Process

Testing times ahead for CPPs

Published

9 years ago

August 31, 2015

admin

Power-hungry businesses like cement and others have been operating CPPs for long. Besides saving on energy costs, these CPPs ensure that production continues uninterrupted with reliable and stable supply of electricity. ICR reports on the need of CPPs in cement cos.

Cement industry is a power intensive industry, consuming about 30 per cent of the total power generated in the country, contends Meemanshi Rangacharya, Group Head, Power Management Department in TECHPORT-Thane, a manufacturing support service division for LafargeHolcim. Clinker production is a continuous process that requires seamless power supply. Smooth and efficient operation of clinkerisation largely depends on power position in the plants. After liberisation of economy, it has been observed that cement capacities were added significantly, but then the power situation in the states remained a bottleneck. In 2003, a great relief came to the industry by way of the Electricity Act and further National Electricity Policy 2005. Overall these policies and various state policies encouraged the development of captive power plants in India, and cement industry was no exception.

The Captive Power Plants, CPPs as commonly known, have their own advantages, the most important being its proximity to the user. Besides, the transmission losses are the least in CPPs. The quality of power generated is superior to that of the state grid power, considering the fluctuations in supply, power outages from state grid, etc. Let us take the case of Shree Cement, which is a classic example. The company kicked off with a captive generation of 0.2 MW capacity, which has now reached 600 plus MW capacity now.

In short, the need to have a CPP for cement manufacturing unit is beyond any doubt. This thought was prevalent until some time back when the power scenario in a few states like Chhattisgarh, Madhya Pradesh, Gujarat, Rajasthan started turning power surplus which is diagonally opposite to what was 10 years before. The new cement projects or any capacity additions started rethinking, whether to have CPP or not. Many new cement units either have decided not to go for it and a few decided to closely look at the capacities, if it can be reduced? In short this is a new dimension of CPPs.

Today, the Government, following the order given by the apex court has gone ahead for the auction of coal mines, and various cement majors have lined up for their own coal block. Soon after the second phase of allocation of coal blocks-somewhere from next June 2016-linkage coal which is now available to CPPs will not be available any more. This will increase the cost of power generated through CPPs. It is very clear that the entire cement industry has not been doing well in the last 3-4 years, and this decision might make it even worse.

Non-availability of linkage coal to the power plants run by the cement companies will only add to their worries. The direct impact will be on the cost of power, which will go up by nearly 25 per cent as indicated by Satyanarayan Digamathi, Deputy General Manager of ACC?s; Wadi Cement Works. The cost input on account of fuel for a given CPP is around 65-70 per cent as indicated by Rangacharya. Therefore, every CPP unit will look for cheaper fuels like pet coke or agri waste. Only one lighter side is for the plants which are close to coastal line, since they can have the option of imported coal. The other option as Rangacharya puts is coal washery rejects. He feels after deregulation of coal, the washery business will also increases, in order to get and sell better quality of coal. CPPs can make use of washery rejects to bring down the cost, only it will require some trials.

One more option is the use of imported coal. The landed cost of Indonesian Coal at Indian ports is quoted at 38 $ per ton, 15 to 18 percent cheaper than last year. As the price is reasonable and quality is better than local coal, CPPs will be more than willing to use imported coal if economics permit. However as one moves to the interiors of the country, the logistic cost increases, so one has to take a judicious decision where to use imported coal. As we all have witnessed drop in crude oil prices in the last one year, the coal too has followed the same.

Another major problem, which is confronted by the CPPs, is tighter pollution control norms. We know that power generation being highest polluting sector, CPPs have to shoulder greater responsibility to bring down the pollution levels. This will call for improvement in the present level of technology and replacement of some of the old boilers, which will financially load the industry. As suggested by Rangacharya, we will have to think of latest technology for boilers of CPPs. The cement plants will have to provide for additional capital budgets for improvements in CPPs as planned by Digamathi for his plant. There are few cement plants which are using around 80 per cent of captive power and balance from state grid will now have to depend more on state power.

Use of pet coke in place of coal has limitations, particularly to use as a fuel in CPPs because beyond certain percentage as indicated by Digamathi, the SOx and NOx percentage in the emitting gas increase is worrysome. Vivek Taneja, Head – Business Development of Thermax, Power Division (a global solution provider in energy & environment) has offered suitable products where pet coke can be used as fuel, has given more input on the subject. Therefore use of pet coke in power generation will have limitations in the existing scenario. The other option is making use of agri waste but the availability is seasonal.

Rajiv Agrawal, Secretary, Indian Captive Power Producers Association, opines that the Government should give importance to CPPs, if they want industries to really grow and want more investments as they are asking through ?Make In India? campaign. The Government should not forget that that it is not the power, but the productive power that is required by India.

It is is a common observation that the Government does not differentiate between Integrated Power Plants (IPPs) and CPPs. This is being raised by Agarwal and his association. Considering the kind of operations, the end use and economics, it is necessary; not to equate CPPs and IPPs at par. We need to treat CPPs separately than IPPs. IPPs have been created to do business in power and for CPPs it is a support service to the main business because Government can not assure smooth supply of power to the industry as in the developed countries. Today IPPs get best of the technology available in the world and are much ahead on the efficiency parameter than CPPs. They get the best of the coal available and at a cheaper rate. Availability of any kind of fuel is much easier to IPPs than that of CPPs. They typically have capacities in the range of 500 MW plus. Therefore the cost economics is better than that of CPPs.

If we look at the capacities of CPPs, typically it ranges from 0.2 MW to 300 MW. Incidentally National Aluminimum Company Ltd has a captive generation of 960 MW and the other to quote is Shree Cement, having captive generation of 612 MW. The association is right in raising its voice because CPPs deserve different treatment than IPPs. There is no doubt that considering the various aspects mentioned above, the CPPs are going to have tough time ahead.

Process

Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

3 years ago

October 21, 2021

admin

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).

Source:moneycontrol.com

Process

Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

admin

The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

ETBrandEquity

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.

Process

In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

3 years ago

October 21, 2021

admin

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

UltraTech Cement
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.