Report Pranav

7/27/2019 Report Pranav

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An Environmental ScanningReport On

Cement Industry

ubmitted to:-

r. Manoj Kumar Sharma

Submitted By:-

Pranav Shandil

Roll No 20

Section A


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Introduction to cement industryThe cement industry is one of the main beneficiaries of the infrastructure boom. With robustdemand and adequate supply, the industry has bright future. The Indian Cement Industrywith total capacity of 165 million tones is the second largest after China. Cement industry isdominated by 20 companies who account for over 70% of the market. Individually no

company accounts for over 12% of the market. The major players like L&T and ACC havebeen quiet successful in narrowing the gap between demand and supply. Private housingsector is the major consumer of cement (53%) followed by the government infrastructuresector. Similarly northern and southern region consume around 20%-30% cement while thecentral and western region are consuming only 18%-16%.

India is the 2nd largest cement producer in world after china .Right from laying concrete

bricks of economy to waving fly overs cement industry has shown and shows a great future.

The overall outlook for the industry shows significant growth on the back of robust demand

from housing construction, Phase-II of NHDP (National Highway Development Project) and

other infrastructure development projects. Domestic demand for cement has been increasingat a fast pace in India. Cement consumption in India is forecasted to grow by over 22% by

2009-10 from 2007-08.Among the states, Maharashtra has the highest share in consumption

at 12.18%,followed by Uttar Pradesh, In production terms, Andhra Pradesh is leading with

14.72% of total production followed by Rajasthan. Cement production grew at the rate of 9.1

per cent during 2006-07 over the previous fiscal's total production of 147.8 mt (million tons).

Due to rising demand of cement the sales volume of cement companies are also increasing &

companies reporting higher production, higher sales and higher profits. The net profit growth

rate of cement firms was 85%. Cement industry has contributed around 8% to the economic

development of India. Outsiders (foreign players) eyeing India as a major market to invest in

the form of either merger or FDI (Foreign Direct Investment). Cement industry has a long

way to go as Indian economy is poised to grow because of being on verge of development.

Now the question arise in front of the government is whether the demand by the government

is possible to increase through expenditure on infrastructure or not according to the current

state of economy when so many crises are going on or how the government allocation of US$

3.23 billion for the National Highway Development, Project will keep the demand for cement

alive? And to what extent the prizes of cement should be increase so that consumer cant

affect.

Cement industry in India has also made tremendous strides in technological up gradation andassimilation of latest technology. Presently, 93 per cent of the total capacity in the industry is

based on modern and environment-friendly dry process technology. The induction ofadvanced technology has helped the industry immensely to conserve energy and fuel and tosave materials substantially. Indian cement industry has also acquired technical capability to

produce different types of cement like Ordinary Portland Cement (OPC), Portland PozzolanaCement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, RapidHardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Someof the major clusters of cement industry in India are: Satna (Madhya Pradesh), Chandrapur(Maharashtra), Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (Andhra

Pradesh), Bilaspur (Chattisgarh), and Chandoria (Rajasthan).


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CURRENT SCENARIO

The Indian cement industry is the second largest producer of quality cement, which meets

global standards. The cement industry comprises 130 large cement plants and more than 300

mini cement plants. The industry's capacity at the end of the year reached 188.97 million tons

which was 166.73 million tons at the end of the year 2006-07. Cement production during

April to March 2007-08 was 168.31 million tons as compared to 155.66 million tons during

the same period for the year 2006-07.Despatches were 167.67 million tons during April to

March 2007- 08 whereas 155.26 during the same period. During April-March 2007-08,

cement export was 3.65 million tons as compared to 5.89 during the same period.

Cement industry in India is currently going through a consolidation phase. Some examples of

consolidation in the Indian cement industry are: Gujarat Ambuja taking a stake of 14 per cent

in ACC, and taking over DLF Cements and Modi Cement; ACC taking over IDCOL; India

Cement taking over Raasi Cement and Sri Vishnu Cement; and Grasim's acquisition of thecement business of L&T, Indian Rayon's cement division, and Sri Digvijay Cements. Foreign

cement companies are also picking up stakes in large Indian cement companies. Swiss

cement major Holcim has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja

Cements (GACL). Holcim's acquisition has led to the emergence of two major groups in the

Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the Aditya

Birla group through Grasim Industries and Ultratech Cement. Lafarge, the French cement

major has acquired the cement plants of Raymond and Tisco. Italy based Italcementi has

acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in Andhra Pradesh,

and German cement company Heidelberg Cement has entered into an equal joint-ventureagreement with S P Lohia Group controlled Indo-Rama Cement.

According to the Cement Manufacturers Association (CMA), cement sales for May 2012were registered at 16.26 million tonnes (MT), which signifies a 14 percent growth over thesame period in 2011. Although India is one of the largest cement markets in the world, its percapita consumption is only around 170 kg, much lower than the global average consumptionof about 430 kg. According to the latest report from the working group on the industry for the12th five-year Plan (2012-17), India would require overall cement capacity of around 480million tonnes. This would mean the industry will have to add another 150 million tonnes ofcapacity during the period.

Leading players in this sector (by market share) are Shree Chem, Ultratech, Ambuja, Binani,ACC, India Cem, Dalmia Cem, Madras Cem, Lafarge, and OCL India.

The Indian cement industry is the 2nd largest market after China accounting for about 7-8%of the total global production. It had a total capacity of about 330 m tonnes (MT) as offinancial year ended 2011-12. Cement is a cyclical commodity with a high correlation withGDP, growing at around 1.2x of GDP growth rate is the biggest demand driver of cement,accounting for about 64% of the total consumption. The other major consumers of cementinclude infrastructure (17%), commercial & institutional (13%) and industrial segment (6%)

Despite the fact that the Indian cement industry has grown at a commendable rate in the lastdecade, registering a compounded growth of about 8%, the per capita consumption still


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remains substantially poor when compared with the world average. This underlines thetremendous scope for growth in the Indian cement industry in the long term.

Cement, being a bulk commodity, is a freight intensive industry and transporting it over longdistances can prove to be uneconomical. This has resulted in cement being largely a regional

play with the industry divided into five main regions viz. north, south, west, east and thecentral region. The Southern region of India has the highest installed capacity of about 120.1mtpa.

Given the high potential for growth, quite a few foreign transnational companies haveventured into the Indian markets. Already, while companies like Lafarge, Heidelberg andItalicementi have made a couple of acquisitions, Holcim has increased its stake in domesticcompanies to over 50% to gain full control. Consolidation has taken place with the top twocement groups controlling nearly one-third of the total domestic capacity. However, the

balance capacity still remains quite fragmented.

KEY POINTS

Supply The demand-supply situation is highly skewed with the latter beingsignificantly higher.

Demand Housing sector acts as the principal growth driver for cement. However,industrial and infrastructure sectors have also emerged as demand drivers.

Barriers to

entry

High capital costs and long gestation periods. Access to limestone reserves

(key input) also acts as a significant entry barrier.

Bargaining

power of

suppliers

Licensing of coal and limestone reserves, supply of power from the stategrid etc are all controlled by a single entity, which is the government.However, nowadays producers are relying more on captive power, but theshortage of coal and volatile fuel prices remain a concern.

Bargaining

power of

customers

Cement is a commodity business and sales volumes mostly depend uponthe distribution reach of the company. However, things are changing andfew brands have started commanding a premium on account of betterquality perception.

Competition Intense competition with players expanding reach and achieving pan Indiapresence.


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Factors that will drive growth in this sector

Housing segment growth is leading to higher demand for cement for homebuilding. Governments 12th Five Year Plan focuses on increasing infrastructure (upgraded

airports, ports, railway expansion, etc.) to drive construction activity.

Rise in commercial and retail spaces, along with hotels in near future, will account forincreased demand for cement.

Use of alternate fuels will help reduce low production costs and emissions and furtherdrive this sector.

There is an increase in the sale of blended varieties of cement - Portland PozzolanaCement (PPC) and Portland Blast Furnace Slag Cement (PBFC)

Road ahead

Though cement is the most preferred construction material in both housing and industrialworks, its demand is directly linked to the development and growth of others industrydomains, such as construction, infrastructure, finance, etc. The housing segment that accountsfor a major portion of domestic demand for cement in India is expected to witness a demandof 4.3 million housing units between 2010 and 2014. Government initiatives to boostinfrastructure development and ease transportation costs should keep the demand for cementon a consistent rise. Furthermore, there are unexplored markets in the country, like the under-supplied North-east region, that are currently experiencing increasing demand for cement

DEMAND & SUPPLY

The demand drivers for the cement sector continue to be housing, infrastructure and

commercial construction, etc. We expect the proportion of infrastructure in total demand to

improve further in future, as the thrust on infrastructure development is on the rise. During

April-November 2007, cement demand grew by 10 per cent year-on-year (y-o-y) propelled

by the growth witnessed in end user segments such as housing, infrastructure etc. CRISIL

Research expects demand to remain strong and grow by over 12 per cent in the next 2 years.

Cement demand is expected to outstrip supply for the next year and a half as no major

capacities are coming on-stream, thus providing enough flexibility to cement manufacturers

to further hike the prices.

Today, cement from Andhra is going all over India, including Assam, Meghalaya, Jharkhand,

Orissa, West Bengal, Chattisgarh, Gujarat and Maharashtra. More cement is likely to flow

into Tamil Nadu from the state in view of cut in sales tax. Any further increase in demand in

the South India will benefit the cement industry here. Cement movement from Gujarat to

Mumbai is also coming down due to exports while cement movement from Orissa into

Andhra has stopped and, in fact, cement is flowing into Orissa as well.

Earlier in 2006-07, the housing sector alone consumed 65 per cent of the total domestic

consumption. With the launch of several infrastructure projects, the housing consumptionmay come down to 55 per cent as the infrastructure and other sectors are expected to move up


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to 45 per cent from the present 35 per cent. Still, the main sector of consumption continues to

be housing, including commercial space, occupying more than 60 per cent. The current

demand in the state for 2005-06 is expected to cross 15 million tons (11.5 million tons). We

expect the demand here to go past the 17.5-million mark in 2006-07 in view of irrigation and

infrastructure projects being taken up in the state. Weaker sections housing, construction ofpublic toilets, schools in rural areas apart from several private and public infrastructure

projects will also give tremendous boost to the cement consumption in the state. Most

importantly, irrigation projects, worth nearly Rs 1 lakh crore, will trigger unprecedented

demand for the next 5-7 years.

Cement consumptions are as follows:

DEMAND DRIVERS

I ndian cement demand skewed towards housing

The demand from the housing sector is ~53% of the total Indian cement demand.


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There are fears of a slowdown in the demand from the housing sector due to a drop in real

estate prices in the country. The worry is that builders may postpone construction of new

buildings if the property prices were to correct.

Infrastructure to give demand a big boost

Our analysis shows that Infrastructure should be the biggest growth driver for cement

demand in the country. If we were to look only at order books of the top eight construction

and manufacturing equipment companies in India, we find that their combined order book has

virtually doubled over the last two years from INR1,000bn (USD25bn) to INR1,950bn for

completion over the next 24-30 months.

COST

Over the past five years, cost of cement production has grown at a CAGR of 8.4%. Also, the

producers have been able to pass on the hike in cost to consumers on the back of increased

demand. Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133

per tons in FY 07, at a CAGR of 13.6%, which has been reflected in higher profit margins of

the industry.

To reduce the cost of production, the industry has focused on captive power generation.

Proportion of cement production through captive power route has increased over the years.

Also, cement movement by rail has increased over the years. Freight and energy costs are

also increasing; however, in the current market scenario, manufacturers have the flexibility topass on the increase in costs to end-consumers. Let us have a look at the cost factors affecting

the cement industry

Capacity Utilization

Since the industry operates on fixed cost, higher the capacity sold, the wider the cost

distributed on the same base. But one should also keep in mind, that there have been

instances wherein despite a healthy capacity utilization, margins have fallen due to lower

realizations.

Power: The cement industry is energy intensive in nature and thus power costs form the most

critical cost component in cement manufacturing (about 30% to total expenses). Most of the

companies resort to captive power plants in order to reduce power costs, as this source is

cheaper and results in uninterrupted supply of power. Therefore, higher the captive power

consumption of the company, the better it is for the company.

Freight: Since cement is a bulk commodity, transporting is a costly affair (over 15%).

Companies, which have plants located closer to the markets as well as to the source of raw

materials have an advantage over their peers, as this leads to lower freight costs. Also, plants


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located in coastal belts find it much cheaper to transport cement by the sea route in order to

cater to the coastal markets such as Mumbai and the states of Gujarat and Tamil Nadu.

On account of sufficient reserves of raw materials such as limestone and gypsum, the raw

material costs are generally lower than freight and power costs in the cement industry. Excise

duties imposed by the government and labor wages are among the other important costcomponents involved in the manufacturing of cement.

Operating margins: The company should have a consistent record of outperforming its

peers on the operational performance front i.e. it should have higher operating margins than

its competitors in the industry. Factors such as captive power plants, effective capacity

utilization results in higher operating margins and therefore these factors should be looked

into. Since cement is a regional play on account of its high freight costs, the company should

not have all its plants concentrated in one region. It should have a geographical spread so that

adverse market conditions in one region can be mitigated by high growth in the other region

Government Policies

Government policies have affected the growth of cement plants in India in various stages.

The control on cement for a long time and then partial decontrol and then total decontrol has

contributed to the gradual opening up of the market for cement producers. The stages of

growth of the cement industry can be best described in the following stages:

Price and Distribution Controls (1940-1981)

During the Second World War, cement was declared as an essential commodity under theDefense of India Rules and was brought under price and distribution controls which resulted

in sluggish growth. The installed capacity reached only 27.9 MT by the year 1980-81.

Partial Decontrol (1982-1988)

In February 1982, partial decontrol was announced. Under this scheme, levy cement quota

was fixed for the units and the balance could be sold in the open market. This resulted in

extensive modernization and expansion drive, which can be seen from the increase in the

installed capacity to 59MT in 1988-89 in comparison with the figure of a mere 27.9MT in

1980-81, an increase of almost 111%.

Total Decontrol (1989)

In the year 1989, total decontrol of the cement industry was announced. By decontrolling the

cement industry, the government relaxed the forces of demand and supply. In the next two

years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall

economic liberalization had peaked; ironically, however, the economy slipped into recession

taking the cement industry down with it. For 1992-93, the industry remained stagnant with no

addition to existing capacity.

Government Controls


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The prices that primarily control the price of cement are coal, power tariffs, railway, freight,

royalty and cess on limestone. Interestingly, all of these prices are controlled by government

REQUIREMENTS

Coal

The consumption of coal in a typically dry process system ranges from 20-25% of clinker

production. This means for per ton clinker produced 0.20-0.25 ton of coal is consumed. This

contributes 35-40% of the production cost. The cement industry consumes about 10mn tons

of coal annually. Since coalfields like BCCL supply a poor quality of coal, NCL and CCL the

industry has to blend high-grade coal with it. The Indian coal has a low calorific value

(3,500-4,000 kcal/kg) with ash content as high as 25-30% compared to imported coal of high

calorific value (7,000-8,000 kcal/kg) with low ash content 6-7%. Lignite is also used as a fuel

by blending it with coal. However this process is not very common.

Electricity

Cement industry consumes about 5.5bn units of electricity annually while one ton of cement

approximately requires 120-130 units of electricity. Power tariffs vary according to the

location of the plant and on the production process. The state governments supply this input

and hence plants in different states shall have different power tariffs. Another major

hindrance to the industry is severe power cuts. Most of the cement producing states like AP,

MP experience power cuts to the tune of 25-30% every year causing substantial production

loss.

Infrastructure

To reduce uncertainty relating to power, most of the leading companies like ACC, Indian

Rayon, and Grasim rely on captive power plants. A few companies are also considering

power-generating windmills.

Limestone

This constitutes the largest bulk in terms of input to cement. For producing one ton of

cement, approximately 1.6 ton of limestone is required. Therefore, the cement plant location

is determined by the location of limestone mines. The major cash outflow takes place in way

of royalty payment to the central government and cess on royalties levied by the state

government. The total limestone deposit in the country is estimated to be 90 billion tons. AP

has the largest share -- 34%, Karnataka 13%, Gujarat 13%, M.P 8%, and Rajasthan 6.5%.

The plants near the limestone deposit pay less transportation cost than others.

Transportation

Cement is mostly packed in paper bags now. It is then transported either by rail or road. Road

transportation beyond 200 kms is not economical therefore about 55% cement is being

moved by the railways. There is also the problem of inadequate availability of wagons

especially on western railways and southeastern railways. Under this scenario, manufacturersare looking for sea routes, this being not only cheap but also reducing the losses in transit.


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Today, 70% of the cement movement worldwide is by sea compared to 1% in India.

However, the scenario is changing with most of the big players like L&T, ACC and Grasim

having set up their bulk terminals.

Infrastructure for Future

The consumption of cement is determined by factors influencing the level of housing andindustrial construction, irrigation projects, and roads and laying of water supply and drainage

pipes etc. The level and growth of GDP and its sectoral composition, capital formation,

development expenditure, growth in population, level of urbanization, etc, in turn, determine

these factors. But the domestic demand for cement is mainly from the housing activities and

infrastructure development. The government paved the way for the entry of the private sector

in road projects. It has amended the National Highway Act to allow private toll collection and

identified projects, bridges, expressways and big passes for private construction. The budget

gave substantial incentives to private sector construction companies. Ongoing liberalization

will lead to an increase in industrial activities and infrastructure development. So it is hoped

that Indian cement industry shall boom again in near future.

Incentives in States

Most state governments, in order to attract investments in their respective states, offer fiscal

incentives in the form of sales tax exemptions/deferrals. In some states, this applies only to

intrastate sales, like Madhya Pradesh and Rajasthan. States like Haryana offer a freeze on

power tariff for 5 years, while Gujarat offers exemption from electric duty.

Installed Capacity

India is the worlds second largest cement producing country after China. The industry ischaracterized by a high degree of fragmentation that has created intense competitive pressure

on price realizations. Spread across the length and breadth of the country, there are 120 large

plants belonging to 56 companies with an installed capacity of around 135mn tons as on

March 2002.

OPPORTUNITIES, THREATS, RISKS AND CONCERNS

The cement industry is going through its boom period with full capacity utilization. Powered

by the GDP growth of 8-9%, the annual demand for cement in the country continues to grow

at 8- 10%. As per NCAER study, under high growth scenario, the demand for cement

(including exports) is expected to increase to 244.82 million tonnes by 2010-11. As per the

study, the demand is expected to be much higher at 311.37 million tonnes, if the optimistic

projections of the road and the housing sectors are met. The industry has responded to this

with substantial new capacity announcements. The materialization of these capacities,

however, is likely to be delayed due to a number of factors including timely delivery of

equipment and construction of the plant due to the heavy order book position of the suppliers.

It is expected that demand growth will outstrip supply till the materialization of such newcapacities. However, the current high level of international crude prices and its impact on the


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domestic prices of petroleum products is likely to make a dent in the profitability but its

impact will have to be seen depending upon the ability of the economy to pass on such cost

increase to the consumer.

While the freight cost could be optimized on the imported coal through usage of companysown ships for part of the quantity, the international prices of imported coal and its volatility

together with the strengthening of the dollar against rupee could derail this. This could impact

the delivery prices of imported coal and also the cost of production. The Government has

taken steps to increase the availability of indigenous coal for its expanded capacity across

various plants which can mitigate the impact of such high cost of imported coal for the plants

located near the coal fields in India.

The Governments continuing efforts to rein in cement prices by freeing imports and banning

exports could artificially disable the normal market price mechanisms for determining the

price.

The rise in the price of cement is because of the gap of demand & supply in the market. The

demand for cement is much higher than its actual supply. But with the production

maximization, which can be encountered in next few year, this gap may narrow down, that

may ensure the market to be in equilibrium.

Decreasing per capita consumption doesnt affect the total consumption for the cement. It

means the infrastructure; contacted housing is using the bulk of the production. In spite of

High price of the product, the hick of demand because of the increasing rate of infrastructural

development.

Domestic price of cement is rising as well as the imported cement price is lowering. So

altogether the supply of the cement, which is affordable, will increase. This may in decrease

the gap between supply and demand.

Major Demand was from the housing sector, which may shift to infrastructure as lots of

infrastructural development processes has already being taken up & due to the increased

price, housing segment started showing a slowdown.


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Main Companies In India

Associated Cement Companies Ltd (ACCL)

Associated Cement Companies Ltd manufactures ordinary Portland cement, composite

cement and special cement and has begun offering its marketing expertise and distribution

facilities to other producers in cement and related areas. It has twelve manufacturing plants

located throughout the country with exports to SAARC nations. The company plans capital

expenditure through expansion of existing units and/or through acquisitions. Non-core assets

are to be divested to release locked up capital. It is also expected to actively pursue overseas

project engineering and consultancy services.

Birla Corporation Ltd.

Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting, cement, jute

goods, yarn, calcium carbide etc. The cement division has an installed capacity of 4.78

million metric tonnes and produced 4.77 million metric tonnes of cement in 2003-04. The

company has two plants in Madhya Pradesh and Rajasthan and one each in West Bengal and

Uttar Pradesh and holds a market share of 4.1 per cent. It manufactures Ordinary Portland

cement (OPC), Portland pozzolana cement, fly ash-based PPC, Low-alkali Portland cement,

Portland slag cement, low heat cement and sulphate resistant cement. Large quantities of its

cement are exported to Nepal and Bangladesh. Going forward, the company is setting up its

captive power plant to remain cost competitive.


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Century Textiles and Industries Ltd (CTIL)

The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper, shipping,

property & land development, builders and floriculture. Cement is the largest division of

CTIL and contributes to over 40 per cent of the company's revenues. The company has an

installed capacity of 4.7 million tonnes with a total cement production of 5.43 million tonnes

in 2003-04. CTIL has four plants that manufacture cement, one in Chhattisgarh, two in

Madhya Pradesh and one in Maharashtra. Going forward, the company has scripted a three-

pronged strategy closing down its shipping business, continuing with its chemicals and

adhesive division, and focusing on cement, rayon and paper as its long-term business plan.

Grasim-UltraTech Cemco

Grasim's product profile includes viscose staple fibre (VSF), grey cement, white cement,

sponge iron, chemicals and textiles. With the acquisition of UltraTech, L&T's cement

division in early 2004,

Grasim has now become the world's seventh largest cement producer with a combined

capacity of 31 million tonnes. Grasim (with UltraTech) held a market share of around 21 per

cent in

2003-04. It has plants in Madhya Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu and

Gujarat among others. The company plans to invest over US$ 9 million in the next two yearsto augment capacity of its cement and fibre business. Its also plans to focus on its

international ventures, ramping up the capacity of Alexandra Carbon Black in Egypt to

1,70,000 tonne per annum

(from 1, 20,000 tpa) and raising the capacity of the carbon black plant in China from 12,000

tpa to 60,000 tpa.

Gujarat Ambuja Cements Ltd (GACL)

Gujarat Ambuja Cements Ltd was set up in 1986 with the commencement of commercial

production at its 2 million tonne plant in Chandrapur, Maharashtra. The group has clinker

manufacturing facilities at Himachal Pradesh, Gujarat, Maharashtra, Chhattisgarh, Punjab

and Rajasthan. The company has a market share of around 10 per cent, with a strong foothold

in the northern and western markets. Its total sales aggregated US$ 526 million with a

capacity of 12.6 million tonnes in 2003-04. Gujarat Ambuja is India's largest cement exporter

and one of the most cost efficient firms. GACL has a 14.45 per cent stake in ACC, making it

the second largest cement group in the country, after Grasim-UltraTech Cemco. The

company has free cash flows that it is likely to use to grow inorganically. The company is

scouting for a capacity of around two million tonne in the northern and western markets. It

has also earmarked around US$ 195-220 million for acquisitions


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India Cements

India Cements is the largest cement producer in southern India with a total capacity of 8.81

million tonnes and plants in Andhra Pradesh and Tamil Nadu. The company has a market

share of 5.4 per cent with a total cement production of 6.36 million tonnes in 2003-04. Itsproduct portfolio includes ordinary Portland cement and blended cement. The company has

limited its business activity to cement, though it has a marginal exposure to the shipping

business. The company plans to reduce its manpower significantly and exit non-core

businesses to turnaround its fortune. It also expects the export market to open up, with the

Gulf emerging as a major importer.

Jaiprakash Associates Limited

Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is part of the

Jaypee group with businesses in civil engineering, hospitality, cement, hydropower, design

consultancy and IT. It has an annual capacity of 4.6 million tonnes with plants located in

Rewa & Bela (Madhya Pradesh) and Sadva Khurd (Uttar Pradesh). The company has a

market share of 3.8 per cent with the cement division contributing US$ 172 million to

revenue in 2003-04. The company is upgrading its capacity to 6.5 million tonnes through the

modernizing of the existing units and the commissioning of a new grinding unit at Tanda

(Uttar Pradesh) with an investment of US$ 163 million. Jaiprakash Associates has decided to

concentrate on its core business of construction and engineering and leave its cement plant to

its subsidiary Jaypee Rewa Cement Ltd. The company manufactures a wide range of world

class cement of OPC grades 33, 43, 53, IRST-40 and special blends of pozzolana cement.

JK Synthetics

JK Synthetics, a Singhania Group company, started manufacturing nylon at Kota in 1962.

Subsequently, it diversified into PSY/PFY, nylon tyre-cord, cement (in 1975), acrylic and

white cement (in 1984). The company has a market share of 2.7 per cent. JK Synthetics

Limited is restructuring its business divisions into two separate entities- JK Cements and JK

Synthetics. After the restructuring, it will be left with a cement plant at Nimbahera in

Rajasthan, with a capacity of 3.26 million metric tonnes and manufacturing white cement.

Madras Cements

Madras Cements Ltd is one of the oldest cement companies in the southern region and is a

part of the Ramco group. The company is engaged in cement, clinker, dolomite, dry mortar

mix, limestone, ready mix cement (RMC) and units generated from windmills. The company

has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement plant in Karnataka.

It has a total capacity of 5.47 million tonnes annually and holds a market share of 3.1 per

cent. Madras Cements plans to expand by putting up RMC plants. As Karnataka is a


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promising market, the company is further expanding its capacity from the present 1.5 million

tonnes to 3.4 million tonnes through an investment of US$ 9 million.

Holcim

Holcim, earlier known as Holderbank, has a cement production capacity of 141.9 million

tonnes. It is a key player in aggregates, concrete and construction related services. It has a

strong market presence in over 70 countries and is a market leader in South America and in a

number of European and overseas markets. Holcim entered India by means of a long-term

strategic alliance with Gujarat Ambuja Cements Ltd (GACL). The alliance aims to strengthen

their clinker and cement trading activities in South Asia, the Middle East and the region

adjoining the Indian Ocean. Holcim also intends to use India as an additional base for its IT

operations, R&D projects as well as a procurement sourcing hub to generate additional

synergies and value for the group.

Italcementi Group

The Italecementi group is one of the largest producers and distributors of cement with 60

cement plants, 547 concrete batching units and 155 quarries spread across 19 countries in

Europe, Asia, Africa and North America. Italcementi is present in the Indian markets through

a 50:50 joint venture company with Zuari Cements. All initiatives in southern India are

routed through the joint venture company, while Italcementi is free to buy deals in its

individual capacity in northern India. The joint venture company has a capacity of 3.4 milliontonnes and a market share of 2.1 per cent.

Lafarge India

Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement capacity of 5

million tonnes and a clinker capacity of 3 million tonnes in the country. Lafarge commenced

operations in 1999 and currently has a market share of 3.4 per cent. It exports clinker and

cement to Bangladesh and Nepal. It produces Portland slag cement, ordinary Portland cement

and Portland pozzolana cement. The Indian cement plants are located in Chhattisgarh and

Rajasthan. Lafarge Cement has become the largest cement selling firm in the Indian markets

of West Bengal, Bihar, Jharkhand and Chhattisgarh.


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PEST ANALYSIS

POLITICAL

The price of cement is primarily controlled by the coal rates, power tariffs, railway

tariffs, freight, royalty and cess on limestone. Interestingly, government controls all of these

prices. Government is also one of the biggest consumers of the cement in the country. Most

state governments, in order to attract investments in their respective states, offer fiscal

incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on

power tariff for 5 years, while Gujarat offers exemption from electric duty.

The price of cement is primarily controlled by following rates which are predominantlycontrol by government:

Coal rates

Power tariffs

Freight (Railway and road tariffs)

Royalty and cess on limestone

Taxes (Excise duty and VAT)

Govt. of India plans to increase its investment in infrastructure to US $ 1 trillion in theTwelfth Five Year Plan (2012-17) will lead to increase in the demand of cement

Infrastructure projects such as the dedicated freight corridors, upgraded new airports andports are expected to enhance the scale of economic activity, leading to a substantial

increase in cement demand furthermore


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Most state governments, in order to attract investments in their respective states, offerfiscal incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a

freeze on power tariff for 5 years, while Gujarat offers exemption from electric duty

During election period, cement demand increases as compare to normal period. So,during 2013-2014 state assembly elections cement demand will be higher

Govt. programs like NREGS, Indira Awaas Yojana, rising minimum support pricesenhance rural income which boosts cement demand in rural areas

NHAI plans to award road projects worth of Rs 57000 crores in FY 2012 The total Government levies and taxes, which include Royalty on Limestone, Royalty

on Coal, Electricity Duty, VAT/Sales Tax etc., on cement constitute about 60% or

more of the ex-factory price of cement. The levies and taxes on cement in India are far

higher compared to those in countries of the Asia Pacific Region

Strict law & order conditions and political will of the leader ofany state enhance theconfidence of people living in the states as well as corporate to invest in that particular

state

ECONOMIC

Currently, the industry is on the boom, with a lot of government infrastructure and housing

projects under construction. In spite of seeing a fall during 2008-09, the export segment of

the industry is expected to grow again on account of various infrastructure projects that are

being taken up all over the world and numerous outstanding cement plants coming up in near

future in the country (Mapsofindia.com 2010)


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Cement demand is proportional to growth in GDP of the nation. Average cementdemand to GDP ratio was 1.2 during the last decade. The cement industry is growing at

the rate of 8 to 10 % CAGR following the growth rate of GDP

The per capita consumption of cement in India (about 155 kg) is much less compared toaverage per capita consumption (about 380 kg) for the rest of the world. Hence Indian

cement industry has large potential to grow

Any instability in the world economy like political instability in Middle East countriescan lead to huge increase in the crude oil prices and thus increasing the cost of fuel,

power and freight considerably

Formal approval granted to 577 SEZ proposals Growth in tourism sector fuelling the increase in the construction of hotels in the

country

Upcoming industrial clusters and infrastructure development in emerging tier-II andtier III cities

The growing population and increased urbanization in the country Increasing per capita income leading to increase in housing demand to meet the current

shortages and future growth

SOCIAL

Usually, the cement industry in India consists of both the organized sector and the

unorganized sector. Organized sector comprises of the well-known cement manufacturing

companies while the main players of the unorganized sector are the regional and localcement-producing units in various states across the state. Indian consumers prefer buying

branded cement like ULTRATECH, JAYPEE CEMENT, LAFARGE CEMENT etc. It has

been seen in the past, as well, that mini cement plants with low brand value and image are not

able to survive against the cement giants. With a population of more than 100 billion people,

it is expected that cement industry will create another 25 lakhs jobs in the next 4-5 years. The

cement manufacturing units- with a slight regional imbalance -is spread all over India


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Indian consumers prefer buying branded cement like ULTRATECH, JAYPEE CEMENT,LAFARGE CEMENT etc. It has been seen in the past, as well, that mini cement plants

with low brand value and image are not able to survive against the cement giants

Looking at the growth rate of Indian cement industry and capacity expansions, it isexpected that cement industry will create good number of jobs in the next 4-5 years

TECHNOLOGY

From mining to production the entire process depends on technology. The Government of

India plans to study and possibly acquire new technologies from the cement industry of

Japan. The government is discussing technology transfer in the field of energy conservation

and environment protection to help improve efficiency of the Indian cement industry.Cement

industry has made tremendous strides in technological up-gradation and assimilation of latest

technology. At present 93% of the total capacity in the industry is based on modern and

environment-friendly dry process technology. (Cement Industry)

It can be seen that the wet process is rapidly replaced by the dry process . It reflectsincreasing needs for energy conservation and suggests what the true cement plant of the

future should be

Technological development in the design of cement kiln and furnace can promote useof cement kiln for utilization of wastes like tires etc. which can help in reducing the

usage of costly fuels like coke, coal etc. thereby reducing the manufacturing cost of

cement

Enhanced technology will be needed to substitute coal with low cost and eco friendlyalternative fuels like fuel from bio-mass wastes including fruit of Jatropha Carcus,

Pongamia and Algae

Effectively finding the location of limestone reserves and efficient mining practices canlead to reduction in per tonne cost of limestone

Legal

Land acquisitions for limestone mining land, setting up of integrated units and grindingunits requires proper legal procedure


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Environmental

In India, the permissible stack dust emissions from various sources for existing cementplants is 150 mg/Nm3 and 100 mg/Nm3 for plants located in critically polluted areas.However, the limit for new plants in our country is 50 mg/Nm3 which is at par with some

of the developed countries

Since the cement production is an energy intensive process with very high emission, ithas to use state of art equipment to have energy efficiency and meet environmental

standards

Under PAT1 scheme, each particular unit (Designated Consumers (DC)) will be givenSpecific Energy Consumption (SEC) target to meet over a period of three years. Anyadditional saving will qualify for earning Energy Saving Certificates (ESCerts), which

could be traded, with DC's who could be short of targets. This trade can be made

bilaterally or through exchange.

Documents

Report Pranav