INDIAN CEMENT INDUSTRY

AN INDUSTRY ANALYSIS

BY TEAM SHIVA AYYADURAI

PGPM FLEX - BATCH 6 - 2015-2017

TEAM MEMBERS

JANICE ANTOINETTE XAVIER

MANOJKUMAR RAJENDRAN
PRAVEEN KUMAR
RAMACHANDRAN ELANGO
VENKATARAM G

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 Table of Contents
1. Introduction............................................................................................................ 3
1.1 Cement............................................................................................................. 3
1.2 The Indian Cement Industry...................................................................................3
2. Customers.............................................................................................................. 4
2.1 IHB................................................................................................................. 4
2.2 ICI.................................................................................................................. 4
3. Nature of operations................................................................................................. 5
3.1 Production in Indian Cement Industry.......................................................................5
3.2 Varieties of Cement in India...................................................................................6
3.3 Manufacturing process of Cement............................................................................7
3.4 Region wise Marketing......................................................................................... 8
4. Market Size and Scope.............................................................................................. 8
5. Growth of the Indian Cement Industry...........................................................................9
6. PESTEL Analysis.................................................................................................... 9
7. Structural Analysis of Indian Cement Industry...............................................................11
7.1 Traditional Supply Chain structure.........................................................................11
7.2 Illegal Cartel Structure and its Implications on Indian Cement Industry...........................11
8. Brief on Major Players............................................................................................ 14
9. Investment opportunities in Indian Cement Industry Shares and Revenues..........................17
10. Porters 5 factor analysis on Indian Cement Industry......................................................19
11. Strategies adopted and in progress by some of the major firms..........................................21
12. Future of Cement Industry...................................................................................... 22
12.1 Impending Challenges in Indian Cement Industry.....................................................22
12.2 Opportunities New Business Areas in India..........................................................22
12.3 Opportunities Revised Indian Government Laws...................................................22
12.3 Business strategy suggestions for Indian Cement Industry..........................................24
12.3.1 R&D Innovation Product Mix.....................................................................24
12.3.2 Consolidation and Globalization.....................................................................24
12.4 New Technologies in Cement Industry..................................................................24
12.4.1. Green Cement.......................................................................................... 24
12.4.2. Technology in Marketing Strategies................................................................25
12.4.3 Process Automation.................................................................................... 25
13. Conclusion......................................................................................................... 25
References............................................................................................................... 26

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1. Introduction

1.1 Cement

Cement is the glue that holds the concrete together, and is therefore critical for meeting
society's needs of housing and basic infrastructure such as bridges, roads, water treatment
facilities, schools and hospitals. Concrete is the second most consumed material after water,
with nearly three tonnes used annually for each person on the planet.

Being one of the basic elements for setting up strong and healthy infrastructure, Cement plays
a crucial role in economic development of any country. Having more than a hundred and fifty
years history, it has been used extensively in construction of anything, from a small building
to a mammoth multi-purpose project.

The manufacturing process of cement consists of mixing, drying and grinding of limestone,
clay and silica into a composite mass. The mixture is then heated and burnt in a pre-heater
and kiln to be cooled in an air-cooling system to form clinker, which is the semi-finished
form. This clinker is cooled by air and subsequently ground with gypsum to form cement.

There are three types of processes to form cement - the wet, semi-dry and dry processes. In
the wet/semi-dry process, raw material is produced by mixing limestone and water (called
slurry) and blending it with soft clay. In the dry process technology, crushed limestone and
raw materials are ground and mixed together without the addition of water.

The dry and semi-wet processes are more fuel-efficient. The wet process requires 0.28 tonnes
of coal and 110 kWh of power to manufacture one tonne of cement, whereas the dry process
requires only 0.18 tonnes of coal and 100 kWh of power.

There are different varieties of cement based on different compositions according to specific
end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement, White Cement,
Portland Blast Furnace Slag Cement and Specialised Cement. The basic difference lies in the
percentage of clinker used.

1.2 The Indian Cement Industry

A capital intensive industry: The investment cost of cement plant with a capacity of one
million ton annually is about 120 Million Euros ~ 9000 Million Rs. The buy-back of
investment of a
cement plant is about 8 years, which ranks the cement industry among the most capital
intensive industries.

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An energy intensive industry: Each ton of cement produced requires 60 to 130 kilogram of
Heavy fuel or its equivalent, depending on the cement variety and the process used, and about
105 KWh of electricity.

An industry with low labour intensity: With the development of modern automated
production lines and continuous material handling systems, the cement industry has become a
process industry using a limited amount of skilled labours. A modern plant is usually manned
by less than 150 Employee.

An industry with a homogeneous product: Although produced from natural raw materials
which vary from plant to plant, cement can be considered a standard product. There are only
a few classes of cement and in each class products from different producers can generally be
interchanged. Therefore, price is the most important sales parameter next to customer service.
Quality premiums exist but are rather limited.

India is the second largest producer of cement in the world. No wonder, India's cement
industry is a vital part of its economy, providing employment to more than a million people,
directly or indirectly. Ever since it was deregulated in 1982, the Indian cement industry has
attracted huge investments, both from Indian as well as foreign investors.

India has a lot of potential for development in the infrastructure and construction sector and
the cement sector is expected to largely benefit from it. Some of the recent major government
initiatives such as development of 98 smart cities are expected to provide a major boost to the
sector.

Expecting such developments in the country and aided by suitable government foreign
policies, several foreign players such as Lafarge-Holcim, Heidelberg Cement, and Vicat have
invested in the country in the recent past. A significant factor which aids the growth of this
sector is the ready availability of the raw materials for making cement, such as limestone and
coal.

2. Customers

The customers for Cement Industry in India are varied. They g oy different nomenclatures.
Based on needs and preferences the customers can be broadly classified into

1. Individual House builders - IHB

2. Infar Commercial Industrial ICI

2.1 IHB

They are retail customers. Since they have limited technical knowledge of construction
material - brand value and durability are the top most criteria for selection.

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2.2 ICI
This segment consists of builders and big construction companies who have sufficient
technical knowledge of the product. Quality, price and service are the major consideration
factors for these types of customers.

3. Nature of operations
With nearly 390 million tonnes (MT) of cement production capacity, India is the second
largest cement producer in the world and accounts for 6.7 per cent of worlds cement output.
The cement production capacity is estimated to touch 550 MT by FY 20. Of the total
capacity, 98 per cent lies with the private sector and the rest with the public sector. The top 20
companies account for around 70 per cent of the total production.

A total of 188 large cement plants together account for 97 per cent of the total installed
capacity in the country, while 365 small plants make up the rest. Of the total 188 large cement
plants in India, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
Indias cement production increased at a compound annual growth rate (CAGR) of 6.7 per
cent to 270.32 million tonnes over FY0715. As per the 12th Five Year Plan, production is
expected to reach 407 million tonnes by FY17.

The Government of India is strongly focused on infrastructure development to boost

economic growth and is aiming for 100 smart cities. It plans to increase investment in
infrastructure to US$ 1 trillion in the 12th Five Year Plan (201217). The government also
intends to expand the capacity of the railways and the facilities for handling and storage to
ease the transportation of cement and reduce transportation costs. These measures would lead
to increased construction activity thereby boosting cement demand.

3.1 Production in Indian Cement Industry

The Indian cement Industry majorly focusses on Dry and Semi-dry method of cement
production

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3.2 Varieties of Cement in India

There are some varieties in cement that always find good demand in the market. To know
their characteristics and in which area they are most required, it will be better to take a look at
some of the details given below

Portland Blast Furnace slag cement (PBFSC): The rate of hydration heat is found
lower in this cement type in comparison to PPC. It is most useful in massive
construction projects, for example - dams.

Sulphate Resisting Portland Cement: This cement is beneficial in the areas where
concrete has an exposure to seacoast or sea water or soil or ground water. Under any
such instances, the concrete is vulnerable to sulphates attack in large amounts and can
cause damage to the structure. Hence, by using this cement one can reduce the impact
of damage to the structure. This cement has high demand in India.

Rapid Hardening Portland Cement: The texture of this cement type is quite similar
to that of OPC. But, it is bit more fine than OPC and possesses immense compressible
strength, which makes casting work easy.

Ordinary Portland Cement (OPC): Also referred to as grey cement or OPC, it is of

much use in ordinary concrete construction. In the production of this type of cement
in India, Iron (Fe2O3), Magnesium (MgO), Silica (SiO2), Alumina (AL2O3), and
Sulphur trioxide (SO3) components are used.

Portland Pozolona Cement (PPC): As it prevents cracks, it is useful in the casting

work of huge volumes of concrete. The rate of hydration heat is lower in this cement
type. Fly ash, coal waste or burnt clay is used in the production of this category of
cement. It can be availed at low cost in comparison to OPC.

Oil Well Cement: Made of iron, coke, limestone and iron scrap, Oil Well Cement is
used in constructing or fixing oil wells. This is applied on both the off-shore and on-
shore of the wells.

Clinker Cement: Produced at the temperature of about 1400 to1450 degree Celsius,
clinker cement is needed in the construction work of complexes, houses and bridges.
The ingredients for this cement comprise iron, quartz, clay, limestone and bauxite.

White cement: It is a kind of Ordinary Portland Cement. The ingredients of this

cement are inclusive of clinker, fuel oil and iron oxide. The content of iron oxide is
maintained below 0.4% to secure whiteness. White cement is largely used to increase
the aesthetic value of a construction. It is preferred for tiles and flooring works. This
cement costs more than grey cement.

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Apart from these, some of the other types of cement that are available in India can be
classified as

Low heat cement and Masonry Cement

High early strength cement
Hydrophobic cement
High aluminium cement

3.3 Manufacturing process of Cement

Illustration of Cement Plant set-up

There are two general processes for producing clinker and cement in India: a dry process and
a wet process. In general, the dry process is much more energy efficient than the wet process,
and the semi wet somewhat more energy efficient than the semi-dry process. The semi-dry
process has never played an important role in Indian cement production and accounts for less
than 0.2% of total production.

Over the last decade, increased preference is being given to the energy efficient dry process
technology so as to obtain a cost advantage in a competitive market. In 1960 around 94% of
the cement plants in India used wet process kilns. These kilns have been phased out over the
past 46 years and at present 96.3% of the kilns are dry process, 3% are wet and only 1% are
semidry process. Dry process kilns are typically larger with capacities in India ranging from
300- 8,000 tons per day (tpd) (average of 2,880 tpd). While capacities in semi-dry kilns range
from 600-1,200 tpd and capacities in wet process kilns range from 200-750 tpd (average 425
tpd).

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3.4 Region wise Marketing

4. Market Size and Scope

Cement demand in India is expected to increase due to governments push for large
infrastructure projects, leading to 45 million tonnes of cement needed in the next three to four
years.

India's cement demand is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by
2025. The housing sector is the biggest demand driver of cement, accounting for about 67 per
cent of the total consumption in India. The other major consumers of cement include
infrastructure at 13 per cent, commercial construction at 11 per cent and industrial
construction at nine per cent.

To meet the rise in demand, cement companies are expected to add 56 million tonnes (MT)
capacity over the next three years. The cement capacity in India may register a growth of
eight per cent by next year end to 395 MT from the current level of 366 MT. It may increase
further to 421 MT by the end of 2017. The country's per capita consumption stands at around
190 kg.

The Indian cement industry is dominated by a few companies. The top 20 cement companies
account for almost 70 per cent of the total cement production of the country. A total of 188
large cement plants together account for 97 per cent of the total installed capacity in the

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 country, with 365 small plants account for the rest. Of these large cement plants, 77 are
located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.

5. Growth of the Indian Cement Industry

Cement production increased at a CAGR of 6.7 per cent to 270.32 million
tonnes over FY0715.
As per the 12th Five Year Plan, production is expected to reach 407 million
tonnes by FY17.
Availability of fly-ash (from thermal power plants) and use of advance technology
has increased production of blended cement. Availability of fly-ash (from thermal
power plants) and use of advance technology has increased production of blended
cement.
The environment-friendly blended cement is more cost-efficient to produce, as it
requires lesser input of clinker and energy.

6. PESTEL Analysis
PESTEL analysis is a useful tool for understanding the big picture of operating and takes
advantage of opportunities. Pest analysis includes political, environmental, social and
technological factors which affect both the company as well as industry.

Political
The price of cement is primarily controlled by the coal rates, power tariffs, railway tariffs,
freight, royalty and cess on limestone. Interestingly, government controls all of these prices.
Government is also one of the biggest consumers of the cement in the country. Most state
governments, in order to attract investments in their respective states, offer fiscal incentives

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in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on power
tariff for 5 years, while Gujarat offers exemption from electric duty.

Economic
The industry is on the boom, with a lot of government infrastructure and housing projects
under construction. The export segment of the industry is expected to grow again on account
of various infrastructure projects that are being taken up all over the world and numerous
outstanding cement plants coming up in near future in the country.

Social
The cement industry in India consists of both the organized sector and the unorganized sector.
Organized sector comprises of the well-known cement manufacturing companies while the
main players of the unorganized sector are the regional and local cement-producing units in
various states across the country. Indian consumers prefer buying branded cement like
Ultratech, Jaypee Cement, Lafarge Cement etc. A population of more than 100 billion people,
it is expected that cement industry will create another 25 lakhs jobs in the next 4-5 years.

Technology
The Government of India plans to study and possibly acquire new technologies from the
cement industry of world. The government is discussing technology transfer in the field of
energy conservation and environment protection to help improve efficiency of the Indian
cement industry. Cement industry has made tremendous strides in technological up-gradation
and assimilation of latest technology. At present 93% of the total capacity in the industry is
based on modern and environment-friendly dry process technology.

Legislation
There are major legislative factors that affect the Indian cement industry. With the 12 th Five
year plan the government of India has relaxed a lot of governing laws which would ease the
growth of Indian cement industry. These are detailed out in Section 12.3.

Environmental

The cement industry is one of the primary producers of carbon dioxide, a major
greenhouse gas. Concrete causes damage to the most fertile layer of the earth, the topsoil.
Concrete is used to create hard surfaces which contribute to surface runoff that may cause
soil erosion, water pollution and flooding. Conversely, concrete is one of the most powerful
tools for proper flood control, by means of damming, diversion, and deflection of flood
waters, mud flows, and the like. Concrete can reduce the urban heat island effect, due to its
high albedo. Concrete dust released by building demolition and natural disasters can be a
major source of dangerous air pollution. The presence of some substances in concrete,
including useful and unwanted additives, can cause health concerns due to toxicity and
radioactivity. Wet concrete is highly alkaline and should always be handled with proper
protective equipment. Concrete recycling and green cement Described more in detail in
Section 12.4.1 - are increasing in response to improved environmental awareness,
legislation, and economic considerations.

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7. Structural Analysis of Indian Cement Industry
7.1 Traditional Supply Chain structure

Isabel Agudelo [Book Ref. 10] formulated a basic Supply Chain Management structure for
Cement Industry in general. In her report she concluded that, there was no conceptualisation
about the role of SCM or the right structure of the cement supply chain in the cement industry
from a broad perspective, without focusing on a particular company.

7.2 Illegal Cartel Structure and its Implications on Indian Cement Industry

Cartels are productive structures involving multiple producers acting in unison that allow
producers to exercise monopoly power. It refers to the illegal behaviour of competitors in
which they coordinate explicitly or tacitly to regulate their market behaviour so as to restrict
competition. These agreements are frequently verbal and although they can be harmful to
competition they are difficult to detect. It is actually difficult to decide when a cartel is a
cartel, what cartel success means, let alone if it acts inefficiently or destructively.
The Indian cement industry tried to get into a cartel type of structure to bring in a monopoly.
The Competition Commission of India found certain strange activities that were taking place
in the Indian cement industry which let to large penalty fines being paid by some the large
players.

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The implications of Cartel

The Competition Commission of India (CCI) has imposed a penalty of more than Rs67bn
(US$1bn) on 11 cement companies for alleged cartelisation. The companies affected are
UltraTech, Binani, Ramco, Jaiprakash Associates, JK Cement, Lafarge, India Cements, ACL,
ACC, Century, and Shree Cement, besides the Indian Cement Manufacturers' Association
(CMA). The order issued by the anti-trust regulator held the companies and the CMA
responsible for 'acting in concert in fixing prices of cement.' The companies and the CMA
allegedly shared details relating to prices, capacity utilisation, production and dispatch, which
led to restricted production and supplies in the market hurting consumers and the Indian
economy, the order said. Further, the CCI also found the cement companies to be acting in
concert in fixing prices of cement. A final order has been passed by CCI, pursuant to the
directions issued by the Competition Appellate Tribunal (CAT) remanding the matter back,
while setting aside the original order of the fair trade regulator, which had had also imposed
fine on cement companies.

Penalties of US$171m on ACC, US$173m on ACL, US$24.9m on Binani, US$40.9m on

Century, US$27.9m on India Cements, US$19.1m on JK Cement, US$73.1m on Lafarge,
US$38.5m on Ramco, US$175.3m on UltraTech and US$197.5m on Jaiprakash Associates
were imposed by CCI. In addition, a penalty of US$109,000 was slapped on the CMA.
Penalising the companies, the CCI said the actions of the companies and the CMA are not
only detrimental to the interests of consumers but also to the whole economy, as cement is a
critical input in construction and infrastructure industry, and vital to economic development.
Through a separate order, the regulator has slapped US$59.2m fine on Shree Cement for
unfair businesses practices.

The CAT had, in late 2015, revoked CCI's order, imposing a combined penalty of US$943m
on cement companies for allegedly forming a price cartel. The tribunal quashed the
commission's order after observing that Ashok Chawla, then CCI chairperson, was party to
the order, despite not being present during hearings. The tribunal also allowed the cement
companies to withdraw the US$94m deposited by them in compliance of its interim order.
The interim order, in May 2013, had stayed the penalty but asked the companies to deposit 10
per cent of its pending disposal of their appeal. In June 2012, the commission had fined ACC,
Ambuja Cement, UltraTech Cement and Jaiprakash Associates a little over US$149m each
for forming a cartel. The other companies fined included Madras Cements, Century Cement,

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Binani Cement, Lafarge India, JK Cement, India Cements and Grasim Cements (now merged
with UltraTech). The CMA was also a party in this case and it was fined a token amount.

8. Brief on Major Players

The origin of OCL was seeded in the time that signalled India's independence. A dream
unleashed. A blue print of growth was drawn. Endeavours to reconstruct economy set in.
Indian industry woke up to the key challenge of self- reliance. Agriculture took a turn to
modernity with construction of dams across the country.

Orient Cement has been contributing to the nations infrastructural development ever since its
inception in 1979. A C K Birla Group initiative, it is an independent public ltd company.
Orient Cements opening Greenfield project, the plant situated at Devapur in Adilabad
District, Telangana began cement production in the year 1982.

With a Group revenue of 13.9 billion, Heidelberg Cement is one of the worlds largest
building materials companies. In more than 40 countries, Heidelberg Cement stands for
competence and quality. More than 51,000 employees in more than 2,500 locations work day
after day to make the slogan for better building real.

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Rain Industries Ltd (RAIN) - formerly known as Rain Commodities Ltd and its wholly
owned subsidiaries, namely, Rain Cements Ltd (RCL), Rain CII Carbon (Vizag) Ltd, Rain
CII Carbon LLC, USA and Rtgers are engaged in the production of Cement, Calcined
Petroleum Coke (CPC) and Power and high-quality basic and specialty chemicals.

Prism Cement Ltd is the premier cement and allied products company of the Rajan Raheja
Group. Prism Cement is India's largest integrated building materials company with a wide
range from cement, ready-mixed concrete, tiles and bath products to kitchens. The Company
has three Divisions, viz. Prism Cement, H & R Johnson (India), and RMC Readymix.

India Cements Ltd was founded in 1946 by Mr SNN Sankaralinga Iyer and Mr TS
Narayanaswami in Tamil Nadu. Starting off as a two plant company having a capacity of just
1.3 million tonnes (MT) in 1989, India Cements has grown robustly in the last two decades to
a capacity of 15.5 million tonnes per annum (MTPA).

Birla Corporation Ltd is the flagship company of the MP Birla Group and was incorporated
as Birla Jute Manufacturing Company Ltd in 1919. The Cement Division of Birla

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Corporation Ltd has seven plants - two each at Madhya Pradesh, Rajasthan and West Bengal,
and one at Uttar Pradesh.

Madras Cements Ltd was established in 1961. Formerly known as Ramco Cements Ltd, it is
the flagship company of the Ramco Group, a well-known business group of South India. It is
headquartered at Chennai. The main product of the company is Portland cement.

ACC Limited was established in 1936 by Mr FE Dinshaw when 10 existing cement

companies came together under one umbrella. Since inception, the company has been a
trendsetter and important benchmark for the cement industry in many areas of cement and
concrete technology.

JK Cement has over three decades of experience in cement manufacturing. It began with
commercial production at Nimbahera, Rajasthan in May 1975. The company has an installed
grey cement capacity of 7.5 million tonnes per annum (MTPA) which makes it one of the
leading manufacturers in the country. JK Cement is the second largest manufacturer of white
cement in India.

Jaypee Group is the third largest cement producer in India. The Groups cement facilities are
located in the Satna Cluster (MP), which has one of the highest cement production growth
rates in the country. The Group produces a special blend of Portland Pozzolana Cement
(PPC) under the brand name Jaypee Cement.

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Binani Cement is the flagship company of the Braj Binani Group. The company
manufactures and markets 'Ordinary Portland Cement' (OPC) and 'Pozzolana Portland
Cement' (PPC) under the Binani brand, which enjoys premium status amongst major Indian
cement brands with a significant market share in northern and western India.

Ambuja Cements Ltd, a part of a global conglomerate Holcim, is one of Indias leading
cement manufacturers. With over 25 years of operations, Ambuja plays a key role in Indias
development and its blueprint for the future. Today, it is one of the major players in the
countrys cement sector.

UltraTech Cement 'The Engineer's Choice' is India's largest and amongst the World's top
manufacturers of cement. The company provides an array of products ranging from grey
cement to white cement, from building products to building solutions and an assortment of
ready mix concretes catering to varied needs and applications.

9. Investment opportunities in Indian Cement Industry Shares

and Revenues
On the back of growing demand, due to increased construction and infrastructural activities,
the cement sector in India has seen many investments and developments in recent times.

According to data released by the Department of Industrial Policy and Promotion (DIPP),
cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 3.109
billion between April 2000 and March 2016. Current

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Source: MoneyControl as on 20-Sep-2016

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Source: MoneyControl as on 20-Sep-2016

10. Porters 5 factor analysis on Indian Cement Industry

Threat of New
Entrants
LOW

Power of Competitive Power of

Suppliers Rivalry Buyers -
HIGH LOW
HIGH

Threat of
Substitutes -
LOW

The framework for the Five Forces Analysis consists of these competitive forces:

Competitive Rivalry intense competition leads to reduced profit potential

for companies in the same industry
Threat of substitutes availability of substitute products will limit your
ability to raise prices

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 Buyer power powerful buyers have a significant impact on prices
Supplier power powerful suppliers can demand premium prices and limit
your profit
Threat of new entrantsact as a deterrent against new competitors

Threat of New Entrants: LOW

High capital costs and long gestation periods
Low access to limestone reserves
Large players benefit from economies of scale
Wide distribution and marketing channels are important strategic assets that are
difficult to replicate by new entrants
Overall barriers to entry are very high

Competitive Rivalry: HIGH

High competition with players expanding reach and achieving pan India presence.
The industry is a lot more consolidated than a couple of decades ago with a few large
players controlling substantial market share.

Buyer Power: LOW

Around 65% of cement in India is consumed by the housing sector, with retail
customers accounting for bulk of the customer base.
Lack of substitutes results in not much of a buyer power.
Demand is inelastic exists at all price points.
Therefore buyer power is low.

Supplier Power: HIGH

Most companies have their own captive reserves for limestone. Hence supplier power
here is low
Companies depend on coal but coal linkages have reduced. Hence they rely on other
alternative sources of fuel. Suppliers can dictate power here
Suppliers that are involved in the transportation and raw material aspect of the cement
industry can dictate prices. Supplier power ids very high here.
Overall the supplier power in the Indian cement industry ranges from moderate to
high

Threat of Substitutes: LOW

Cement has been in the market as a binding agent for 100 years
There is no other substitute for cement
Though there are alternatives such as timber and steel they can be used only for low
rise and medium to high rise buildings respectively
Also governmental norms against fire protection require steel to be reinforced in
concrete or any other materials

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11. Strategies adopted and in progress by some of the major firms

KKR Mauritius Cement Investments Limited acquired 8.5 per cent stake in Dalmia
Bharat Limited (DBL).

Cement maker Burnpur Cement plans to invest Rs. 500 crore (US$ 74.64 million) for
expansion of its production capacity to 3 MTPA in the next three to four years.

India's largest cement maker UltraTech Cement is looking forward to acquire

JaiPrakash Associates six cement factories for a total value of Rs. 16,500 crore (US$
2.42 billion)

Birla Corporation Ltd, a part of the MP Birla Group, has agreed to acquire two cement
assets of Lafarge India for an enterprise value of Rs 5,000 crore (US$ 733.6 million).

Dalmia Cement (Bharat) Ltd has invested around Rs 2,000 crore (US$ 293 million) in
expanding its business in North East over the past two years. The company currently
has three manufacturing plants in the region one in Meghalaya and two in Assam.

JSW Group plans to expand its cement production capacity to 30 MTPA from 5
MTPA by setting up grinding units closer to its steel plants.

UltraTech Cement Ltd has charted out its next phase of Greenfield expansion after a
period of aggressive acquisitions over the last two years. UltraTech has plans to set up
two Greenfield grinding units in Bihar and West Bengal.

UltraTech Cement Ltd bought two cement plants and related power assets of
Jaiprakash Associates Ltd in Madhya Pradesh for Rs 5,400 crore (US$ 792.3 million).

JSW Cement Ltd has planned to set up a 3 MTPA clinkering plant at Chittapur in
Karnataka at an estimated cost of Rs 2,500 crore (US$ 366.8 million).

Andhra Cements Ltd has commenced the commercial production in the company's
cement plants Durga Cement Works at Dachepalli, Guntur and Visakha Cement
Works at Visakhapatnam.

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12. Future of Cement Industry

12.1 Impending Challenges in Indian Cement Industry

A large number of foreign players are expected to enter the cement sector, owing to the profit
margins and steady demand. Not so friendly tax government laws, high taxation rates and
very less spending on the infrastructure aspects prove to be some of the major challenges.

12.2 Opportunities New Business Areas in India

The eastern states of India are likely to be the newer and virgin markets for cement
companies and could contribute to their bottom line in future. In the next 10 years, India
could become the main exporter of clinker and grey cement to the Middle East, Africa, and
other developing nations of the world. Cement plants near the ports, for instance the plants in
Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be
well armed to face stiff competition from cement plants in the interior of the country.

12.3 Opportunities Revised Indian Government Laws

In the 12th Five Year Plan, the Government of India plans to increase investment in
infrastructure to the tune of US$ 1 trillion and increase the industry's capacity to 150 MT.

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The Cement Corporation of India (CCI) was incorporated by the Government of India in
1965 to achieve self-sufficiency in cement production in the country. Currently, CCI has 10
units spread over eight states in India.
In order to help the private sector companies thrive in the industry, the government has been
approving their investment schemes. Some such initiatives by the government in the recent
past are as follows:

The Parliament of India has cleared amendments to the Mines and Minerals
Development and Regulation (MMDR) Act, which will enable companies to transfer
captive mines leases similar to mines won through an auction, and which is expected
to lead to increased Mergers and Acquisitions (M&A) of steel and cement companies.
The Government of India is planning to revive the state-run cement factories across
India, in order to give a boost to road and realty projects by bringing down their
construction costs.
Budget 2016-17 has proposed a slew of measures to boost infrastructure and
investment, which will be positive for the cement sector, as increased spending on
infrastructure increases the demand for cement. 100 per cent deduction for profits to
an undertaking in housing project for flats upto 30 square metres in four metro cities
and 60 square metres in other cities approved during June 2016 to March 2019 and
completed in three years
o Incremental spend on smart city development, the government has allocated
Rs 7,296 crore (US$ 1.09 billion) towards Urban Rejuvenation Mission
(AMRUT and Mission for Development of 100 Smart Cities
o Rise in allocation under Pradhan Mantri Gram Sadak Yojana (PMGSY) to Rs
19,000 crore (US$ 2.79 billion) for FY17.
The Government of India plans to enact a law that will allow the companies which
have received mining licenses without having gone through the auction process, to
transfer these leases, in a move that is expected to make mergers and acquisitions
(M&As) easier in the steel, cement, and metals sectors.
The Government of Tamil Nadu has launched low priced cement branded 'Amma'
Cement. The sale of the cement started in Tiruchi at Rs 190 (US$ 2.84) a bag through
the Tamil Nadu Civil Supplies Corporation (TNCSC). Sales commenced in five
godowns of the TNCSC and will be rolled out in stages with the low priced cement
available across the state from 470 outlets.
The Government of Kerala has accorded sanction to Malabar Cements Ltd to set up a
bulk cement handling unit at Kochi Port at an investment of Rs 160 crore (US$ 23.5
million).
The Andhra Pradesh State Investment Promotion Board (SIPB) has approved
proposals worth Rs. 9,200 crore (US$ 1.35 billion) including three cement plants and
concessions to Hero MotoCorp project. The total capacity of these three cement plants
is likely to be about 12 MTPA and the plants are expected to generate employment for
nearly 4,000 people directly and a few thousands more indirectly.
India has joined hands with Switzerland to reduce energy consumption and develop
newer methods in the country for more efficient cement production, which will help
India meet its rising demand for cement in the infrastructure sector.

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 The Government of India has decided to adopt cement instead of bitumen for the
construction of all new road projects on the grounds that cement is more durable and
cheaper to maintain than bitumen in the long run.

12.3 Business strategy suggestions for Indian Cement Industry

12.3.1 R&D Innovation Product Mix

Companies do not have much of application-oriented research and development efforts but
this will become critical for future success. To a large extent, this is related to creating the
application and customer of the future and understanding customer needs based on the
emerging environment. Companies will need to create niche products and develop the market
for such products by providing solution-based offerings to the customer.

Innovation will be very important, to create high-grade and cheaper quality of cement. Indian
companies have been moving from lower grade cement to higher over the years, and would
have to continue to roll out even better quality to compete with the global players, and local
competition. New cement products like RMC (Ready Mix Concrete) will help create a
company carve out a niche in the market. Stakeholder concerns have increased over the years
and there are questions raised as regards sustainable development. While the world is
conscious of the problem, there is a need to act now owing to better eco efficiency, industrial
ecology, design for a better environment

12.3.2 Consolidation and Globalization

Large cement players in India will use the acquisition route to enhance capacity and market
share. It is clear that smaller plants will not survive in the long term. The top five players will
hold 70-80 % of capacities and market in the next decade. There is an expectation that more
global players would come into India as they would like to get a foothold in the market as the
demand will propel in the emerging economies. As long as we have the emergence of serious,
mature, long-term players, it would be good for the industry. Entry of smaller, non-serious
and non-cement players may pose a threat to others, as they do not have a long-term
commitment to the industry and the customer. They may adopt different strategies not
beneficial to the industry. So it is better to consolidate and use a global approach for
sustenance.

12.4 New Technologies in Cement Industry

12.4.1. Green Cement

Future pozzolans

Pozzolanic materials or latent hydraulic materials of the future might be derived from waste
materials. It is known that granulated slags from pig-iron production exhibit extremely good
latent hydraulic properties. In the same context, vitrified waste materials that exhibit adequate
composition could be promising latent hydraulic materials. Some of these wastes, such as

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lignite ashes, have sufficient amounts of calcium in some countries. Others with a low
calcium content might be useful for producing other pozzolans.

Future cements

In the literature, quite a few reports are given with respect to new types of cements on a
research scale. Celitement, for example, is based on calcium silicate hybrid phases.
Production is foreseen by hydro-thermal synthesis and by reactive milling of lime in a silicon
component. The Ca/Si ratio is lower than OPC clinker, consequently CO2 emissions and
energy requirements might be lower. However, it is currently much too early to give any
estimation about the future potential of this binder with respect to durability, production cost
or even the technical potential for relevant substitution of current cements.

Novacem has reported a cement based on magnesium oxide and hydrated magnesium
carbonates. According to Novacem, the raw material is based on magnesium silicates which
are digested and subsequently carbonated at elevated temperature and pressure. While
magnesia-based cements have been known for a long time, it is an open question whether in
the end Novacem will provide sufficient durability to substitute relevant amounts of today's
cement. Novacem indicates that significant research has to be done, but has made significant
progress to date.

12.4.2. Technology in Marketing Strategies

Use of technology in marketing will assume more changes with increase in both
communication and information technological changes. Concepts will emerge such as phone-
acement, or portraying a 3-D animation of the house prior to its construction in a library,
providing responses to customers through mobile technology.

12.4.3 Process Automation

The significant nature of changes to the Information technology area and the manner in which
information will be processed will be drastic over the next 10-15 years. This will have some
impact on the cement industry. Higher levels of technology, its seamlessness and
functionalities that have wider acceptance and usage will also bring down operating costs
considerably.

13. Conclusion

In future, domestic cement companies could go for global listings either through the FCCB
route or the GDR route. Cement companies would have an advantage over competitors by
vertical integration if that company bought out suppliers like aggregates quarries, establishing
concrete batching plants. One advantage of this would be maintaining higher control on raw
materials and optimize transportation systems. Also considering the growing demand for

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cement in India and higher capacity utilization over the years, key Indian players have
already begun to revisit their business strategies. Further, as cement is a commodity and the
process is well known, there is no USP as far as this product is concerned. Therefore, the
differentiation would largely relate to operating efficiencies, cost optimizations and reduction,
and providing superior product and service and marketing strategies such as the presence of a
stable and proactive marketing leadership, targeting specifically various customer and market
segments, an expansion in product profile complemented with aggressive sales promotion
and advertising will be the key to unlocking the puzzle of profit and expansion. All of these
put together and with help from the government in terms of friendlier laws, lower taxation,
and increased infrastructure spending, the sector will grow and take Indias economy forward
along with it.

References

1. India Brand Equity Foundation - http://www.ibef.org/industry/cement-india.aspx

2. EYs Overview of the Cement Industry in countries of the Customs Union
3. http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/cement-mini.html
4. http://business.mapsofindia.com/cement/types/#sthash.aCXhcs9R.dpuf
5. State wise cement distribution -
http://www.indiastat.com/industries/18/cement/57/cementcapacityandproduction1914
2015/452314/stats.aspx
6. Trends -
http://www.ijemr.net/April2014Issue/AStudyOnFutureMarketingTrendsIndianCementI
ndustry(154-156).pdf
7. Approach to innovative supply chain strategies in cement industry;Analysis and
Model simulation by Bernd Noche and Tarek Elhasia
8. Cartel - http://forbesindia.com/article/briefing/cci-the-cement-cartel-of-
india/33354/1
9. Cartel implications - http://www globalcement.com/news/item/5255-competition-
commission-of-india-fines-11-cement-companies-us-1bn-for-alleged-cartelisation.
10. Isabel Agudelo (2009). Supply Chain Management in the Cement Industry. Master
thesis in Logistics, published by Massachusetts Institute of Technology, under DOI
496817625

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