[dropcap]I[/dropcap]ndia’s cement industry provides employment opportunities to more than a million people. India is the second largest producer of cement in the world now. Throughout the period since it was deregulated in 1982, the Indian cement industry has allured huge investments, both from Indian as well as foreign investors. Having bright prospective for development in the infrastructure and construction sector the cement sector is expected to largely gain from it.
The recent major Indian government initiatives such as development of 98 smart cities are expected to provide a major advancement to the sector. Several foreign investors such as Lafarge-Holcim, Heidelberg Cement, and Vicat have invested in the country in the recent past.
A substantial factor which aids the growth of this sector is the ready availability of the raw materials for making cement, such as limestone and coal.
The housing sector is the biggest demand of cement, accounting for about 67 percent of the total consumption in India. The other major consumers of cement include infrastructure at 13 percent, commercial construction at 11 percent and industrial construction at 9 per cent.
The total capacity of the cement industry in India is 435 million tonnes (MT) and the growth of cement industry is expected to be 6-7 percent in 2017. The cement industry in India is currently producing 280 MT for meetings its domestic demand and 5 MT for exports requirement. India’s per capita consumption stands at around 225 kg.
The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost 70 percent of the total cement production of the country. A total of 188 large cement plants together account for 97 percent of the total installed capacity in the country, with 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
According to data released by the Department of Industrial Policy and Promotion (DIPP), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.24 billion between April 2000 and March 2017.
Emami Ltd, a fast-moving consumer goods (FMCG) company, plans to invest around Rs8,500 crore (US$ 1.32 billion) to scale up its cement production capacity from 2.4 million tonnes (MT) to 15-20 MT in the next three to five years. The Gujarat-based Nirma group, with presence in detergent, soap and chemicals sector, has bought Lafarge India’s cement business, consisting of 11 MT production capacities, for US$ 1.4 billion. FLSmidth, a global engineering company based in Copenhagen, has signed a contract with India’s Larsen & Toubro Limited for engineering, procurement and supply of equipment for a complete cement production line with a capacity of 3,000 tonne in Tamil.
In the 12th Five Year Plan, the Government of India plans to increase investment in infrastructure to the tune of US$1 trillion and increase the industry’s capacity to 150 MT. The Cement Corporation of India (CCI) was incorporated by the Government of India in 1965 to achieve self-sufficiency in cement production in the country. Currently, CCI has 10 units spread over eight states in India.
In order to help the private sector companies thrive in the industry, the government has been approving their investment schemes.
The State Government of Chattisgarh has auctioned one block of Limestone (Kesla II) in Raipur District having estimated reserves of 215 million tonnes valued at Rs10,367 crore (US$1.61 billion), and would earn a cumulative revenue of Rs11,894 crore (US$1.85 billion) to State Government over the lease period.
The Union Budget proposed to assign infrastructure status to affordable housing projects and facilitate higher investments and better credit facilities, in line with the government’s aim to provide housing for all by 2022 which will boost cement demand.
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The National Housing Bank will refinance individual housing loans of about Rs 20,000 crore (US$ 3 billion) in 2017-18. The Finance Minister proposed to complete 1 crore houses by 2019. All these developments are expected to boost cement demand.
The increased allocation to rural low-cost housing under Pradhan Mantri Awaas Yojana Gramin scheme to Rs23,000 crore (US$ 3.45 billion) from Rs16,000 crore (US$ 2.4 billion) in fiscal year 2017 is likely to drive a 2 percent increase in cement demand, Ambit Capital said in a report.
In the next 10 years, India could become the main exporter 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 exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.
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 large number of foreign investors are also expected to enter the cement sector, owing to the profit margins and steady demand. In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route. With help from the government in terms of friendlier laws, lower taxation, and increased infrastructure spending, the sector will grow and take India’s economy forward along with it.
A subsidiary of Heidelberg Cement Group, Germany, and the company also said that while prospects of a normal monsoon signify well for the industry, oversupply may restrict the ability to pass on any input cost increases. It quoted prospects of normal monsoons, increased concentration and outlay for agriculture, infrastructure as well as affordable housing and thrust on construction of cement concrete roads as demand boosters. Besides, the launch of smart cities and urban infrastructure development along with implementation of GST will also bring opportunities for growth for the sector.
The company said the industry could also face challenge of oversupply restricting “the ability to pass on any input cost increases”. Moreover, “delay in awarding infrastructure projects” by the government agencies and “further hardening of fuel and power costs” may also prove to be hurdles to growth. It also listed non-availability of sand and aggregates impacting construction activities, as possible dampener of growth.
According to the Cement Manufacturers Association (CMA), the industry had a decline of 1 percent last fiscal although the compounded annual growth rate of the industry of last five years was around 4 percent. The industry has a total capacity of 435 million tonnes (MT) per annum, while it is utilizing only 280 MT for meeting domestic demand and 5 MT for exports.
For 2016-17 fiscal, Heidelberg Cement’s total income stood at Rs2, 025.54 crore, up 4.49 percent, compared to Rs1, 938.36 crore in the previous year.
Cement production volume in 2016-17 is likely to see a year-on-year decline for the first time in 15 years as demonetization hit demand, analysts said. Cement production volume in 2016-17 is likely to see a year-on-year decline for the first time in 15 years as demonetization hit demand.
India’s cement industry is estimated to have a capacity of about 420 million tonnes (mt). Production grows 5-6 percent a year, and caters to the infrastructure and commercial sectors. Production volume in January fell about 13 percent year-on-year, the first such decline since January 2001.
The sector will likely see a decline in volume this fiscal year, which was last seen in fiscal year 2001. It is highly likely this fiscal may end with a marginal year-on-year decline for the cement sector, CLSA said in a March 1 note to clients. “Cement production (as per Index of Industrial Production) declined 13.3 percent year-on-year in January 2017 which was the sharpest decline in several months,” it said. “For 2016-17, there is a strong chance industry volumes would be down slightly, a first in over 15 years.”
After the government withdrew high-value currency notes, cement production growth slowed to 0.5 percent in November (demonetization was announced on November 8) and fell 9 percent in December taking production growth for the first nine months of fiscal 2017 to a mere 2.6 percent, according to Ambit Capital.
Despite cement demand in 2016-17 being the weakest in 10 years, average prices have increased 5 percent as they are more of a function of supply moderation and pricing discipline than demand growth,” Ambit Capital analysts Nitin Bhasin and Parita Ashar wrote in a February 27 report.
Last year, cement makers benefitted from low fuel and commodity costs. However, prices of coal and petcoke have risen sharply in the past six months, leading to higher fuel costs. “Though the prices have recovered from the demonetization lows, they have still not touched the October 2016 levels,” the HDFC Securities report said.