Cement Industry in IndiaAnd

Its Contribution to Indian GDP

Inputs by:

Kunal Ramesh Khandagale MMS 1st year Roll No. 9126 Div A Oriental Institute of Management

Studies

Introduction

Cement industry, in any country, plays a major role in the growth of the nation.

India is the second largest producer of cement after China.

Total production capacity is of 151.2 million tonnes (MT).

Due to boost in various infrastructure projects, housing facilities and road networks, the cement industry in India is currently growing at an enviable pace.

Cement production in India would rise to 236.16 MT in FY11 and is expected to rise to 262.61 MT in FY12.

Industry Background

First unit was setup in Kolkata in 1889. But the industry started getting the organized shape in the

early 1900s. India Cement Company Ltd. was established in 1914 with

production capacity of around 10,000 tonnes. World War I gave a major impetus for the industry in India. Price and distribution control system in the year 1956 was

established to ensure fair price model for consumers as well as manufacturers.

Later a three tier pricing system was introduced in the industry for cement produced in high, medium and low cost plants

Industry Background (Contd.)

Earlier this industry was under full control of Government of India.

Deregulated after the economic reforms But government interference, especially in the pricing,

is still evident in India. India falls in the list of lowest per capita consumption of

cement with 125 kg. But a fast developing country like India, potential for

this sector is phenomenal. Around 20 companies dominate 70% production of

cement in India.

FII’s Investment in Cement Sector

Company FII stake as on

Dec 31, 2009 (in %)

FII stake as on

Mar 31, 2010 (in %)

Prism Cement 2.10 4.43

Shree Cement 4.17 4.87

Ultratech 4.83 10.93

ACC 11.08 12.56

Ambuja 22.91 24.14

India Cements 27.48 27.70(Source: BSE)

Cement Production and Growth

Domestic demand plays a major role in the growth of the sector

Demand has surpassed economic growth rate in India. Consumption is expected to rise more than 22% in 2009-

10 Production grew at the rate of 9.1% against the total

production of 147.8 MT during 2006-07 During October 2009, production was 12.37 Mt as

compared to 11.61 MT in the same month previous year. Companies have seen a net profit growth of 85% Cement Industry has contributed almost 8% to India’s

economic development

Cement Dispatches

Industry has successfully maintained almost total capacity utilization.

Maintained a growth rate of 10% yoy.

In 2006-07, the total dispatch was 155 MT, which rose up to 170 MT in 2007-08.

2008-09 (Apr-

Oct) (in MT)

2007-08 (Apr-

Oct) in MT

Production

101.04 95.05

Dispatches

(Excluding Export)

100.24 94.33

Export 1.46 2.16

Capacity Utilization

(%)

85 93

Major Players In Cement Industry

Company

Production

Installed

Capacity

ACC 17902 18640

Gujrat Ambuja

15094 14860

Ultratech 13707 17000

Grasim 14649 14115

Company

Production

Installed Capacity

India Cements

8434 8810

JK Group 6174 6680

Jaypee Group

6316 6531

Century 6636 6300

Role of Cement Industry in India's GDP

Role of Cement Industry in India GDP-Facts

The infrastructure development of the country in the recent years is the demand driver for the cement industry

The Indian Cement Industry is experiencing the entry of many foreign players in the Indian market

The average monthly capacity utilization during the year 2006-07 was 94%

The cement dispatches in the year 2006-07 was 155 million tonnes

The growth of the cement sector pertaining to the total output was 10% in 2006-07

Role of Cement Industry in India GDP-Production

India ranks second in the production of cement in the world

The growth rate of the production of cement during the year 2006-07 was 9.1%

The export of the cement in the year 2006-07 was 9.3 million tonnes

The cement industry in India constitutes of 365 small cement manufacturing units and 130 large cement manufacturing units

The total installed capability of the cement manufacturing is 165 million tonnes per year

The large manufacturing units accounts for 94% of the total output of cement

SWOT Analysis of the sector.

SWOT Analysis of the sector.

Strengths Second largest in the world in terms of capacity: In

India there are approximately 124 large and 300 mini plants with installed capacity of 200 million tonnes

Low cost of production: due to the easy availability of raw materials and cheap labor.

Weakness Effect of global recession on real estate: The real estate

prices are stabilizing and facing steady slowdown especially in metros. There are approximately one hundred thousand completed flats without occupancy in Bangalore. There has been drastic reduction in property prices due to reduced demand and increased supply.

SWOT Analysis of the sector.

Demand-Supply gap, overcapacity: The capacity additions distort the demand-supply equilibrium in the industry thereby affecting profitability.

Increasing cost of production due to increase in coal prices. High Interest rates on housing: The re-pricing of the interest

rates in the last four years from 7% to 12% has resulted in the slowdown in residential property market.

Opportunities Strong growth of economy in the long run: Indian economy

has been one of the stars of global economics in the recent years, growing 9.2% in 2007 and 9.6% in 2006. However, India is facing tough economic times in 2008.

Increase in infrastructure projects: Infrastructure accounts for 35% of cement consumption in India. And with increase in government focus on infrastructure spending, such as roads, highways and airports, the cement demand is likely to grow in future.

SWOT Analysis of the sector.

Growing middle class: There has been increase in the purchasing power of emerging middle-class with rise in salaries and wages, which results in rising demand for better quality of life that further necessitates infrastructure development and hence increases the demand for cement.

Technological changes: The Cement industry has made tremendous strides in technological up gradation and assimilation of latest technology. At present ninety three per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only seven per cent of the capacity is based on old wet and semi-dry process technology.

SWOT Analysis of the sector.

Threats: Imports from Pakistan affecting markets in Northern

India: In 2007, 130000 tonnes in 2008, 173000 Metric tones of cement was exported to India. This was done to keep the price of cement under check.

Excess overcapacity can hurt margins, as well as prices.

Conclusion

Naturally, cement industry is the part and parcel of constructional activities.

With out this industry’s share, the economic growth of the country cannot be too good, because it is the second largest industry after iron and steel. The Indian

Cement industry has an increased capacity of over five times in the last two decades, there by supporting a three-fold growth in per capita consumption, with the satisfactory available capacity which is more than the demand.