1. 1
V. DEVI SARANYA
1226113160
INDIAN CEMENT INDUSTRY
Summary:
The Indian cement industry is the 2nd largest market after China accounting for about 8% of the
total global production. The housing sector is the biggest demand driver of cement, accounting for
about 67% of the total consumption. The other major consumers of cement include infrastructure
(13%), commercial construction (11%) and industrial construction (9%). The Indian cement
industry increased in value at a compound annual growth rate (CAGR) of 13.14% during the
review period (2007–2011), and is projected to grow at a CAGR of 10.64% over the forecast period
(2012–2016). This growth is primarily attributed to the government's high level of infrastructure
spending, and the country's increasing number of residential and commercial construction
activities. The Indian government invested US$500 billion on infrastructure during the Eleventh
Five-Year Plan (2007–2012) and revealed plans to invest a further US$1 trillion on infrastructure
during the Twelfth Five-Year Plan (2012–2017). The large-scale investment on various
infrastructure projects, including roads, railways, bridges and ports, will generate a huge demand
for cement over the forecast period.
Introduction:
The Indian cement industry has some multinational cement giants, like Holcim and Lafarge, which
have interests such as ACC, Ambuja Cement and Lafarge Birla Cement, the Indian cement
industry is broadly home-grown.Ultratech Cement, the country's largest firm in terms of cement
capacity, holds around 22% of the domestic market, with ACC (50%-owned by Holcim) and
Ambuja (50%-owned by Holcim) having 15% and 13% shares respectively.
Many of the remaining dozen top players are Indian and are (in order of diminishing market share);
Jaiprakash Associates (10%), The India Cements Ltd (7%), Shree Cements (6%), Century Textiles
and Industries (5%), Madras Cements (5%), Lafarge (5%), Birla Cement (4%) and Binani Cement
(4%).
Between them the top 12 cement firms have around 70% of the domestic market.Around 100
smaller players produce and grind cement on a wide range of scales but are often confined to small
areas.

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The Indian cement industry grew by 4.4% in 2011 and throughout 2012 significant cement
capacity continued to come on stream in India. Numerous new projects were announced or mooted
throughout the year, despite January 2012 reports that the industry was operating at as low as 65%
of capacity. At the time cement companies blamed a decrease in government infrastructure
spending in major cities. (PETER EDWARD, 2013)
The cement industry of India is expected to add 30-40 million tonnes per annum (MTPA) of
capacity in 2013. The industry has a current capacity of 324 MTPA and operates at 75-80 per cent
utilisation. The cement and gypsum products sector has attracted foreign direct investments (FDI)
worth US$ 2,625.90 million between April 2000 to November 2012. It is anticipated that the
cement industry players will continue to increase their annual cement output in coming years and
the country's cement production will grow at a compound annual growth rate (CAGR) of around
12 percent during 2011-12 – 2013-14 to reach 303 MMT. (INDIA MIRRORS, 2013)
Market Size:
The Indian cement sector is expected to witness positive growth in the coming years, with demand
set to increase at a CAGR of more than 8 per cent in the period FY 2013-14 to FY 2015-16,
according to the latest report titled ‘Indian Cement Industry Outlook 2016’ by market research
consulting firm RNCOS. The report further observed that India’s southern region is creating the
maximum demand for cement, which is expected to increase more in future.
The cement and gypsum products sector has attracted foreign direct investments (FDI) worth US$
2,656.29 million in the period April 2000–August 2013, according to data published by the
Department of Industrial Policy and Promotion (DIPP). (IBEF, 2013)
Investments:
 ACC Ltd plans to invest Rs 3,000 crore (US$ 470.22 million) to expand its capacity by
nearly 4 MT a year in three eastern region states, over the next three years.
 Reliance Cements Co Pvt Ltd will set up a 3 MTPA grinding unit at an estimated cost of
Rs 600 crore (US$ 94.04 million). The unit is likely to come up at Raghunathpur in Purulia,
West Bengal.

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 Reliance Cement Co, a special purpose vehicle (SPV) of Reliance Infrastructure Ltd, is
commissioning its first 5 MTPA plant in Madhya Pradesh. The project has been
implemented at a cost of approximately Rs 3,000 crore (US$ 470.22 million).
 Zuari Cement plans to set up a cement grinding unit at Auj (Aherwadi) and Shingadgaon
villages in Solapur, Maharashtra. The new unit will have a production capacity of 1 MTPA
and is expected to be operational by the second quarter of 2015.
 JSW Steel has acquired Heidelberg Cement India's 0.6 MTPA cement grinding facility in
Raigad, Maharashtra, for an undisclosed amount. (IBEF, 2013)
Key issues in Cement industry:
Recuperating Demand
In the absence of any significant boost in infrastructure or real estate construction activity
(which may be a result of a possible substantial reduction in interest rate), cement growth may
remain in the range of 5%-8% in 2013. Before 2008-2009, the cement demand in India was
largely driven by infrastructure activity. However, from 2010 the demand is driven more by
the activity in the housing and commercial real estate sector (CRE). Before April 2010, the
cement demand growth showed a positive correlation (0.33-0.55) with credit growth to
infrastructure, construction and roads sector, with a lag of three to six months. However, after
April 2010, the demand growth has shown a positive correlation (0.3-0.5) with credit growth
of housing and commercial real estate sector, with a lag of six to nine months. Cement
production volume grew significantly in 2012, driven by a relatively robust activity in housing
and commercial real estate. From September 2010 to March 2012, the average growth in credit
to the housing sector was around 15% and credit growth to commercial real estate was around
16%. However, during March-November 2012, credit growth to the housing sector moderated
to 13%, while for CRE, credit growth averaged only 4%. This may imply a moderation in
cement demand in the next six to nine months.

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CEMENT GROWTH AND GDP:
OVER CAPACITY AND CAPACITY UTILISATION:
The pace of capacity addition to decline in 2013 since large capacity additions in anticipation
of demand growth have already taken place during FY08-FY11. Growth in capacity additions
is likely to be around 5%-6% in the next three years (FY12: around 5%). Overall capacity
utilisation was 71% in FY12. Southern Indian companies’ capacity utilisation (FY12: 61%,
FY11: 65%) is lower than that in other regions. The agency expects that capacity utilisation is
unlikely to cross 70% till FY15 due to the continued demand-supply mismatch in this region.
However, all India capacity utilisation is likely to improve with slow growth in capacity
additions. Due to higher Input Cost and Pricing Pressure the sector may decline by 5%-10%
yoy in 2013 given the expected moderation in demand compared with the demand surge
observed in 2012. (INDIA RATINGS AND RESERCH, 2013)

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CementIndustrycurrentscenario:
Analysts expect cement sales growth to improve only marginally to 6.5% next year compared to 4-5% in
the current fiscal year. The outlook for cement firms, as with most other industries, hinges upon an
economic recovery. Sales in 2014 are expected to remain under pressure on the back of slower
government spending as fiscal deficit concerns mount, and a slow recovery in the capital
expenditure cycle by private firms. At the same time, higher costs may continue to weigh on the
profitability of cement makers in the coming year.
The cement demand may not pick up ahead of the general election due in May. Pre-election
infrastructure spend may be constrained because the government is walking a tightrope, trying to
curb the fiscal deficit to hold off threats of a rating downgrade even while growth is sluggish.
Uncertainty about the new government is also making companies defer their investment plans.
Secondly, given the slow recovery and excess capacity in the industry, prices may remain soft in
the first half of the next year, say analysts. Average capacity utilization levels are expected to drop
from a decadal low of around 70% in FY13 to 68% in FY15 due to capacity additions. The all-
India average cement price for FY14 is estimated to remain nearly flat year-on-year versus an
estimated increase of 1.5% in the current year. The excess capacity situation is bad enough for
brokerages to downgrade their price hike estimates for financial year 2015 to 5.5% compared to
8% earlier.
These factors will weigh on profit margins even as diesel and railway freight costs continue to
escalate. Note that operating profit margins for the top ten cement players were the lowest in the
last three years in the September quarter.
The shares of cement companies have underperformed the market year to date with stock prices
of top ten players down 6-50%. The recent run-up in share prices has made valuations slightly
expensive. (KRISHNA MERCHANT, 2013)

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REFERENCES
1. Ibef (2013), Cement industry in India
http://www.ibef.org/industry/cement-india.aspx
*2. India ratings and research (2013), An outlook on Indian cement manufacturers
http://indiaratings.co.in/upload/research/specialReports/2013/1/10/fitch10Cement.pdf
3. India mirrors (2013), Indian cement industry at a glance
http://www.indianmirror.com/indian-industries/2013/cement-2013.html
4. Peter Edwards (2013), The ‘Incredible’ Indian cement industry
http://www.globalcement.com/magazine/articles/752-the-incredible-indian-cement-
industry
NEWS ARTICLE:
1. Krishna Merchant (2013), Cement companies may remain on shaky ground in 2014
http://www.livemint.com/Money/bap7EX4njz6UOZfNdCGfwM/Cement-companies-
may-remain-on-shaky-ground-in-2014.html