RNCOS, a leading market research and information analysis company, has recently published a comprehensive report on the cement sector titled "Cement Outlook 2012". Given below are excerpts from an emailed interview with Shushumal Maheshwari, CEO of the company, who gives us a peek into the report.What is the current status of the industry – as against last year’s performance – and what is the expected performance next year?As per our report, "Indian Cement Industry Forecast to 2012", Indian cement industry added an estimated 20.5 MTPA of capacity during 2009-10, taking the total installed capacity to around 240 MTPA. Cement production at large plants grew at the rate of over 10 per cent during 2009-10 to reach 201 per cent against the total production of 182 per cent in the previous fiscal. Moreover, it is estimated that the cement production will reach around 303 per cent by the end of 2013-14.What are the major developments that will be affecting cement performance in the coming days?Due to a large number of outstanding cement projects in pipeline and with the strong demand by the private and the government sectors, the total installed capacity of cement production in India is expected to reach 345 per cent by 2013-14. Many big cement manufacturers (including Ambuja Cement, Grasim, Ultratech, Shri Cement, etc) have announced massive capacity expansion plans with investments worth crores already in pipeline. For instance, the joint collaboration of UltraTech-Grasim together will invest around INR 70 billion to set up three Greenfield Facilities. These facilities are expected to be established in the states of Andhra Pradesh, Chattisgarh, and Tamil Nadu during the next three-four years. Additionally, Shree Cement is investing INR 5 billion to expand its cement capacity.What are the major mergers & acquisitions that can spur growth?Various domestic and international cement companies are targeting the Indian market to expand their reach and increase their operating margins.Some of the recent mergers and acquisition trends in the country’s cement sector are as follows:??Dalmia Cement has increased its stake in OCL India from 21.7 per cent to to 45.4 per cent with an investment of US$ 38.24 million as a part of its plan to expand its footprint in eastern India??Ultratech Cement, the country’s second-largest cement maker and a part of Aditya Birla Group acquired Dubai-based ETA Star Cement for an enterprise value of US$ 382.1 million??Holcim strengthened its position in India by increasing its share holdings in Ambuja Cement from 22 per cent to 56 per cent through various open market transactions alongwith an open offer for a total investment of US$ 1.8 billion??Leading foreign funds, such as Fidelity, ABN Amro, HSBC, Nomura Asset Management Funds, and other emerging market funds have collectively bought around 7.5 per cent share in India’s third largest cement firm, India Cements (ICL), for US$ 124.91 million??Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim Industries’ 53.63 per cent stake in Shree Digvijay Cement.Additionally, some of the other major companies, such as Reliance, Holcim, and Lafarge are waiting for an appropriate time to consolidate. Meanwhile, Holcim Group has started strengthening its stake in ACC through the acquisition route. Ambuja Cements and three other Holcim entities have also raised their stake in the ACC from 2.01 per cent to 48.21 per cent through open market transactions in December 2010.Besides, some companies, such as Gujarat Sidhee, Saurashtra Cement, and Andhra Cement are looking for significant valuation deals for a possible takeover Similarly, Hyderabad-based Penna Cement and Nagpur-based Murli Cement are also hunting for a strategic partner and are negotiating with a foreign cement manufacturer for a possible takeover. Low cement prices in the industry with rising cost of raw materials has made tough for small cement players to survive.What are the major obstacles/policies that hinder growth?High cement prices and government import duties on raw materials leading to further rise in cement prices are the major obstacles that may hinder the growth.What regions will be the best performers in the coming days and why? As per our research, it is expected that Tamil Nadu, Andhra Pradesh, and Karnataka will be the major contributors to the high production capacity of Southern region. In Northern region, Rajasthan, and Uttaranchal will support capacity installation developments.What are the demand areas /sectors that will catalyze cement industry’s growth in the coming days: Trends and drivers? Drivers??Growing construction activities??Rising consumption.Trends??Capacity expansions by major players??Overseas acquisitions of raw materials and??Tapping rural marketWhat would be the estimated production in the coming days?As per our research, "Indian Cement Industry Forecast to 2012", in 2010-11, the estimated cement production was around 220 MTPA and the installed capacity is anticipated to reach around 345 MTPA by 2013-14.Regional Capacity Expansion by PlayersNorthern Region??JK Lakshmi plans INR 14 billion capital expenditure for increasing its capacity from 4.7 MTPA to 8 MTPA by FY 2013.??Shree Cement revives Raipur Cement Plan to Invest INR 10 billion to set up a 2 MTPA clinkerisation unit near Raipur, Chhattisgarh.??Ambuja to set up INR 15 billion cement plant to set up an INR 15 billion cement plant in Nagaur, Rajasthan, which is expected to become operational by 2013.??Ambuja Cements Nalagarh Cement Plant inaugurated its 1.5 MTPA capacity grinding unit at Nalagarh, Himachal Pradesh.??Jaypee Commissions 1.75 MTPA cement plant in Himachal Pradesh.Southern Region??Vasavadatta Cement will invest INR 10 billion in Karnataka to raise annual capacity from the current 6 MTPA to 8 MTPA by 2013.??Grasim Industries to expand Malkhed Rajshree Cement Plant to raise the company’s current production capacity by 4.25 MTPA.??Jaiprakash Associates is setting up a 3.5 MTPA per annum plant in the South.??Madras Cements Plan to Invest US$ 178.4 million to increase capacity at its Ariyalur Plant to 4.5 MTPA from 2 MTPA.??UltraTech-Grasim will invest INR 70 billion to set up three Greenfield Facilities in the states of Chattisgarh, Andhra Pradesh, and Tamil Nadu during the next three-four years.Western Region??Surya Group is also planning to invest US$ 873.3 million in a new 5 MTPA cement plant to be established in Gujarat.??Jaiprakash, Dighi Port to invest INR 6 billion in Cement Plant to set up a cement grinding plant with an annual capacity of 3 MTPA in Gujarat.??ACC to set up Mega Cement Project in Maharashtra to set up a mega cement project in Maharashtra, with an annual capacity of 3 MTPA.Eastern Region??ACC Bargarh enhances production capacity from its initial capacity of 0.96 MTPA to 2.5 MTPA annually since January, 2011.??India Cements plans to set up Portland cement manufacturing unit in Chhattisgarh??Ultratech Cement announces 3-Year, INR 110 billion expansion plan??Shiva Cement signs deals worth INR 8 billion for expansion plan??Ambuja Cements Capacity Expansion is expected to increase to 27 MTPA in 2011 following the completion of additional grinding capacity at the Bhatapara Chhattisgarh) and Maratha (Maharashtra) plants.??ACC Cement intends to set up a 3 MTPA Cement Plant in Malkangiri Orissa in June 2010.
Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings
Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.
The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.
Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.
Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.
According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.
Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.
Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.
The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.
The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.
The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.
Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.
Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).
According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.
Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).
Wonder Cement shows journey of cement with new campaign
The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…
Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.
#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.
Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."
The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.
Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."
According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.
In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)
Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint
Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.
Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.
But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.
The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.
Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.
Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."
Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.
Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.
However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.