Last Updated: August 26, 2014
Updated: August, 2014
SECTORAL REPORT | April, 2014
The cement industry of any nation plays an important role in its development through the construction of infrastructure. India's cement production has increased at a compound annual growth rate (CAGR) of 9.7 per cent to reach 272 million tonnes (MT) during FY 06-13. Presently, India is the second largest producer of cement in the world with a current capacity of around 370 MT which is expected to grow to 550 MT by FY 20.
India has huge potential in infrastructure and construction and the cement sector in India is set to receive a major boost. The Government of India is allocating funds to several infrastructure projects in the urban as well as rural areas, as per the Union Budget being announced recently in July 2014.
Also, many foreign companies are looking for investing in the Indian cement industry to cash in on the opportunities in this market. For instance, Holcim Ltd and Lafarge SA are involved in major discussions to form a potential global merger which could result in the formation of the largest cement maker in India, overtaking the current market leaders, Ulltratech.
In addition, there are a number of notable infrastructural projects already coming up in the country. For instance, Indian engineers are working in the Himalayas to build the world's highest railway bridge which is expected to be 35 metres taller than the Eiffel Tower when completed in 2016.
Cement is a cyclical commodity with a high correlation with GDP. The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at 9 per cent.
The cement industry in India is divided into five regions, viz, north, south, west, east and the central region. The southern region of India has the highest installed capacity, accounting for about one-third of the country's total installed cement capacity.
The cement sector in India is expected to witness positive growth in the coming years, with demand set to increase at a CAGR of more than 8 per cent during FY 14-16, as per 'Indian Cement Industry Outlook 2016'.
The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost 70 per cent of the total cement production of the country. Ultratech Cement followed by Ambuja Cements and ACC occupy the top three spots in the Indian cement marketspace.
The cement industry has been expanding on the back of increasing infrastructure activities and demand from the housing sector over the past many years. According to data released by the Department of Industrial Policy and Promotion (DIPP), cement and gypsum products attracted foreign direct investment (FDI) worth Rs 13,546.47 crore (US$ 2.23 billion) between April 2000 and June 2014.
Some of the major investments and developments in the Indian cement industry are as follows:
To consolidate its cement operations, India Cements Ltd plans to merge with its subsidiary Trinetra Cements Ltd and sell large portions of land near its plants in Tamil Nadu and Andhra Pradesh and focus on real estate development, through its real estate arm.
Ambuja Cement, part of the Holcim Group, plans to invest Rs 802 crore (US$ 132.57 million) in 2014 in various ongoing projects. The company has proposed to fund the entire capital expenditure (capex) through internal accruals, as per Ambuja Cement's annual report.
UltraTech Cement Limited, India's largest manufacturer of ready-mix concrete recently supplied whitetopping concrete for the Nandi Infrastructure Corridor Enterprise (NICE) Road in Bangalore, Karnataka. The 9.5 km link road and 4 km peripheral road will connect to the proposed 111 km Bangalore Mysore Industrial Corridor (BMIC) expressway which is expected to reduce the 3-hour drive between the two cities to an hour.
Dalmia Bharat Group Foundation (DBGF) has partnered with New and Renewable Energy Development Corporation of Andhra Pradesh, Limited (NREDCAP) - a State Government Company, for the promotion of biogas plants in Kadapa district.
Prism Cement Ltd has recently started production at the Prism Coal Mine in Chindwara, Madhya Pradesh. The company has been granted all statutory clearance for the operation of the mine and the mined coal will be used for captive consumption at the cement plant located at Satna, Madhya Pradesh.
The Government of India's keen focus on the development of infrastructure in the country has given a big boost to the cement industry in India. In its 12th Five Year Plan, the government plans to increase investment in infrastructure to the tune of US$ 1 trillion and increase the industry's capacity to 150 MT.
The government incorporated the Cement Corporation of India (CCI) in 1965 to achieve self-sufficiency in cement production in the country. Currently, CCI has 10 units spread over eight states in India.
In order to help the private sector companies thrive in the industry, the government has been approving their investment schemes. Some such initiatives are as follows:
Ambuja Cements Ltd's Concrete Futures Laboratory (CFL) has received accreditation for tests in concrete from National Accreditation Board for Testing and Calibration Laboratories (NABL) under the Department of Science & Technology, Government of India. The company received accreditation for 13 tests.
An expert appraisal committee under the Ministry of Environment, Government of India, has given its approval to India Cements to double its capacity and set up a 40 megawatt (MW) power plant at one of its facilities in Tamil Nadu. The proposed expansion project will come up at Dalavoi in Ariyalur district.
The Indian cement industry, being the second largest in the world, is globally competitive. With the Government of India providing enough scope in infrastructure development, there is a lot of hope for the cement sector.
Following the release of the Union Budget in July 2014, cement companies are hoping for some reforms like reduction in excise duties, which will go a long way in the betterment of this sector.
In addition, with the ever-increasing industrial activities, real estate, construction and infrastructure, and with the Special Economic Zones (SEZs) being developed across the country, the demand for cement in India is slated to increase in the upcoming years.
Exchange Rate Used: INR 1 = US$ 0.0165 as on August 26, 2014
References: Media Reports, India in Business, Cement Corporation of India, Department of Industrial Policy and Promotion (DIPP), Cement Manufacturers Association (CMA)
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.