India Cement Industry 4Q09
India: Cement covers the overview of the cement industry in India, risk factors, concern, cost structure, business characteristics, significant consolidations and market share of major cement producers. It also covers the demand cycle, demand drivers, cement consumption, installed capacity, production, demand-supply dynamics, regional disparity, exports, prices, Union Budget FY2007, market outlook, plus the profile, comparative matrix and SWOT analysis of the industry leading players: ACC Limited, UltraTech Cement Limited, Gujarat Ambuja Cements Limited, Grasim Industries Limited and India Cements Limited
India is the second largest producer of cement in the world next to China. The cement industry contributes approximately 6% of the overall global production. This position has been achieved because of India’s sustained growth at an average rate of 8.1% per year between 1981 and 2008. The installed capacity of the industry was 198 million tonnes per annum in 2008. Meanwhile, domestic consumption and exports stood at 173 million tonnes and 6 million tonnes respectively in 2008. The cement consumption, on a conservative basis, is likely to go up to 225 million tonnes by 2010-2011.
Outlook
Key Positives | Key Negatives |  Real estate & housing boom:Cement demand has picked up in the last few years owing to strong surge witnessed in the real estate and construction industry. Apart from this on going demand for housing has augured well for the cement sector. Considering the steep shortfall in dwelling units in the country, prospects for the sector looks promising. |  Spiraling input costs:Cement is a commodity business and any company's ability to maintain margins is dependent on factors like access to coal and stable transportation cost apart from favourable pricing environment. The rise in input costs like coal prices and hike in petroleum product prices could pressurise margins. |  M&A activities:With recent spate of mergers and acquisition, the industry is becoming a lot more consolidated now than it ever was in the past. Top five players account for almost 50% of capacity. Foreign players are picking up stake in domestic players and big industrial companies are driving the consolidation. This is going to improve efficiency apart from providing pricing power. |  Rising interest rates:Interest rates are showing signs of hardening. The impact of this on housing demand will play a crucial role on the future prospects of the sector. The importance of the housing sector in cement demand can be gauged from the fact that it consumes almost 70% of the country's cement. If this support wanes, it could tilt the odds against the cement manufacturers. |  Infrastructure spending:The ongoing road construction project, airport privatization and river linking projects are fundamental long-term growth drivers for the industry. The Golden Quadrilateral project is already in its final leg, albeit delayed. Accelerated spending in infrastructure is likely to mute the cyclicality aspect of the cement business. |  Slow pace of reforms:Infrastructure spending, in the recent past has been largely restricted to the government. The private sector has not been provided with adequate impetus in this regard. Liberalizing FDI in the public infrastructure sector could provide a big fillip. |  Demand-supply dynamics:Unlike the last decade, the oversupply situation in the cement sector has reduced because of growing demand, thus bringing along with it some degree of pricing power. So, the operating profit growth has been faster than the top line growth and the scenario is likely to continue in the near to medium term. |  Massive capex need:On account of favourable pricing scenario and growing demand for the commodity, almost all the players have lined up capacity expansion plans. The announced capacities are expected to be operational by the end of calendar year 2008 leading to a situation of excess supply, driving down the current high realizations after couple of years. |