Cement & Construction Industry Profile A

8/9/2019 Cement & Construction Industry Profile A

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Cement & ConstructionCement & Construction

industry profileindustry profile



CEMENT INSDUSTRYCEMENT INSDUSTRY

India is the second largest producer of India is the second largest producer of cement after China with industry capacitycement after China with industry capacity

of over 200 MT.of over 200 MT. Total installed capacity was 204.29 MTTotal installed capacity was 204.29 MT

as on AUG 31 2008.as on AUG 31 2008.

India¶s cement consumption grew 9.6%India¶s cement consumption grew 9.6%per year.per year.



A primer on the IndianA primer on the Indian

cement industrycement industry Highly fragmented (low entry barriers)Highly fragmented (low entry barriers)

Avg gestation period of 2 Avg gestation period of 2--3 yrs.3 yrs.

Highly capital & energy intensiveHighly capital & energy intensive

Heavily taxed sector Heavily taxed sector

High bulk (volume) low value productHigh bulk (volume) low value product

Heavy dependence on 3 sectors viz.Heavy dependence on 3 sectors viz.coal, power and transport .coal, power and transport .

Access to distribution channels. Access to distribution channels.



Financial performanceFinancial performance ² ²

Cost structureCost structure The 2 major costs in cement industry areThe 2 major costs in cement industry are

(i) Energy costs(i) Energy costs

(ii) Freight costs(ii) Freight costs

Over the years, the share of energy costsOver the years, the share of energy costshave gone up marginally while that of have gone up marginally while that of

freight costs has increased heavily.freight costs has increased heavily. Other costs more or less stableOther costs more or less stable



marketingmarketingBargaining power of supplier : HighBargaining power of supplier : High

Large and few supplier Large and few supplier

No substitutesNo substitutes

Bargaining power of buyers :Low/mediumBargaining power of buyers :Low/medium

Standard productStandard product

No substitutesNo substitutes



marketingmarketingIntensity of competition : MediumIntensity of competition : Medium

Equally balance competitionEqually balance competition

High exit barrier High exit barrier

High fixed costHigh fixed cost

Average industry growth Average industry growth

Capacity augmentation in largeCapacity augmentation in large

incrementsincrements



swotswot

StrengthStrength

Second largest in terms of capacitySecond largest in terms of capacity

Low costLow cost

WeaknessWeakness

Effect of global recession on infrastructureEffect of global recession on infrastructure

DemandDemand ± ± supply gap , overcapacitysupply gap , overcapacity

Increasing cost of productionIncreasing cost of production High cost of productionHigh cost of production

High interest ratesHigh interest rates



OpportunityOpportunity

Strong growth of economyStrong growth of economy

Increase in infrastructure projectIncrease in infrastructure project Growing middle classGrowing middle class

Technology changesTechnology changes

Increase in Govt. expenditureIncrease in Govt. expenditureThreatsThreats

Import from Pakistan affecting markets in northImport from Pakistan affecting markets in north

IndiaIndia Excess over capacity can hurt margins as well aExcess over capacity can hurt margins as well a

pricesprices



ChallengesChallenges

Cement industry currently has one of theCement industry currently has one of the

highest inventory levels in recent times.highest inventory levels in recent times.

Growth rates have slowedGrowth rates have slowed

Capacity additions putting pressure onCapacity additions putting pressure on

prices.prices.

As a result the cement companies are As a result the cement companies are

looking for cutting production.looking for cutting production.



Financial performanceFinancial performance

Returns dependent on vibrancy of theReturns dependent on vibrancy of the

economy as a wholeeconomy as a whole

High returns during boom times (1994High returns during boom times (1994--9696

and 2004and 2004--06) and low returns during lean06) and low returns during lean

periods 2008periods 2008--0909

Returns dependent on sales realizationReturns dependent on sales realizationand capacity utilization .and capacity utilization .



What is in store for 2009?What is in store for 2009?

GDP growth expected to fuel the boomGDP growth expected to fuel the boom

Increased spending on roads and housingIncreased spending on roads and housing

expectedexpected ³Bharat Nirman´ and concomitant rural³Bharat Nirman´ and concomitant rural

development also can push up the figuresdevelopment also can push up the figures

On the whole infrastructure spending expectedOn the whole infrastructure spending expected

to drive growth in cement and constructionto drive growth in cement and constructionactivitiesactivities

8% growth rate in 2007 and 20088% growth rate in 2007 and 2008



MarketMarket

consolidationconsolidation Flurry of consolidation in the last couple of Flurry of consolidation in the last couple of

years. Notable ones include:years. Notable ones include:

oo Gujarat Ambuja picking up 14% in ACCGujarat Ambuja picking up 14% in ACCoo Grasim acquiring cement business of Grasim acquiring cement business of

L & T forming UltratechL & T forming Ultratech

oo Holcim taking minority stake in GACL and 67%Holcim taking minority stake in GACL and 67%

stake in ACCstake in ACCoo Heidelberg Cement acquiring 50% in IndoramaHeidelberg Cement acquiring 50% in Indorama

CementCement



Indian cement industryIndian cement industry ² ²

Major players in 2009Major players in 2009

12.6

20

10.64.73.65.94.5

3.2

34.8

ACC

U r

r Ambuja

Centur extiles and

Industr ies

ir la Cor td

India Cements

Jaipr akash Industr ies

(Jaypee)

Lafar e

Other s



NEW INVESTMENTNEW INVESTMENT

Reliance infrastructure plans to set up a plantReliance infrastructure plans to set up a plant(20mt) at Yamatmal(Maha).(20mt) at Yamatmal(Maha).

Jay Prakash Gr plans to set up plant(5mt) inJay Prakash Gr plans to set up plant(5mt) in Assam. Assam.

JSW cement , part of O.P Jindal Gr , plans toJSW cement , part of O.P Jindal Gr , plans toset up two plants in AP& kranatka withset up two plants in AP& kranatka with

combined capacity of 5.5mtcombined capacity of 5.5mt Raguta Mines a mining firm, the flag shipRaguta Mines a mining firm, the flag ship

company of SR Raguta plans to set up a plantcompany of SR Raguta plans to set up a plantof 1mt capacity in Orissa.of 1mt capacity in Orissa.



Global bigwigs in cementGlobal bigwigs in cement

La Farge, FranceLa Farge, France

Holcim, SwitzerlandHolcim, Switzerland

Cemex, MexicoCemex, Mexico

Italcementi , ItalyItalcementi , Italy

Heidelberg Cement, Germany.Heidelberg Cement, Germany.

Ultratec cement ,IndiaUltratec cement ,India



References:References:

www.edelcap.comwww.edelcap.com

www.pinsentmasons.comwww.pinsentmasons.com

www.icra.inwww.icra.in

www.hinduonnet.comwww.hinduonnet.com

Survey of Indian industry, 2006 publishedSurvey of Indian industry, 2006 published

by ³The Hindu´by ³The Hindu´



Thank You!Thank You!

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Cement & Construction Industry Profile A