Rigid pavements are proving to be an economical alternative to bituminous pavements as their cost averages out over a longer period of time. Harshavardhan Nadkarni delves into the cost differentiation between flexible pavements and rigid pavements and its life cycle costThe economic growth of a nation, especially a vast country like India, depends on a well connected and efficient road network. This includes not only National Highways but other roads also which facilitate fast movement of goods and people. In order to build a well connected road network which will cover the length and breadth of the country, especially the rural areas, the Government of India has formulated the Pradhan Mantri Gram Sarak Yojana (PMGSY). As per estimations, over the next 7 years, road works under PMGSY worth Rs 1,20,000 crores are planned to be constructed and upgraded.Road pavements form an important part of these projects and their cost forms 50 per cent of the investment, it is necessary to carefully evaluate the alternatives to choose the right kind of material in order to make the road construction process cost effective.Types of pavements :The basic types of pavements are flexible pavements and rigid pavements. Flexible pavements comprise of various layers of granular materials and are provided with a layer of bituminous material on top. Due to low initial costs, flexible pavements have been preferred over rigid pavements. However, the preference has been changing in favour of rigid pavements in India due to ample availability of cement and scarcity and rising prices of bitumen. Speaking at length on the advantages of rigid pavements over flexible pavements, Dr L.R.Kadiyali of Kadiyali & Associates stated, "it has been seen that though initial cost of rigid pavement in rural roads is around 25 per cent more as compared to flexible pavement, rigid pavement has proved to be an economical alternative over flexible pavement as per life cycle costing. Life cycle cost can be defined as a procedure whereby a pavement design alternative is selected, which will provide a satisfactory level of service at the lowest cost over design life."Costs :Initial Cost: This is the cost of construction of the pavement which depends chiefly upon the thickness of the pavement, determined by the strength of subgrade soil and traffic loading, material cost and cost of execution of the work. Maintenance Cost: This cost comprises of the pavement’s maintenance during its design life to keep it at a specified service level. The State Governments have to undertake the maintenance of rural roads from their available financial resources. However, due to inadequacy of funds for maintaining the road infrastructure, state governments have a poor performance record of maintaining low volume roads.Life Cycle Cost Analysis: The Life Cycle Cost (LCC) analysis is undertaken for choosing the economically advantageous pavement type, flexible or rigid. This methodology takes into account the initial investment cost as well as the maintenance/rehabilitation cost study, comparative cost of one kilometre each of flexible pavement and rigid pavement representing a uniform section.Flexible pavement design and cost of construction per km: Design of flexible pavements depend on the california bearing ratio (CBR) value of sub grade and number of commercial vehicles per day that will use the road during its design life, which is 10 years for rural roads.Cost advantages of concrete pavements vis-?vis bituminous pavements:The initial cost of a concrete pavement is Rs 6 lakh per km higher as compared to the initial cost of a flexible pavement. However, with the replacement of cement in concrete, the extra cost of concrete pavement is Rs 4.25 lakh per km. The life cycle cost of a concrete surface for purposes of construction/maintenance is Rs 5.3 lakh per km less as compared to flexible pavement. Through the use of fly ash mixed concrete, the concrete pavement cost is Rs 7.1 lakh per km. less compared to bituminous pavements. Commenting on the cost advantages of concrete surfaces over bituminous surfaces, Prof M.S.Shetty, founder Chairman, Indian Concrete Institute (ICI), Pune Centre stated, "life cycle cost of concrete pavement is around 20-25 per cent lower as compared to bituminous pavement, though the initial cost of concrete pavement is higher. After 20 years, life cycle cost of flexible pavement is around 19 per cent higher than rigid pavement." State governments may not be able to provide adequate funds for the upkeep and maintenance of bituminous roads in rural areas, resulting in lack of maintenance and consequently deterioration in road conditions. However, concrete pavements over a period of time, are free from maintenance. Apart from life cycle cost considerations, several locations should be preferred for rigid pavement keeping in mind climatic and environmental considerations such as locations in heavy rainfall and water clogged areas, road stretch passing through village portion, having cement and fly ash in close proximity or sub grade soil having low california bearing ratio (CBR) values.A proper and well connected rigid road network in a country like India can result in cost savings and economised movement of traffic over longer distances. The government needs to allocate more resources for concretisation of roads and do away completely with bituminous roads.
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.