India is the second largest cement producer in the world, and accounts for over 8% of the global installed capacity. According to the Cement Manufacturers Association, the Indian Cement Industry has an installed capacity of approximately 500 million tonne comprising about 250 large cement plants. 99 percent of the manufacturers use dry manufacturing process. The Government of India is laying emphasis on fast tracking infrastructure development comprising roads, railways, airport, ports, and transport. Through policy initiatives and programmes like ‘Housing for all by 2022’, the government is all set to boost the growth of the housing sector which is a major consumer of cement. India is being positioned as global leading manufacturing hub with ‘Make in India’ programme and incentives offered to companies. Sandeep Sharma takes a look at the Cement sector in India…..
FACTS AND FIGURES
As per the Index of Eight Core Industries (Base: 2011-12=100) figures released by the Ministry of Commerce & Industry for April 2019, the Cement production (weight: 5.37 per cent) increased by 0.8 per cent in April, 2019 over April, 2018. Its cumulative index increased by 13.3 per cent during April to March, 2018-19 over the corresponding period of the previous year.
As per Indian Brand Equity Foundation (IBEF) in FY 2019, the demand for cement is expected to grow by 7-8% led by affordable housing, rural Individual Home Builders (IHBs) and infrastructure - led activities. As per India’s leading cement major ACC Ltd annual report for the year 2018, the Cement sector has recorded growth of ~8.5% during 2018 as compared to ~6% in 2017.
Domestic cement production was higher by ~8% at 325 million tonnes in 2018, against 301 million tonnes in 2017. Cement demand is expected to be driven by Eastern, Central and Northern regions. ACC Ltd has reported positive growth in its Consolidated Financial Results for First Quarter (January- March) 2019. The sales volume of cement improved from 7.1 million tonne (Jan-Mar 2018) to 7.5 million tonne (Jan-Mar 2019). The Net Sales during the quarter went up by 8% to Rs. 3850 Crore compared to Rs. 3557 Crore for the same quarter last year. Operating EBITDA for the quarter registered a growth of 8% to Rs.532 Crore as against Rs. 492 Crore during the same quarter of the previous year The prices of fuel and slag rose in the quarter, which were mitigated by market initiatives, sustained cost reduction initiatives viz. material source-mix & fuel mix optimization and productivity improvement measures. Plant capacity utilization has improved during the quarter.
Heidelberg Cement India Ltd (HCIL) in its Q4FY19 and FY19 Investor Presentation released in June 2019 is optimistic about 7 per cent growth of cement sector in CY2019. According to HCIL, the reduction in GST rates in Real Estate and benefits in home loan are likely to drive Demand for housing in Urban India. The stability in Government is also likely to increase the speed of investments and execution in infrastructure projects i.e. concrete roads, railways, metros, civil aviation, irrigation, mega Industrial and freight corridors etc.
As per media reports, in response to the complaints from the real estate sector, the commerce ministry has promised to look into allegations of a cartelisation in the cement sector, resulting into increase in price rise without a corresponding increase in the input costs. It is being alleged that the cost of a 50-kg bag of cement has increased from Rs 270 to Rs 400 over the last two months in the NCR region. The Cement companies had hiked the price in February, March and April this year.
The Union Minister Nitin Gadkari has been recently quoted in media about how the price rise is not justified, and the government exploring the option of approaching the Competition Commission of India (CCI).
Ramco Cements is implementing expansion projects worth Rs. 3,500 crore. The company is coming up with a new plant in Odisha and Visakhapatnam. The plant will be ready by October and December 2019 respectively. On completion, the company is likely to achieve installed capacity 20 MTPA by 2020.
UltraTech Cement is the largest manufacturer of grey cement, Ready Mix Concrete (RMC) and white cement in India. The company has recently commissiioned zero discharge ready mix concrete plant in the city of Mumbai.
The freight and forwarding make up about 20% of the Cement retail cost. Penna Cement has signed a five years freight tariff deal with South Central Railway (SCR). This would ensure that the rate will remain fixed for one year.
The Government of India has created Affordable Housing Fund for the purpose of funding in projects for the middle class. The GST has been reduced to a great extent on the construction sector to further boost growth. GST has beenreduced from 8% to 1% on Affordable Housing, while GST on Under Construction Housing Projects has been reduced from 12% to 5%. The Government is working towards building a strong and vibrant housing sector. All these are likely to fuel growth in the real estate sector, ultimately benefiting the cement producers. The Government has budgeted to spend Rs. 6 lakh crore on infrastructure in this financial year. Under the Smart Cities Mission (SCM), 100 Smart Cities have been selected in 4 Rounds based on All India Competition. All 100 cities have incorporated Special Purpose Vehicles (SPVs). As per the year-end report released in December 2018, since the launch of the mission, a total of 5,151 projects have been identified for implementation by the cities worth more than Rs. 2 lakh crore which are in various stages of implementation in the 100 cities. 534 projects worth Rs. 10,116 crore have been completed and implementation has commenced for 1,177 projects worth Rs. 43,493 crore while tendering has started for 677 projects worth Rs. 38,207 crore. These projects are likely to push the demand for Cement in India.
The ‘Make in India’ initiative was launched in 2014 with the objective of promoting India as an important investment destination and a global hub in manufacturing, design and innovation. This initiative aims to create a conducive environment for investment, development of modern and efficient infrastructure, opening up new sectors for foreign investment and forging a partnership between Government and industry through a positive mind set. As part of this project, Six industrial corridors are being developed across various regions of the country. Industrial cities will also come up along these corridors, Three textile mega clusters in Bareilly, Lucknow and Kutch are being set up, thereby benefitting 14505 artisans. Under Make in India initiative action plans for 27 sectors had been prepared. The setting up of manufacturing base on a larger scale is likely to push demand for Cement in the years to come.
As per the Government of India Vision-2030, the country is poised to become a five trillion dollar economy in the next five years and aspires to become 10 trillion dollar economy thereafter. The government plans to create physical and social infrastructure for ten trillion dollar economy. The Government of India is taking steps to augment the various sectors of the economy like roads & highways, railways, airports, and irrigation. Due to the concerted efforts of the government in various sectors of the economy, it is likely to attract increased investment in the time to come for the construction segment thereby paving way for increase in overall cement demand. The growth of the economy promises healthy increase in cement offtakes and profitability for the cement manufacturers in India.