Cement industry in India

Introduction

India is the second largest producer of cement in the world. 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.

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.

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$ 5.28 billion between April 2000 and March 2020.

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

• In December 2020, the company planned to invest Rs. 5,477 crore (US$ 776.99 million) to raise its capacity by 12.8 mtpa. The expansion includes existing approval for the cement plant at Pali in Rajasthan, in addition to capacity expansion of 6.7 mtpa that is currently underway in Uttar Pradesh, Odisha, Bihar and West Bengal.
• In November 2020, Ramco Cements Ltd. acquired an additional stake worth Rs 2.48 crore (US$ 335.34 thousand) in Lynks Logistics.
• In November 2020, Dalmia Cement has signed a contract with Paytm for digitising its payment processes. Paytm will help customers purchase Dalmia Cement products from >30,000 dealers and distributors across 22 Indian states and union territories using Paytm Wallet, Unified Payments Interface (UPI) and other cashless modes of payment.
• In October 2020, Dalmia Bharat Group announced plans to invest ~Rs 2,000 crore (US$ 270.44 million) for setting up a cement plant in Kalaburgi, Karnataka.

• JK cement planned to invest Rs. 1,700 crore (US$ 246.7 million) to increase its production capacity to 15 million tonnes by end of 2020.
• In November 2020, Shiva Cement Ltd, a subsidiary of JSW Cement Ltd, has announced plans to invest over Rs. 1,500 crore (US$ 203.21 million) in a new 1.36 million tonne per annum clinker unit project in Odisha.

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:

• The Union Budget has allocated Rs. 139 billion (US$ 1.93 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission. Government’s infrastructure push combined with housing for all, Smart Cities Mission and Swachh Bharat Abhiyan is going to boost cement demand in the country. The move is expected to boost the demand of cement from the housing segment. As per Union Budget 2019-20, Government planned to upgrade 1,25,000 km of road length over the next five years.
• Also, the Government of India extended an additional outlay of Rs. 18,000 crore (US$ 2.43 billion) for the PM Awaas Yojana - Urban over the already allocated Rs. 8,000 crore (US$ 1.08 billion); this is expected to be used for the development of ~30 lakh houses (ground support for 12 lakh houses and completion of 18 lakh houses) and will likely create an additional 78 lakh jobs and boost production and sale in the steel and cement sectors.

An outlay of Rs. 27,500 crore (US$ 3.93 billion) has been allotted under Pradhan Mantri Awas Yojana in the Union Budget 2020-21.

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.

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

Note: Conversion rate used in December 2020, Rs. 1 = US$ 0.01357

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.