INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW

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1 INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW GROWTH OF INDIAN CEMENT INDUSTRIES: AN ANALYSIS Sunil Kumar* 1, Dr. N.C. Bansal 2 1 Research Scholar, SRM University, NCR Campus, Modinagar, Ghaziabad. 2 Professor & Head, Department of Management Studies, SRM University, NCR Campus, ABSTRACT Modinagar, Ghaziabad. India is the world s second largest producer of cement after China with industrial installed capacity of MT as on August 31, In January 2010, rating agency Fitch predicted that the country will add about 50 MT cement capacity in 2010, taking the total to around 300 million tonne. The cement industry plans to add new capacity of about 71 MT in the next two financial years. At present, it has an installed capacity of over 315 MT to cater to the demand of about 230 MT. "It is anticipated that the cement industry players will continue to increase their annual cement output in coming years and the country's cement production will grow at a compound annual growth rate (CAGR) of around 12 per cent during to reach 303 MMT," according to a RNCOS report titled 'Indian Cement Industry Forecast to 2012'. Keywords: - Capacity, Fitch, Demand, CAGR, RNCOS. INRODUCTION In the most general sense of the word, cement is a binder, a substance that sets and hardens independently, and can bind other materials together. The word "cement" traces to the Romans, who used the term opus caementicium to describe masonry resembling modern concrete that was made from crushed rock with burnt lime as binder. The volcanic ash and pulverized brick additives that were added to the burnt lime to obtain a hydraulic binder were later referred to as cementum, cimentum, cäment, and cement. Cement used in construction is characterized as hydraulic or non-hydraulic. Hydraulic cements (e.g., Portland cement) harden because of hydration, chemical reactions that occur independently of the mixture's water content; they can harden even underwater or when constantly exposed to wet weather. The chemical reaction that results when the anhydrous cement powder is mixed with water produces hydrates that are not watersoluble. Non-hydraulic cements (e.g. gypsum plaster) must be kept dry in order to retain their strength. *Corresponding Author

2 The most important use of cement is the production of mortar and concrete the bonding of natural or artificial aggregates to form a strong building material that is durable in the face of normal environmental effects. Concrete should not be confused with cement, because the term cement refers to the material used to bind the aggregate materials of concrete. Concrete is a combination of a cement and aggregate. INDIAN MARKET The Indian cement industry is the 2nd largest market after China accounting for about 7-8% of the total global production. It had a total capacity of about 330 m tonnes (MT) as of financial year ended Cement is a cyclical commodity with a high correlation with GDP, growing at around 1.2x of GDP growth rate. The housing sectoris the biggest demand driver of cement, accounting for about 64% of the total consumption. The other major consumers of cement include infrastructure (17%), commercial & institutional (13%) and industrial segment (6%). Despite the fact that the Indian cement industry has grown at a commendable rate in the last decade, registering a compounded growth of about 8%, the per capita consumption still remains substantially poor when compared with the world average. This 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 it 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 Copyright 2012 Published by IJMRR. All rights reserved 2157

3 the central region. The Southern region of India has the highest installed capacity of about mtpa. Given the high potential for growth, quite a few foreign transnational companies have ventured into the Indian markets. Already, while companies like Lafarge, Heidelberg and Italicementi have made a couple of acquisitions, Holcim has increased its stake in domestic companies Ambuja Cements and ACC to over 50% to gain full control. Consolidation has taken place with the top two cement groups controlling nearly one-third of the total domestic capacity. However, the balance capacity still remains quite fragmented. In 2010, the world production of hydraulic cement was 3,300 million tonnes. The top three producers were China with 1,800, India with 220, and USA with 63.5 million tonnes for a combined total of over half the world total by the world's three most populated states. For the world capacity to produce cement in 2010, the situation was similar with the top three states (China, India, and USA) accounting for just under half the world total capacity. GLOBAL MARKET For the past 18 years, China consistently has produced more cement than any other country in the world. [...] (However,) China's cement export peaked in 1994 with 11 million tonnes shipped out and has been in steady decline ever since. Only 5.18 million tonnes were exported out of China in Offered at $34 a ton, Chinese cement is pricing itself out of the market as Thailand is asking as little as $20 for the same quality. In 2006, it was estimated that China manufactured billion tonnes of cement, which was 44% of the world total cement production. "Demand for cement in China is expected to advance 5.4% annually and exceed 1 billion tonnes in 2008, driven by slowing but healthy growth in construction expenditures. Cement consumed in China will amount to 44% of global demand, and China will remain the world's largest national consumer of cement by a large margin." Copyright 2012 Published by IJMRR. All rights reserved 2158

4 In 2010, 3.3 billion tonnes of cement was consumed globally. Of this, China accounted for 1.8 billion tonnes. Copyright 2012 Published by IJMRR. All rights reserved 2159

5 RESEARCH METHODOLOGY Research methodology is a technique, which provides the building structure to carry out research in various areas. The researcher shall follow following Procedure: Research design: The proposed study will be exploratory in nature and a sample of top 10 companies have been selected, which may be given as below: Lafarge Cement ACC Ltd. is the largest Player with a capacity of mtpa. Ultra Tech. Cement Ltd.: now occupies the second slot with capacity of 17 mtpa. The Gujarat Ambuja group has emerged as the third largest player with a capacity of mtpa. Grasim ranks fourth with a capacity of mtpa. Other leading players include-india cements, JK Cement, Jaypee Group, Century Copyright 2012 Published by IJMRR. All rights reserved 2160

6 Cement, Madras cement and Birla Group. Area of the Study: The study shall be conducted in above top ten cement companies, with the help of detailed questionnaire and Personal interview of the marketing executives, to understand marketing policy and strategies of these companies. Period of Enquiry: The proposed research work will be conducted at micro level for which the study period will be for the year 2005 to 2012 or till the submission of the study. Collection of Data and Analysis: The study will be based on both Primary and secondary data. Primary data shall be collected through a detailed questionnaire and Personal interviews, but secondary data will be obtained from the records of the sample companies. Tabulation, Analysis and Interpretation of data and information: Collected data shall be logically arranged in the form of tables, which will be analyzed using appropriate statistical and mathematical devices. These data shall be used to test hypothesis, to achieve objectives of the study. Statistical Tools to be used: The study shall consider market strategy and strategic management as independent variables in cement Industries and Corporate performance as dependent variables. Multiple regression analysis technique may be used to analyze the influence of independent variables: sales, quality, Management Policy, dependent variables- Profitability, capacity utilization, EPS (Earnings Per Share) etc. Further t and f tests shall be used to check the level of significance of regression coefficients. Conclusions and Suggestions: In the end findings of the research Study will be given with appropriate suggestions so as to make the marketing strategies more effective for cement sector. ANALYSIS Based on the audited data available on net, a comparison of big indigenous players has been made in the following aspects: Net Sales: Copyright 2012 Published by IJMRR. All rights reserved 2161

7 Net Profit: Copyright 2012 Published by IJMRR. All rights reserved 2162

8 Net Profit Ratio: FACT AND FINDINGS During the financial year (FY12), India s cement production grew by 6.2% year-onyear. The muted growth was mainly attributable to slowdown in construction activities, extended monsoon, delay in infrastructural projects and the overall downturn in the economy. As such, the capacity utilization levels stood lower at 73.7%. The industry witnessed high operating costs, particularly those of energy and freight. The price of imported coal went up sharply. The steep depreciation of the rupee and hike in diesel prices further aggravated the concerns. However, the industry witnessed some recovery in demand from November 2011 onwards. According to the Cement Manufacturers Association (CMA), cement sales for May 2012 were registered at million tonnes (MT), which signifies a 14 percent growth over the same period in Although India is one of the largest cement markets in the world, its per capita consumption is only around 170 kg, much lower than the global average consumption of about 430 kg. According to the latest report from the working group on the industry for the 12th five-year Plan ( ), India would require overall cement capacity of around 480 million tonnes. This would mean the industry will have to add another 150 million tonnes of capacity during the period. Copyright 2012 Published by IJMRR. All rights reserved 2163

9 Leading players in this sector (by market share) are Shree Chem, Ultratech, Ambuja, Binani, ACC, India Cement, Dalmia Cement, Madras Cement, Lafarge, and OCL India. Cement is one of the core industries which plays a vital role in the growth and development of a nation. The industry occupies an important place in the Indian economy. India ranks as the second largest producer of quality cement in the world. There are 139 large cement plants and over 365 mini cement plants in India. The country has a total of 40 players in the industry currently. The demand for cement, being a derived one, depends mainly on the industrial activities, real estate business, construction activities and investment in the infrastructure sector. With the ever-increasing requirement for infrastructure, in addition to the onset of various Special Economic Zones (SEZs) being developed across the country, there is a huge demand for cement. India's 330 million tonne (MT) cement industry grew by 6.4 per cent in FY12, on back of robust demand revival in the second half of the year. The industry sold MT of the building material, compared with MT in FY11. "India's cement market is expected to see demand growth rate double and pricing power improve in FY13-14," as per a research report by Anand Rathi. CONCLUSION Housing segment growth is leading to higher demand for cement for homebuilding. Government s 12th Five Year Plan focuses on increasing infrastructure (upgraded airports, ports, railway expansion, etc.) to drive construction activity. Rise in commercial and retail spaces, along with hotels in near future, will account for increased demand for cement. Use of alternate fuels will help reduce low production costs and emissions and further drive this sector. There is an increase in the sale of blended varieties of cement - Portland Pozzolana Cement (PPC) and Portland Blast Furnace Slag Cement (PBFC) Innovative/latest techniques are being applied as model given below: - Copyright 2012 Published by IJMRR. All rights reserved 2164

10 SUGGESTION Though cement is the most preferred construction material in both housing and industrial works, its demand is directly linked to the development and growth of others industry domains, such as construction, infrastructure, finance, etc. The housing segment that accounts for a major portion of domestic demand for cement in India is expected to witness a demand of 4.3 million housing units between 2010 and Government initiatives to boost infrastructure development and ease transportation costs should keep the demand for cement on a consistent rise. Furthermore, there are unexplored markets in the country, like the undersupplied North-east region, that are currently experiencing increasing demand for cement FUTURE SCOPE The growth of the Indian economy has slowed down in recent times on account of the rising inflation, high interest rates, high prices of commodities and fuels. The growth prospects of the cement industry are closely linked to the growth of the overall economy in general and the real estate and construction sectors in particular. The importance of the housing sector in cement demand can be gauged from the fact that it consumes nearly two-thirds of the country s total cement. If the slowdown in real estate persists for an extended period, it would impact the growth in consumption of cement. However, the long term drivers for cement demand remain intact. Higher infrastructure spending, robust growth in rural housing and peaking interest rates are likely to augur well for the cement industry. The government plans to spend US$ 1 trillion on infrastructure in the 12th five year plan period ( ). The same during the 11th plan period was US$ 514 bn. The focus on infrastructure development is expected to boost cement demand. REFERENCES: 1. Copyright 2012 Published by IJMRR. All rights reserved 2165

11 2. Scalenghe R, Malucelli F, Ungaro F, Perazzone L, Filippi N, Edwards AC. Influence of 150 years of land use on anthropogenic and natural carbon stocks in Emilia-Romagna Region (Italy). Environmental Science & Technology 2011; 45 (12): EIA-Emissions of Greenhouse Gases in the U.S Carbon Dioxide Emissions 4. The Cement Sustainability Initiative: Progress report, World Business Council for Sustainable Development, published Natesan M, Smith S, Humphreys K, Kaya Y. The Cement Industry and Global Climate Change: Current and Potential Future Cement Industry CO 2 Emissions. Greenhouse Gas Control Technologies-6th International Conference. Oxford: Pergamon. 2003; Chandak S. Report on cement industry in India. scribd. Retrieved 21 July Website of the major cement players. Copyright 2012 Published by IJMRR. All rights reserved 2166