Cement Sector Analysis-microeconomic Outlook
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ANALYSIS OF CEMENT INDUSTRY [TYPE THE COMPANY NAME]
ANALYSIS OF CEMENT INDUSTRY MOHIT ALMAL(BO8016) ATUL SABOO(B08005)
PRAXIS BUSINESS SCHOOL
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ANALYSIS OF CEMENT INDUSTRY Table of Contents Industry Concentration: India and Infrastructure ............................................................................... 3 Concentration Ratio....................................................................................................................... 3 Herfindahl Index ................................................................................................................................ 4 Formula ......................................................................................................................................... 4 Cement Industry: an Overview .......................................................................................................... 6 WORLD CEMENT PRODUCTION ..................................................................................................... 6 Environmental Analysis: Michael Porter Model.................................................................................. 8 Industry Key points ............................................................................................................................ 9 The Major Players............................................................................................................................ 10 MARKET SHARE OF PLAYERS IN THE CEMENT INDUSTRY .............................................................. 10 CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS ............................................................. 11 Concentration Ratio ........................................................................................................................ 12 Herfindahl Index .............................................................................................................................. 13 Interpretation of H index and Concentration ratio ........................................................................... 14 Supply Position ................................................................................................................................ 15 Demand position ............................................................................................................................. 16 Sectoral demand for cement ....................................................................................................... 16 Demand Drivers ........................................................................................................................... 16 Demand over the years................................................................................................................ 19 Forecast in Demand ..................................................................................................................... 19 Various demand forecasts ........................................................................................................... 20 Demand Supply overview ................................................................................................................ 21 Latest Trends: Activities Witnessed in the Industry .......................................................................... 22 Global Players.................................................................................................................................. 22 Mergers and Acquisitions (M&As)................................................................................................ 22 Government Initiatives ................................................................................................................ 23 Technological Advancements....................................................................................................... 23 Current Scenario.......................................................................................................................... 23 Export ............................................................................................................................................. 25 Capacity and production of some major players in the Industry ....................................................... 26 ANNEXURE 1A ................................................................................................................................. 29 ANNEXURE 1B ................................................................................................................................. 31 Bibliography .................................................................................................................................... 33 PRAXIS BUSINESS SCHOOL
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Industry Concentration: India and Infrastructure The concentration of firms in an industry is of interest to economists, business strategists, and government agencies. Here, we discuss two commonly-used methods of measuring industry concentration: the Concentration Ratio and the Herfindahl-Hirschman Index.
Concentration Ratio In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size. Some examples of the four-firm concentration ratio include:[citation needed]
Traditional agriculture: Less than 5% Sheet metal: 9% Asphalt paving: 15% Typesetting: 16% Publishing: 23% Soap and detergents: 63% Men's slacks: 75% Aircraft: 79% Greeting cards: 84% Cigarettes: 99%
Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:
Perfect competition, with a very low concentration ratio, Monopolistic competition, below 40% for the four-firm measurement, Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers) Monopoly, with a near-100% four-firm measurement.
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ANALYSIS OF CEMENT INDUSTRY Herfindahl Index The Herfindahl index, also known as Herfindahl-Hirschman Index or HHI, is a measure of the size of firms in relationship to the industry and an indicator of the amount of competition among them. It is an economic concept but widely applied in competition law and antitrust. It is defined as the sum of the squares of the market shares of each individual firm. As such, it can range from 0 to 1 moving from a very large amount of very small firms to a single monopolistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas increases imply the opposite.
Formula
In a market with two firms that each have 50 percent market share, the Herfindahl index equals 0.5^2 + 0.5^2 where si is the market share of firm i in the market, and n is the number of firms. The Herfindahl Index (H) ranges from 1 / N to one, where N is the number of firms in the market. Equivalently, the index can range up to 10,000, if percents are used as whole numbers, as in 75 instead of 0.75. The maximum in this case is 1002 = 10,000. There is also a normalized Herfindahl index. Whereas the Herfindahl index ranges from 1/N to one, the normalized Herfindahl index ranges from 0 to 1. It is computed as:
where again, N is the number of firms in the market, and H is the usual Herfindahl Index, as above. A small index indicates a competitive industry with no dominant players. If all firms have an equal share the reciprocal of the index shows the number of firms in the industry. When firms have unequal shares, the reciprocal of the index indicates the "equivalent" number of firms in the industry. Using case 2, we find that the market structure is equivalent to having 1.55521 firms of the same size. An H index below 0.1 (or 1,000) indicates an un-concentrated index An H index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration An H index above 0.18 (above 1,800) indicates high concentration
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ANALYSIS OF CEMENT INDUSTRY
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ANALYSIS OF CEMENT INDUSTRY
Cement Industry: an Overview The cement industry continues to play a pivotal in the revival of the Indian economy over the years. The industry has moved from a regulated environment to a deregulate scenario. The liberalization policy adopted by the government in the 1990’s led to huge investments in the sector by private players. However, the performance of the industry and prices of cement continue to be monitored on a regular basis. The constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). Its performance is also reviewed by the Cabinet Committee on Infrastructure. The total production capacity of the Indian cement industry has gone up to 190 million tonne for the fiscal ended March 31, 2008 as compared to 167 mt during the previous fiscal, a growth of 13% to 14%. For the first time, the industry has seen an addition of over 22 mt in a single year during 200708, said industry sources here.
WORLD CEMENT PRODUCTION World Cement Production 1,400
1,200
1,000
800
2006 2007
600
400
200
0 China
India
United States
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Japan
Spain
Korea
Russia
Italy
Mexico Brazil
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ANALYSIS OF CEMENT INDUSTRY
Almost every other player in the industry has either put up a new plant or have expanded capacity, ranging between a minimum of two lakh tonne and a maximum of three million tonne spread across all producing states in all four regions, said the sources. Some of the major players who have added capacity include Ambuja Cement, Lafarge, Ultratech, India Cements, Madras Cement, Shree Cement, Grasim, Jaypee. Kesoram, Century Textiles among others. These additions were based on the increasing demand and supply gap and the industry hopes to do a better year in the current fiscal too, the sources said.
Except a few one million tonne plus capacity addition in big cities, most of the additions were small in size and were between two lakh tonne and eight lakh tonne in capacity. Interestingly, these capacities addition taken place in small pockets of all four regions, the sources pointed out. The industry move to have wider presence, though in small quantity, is to cash in on emerging developmental activities while ensuring continued supply over a period of time, the sources pointed out. Meanwhile, led by western region, the industry continued to maintain its 10% growth rate in despatches during the year. With the near total capacity utilisation, the total despatches were higher at 170 mt as against 155 mt during the previous year. Western region reported a growth of 15% in consumption, followed by northern region (12%) and southern region (10%). Among the states, Haryana reported 24% growth in consumption, followed by Delhi (17%), Gujarat (15%), Andhra Pradesh (15%), Maharashtra (14%) and Tamil Nadu (13%). According to the sources, despite there have been imports in pockets of region, the demand and supply gap continue to be there in the current fiscal too and the prices will remain firm.
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ANALYSIS OF CEMENT INDUSTRY Environmental Analysis: Michael Porter Model
Threat of substitute Limited Bitumen in roads and engineering plastic in buidling offer some element of competition.
Threat of new entrants limited
Interfirm Rivalary-Intense Large number of players capacity in the short-term is expected to be surplus, marginal product differenciation, high storage cost and high exit barriers in terms of heavy capital investment.
High capital investment requirements, distribution network and oversupplied markets deter entrants. Technology easily available
Bargaining powers of buyers limited Rising share of retail purchase and declining share of bulk purchasers
Bargaining power of suppliers very high Monopolistic control of external cost element (coal, power, transport) result in high bargaining power of the goverment Figure: Michael Porter’s Analysis
Porter's five forces are named after Michael Porter. Strategic analysis of these 5 forces can tell you a lot about a company/sector. A Porter's five forces analysis can complement other techniques, like a SWOT analysis. A SWOT analysis focuses on the company/sector, while a Porter's five forces analysis looks at the external factors impacting on a company/sector. These forces listed by Michael Porter, impact the profitability of an Industry. This figure portrays the factors affecting the cement industry and their analysis.
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ANALYSIS OF CEMENT INDUSTRY
Industry Key points The Indian cement industry with a total capacity of about 190 m tonnes in FY07 is the second largest market after China. Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 50% of the capacity, the balance capacity still remains pretty fragmented. Despite the fact that Indian cement industry has clocked a production of more than 100 m tonnes for the last five consecutive years, the per capita consumption of around 130 kgs compares poorly with the world average of over 260 kgs and more than 450 kgs in China. This, more than anything underlines the tremendous scope for growth in the Indian cement industry in the long term. Cement, being a bulk commodity, is a freight intensive industry and transporting cement over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions viz. north, south, west, east and the central region. While the southern region is excess in capacity owing to abundant availability of limestone, the western and northern region are the most lucrative markets on account of higher income levels. There are high barriers to entry because of high capital costs and gestation period. Bargaining power of suppliers is high. Bargaining power of consumers is low because of rising share of retail purchase
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ANALYSIS OF CEMENT INDUSTRY The Major Players With an installed capacity of about 190 million tons at the end of March 2008, the cement industry has witnessed some major consolidation in capacity. The larger players in the industry control almost 50% of the capacity and revenues for the sector in India. The key players in the country include Associated Cement Companies (ACC), Ultratech Cements, Grasim Industries, Gujarat Ambuja Cement and India Cements Limited. The market share of the major cement players, in terms of revenue and production can be seen with the help of the Graph below. The cement industry has witnessed substantial reorganization of capacity in the last couple of years. Some examples of them are Gujarat Ambuja taking stake in ACC, Gujarat Ambuja taking over DLF cement and Modi Cements. India Cements taking over Raasi Cement etc. in the domestic markets. Some international majors have also shown sizeable interest in the Indian cement sector with Holcim, Lafarge , Italcementi and Heifelberg paving their way in India through some M&A activities. On March 2008, ACC was the largest player in the industry with an installed capacity of 22.4 million tons and controlling over 13% of the total capacity. Ultratech occupied the second spot with an installed capacity of 18.2 million ton. While the third and the fourth slot went to Gujarat Ambuja and Grasim respectively. The other leading players in the industry include Jaypee group, Lafarge, India Cements, Madras Cement, Birla Corp and Century textile.
MARKET SHARE OF PLAYERS IN THE CEMENT INDUSTRY
Market Share Others 28%
ACC Ltd 17%
Grasim Industries Ltd 15%
Madras cement 5% India cement 9% Ultratech Cement Ltd. 12%
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Ambuja Cements Ltd. 14%
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ANALYSIS OF CEMENT INDUSTRY
CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS
Capacity Distribution ACC Ltd 13% Others 48%
Ambuja Cements Ltd. 10%
Madras cement 4%
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Grasim Industries Ltd 8%
India cement 6%
Ultratech Cement Ltd. 11%
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ANALYSIS OF CEMENT INDUSTRY Concentration Ratio
Top 5 firms ACC Ltd. Ambuja Cements Ltd. Grasim Industries Ltd. Larsen & Toubro Ltd. Ultratech Cement Ltd.
2006 9.11% 4.62% 14.41% 26.84% 6.13%
2007 6.42% 5.23% 13.21% 25.96% 6.54%
2008 8.90% 9.69% 13.25% 24.80% 7.56%
Concentration ratio
61.11%
57.36%
64.20%
Calculation is shown in annexure 1A
A competitive market is one with a sufficiently large number of firms competing with one another that prices are kept at levels that reflect social costs. Since market power usually leads to high prices and/or low quality, and often stifles future innovations, it hurts consumers and should be restricted. There are numerous ways to obtain market power. If there are only a few firms in a market, concentration is high, and each firm will have some market power to charge a high price. When the market is highly concentrated, it is easier for firms to coordinate their pricing behavior and charge a premium from the customers. Market power may also exist even with many small firms in the market, when there is a dominant firm. Here, the concentration is very high among the top 4-5 major players which mean that these few players hold industry’s demand and supply. Any change in the market share of leading players would lead to a change in the concentration ratio and thus the market structure of the industry.
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ANALYSIS OF CEMENT INDUSTRY Herfindahl Index Herfindahl Index 2006 2007 0.1135 0.1066
2008 0.101
Calculation is shown in annexure 1B The Herfindahl Index of the cement industry shows a figure of 0.101 for the year 06-07 which is more than 0.1 showing a moderate concentration in the industry which means the market is moving towards oligopoly. The main reason for such a kind of structure is Cement being a perishable product cannot be transported from one place to far off places due to which there is a limited geographical scope. One player captures a certain region and thus the players do not compete with one another. The index is very near to 0.1 and thus adapts some features of perfect competition as well. In cement industry, prices are governed by the government and thus the players act as a price taker and not price maker. For the last three years the Herfindahl index has been decreasing which means that the industry is moving towards perfect competition. The players of the cement industry are prices takers as the government fixes the price. Moreover, competition has also increased as many small players have entered the industry and local competition has increased in the past few years. Thus, cement industry has an oligopoly existing in the industry but also have some attributes of perfect competition.
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ANALYSIS OF CEMENT INDUSTRY Interpretation of H index and Concentration ratio
Fragmented Cement Industry in 1995 Top 5 Groups 26% Others 74%
Consolidated cement industry in 2008 Others 28% Top 5 Groups 72%
The concentration ratio of top 5 players is 64%.The H- INDEX is 0.101 which shows presence of large number of players. The structure of the industry is fragmented, although, the concentration at the top is increasing. Thus we see that the top players control almost 65% of the industry, but the balance remains very fragmented. Due to large number of players in the industry and very little brand differentiation to speak of, the competition is intense with players resorting to expanding reach and achieving pan India presence.
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ANALYSIS OF CEMENT INDUSTRY Supply Position The installed capacity of the sector over the seven years period, from 2000 to 2008, has grown at 5.3% coumpounded anually. While the production grew at 7.4% per annum. The production in the sector grew at a much higher rate than the capacity in the preceding years. Looking ahead the production of the industry could see about 85% capacity utilization due to additional capacity being built. It is estimated that by FY 2010-2011 the total capacity for the sector would be close to 250 million tonne.
CEMENT PRODUCTION 300 250 Capacity Installed 200 Cement Production 150 Capacity Utilisation 100 50
2 per. Mov. Avg. (Capacity Utilisation)
0
The increasing trend in cement consumptions from FY03 had led to an increase in the capacity utilization of the cement sector. The capacity utilization has moved from 76% in FY02 to 95 % in FY07. But going forward when all capacity addition has taken place and the plants are commissioned one could see a huge surplus being built. This could lower the realization margins of the companies and increase cost pressures. This would also contribute to the change in demand supply scenario, where the supply would be in excess of the total demand for the commodity.
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ANALYSIS OF CEMENT INDUSTRY Demand position Sectoral demand for cement Demand for cement is linked to the economic activity in any country. Broadly, it can be categorized into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The real driver of cement demand is creation of infrastructure, hence cement demand in emerging economies is much higher than developed countries where the demand has reached a plateau. In India too, the demand for cement will be affected by spending on infrastructure (including housing) Fuelling demand- The following factors have increased demand for cement over the years: Growth in housing sector (over 30%)-is a key demand driver as it accounts for 60% of demand Infrastructure projects like ports, airports, power projects, dam & irrigation projects. The proportion of cement consumed by infrastructure projects is expected to increase from current 15% to 25-30%. About 10 million tonnes of cement demand will result from Kalpasar project planned for water deployment for Saurashtra National Highway Development Programme- This consists of golden quadrilateral and North-South and East-West corridor projects. Budget support on NHDP increased to 99.45 billion dollars. Bharat Nirman Yojana for rural infrastructure- Outlay on bharat nirman to the tune of 186.96 billion. Rise in industrial projects Capex plans by corporates – Greenfield and brownfield expansions. Export potential Capital spending continues to be strong Uptrend in industrial cycle – Avg. IIP growth at 10.2% being strongest in the past 11 years Retails- Malls and Multiplexes
Demand Drivers The demand for cement has shown patterns that can be directly linked to the growth in the economy. With the growth in GDP, the consumption and demand for cement have gone up sustantially. Usually, the demand for cement grows at about 3%-4% above the growth rate of GDP.
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ANALYSIS OF CEMENT INDUSTRY The demand drivers for the cement industry are: Economic Growth: The consumption and demand for cement is a sign of a countries progress and economic development. Almost every country in the world, commited to industrialization and sound economic development, generates an ever increasing demand for cement. Cement counsumption growth is highly correleated to the GDP growth it serves as the leading indicator. More industrial activity and greater purchasing power means more formation and construction activities and thus, more counsumption of cement. The graph alongside shows the percentage growth of the two in the last couple of years. Industrial Activity: Cement counsumption also shows high degree of correlation to the industrial activities in the economy. With the amplify in industrial output, more and more capacity expansion takes place that requires
GDP VS CEMENT GROTH IN CEMENT PRODUCTION
% C H A N G E I N
P R O D U C T I O N
building
GDP GROWTH
new
plants,
18
10
setting up of factories etc.
16
9
in the process, boosting
14
8
12
7
10
6
8
5
6
4
4
3
2
2
0
1
-2
1999-2000
2001-2002
2003-2004
2005-2006
2007-2008e*
0
G D P G R O W T H
the demand for cement. Graph
below
shows
percent growth in the IIP index and the cement counsumption in the last couple of years. Infrastructure:
Demand
for cement is linked to the economic activity in any country. Broadly, it can be categorized into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The real driver of cement demand is creation of infrastructure; hence cement demand in emerging economies is much higher than developed countries, where the demand has reached a plateau. In India too, the demand for cement will be affected by spending on infrastructure (including housing).
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ANALYSIS OF CEMENT INDUSTRY Housing The sector
Sector:
is
counsumer
of
cement in India. It accounts for almost 60% of the cement
production in the country.
CEMENT PRODUCTION GROWTH
16
the
primary
total
CEMENT VS IIP
housing C O U N S U M P T I I N O N
% C H A N G E
IIP GROWTH
14
12 10
12 10
8
8
6
6 4
% g r o w t h
4
2
2
0 2000
-2
2001
2002
2003
2004
2005
2006
2007
I I P
0
The
favorable housing finance environment is expected to fulfill the vast housing requirements, both in rural and urban areas. The demand for the housing industry is projected to grow rapidly over the next few years, thereby, inducing a higher demand for cement. Infrastructure: The increase in infrastructure projects by the government, coupled with the construction of the Golden Quadrilateral and the North-South and East-West corridor projects, have led to an increase in consumption of cement. This increase is expected to continue in the future. The other big consumers for cement recently have been the SEZ projects that have mushroomed all over the country. There are a total of 144 SEZ’s, which occupy a total area of 250,000 acres, thereby, pushing the demand for cement by approximately 10-12MT every year
DEMAND FOR CEMENT
OTHERS 20%
INFRASTRUC TURE 20%
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HOUSING 60%
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ANALYSIS OF CEMENT INDUSTRY
Demand over the years India's cement consumption increased 10.1% during FY2007 to 148.3 mt. By comparison, consumption 8.1% during FY2005, and 5.8% during FY2004. On a decadal basis, India's cement consumption has increased at a 10-year CAGR of 8.2% during FY1996-06. Year Consumption (mt) 77.4 1999 87.6 2000 90.3 2001 99 2002 107.6 2003 113.9 2004 123.1 2005 135.6 2006
Thus there has been continuous increase in demand.
Forecast in Demand LOOSE MIX Low growth demand scenario projected by working group on cement industry
Year 2007-08 2008-09 2009-10 2010-11 2011-12
Domestic demand 166.60 (168.79) 182.66 (187.51) 200.33 (208.38) 219.76 (231.66) 241.13 (257.61)
Production required 176.60 (178.79) 192.66 (197.51) 210.33 (218.38) 230.26 (242.16) 252.13 (268.61)
Capacity needed** 196.22 (198.66) 214.07 (219.46) 233.70 (242.65) 255.84 (269.07) 280.15 (298.46)
Figures in million t ** Capacity90% Figures in brackets are of high growth demand scenario
CMA in its latest report has said that the industry added 30.34 million tonnes of additional capacities during the last financial year instead of 22.24 million tonnes as estimated earlier. This made the industry meet the target set by the report of the working group on cement industry for the eleventh five year plan (2007-12) from the Ministry of Commerce and Industry.
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ANALYSIS OF CEMENT INDUSTRY However, in a changing economic scenario with GDP growth rate being seen at 7.5 or below, industry experts said that cement firms will be in trouble with excess of capacities and relatively lesser demand. A city-based analyst, who did not wish to be named, said that in the following year (FY10) the capacity utilization may further dip to 78 per cent. "No company will produce cement only to dump it in a less demanding market. Out of the announced capacities in the next two years, we expect around 55-60 million tonnes to come on stream," he added. Moreover, on the exports front too, West Asia — the prime export market for the domestic cement industry — will turn into a surplus region by FY10. This will further reduce scope for cement export and firms will have to divert the export material to the domestic market. Since, cement industry's growth rate is more or less linked with GDP of the country, cement companies and industry analysts said that growth rate of the industry will be below 10 per cent. This will put the estimates of the working group at stake as it gave priority to the high growth demand scenario of 11.5 per cent for the cement industry assuming GDP at 9 per cent. "The June quarter this year saw demand growth of less than 6 per cent, however, in the long-term perspective we see an average growth of 8-9 per cent," added Bangur. This suggests that the industry's growth will now be in line with the low growth demand scenario where the report of the working group puts GDP at 8 per cent and subsequently the cement demand at 10 per cent. However, industry experts said that scenario could be worse than this as they expect a lower GDP growth. They ruled out the possibility of industry coming back on track even till 2010-2011. "With real estate sector getting slowing down and housing loans becoming costlier, cement sector will not remain insulated with such factors. I expect the industry will grow at a rate less than 10 per cent," said Pawan Burde, senior research analyst, Angel Broking. The report of the working group on cement industry (which has three demand scenarios — low, average and high), had stated, "In view of the government's latest reviewed pragmatic approach giving thrust and focus in sustaining 9 per cent GDP growth during the eleventh five year plan, the high growth scenario may be adopted for 2007-12 where the growth of cement sector would be 11.5 per cent."
Various demand forecasts Demand forecast for 2008-09 Region
% of all India market
Demand forecast ( In million tonnes)
North East Central West South Total
20 17 15 18 30 100
36 31 27 34 55 183
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ANALYSIS OF CEMENT INDUSTRY Demand Supply overview We have seen that supply in cement industry has continuously increased. The cement industry has been in a surplus position since a long time. This has resulted in increased exports over the last few years.
Year 2001 2002 2003 2004 2005 2006
Exports ( in MT) 3.2 3.4 3.5 3.4 4.1 6.0
Although there exists a surplus of cement in the country, the surplus has declined from 0.42 mt in FY2005 to 0.23 mt during FY2006, mainly because of higher growth in consumption. While the Indian cement industry is in a surplus position since a long time, the surplus position is gradually declining. Considering an expected production and consumption growth of 10% during FY2007, the demand supply position of the Indian cement industry is expected to improve. Infact from the forecasted demand, it is forecasted that demand will outstrip supply. This is the dynamics of a developing country. Cement demand rises with the progress in economic development, reaches a peak level, and then starts declining once all the developmental projects are in place and the country has achieved a very high level of economic growth. Thus one India becomes a developed country, demand for cement will decline. As of now, we see that supply is greater than demand. The rising demand will gradually reduce demand supply mismatch. There is no need of new players; infact cement industry has travelled the path from fragmentation to consolidation
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ANALYSIS OF CEMENT INDUSTRY Latest Trends: Activities Witnessed in the Industry Global Players Rapid urbanization and the booming infrastructure have lead to an increase in construction and development across India, attracting even the global players. The recent years have witnessed a surge of foreign direct investment in the cement sector. International players like France's Lafarge, Holcim from Switzerland, Italy's Italcementi and Germany's Heidelberg Cements hold more than a quarter pie of the total capacity. Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and enjoys a market share of about 23-25 per cent. It will further invest about US$ 2.49 billion in the next five years to set up plants and raise capacity by 25 mt in the country. Holcim has a global sale worth about US$ 20 billion, where India contributes US$ 2–2.5 billion.
Italcementi Group, the fifth largest producer of cement in the world acquired full stake in
the K.K. Birla promoted Zuari Industries' cement, to strengthen its presence in India lining up US$ 300 million investment to increase the capacity of Zuari Industries from 1.7 mtpa to about 6-7 mtpa. Moreover, it plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects.
The French cement major, Lafarge, acquired the cement plants of Raymond and Tisco with
an installed capacity of 6 mtpa. It plans to double its capacity to 12 mt over the next five years by adopting the greenfield expansion route.
Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group
controlled Indo-Rama Cement. It aims at a 50 per cent controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in Maharashtra. Heidelberg is also taking over Mysore Cement of S K Birla group at a consideration of US$ 93 million.
Mergers and Acquisitions (M&As) A growing and robust economy was noteworthy in terms of the total number of mergers and acquisitions (M&A) in India 2007, with the cement sector contributing to 7 per cent to the total deal value. Increased activity in infrastructure and a booming real estate market have seen foreign firms vying to acquire a share of the pie. Holcim strengthened its position in India by increasing its holding in Ambuja Cement form 22
per cent to 56 per cent through various open market transactions with an open offer for a total investment of US$ 1.8 billion. Moreover it also increased its stake in ACC Cement with US $ 486 million, being the single largest acquirer in the cement sector. Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund and Emerging Market Fund have together bought around 7.5 per cent in India’s third-largest cement firm India Cements (ICL) for US$ 148.19 million. PRAXIS BUSINESS SCHOOL
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ANALYSIS OF CEMENT INDUSTRY Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim Industries’ 53.63 per
cent stake in Shree Digvijay Cement. Some of the other major mergers and acquisitions in the recent past include CRH acquiring My Home Industries for US$ 462 million, Lafarge buying L&T Concrete’s ready-mix concrete (RMC) business for US$ 349 million and Heidelberg consolidating its business with Mysore Cement and Indorama, and Italcementi acquiring 100 per cent stake in Zuari Cement and 95 per cent stake in Shree Vishnu among others.
Government Initiatives Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, will continue being the main drivers of growth for the Indian cement industry. Moreover, the Union Budget for 2008-09 has sought measures to increase availability and reduce prices. Increased infrastructure spending has been a key focus area over the last five years
indicating good times ahead for cement manufacturers. The government has increased budgetary allocation for roads under NHDP. This coupled
with government's initiatives on the infrastructure and housing sector fronts would continue to remain the key drivers. Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them. Other budget measures such as cut in import duty from 12.5 per cent to nil, removal of 16 per cent countervailing duty, 4 per cent additional customs duty on portland cement and differential excise duty are all intended to cut costs and boost availability. To summarise in the words of an industry analyst, 'The allocation of US$ 3.23 billion for the National Highway Development Project will keep the demand for cement alive.'
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.
Current Scenario The Indian cement industry is the second largest producer of quality cement, which meets global standards. The cement industry comprises 130 large cement plants and more than 300 mini cement plants.The industry's capacity at the end of the year reached 188.97 million tonnes which was 166.73 million tonnes at the end of the year 2006-07. Cement production during April to March 2007-08 was 168.31 million tonnes as compared to 155.66 million tonnes during the same period for the year 2006-07.Despatches were 167.67 million tonnes during April to March 2007-08 whereas PRAXIS BUSINESS SCHOOL
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ANALYSIS OF CEMENT INDUSTRY 155.26 during the same period.During April-March 2007-08, cement export was 3.65 million tonnes as compared to 5.89 during the same period.
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ANALYSIS OF CEMENT INDUSTRY Export The export of Indian cement has increased over the years, giving a boost to the Indian cement industry. The demand for cement in the foreign countries is a derived demand, for it depends on industrial activity, real estate, and construction activity. Since growth is taking place all over the world in these sectors, Indian export of cement is also increasing. The cement industry in India has around 300 mini cement plants and 130 large cement plants. The total production capacity of these plants is around 167.36 million tons. The India cement industry is technologically very advanced, as a result of which the quality of Indian cement is now considered the second best in the world. This has given a major boost to the Indian export of cement. The production of cement in India is not only able to meet the domestic demand, but large amounts are also exported. A fair amount of clinker and cement by-products are also exported by India. As the quality of Indian cement is very good, its demand in the international market is always high. In 2001-2002, 3.38 million tons of cement was exported from India. That figure stood at 3.47 million tons in 2002-03, and 3.36 million tons in 2003-04. In 2001-2002, 1.76 million tons of clinker was exported from India. In 2002- 2003 clinker exports amounted to 3.45 million tons, and in 2003- 2004 the figure stood at 5.64 million tons. This shows that the export of Indian cement has been increasing at a steady pace over the years. Export of India cement has been mostly to the West Asian countries. The major companies exporting Indian cement are:
Gujarat Ambuja Ultra Tech Cement L&T Limited Aditya Cement
Export of Indian cement has registered growth a fair amount of growth, giving a boost to the Indian economy. That it continues to rise, more efforts must be made by the cement industry in India and the government of India.
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ANALYSIS OF CEMENT INDUSTRY Capacity and production of some major players in the Industry Large Plants Companies (Members) (Nos.) Cement Plants (Nos.) Installed Capacity (Mn. t.) Cement Production (Mn. t.) 2007-08
52 132 166.73 190.66
Plants with Capacity of Million tonnes and above (Nos.) Manpower Employed (Nos.) Approx.
76 1,35,000
Mini & White Cement Plants Cement Plants (Nos.) Approx. Installed Capacity (Mn. t.) Cement Production (Mn. t.) 2007-08
India Cements Ltd Location Chilamakur (Cuddapah,AP) Sankaridurg(Salem,TN) Talaiyuth (Tamil Nadu, TN) Tandur (Rangareddi, AP) Trichy (Tiruchchirappalli, TN) Wadapally (Nalgonda, AP) Yeraguntla (Cuddapah, AP)
ACC Ltd Location Bargarh (Sambalpur, ORI) Chaibasa (Pashchimi Singhbhum, JHA) Chanda (Chandrapur, MAH) Gagal I (Bilaspur (HP), HP) Gagal II (Bilaspur (HP), HP) Jamul (Durg, CTG) Kymore (Jabalpur, MP) Lakheri (Bundi, RAJ) Madukkarai (Coimbatore, TN) Puruliya (Puruliya, WB) PRAXIS BUSINESS SCHOOL
365 11.10 (P) 6.00 (P)
Capacity/Unit Production Quantity/Unit In 000's Tonnes 1321.5 1312 616.7 610.01 1585.8 1801.68 1145.3 1147.98 1409.6 1271.65 2626.94 2511 528.6 580.15
Capacity/Unit
Production Quantity/Unit In 000's Tonnes 896.36 796.84 896.36 796.84 1120.45 996.05 2240.9 1992.1 2689.08 2390.52 1792.72 1593.68 2016.81 1792.89 672.27 597.63 1120.45 996.05 672.27 597.63 Page 26
ANALYSIS OF CEMENT INDUSTRY Sindri (Dhanbad, JHA) Tikaria (Sultanpur, UP) Wadi (Gulbarga, KAR) Wadi-New (Gulbarga, KAR)
Ambuja Location Ambujanagar (Amreli, GUJ) Bhatapara (Raipur, CTG) Bhatinda (Bathinda, PUN) Darlaghat (Solan, HP) Farakka (Murshidabad, WB) Maratha (Chandrapur, MAH) Rabriyawas (Pali, RAJ) Roorkee (Hardwar, UTR) Ropar (Rupnagar, PUN) Sankrail (Haora, WB)
Ultra Tech Location Arakkonam (Cuddalore, TN) Chandrapur (Chandrapur, MAH) Durgapur (Barddhaman, WB) Hirmi (Raipur, CTG) Jafrabad (Amreli, GUJ) Jharsuguda (Sambalpur, ORI) Magdalla (Surat, GUJ) Pipavav (Amreli, GUJ) Ratnagiri (Ratnagiri, MAH) Tadpatri (Anantapur, AP)
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672.27 2240.9 2464.99 2913.17
597.63 1992.1 2191.31 2589.73
Capacity/Unit Production Quantity/Unit In 000's Tonnes 5180 1110 740 1480 185 3515 2035 185 3145 1295
4721.1 1011.66 674.44 1348.89 168.61 3203.61 1854.72 168.61 2866.38 1180.28
Capacity/Unit Production Quantity/Unit In 000's Tonnes 1175.19 4086.59 1280.08 2047.71 464.48 1063.44 663.27 4379.41 451.83 2588
973.02 3383.56 1059.86 1695.44 384.57 880.49 549.17 3626.01 374.1 2142.78
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ANALYSIS OF CEMENT INDUSTRY Madras Cements Location Alathiyur (Tiruchchirappalli, TN) Jayanthipuram (Krishna, AP) Mathodu (Chitradurga, KAR) Ramasamyraja Nagar (Virudhunagar, TN)
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Capacity/Unit Production Quantity/Unit In 000's Tonnes 3995 1917.6 399.5 1677.9
2922.55 1402.82 292.25 1227.47
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ANALYSIS OF CEMENT INDUSTRY ANNEXURE 1A Company Name A C C Ltd. Ambuja Cement Eastern Ltd. [Merged] Ambuja Cement Rajasthan Ltd. [Merged] Ambuja Cements Ltd. Andhra Cements Ltd. Anjani Portland Cement Ltd. Bagalkot Udyog Ltd. Barak Valley Cements Ltd. Bargarh Cement Ltd. [Merged] Binani Cement Ltd. Birla Corporation Ltd. Cement Corpn. Of India Ltd. Cement Manufacturing Co. Ltd. Century Textiles & Inds. Ltd. Chettinad Cement Corpn. Ltd. Chirawa Cements Ltd. Ckoramaandel Cements Ltd. Cochin Cements Ltd. D C M Shriram Consolidated Ltd. Dalmia Cement (Bharat) Ltd. Damodhar Cement & Slag Ltd. [Merged] Deccan Cements Ltd. Dhar Cement Ltd. Dharani Cements Ltd. [Merged] Grasim Industries Ltd. Gujarat Sidhee Cement Ltd. India Cements Ltd. Indorama Cement Ltd. J K Cement Ltd. J K Lakshmi Cement Ltd. J K Synthetics Ltd. Jaiprakash Associates Ltd. Jaiprakash Industries Ltd. [Merged] K C P Ltd. Kakatiya Cement Sugar & Inds. Ltd. Kalyanpur Cements Ltd. Keerthi Industries Ltd. Kesoram Industries Ltd. PRAXIS BUSINESS SCHOOL
Sales (Rs. Crore)
Market Share
2006 4548.92 423.61
2007 3723.2 472.24
2008 6457.4 799
2006 9.11% 0.85%
2007 6.42% 0.81%
2008 8.90% 1.10%
302.48
284.67
310.91
0.61%
0.49%
0.43%
2306.7 152.84 48.28 27.87 49.03 192.78 530.17 1399.44 122.52 2850.82 542.39 0.12 27.2 32.07 1905.35 520.99 99.71
3029.71 193.1 51.58 21.84 52.77 182.84 585.85 1498.09 133 14.03 3033.38 626.22 0.31 29.11 36.17 2476.32 652.46 125.46
7032.4 137.95 89.05 4.98 69.89 196.76 784.76 1863.47 179.57 166.4 3584.81 888.27 18.45 32.25 19.61 2872.16 1118.99 143.76
4.62% 0.31% 0.10% 0.06% 0.10% 0.39% 1.06% 2.80% 0.25% 0.00% 5.71% 1.09% 0.00% 0.05% 0.06% 3.82% 1.04% 0.20%
5.23% 0.33% 0.09% 0.04% 0.09% 0.32% 1.01% 2.58% 0.23% 0.02% 5.23% 1.08% 0.00% 0.05% 0.06% 4.27% 1.13% 0.22%
9.69% 0.19% 0.12% 0.01% 0.10% 0.27% 1.08% 2.57% 0.25% 0.23% 4.94% 1.22% 0.03% 0.04% 0.03% 3.96% 1.54% 0.20%
175.35 23.21 15.97 7194.96 200 1385.4 122.55 423.44 594.65 573.07 2990.59 1316.13 171.8 161.99 104.12 49.69 1729
202.22 32.61 16.64 7655.52 314.6 1829.44 140.61 1108.68 701.51 6.03 3432.49 1708.69 175.48 139.42 105.64 50.18 1897.77
262.03 23.67 16.22 9613.34 438.36 2610.75 126.47 1529.67 973.29 5.67 3801.16 1558.32 307.68 154.68 165.97 82.08 2538.66
0.35% 0.05% 0.03% 14.41% 0.40% 2.78% 0.25% 0.85% 1.19% 1.15% 5.99% 2.64% 0.34% 0.32% 0.21% 0.10% 3.46%
0.35% 0.06% 0.03% 13.21% 0.54% 3.16% 0.24% 1.91% 1.21% 0.01% 5.92% 2.95% 0.30% 0.24% 0.18% 0.09% 3.27%
0.36% 0.03% 0.02% 13.25% 0.60% 3.60% 0.17% 2.11% 1.34% 0.01% 5.24% 2.15% 0.42% 0.21% 0.23% 0.11% 3.50%
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ANALYSIS OF CEMENT INDUSTRY Lanco Industries Ltd. Larsen & Toubro Ltd.
315.87
333.48
13399.02 15043.68
404.01
0.63%
0.58%
0.56%
17999.5
26.84%
25.96%
24.80%
Madras Cements Ltd. Mahendra Cements Ltd. Mangalam Cement Ltd. My Home Inds. Ltd. Mysore Cements Ltd. N C L Industries Ltd. Narmada Cement Co. Ltd. [Merged] Necem Cements Ltd. O C L India Ltd. Orient Paper & Inds. Ltd. P R Cements Ltd. Panyam Cements & Mineral Inds. Ltd. Prism Cement Ltd. Rain Industries Ltd. Sagar Cements Ltd. Sainik Finance & Inds. Ltd. Sanghi Industries Ltd. Saurashtra Cement Ltd. Shiva Cement Ltd. Shree Cement Ltd. Shree Digvijay Cement Co. Ltd. Sri Vishnu Cement Ltd. Srichakra Cements Ltd. Suraj Products Ltd. Tamil Nadu Cements Corpn. Ltd. Tata Chemicals Ltd. Travancore Cements Ltd. Ultratech Cement Ltd. Visaka Cement Industry Ltd.
888.55 7.98 366.02 209.7 502.52 92.24 188.91 7.54 573.26 881.67 7.13 45.3
1193.36 5.91 497.8 351.22 517.47 139.15 205.06 7.42 701.66 1031.72 3.17 13.66
1812.68 4.1 261.27 502.5 482.7 195.73 277.66 6.35 930.28 1290.08 4.58 121.92
1.78% 0.02% 0.73% 0.42% 1.01% 0.18% 0.38% 0.02% 1.15% 1.77% 0.01% 0.09%
2.06% 0.01% 0.86% 0.61% 0.89% 0.24% 0.35% 0.01% 1.21% 1.78% 0.01% 0.02%
2.50% 0.01% 0.36% 0.69% 0.67% 0.27% 0.38% 0.01% 1.28% 1.78% 0.01% 0.17%
531.02 296.37 112.04 7.26 428.33 224.13 19.85 723.03 107.29 165.21 64.25 12.54 166.88 3097.91 27.89 3062.52 180.74
679.22 380.65 153.77 7.85 636 279.49 18.23 824.13 249.97 243.59 30.09 28.64 201.32 3638.23 24.02 3789.22 230.12
885.04 564.41 247.14 10.57 859.53 449.83 27.18 1613.14 289.74 242.2 59.78 25.35 218.82 4107.08 19.3 5485.63 293.85
1.06% 0.59% 0.22% 0.01% 0.86% 0.45% 0.04% 1.45% 0.21% 0.33% 0.13% 0.03% 0.33% 6.21% 0.06% 6.13% 0.36%
1.17% 0.66% 0.27% 0.01% 1.10% 0.48% 0.03% 1.42% 0.43% 0.42% 0.05% 0.05% 0.35% 6.28% 0.04% 6.54% 0.40%
1.22% 0.78% 0.34% 0.01% 1.18% 0.62% 0.04% 2.22% 0.40% 0.33% 0.08% 0.03% 0.30% 5.66% 0.03% 7.56% 0.40%
Total
49923.54 57956.26 72578.27
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100.00%
100.00% 100.00%
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ANALYSIS OF CEMENT INDUSTRY ANNEXURE 1B Company Name A C C Ltd. Ambuja Cement Eastern Ltd. [Merged] Ambuja Cement Rajasthan Ltd. [Merged] Ambuja Cements Ltd. Andhra Cements Ltd. Anjani Portland Cement Ltd. Bagalkot Udyog Ltd. Barak Valley Cements Ltd. Bargarh Cement Ltd. [Merged] Binani Cement Ltd. Birla Corporation Ltd. Cement Corpn. Of India Ltd. Cement Manufacturing Co. Ltd. Century Textiles & Inds. Ltd. Chettinad Cement Corpn. Ltd. Chirawa Cements Ltd. Ckoramaandel Cements Ltd. Cochin Cements Ltd. D C M Shriram Consolidated Ltd. Dalmia Cement (Bharat) Ltd. Damodhar Cement & Slag Ltd. [Merged] Deccan Cements Ltd. Dhar Cement Ltd. Dharani Cements Ltd. [Merged] Grasim Industries Ltd. Gujarat Sidhee Cement Ltd. India Cements Ltd. Indorama Cement Ltd. J K Cement Ltd. J K Lakshmi Cement Ltd. J K Synthetics Ltd. Jaiprakash Associates Ltd. Jaiprakash Industries Ltd. [Merged] K C P Ltd. Kakatiya Cement Sugar & Inds. Ltd. Kalyanpur Cements Ltd. Keerthi Industries Ltd. Kesoram Industries Ltd. PRAXIS BUSINESS SCHOOL
Si Square
Top 5 firms
2006 2007 2008 0.008302 0.004127 0.007916 7.20E-05 6.64E-05 0.000121 3.67E-05
2.41E-05
1.84E-05
0.002135 9.37E-06 9.35E-07 3.12E-07 9.65E-07 1.49E-05 0.000113 0.000786 6.02E-06 0 0.003261 0.000118 5.78E-12 2.97E-07 4.13E-07 0.001457 0.000109 3.99E-06
0.002733 1.11E-05 7.92E-07 1.42E-07 8.29E-07 9.95E-06 0.000102 0.000668 5.27E-06 5.86E-08 0.002739 0.000117 2.86E-11 2.52E-07 3.89E-07 0.001826 0.000127 4.69E-06
0.009388 3.61E-06 1.51E-06 4.71E-09 9.27E-07 7.35E-06 0.000117 0.000659 6.12E-06 5.26E-06 0.00244 0.00015 6.46E-08 1.97E-07 7.30E-08 0.001566 0.000238 3.92E-06
1.23E-05 2.16E-07 1.02E-07 0.02077 1.60E-05 0.00077 6.03E-06 7.19E-05 0.000142 0.000132 0.003588 0.000695 1.18E-05 1.05E-05 4.35E-06 9.91E-07 0.001199
1.22E-05 3.17E-07 8.24E-08 0.017448 2.95E-05 0.000996 5.89E-06 0.000366 0.000147 1.08E-08 0.003508 0.000869 9.17E-06 5.79E-06 3.32E-06 7.50E-07 0.001072
1.30E-05 1.06E-07 4.99E-08 0.017544 3.65E-05 0.001294 3.04E-06 0.000444 0.00018 6.10E-09 0.002743 0.000461 1.80E-05 4.54E-06 5.23E-06 1.28E-06 0.001223
2006 9.11%
2007 6.42%
2008 8.90%
4.62%
5.23%
9.69%
14.41%
13.21%
13.25%
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ANALYSIS OF CEMENT INDUSTRY Lanco Industries Ltd. Larsen & Toubro Ltd. Madras Cements Ltd. Mahendra Cements Ltd. Mangalam Cement Ltd. My Home Inds. Ltd. Mysore Cements Ltd. N C L Industries Ltd. Narmada Cement Co. Ltd. [Merged] Necem Cements Ltd. O C L India Ltd. Orient Paper & Inds. Ltd. P R Cements Ltd. Panyam Cements & Mineral Inds. Ltd. Prism Cement Ltd. Rain Industries Ltd. Sagar Cements Ltd. Sainik Finance & Inds. Ltd. Sanghi Industries Ltd. Saurashtra Cement Ltd. Shiva Cement Ltd. Shree Cement Ltd. Shree Digvijay Cement Co. Ltd. Sri Vishnu Cement Ltd. Srichakra Cements Ltd. Suraj Products Ltd. Tamil Nadu Cements Corpn. Ltd. Tata Chemicals Ltd. Travancore Cements Ltd. Ultratech Cement Ltd. Visaka Cement Industry Ltd. Total
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4.00E-05 0.072034 0.000317 2.56E-08 5.38E-05 1.76E-05 0.000101 3.41E-06 1.43E-05 2.28E-08 0.000132 0.000312 2.04E-08 8.23E-07
3.31E-05 0.067376 0.000424 1.04E-08 7.38E-05 3.67E-05 7.97E-05 5.76E-06 1.25E-05 1.64E-08 0.000147 0.000317 2.99E-09 5.56E-08
3.10E-05 0.061505 0.000624 3.19E-09 1.30E-05 4.79E-05 4.42E-05 7.27E-06 1.46E-05 7.65E-09 0.000164 0.000316 3.98E-09 2.82E-06
0.000113 0.000137 0.000149 3.52E-05 4.31E-05 6.05E-05 5.04E-06 7.04E-06 1.16E-05 2.11E-08 1.83E-08 2.12E-08 7.36E-05 0.00012 0.00014 2.02E-05 2.33E-05 3.84E-05 1.58E-07 9.89E-08 1.40E-07 0.00021 0.000202 0.000494 4.62E-06 1.86E-05 1.59E-05 1.10E-05 1.77E-05 1.11E-05 1.66E-06 2.70E-07 6.78E-07 6.31E-08 2.44E-07 1.22E-07 1.12E-05 1.21E-05 9.09E-06 0.003851 0.003941 0.003202 3.12E-07 1.72E-07 7.07E-08 0.003763 0.004275 0.005713 1.31E-05 1.58E-05 1.64E-05 Herfindahl Index 0.113519 0.106606 0.101
26.84%
25.96%
24.80%
6.13%
6.54%
7.56%
Concentration Ratio 0.473855 0.457042 0.456038
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ANALYSIS OF CEMENT INDUSTRY Bibliography www.economictimes.com www.icra.in www.businessworld.com www.cso.com www.indiabusiness.nic.in
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ANALYSIS OF CEMENT INDUSTRY MOHIT ALMAL(BO8016) ATUL SABOO(B08005)
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ANALYSIS OF CEMENT INDUSTRY Table of Contents Industry Concentration: India and Infrastructure ............................................................................... 3 Concentration Ratio....................................................................................................................... 3 Herfindahl Index ................................................................................................................................ 4 Formula ......................................................................................................................................... 4 Cement Industry: an Overview .......................................................................................................... 6 WORLD CEMENT PRODUCTION ..................................................................................................... 6 Environmental Analysis: Michael Porter Model.................................................................................. 8 Industry Key points ............................................................................................................................ 9 The Major Players............................................................................................................................ 10 MARKET SHARE OF PLAYERS IN THE CEMENT INDUSTRY .............................................................. 10 CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS ............................................................. 11 Concentration Ratio ........................................................................................................................ 12 Herfindahl Index .............................................................................................................................. 13 Interpretation of H index and Concentration ratio ........................................................................... 14 Supply Position ................................................................................................................................ 15 Demand position ............................................................................................................................. 16 Sectoral demand for cement ....................................................................................................... 16 Demand Drivers ........................................................................................................................... 16 Demand over the years................................................................................................................ 19 Forecast in Demand ..................................................................................................................... 19 Various demand forecasts ........................................................................................................... 20 Demand Supply overview ................................................................................................................ 21 Latest Trends: Activities Witnessed in the Industry .......................................................................... 22 Global Players.................................................................................................................................. 22 Mergers and Acquisitions (M&As)................................................................................................ 22 Government Initiatives ................................................................................................................ 23 Technological Advancements....................................................................................................... 23 Current Scenario.......................................................................................................................... 23 Export ............................................................................................................................................. 25 Capacity and production of some major players in the Industry ....................................................... 26 ANNEXURE 1A ................................................................................................................................. 29 ANNEXURE 1B ................................................................................................................................. 31 Bibliography .................................................................................................................................... 33 PRAXIS BUSINESS SCHOOL
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Industry Concentration: India and Infrastructure The concentration of firms in an industry is of interest to economists, business strategists, and government agencies. Here, we discuss two commonly-used methods of measuring industry concentration: the Concentration Ratio and the Herfindahl-Hirschman Index.
Concentration Ratio In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size. Some examples of the four-firm concentration ratio include:[citation needed]
Traditional agriculture: Less than 5% Sheet metal: 9% Asphalt paving: 15% Typesetting: 16% Publishing: 23% Soap and detergents: 63% Men's slacks: 75% Aircraft: 79% Greeting cards: 84% Cigarettes: 99%
Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:
Perfect competition, with a very low concentration ratio, Monopolistic competition, below 40% for the four-firm measurement, Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers) Monopoly, with a near-100% four-firm measurement.
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ANALYSIS OF CEMENT INDUSTRY Herfindahl Index The Herfindahl index, also known as Herfindahl-Hirschman Index or HHI, is a measure of the size of firms in relationship to the industry and an indicator of the amount of competition among them. It is an economic concept but widely applied in competition law and antitrust. It is defined as the sum of the squares of the market shares of each individual firm. As such, it can range from 0 to 1 moving from a very large amount of very small firms to a single monopolistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas increases imply the opposite.
Formula
In a market with two firms that each have 50 percent market share, the Herfindahl index equals 0.5^2 + 0.5^2 where si is the market share of firm i in the market, and n is the number of firms. The Herfindahl Index (H) ranges from 1 / N to one, where N is the number of firms in the market. Equivalently, the index can range up to 10,000, if percents are used as whole numbers, as in 75 instead of 0.75. The maximum in this case is 1002 = 10,000. There is also a normalized Herfindahl index. Whereas the Herfindahl index ranges from 1/N to one, the normalized Herfindahl index ranges from 0 to 1. It is computed as:
where again, N is the number of firms in the market, and H is the usual Herfindahl Index, as above. A small index indicates a competitive industry with no dominant players. If all firms have an equal share the reciprocal of the index shows the number of firms in the industry. When firms have unequal shares, the reciprocal of the index indicates the "equivalent" number of firms in the industry. Using case 2, we find that the market structure is equivalent to having 1.55521 firms of the same size. An H index below 0.1 (or 1,000) indicates an un-concentrated index An H index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration An H index above 0.18 (above 1,800) indicates high concentration
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ANALYSIS OF CEMENT INDUSTRY
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ANALYSIS OF CEMENT INDUSTRY
Cement Industry: an Overview The cement industry continues to play a pivotal in the revival of the Indian economy over the years. The industry has moved from a regulated environment to a deregulate scenario. The liberalization policy adopted by the government in the 1990’s led to huge investments in the sector by private players. However, the performance of the industry and prices of cement continue to be monitored on a regular basis. The constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). Its performance is also reviewed by the Cabinet Committee on Infrastructure. The total production capacity of the Indian cement industry has gone up to 190 million tonne for the fiscal ended March 31, 2008 as compared to 167 mt during the previous fiscal, a growth of 13% to 14%. For the first time, the industry has seen an addition of over 22 mt in a single year during 200708, said industry sources here.
WORLD CEMENT PRODUCTION World Cement Production 1,400
1,200
1,000
800
2006 2007
600
400
200
0 China
India
United States
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Japan
Spain
Korea
Russia
Italy
Mexico Brazil
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ANALYSIS OF CEMENT INDUSTRY
Almost every other player in the industry has either put up a new plant or have expanded capacity, ranging between a minimum of two lakh tonne and a maximum of three million tonne spread across all producing states in all four regions, said the sources. Some of the major players who have added capacity include Ambuja Cement, Lafarge, Ultratech, India Cements, Madras Cement, Shree Cement, Grasim, Jaypee. Kesoram, Century Textiles among others. These additions were based on the increasing demand and supply gap and the industry hopes to do a better year in the current fiscal too, the sources said.
Except a few one million tonne plus capacity addition in big cities, most of the additions were small in size and were between two lakh tonne and eight lakh tonne in capacity. Interestingly, these capacities addition taken place in small pockets of all four regions, the sources pointed out. The industry move to have wider presence, though in small quantity, is to cash in on emerging developmental activities while ensuring continued supply over a period of time, the sources pointed out. Meanwhile, led by western region, the industry continued to maintain its 10% growth rate in despatches during the year. With the near total capacity utilisation, the total despatches were higher at 170 mt as against 155 mt during the previous year. Western region reported a growth of 15% in consumption, followed by northern region (12%) and southern region (10%). Among the states, Haryana reported 24% growth in consumption, followed by Delhi (17%), Gujarat (15%), Andhra Pradesh (15%), Maharashtra (14%) and Tamil Nadu (13%). According to the sources, despite there have been imports in pockets of region, the demand and supply gap continue to be there in the current fiscal too and the prices will remain firm.
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ANALYSIS OF CEMENT INDUSTRY Environmental Analysis: Michael Porter Model
Threat of substitute Limited Bitumen in roads and engineering plastic in buidling offer some element of competition.
Threat of new entrants limited
Interfirm Rivalary-Intense Large number of players capacity in the short-term is expected to be surplus, marginal product differenciation, high storage cost and high exit barriers in terms of heavy capital investment.
High capital investment requirements, distribution network and oversupplied markets deter entrants. Technology easily available
Bargaining powers of buyers limited Rising share of retail purchase and declining share of bulk purchasers
Bargaining power of suppliers very high Monopolistic control of external cost element (coal, power, transport) result in high bargaining power of the goverment Figure: Michael Porter’s Analysis
Porter's five forces are named after Michael Porter. Strategic analysis of these 5 forces can tell you a lot about a company/sector. A Porter's five forces analysis can complement other techniques, like a SWOT analysis. A SWOT analysis focuses on the company/sector, while a Porter's five forces analysis looks at the external factors impacting on a company/sector. These forces listed by Michael Porter, impact the profitability of an Industry. This figure portrays the factors affecting the cement industry and their analysis.
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ANALYSIS OF CEMENT INDUSTRY
Industry Key points The Indian cement industry with a total capacity of about 190 m tonnes in FY07 is the second largest market after China. Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 50% of the capacity, the balance capacity still remains pretty fragmented. Despite the fact that Indian cement industry has clocked a production of more than 100 m tonnes for the last five consecutive years, the per capita consumption of around 130 kgs compares poorly with the world average of over 260 kgs and more than 450 kgs in China. This, more than anything underlines the tremendous scope for growth in the Indian cement industry in the long term. Cement, being a bulk commodity, is a freight intensive industry and transporting cement over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions viz. north, south, west, east and the central region. While the southern region is excess in capacity owing to abundant availability of limestone, the western and northern region are the most lucrative markets on account of higher income levels. There are high barriers to entry because of high capital costs and gestation period. Bargaining power of suppliers is high. Bargaining power of consumers is low because of rising share of retail purchase
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ANALYSIS OF CEMENT INDUSTRY The Major Players With an installed capacity of about 190 million tons at the end of March 2008, the cement industry has witnessed some major consolidation in capacity. The larger players in the industry control almost 50% of the capacity and revenues for the sector in India. The key players in the country include Associated Cement Companies (ACC), Ultratech Cements, Grasim Industries, Gujarat Ambuja Cement and India Cements Limited. The market share of the major cement players, in terms of revenue and production can be seen with the help of the Graph below. The cement industry has witnessed substantial reorganization of capacity in the last couple of years. Some examples of them are Gujarat Ambuja taking stake in ACC, Gujarat Ambuja taking over DLF cement and Modi Cements. India Cements taking over Raasi Cement etc. in the domestic markets. Some international majors have also shown sizeable interest in the Indian cement sector with Holcim, Lafarge , Italcementi and Heifelberg paving their way in India through some M&A activities. On March 2008, ACC was the largest player in the industry with an installed capacity of 22.4 million tons and controlling over 13% of the total capacity. Ultratech occupied the second spot with an installed capacity of 18.2 million ton. While the third and the fourth slot went to Gujarat Ambuja and Grasim respectively. The other leading players in the industry include Jaypee group, Lafarge, India Cements, Madras Cement, Birla Corp and Century textile.
MARKET SHARE OF PLAYERS IN THE CEMENT INDUSTRY
Market Share Others 28%
ACC Ltd 17%
Grasim Industries Ltd 15%
Madras cement 5% India cement 9% Ultratech Cement Ltd. 12%
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Ambuja Cements Ltd. 14%
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ANALYSIS OF CEMENT INDUSTRY
CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS
Capacity Distribution ACC Ltd 13% Others 48%
Ambuja Cements Ltd. 10%
Madras cement 4%
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Grasim Industries Ltd 8%
India cement 6%
Ultratech Cement Ltd. 11%
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ANALYSIS OF CEMENT INDUSTRY Concentration Ratio
Top 5 firms ACC Ltd. Ambuja Cements Ltd. Grasim Industries Ltd. Larsen & Toubro Ltd. Ultratech Cement Ltd.
2006 9.11% 4.62% 14.41% 26.84% 6.13%
2007 6.42% 5.23% 13.21% 25.96% 6.54%
2008 8.90% 9.69% 13.25% 24.80% 7.56%
Concentration ratio
61.11%
57.36%
64.20%
Calculation is shown in annexure 1A
A competitive market is one with a sufficiently large number of firms competing with one another that prices are kept at levels that reflect social costs. Since market power usually leads to high prices and/or low quality, and often stifles future innovations, it hurts consumers and should be restricted. There are numerous ways to obtain market power. If there are only a few firms in a market, concentration is high, and each firm will have some market power to charge a high price. When the market is highly concentrated, it is easier for firms to coordinate their pricing behavior and charge a premium from the customers. Market power may also exist even with many small firms in the market, when there is a dominant firm. Here, the concentration is very high among the top 4-5 major players which mean that these few players hold industry’s demand and supply. Any change in the market share of leading players would lead to a change in the concentration ratio and thus the market structure of the industry.
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ANALYSIS OF CEMENT INDUSTRY Herfindahl Index Herfindahl Index 2006 2007 0.1135 0.1066
2008 0.101
Calculation is shown in annexure 1B The Herfindahl Index of the cement industry shows a figure of 0.101 for the year 06-07 which is more than 0.1 showing a moderate concentration in the industry which means the market is moving towards oligopoly. The main reason for such a kind of structure is Cement being a perishable product cannot be transported from one place to far off places due to which there is a limited geographical scope. One player captures a certain region and thus the players do not compete with one another. The index is very near to 0.1 and thus adapts some features of perfect competition as well. In cement industry, prices are governed by the government and thus the players act as a price taker and not price maker. For the last three years the Herfindahl index has been decreasing which means that the industry is moving towards perfect competition. The players of the cement industry are prices takers as the government fixes the price. Moreover, competition has also increased as many small players have entered the industry and local competition has increased in the past few years. Thus, cement industry has an oligopoly existing in the industry but also have some attributes of perfect competition.
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ANALYSIS OF CEMENT INDUSTRY Interpretation of H index and Concentration ratio
Fragmented Cement Industry in 1995 Top 5 Groups 26% Others 74%
Consolidated cement industry in 2008 Others 28% Top 5 Groups 72%
The concentration ratio of top 5 players is 64%.The H- INDEX is 0.101 which shows presence of large number of players. The structure of the industry is fragmented, although, the concentration at the top is increasing. Thus we see that the top players control almost 65% of the industry, but the balance remains very fragmented. Due to large number of players in the industry and very little brand differentiation to speak of, the competition is intense with players resorting to expanding reach and achieving pan India presence.
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ANALYSIS OF CEMENT INDUSTRY Supply Position The installed capacity of the sector over the seven years period, from 2000 to 2008, has grown at 5.3% coumpounded anually. While the production grew at 7.4% per annum. The production in the sector grew at a much higher rate than the capacity in the preceding years. Looking ahead the production of the industry could see about 85% capacity utilization due to additional capacity being built. It is estimated that by FY 2010-2011 the total capacity for the sector would be close to 250 million tonne.
CEMENT PRODUCTION 300 250 Capacity Installed 200 Cement Production 150 Capacity Utilisation 100 50
2 per. Mov. Avg. (Capacity Utilisation)
0
The increasing trend in cement consumptions from FY03 had led to an increase in the capacity utilization of the cement sector. The capacity utilization has moved from 76% in FY02 to 95 % in FY07. But going forward when all capacity addition has taken place and the plants are commissioned one could see a huge surplus being built. This could lower the realization margins of the companies and increase cost pressures. This would also contribute to the change in demand supply scenario, where the supply would be in excess of the total demand for the commodity.
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ANALYSIS OF CEMENT INDUSTRY Demand position Sectoral demand for cement Demand for cement is linked to the economic activity in any country. Broadly, it can be categorized into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The real driver of cement demand is creation of infrastructure, hence cement demand in emerging economies is much higher than developed countries where the demand has reached a plateau. In India too, the demand for cement will be affected by spending on infrastructure (including housing) Fuelling demand- The following factors have increased demand for cement over the years: Growth in housing sector (over 30%)-is a key demand driver as it accounts for 60% of demand Infrastructure projects like ports, airports, power projects, dam & irrigation projects. The proportion of cement consumed by infrastructure projects is expected to increase from current 15% to 25-30%. About 10 million tonnes of cement demand will result from Kalpasar project planned for water deployment for Saurashtra National Highway Development Programme- This consists of golden quadrilateral and North-South and East-West corridor projects. Budget support on NHDP increased to 99.45 billion dollars. Bharat Nirman Yojana for rural infrastructure- Outlay on bharat nirman to the tune of 186.96 billion. Rise in industrial projects Capex plans by corporates – Greenfield and brownfield expansions. Export potential Capital spending continues to be strong Uptrend in industrial cycle – Avg. IIP growth at 10.2% being strongest in the past 11 years Retails- Malls and Multiplexes
Demand Drivers The demand for cement has shown patterns that can be directly linked to the growth in the economy. With the growth in GDP, the consumption and demand for cement have gone up sustantially. Usually, the demand for cement grows at about 3%-4% above the growth rate of GDP.
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ANALYSIS OF CEMENT INDUSTRY The demand drivers for the cement industry are: Economic Growth: The consumption and demand for cement is a sign of a countries progress and economic development. Almost every country in the world, commited to industrialization and sound economic development, generates an ever increasing demand for cement. Cement counsumption growth is highly correleated to the GDP growth it serves as the leading indicator. More industrial activity and greater purchasing power means more formation and construction activities and thus, more counsumption of cement. The graph alongside shows the percentage growth of the two in the last couple of years. Industrial Activity: Cement counsumption also shows high degree of correlation to the industrial activities in the economy. With the amplify in industrial output, more and more capacity expansion takes place that requires
GDP VS CEMENT GROTH IN CEMENT PRODUCTION
% C H A N G E I N
P R O D U C T I O N
building
GDP GROWTH
new
plants,
18
10
setting up of factories etc.
16
9
in the process, boosting
14
8
12
7
10
6
8
5
6
4
4
3
2
2
0
1
-2
1999-2000
2001-2002
2003-2004
2005-2006
2007-2008e*
0
G D P G R O W T H
the demand for cement. Graph
below
shows
percent growth in the IIP index and the cement counsumption in the last couple of years. Infrastructure:
Demand
for cement is linked to the economic activity in any country. Broadly, it can be categorized into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The real driver of cement demand is creation of infrastructure; hence cement demand in emerging economies is much higher than developed countries, where the demand has reached a plateau. In India too, the demand for cement will be affected by spending on infrastructure (including housing).
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ANALYSIS OF CEMENT INDUSTRY Housing The sector
Sector:
is
counsumer
of
cement in India. It accounts for almost 60% of the cement
production in the country.
CEMENT PRODUCTION GROWTH
16
the
primary
total
CEMENT VS IIP
housing C O U N S U M P T I I N O N
% C H A N G E
IIP GROWTH
14
12 10
12 10
8
8
6
6 4
% g r o w t h
4
2
2
0 2000
-2
2001
2002
2003
2004
2005
2006
2007
I I P
0
The
favorable housing finance environment is expected to fulfill the vast housing requirements, both in rural and urban areas. The demand for the housing industry is projected to grow rapidly over the next few years, thereby, inducing a higher demand for cement. Infrastructure: The increase in infrastructure projects by the government, coupled with the construction of the Golden Quadrilateral and the North-South and East-West corridor projects, have led to an increase in consumption of cement. This increase is expected to continue in the future. The other big consumers for cement recently have been the SEZ projects that have mushroomed all over the country. There are a total of 144 SEZ’s, which occupy a total area of 250,000 acres, thereby, pushing the demand for cement by approximately 10-12MT every year
DEMAND FOR CEMENT
OTHERS 20%
INFRASTRUC TURE 20%
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HOUSING 60%
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ANALYSIS OF CEMENT INDUSTRY
Demand over the years India's cement consumption increased 10.1% during FY2007 to 148.3 mt. By comparison, consumption 8.1% during FY2005, and 5.8% during FY2004. On a decadal basis, India's cement consumption has increased at a 10-year CAGR of 8.2% during FY1996-06. Year Consumption (mt) 77.4 1999 87.6 2000 90.3 2001 99 2002 107.6 2003 113.9 2004 123.1 2005 135.6 2006
Thus there has been continuous increase in demand.
Forecast in Demand LOOSE MIX Low growth demand scenario projected by working group on cement industry
Year 2007-08 2008-09 2009-10 2010-11 2011-12
Domestic demand 166.60 (168.79) 182.66 (187.51) 200.33 (208.38) 219.76 (231.66) 241.13 (257.61)
Production required 176.60 (178.79) 192.66 (197.51) 210.33 (218.38) 230.26 (242.16) 252.13 (268.61)
Capacity needed** 196.22 (198.66) 214.07 (219.46) 233.70 (242.65) 255.84 (269.07) 280.15 (298.46)
Figures in million t ** Capacity90% Figures in brackets are of high growth demand scenario
CMA in its latest report has said that the industry added 30.34 million tonnes of additional capacities during the last financial year instead of 22.24 million tonnes as estimated earlier. This made the industry meet the target set by the report of the working group on cement industry for the eleventh five year plan (2007-12) from the Ministry of Commerce and Industry.
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ANALYSIS OF CEMENT INDUSTRY However, in a changing economic scenario with GDP growth rate being seen at 7.5 or below, industry experts said that cement firms will be in trouble with excess of capacities and relatively lesser demand. A city-based analyst, who did not wish to be named, said that in the following year (FY10) the capacity utilization may further dip to 78 per cent. "No company will produce cement only to dump it in a less demanding market. Out of the announced capacities in the next two years, we expect around 55-60 million tonnes to come on stream," he added. Moreover, on the exports front too, West Asia — the prime export market for the domestic cement industry — will turn into a surplus region by FY10. This will further reduce scope for cement export and firms will have to divert the export material to the domestic market. Since, cement industry's growth rate is more or less linked with GDP of the country, cement companies and industry analysts said that growth rate of the industry will be below 10 per cent. This will put the estimates of the working group at stake as it gave priority to the high growth demand scenario of 11.5 per cent for the cement industry assuming GDP at 9 per cent. "The June quarter this year saw demand growth of less than 6 per cent, however, in the long-term perspective we see an average growth of 8-9 per cent," added Bangur. This suggests that the industry's growth will now be in line with the low growth demand scenario where the report of the working group puts GDP at 8 per cent and subsequently the cement demand at 10 per cent. However, industry experts said that scenario could be worse than this as they expect a lower GDP growth. They ruled out the possibility of industry coming back on track even till 2010-2011. "With real estate sector getting slowing down and housing loans becoming costlier, cement sector will not remain insulated with such factors. I expect the industry will grow at a rate less than 10 per cent," said Pawan Burde, senior research analyst, Angel Broking. The report of the working group on cement industry (which has three demand scenarios — low, average and high), had stated, "In view of the government's latest reviewed pragmatic approach giving thrust and focus in sustaining 9 per cent GDP growth during the eleventh five year plan, the high growth scenario may be adopted for 2007-12 where the growth of cement sector would be 11.5 per cent."
Various demand forecasts Demand forecast for 2008-09 Region
% of all India market
Demand forecast ( In million tonnes)
North East Central West South Total
20 17 15 18 30 100
36 31 27 34 55 183
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ANALYSIS OF CEMENT INDUSTRY Demand Supply overview We have seen that supply in cement industry has continuously increased. The cement industry has been in a surplus position since a long time. This has resulted in increased exports over the last few years.
Year 2001 2002 2003 2004 2005 2006
Exports ( in MT) 3.2 3.4 3.5 3.4 4.1 6.0
Although there exists a surplus of cement in the country, the surplus has declined from 0.42 mt in FY2005 to 0.23 mt during FY2006, mainly because of higher growth in consumption. While the Indian cement industry is in a surplus position since a long time, the surplus position is gradually declining. Considering an expected production and consumption growth of 10% during FY2007, the demand supply position of the Indian cement industry is expected to improve. Infact from the forecasted demand, it is forecasted that demand will outstrip supply. This is the dynamics of a developing country. Cement demand rises with the progress in economic development, reaches a peak level, and then starts declining once all the developmental projects are in place and the country has achieved a very high level of economic growth. Thus one India becomes a developed country, demand for cement will decline. As of now, we see that supply is greater than demand. The rising demand will gradually reduce demand supply mismatch. There is no need of new players; infact cement industry has travelled the path from fragmentation to consolidation
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ANALYSIS OF CEMENT INDUSTRY Latest Trends: Activities Witnessed in the Industry Global Players Rapid urbanization and the booming infrastructure have lead to an increase in construction and development across India, attracting even the global players. The recent years have witnessed a surge of foreign direct investment in the cement sector. International players like France's Lafarge, Holcim from Switzerland, Italy's Italcementi and Germany's Heidelberg Cements hold more than a quarter pie of the total capacity. Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and enjoys a market share of about 23-25 per cent. It will further invest about US$ 2.49 billion in the next five years to set up plants and raise capacity by 25 mt in the country. Holcim has a global sale worth about US$ 20 billion, where India contributes US$ 2–2.5 billion.
Italcementi Group, the fifth largest producer of cement in the world acquired full stake in
the K.K. Birla promoted Zuari Industries' cement, to strengthen its presence in India lining up US$ 300 million investment to increase the capacity of Zuari Industries from 1.7 mtpa to about 6-7 mtpa. Moreover, it plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects.
The French cement major, Lafarge, acquired the cement plants of Raymond and Tisco with
an installed capacity of 6 mtpa. It plans to double its capacity to 12 mt over the next five years by adopting the greenfield expansion route.
Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group
controlled Indo-Rama Cement. It aims at a 50 per cent controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in Maharashtra. Heidelberg is also taking over Mysore Cement of S K Birla group at a consideration of US$ 93 million.
Mergers and Acquisitions (M&As) A growing and robust economy was noteworthy in terms of the total number of mergers and acquisitions (M&A) in India 2007, with the cement sector contributing to 7 per cent to the total deal value. Increased activity in infrastructure and a booming real estate market have seen foreign firms vying to acquire a share of the pie. Holcim strengthened its position in India by increasing its holding in Ambuja Cement form 22
per cent to 56 per cent through various open market transactions with an open offer for a total investment of US$ 1.8 billion. Moreover it also increased its stake in ACC Cement with US $ 486 million, being the single largest acquirer in the cement sector. Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund and Emerging Market Fund have together bought around 7.5 per cent in India’s third-largest cement firm India Cements (ICL) for US$ 148.19 million. PRAXIS BUSINESS SCHOOL
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ANALYSIS OF CEMENT INDUSTRY Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim Industries’ 53.63 per
cent stake in Shree Digvijay Cement. Some of the other major mergers and acquisitions in the recent past include CRH acquiring My Home Industries for US$ 462 million, Lafarge buying L&T Concrete’s ready-mix concrete (RMC) business for US$ 349 million and Heidelberg consolidating its business with Mysore Cement and Indorama, and Italcementi acquiring 100 per cent stake in Zuari Cement and 95 per cent stake in Shree Vishnu among others.
Government Initiatives Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, will continue being the main drivers of growth for the Indian cement industry. Moreover, the Union Budget for 2008-09 has sought measures to increase availability and reduce prices. Increased infrastructure spending has been a key focus area over the last five years
indicating good times ahead for cement manufacturers. The government has increased budgetary allocation for roads under NHDP. This coupled
with government's initiatives on the infrastructure and housing sector fronts would continue to remain the key drivers. Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them. Other budget measures such as cut in import duty from 12.5 per cent to nil, removal of 16 per cent countervailing duty, 4 per cent additional customs duty on portland cement and differential excise duty are all intended to cut costs and boost availability. To summarise in the words of an industry analyst, 'The allocation of US$ 3.23 billion for the National Highway Development Project will keep the demand for cement alive.'
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.
Current Scenario The Indian cement industry is the second largest producer of quality cement, which meets global standards. The cement industry comprises 130 large cement plants and more than 300 mini cement plants.The industry's capacity at the end of the year reached 188.97 million tonnes which was 166.73 million tonnes at the end of the year 2006-07. Cement production during April to March 2007-08 was 168.31 million tonnes as compared to 155.66 million tonnes during the same period for the year 2006-07.Despatches were 167.67 million tonnes during April to March 2007-08 whereas PRAXIS BUSINESS SCHOOL
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ANALYSIS OF CEMENT INDUSTRY 155.26 during the same period.During April-March 2007-08, cement export was 3.65 million tonnes as compared to 5.89 during the same period.
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ANALYSIS OF CEMENT INDUSTRY Export The export of Indian cement has increased over the years, giving a boost to the Indian cement industry. The demand for cement in the foreign countries is a derived demand, for it depends on industrial activity, real estate, and construction activity. Since growth is taking place all over the world in these sectors, Indian export of cement is also increasing. The cement industry in India has around 300 mini cement plants and 130 large cement plants. The total production capacity of these plants is around 167.36 million tons. The India cement industry is technologically very advanced, as a result of which the quality of Indian cement is now considered the second best in the world. This has given a major boost to the Indian export of cement. The production of cement in India is not only able to meet the domestic demand, but large amounts are also exported. A fair amount of clinker and cement by-products are also exported by India. As the quality of Indian cement is very good, its demand in the international market is always high. In 2001-2002, 3.38 million tons of cement was exported from India. That figure stood at 3.47 million tons in 2002-03, and 3.36 million tons in 2003-04. In 2001-2002, 1.76 million tons of clinker was exported from India. In 2002- 2003 clinker exports amounted to 3.45 million tons, and in 2003- 2004 the figure stood at 5.64 million tons. This shows that the export of Indian cement has been increasing at a steady pace over the years. Export of India cement has been mostly to the West Asian countries. The major companies exporting Indian cement are:
Gujarat Ambuja Ultra Tech Cement L&T Limited Aditya Cement
Export of Indian cement has registered growth a fair amount of growth, giving a boost to the Indian economy. That it continues to rise, more efforts must be made by the cement industry in India and the government of India.
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ANALYSIS OF CEMENT INDUSTRY Capacity and production of some major players in the Industry Large Plants Companies (Members) (Nos.) Cement Plants (Nos.) Installed Capacity (Mn. t.) Cement Production (Mn. t.) 2007-08
52 132 166.73 190.66
Plants with Capacity of Million tonnes and above (Nos.) Manpower Employed (Nos.) Approx.
76 1,35,000
Mini & White Cement Plants Cement Plants (Nos.) Approx. Installed Capacity (Mn. t.) Cement Production (Mn. t.) 2007-08
India Cements Ltd Location Chilamakur (Cuddapah,AP) Sankaridurg(Salem,TN) Talaiyuth (Tamil Nadu, TN) Tandur (Rangareddi, AP) Trichy (Tiruchchirappalli, TN) Wadapally (Nalgonda, AP) Yeraguntla (Cuddapah, AP)
ACC Ltd Location Bargarh (Sambalpur, ORI) Chaibasa (Pashchimi Singhbhum, JHA) Chanda (Chandrapur, MAH) Gagal I (Bilaspur (HP), HP) Gagal II (Bilaspur (HP), HP) Jamul (Durg, CTG) Kymore (Jabalpur, MP) Lakheri (Bundi, RAJ) Madukkarai (Coimbatore, TN) Puruliya (Puruliya, WB) PRAXIS BUSINESS SCHOOL
365 11.10 (P) 6.00 (P)
Capacity/Unit Production Quantity/Unit In 000's Tonnes 1321.5 1312 616.7 610.01 1585.8 1801.68 1145.3 1147.98 1409.6 1271.65 2626.94 2511 528.6 580.15
Capacity/Unit
Production Quantity/Unit In 000's Tonnes 896.36 796.84 896.36 796.84 1120.45 996.05 2240.9 1992.1 2689.08 2390.52 1792.72 1593.68 2016.81 1792.89 672.27 597.63 1120.45 996.05 672.27 597.63 Page 26
ANALYSIS OF CEMENT INDUSTRY Sindri (Dhanbad, JHA) Tikaria (Sultanpur, UP) Wadi (Gulbarga, KAR) Wadi-New (Gulbarga, KAR)
Ambuja Location Ambujanagar (Amreli, GUJ) Bhatapara (Raipur, CTG) Bhatinda (Bathinda, PUN) Darlaghat (Solan, HP) Farakka (Murshidabad, WB) Maratha (Chandrapur, MAH) Rabriyawas (Pali, RAJ) Roorkee (Hardwar, UTR) Ropar (Rupnagar, PUN) Sankrail (Haora, WB)
Ultra Tech Location Arakkonam (Cuddalore, TN) Chandrapur (Chandrapur, MAH) Durgapur (Barddhaman, WB) Hirmi (Raipur, CTG) Jafrabad (Amreli, GUJ) Jharsuguda (Sambalpur, ORI) Magdalla (Surat, GUJ) Pipavav (Amreli, GUJ) Ratnagiri (Ratnagiri, MAH) Tadpatri (Anantapur, AP)
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672.27 2240.9 2464.99 2913.17
597.63 1992.1 2191.31 2589.73
Capacity/Unit Production Quantity/Unit In 000's Tonnes 5180 1110 740 1480 185 3515 2035 185 3145 1295
4721.1 1011.66 674.44 1348.89 168.61 3203.61 1854.72 168.61 2866.38 1180.28
Capacity/Unit Production Quantity/Unit In 000's Tonnes 1175.19 4086.59 1280.08 2047.71 464.48 1063.44 663.27 4379.41 451.83 2588
973.02 3383.56 1059.86 1695.44 384.57 880.49 549.17 3626.01 374.1 2142.78
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ANALYSIS OF CEMENT INDUSTRY Madras Cements Location Alathiyur (Tiruchchirappalli, TN) Jayanthipuram (Krishna, AP) Mathodu (Chitradurga, KAR) Ramasamyraja Nagar (Virudhunagar, TN)
PRAXIS BUSINESS SCHOOL
Capacity/Unit Production Quantity/Unit In 000's Tonnes 3995 1917.6 399.5 1677.9
2922.55 1402.82 292.25 1227.47
Page 28
ANALYSIS OF CEMENT INDUSTRY ANNEXURE 1A Company Name A C C Ltd. Ambuja Cement Eastern Ltd. [Merged] Ambuja Cement Rajasthan Ltd. [Merged] Ambuja Cements Ltd. Andhra Cements Ltd. Anjani Portland Cement Ltd. Bagalkot Udyog Ltd. Barak Valley Cements Ltd. Bargarh Cement Ltd. [Merged] Binani Cement Ltd. Birla Corporation Ltd. Cement Corpn. Of India Ltd. Cement Manufacturing Co. Ltd. Century Textiles & Inds. Ltd. Chettinad Cement Corpn. Ltd. Chirawa Cements Ltd. Ckoramaandel Cements Ltd. Cochin Cements Ltd. D C M Shriram Consolidated Ltd. Dalmia Cement (Bharat) Ltd. Damodhar Cement & Slag Ltd. [Merged] Deccan Cements Ltd. Dhar Cement Ltd. Dharani Cements Ltd. [Merged] Grasim Industries Ltd. Gujarat Sidhee Cement Ltd. India Cements Ltd. Indorama Cement Ltd. J K Cement Ltd. J K Lakshmi Cement Ltd. J K Synthetics Ltd. Jaiprakash Associates Ltd. Jaiprakash Industries Ltd. [Merged] K C P Ltd. Kakatiya Cement Sugar & Inds. Ltd. Kalyanpur Cements Ltd. Keerthi Industries Ltd. Kesoram Industries Ltd. PRAXIS BUSINESS SCHOOL
Sales (Rs. Crore)
Market Share
2006 4548.92 423.61
2007 3723.2 472.24
2008 6457.4 799
2006 9.11% 0.85%
2007 6.42% 0.81%
2008 8.90% 1.10%
302.48
284.67
310.91
0.61%
0.49%
0.43%
2306.7 152.84 48.28 27.87 49.03 192.78 530.17 1399.44 122.52 2850.82 542.39 0.12 27.2 32.07 1905.35 520.99 99.71
3029.71 193.1 51.58 21.84 52.77 182.84 585.85 1498.09 133 14.03 3033.38 626.22 0.31 29.11 36.17 2476.32 652.46 125.46
7032.4 137.95 89.05 4.98 69.89 196.76 784.76 1863.47 179.57 166.4 3584.81 888.27 18.45 32.25 19.61 2872.16 1118.99 143.76
4.62% 0.31% 0.10% 0.06% 0.10% 0.39% 1.06% 2.80% 0.25% 0.00% 5.71% 1.09% 0.00% 0.05% 0.06% 3.82% 1.04% 0.20%
5.23% 0.33% 0.09% 0.04% 0.09% 0.32% 1.01% 2.58% 0.23% 0.02% 5.23% 1.08% 0.00% 0.05% 0.06% 4.27% 1.13% 0.22%
9.69% 0.19% 0.12% 0.01% 0.10% 0.27% 1.08% 2.57% 0.25% 0.23% 4.94% 1.22% 0.03% 0.04% 0.03% 3.96% 1.54% 0.20%
175.35 23.21 15.97 7194.96 200 1385.4 122.55 423.44 594.65 573.07 2990.59 1316.13 171.8 161.99 104.12 49.69 1729
202.22 32.61 16.64 7655.52 314.6 1829.44 140.61 1108.68 701.51 6.03 3432.49 1708.69 175.48 139.42 105.64 50.18 1897.77
262.03 23.67 16.22 9613.34 438.36 2610.75 126.47 1529.67 973.29 5.67 3801.16 1558.32 307.68 154.68 165.97 82.08 2538.66
0.35% 0.05% 0.03% 14.41% 0.40% 2.78% 0.25% 0.85% 1.19% 1.15% 5.99% 2.64% 0.34% 0.32% 0.21% 0.10% 3.46%
0.35% 0.06% 0.03% 13.21% 0.54% 3.16% 0.24% 1.91% 1.21% 0.01% 5.92% 2.95% 0.30% 0.24% 0.18% 0.09% 3.27%
0.36% 0.03% 0.02% 13.25% 0.60% 3.60% 0.17% 2.11% 1.34% 0.01% 5.24% 2.15% 0.42% 0.21% 0.23% 0.11% 3.50%
Page 29
ANALYSIS OF CEMENT INDUSTRY Lanco Industries Ltd. Larsen & Toubro Ltd.
315.87
333.48
13399.02 15043.68
404.01
0.63%
0.58%
0.56%
17999.5
26.84%
25.96%
24.80%
Madras Cements Ltd. Mahendra Cements Ltd. Mangalam Cement Ltd. My Home Inds. Ltd. Mysore Cements Ltd. N C L Industries Ltd. Narmada Cement Co. Ltd. [Merged] Necem Cements Ltd. O C L India Ltd. Orient Paper & Inds. Ltd. P R Cements Ltd. Panyam Cements & Mineral Inds. Ltd. Prism Cement Ltd. Rain Industries Ltd. Sagar Cements Ltd. Sainik Finance & Inds. Ltd. Sanghi Industries Ltd. Saurashtra Cement Ltd. Shiva Cement Ltd. Shree Cement Ltd. Shree Digvijay Cement Co. Ltd. Sri Vishnu Cement Ltd. Srichakra Cements Ltd. Suraj Products Ltd. Tamil Nadu Cements Corpn. Ltd. Tata Chemicals Ltd. Travancore Cements Ltd. Ultratech Cement Ltd. Visaka Cement Industry Ltd.
888.55 7.98 366.02 209.7 502.52 92.24 188.91 7.54 573.26 881.67 7.13 45.3
1193.36 5.91 497.8 351.22 517.47 139.15 205.06 7.42 701.66 1031.72 3.17 13.66
1812.68 4.1 261.27 502.5 482.7 195.73 277.66 6.35 930.28 1290.08 4.58 121.92
1.78% 0.02% 0.73% 0.42% 1.01% 0.18% 0.38% 0.02% 1.15% 1.77% 0.01% 0.09%
2.06% 0.01% 0.86% 0.61% 0.89% 0.24% 0.35% 0.01% 1.21% 1.78% 0.01% 0.02%
2.50% 0.01% 0.36% 0.69% 0.67% 0.27% 0.38% 0.01% 1.28% 1.78% 0.01% 0.17%
531.02 296.37 112.04 7.26 428.33 224.13 19.85 723.03 107.29 165.21 64.25 12.54 166.88 3097.91 27.89 3062.52 180.74
679.22 380.65 153.77 7.85 636 279.49 18.23 824.13 249.97 243.59 30.09 28.64 201.32 3638.23 24.02 3789.22 230.12
885.04 564.41 247.14 10.57 859.53 449.83 27.18 1613.14 289.74 242.2 59.78 25.35 218.82 4107.08 19.3 5485.63 293.85
1.06% 0.59% 0.22% 0.01% 0.86% 0.45% 0.04% 1.45% 0.21% 0.33% 0.13% 0.03% 0.33% 6.21% 0.06% 6.13% 0.36%
1.17% 0.66% 0.27% 0.01% 1.10% 0.48% 0.03% 1.42% 0.43% 0.42% 0.05% 0.05% 0.35% 6.28% 0.04% 6.54% 0.40%
1.22% 0.78% 0.34% 0.01% 1.18% 0.62% 0.04% 2.22% 0.40% 0.33% 0.08% 0.03% 0.30% 5.66% 0.03% 7.56% 0.40%
Total
49923.54 57956.26 72578.27
PRAXIS BUSINESS SCHOOL
100.00%
100.00% 100.00%
Page 30
ANALYSIS OF CEMENT INDUSTRY ANNEXURE 1B Company Name A C C Ltd. Ambuja Cement Eastern Ltd. [Merged] Ambuja Cement Rajasthan Ltd. [Merged] Ambuja Cements Ltd. Andhra Cements Ltd. Anjani Portland Cement Ltd. Bagalkot Udyog Ltd. Barak Valley Cements Ltd. Bargarh Cement Ltd. [Merged] Binani Cement Ltd. Birla Corporation Ltd. Cement Corpn. Of India Ltd. Cement Manufacturing Co. Ltd. Century Textiles & Inds. Ltd. Chettinad Cement Corpn. Ltd. Chirawa Cements Ltd. Ckoramaandel Cements Ltd. Cochin Cements Ltd. D C M Shriram Consolidated Ltd. Dalmia Cement (Bharat) Ltd. Damodhar Cement & Slag Ltd. [Merged] Deccan Cements Ltd. Dhar Cement Ltd. Dharani Cements Ltd. [Merged] Grasim Industries Ltd. Gujarat Sidhee Cement Ltd. India Cements Ltd. Indorama Cement Ltd. J K Cement Ltd. J K Lakshmi Cement Ltd. J K Synthetics Ltd. Jaiprakash Associates Ltd. Jaiprakash Industries Ltd. [Merged] K C P Ltd. Kakatiya Cement Sugar & Inds. Ltd. Kalyanpur Cements Ltd. Keerthi Industries Ltd. Kesoram Industries Ltd. PRAXIS BUSINESS SCHOOL
Si Square
Top 5 firms
2006 2007 2008 0.008302 0.004127 0.007916 7.20E-05 6.64E-05 0.000121 3.67E-05
2.41E-05
1.84E-05
0.002135 9.37E-06 9.35E-07 3.12E-07 9.65E-07 1.49E-05 0.000113 0.000786 6.02E-06 0 0.003261 0.000118 5.78E-12 2.97E-07 4.13E-07 0.001457 0.000109 3.99E-06
0.002733 1.11E-05 7.92E-07 1.42E-07 8.29E-07 9.95E-06 0.000102 0.000668 5.27E-06 5.86E-08 0.002739 0.000117 2.86E-11 2.52E-07 3.89E-07 0.001826 0.000127 4.69E-06
0.009388 3.61E-06 1.51E-06 4.71E-09 9.27E-07 7.35E-06 0.000117 0.000659 6.12E-06 5.26E-06 0.00244 0.00015 6.46E-08 1.97E-07 7.30E-08 0.001566 0.000238 3.92E-06
1.23E-05 2.16E-07 1.02E-07 0.02077 1.60E-05 0.00077 6.03E-06 7.19E-05 0.000142 0.000132 0.003588 0.000695 1.18E-05 1.05E-05 4.35E-06 9.91E-07 0.001199
1.22E-05 3.17E-07 8.24E-08 0.017448 2.95E-05 0.000996 5.89E-06 0.000366 0.000147 1.08E-08 0.003508 0.000869 9.17E-06 5.79E-06 3.32E-06 7.50E-07 0.001072
1.30E-05 1.06E-07 4.99E-08 0.017544 3.65E-05 0.001294 3.04E-06 0.000444 0.00018 6.10E-09 0.002743 0.000461 1.80E-05 4.54E-06 5.23E-06 1.28E-06 0.001223
2006 9.11%
2007 6.42%
2008 8.90%
4.62%
5.23%
9.69%
14.41%
13.21%
13.25%
Page 31
ANALYSIS OF CEMENT INDUSTRY Lanco Industries Ltd. Larsen & Toubro Ltd. Madras Cements Ltd. Mahendra Cements Ltd. Mangalam Cement Ltd. My Home Inds. Ltd. Mysore Cements Ltd. N C L Industries Ltd. Narmada Cement Co. Ltd. [Merged] Necem Cements Ltd. O C L India Ltd. Orient Paper & Inds. Ltd. P R Cements Ltd. Panyam Cements & Mineral Inds. Ltd. Prism Cement Ltd. Rain Industries Ltd. Sagar Cements Ltd. Sainik Finance & Inds. Ltd. Sanghi Industries Ltd. Saurashtra Cement Ltd. Shiva Cement Ltd. Shree Cement Ltd. Shree Digvijay Cement Co. Ltd. Sri Vishnu Cement Ltd. Srichakra Cements Ltd. Suraj Products Ltd. Tamil Nadu Cements Corpn. Ltd. Tata Chemicals Ltd. Travancore Cements Ltd. Ultratech Cement Ltd. Visaka Cement Industry Ltd. Total
PRAXIS BUSINESS SCHOOL
4.00E-05 0.072034 0.000317 2.56E-08 5.38E-05 1.76E-05 0.000101 3.41E-06 1.43E-05 2.28E-08 0.000132 0.000312 2.04E-08 8.23E-07
3.31E-05 0.067376 0.000424 1.04E-08 7.38E-05 3.67E-05 7.97E-05 5.76E-06 1.25E-05 1.64E-08 0.000147 0.000317 2.99E-09 5.56E-08
3.10E-05 0.061505 0.000624 3.19E-09 1.30E-05 4.79E-05 4.42E-05 7.27E-06 1.46E-05 7.65E-09 0.000164 0.000316 3.98E-09 2.82E-06
0.000113 0.000137 0.000149 3.52E-05 4.31E-05 6.05E-05 5.04E-06 7.04E-06 1.16E-05 2.11E-08 1.83E-08 2.12E-08 7.36E-05 0.00012 0.00014 2.02E-05 2.33E-05 3.84E-05 1.58E-07 9.89E-08 1.40E-07 0.00021 0.000202 0.000494 4.62E-06 1.86E-05 1.59E-05 1.10E-05 1.77E-05 1.11E-05 1.66E-06 2.70E-07 6.78E-07 6.31E-08 2.44E-07 1.22E-07 1.12E-05 1.21E-05 9.09E-06 0.003851 0.003941 0.003202 3.12E-07 1.72E-07 7.07E-08 0.003763 0.004275 0.005713 1.31E-05 1.58E-05 1.64E-05 Herfindahl Index 0.113519 0.106606 0.101
26.84%
25.96%
24.80%
6.13%
6.54%
7.56%
Concentration Ratio 0.473855 0.457042 0.456038
Page 32
ANALYSIS OF CEMENT INDUSTRY Bibliography www.economictimes.com www.icra.in www.businessworld.com www.cso.com www.indiabusiness.nic.in
PRAXIS BUSINESS SCHOOL
Page 33
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