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Cement Industry in India

India, being the second largest cement producer in the world after China with a total capacity of 151.2 Million Tones (MT), has got a huge cement industry. With the government of India giving boost to various infrastructure projects, housing facilities and road networks, the cement industry in India is currently growing at an enviable pace. More growth in the Indian cement industry is expected in the coming years. It is also predicted that the cement production in India would rise to 236.16 MT in FY11. It's also expected to rise to 262.61 MT in FY12. The cement industry in India is dominated by around 20 companies, which account for almost 70% of the total cement production in India. In the present year, the Indian cement companies have produced 11 MT cement during April-September 2009. It took the total cement production in FY09 to 231 MT. Industry Background The history of the cement industry in India dates back to the 1889 when a Kolkata-based company started manufacturing cement from Argillaceous. But the industry started getting the organized shape in the early 1900s. In 1914, India Cement Company Ltd was established in Porbandar with a capacity of 10,000 tons and production of 1000 installed. The World War I gave the first initial thrust to the cement industry in India and the industry started growing at a fast rate in terms of production, manufacturing units, and installed capacity. This stage was referred to as the Nascent Stage of Indian Cement Industry. In 1927, Concrete Association of India was set up to create public awareness on the utility of cement as well as to propagate cement consumption. The cement industry in India saw the price and distribution control system in the year 1956, established to ensure fair price model for consumers as well as manufacturers. Later in 1977, government authorized new manufacturing units (as well as existing units going for capacity enhancement) to put a higher price tag for their products. A couple of years later, government introduced a three-tier pricing system with different pricing on cement produced in high, medium and low cost plants. Cement industry, in any country, plays a major role in the growth of the nation. Cement industry in India was under full control and supervision of the government. However, it got relief at a large extent after the economic reform. But government interference, especially in the pricing, is still evident in India. In spite of being the second largest cement producer in the world, India falls in the list of lowest per capita consumption of cement with 125 kg. The reason behind this is the poor rural people who mostly live in mud huts and cannot afford to have the commodity. Despite the fact, the demand and supply of cement in India has grown up. In a fast developing economy like India, there is always large possibility of expansion of cement industry.

Cement Production and Growth Domestic demand plays a major role in the fast growth of cement industry in India. In fact the domestic demand of cement has surpassed the economic growth rate of India. The cement consumption is expected to rise more than 22% by 2009-10 from 2007-08. In cement consumption, the state of Maharashtra leads the table with 12.18% consumption, followed by Uttar Pradesh. In terms of cement production, Andhra Pradesh leads the list with 14.72% of production, while Rajasthan remains at second position. The production of cement in India grew at a rate of 9.1% during 2006-07 against the total production of 147.8 MT in the previous fiscal year. During April to October 2008-09, the production of cement in India was 101.04 MT comparing to 95.05 MT during the same period in the previous year. During October 2009, the total cement production in India was 12.37 MT compared to a production of 11.61 MT in the same month in the previous year. The cement companies are also increasing their productions due to the high market demand. The cement companies have seen a net profit growth rate of 85%. With this huge success, the cement industry in India has contributed almost 8% to India's economic development. Technology Up-gradation Cement industry in India is currently going through a technological change as a lot of upgradation and assimilation is taking place. Currently, almost 93% of the total capacity is based entirely on the modern dry process, which is considered as more environmentfriendly. Only the rest 7% uses old wet and semi-dry process technology. There is also a huge scope of waste heat recovery in the cement plants, which lead to reduction in the emission level and hence improves the environment. Cement Despatches Cement industry in India has successfully maintained almost total capacity utilization levels, which resulted in maintaining a 10% growth rate. In 2006-07, the total despatch was 155 MT, which rose up to 170 MT in 2007-08. The month of October 2009 saw a cement despatch of 12.22 MT, which was almost 9% higher than the total cement despatch of 11.21 MT in the same month in the previous year. 2008-09 (Apr-Oct) (in MT) 2007-08 (Apr-Oct) in MT Production Export Capacity Utilization (%) 101.04 1.46 85 95.05 94.33 2.16 93 Despatches (Excluding Export) 100.24

Major Players in Indian Cement Industry There are a number of players prevailing in the cement industry in India. However, there are around 20 big names that account for more than 70% of the total cement production in India. The total installed capacity is distributed over around 129 plants, owned by 54 major companies across the nation. Following are some of the major names in the Indian cement industry: Company ACC Gujarat Ambuja Ultratech Grasim India Cements JK Group Jaypee Group Century Madras Cements Birla Corp. Production 17,902 15,094 13,707 14,649 8,434 6,174 6,316 6,636 4,550 5,150 Installed Capacity 18,640 14,860 17,000 14,115 8,810 6,680 6,531 6,300 5,470 5,113

Mergers and Acquisitions in Cement Industry in India UltraTech Cement is going to absorb its sister concern Samruddhi Cement to become biggest cement company in India. World's leading foreign funds like HSBC, ABN Amro, Fidelity, Emerging Market Fund and Asset Management Fund have together bought 7.5% of India Cements (ICL) at a cost of US$ 124.91 million. Cimpor, a Cement company of Portugal, has bought 53.63% stake that Grasim Industries had in Shree Digvijay Cement. French cement company Vicat SA bought 6.67% share of Sagar Cement at a cost of US$ 14.35 million. Holcim now holds 56% stake of Ambuja Cement. Previously it held 22% of stake. The company utilized various open market transactions to increase its stakes. It invested US$ 1.8 billion for that.

Recent Investments in the Indian Cement Industry

In a recent announcement, the second largest cement company in South India, Dalmia Cement declared that it's going to invest more than US$ 652.6 million in the next 2-3 years to add 10 MT capacity. Anil Ambani-led Reliance Infrastructure is going to build up cement plants with a total capacity of yearly 20 MT in the next 5 years. For this, the company will invest US$ 2.1 billion. India Cements is going to set up 2 thermal power plants in Andhra Pradesh and Tamil Nadu at a cost of US$ 104 billion. Anil Ambani-led Reliance Cementation is also going to set up a 5 MT integrated cement plant in Maharashtra. It will invest US$ 463.2 million for that. Jaiprakash Associates Ltd has signed a MoU with Assam Mineral Development Corporation Limited to set up a 2 MT cement plant. The estimated project cost is US$ 221.36 million. Rungta Mines (RML) is also planning to invest US$ 123 million for setting up a 1 MT cement plant in Orissa.

Cement Sector structure/Market size


India is the world's second largest producer of cement after China, with cement companies adding nearly 11 million tonnes (MT) capacity during April-September 2009, taking the total installed capacity to around 231 MT by September 2009. With the boost given by the government to various infrastructure projects, road networks and housing facilities, growth in the cement consumption is anticipated in the coming years. According to Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, cement production could rise to 236.16 MT in FY11 and touch 262.61 MT in FY12. With almost total capacity utilisation levels in the industry, cement despatches have maintained a 10 per cent growth rate. Total despatches grew to 170 MT during 200708 as against 155 MT in 200607. According to the Cement Manufacturers Association, cement despatches were 14.13 MT in December 2009, showing a growth of 13 per cent as compared to 12.48 MT in December 2008. During December 2009, cement production was 13.91 MT, registering a growth of 13 per cent as compared to 12.31 MT in December 2008. Between April to December 2009, cement production totaled 116.01 MT while cement despatches totaled 115.31 MT. A few of the leading manufacturers are UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc. Technological change

Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. New Investments

Dalmia Cement, South Indias second largest cement maker, will invest over US$ 652.6 million to add 10 MT capacity over the next 2-3 years. India Cements Ltd will invest US$ 104 billion to set up two thermal power plants in the southern states of Tamil Nadu and Andhra Pradesh. Anil Ambani Group company Reliance Infrastructure will invest US$ 2.1 billion to set up cement plants with a total capacity of 20 mtpa over the next five years. Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company, plans to set up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$ 463.2 million. Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in India in the next five years. The expansion will take the companys total cement-making capacity to 60 mtpa from 50 mtpa currently. Jaiprakash Associates Ltd will invest US$ 973.07 million to take its cement manufacturing capacity from 20 mtpa to 33 mtpa by 2012. Chettinad Cement, the flagship company of the diversified Chettinad group, has chalked out an aggressive expansion plan to boost its capacity to 13 mtpa in another four years from its current capacity of 7.5 mtpa at an investment of US$ 259.42 million. Kolkata-based Shree Cement plans to invest US$ 432.38 million to increase its cement output by two million tonnes to 12 MT by March 2010 and raise power generation capacity by over four-fold by FY'12.

Mergers and Acquistions (M&As)

Holcim strengthened its position in India by increasing its holding in Ambuja Cement from 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. UltraTech Cement, a unit of conglomerate Aditya Birla Group, is absorbing sister unit Samruddhi Cement, to form India's biggest cement firm. 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$ 124.91 million. Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim Industries' 53.63 per cent stake in Shree Digvijay Cement. Vicat SA, a French cement maker acquired a 6.67 per cent stake in Hyderabadbased Sagar Cement for US$ 14.35 million.

Dalmia Cement has increased its stake in OCL India to 45.4 per cent from 21.7 per cent at an investment of US$ 38.26 million as part of its plan to expand its footprint in eastern India.

Government Initiatives Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, continue being the main drivers of growth for the Indian cement industry.

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 National Highways Development Project (NHDP). 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.

Keeping in mind the global meltdown which is impacting the cement companies in India, the government re-imposed the counter-veiling duty (CVD) and special CVD on imported cement in January. This is likely to provide a level playing field to domestic companies. Road Ahead According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase to 241 MTPA by FY 2010-end. India's cement industry is likely to record an annual growth of 10 per cent in the coming years with higher domestic demand resulting in increased capacity utilisation.

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