CHAPTER 2 CEMENT INDUSTRY ANALYSIS

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CHAPTER 2

CEMENT INDUSTRY ANALYSIS

2.1 Cement overview

2.2 History of cement Industry

2.3 Stages of Industrial growth of cemet industry.

2.4 Statistical snapshot of cement industry

2.5 Present Scenario of Cement industry

2.6 Recent trends of cement industry

2.7 Four “P’s” of cement industry

2.8 Cchallenges & problems of cement industry

2.9 SWOT analysis of cement industry

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CHAPTER 2

CEMENT INDUSTRY ANALYSIS

2.1 Cement Overview

Cement is one of the core industries which plays a vital role in the growth and

expansion of a nation. It is basically a mixture of compounds, consisting

mainly of silicates and aluminates of calcium, formed out of calcium oxide,

silica, aluminium oxide and iron oxide. The demand for cement depends

primarily on the pace of activities in the business, financial, real estate and

infrastructure sectors of the economy. Cement is considered preferred

building material and is used worldwide for all construction works such as

housing and industrial construction, as well as for creation of infrastructures

like ports, roads, power plants, etc. Indian cement industry is globally

competitive because the industry has witnessed healthy trends such as cost

control and continuous technology upgradation.

The Indian cement industry is extremely energy intensive and is the third

largest user of coal in the country. It is modern and uses latest technology,

which is among the best in the world. Also, the industry has tremendous

potential for development as limestone of excellent quality is found almost

throughout the country.

2.2 HISTORY OF CEMENT INDUSTRY

In 1914, Indian Cement Industry began its journey with a single plant of 1000

tonnes per annum at Porbandar in Gujarat. Since then, India has emerged as

the world’s second largest cement producing country after China. At present,

there are 81 cement companies with around 206 major cement plants and a

total capacity of about 358.64 million tonnes. Besides, there are mini and tiny

cement plants, which have an estimated capacity of about 10 million tonnes.

The Indian cement industry’s existence for the last 98 years is marked by the

roller coaster ride it underwent ever since its inception in 1914. From the days

of scarcity, rigid controls, and imports, the cement industry today has come a

long way from a seller’s market to a buyer’s market.

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At present, the Indian cement industry has 81 large companies, which have

about 206 major plants with an aggregate capacity of about 358.64 million

tonnes. The 206 major plants comprises of about 146 integrated plants and

60 grinding units. This does not include mini and tiny cement plants, which

have an estimated capacity of about 10 million tonnes. Further, there are

about 50 companies making efforts to set up their cement plants. This

phenomenal growth is a result of 98 years of anomalous and grueling

transition.

2.2.1 Origin

The first ever reference of cement production in India is recorded in

George Watt’s Directory of ‘Economic Products of India’, published in 1889,

which stated:

“Portland cement was being made in Calcutta from argillaceous Kanker”.

However, the first organised attempt to manufacture the cement was made in

1904 by the Madras-based South India Industries Limited but this venture

failed. It was in October 1914 that the cement produced at Porbandar in

Gujarat by Indian Cement Corporation Limited saw the light of the day. It had

an installed capacity of 1000 tonnes per annum.

In the next two years, couple of more cement plants came up, one at

Katni in Madhya Pradesh and other at Lakheri in Rajasthan. By 1918, these

three cement plants together churned out 85,000 tonnes of cement per

annum.

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Table -1

India’s 24 growing Cement Companies at a glance

Sr.

No. Companies

Capacity MTPA

2012

No. of Cement

Plants

1. Ultratech Cement Ltd 48.75 22

2. ACC Ltd. 30.08 14

3. Ambuja Cements Ltd 27.00 13

4. Jaiprakash Associates Ltd. 24.50 14

5. India Cements Ltd. (The) 15.33 09

6. Madras Cement Ltd 14.44 08

7. Shree Cement Ltd. 13.50 06

8. Chettinad Cement Corporation Ltd. 11.50 03

9. Dalmia Bharat Enterprises Ltd. 9.00 03

10. Century Textiles and Industries Ltd. 7.80 03

11. Lafarge India Pvt. Ltd. 7.75 04

12. J.K. Cement Ltd. 7.47 04

13. Kesoram Industries Ltd. 7.25 02

14. Penna Cement Industries Ltd. 7.00 04

15. Birla Corporation Ltd. 6.46 07

16. Binani Cement Ltd. 6.25 02

17. Zuari Cement Ltd. 6.20 03

18. Prism Cement Limited 6.10 02

19. OCL India Ltd. 5.35 02

20. JK Lakshmi Cement Ltd. 5.30 03

21. My Home Industries 5.20 02

22. JSW Cement 5.20 02

23. Orient Cement 5.00 02

24. Bharathi Cement 5.00 01

Total 287.43 135

Source : Labour and Industrial Chronical, Survey of Cement Industry &

Directory 2012 : 3rd Edition

25

Between 1919 and 1924, six more plants were setup and the

capacities of three old plants were also expanded. By end of 1924, the

strength of cement plants rose to 10 with a total installed capacity of 0.56

million tonnes per annum.

In early 20’s, the actual production was well below 50 percent of

capacity, which ironically, still surpassed the demand. This resulted in selling

of cement below the production cost. Further, the skepticism of quality of

indigenous cement only compounded the problems of the industry. This led to

liquidation of some companies.

At this point of time, the government referred the functioning of cement

industry to Tariff Board, which in turn recommended the urgent need for co-

operation among the existing units. This culminated in the birth of ‘Indian

Cement Manufacturers Association’ (ICMA) in 1925. Its aim was to regulate

prices and limit the supplies by mutual consent. In 1927, the members of

ICMA formed ‘Concrete Association of India’ (CAI) to popularise the use of

indigenous cement as the new building material.

Three years after, in 1930, ‘Cement Marketing Company of India’ (CMI)

was launched to promote the sales and distribution of cement at regulated

prices.

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Table – 2

Five Year Planwise Install Capacity and Production of Cement

Five Year

Plants

Plans’

Period

Terminal

Year

Capacity

MTPA

Production

MTPA

Pre Plan 1950-51 1951 3.28 2.20

I Plan 1951-56 1956 5.02 4.60

II Plan 1956-61 1961 9.30 7.97

III Plan 1961-66 1966 12.00 10.97

IV Plan 1969-74 1974 19.76 14.66

VPlan 1974-79 1979 22.58 19.42

VI Plan 1980-85 1985 42.40 30.13

VII Plan 1985-90 1990 61.31 45.41

VIII Plan 1992-97 1997 105.26 76.22

IX Plan 1997-02 2002 146.13 108.40

X Plan 2002-07 2007 202.64 165.56

XI Plan

XI Plan

2007-12

2007-12

2012

2012

298.00

(Estimated)


Directory 2012 : 3rd Edition

Note: By January 2012, the Cement Industry has already achieved an

installed capacity of about 360 million tonnes.

The 70's saw a phenomenal rise in the capacity and production. In

1970-71, the installed capacity was 17.6 million tonnes and the production

14.4 million tonnes, which by end of the decade, 1979-80, increased to 24.3

million tonnes and 17.7 million tonnes, respectively. This period also saw a

serious set-back to the industry. Heavy inflation skyrocketed costs of inputs

and eroded profits. The 17 companies that made a profit of Rs 10.98 crores in

1971-72, suffered a loss of Rs 1.5 crores in 1973-74. Many companies,

including well-known ACC skipped dividends. In 1974, a study of Fourth Tariff

Commission commented: "Cement industry is at present in a bad shape."

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In September 1977, the Janata Government took the first positive step

by assuring a 12 per cent post-tax return to cement companies on their net

worth and it brought a resolution. It, inter alia, read: "Government had also

been examining the question of fixation of price for controlled commodities

and it had accordingly been decided that the ex-works price of new cement

units should be fixed on the basis of a net post tax return of 12 per cent on net

worth". The government's step for 12 per cent post-tax return attracted big

industrial houses to the field of cement and L&T and Chowgule were among

the first few entrants.

In late 70's, for the first time, the Janata Government encouraged

setting up of mini and tiny cement plants. The main objective was to avail the

scattered limestone deposits in small quantities and meet the local demands.

The Cement Research Institute of India (CRJ), now known as National

Council for Cement and Building Materials (NCB), came out with its VSK

technology for mini and tiny cement plants. The Jorhat based Regional

Research Laboratory (RRL) also offered its VSK technology, particularly for

tiny plants with capacity ranging from 20 TPD to 35 TPD. Interestingly, tiny

cement plants came under the category of small scale sector.

In 1981, CRJ successfully commissioning two VSK technology plants

in Karnataka- Veda Cement with 60 TPD and Lokapur Cement with 30 TPD.

A year later, the Hyderabad based Deccan Cements, promoted by MB Raju,

commissioned the country's first 200 TPD rotary kiln plant in Andhra Pradesh,

followed by Kakatiya Cements, Someswara Cements, NCL, Coromandal

Cements (now Bheema Cements), Parthasarthy Cements (now Sri Chakra

Cements), Sagar Cements, Shez Cements (now Anjani Cement), Devi

Cement (now My Home Industries) and few others.

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Table-3

State-wise Major Cement Plants and Capacities at a glance

Sr.

No. States

No. of

Plants

2010

Capacity

MTPA

2010

No. of

Plants

2012

Capacity

MTPA

2012

1 Andhra Pradesh 33 55.92 44 79.45

2 Assam 01 0.20 04 2.73

3 Bihar 01 1.15 01 1.00

4 Chhattisgarh 09 12.81 10 16.11

5 Delhi 01 0.50 01 0.50

6 Gujarat 15 27.37 14 27.49

7 Haryana 03 2.97 04 3.52

8 Himachal 06 11.20 07 13.04

9 Jammu &

Kashmir

01 0.40 02 0.76

10 Jharkhand 03 5.18 04 8.6

11 Karnataka 13 23.61 13 24.4

12 Kerala 02 0.62 02 0.62

13 Madhya Pradesh 11 21.88 10 26.16

14 Maharashtra 09 16.40 10 23.00

15 Meghalaya 04 1.86 08 6.77

16 Odhisa 04 7.55 05 7.79

17 Punjab 03 4.75 03 4.75

18 Rajasthan 20 41.45 21 45.62

19 Tamil Nadu 19 32.88 20 38.89

20 Uttar Pradesh 09 12.14 11 13.83

21 Uttarakhand 03 4.00 03 4.00

22 West Bengal 08 7.73 09 9.61

Total 178 292.57 206 358.64


Directory 2012 :3rd Edition

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The success stories of the first three mini plants and few others,

coupled with government's policy and attractive incentives, over 300 mini and

tiny cement plants mushroomed all over the country. But later, about 80 per

cent of them have gone out of operations owing to various reasons.

In 2003, there were only about 60 mini and tiny plants in operation with

an installed capacity of 6.3 million tonnes. Incidentally, Andhra Pradesh was

the only State where about a dozen mini cement plants were in operation,

mostly rotary kiln plants. In recent years, seven of them have stepped up their

capacities and have become major plants.

2.2.2 Watershed

The 80's came to be the 'watershed' of the cement industry. The partial

de-control policy announced on February 28th 1982 was instrumental in

phenomenal growth of the cement industry. Under this policy, the levy cement

quota was fixed at 56.6 per cent of capacity for existing units and 50 per cent

for sick units. For new units, starting commercial production after January 1,

1982, levy quota was fued at 37.5 per cent in the first year; 42.5 per cent for

the second year, and 50 per cent thereafter. Production in excess of the levy

cement quota was allowed for sale in free market outside price and

distribution controls. The country's hopes of self-sufficiency in cement

production were realized within a short span of five years from partial

decontrol in 1982.

This decade had been unique in the history of cement industry in more

than one way. During this period, the industry had not only made quantitative

and qualitative jumps in matter of addition of capacity and adoption of new

technologies but also experienced a totally free market after lapse of almost

50 years, i.e. after total decontrol of cement from March 1989.

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2.3 STAGES OF INDUSTRIAL GROWTH OF CEMENT INDUSTRY

2.3.1 Pre – Independence Growth

In 1936, eleven existing cement companies merged to form the

Associated Cement Companies Limited (ACC) with a clear philosophy of not

attaining a monopolistic position but to make and deliver cement as cheaply

as possible. A year later of ACC’s formation, the Dalmia – Jain Group decided

to enter the cement sector with five new plants having an aggregate capacity

of 0.58 million tonnes per year.

In 1938, Mysore Iron & Steel Works, later renamed as Visvesvaraya

Iron & Steel Ltd., set up the first public sector cement unit with 60 TPD

capacity at Bhadrawati in Karnataka. Later in 1952, this capacity was

increased to 200 TPD. In 1939, Andhra Cement Company came into being at

Vijayawada in coastal Andhra, then a part of Madras State. Promoted by late

DC Narsimha Raju, incidentally, Andhra Cements was the first cement

company in Andhra Pradesh.

For the first time, during the World War II, the control was imposed on

price and distribution of cement and in August 1942 as it was declared as

essential commodity under the Defence of India Rules. About 90 per cent of

the total production was acquired for defence use. The price was fixed on cost

plus basis. As government needs decreased towards end of the War, surplus

stocks were released for civilian consumption at fixed prices.

2.3.2 Post – Independence Growth

At the time of India’s partition, there were 23 cement plants in operation

with a total capacity of 2.2 million tonnes. With the partition in 1947, 18 plants

remained in India and 5 plants went to Pakistan. The plants with India had an

aggregate capacity of 1.47 million tonnes. The British Standards for cement

were replaced by Indian Standard specifications.

Based upon the task of rendering better standards of living for its

people, the new government gave top priority to food and shelter

programmes. Cement was needed the most. As a sequel, in the first five year

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plan, 1951-56, the government fixed the capacity and production targets for

cement at 5.02 million tonnes and 4.60 million tonnes, respectively. By the

end of this plan in 1956, there were 27 units with a capacity of 5 million

tonnes. The production touched a level of 4.6 million tonnes.

During the second five-year plan, 1956-61, the capacity was increased

from 5 million to 9.3 million tonnes and the actual production soared from 4.6

million to 8 million tonnes. The number of units went up from 27 to 34. New

types of cements like white cement and Portland blast cement were also

manufactured during this plan period.

In 1961, Cement Manufacturers’ Association (CMA) was formed to

represent the industry and Dharamsey M. Khatau had a privilege of becoming

the first President. During its 51 years of existence, CMA has played a

significant role in assisting government in formulating policies relating to the

cement industry. It had considerable impact on the constitution of Lavraj

Kumar Committee in 1979 and Dr. A K Ghosh Committee in 1981.

In 1965, the Cement Corporation of India (CCI) was incorporated as a

public sector company to set up cement plants on a massive scale throughout

the country. It commissioned its first plant in July 1970 at Mandhar in Madhya

Pradesh and since then set up a total of 11 cement plants. In January 1998,

CCI sold its Yerraguntla plant to India Cements. Now it has 10 plants under its

fold and only three of them are in operation.

2.3.3 The Decade of Growth

The decade of 90's was a decade of growth in capacity and

consolidation through maximum acquisitions and mergers. The years between

1994 and 1999 saw a 40 million tonnes new capacity addition. This rash

growth led to supplies being much in excess of demand, leading to prices

being constantly beaten down. The fact that this imbalance took place even

while demand grew at a healthy 8 per cent illustrated the seriousness of the

problem. Not surprisingly, bottom lines throughout the industry were affected.

Financially weak companies sold out their units to those looking to

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consolidate, including cement multinationals who were keen to set up base in

India. In contrast, the years of 1999-2000 offered much to cheer about. The

demand grew by a whopping 15 per cent and a mere 2 million tonnes were

added to capacity.

This decade witnessed consolidation of cement industry as about 20

companies were acquired and merged. It was also a mute witness to the entry

of cement multinationals in India starting with Lafarge in 1999.

The first decade of the new millennium, from 2001-2010, witnessed an

allround growth in the cement industry, which was never seen before in the

nine decades of its existence. Buoyed by the governments ambitious plans

for infrastructure and large budgetary allocations for development of roads,

ports, airports, power plants, rural housing, special economic zones, etc, the

cement companies planned ambitious expansions through both – green field

and brown field projects. They have expanded their capacities by about 200

per cent, from 111 million tonnes in 2000 to around 300 million tonnes by the

year 2010. Even companies, which were sick, on the verge of closure got a

new lease of life, and have opted for capacity expansions.

Besides this, the cement companies have gone in for setting up high

capacity integrated plants, more number of grinding units, increased use of fly

ash, opted for the world's best and latest technologies, established coal based

captive power plants and waste heat recovery plants. During the decade, the

industry has also attracted six cement multinationals, namely - Cimpor of

Portugal, CRH of Ireland, Heidelberg of Germany, Holcim. of Switzerland,

Italcementi of Italy, and Vicat SA of France to invest in India's cement sector.

These companies made initial investment of about Rs 5600 crores. Now,

there are seven cement MNCs in India and they control a capacity of about 86

million tonnes, which is about 24 per cent of the country's total capacity.

In fact, the year 2007, which had started with momentous expansion

plans, also coincided with the commencement of the XIth Five year plan

(2007-12)

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2.4 STATISTICAL SNAPSHOT OF CEMENT INDUSTRY

There total 200 large Cement plants having total capacity of 360 MTPA

There are total 365 small Cemant plants including white Cement Plants

having total installed Capacity of 11.1 MTPA

Market size of Cement Industry is 550 MTPA is estimated for 2020.

India is the world’s second largest cement producer after China

Total turnover of the Indian cement industry is estimated at US$25

billion in FY11

Major players contributed about 97 per cent to the installed capacity

during FY11

The Indian cement industry is the second largest producer in the world

comprising of 183 large cement plants and 365 mini cement plants

The production of cement increased at a CAGR of 10.0 per cent over

FY07-11

Production is expected to reach 247 MT in FY12 as per the 11th Five

Year Plan

2.4.1 WESTERN REGION CEMENT STATSTICS

Western region of the country contains two states Gujarat and

Maharastra

Total installed capacity of Western Region is 44.1 MTPA in 2012

Gujarat is accounted for 55% share in total Western Region Capacity.

The growth rate of Cement Industry in the Western India is 9%.

During the year 2011-12 total production in the Western region was

45.4 MTPA

Expected production is 49.6 MTPA in the year 2012-13

In the western Region market share of various brands are as follows:

o Ambuja Cement 48%

o Ultratech Cement 29%

o Jaypee Cement 11%

o Other Brands 12%

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2.5 Present Scenario of cement Industry

The Indian cement industry is the second largest producer of quality cement.

Indian Cement Industry is engaged in the production of several varieties of

cement such as Ordinary Portland Cement (OPC), Portland Pozzolana

Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well

Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland

Cement, White Cement, etc. They are produced strictly as per the Bureau of

Indian Standards (BIS) specifications and their quality is comparable with the

best in the world.

The industry occupies an important place in the national economy because of

its strong linkages to other sectors such as construction, transportation, coal

and power. The cement industry is also one of the major contributors to the

exchequer by way of indirect taxes.

2.5.1 Facts of Indian Cement Industry

The Industry recorded an exponential growth with the introduction of

partial decontrol in 1982 culminating in total decontrol in 1989.

India ranks second in world cement producing countries.

It contributes to environmental cleanliness by consuming hazardous

wastes like Fly Ash (around 30 Mn.t) from thermal power plants and

the entire 8 Mn.t of slag produced by steel manufacturing units.

As a part of Corporate Social Responsibility (CSR), the cement

Industry employs around 0.1 million people and takes care of the social

needs not only of the employees but also adopts several villages

around the factories providing free drinking water, electricity, medical

and educational facilities.

The cement Industry produces a variety of cement to suit a host of

applications matching the world's best in quality.

Exports Cement/Clinker to around 30 countries across the globe and

earns precious foreign exchange.

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2.5.2 Statistics

According to Ministry of Commerce & Industry data for November

2012,cement production registered a negative growth of (-) 0.2 per cent in

November 2012 against its 17.0 per cent growth in November 2011. The

cumulative growth of cement production was 6.7 per cent during April-

November 2012-13 compared to its 4.8 per cent growth during the same

period of 2011-12

.

2.5.3 Key Drivers of Cement Industry

Buoyant real estate market

Increase in infrastructure spending

Various governmental programmes like National Rural Employment

Guarantee

Low-cost housing in urban and rural areas under schemes like

Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and

Indira Aawas Yojana

2.5.4 Technological Advancements

Modernization and technology up-gradation is a continuous process for any

growing industry and is equally true for the cement industry. At present, the

quality of cement and building materials produced in India meets international

standards and benchmarks and can compete in international markets. The

productivity parameters are now nearing the theoretical bests and alternate

means. Substantial technological improvements have been brought about and

today, the industry can legitimately be proud of its state-of-the-art technology

and processes incorporated in most of its cement plants. This technology up

gradation is resulting in increased capacity, reduction in cost of production of

cement.

2.5.5 Major Players

Ultratech Cement

Century Cements

Madras Cements

ACC

Gujarat Ambuja Cement Limited

36

Grasim Industries

India Cements Limited

Jaiprakash Associates and

JK Cements.

Holcim

Lafarge

Heidelberg Cemex

2.5.6 Foreign Direct Investment

The cement sector has been gradually liberalized. 100 per cent FDI is

permitted in the cement industry.

2.5.7 Future Outlook

A recent report has been published by research company RNCOS has found

that, even in the tough conditions of economic turbulence, Indian cement

industry sustained its growth rate. It further stated that, in the backdrop of the

government backed construction projects almost every cement major

expanded their installed capacity as; these projects have created strong

demand for cement in the country.

The report stated that production capacity of cement industry has grown by

almost 20% in 2011-12. The research report has also anticipated that the

industry players will continue to increase their annual cement output in coming

years and the country’s cement production will grow at a CAGR of around 12

per cent during 2013-14.

2.6 Recent Trends in Cement Industry

2.6.1 Product

Traditionally only one product was avalaible in cement that was 33 Grade but

due to increase in competition cement companies were forced to improvise on

the quality of the product and hence they introduced 43 Grade and moving

further they introduced 53 Grade which is the highest Grade available as per

BIS. (Buero of Indian Standards) Moreover to meet demand the

manufacturers had to increase their capacity, so most of the manufacturers

expanded their capacity upto the best possible level. Cement is a capital

37

intensive industry which means that in order to produce the product huge

capital investment is required and once it has reached its optimum production

capacity in order to increase its production new investment have to be

made.In the span of last ten years companies have expanded their production

and have reached to a level where they were forced to find another option to

expand their capacity then incurring additional cost. So the companies came

up with PPC (Portland Pozolana Cement) which is prepared by mixing fly ash,

volcanic product etc., which helped manufacturers to increase their production

by 25 to 30 % from the existing set up. Switching to PPC was not just to

increase production but the government had made it mandatory for the

companies located in the 100 Km radius of any thermal power station to use

fly ash in cement production as an environment protection constraint.

2.6.2 Packaging

Unlike other consumer products packaging doesn’t play major role in

marketing of cement as cement is generally used at construction site where

fancy packing isn’t required .Initially cement was packed in Jute bags but the

packing had to be changed to HDPE bags because there was a heavy loss to

companies because of damage caused by packing. There was heavy transit

loss because of leakage of cement from the jute bags during the transit and

moreover the product got damaged due to moisture content. So in order to

protect the product from seapage and moisture HDPE bags were used. In big

cities there are huge construction projects going on in which cement is

required in big quantities and so the builders have come up with the concept

of Ready Mix Concrete commonly known as RMC in cement industry. The

builders prefer to buy loose cement in huge quantity so they can save on time

and labour. This concept has helped cement companies on saving a huge

amount on packing and reduction in transit cost as bulk quantity of loose

cement is transported in bulkers directly to the place of production.

2.6.3 Technical Guidance

With the increase in competition in cement industry companies were not only

forced to improve on the quality but were also forced to improve on marketing

techniques. As a value addition to product companies started providing

38

technical guidance to the cement users. They started separate department

known as technical cell/ technical department which consisted of team of

qualified civil engineers.Customer facing any problem related to construction

called up the technical cell and the team of engineers was always ready to

provide guidance to the customer at their door step.Some companies took a

revolutionary step by introducing “Mobile testing laboratories” to provide

concrete testing facility to customers at their construction site.Mobile testing

laboratories consisted of latest concrete strength testing equipments. This

facility was started with a view to provide satisfaction to the customer

regarding the quality of the product. Moreover looking at the marketing aspect

civil engineers from the technical cell keep on visiting construction sites to

promote their product by providing them knowledge about their product and

latest construction practices.

2.6.4 SalesPromotion

In order to survive competition companies had adopted all possible marketing

techniques and only place where they could improvise more was sales

promotion activities. As cement traders and masons are biggest influencers in

purchase of cement, cement manufacturing companies started giving various

incentive schemes to these influencers to ensure their inclination towards their

brand. They gave various schemes to traders ranging from small household

item to foreign tours. These schemes were based on sale of targeted quantity

for short term as well as long term. For short term schemes gifts like

household items like air conditioners, refrigerator, television and other home

appliances were provided; even schemes for gold and silver coins were

announced and for long term schemes,tours were announced which included

domestic as well as foreign tours depending on the quantity sold. Few

companies also offered kind scheme of cars and two wheelers on

achievement of specific quantity in the long term. To attract masons

companies arranged masons meets on regular basis which consisted of

presentation on companies’ products and activities followed by dinner and

distribution of various gifts. Companies also offer them annual calendar and

diaries and other small gifts and give aways at regular intervals to be in touch

with them on regular basis.

39

2.7 Four P’s of Cement Industry

Category Definition

Product

A product is seen as an item that satisfies what a

consumer needs or wants. It is a tangible good or an

intangible service.

Every product is subject to a life-cycle including a growth

phase followed by a maturity phase and finally an eventual

period of decline as sales falls. Marketers must do careful

research on how long the life cycle of the product they are

marketing is likely to be and focus their attention on

different challenges that arise as the product moves

through each stage.

The marketer must also consider the product mix.

Marketers can expand the current product mix by

increasing a certain product line's depth or by increasing

the number of product lines. Marketers should consider

how to position the product, how to exploit the brand, how

to exploit the company's resources and how to configure

the product mix so that each product complements the

other. The marketer must also consider product

development strategies.

Price

The amount a customer pays for the product. The price is

very important as it determines the company's profit and

hence, survival. Adjusting the price has a profound impact

on the marketing strategy, and depending on the price

elasticity of the product, often it will affect the demand and

sales as well. The marketer should set a price that

complements the other elements of the marketing mix.

When setting a price, the marketer must be aware of

the customer perceived value for the product. Three basic

pricing strategies are: market skimming pricing,

40

market penetration pricing and neutral pricing. The

'reference value' (where the consumer refers to the prices

of competing products) and the 'differential value' (the

consumer's view of this product's attributes versus the

attributes of other products) must be taken into account.

Promotion

Promotion is all of the methods of communication that a

marketer may use to provide information to different

parties about the product. Promotion comprises elements

such as: advertising, public relations, personal

selling and sales promotion.

Advertising covers any communication that is paid for,

from cinema commercials, radio and Internet

advertisements through print media and billboards. Public

relations is where the communication is not directly paid

for and includes press releases, sponsorship deals,

exhibitions, conferences, seminars or trade fairs and

events. Word-of-mouth is any apparently informal

communication about the product by ordinary individuals,

satisfied customers or people specifically engaged to

create word of mouth momentum. Sales staff often plays

an important role in word of mouth and public relations

(see 'product' above).

Distribution(Place)

Place refers to providing the product at a place which is

convenient for consumers to access.

Various strategies such as intensive distribution, selective

distribution, exclusive distribution and franchising can be

used by the marketer to complement the other aspects of

the marketing mix.

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2.7.1 PRICE

For all the commodities Prices are generally decided by demand supply gap,

which largely prevails in cement industry too. Cement as a product doesn’t

has much differentiation. The cement provided by various companies is more

or less the same, so there is not much difference in the pricing of cement by

various companies. Due to various advertising and marketing strategy the

cement companies have been able to categorize themselves into three

categories i.e A, B & C. The price difference between various categories is 2

Rs to 4 Rs Per bag.

Prices of cement are decided not only on the basis of manufacturing cost but

it also includes logistic cost & government levies. Cement companies are

offering cement at FOR basis (Supplying at doorstep), so logistic cost plays a

vital role and in order to reduce the logistic cost cement companies prefer to

supply cement to nearby regions or they keep higher prices in far off places.

Cement price fluctuation are cyclic in nature. According to the demand prices

generally fall into four categories.

Apr- June (High demand High price) – During the period of April to June the

demand is generally higher as compared to other months, as no festivals fall

during this period. As this is prefix period to monsoon season, pre-monsoon

demand also picks up the demand during this period. Due to greater demand

the prices are also higher as compared to other months. Prices during this

period generally fall in range of 250 Rs per bag to 280 Rs per bag.

July – Sept (Low demand Low price) – During the period of July to

September the demand is relatively low due to monsoon season and festivals

like Janmashtami. Major construction activities is at hold due to monsoon and

retail demand is also low as farmers are busy with farming activities & labours

are also diverted towards farming activities. As the demand is low, prices

remains under pressure during this period. Prices generally range from 220

Rs per bag to 240 Rs per bag.

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Oct – Dec ( Moderate demand Moderate price) – Period from October to

December is the period of moderate demand as the demand picks up a little

after monsoon season but due to Major festival of Diwali demand again slows

down. Due to moderate demand the prices also remain in mid range. The

prices range from 240 Rs per bag to 260 Rs per bag.

Jan – March (High demand High price) – Period from January to March is

period of high demand as this is the last quarter of financial year and there is

no major festival other than holi which normally falls during last fortnight of

March. Due to financial year end all government contractors’ speed up their

activities to ensure the completion of work before year end. Due to high

demand the prices generally remain high. Prices fall in the range of 250 Rs

per bag to 280 Rs per bag.

2.7.2 PLACE

Place plays an integral role in cement industry as logistic cost is 3% to 5% of

the total cost for retail customer, so it is very important for cement companies

to have a well planned and wide spread network. For this purpose cement

companies opens dumps at strategic locations so they can ensure timely and

cost effective delivery to the network and customers. Dumps are the store

houses owned by company where they transfer their stock from

manufacturing unit. Companies also appoint efficient C & F agents to provide

best services. Companies appoint big distributor and dealers which in turn

appoint small retailers to increase reach upto each and every corner of the

center. By using this well planned distribution system the companies distribute

their product form the manufacturing unit to the dumps, where according to

customer’s/ dealer’s need order are placed and such orders are executed

promptly. In certain cases, where the requirement is huge or order is from

nearby place companies execute the orders from the manufacturing unit itself.

To ensure customers delight and to have competitive edge over competitors,

companies try to have best distribution system in place.

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2.7.3 PROMOTION

As cement was a commodity there was not much differentiation between

brands but after decontrolling of cement industry, cement companies started

building brand image. In order to create brand image, promotion played a very

important role. Initially they started by creating specific logos and design for

their bags. Gradually they moved to advertising means like wall painting,

newspaper advertisement, television and radio. As these medium were used

by all the cement companies, so in order to differentiate their product a need

for other innovative means of promotion was also required.

They stared distributing gift articles like pens, key chains, pocket diaries, tea

coasters, wall clock, table pieces, pen stands, calendars, annual diaries for

dealers and customers. They started offering gold scheme, domestic and

foreign tours, scholarship programme for dealer’s kids etc.

In order to increase brand’s visibility and to attract customer’s attention

companies started various activities by decorating dealer’s shop with various

posters, stickers, danglers, dealer board, and decorative gates outside

dealers shop during festivals etc.

Companies also arranged meetings and conferences for influencers like

engineers and masons and provided them various gift articles after the

meeting and also after regular intervals to ensure continuous recall of their

brand.

Few companies have started increasing their presence at national level, so to

increase their visibility at national level they started sponsoring various events

like Indian Premier League, television reality shows and other television

programs.

With help of such intensive promotional activities companies have been able

to create a unique identity for themselves, which in turn helped them to

increase their market share and gain a competitive edge over the competitors.

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As a result of this the customers also became aware about cement as a brand

rather than a commodity.

2.7.4 Product:-

“CEMENT” in itself is not just one product. It has sub categorized itself in sub

products to cater various needs of customers. Following are the various types

of cement.

OPC 53 Grade:

Its full form is 53 Grade Ordinary Portland cement.

It gives minimum 53 Newton per square millimeter compressive

strength at 28 days of curing.

Bureau of Indian Standard has specified it under IS: 12269:1987.

It is the second most commonly available type of cement in the open

market of India.

It may be used in all types of multistoried buildings like Industrial-

Institutional, Residential as well as commercial.

It is also widely used in infrastructure works like Highways, Bridge Fly

Over, Foundations of TV/Radio Towers-Electric sub stations, etc.

Specifically it is used in Pre stressed structures like Perlins, Precast

Slabs, Fencing Poles/Posts, Electric Line Poles, etc.

RCC Hume Pipes for Storm Water Drainage, Water Supply etc of

diameter up to 2600mm diameter are manufactured by using this

cement.

The leading companies in India manufacturing this product are Binani

Cement, ACC Cement, Ultratech Cement, Ambuja Cement, etc.

OPC 43 Grade:

Its full form is 43 Grade Ordinary Portland cement.



Bureau of Indian Standard has specified it under IS: 8112:1989.

It is commonly available type of cement in the open market of India.

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Many of the engineers/architects are now suggest this type of OPC

cement for Residential/Commercial high rise buildings.

Many of Indian Central Government institutes like BSNL, Airport

Authority of India, and Indian Coast Guard etc. have approved only this

type of OPC cement in their structures.

It is also used in Pre stressed structures like Perlins, Precast Slabs,

Fencing Poles/Posts, Electric Line Poles, etc.

This grade of Cement is also used in manufacturing of RCC pipes

across all sizes.

Instead of 53 Grade OPC, it is preferred due to comparatively less heat

of hydration which is one of the reasons for shrinkage cracks in

construction.

The leading companies in India manufacturing this product are Binani

Cement, Ultratech Cement, Ambuja Cement, etc.

PPC:

Its full form is Portland Pozolana Cement



Bureau of Indian Standard has specified it under IS: 1489 (Part-I for Fly

Ash Based) (Part-II for Calcined Clay Based).

It is the most commonly available type of cement in the open market of

India.

It is used in RCC works like Column, Beam, Slab, Foundation in

Residential and Commercial Buildings.

It is also used where mass concreting is done for example Dams,

Bridges, etc.

It is commonly manufactured by intergrading Portland Clinker and

Pozzolanic material like fly ash, volcanic powder, etc.

Proportion of Pozzolana may vary from 15% to 35% by weight of

Cement.

This is cement has higher resistance to chemical agents present in

surrounding atmosphere.

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Possibility of crack formation is negligible, due to low heat of Hydration

of PPC. This is one of the main reasons for the acceptance of this

cement in open market.

It also imparts more durability to the structure.

Due to secondary hydration process it makes the structure more

resistant to Sulphate & Chloride attacks.

Almost all the companies manufacture this type of cement in India.

Portland Slag Cement:

It is manufactured by intergrinding Portland Clinker and Blast Furnace

Slag.

Bureau of Indian Standard has specified it under IS: 455-1989.



Proportion of slag may vary from 25% to 65% by weight of cement.

It improves the workability, finishability, Lower permeability, resistance

to aggressive chemicals, etc. of the concrete.

Modern Structure Designers have found that improved durability

characteristics of this cement help the structure to reduce life-cycle

costs and maintenance costs.

It is specially used in marine structures, dams, bridges, etc.

It is manufactured by Binani Cement, Lafarge Cement, Bharathi

Cement, etc.

Sulphate Resisting Cement:




A Sulfate Resisting Cement is blended cement designed to improve the

performance of concrete where the risk of sulfate attack may be

present.

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It also provides improved durability for concrete in most aggressive

environments, reducing the risk of deterioration of the structure and

structural failure.

It is used at Geothermal Areas, Sewerage treatment plants, Mines and

other acidic soil environments.

It is also suitable for Dairying, forestry, fishing and other environments

with structures susceptible to chemical attack.

Underground Structures in Sulphate-salts Abounding Environment,

Effluent Treatment Plants, Coastal Construction, Off-shore platforms,

Sugar & other Chemical Plants.

Masonry Cement:


It gives minimum 5 Newton per square millimeter compressive strength

at 28 days of curing.

Masonry Cement generally contains Portland Cement for early

strength, plasticizers for water retention & plasticity and air entraining

agents to make it more workable and suitable for brick and block lying.

This cement is used to make masonry mortar for use in brick, block,

and stone masonry construction.

This cement is not at all for making concrete.

Rapid Hardening Cement:


Rapid Hardening Portland Cement (RHPC) is a type of cement that is

used for special purposes when a faster rate of early high strength is

required.

Rapid-hardening hydraulic cement offers reduced shrinkage and

superior resistance to chemical attack.

It achieves strength much faster than Ordinary Portland Cement and

many installations can be put into service in as little time as one hour

by using this cement.

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Formwork can be removed earlier and the structure can be used very

soon by using this cement.

Rapid-hardening hydraulic cement has been used for both concrete

repair and new construction

During the production process, rapid-hardening hydraulic cement

reduces CO2 emissions by 32% to 36% over conventional Portland

cement manufacturing procedures.

Oil Well Cement:


Oil well cement is used in the production and exploration of oil and gas

onshore as well as deep water offshore wells.

Designed for basic cementing jobs especially specified for deeper to

depths of up to 2100 meters, hot and high pressure well condition.

Oil well cement slurries are designed for many purposes, from the

establishment of the well's safety and structural integrity during drilling,

to the isolation of the zone of interest and the production of oil and gas

upon completion.

Lafarge, Holcim, Heidelberg, etc are the global manufacturers of this

cement.

High Alumina Cement:


It is produced by grinding clinkers formed by chalk and bauxite, which

is special clay of high alumina.

Imparts high early strength, high heat of hydration and resistance to

chemical attack.

High-alumina cement gains a high proportion of its ultimate strength

within 24 hours and has a high resistance to chemical attack.

It also can be used in refractory linings for furnaces as it can withstand

high temperatures.

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Low Heat Cement:


This cement is made to use in the construction of the structures where

the heat evolved during the cement hydration process is required to

reduce.

The temperature gradient in mass concrete is always significant, this

result in thermal cracks development. The use of this cement

minimizes such effect.

It is used in Mass Concreting Structures like Dams, Bridges, large raft

slabs, etc. to control Heat of Hydration

Concrete produced with Low Heat Cement may require less water to

achieve a specified level of workability when compared to a concrete

produced with OPC.

Setting times of Low Heat Cement significantly extended.

2.8 Challenges and problems of cement industry

Cement is generally considered as commodity and has little scope of

differentiation, so like other commodities cement industry also has its own

challenges.

2.8.1 Distribution System

Distribution system is heart of cement companies. Effective distribution

is the only means through which a company can get a competitive edge over

other players in the market. Effective distribution not only increases

companies profit but also helps in increasing customer satisfaction.

Normally cement companies use two modes of transportation i.e road

and rail but few companies also use sea transportation for distribution.

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Fig 1 .Distribution of Cement from Plant to the Customer

Distributor, Dealer, retailers and the C&F agents play most important role in

distribution channel. Companies identify reputed traders preferably dealing in

building materials or allied products and appoint them as a distributor/ Dealer.

These distributor/ dealer sell cement to consumer as well as small retailers.

Dealers sell it directly to the builders who are big customers. Retailers are

small traders who have set up retail counters in various corner of the city and

sell directly to the consumers. Retailers have two type of customer base

which are builders who are large customers as well as small consumers which

includes contractors, individual house builders etc. Companies higher godown

nearby big markets and stock huge amount of material in those godowns.

C&F agents are appointed to redistribute material from the godown to dealers,

distributors, retailers & customers. This is a traditional means of distribution

wherein the material is transferred from plant to Godowns with C&F, from

where it is redistributed to dealers & retailers which in turn is sold to the

customer.

To expand their market reach apart from the traditional means companies

have also started setting up separate grinding and packing units at strategic

locations.

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Grinding unit: - Companies transfer their clinker in bulk from plant to

grinding units. At these units the clinker is grinded and distributed to nearby

market. Companies distribute the product through the same channel of C&F,

Dealer and retailer or at times even cater it directly to customer.

Packing plants: - Companies transfer loose cement from plant to

packing units. At these units the loose cement is packed into proper bags and

distributed to nearby market. Companies distribute the product through the

same channel of C&F, Dealer and retailer or at times even cater it directly to

customer.

Generally companies use two means to distribute their product which is

road and rail, but few companies also use sea to distribute their product.

Depending on the distance and quantity of cement to be transported suitable

mode of transport is adopted. Say for instance road transport is preferred for

shorter distance and transportation by rail is preferred for longer distance as it

becomes more economical. Companies having manufacturing facilities nearby

ports use Sea as a mode of transportation to distribute their products.

As a product, cement offered by various companies is more or less

similar so the companies can differentiate their product by providing prompt

deliveries through effective distribution system. Effective distribution channel

not only gives competitive edge over others but also helps to reduce damage

and transit loss. Distribution strategy followed would in turn determine

segmentation, pricing, customer behavior and customer decisions. Thus

having an effective distribution system is one of the biggest challenges for the

cement industry.

2.8.2 Price and pricing decisions

Majorly cement market is divided into two segments- Trade and Non

trade. Prices in both the segment are decided differently.

Trade Segment: Trade segment is the segment where requirement of

small contractors, individual house builders is catered through dealers &

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retailers. In this segment companies decide a landing FOR (Free on road)

rate for the dealers, who in turn sell it to customer adding their profit margin.

Prices for different customer may vary depending upon the payment terms

and quantity required. Invoice price offered by all companies to the network i.e

distributor or dealers is more or less same, but companies offer various

discounts like cash discounts, Rate difference, Quantity discount, Quarterly

discounts, and Annual discounts to push more volumes. Companies also

declare short term schemes to push volumes during lean demand period.

Non Trade segment: Non trade segment is the segment where

requirement of big contractors, builders, government- semi government

projects, RMC units are catered directly by companies. In this segment

companies directly decide the price depending upon the quantity, size of

project and payment terms. However companies give fix commission to

distributors and third party agents who liaison on behalf of companies with the

bulk buyers.

The prices in this segment are lower by 25 Rs to 45 Rs as compared to

trade segment and are fixed at the start of the month, which are valid till end

on the month.

Pricing in the cement industry is mainly driven by demand, due to

which it is observed that cement companies earn good profits during high

demand months and also incur heavy losses when production capacity is

higher than market demand.

Cement production is continuous manufacturing process carrying a high fixed

cost, so companies are forced to continue their production even in the times

of low demand, which forces them to sell their product at lower price than their

cost during such times.

Due to fluctuating demand scenario the prices of cement keeps on

fluctuating, so price decision is one most challenging decision as companies

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have to be proactive and vigilant in deciding the prices in order to get the best

price and best volume.

2.8.3 Perceived image about quality

Quality is a very important element of a product, so in cement too the

manufacturers have done lot of Research & development and have improved

the quality to a great extent. Initially cement manufacturing quality was 33

Grade which has been upgraded to 43 Grade & then 53 Grade, which is the

top grade available in cement as per BIS (Bureau of Indian Standard). At the

same time all major players have introduced PPC (Pozzolona Portland

Cement) which is blended cement manufactured by adding Fly ash in a

permissible limit. It helps the companies to increase their production and

control their manufacturing cost.

During this era of Quality improvement manufacturers realized that quality

offered by one manufacturer can easily be imitated by others as there was not

much scope of differentiation available in this product. After recognizing the

fact some smart players started investing in the process of building different

image of their brand in the mind of consumer. They not only used the

traditional means of advertising like television, radio, newspaper, hoardings,

etc but also used unconventional means of advertising like wall painting,

event sponsorship etc for mass publicity. They also brought in new concept

like mason meet, Individual house builder’s meet, CGC (Consumer guidance

camp), engineers/ Architect meet etc to create a superior quality image in the

eyes of consumer.

All these additional efforts put in by some players did pay them by

establishing their brand image as a “Superior Quality” in mind of consumers.

Such “perceived image of quality” has become a big challenge for the

industry.

Thus we can say that there is two type of quality in the industry

1. Actual quality of the product

2. Quality of product perceived by customer.

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Although quality of product offered by all manufacturers is more or less

similar, customer prefer the brand which they perceive as a better brand and

are even ready to pay premium price for their preferred brand.

Thus in the present era it becomes equally important for companies to

build a superior brand image of their product in the mind of customer as well

as to ensure the same quality product hence promised.

2.8.4. Establishing cement as a brand

Cement is a bonding material manufactured with fairly uncomplicated

manufacturing process. More than 90% raw material of cement is lime stone

and balance 10% are also very common additives like gypsum, (plays role of

retarder which helps regulate initial setting time of cement) clay, silica etc

which are used to balance quality requirement of lime stone. This has resulted

in a very similar or comparable quality in all available products in the market.

Till late 80’s cement was available only as a commodity and the production

and distribution of cement was controlled by government. During late 80’s

cement was decontrolled and many players entered into cement production

which triggered competition into cement industry. Many such companies

which entered into cement production identified the need of the hour and

started building their cement as a brand rather than selling it as a commodity.

These players started using all possible means of advertising like electronic,

print, radio to advertise their product. They also started low cost high impact

activities like wall painting, distribution of hand bills, sending mailers and small

gifts to masons & engineers. They also started separate department known as

technical cell/ technical department which consisted of team of qualified civil

engineers to provide guidance on construction at the door step of customer.

Some companies took a revolutionary step by introducing “Mobile testing

laboratories” to provide concrete testing facility to customers at their

construction site.

Companies also introduced various kind schemes to attract customer like

getting a coupon on purchase of cement bag to win exiting prices like cars,

scooter, home appliances etc.

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All these aggressive efforts made by few companies to build their brand

posed a challenge for all the companies, not only to provide good quality

product but also to carry out various advertising tactics to build their brand.

Due to this all the cement companies were forced to follow the league and

had to adopt various means of promotion already adopted by many

companies and were also forced to introduce many new means of promotion

in order to differentiate their product from others.

2.8.5 Intense competition to minimize logistic cost

As tradition cement is sold on FOR (Free on road) basis i.e cement price

offered to customer is the price inclusive of transportation cost.

It has been almost 28 years since cement has been decontrolled, since then

industry has witnessed high level of competition which has forced all the

players to create their brand image in the minds of customer so they can fetch

premium prices over competitors. But slowly all the companies started

replicating the activities undertaken by any pioneer company and so the

companies were forced to control their cost in order to ensure reasonable

profits during the lean period i.e. when the demand is low and prices are

under pressure.

Three major factors affect the cost of cement which are logistic (18 to

20%), excise (12.36%), and VAT (15%), of which excise and VAT are

government duties and thus cannot be controlled by manufacturer, so the only

cost that is in the hands of manufacturer is the logistic cost and in order to

reduce the logistic cost the companies try to sell their production in the nearby

areas. This strategy is clearly visible in the cluster wise market share of some

companies, like few companies of Gujarat are having 20% to 30% market

share in the areas near to their plant but while considering the market share of

entire state their share falls below 10%.

Moreover as the cement plant has to be installed near to lime stone

deposits, plants of various companies are located very near to each other.

This creates an intense competition in the nearby areas as all the companies

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try to sell their product with minimal logistic cost. Largely this is applicable to

all the cement plants but as the big companies have huge production capacity

at the single plant they have low cost of production and so they can afford to

distribute their product at far off places at a slightly higher price. But the small

players have limited production capacity so they try to increase their profits by

saving on the logistic cost by selling in a limited area, and this technique of

saving on logistic cost is shrinking their area of operation.

Thus intense competition is experienced in local areas as big players

have to sell some part of their production in local area to get higher realization

and the local companies have to sell in local areas as they cannot afford to

sell in far off places due to increasing logistic cost. Moreover the

transportation cost always has an increasing trend because of regular hike in

prices of fuel, so every company prefers to sell their maximum possible

production in the nearby area which increases competition to a great extent.

2.8.6 Cost effective Advertising & Sales Promotion strategy

Advertising & Sales promotion plays an important role in every industry and

same is the case with cement industry too. Top cement brands have thus

appointed famous personalities as their brand ambassador like Amitabh

Bachchan (Binani), Sachin Tendulkar (JP), Mahendra singh Dhoni (India

cement), Om Puri (J K Laxmi) etc to create a positive image among its

customer. These famous personalities have great influence on common man

and they easily get convinced to buy the product due to influence of brand

ambassador. At local level, companies strive to enter the minds of consumer

through bill boards/ sign boards placed at strategic location of gain maximum

eye balls. Attractive dealer boards are provided by all the cement companies

to their dealers so that the dealer can benefit from it as it increases his

visibility.

The above mentioned tactics are generally costly and are effective only if it

does not impact the overall profitability of a company. Companies which have

operations all over India or which cover a major part of India can afford to

have jazzy Advertisement and glossy sign boards but it becomes difficult for

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regional companies which operate on a small scale to match up with the big

players. These companies rather spend on POP material and local activities

like Grahak Mela, Kadiya Naka etc which helps them to stay afloat in the

market and have a small but significant share in the overall cement sale.

One point which is perhaps important and possibly unique to cement

industry is that the actual consumers (whose house is being constructed/

repaired) are not as important as the local contractor/ kadiya as these people

are the influencers. They have a big role in deciding which cement is to be

used and so companies organize contractor meet, kadiya meet etc so that

they can influence them and in turn increase their sales. Companies even

distribute free gifts like hats, rough pads, pens, measuring tapes etc to these

influencers either through dealers or through local promotional activity

conducted regularly.

Hence it becomes very important for a company to identify its position

and place in the concerned region and have cost effective sales and

promotion activities. A small company can organize a local IPL like cricket

tournament whereas a big company might sponsor an actual IPL team. In the

above example both the companies can meet their respective goals; the

larger company can get international leverage while the smaller company can

create a place for itself in the local market.

It is very essential for a company to have an effective advertising and

sales and promotion activity but it is equally important for a company to

determine the best cost effective advertising sales and promotion technique in

order to get the maximum benefit.

2.8.7 Network – An important influencer

During the last three decades cement industry has witnessed two extreme

scenarios ranging from black market to intense competition to sell the product.

This changing scenario forced all companies to improve on all front starting

from providing best quality at minimum cost, mass branding activities, pre and

after sales service, relationship building with influencers and above all

58

identifying and retaining of channel partners i.e. distributors/ dealers &

retailers commonly known as “Network”.

During the late 80’s to mid 90’s cement network was by and large

exclusive for one company which means traders of cement were mainly

dealing with single brand. But with the passage of time and due to increased

competition in the market major cement companies started increasing their

reach to all available cement counters in the market which gave birth to multi

brand counters.

Cement companies had put in very hard effort to build their brand at

consumer level but they realized that it was equally important to have loyal

and motivated network. Cement merchants are the local traders who possess

good reputation in the town/village. They had a great influence on the minds

of consumers, such that even when a customer came with a pre determined

mind regarding the cement brand to be bought these merchants had the

ability to influence their decision and change their mind. So in such scenario it

became very important for every cement company to keep their network

happy and motivated to ensure their loyalty and get maximum share from

multi brand counters. In order to lure the network companies offered various

scheme other than routine discounts like cash discount, Quality discounts etc.

Such offers/ Discounts can broadly be categorized in following parts.

Loyalty buying offer

Companies offer special discounts to the traders who exclusively deal in their

brand. Such discounts are given annually so the dealers don’t switch their

loyalty. Some companies also add some amount to their security deposit

which can boost their loyalty. As a part of Loyalty buying offers few companies

also give some discounts to the traders on their past performance which

forces them to continue working with the same brand for long duration.

Motivational Offers

Companies also give annual domestic and foreign tours to dealers based on

their sales quantity. Other than such tours companies also give annual kind

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scheme (mostly gold) on the quantity sold by them. Moreover few companies

also give long term scheme (2 to 3 years) in which they reward few points on

every purchase which can be redeemed by dealers against the purchase of

various items like cars, bikes or other house hold appliances.

Hidden discounts

Companies also give some hidden discount in form of credit notes on the

basis of past performance. This keeps the dealers motivated to stick to a

particular company as switching over to another company may make them

lose their hidden discount on quantity sold during past years.

All such various schemes provided to the networks proves that network

is a very important influencer in cement industry and companies keeps on

providing various incentive and scheme not only to keep their network intact

but also to convert other dealers into selling their product.

2.9 SWOT ANALYSIS OF CEMENT INDUSTRY

SWOT ANALYSIS

2.9.1 Strengths:

Second largest in the world in terms of capacity: In India there are

approximately 200 large and 300 mini plants with installed capacity of

360 million tonnes.

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

cheap labour.

2.9.2 Weakness:

Effect of global recession on real estate: The real estate prices are

stabilizing and facing steady slowdown especially in metros. There are

approximately twenty thousand completed flats without occupancy in

Ahmedabad. There has been drastic reduction in property prices due to

reduced demand and increased supply.

Demand-Supply gap, overcapacity: The capacity additions distort the

demand-supply equilibrium in the industry thereby affecting profitability.

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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.

2.9.3 Opportunities:

Strong growth of economy in the long run: Indian economy has been

one of the stars of global economics in the recent years

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.

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. The induction of advanced

technology has helped the industry immensely to conserve energy and

fuel and to save materials substantially and hence reduce the cost of

production.

Government’s emphasis on the Infrastructure.

Heavy demand of housing and other sectors in which Cement is to be

treated as raw material

Foreign direct Investment in the Retail and other Sector may surge

demand of Cement in coming years.

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2.9.4 Threats:

Imports from Pakistan affecting markets in Northern India: In 2007,

130000 tonnes in 2008, 173000 Metric tonnes 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.

Government’s Foreign Direct Investment Policy in favour of investment

in the industry by foreign giants.

The demand supply mismatch arising out of burst of new capacity

additions (and not majorly out of lack of normal demand growth) has

constricted the capacity utilization levels of the industry for the last two

years in particular. Given the resilient nature of the economy, India has

been able to achieve reasonable GDP growth of 5 % in FY 12 which is

expected to increase to 6 % to 6.5 % in FY 13 is expected to translate

into a demand growth of 8% to 10% over the next few years. While

demand for cement grew by 6.6% in FY 12, there are already

encouraging signs of a pick-up in demand with demand spurting by

over 10% in the last quarter of FY 12. It is therefore expected capacity

utilization to gradually increase over the next 3 years with parity

between supply and demand being restored by then. While this being

the overall scenario, there are still pockets of high demand growth in

certain regions of the country and Industry is already moving significant

quantities of cement to the Eastern markets as far as Assam & Nepal

to optimize capacity utilization, given the overall surplus.Industry's

attempts in the short run will be towards striking an optimum balance

between volumes and profitability and achieve best results.

The availability of power from the State Electricity Boards is another

area of concern with acute shortages in power availability in Tamil

Nadu and Andhra Pradesh.

Availability of indigenous coal from the nationalized coal companies

and the quality of supplies is another area of concern. This problem

has however been mitigated to a large extent due to the coal linkages

obtained during the last two years to cater to the requirements of the

recent capacity expansions in Andhra Pradesh. The Industry imports

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coal to meet its cement plants' requirements thereby adequately

addressing the quantity, quality and cost aspects. Mining rights

obtained in Indonesia should fructify with infrastructure of roads and

bridges under completion to ensure timely coal supplies.

The ever-rising cost of energy in the form of petroleum products will

also have its impact on the power and transportation costs.

CHAPTER 2 CEMENT INDUSTRY ANALYSIS

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