Cement industry in India

Introduction

India is the second largest producer of cement in the world. It accounts for more than 7% of the global installed capacity. 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 initiatives, such as development of 98 smart cities, is expected to provide a major boost to the sector.

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 raw materials for making cement, such as limestone and coal.

India’s overall cement production accounted for 294.4 million tonnes (MT) in FY21 and 329 million tonnes (MT) in FY20.

Market Size

Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and will reach 379 MT by FY22. The cement production capacity is estimated to touch 550 MT by 2020. As India has a high quantity and quality of limestone deposits through-out the country, the cement industry promises huge potential for growth.

In FY22, the cement production in India is expected to increase by ~4-7% YoY, driven by the government’s strong focus on infrastructure development.

As per Crisil Ratings, the Indian cement industry is likely to add ~80 million tonnes (MT) capacity by FY24, the highest since the last 10 years, driven by increasing spending on housing and infrastructure activities.

According to CLSA (institutional brokerage and investment group), the Indian cement sector is witnessing improved demand. Key players reported by the company are ACC, Dalmia and Ultratech Cement. In the second quarter of FY21, Indian cement companies reported a sharp rebound in earnings and demand for the industry increased, driven by rural recovery. With the rural markets normalising, the demand outlook remained strong. For FY21, CLSA expects a 14% YoY increase in EBITDA in the cement market for its coverage stocks.

Investments

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.87 billion between April 2000 and March 2021.

In 2021, working remotely is being adopted at a fast pace and demand for affordable houses with ticket size below Rs. 40-50 lakh is expected to rise in Tier 2 and 3 cities, leading to an increase in demand of cement.

Some of the major investments in Indian cement industry are as follows:

• In August 2021, Ambuja Cement announced to invest Rs. 310 crore (US$ 41.82 million) to expand its manufacturing capacity in Ropar Unit, Punjab and cater to the rising demand from manufacturing sector for housing construction and public infrastructure development. The expansion activities are expected to be completed by June 2023.
• In July 2021, Ramco Cements launched Ramco Super Plaster, a plastering solution for brick work and plastering applications.
• In July 2021, Vedanta announced that its aluminium unit invited bids for alliances from cement manufacturing companies such as JK Cement, ACC and UltraTech Cement to utilise fly ash, a by-product, to produce low-carbon cement.
• In July 2021, Ramco Cements announced its plan to invest US$ 64 million in capacity expansion and modernisation activities of its plant unit in Tamil Nadu.
• In July 2021, Dalmia Bharat Ltd. announced its plan to raise the company’s production capacity to 110-130 million tonnes per annum by 2031.
• In July 2021, JSW Cement signed an agreement with Synergy Metals Investments Holding Ltd. and Apollo Global Management Inc. to raise investment funds worth Rs. 1,500 crore (US$ 202.35 million) and expand its production capacity to 25 million tonnes from 14 million tonnes.
• In July 2021, Shree Cement announced to invest Rs. 600 crore (US$ 80.94 million) in cement grinding unit in West Bengal and start project activities by August 2021. The project is expected to to provide 150 direct jobs and >1,000 indirect jobs.
• In June 2021, Ambuja Cements and ACC announced to invest in Industry 4.0 under its ‘Plants of Tomorrow’ programme, which aims to boost cement manufacturing through enhanced plant optimisation, improved plant availability and a safer operational environment.
• In June 2021, Ramco Cements Limited commissioned the Line III of its Jayanthipuram Plant, with a clinker manufacturing capacity of 1.50 million tonnes per annum.
• In June 2021, JSW Cement entered construction chemical business with the introduction of an exclusive green product range.
• In March 2021, UltraTech Cement acquired 3B Binani Glassfibre Sarl Luxembourg, a subsidiary of Binani Industries
• In February 2021, IBM collaborated with Shree Cement to run their database and core business applications using AIX and Red Hat on IBM POWER9-based IBM Power Systems. The implementation will allow Shree Cement to seamlessly enhance its productivity and enable supply chain efficiencies across its manufacturing plants.
• In January 2021, the company announced its plan to invest US$ 137 million to increase production capacity of its integrated cement plant in Guwahati, Assam, by 2 MTPA. The expansion plan is likely to complete by mid-2023.
• In April 2021, ACC announced the expansion plan of its grinding unit in Tikaria with a 1.6 MTPA cement capacity.
• In January 2021, ACC commissioned its new grinding unit at Sindri, in Dhanbad District of Jharkhand, adding an additional capacity of 1.4 million tonnes per annum to the existing 3 MTPA unit.

Government Initiatives

In order to help private sector companies, thrive in the industry, the Government has been approving their investment schemes. Some of the initiatives taken by the Government off late are as below:

• In July 2021, the government established a council of 25 members (comprising UltraTech Cement MD Mr. K C Jhanwar, Dalmia Bharat Group CMD Mr. Puneet Dalmia) for the cement industry to reduce waste, achieve maximum production, enhance quality, reduce costs and encourage standardisation of products.
• In Union Budget 2021-22, the Government of India extended benefits, under Section 80-IBA of the Income Tax Act, until March 31, 2021, to promote affordable rental housing in India.
• As per the Union Budget 2021-22, the government approved an outlay of Rs. 1,18,101 crore (US$ 16.22 billion) for the Ministry of Road Transport and Highways, and this step is likely to boost the demand for cement.
• As per the Union Budget 2021-22, National Infrastructure Pipeline (NIP) expanded to 7,400 projects from 6,835 projects.
• The Union Budget allocated Rs. 13,750 crore (US$ 1.88 billion) and Rs. 12,294 crore (US$ 1.68 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission and Swachh Bharat Mission, respectively and Rs. 27,500 crore (US$ 3.77 billion) has been allotted under Pradhan Mantri Awas Yojana.

Road Ahead

The eastern states of India are likely to be the newer and untapped 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 export and will logistically be well armed to face stiff competition from cement plants in the interior of the country. India’s cement production capacity is expected to reach 550 MT by 2025.

Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, cement industry is expected to reach 550-600 million tonnes per annum (MTPA) by the year 2025.

A number of foreign players are also expected to enter the cement sector owing to the profit margins and steady demand.

Note: Conversion rate used for August 2021 is Rs. 1 = US$ 0.013, *Till February 2021

References: Media Reports, Press releases, Union Budget 2019-20, Edelweiss Securities Ltd.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.