cement sector analysis report

ement Sector Analysis Report 41 [Key Points | Financial Year '13 | Prospects | Sector Do's and Dont's] The Indian cement industry is the nd lar!est mar"et a#ter $hina accountin! #or a%out & o# the total !lo%al production( It had a total capacity o# a%out 3)* m tonnes +,T- as o# #inancial year ended .1/ 13( $ement is a cyclical commodity 0ith a hi!h correlation 0ith DP( The housin! sector is the %i!!est demand dri2er o# cement accountin! #or a%out 4* o# the total consumption( The other ma5or consumers o# cemen t inclu de in#rastr uctur e +13- commercial construction +11 - and indus tria l construction +6-( The Indian cement industry !re0 at a commenda%le rate in the last decade re!isterin! a compounded !ro0th o# a%out &( 7o0e2er the !ro0th has slo0ed do0n in recent years o0in! to the slu!!ishness in the economy( ,oreo2er the per capita consumption o# cement in India still remains su%stantially poor 0hen compared 0ith the 0orld a2era!e( This underlines the tremendous scope #or !ro0th in the Indian cement industry in the lon! term( $ement %ein! a %ul" commodity is a #rei!ht intensi2e industry and transportin! it o2er lon! distances can pro2e to %e uneconomical( This has resulted in cement %ein! lar!ely a re!ional play 0ith the industry di2ided into #i2e main re!ions 2i8( north south 0est east and the central re!ion( The Southern re!ion o# India has the hi!hest installed capacity accountin! #or a%out one/third o# the country's total installed cement capacity( i2en the hi!h potential #or !ro0th 9uite a #e0 #orei!n transnational companies ha2e 2entured into the Indian mar"ets( :lready 0hile companies li"e ;a#ar!e 7eidel%er! and Italicementi ha2e made a couple o# ac9uisitions 7olcim has increased it s sta"e in domestic companie s :m%u5a $ements and :$$ to o2er <. to !ain controllin! interest( $onsolidation has ta"en place 0ith the top t0o cement !roups controllin! nearly one/third o# the total domestic capacity( 7o0e2er the %alance capacity still remains 9uite #ra!mented( Key Points Supply The demand/supply situation is hi!hly s"e0ed 0ith the latter %ein! si!ni#icantly hi!her( Demand 7ousin! sector acts as the principal !ro0th dri2er #or cement( 7o0e2er industrial and in#rastructure sectors ha2e also emer!ed as demand dri2ers( Barriers to entry 7i!h capital costs and lon! !estation periods( :ccess to limestone reser2es +"ey input- also acts as a si!ni#icant entry %arrier( Bargaining power of suppliers ;icensin! o# coal and limestone reser2es supply o# po0er #rom the state !rid etc are all controlled %y a sin!le entity 0hich is the !o2ernment( 7o0e2er no0adays producers are relyin! more on capti2e po0er %ut the shorta!e o# coal and 2olatile #uel prices remain a concern(

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8/10/2019 Cement Sector Analysis Report

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8/10/2019 Cement Sector Analysis Report

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Bargainingpower ofcustomers

$ement is a commodity %usiness and sales 2olumes mostly depend upon thedistri%ution reach o# the company( 7o0e2er thin!s are chan!in! and #e0 %randsha2e started commandin! a premium on account o# %etter 9uality perception(

Competition Intense competition 0ith players e=pandin! reach and achie2in! pan Indiapresence( The industry is a lot more consolidated than a couple o# decades a!o 0itha #e0 lar!e players controllin! su%stantial mar"et share(

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Financial Year 1!

Durin! the #inancial year .1 /13 +FY13- India's cement production !re0 %y < year/on/year +YoY-(The su%dued !ro0th 0as mainly attri%uta%le to slo0do0n in construction acti2ities re!ulatory delaysin in#rastructural pro5ects and the o2erall do0nturn in the economy( :s such the supply !lut resulted inlo0er capacity utilisation le2els(

The industry 0itnessed hi!h operatin! costs includin! all ma5or cost heads such as ra0 materialsener!y and #rei!ht( The steep depreciation o# the rupee and hi"e in rail #rei!ht and diesel prices#urther a!!ra2ated the concerns(

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Prospects

Slo0do0n in demand hi!h in#lation !o2ernment de#icits and 0ea"nesses in the !lo%al economy ha2eresulted in a slo0do0n in India's DP !ro0th( $ement demand is closely lin"ed to the o2eralleconomic !ro0th particularly the housin! and in#rastructure sector( :s such cement demand is li"elyto remain slu!!ish o2er the medium term( 7o0e2er the lon! term !ro0th prospects remain intact!i2en the hu!e untapped housin! demand and positi2e demo!raphics(

7o0e2er the lon! term dri2ers #or cement demand remain intact( 7i!her !o2ernment spendin! onin#rastructure ro%ust !ro0th in rural housin! and risin! per capita incomes are li"ely to au!ur 0ell #or the cement industry( The !o2ernment plans to spend >S? 1 trillion on in#rastructure in the 1 th #i2eyear plan period + .1 /1*-( The same durin! the 11th plan period 0as >S? <1) %n( The #ocus onin#rastructure de2elopment is e=pected to %oost cement demand(

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http://www.equitymaster.com/tm/tm.asp?date=07/24/2013&title=Time-to-focus-on-infrastructure

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