Economic Analysis on Cement Industry in India

By

AR Ravishankar
Click to edit Master subtitle style
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Introduction
Indian cement industry is the second largest with a total production of 165 million tonnes Net profit growth rate of 85% Contributed 8% to Indian economic development

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Factors promoting growth

Government

policies Growing Requirements Housing facilities & real estate( contributes 53%) Government giving boost in various infrastructure projects Export

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Industry structure
56

cement companies Leading 6 companies contributes 60 %. Fairly high concentration ratio Highly Competitive. It shows few features of oligopoly

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Market structure
Free

entry / exit is difficult Highly fragmented Demand supply gap High Product differentiation It shows few feature monopolistic market

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Cartel Formation
11

Indian companies accused of forming cartel artificial Shortage

Created Pushed

up the Price by 20% in 6 months crore penalty slapped

Rs.6,307

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Competitive Dimension
Moderate

rivalry within cement industry Lack of substitutes Minimal effect of buyer bargaining power Suppliers have high bargaining power Barrier to entry and exit

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Challenges
Global

Economic Slow down which led to Highest inventory levels Growth rates have slowed Capacity addition putting pressure on prices As a result companies are looking for cutting production

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Cost Structure
Very

High Fixed cost 1/3rd of the variable cost

Electricity Freight Other Social

1/3rd of the variable cost

Cost- Marketing and Sales Cost- Degradation of quality

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Pricing
Product No No

Differentiation

effect of pricing strategy allocative efficiency Demand

Growing

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Government Regulations Period of restriction(19691982) restrained through both direct and Severely
indirect means Authorized higher prices for cement manufactured by new units in 1972 3 tier price system introduced in 1979 Sluggish growth..Installed capacity reached only 27.9MT

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Partial decontrol(19821989)
Quota

system Impact on profitability

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Post liberalization
Industry

was de licensed in 1991 Accelerated growth and investment by major players Focus on exports

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Tax Structure
One

of the highest taxed industry Price level of 200 per bag In feb 2007 tax was increased further Finally it was reduced in may 2007

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Q & A!!!

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