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India, the world's second largest producer of cement, the recent boom in infrastructure and the housing market has only boosted its cement industry. Add to that an increasing global demand and a flurry of activity in infrastructure projects – highways roads, bridges, ports and houses – has sparked off a spate of mergers and acquisitions in the sector. Furthermore, the country's finance minister, P. Chidambaram, has stated that India would double spending on infrastructure over the next five years to sustain its record economic growth and modernise its infrastructure.
Cement companies are fast developing plants to provide for a rapidly expanding economy. The cement industry is therefore poised to add 111 million tonne (mt) of annual capacity by the end of 2009-10 (FY10), riding on the back of approximately 141 outstanding cement projects. A report by the ICRA Industry Monitor the installed capacity is expected to increase to 186 mt per annum (mtpa) by FY08-end, and 219 mtpa by end of FY09, and up to 241 mtpa by FY10-end. As a result, India‘s cement industry will record an annual growth at 10 per cent in the coming years with higher domestic demand resulting in increased capacity utilisation.
Domestic Players : While the Cement Corporation of India, a Central public sector undertaking, comprises 10 units; the various State governments own 10 large cement plants. Among the leading domestic players in terms of cement manufacturing are: Ambuja Cement, Aditya Birla Group (which owns UltraTech Cement), ACC Ltd., Binani Cement, India Cements, Grasim, J K Cement, and L & T Cement. They are not only the foremost producers of cement but also enjoy a high level of equity in the market.
Industrial production : The cement industry is enhancing its production levels as new homes and offices are being built, and in keeping with the economy‘s annual growth rate. According to the Cement Manufacturers Association, the overall cement production rose by 8.11 per cent during 2007-08 to 168.29 million tonnes (mt) as against 155.66 mt in 2006-07.
In fact, the 16.37 mt produced by the domestic cement industry in March 2008 has been the highest ever by the industry in a single month.
Cement production of ACC increased 5.58 per cent to 1.89 mt in March against 1.79 mt in the same period last year. Dispatches rose 4.91 per cent to 1.92 mt (1.83 mt)
Ambuja Cements, another Holcim group company, reported 23 per cent rise in production to 1.77 mt (1.43 mt) in March, while dispatches were up 16 per cent to 1.72 mt (1.47 mt).
The Aditya Birla group‘s production went up 4.8 per cent during 2007-08 to 30.6 mt (29.24 mt), while dispatches increased 4.5 per cent to 30.55 mt (29.2 mt).
India Cements recorded a 46 per cent growth in sales and posted a 99 per cent growth profit in the nine months ending December 2007.
Simultaneously, the overall despatches of the industry grew by 7.98 per cent during 2007-08 to 167.65 mt over 155.26 mt in 2006-07.
Installed capacity : The installed capacity is estimated at 174 mt a year with capacity utilisation in excess of 100 per cent. As of February, the installed capacity was about 14.55 mt a month compared to 13.79 mt in the previous year. Region-wise, the growth in consumption as of Feb 2008 was about 10 per cent over the previous year in the North and South, 15 per cent in the West, 5 per cent in the Centre and 2 per cent in the East. These contribute to a 9 per cent growth across India.
Global Players : Rapid urbanisation 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, The company 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 Acquistions (M&As) : A growing and robus4 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.
Cimpor the Portugese cement maker paid Rs 322 crore for Grasim Industries 53.63 per cent stake in Shree Digvijay Cement.
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.
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