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INTRODUCTION
Early 2019, Varun Verma [VV] was pleasantly surprised to meet his Prof. of Marketing in the
bus carrying passengers at New Delhi airport. In the small journey of 3 minutes, Varun was
extremely happy to share his new responsibilities as VP Marketing of a Cement company. This
company was involved in marketing of Ready Mix Concrete [RMC]. Varun was aware of his
Professor’s interest in RMC. The Prof. had written a Case on RMC. In 2007, the penetration
of RMC, as contrast to the globe average of 70%, was only 5% in India.
Varun was keen to share the development of RMC in India in last 10 to 12 years [2008 -2019].
‘Sir, lot has changed in India in last 10 to 12 years’. Varun shared that overall penetration even
in 2018 was around 10 to 12% at all India level. But the picture is different for large cities; like
Mumbai, Hyderabad, Delhi NCR and Bangalore, the penetration was as high as 60 to 70% i.e.
as high as the developed economies. The continuous innovation of last 20 years have brought
India at par with the developed world.
Table 1 - Penetration in Metro Cities (2018)
Cities %
1 Mumbai 65 to 75
2 Delhi 45 to 50
3 Bangalore 60 to 70
4 Hyderabad 60 to 70
RMC was introduced in Germany in 1930s. By 1960s it had achieved a penetration of 70%
globally.
It has many end uses: roads, high rise buildings, dams, metro rails, bridges etc. It provides
endurance and consistency in high quality construction. It is produced in automated plants.
These use exact quantity of ingredients: cement, water and small stones. RMC is bought in
form of cubic meters. 1 ton of cement is needed to produce 3 cubic meters of RMC. 70% of
cement is consumed in form of concrete. In India, Larsen & Toubro, an engineering and
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This case has been prepared by Dr. Sharad Sarin, (Retd.) Professor, Marketing and Strategic
Management Area, Xavier Labour Relations Institute, Jamshedpur, India. It is intended as a
basis for class discussion rather than to illustrate either the correct or incorrect handling of
business situations
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construction giant, introduced RMC in early1990s. Subsequently cement companies like ACC,
Ultra Tech, India Cement introduced RMC. By 2018, there were 3000 players of RMC in both
organized and unorganized sector.
1 NuVoco 80
2 Ultra Tech 75
3 ACC 45 - 50
4 RMC (Prism) 50
5 RDC (Supreme) 35
6 Godrej Boyce (Mumbai) 10
7 Skyway 5
8 TNA 5
9 Birla Shakti (Pune) 5
10 Aparna 5
11 Local Players 3000
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unorganized players located throughout India. As per cement industry, the four macro segment
and their share in construction was estimated to be (2018)
The segment wise consumption in India by 2018, estimated to be:
a. Housing – 67%
b. Industrial – 9%
c. Commercial – 11%
d. Infrastructure – 13%
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100%
Cement Industry: China and India
Cement production through plant and machinery is more than 100 years old. The first cement
plant in India was set up by Indian Cement Company at Porbandar in Gujarat. By 2018, cement
production in India was around 300 million tons. With nearly 200 big and small plants, India’s
cement production was likely cross 500 million tons by 2025. India, though 2nd highest
producer in the world, was way behind China. Thus by 2018, China was producing 2000
million tons per year. India’s production was estimated to be 300 million tons per annum. The
growth rate CAGR (Cumulative Average Growth Rate) was envisaged to vary from 6 to 8%
per year for next 10 years. By 2018, India’s per capita consumption was 345 kg. per person.
China’s averaging around 1600 kg per person in 2018.
The Economics of RMC Plant
The investment to set up a 30-cu. m. per hour RMC Plant along with support facilities at 2018
prices was as follows:
Batch plant to produce concrete of 30 cu. m. per hour - Rs.5.5 million
Silos for cement storage - Rs 1.2 million
One diesel generating set of 125 KVA - Rs. 0.8 million
One-wheel loader - Rs.1.2 million
One cement pump - Rs1.00 million
Cost of structure, office space etc. . - Rs. 4.5 million
Concrete transit mixer of 6 cubic meter capacity - Rs.2.3 million
RMC could be used through onsite batching plants as well the dedicated RMC plants installed
in different cities. The RMC from plants required the help of ‘transit mixers’. The capital need
for dedicated plant of 30 cubic meter at 2018 prices could vary from 250 to Rs. 350 million.
Cement in Bags of 50 kg.: The views of 9 million tons per annum plant:
Discussions with the CEO brought out:
Marketing cement in bags is a very cheap and an easy option. It merely requires
managing a distribution network and brand building. By 2018, India had approximately
80,000 retail outlets selling cement. Distribution cost around 4 to 5% of cement price.
Cement in bags – Rs. 380 per bag. [2018]
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The management feels that economic returns may not turn out to be very attractive by
marketing cement through the RMC route. Assuming that a 60-cu. m. plant, works for
16 hours per day for 25 days, its monthly production could be 24000 cu. m. of RMC.
Approximately 1 ton of cement is needed to produce 3 cu. m. of RMC. This would
require 8000 tons of cement in a month. Assuming 10 months working in a year; the
cement need would be 80,000 tons per year. At this level of capacity utilization, a
company producing 9 million tons of cement per year may need to set up 125 RMC
plants of 60 cu. m. capacity. Economically and managerially would it make sense to
shift to bulk marketing of cement via the RMC route? This seems to have remained an
unresolved question for the management and hence the hesitation towards setting up
more RMC plant.
Varun shared:
“We are now competing on value addition through R & D [Research and Development].
Through this we are able to supply higher grades like M 95 to 135 grades. The value-added
product may account for 20 to 25% of current sales of 2018. Thus, for high-rise building of
Lodha Towers of South Bombay which is 142 meters tall, the RMC grades needed were M95
to M155 grades of RMC. These require special pump and pouring facilities to ensure smooth
setting of the concrete in these buildings. Today major players like ACC, Birla, Ultra Tech,
Lafarge have invested in RMC. The RMC industry in India is now geared to meet these
challenges for Metro Rails including the bullet train i.e. through Ahmedabad to Bombay!!
The Marketing Challenges of RMC
The biggest challenge for RMC would be to convert the users of SMC (Site Mixed Concrete).
‘Concept Selling’ would be critical. This would not be easy as Indian construction markets
are highly fragmented. The other challenge would be to deal with regulatory authorities to
tackle issues related to taxation, traffic restrictions etc. Yet another challenge would be the
competition from local players selling at lower prices. This would affect profitability of the
RMC plants from large cement manufacturers.
Franchising Route: Can it accelerate the penetration
Varun felt that franchise route would not help in accelerating the use of RMC business in India.
The franchisee would not find it profitable. To him, this should not be the option for any cement
manufacturer. It was his view that globally, cement manufacturers dominate the RMC industry.
Construction companies have core competency in servicing individual projects, not in selling
a value-added product like RMC. As RMC is a forward extension of the cement value chain of
cement manufactures, they would always enjoy several competitive advantages. The non-
cement players would find it difficult to continue in the RMC business. He added, ‘scaling up’
of RMC business may not be easy as besides the need for concept selling, it would require
substantial developmental effort to justify the “cost benefit analysis” of using RMC in
construction sites scattered all over India. Threat from local and small new entrants, after the
markets are developed at lower prices, would impact the profitability of the large RMC players.
Though they would eventually be weeded out, but sustaining them for several years would be
a challenge. All these factors may prevent faster scaling up of the RMC business of large
cement producers like his organization.
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The Growth Drivers and Inhibitors
The industry experts identified several factors driving the growth or acting as inhibitors
B. The Inhibitors:
Traffic restrictions limiting the hours of movement of transit mixers within cities.
Escalating land prices adding to the cost of setting up of RMC plants.
Unorganized / Local RMC manufacturers producing acceptable quality concrete and
selling at lower prices.
Setting up of batching plants by builders at site.
Taxation, levies and royalty. The RMC manufacturers have to pay tax on all inputs,
royalty on aggregates, and tax on the finished product. Site-mixed concrete (SMC) is
economical to the customer as these duties and taxes are not levied.
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The Final Question: The Employment Opportunities
The construction industry employs more than 60 million people in 2018 in India. Thus 16%
working population depends on construction for its livelihood. Assuming family size of 5 to 6
members per family, nearly 300 to 350 million people survive on construction industry. The
share in the GDP was 5% in 2017, is likely to go to 7.7% by 2022. Two hundred corporate
sector players and thousands of small contractors located all over India owned 78% of capital
formation of construction industry.
Can Indian economy ignore the poor manual workers in favour of RMC.
2. Comment on India becoming Germany or China for cement industry using RMC as
the dominant route for use of concrete.
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ANNEXURES
399
376
348
304 324
264 277 283
243 250
225
Infrastructure
13%
Housing
67%
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3. Examples for Growth
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9 Varanasi 16 1.7
10 Patna 22 1.9
11 Ranchi 13 2.7
12 Jamshedpur 15 2.0
[Dainik Jagaran, Ranchi, April 1, 2018]