in FY19. Wherein, housing and infrastructure are expected to shine out as the major growth triggers for driving the industry in this run. As per the annual report released by ACC, one among the majors involved in the sector, around 66 per cent of the industry’s demand came from the housing sector, followed by infra with 18 per cent and 16 per cent by commercial sectors.
But, a major concern clouding upon the industry is on the surplus supply as against the demand and consumption…ultimately resulting towards a clogging of excess material in the market. As per the findings by ACC, the industry is facing an under-utilisation of the installed capacity – with the current total production standing at 305 million tonnes for both domestic and export requirements. The industry thereby is facing a capacity overhang of more than 100 million tonnes. The report further draws out that, while the cement manufacturing units located in the central, eastern and northern regions produced at levels above 85-90 per cent of the capacity, the southern region’s excess capacity inhibited the industry’s average capacity utilisation.
However, this has not stopped the manufacturers from penetrating into the market. Aiming to jump above the competitive crowd, the manufacturers are even keen on introducing new products and on broadening their market reach. But according to the analysts, this increased competition without succumbing to the market uncertainties has further intensified the concern of surplus supply and not enough demand pull.
As a move to combat the market uncertainties and demand dynamics, the manufacturers are on the run to embrace new strategies and redefine their operational practices. Despite the market hiccups, many among the market giants have not stepped back to reinvent and explore an innovative product approach. One such major is ACC Ltd, who has emerged as the first Indian cement company to publish an Environmental Product Declaration (EPD) for all of its blended cement products manufactured across all of its 17 cement plants. From June 07th of this fiscal, the company’s leading brands namely, ACC Suraksha Power, ACC Concrete+ Xtra Strong, ACC Gold Water Shield, ACC HPC Long Life and ACC F2R Superfast is being featured in the EPD declaration. Commenting on the move, Neeraj Akhoury, Managing Director & CEO, ACC Ltd, said, “At ACC, sustainability is at the heart of everything we do, and is aligned to our corporate objectives. Committed to environmental protection, the company has continuously introduced many ‘industry first’ benchmarks to make our business more planet-friendly through the value chain from mining to sales. We are delighted to announce EPD for all our blended cement products, another milestone for the industry.”
Another major walking on the lines of product innovation is Birla White, a division of Aditya Birla’s UltraTech Cement Ltd. The company has already made its mark in the field of customer centric product innovations with its offerings like Texturafor creating texture on walls, Levelplast for smooth and gloss finish and GRC, a mouldable finishing material used for decorative elevations and applications. As per an official source, the company now plans to bring in four new products to induce demand for the white cement usage. Research and Development works for the same is already in progress confirms the source, and the product will be launched within the next two years.
On the other hand, India Cements, a market leader in the Southern market, plans on expanding its operational units. Sharing about the company’s future prospects, N. Srinivasan, Vice-Chairman & Managing Director, India Cement ssays, “The Company has planned a capital expenditure of
Rs. 300 crore for the next two years which will include a cement mill at Sankar Nagar in Tamil Nadu and investments on additional pollution control equipment. However, after the second quarter of this year, the company will review the situation and plan for expansion of its capacity in the near future.”
In addition to planning product innovations and expanding the operational practices, the manufacturers are also on a move to adopt and utilize alternative fuels in cement production. This is mainly due to the rise in crude oil and energy prices confirm a senior market analyst. As per a recent IBEF report, few among the players on the go is Madras Cement, who uses bioenergy through burning of coffee husk and cashew nut shells for cement production at its Alathiyur plant. This has resulted in an annual cost saving of US$1.7 million for the company. UltraTech on the other hand uses tyre chips and rubber as alternate fuels in its Gujarat Cement Works – reducing 30,000 tonnes of carbon emission annually. Other noteworthy players, as per the report, is Lafarge who substitutes 10 per cent of coal used in kilns with rice husk to lower its carbon emissions and India Cements who uses low Sulphur Heavy Stock sludge as alternate fuel at its Dalavoi plant.
While one section of the cement manufacturing industry is keenly exploring on product innovations, the others are exploring on expanding their business reach through mergers and acquisitions. The increased pressure owing to the surplus supply and demand dynamics though has brought in many international majors acquiring or taking hold of the Indian majors, the practice is now also being seen among the regional players.
Few such instances being seen last fiscal was in January 2017 when JSW Cement bought 35.6 per cent stake in Shiva Cement for an estimated amount of US$14.42 million. In September 2017, the National Company Law Tribunal approved the amalgamation of Trinetra Cement Ltd and Trishul Concrete Products Ltd with India Cements. UltraTech Cement acquired Jaypee Group’s cement business for US$2.38 billion.
Orient Cement, a South based cement manufacturer after calling off its acquisition of two of Jaypee Group’s cement plants in central India is charged up on an expansion drive. The company as per the media reports plans to spend around Rs 3,600 crore until 2023 to almost double its capacity to 15 million tonnes. The move involves on adding clinker and grinding units to its existing facilities at Devapur in Telangana by 2021.
“We are planning to expand capacities at Kalaburagi and Bengaluru to to serve the high-consumption markets of Bengaluru and Mysuru and will be going deeper into Kerala. To enter the eastern market, Orient we are also planning a grinding unit in Odisha,” states Deepal Khetrapal, MD at Orient Cement, recently while talking to media.
Growth Triggers & Hiccups
Clouded with a weaker demand pull against the surplus supply, a major concern affecting the Indian cement industry is the uncertainties in its market dynamics. However, with the Government keen on pushing infrastructure and construction activities as its key growth agenda, a new ray of hope is being seen across the industry.
One such motivating measure being adopted is the recent decision to use cement instead of bitumen for the construction of all new road projects. This has encouraged manufacturers to explore new opportunities with the emerging projects from the roads and highways sector. Adding to this, India has also joined hands with Switzerland to bring down the energy consumption and develop newer and more efficient methods in cement production. The initiative has opened up the Indian market for new technologies and is expected to transform the Indian cement manufacturing industry on a sustainable pathway.
The other key growth triggers include the increased allocation of infra-funding and initiatives like ‘Housing for All’ and Smart Cities Mission. As per the Union Budget 2017-18, the Government has allocated US$3.42 billion to execute the mission of ‘Housing for All’ by 2022. This is an encouraging move, opines industry experts uniformly, as the housing sector alone accounts for about 67 per cent of the country’s total cement consumption. Adding to this is the increased allocation to rural low-cost housing under the PradhanMantriAwaasYojana – GraminSchele – raising to Rs.23,000 crore in FY18 from Rs.16,000 crore in FY17. The growth opportunities while is largely being pushed on the central level, similar motivating measures is also being seen in the state level. One such instance is the auctioning of one block of Limestone (Kesla II) in Raipur district by the state government of Chhattisgarh. As per the IBEF findings the region is expected to have reserves of 215 million tonnes valued at Rs.10,367crore and would earn a cumulative revenue of Rs.11,894 crore to the State Government over the lease period.
While the opportunities are being immensely assured on one side of the growth spectrum, the cement manufacturing industry is also clouded with numerous struggles. A critical among these is the increasing operational cost. Pointing out the key challenges and concerns faced by the industry, Srinivasan shares, “The spike in crude oil and energy prices is one of the key causes of concern, which directly put pressure on the margins.The cement industry during the year under review had to face pressure in the form of latent effect of demonetisation, teething troubles arising out of GST roll out, RERA impact, restrictions/ban on sand mining in several states. The industry’s woes multiplied with a ban on petcoke by the Supreme Court of India which was subsequently withdrawn on a conditional basis and substantial increase in the prices of petroleum products, imported fuel and petcoke. This was compounded by the increase in customs duty on petcoke to 11 per cent from earlier 3 per cent. All these are causes of concern for cement manufacturers today and the industry as a whole.”
However, despite seeing its fair share of ups and downs, the evolving opportunities and Government’s increased infrastructure focus, has surely brought in a cheer among the players involved in the cement manufacturing industry to plan thoughtfully and embrace new prospects. It can be said that a sense of converting challenges to new business opportunities is presently driving India’s cement manufacturing industry.
@EPC World Media