05 Chapter 2
05 Chapter 2
05 Chapter 2
Cement overview
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
21
CHAPTER 2
CEMENT INDUSTRY ANALYSIS
2.1
Cement Overview
Cement is one of the core industries which plays a vital role in the growth and
expansion of a nation. It is basically a mixture of compounds, consisting
mainly of silicates and aluminates of calcium, formed out of calcium oxide,
silica, aluminium oxide and iron oxide. The demand for cement depends
primarily on the pace of activities in the business, financial, real estate and
infrastructure sectors of the economy. Cement is considered preferred
building material and is used worldwide for all construction works such as
housing and industrial construction, as well as for creation of infrastructures
like ports, roads, power plants, etc. Indian cement industry is globally
competitive because the industry has witnessed healthy trends such as cost
control and continuous technology upgradation.
The Indian cement industry is extremely energy intensive and is the third
largest user of coal in the country. It is modern and uses latest technology,
which is among the best in the world. Also, the industry has tremendous
potential for development as limestone of excellent quality is found almost
throughout the country.
2.2
In 1914, Indian Cement Industry began its journey with a single plant of 1000
tonnes per annum at Porbandar in Gujarat. Since then, India has emerged as
the worlds second largest cement producing country after China. At present,
there are 81 cement companies with around 206 major cement plants and a
total capacity of about 358.64 million tonnes. Besides, there are mini and tiny
cement plants, which have an estimated capacity of about 10 million tonnes.
The Indian cement industrys existence for the last 98 years is marked by the
roller coaster ride it underwent ever since its inception in 1914. From the days
of scarcity, rigid controls, and imports, the cement industry today has come a
long way from a sellers market to a buyers market.
22
At present, the Indian cement industry has 81 large companies, which have
about 206 major plants with an aggregate capacity of about 358.64 million
tonnes. The 206 major plants comprises of about 146 integrated plants and
60 grinding units. This does not include mini and tiny cement plants, which
have an estimated capacity of about 10 million tonnes. Further, there are
about 50 companies making efforts to set up their cement plants. This
phenomenal growth is a result of 98 years of anomalous and grueling
transition.
2.2.1 Origin
The first ever reference of cement production in India is recorded in
George Watts Directory of Economic Products of India, published in 1889,
which stated:
Portland cement was being made in Calcutta from argillaceous Kanker.
However, the first organised attempt to manufacture the cement was made in
1904 by the Madras-based South India Industries Limited but this venture
failed. It was in October 1914 that the cement produced at Porbandar in
Gujarat by Indian Cement Corporation Limited saw the light of the day. It had
an installed capacity of 1000 tonnes per annum.
In the next two years, couple of more cement plants came up, one at
Katni in Madhya Pradesh and other at Lakheri in Rajasthan. By 1918, these
three cement plants together churned out 85,000 tonnes of cement per
annum.
23
Table -1
Indias 24 growing Cement Companies at a glance
Sr.
No.
Companies
2012
Plants
1.
48.75
22
2.
ACC Ltd.
30.08
14
3.
27.00
13
4.
24.50
14
5.
15.33
09
6.
14.44
08
7.
13.50
06
8.
11.50
03
9.
9.00
03
10.
03
11.
7.75
04
12.
7.47
04
13.
7.25
02
14.
7.00
04
15.
6.46
07
16.
6.25
02
17.
6.20
03
18.
6.10
02
19.
5.35
02
20.
5.30
03
21.
My Home Industries
5.20
02
22.
JSW Cement
5.20
02
23.
Orient Cement
5.00
02
24.
Bharathi Cement
5.00
01
Total
287.43
135
24
Between 1919 and 1924, six more plants were setup and the
capacities of three old plants were also expanded. By end of 1924, the
strength of cement plants rose to 10 with a total installed capacity of 0.56
million tonnes per annum.
25
Table 2
Five Year Planwise Install Capacity and Production of Cement
Five
Year Plans
Terminal
Capacity
Production
Plants
Period
Year
MTPA
MTPA
Pre Plan
1950-51
1951
3.28
2.20
I Plan
1951-56
1956
5.02
4.60
II Plan
1956-61
1961
9.30
7.97
III Plan
1961-66
1966
12.00
10.97
IV Plan
1969-74
1974
19.76
14.66
VPlan
1974-79
1979
22.58
19.42
VI Plan
1980-85
1985
42.40
30.13
VII Plan
1985-90
1990
61.31
45.41
VIII Plan
1992-97
1997
105.26
76.22
IX Plan
1997-02
2002
146.13
108.40
X Plan
2002-07
2007
202.64
165.56
XI Plan
2007-12
2012
298.00
XI Plan
2007-12
2012
(Estimated)
26
In September 1977, the Janata Government took the first positive step
by assuring a 12 per cent post-tax return to cement companies on their net
worth and it brought a resolution. It, inter alia, read: "Government had also
been examining the question of fixation of price for controlled commodities
and it had accordingly been decided that the ex-works price of new cement
units should be fixed on the basis of a net post tax return of 12 per cent on net
worth". The government's step for 12 per cent post-tax return attracted big
industrial houses to the field of cement and L&T and Chowgule were among
the first few entrants.
In late 70's, for the first time, the Janata Government encouraged
setting up of mini and tiny cement plants. The main objective was to avail the
scattered limestone deposits in small quantities and meet the local demands.
The Cement Research Institute of India (CRJ), now known as National
Council for Cement and Building Materials (NCB), came out with its VSK
technology for mini and tiny cement plants. The Jorhat based Regional
Research Laboratory (RRL) also offered its VSK technology, particularly for
tiny plants with capacity ranging from 20 TPD to 35 TPD. Interestingly, tiny
cement plants came under the category of small scale sector.
27
Table-3
State-wise Major Cement Plants and Capacities at a glance
Sr.
No.
No.
States
of Capacity
No.
of Capacity
Plants
MTPA
Plants
MTPA
2010
2010
2012
2012
Andhra Pradesh
33
55.92
44
79.45
Assam
01
0.20
04
2.73
Bihar
01
1.15
01
1.00
Chhattisgarh
09
12.81
10
16.11
Delhi
01
0.50
01
0.50
Gujarat
15
27.37
14
27.49
Haryana
03
2.97
04
3.52
Himachal
06
11.20
07
13.04
Jammu
& 01
0.40
02
0.76
Kashmir
10
Jharkhand
03
5.18
04
8.6
11
Karnataka
13
23.61
13
24.4
12
Kerala
02
0.62
02
0.62
13
Madhya Pradesh
11
21.88
10
26.16
14
Maharashtra
09
16.40
10
23.00
15
Meghalaya
04
1.86
08
6.77
16
Odhisa
04
7.55
05
7.79
17
Punjab
03
4.75
03
4.75
18
Rajasthan
20
41.45
21
45.62
19
Tamil Nadu
19
32.88
20
38.89
20
Uttar Pradesh
09
12.14
11
13.83
21
Uttarakhand
03
4.00
03
4.00
22
West Bengal
08
7.73
09
9.61
Total
178
292.57
206
358.64
28
The success stories of the first three mini plants and few others,
coupled with government's policy and attractive incentives, over 300 mini and
tiny cement plants mushroomed all over the country. But later, about 80 per
cent of them have gone out of operations owing to various reasons.
In 2003, there were only about 60 mini and tiny plants in operation with
an installed capacity of 6.3 million tonnes. Incidentally, Andhra Pradesh was
the only State where about a dozen mini cement plants were in operation,
mostly rotary kiln plants. In recent years, seven of them have stepped up their
capacities and have become major plants.
2.2.2 Watershed
The 80's came to be the 'watershed' of the cement industry. The partial
de-control policy announced on February 28th 1982 was instrumental in
phenomenal growth of the cement industry. Under this policy, the levy cement
quota was fixed at 56.6 per cent of capacity for existing units and 50 per cent
for sick units. For new units, starting commercial production after January 1,
1982, levy quota was fued at 37.5 per cent in the first year; 42.5 per cent for
the second year, and 50 per cent thereafter. Production in excess of the levy
cement quota was allowed for sale in free market outside price and
distribution controls. The country's hopes of self-sufficiency in cement
production were realized within a short span of five years from partial
decontrol in 1982.
This decade had been unique in the history of cement industry in more
than one way. During this period, the industry had not only made quantitative
and qualitative jumps in matter of addition of capacity and adoption of new
technologies but also experienced a totally free market after lapse of almost
50 years, i.e. after total decontrol of cement from March 1989.
29
2.3
For the first time, during the World War II, the control was imposed on
price and distribution of cement and in August 1942 as it was declared as
essential commodity under the Defence of India Rules. About 90 per cent of
the total production was acquired for defence use. The price was fixed on cost
plus basis. As government needs decreased towards end of the War, surplus
stocks were released for civilian consumption at fixed prices.
Based upon the task of rendering better standards of living for its
people, the new government gave top priority to food and shelter
programmes. Cement was needed the most. As a sequel, in the first five year
30
plan, 1951-56, the government fixed the capacity and production targets for
cement at 5.02 million tonnes and 4.60 million tonnes, respectively. By the
end of this plan in 1956, there were 27 units with a capacity of 5 million
tonnes. The production touched a level of 4.6 million tonnes.
During the second five-year plan, 1956-61, the capacity was increased
from 5 million to 9.3 million tonnes and the actual production soared from 4.6
million to 8 million tonnes. The number of units went up from 27 to 34. New
types of cements like white cement and Portland blast cement were also
manufactured during this plan period.
Besides this, the cement companies have gone in for setting up high
capacity integrated plants, more number of grinding units, increased use of fly
ash, opted for the world's best and latest technologies, established coal based
captive power plants and waste heat recovery plants. During the decade, the
industry has also attracted six cement multinationals, namely - Cimpor of
Portugal, CRH of Ireland, Heidelberg of Germany, Holcim. of Switzerland,
Italcementi of Italy, and Vicat SA of France to invest in India's cement sector.
These companies made initial investment of about Rs 5600 crores. Now,
there are seven cement MNCs in India and they control a capacity of about 86
million tonnes, which is about 24 per cent of the country's total capacity.
In fact, the year 2007, which had started with momentous expansion
plans, also coincided with the commencement of the XIth Five year plan
(2007-12)
32
There total 200 large Cement plants having total capacity of 360 MTPA
There are total 365 small Cemant plants including white Cement Plants
having total installed Capacity of 11.1 MTPA
The Indian cement industry is the second largest producer in the world
comprising of 183 large cement plants and 365 mini cement plants
During the year 2011-12 total production in the Western region was
45.4 MTPA
33
34
2.5.2 Statistics
According to Ministry of Commerce & Industry data for November
2012,cement production registered a negative growth of (-) 0.2 per cent in
November 2012 against its 17.0 per cent growth in November 2011. The
cumulative growth of cement production was 6.7 per cent during AprilNovember 2012-13 compared to its 4.8 per cent growth during the same
period of 2011-12
.
2.5.3 Key Drivers of Cement Industry
Ultratech Cement
Century Cements
Madras Cements
ACC
Grasim Industries
JK Cements.
Holcim
Lafarge
Heidelberg Cemex
Moreover
to
meet
demand
the
intensive industry which means that in order to produce the product huge
capital investment is required and once it has reached its optimum production
capacity in order to increase its production new investment have to be
made.In the span of last ten years companies have expanded their production
and have reached to a level where they were forced to find another option to
expand their capacity then incurring additional cost. So the companies came
up with PPC (Portland Pozolana Cement) which is prepared by mixing fly ash,
volcanic product etc., which helped manufacturers to increase their production
by 25 to 30 % from the existing set up. Switching to PPC was not just to
increase production but the government had made it mandatory for the
companies located in the 100 Km radius of any thermal power station to use
fly ash in cement production as an environment protection constraint.
2.6.2 Packaging
Unlike other consumer products packaging doesnt play major role in
marketing of cement as cement is generally used at construction site where
fancy packing isnt required .Initially cement was packed in Jute bags but the
packing had to be changed to HDPE bags because there was a heavy loss to
companies because of damage caused by packing. There was heavy transit
loss because of leakage of cement from the jute bags during the transit and
moreover the product got damaged due to moisture content. So in order to
protect the product from seapage and moisture HDPE bags were used. In big
cities there are huge construction projects going on in which cement is
required in big quantities and so the builders have come up with the concept
of Ready Mix Concrete commonly known as RMC in cement industry. The
builders prefer to buy loose cement in huge quantity so they can save on time
and labour. This concept has helped cement companies on saving a huge
amount on packing and reduction in transit cost as bulk quantity of loose
cement is transported in bulkers directly to the place of production.
2.6.4 SalesPromotion
In order to survive competition companies had adopted all possible marketing
techniques and only place where they could improvise more was sales
promotion activities. As cement traders and masons are biggest influencers in
purchase of cement, cement manufacturing companies started giving various
incentive schemes to these influencers to ensure their inclination towards their
brand. They gave various schemes to traders ranging from small household
item to foreign tours. These schemes were based on sale of targeted quantity
for short term as well as long term. For short term schemes gifts like
household items like air conditioners, refrigerator, television and other home
appliances were provided; even schemes for gold and silver coins were
announced and for long term schemes,tours were announced which included
domestic as well as foreign tours depending on the quantity sold. Few
companies also offered kind scheme of cars and two wheelers on
achievement of specific quantity in the long term. To attract masons
companies arranged masons meets on regular basis which consisted of
presentation on companies products and activities followed by dinner and
distribution of various gifts. Companies also offer them annual calendar and
diaries and other small gifts and give aways at regular intervals to be in touch
with them on regular basis.
38
Category
Definition
A product is seen as an item that satisfies what a
consumer needs or wants. It is a tangible good or an
intangible service.
Every product is subject to a life-cycle including a growth
phase followed by a maturity phase and finally an eventual
period of decline as sales falls. Marketers must do careful
research on how long the life cycle of the product they are
marketing is likely to be and focus their attention on
different challenges that arise as the product moves
Product
The
marketer
must
also
consider
product
development strategies.
The amount a customer pays for the product. The price is
very important as it determines the company's profit and
hence, survival. Adjusting the price has a profound impact
on the marketing strategy, and depending on the price
Price
strategies
39
are: market
skimming pricing,
market penetration
pricing and
neutral
pricing.
The
relations, personal
cinema
commercials,
radio
and
Internet
any
apparently
informal
for
consumers
to
access.
40
2.7.1 PRICE
For all the commodities Prices are generally decided by demand supply gap,
which largely prevails in cement industry too. Cement as a product doesnt
has much differentiation. The cement provided by various companies is more
or less the same, so there is not much difference in the pricing of cement by
various companies. Due to various advertising and marketing strategy the
cement companies have been able to categorize themselves into three
categories i.e A, B & C. The price difference between various categories is 2
Rs to 4 Rs Per bag.
Prices of cement are decided not only on the basis of manufacturing cost but
it also includes logistic cost & government levies. Cement companies are
offering cement at FOR basis (Supplying at doorstep), so logistic cost plays a
vital role and in order to reduce the logistic cost cement companies prefer to
supply cement to nearby regions or they keep higher prices in far off places.
Cement price fluctuation are cyclic in nature. According to the demand prices
generally fall into four categories.
Apr- June (High demand High price) During the period of April to June the
demand is generally higher as compared to other months, as no festivals fall
during this period. As this is prefix period to monsoon season, pre-monsoon
demand also picks up the demand during this period. Due to greater demand
the prices are also higher as compared to other months. Prices during this
period generally fall in range of 250 Rs per bag to 280 Rs per bag.
July Sept (Low demand Low price) During the period of July to
September the demand is relatively low due to monsoon season and festivals
like Janmashtami. Major construction activities is at hold due to monsoon and
retail demand is also low as farmers are busy with farming activities & labours
are also diverted towards farming activities. As the demand is low, prices
remains under pressure during this period. Prices generally range from 220
Rs per bag to 240 Rs per bag.
41
Jan March (High demand High price) Period from January to March is
period of high demand as this is the last quarter of financial year and there is
no major festival other than holi which normally falls during last fortnight of
March. Due to financial year end all government contractors speed up their
activities to ensure the completion of work before year end. Due to high
demand the prices generally remain high. Prices fall in the range of 250 Rs
per bag to 280 Rs per bag.
2.7.2 PLACE
Place plays an integral role in cement industry as logistic cost is 3% to 5% of
the total cost for retail customer, so it is very important for cement companies
to have a well planned and wide spread network. For this purpose cement
companies opens dumps at strategic locations so they can ensure timely and
cost effective delivery to the network and customers. Dumps are the store
houses
owned
by
company
where
they
transfer
their
stock
from
42
2.7.3 PROMOTION
As cement was a commodity there was not much differentiation between
brands but after decontrolling of cement industry, cement companies started
building brand image. In order to create brand image, promotion played a very
important role. Initially they started by creating specific logos and design for
their bags. Gradually they moved to advertising means like wall painting,
newspaper advertisement, television and radio. As these medium were used
by all the cement companies, so in order to differentiate their product a need
for other innovative means of promotion was also required.
They stared distributing gift articles like pens, key chains, pocket diaries, tea
coasters, wall clock, table pieces, pen stands, calendars, annual diaries for
dealers and customers. They started offering gold scheme, domestic and
foreign tours, scholarship programme for dealers kids etc.
With help of such intensive promotional activities companies have been able
to create a unique identity for themselves, which in turn helped them to
increase their market share and gain a competitive edge over the competitors.
43
As a result of this the customers also became aware about cement as a brand
rather than a commodity.
2.7.4 Product:CEMENT in itself is not just one product. It has sub categorized itself in sub
products to cater various needs of customers. Following are the various types
of cement.
OPC 53 Grade:
It may be used in all types of multistoried buildings like IndustrialInstitutional, Residential as well as commercial.
RCC Hume Pipes for Storm Water Drainage, Water Supply etc of
diameter up to 2600mm diameter are manufactured by using this
cement.
OPC 43 Grade:
44
PPC:
Bureau of Indian Standard has specified it under IS: 1489 (Part-I for Fly
Ash Based) (Part-II for Calcined Clay Based).
46
Masonry Cement:
This cement is used to make masonry mortar for use in brick, block,
and stone masonry construction.
47
Formwork can be removed earlier and the structure can be used very
soon by using this cement.
Oil well cement is used in the production and exploration of oil and gas
onshore as well as deep water offshore wells.
Oil well cement slurries are designed for many purposes, from the
establishment of the well's safety and structural integrity during drilling,
to the isolation of the zone of interest and the production of oil and gas
upon completion.
48
Concrete produced with Low Heat Cement may require less water to
achieve a specified level of workability when compared to a concrete
produced with OPC.
49
Distributor, Dealer, retailers and the C&F agents play most important role in
distribution channel. Companies identify reputed traders preferably dealing in
building materials or allied products and appoint them as a distributor/ Dealer.
These distributor/ dealer sell cement to consumer as well as small retailers.
Dealers sell it directly to the builders who are big customers. Retailers are
small traders who have set up retail counters in various corner of the city and
sell directly to the consumers. Retailers have two type of customer base
which are builders who are large customers as well as small consumers which
includes contractors, individual house builders etc. Companies higher godown
nearby big markets and stock huge amount of material in those godowns.
C&F agents are appointed to redistribute material from the godown to dealers,
distributors, retailers & customers. This is a traditional means of distribution
wherein the material is transferred from plant to Godowns with C&F, from
where it is redistributed to dealers & retailers which in turn is sold to the
customer.
To expand their market reach apart from the traditional means companies
have also started setting up separate grinding and packing units at strategic
locations.
50
52
have to be proactive and vigilant in deciding the prices in order to get the best
price and best volume.
All these additional efforts put in by some players did pay them by
establishing their brand image as a Superior Quality in mind of consumers.
Such perceived image of quality has become a big challenge for the
industry.
Thus we can say that there is two type of quality in the industry
1.
2.
53
All these aggressive efforts made by few companies to build their brand
posed a challenge for all the companies, not only to provide good quality
product but also to carry out various advertising tactics to build their brand.
Due to this all the cement companies were forced to follow the league and
had to adopt various means of promotion already adopted by many
companies and were also forced to introduce many new means of promotion
in order to differentiate their product from others.
It has been almost 28 years since cement has been decontrolled, since then
industry has witnessed high level of competition which has forced all the
players to create their brand image in the minds of customer so they can fetch
premium prices over competitors. But slowly all the companies started
replicating the activities undertaken by any pioneer company and so the
companies were forced to control their cost in order to ensure reasonable
profits during the lean period i.e. when the demand is low and prices are
under pressure.
Three major factors affect the cost of cement which are logistic (18 to
20%), excise (12.36%), and VAT (15%), of which excise and VAT are
government duties and thus cannot be controlled by manufacturer, so the only
cost that is in the hands of manufacturer is the logistic cost and in order to
reduce the logistic cost the companies try to sell their production in the nearby
areas. This strategy is clearly visible in the cluster wise market share of some
companies, like few companies of Gujarat are having 20% to 30% market
share in the areas near to their plant but while considering the market share of
entire state their share falls below 10%.
try to sell their product with minimal logistic cost. Largely this is applicable to
all the cement plants but as the big companies have huge production capacity
at the single plant they have low cost of production and so they can afford to
distribute their product at far off places at a slightly higher price. But the small
players have limited production capacity so they try to increase their profits by
saving on the logistic cost by selling in a limited area, and this technique of
saving on logistic cost is shrinking their area of operation.
The above mentioned tactics are generally costly and are effective only if it
does not impact the overall profitability of a company. Companies which have
operations all over India or which cover a major part of India can afford to
have jazzy Advertisement and glossy sign boards but it becomes difficult for
56
regional companies which operate on a small scale to match up with the big
players. These companies rather spend on POP material and local activities
like Grahak Mela, Kadiya Naka etc which helps them to stay afloat in the
market and have a small but significant share in the overall cement sale.
During the late 80s to mid 90s cement network was by and large
exclusive for one company which means traders of cement were mainly
dealing with single brand. But with the passage of time and due to increased
competition in the market major cement companies started increasing their
reach to all available cement counters in the market which gave birth to multi
brand counters.
Cement companies had put in very hard effort to build their brand at
consumer level but they realized that it was equally important to have loyal
and motivated network. Cement merchants are the local traders who possess
good reputation in the town/village. They had a great influence on the minds
of consumers, such that even when a customer came with a pre determined
mind regarding the cement brand to be bought these merchants had the
ability to influence their decision and change their mind. So in such scenario it
became very important for every cement company to keep their network
happy and motivated to ensure their loyalty and get maximum share from
multi brand counters. In order to lure the network companies offered various
scheme other than routine discounts like cash discount, Quality discounts etc.
Such offers/ Discounts can broadly be categorized in following parts.
Motivational Offers
Companies also give annual domestic and foreign tours to dealers based on
their sales quantity. Other than such tours companies also give annual kind
58
scheme (mostly gold) on the quantity sold by them. Moreover few companies
also give long term scheme (2 to 3 years) in which they reward few points on
every purchase which can be redeemed by dealers against the purchase of
various items like cars, bikes or other house hold appliances.
Hidden discounts
Companies also give some hidden discount in form of credit notes on the
basis of past performance. This keeps the dealers motivated to stick to a
particular company as switching over to another company may make them
lose their hidden discount on quantity sold during past years.
All such various schemes provided to the networks proves that network
is a very important influencer in cement industry and companies keeps on
providing various incentive and scheme not only to keep their network intact
but also to convert other dealers into selling their product.
2.9
SWOT ANALYSIS
2.9.1 Strengths:
Low cost of production: due to the easy availability of raw materials and
cheap labour.
2.9.2 Weakness:
Effect of global recession on real estate: The real estate prices are
stabilizing and facing steady slowdown especially in metros. There are
approximately twenty thousand completed flats without occupancy in
Ahmedabad. There has been drastic reduction in property prices due to
reduced demand and increased supply.
2.9.3 Opportunities:
Strong growth of economy in the long run: Indian economy has been
one of the stars of global economics in the recent years
Foreign direct Investment in the Retail and other Sector may surge
demand of Cement in coming years.
60
2.9.4 Threats:
62