Last Updated: July 12, 2016
Last Updated: July, 2016
SECTORAL REPORT | January, 2016
India is the second largest producer of cement in the world. No wonder, India's cement industry is a vital part of its economy, providing employment to more than a million people, directly or indirectly. Ever since it was deregulated in 1982, the Indian cement industry has attracted huge investments, both from Indian as well as foreign investors.
India has a lot of potential for development in the infrastructure and construction sector and the cement sector is expected to largely benefit from it. Some of the recent major government initiatives such as development of 98 smart cities are expected to provide a major boost to the sector.
Expecting such developments in the country and aided by suitable government foreign policies, several foreign players such as Lafarge-Holcim, Heidelberg Cement, and Vicat have invested in the country in the recent past. A significant factor which aids the growth of this sector is the ready availability of the raw materials for making cement, such as limestone and coal.
Cement demand in India is expected to increase due to government’s push for large infrastructure projects, leading to 45 million tonnes of cement needed in the next three to four years#.
India's cement demand is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption in India. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at nine per cent.
To meet the rise in demand, cement companies are expected to add 56 million tonnes (MT) capacity over the next three years. The cement capacity in India may register a growth of eight per cent by next year end to 395 MT from the current level of 366 MT. It may increase further to 421 MT by the end of 2017. The country's per capita consumption stands at around 190 kg.
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. A total of 188 large cement plants together account for 97 per cent of the total installed capacity in the country, with 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
On the back of growing demand, due to increased construction and infrastructural activities, the cement sector in India has seen many investments and developments in recent times.
According to data released by the Department of Industrial Policy and Promotion (DIPP), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 3.109 billion between April 2000 and March 2016.
Some of the major investments in Indian cement industry are as follows:
KKR Mauritius Cement Investments Limited acquired 8.5 per cent stake in Dalmia Bharat Limited (DBL).
Cement maker Burnpur Cement plans to invest Rs 500 crore (US$ 74.64 million) for expansion of its production capacity to 3 MTPA in the next three to four years.
India's largest cement maker UltraTech Cement is looking forward to acquire Jaiprakash Associates six cement factories for a total value of Rs 16,500 crore (US$ 2.42 billion)
Birla Corporation Ltd, a part of the MP Birla Group, has agreed to acquire two cement assets of Lafarge India for an enterprise value of Rs 5,000 crore (US$ 733.6 million).
Dalmia Cement (Bharat) Ltd has invested around Rs 2,000 crore (US$ 293 million) in expanding its business in North East over the past two years. The company currently has three manufacturing plants in the region — one in Meghalaya and two in Assam.
JSW Group plans to expand its cement production capacity to 30 MTPA from 5 MTPA by setting up grinding units closer to its steel plants.
UltraTech Cement Ltd has charted out its next phase of Greenfield expansion after a period of aggressive acquisitions over the last two years. UltraTech has plans to set up two Greenfield grinding units in Bihar and West Bengal.
UltraTech Cement Ltd bought two cement plants and related power assets of Jaiprakash Associates Ltd in Madhya Pradesh for Rs 5,400 crore (US$ 792.3 million).
JSW Cement Ltd has planned to set up a 3 MTPA clinkerisation plant at Chittapur in Karnataka at an estimated cost of Rs 2,500 crore (US$ 366.8 million).
Andhra Cements Ltd has commenced the commercial production in the company's cement plants – Durga Cement Works at Dachepalli, Guntur and Visakha Cement Works at Visakhapatnam.
In the 12th Five Year Plan, the Government of India plans to increase investment in infrastructure to the tune of US$ 1 trillion and increase the industry's capacity to 150 MT.
The Cement Corporation of India (CCI) was incorporated by the Government of India 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 by the government in the recent past are as follows:
The Parliament of India has cleared amendments to the Mines and Minerals Development and Regulation (MMDR) Act, which will enable companies to transfer captive mines leases similar to mines won through an auction, and which is expected to lead to increased Mergers and Acquisitions (M&A) of steel and cement companies.
The Government of India is planning to revive the state-run cement factories across India, in order to give a boost to road and realty projects by bringing down their construction costs.
Budget 2016-17 has proposed a slew of measures to boost infrastructure and investment, which will be positive for the cement sector, as increased spending on infrastructure increases the demand for cement. 100 per cent deduction for profits to an undertaking in housing project for flats upto 30 square metres in four metro cities and 60 square metres in other cities approved during June 2016 to March 2019 and completed in three years
Incremental spend on smart city development, the government has allocated Rs 7,296 crore (US$ 1.09 billion) towards Urban Rejuvenation Mission (AMRUT and Mission for Development of 100 Smart Cities
Rise in allocation under Pradhan Mantri Gram Sadak Yojana (PMGSY) to Rs 19,000 crore (US$ 2.79 billion) for FY17.
The Government of India plans to enact a law that will allow the companies which have received mining licenses without having gone through the auction process, to transfer these leases, in a move that is expected to make mergers and acquisitions (M&As) easier in the steel, cement, and metals sectors.
The Government of Tamil Nadu has launched low priced cement branded 'Amma' Cement. The sale of the cement started in Tiruchi at Rs 190 (US$ 2.84) a bag through the Tamil Nadu Civil Supplies Corporation (TNCSC). Sales commenced in five godowns of the TNCSC and will be rolled out in stages with the low priced cement available across the state from 470 outlets.
The Government of Kerala has accorded sanction to Malabar Cements Ltd to set up a bulk cement handling unit at Kochi Port at an investment of Rs 160 crore (US$ 23.5 million).
The Andhra Pradesh State Investment Promotion Board (SIPB) has approved proposals worth Rs 9,200 crore (US$ 1.35 billion) including three cement plants and concessions to Hero MotoCorp project. The total capacity of these three cement plants is likely to be about 12 MTPA and the plants are expected to generate employment for nearly 4,000 people directly and a few thousands more indirectly.
India has joined hands with Switzerland to reduce energy consumption and develop newer methods in the country for more efficient cement production, which will help India meet its rising demand for cement in the infrastructure sector.
The Government of India has decided to adopt cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable and cheaper to maintain than bitumen in the long run.
The eastern states of India are likely to be the newer and virgin markets for cement companies and could contribute to their bottom line in future. In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.
A large number of foreign players are also expected to enter the cement sector, owing to the profit margins and steady demand. In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route.
With help from the government in terms of friendlier laws, lower taxation, and increased infrastructure spending, the sector will grow and take India’s economy forward along with it.
Exchange Rate Used: INR 1 = US$ 0.0149 as on May 16, 2016
References: Media Reports, Press releases, Union Budget 2016-17
Notes: # – ‘India Cement’ report by Nomura Research dated October 13, 2015
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Last Updated: July 12, 2016
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