For many sectors, including cement sector 2013 was a forgettable year. But the industry is very hopeful that after the election, reforms by the new government should boost the infrastructure industry and the new government will clear many infrastructure projects which have been on hold for a while and bring back economic growth onto the fast track, which will improve the demand situation significantly and uplift the sector.
Asigh of relief as we bid adieu to 2013, a year of stasis in the economy, a year of inaction on the policy front and volatility in forex rates; inflationary pressures; brick by brick, a walled growth flow.
However, man´s indomitable spirit always tries to break walls. To quote Nikos Kazantzakis, ´We gradually begin to understand that it does not matter very much what problem, whether big or small, is tormenting us; the only thing that matters is that we be tormented, that we find a ground for being tormented.
In other words, that we exercise our minds in order to keep certainty from turning us into idiots, that we fight to open every closed door we find in front of us.´
Even if 2014 may throw challenges at us, challenges like a non-conducive policy environment, indirect tax regime, widespread industry fragmentation, high credit cost and lack of adequate and robust infrastructure, overall there are good vibes gathering, and the long-term outlook is quite positive.
Spot of bother
Dealers and distributors have been a vital link in the cement sector and any ups and downs, any change in equation or any change in dynamics in the market gets reflected in their sales graph. INDIAN CEMENT REVIEW interacted with some of the dealers and stockists from different regions to find out how the year gone by had been for them, and their expectations in the new year. This is what they had to say.
According to Yuvresh Bansal, Proprietor, Jagdish Traders, the sluggish economy, shrinking profit margins and fluctuating prices have put cement dealers in a tight spot. Yuvresh says, ´There is hardly any infrastructure growth taking place. Most of the projects that were initiated in the past are lying half-built.´
Says Ravindra Vishnu Admane, Proprietor, Sonal Traders, ´The year 2013, for most dealers in the country, was not a good business one. Our business went down by as much as 50 per cent. That is a big blow; we somehow managed to struggle and pull through. We are optimistic about 2014 but do not expect any drastic change soon. Probably the year 2015 will be a better one.´.
´The market is tough and the demand is low. Unless we see the government taking some aggressive steps to boost the infrastructure, the demand for cement will continue to remain low. I hope that things will get better in 2014, but am not expecting any sudden, drastic changes,´ says Vip Raj, Proprietor, Bhagwan Vasudeo Shingre.
Satish Bhutada, Proprietor, Shriram Trade has this to say. ´There is no new construction and so, there is no new demand for cement. In my opinion, the high cost of flats has hampered the growth of housing sector and consequently, the cement industry. Lower demand of cement has led to some peculiar challenges and problems in the market. The prices are not stable and have kept fluctuating. Speculations move the prices and this up and down pattern is affecting everybody.´
Pankaj Malhotra, Proprietor, Eklavya Enterprises supports this view. Pankaj says, ´In Delhi, there is an inflow of two lakh bags on a daily basis. Where will all this cement go when there aren`t enough projects? Rates are fluctuating drastically; one day it is Rs 270, the next day it is 220; there is a variation of Rs 50-60 a bag.´
Supply-demand
Highlighting the current scenario, Teena Virmani, Vice-President, Kotak Securities, does a review. ´The current installed capacity of the cement industry stands at around 330-340 million tonnes per annum. The cement demand however, was much lower. Most companies had their production volumes up to 60-70 per cent of the installed capacity. The cement demand growth hovered at around 4-5 per cent in the fiscal year. The slowdown was a spill-over of decreased growth in consumer sectors such as infrastructure and housing. The GDP of the country too, was very low.´
Teena adds,´The housing sector, which is the major consumer of cement, saw a decline in demand for real estate. One of the reasons was the high interest rates on loans available for housing. Besides this, the ban on sand mining too, impacted the sector. We also saw very little activity in the infra sector, no major projects were launched and the actual execution of those granted too, did not take place. Overall, 2013 was not too good for the cement manufacturers.´
Says H M Bangur, Managing Director, Shree Cement, ´Given the low demand seen last year, it should only improve or at worst, remain the same. Supply-side pressures will remain all through this year too, as new capacity continues to come up irrespective of the slowdown. On the whole, supply is expected to continue to outstrip the demand in 2014. However, any major policy changes initiated by the government (infrastructure/housing boost) can bring in new demand though this cannot be anticipated at the moment.´
´Cement demand in 2014 will be driven mainly by infrastructure projects, housing and retail segments, both in urban and rural areas. The year 2014 may see an upsurge in demand spurred by a good monsoon and revival of infrastructure activities, as the Cabinet Committee has cleared a number of projects in the last two months. I do not expect much change in the demand from the realty sector as there is a considerable surplus of housing stocks,´ states Vinita Singhania, Vice- Chairman and Managing Director, JK Lakshmi Cement.
´We feel that the market will improve after the elections, with positive sentiments in real estate, both housing and commercial. The stock market and consumer goods will increase by 5-7 per cent,´ says Vinod Juneja, Managing Director, Binani Group of Industries. Vinod adds, ´The cost factor should reduce from 16-20 per cent in the cement sector by 2-3 per cent, on account of low duty on oil and petroleum products. Cement is paying direct and indirect tax to the tune of 43-45 per cent on various accounts and both the central and state government needs to reduce it by at least 3-4 per cent for the healthy growth of the cement industry.´
Impact of fluctuating price
Says Harsh Bhutani, Executive Director, Hydrobaths Ramco Marketing, ´Cement is the key material in any form of construction and thus, a hike in its price will impact the housing sector. Cement prices went up by approximately Rs 7 per kg in the last few months and it hit the real estate market badly. If this situation continues, it will impact the overall real estate market and will lead to a delay in the delivery of projects as well as to an increase in real estate prices; this will have an adverse effect on the economy on the whole.´ Harsh Bhutani farther adds, ´The cement industry may continue to face some challenges in 2014. Certain factors like rising labour costs and Indian Railways Busy Season Surcharge (BSS), which saw a hike from 12 per cent to 15 per cent in 2013, may continue to affect the industry. However, the government can help by initiating policies to help the sector. If these issues are not solved, cement prices will remain unstable, affecting the economy as a whole. With an estimated 15 per cent hike in the overall construction cost due to cement price hikes, the common man will have to shell out more for basic commodities. Housing is one of the most basic needs for a family and with the rise in prices, citizens will be highly pressured.´
Anand Gupta, General Secretary, Builders Association of India has a different tale on the matter. According to him, there is a price cartel. Anand says ´We are absolutely sure that cement manufactures are forming a price cartel. Today, the rates in the market are not natural rates. They are not driven by demand and supply or based on the production costs. Since only a few people are manufacturing most of the cement in the whole country, they are controlling the prices.´ He further adds, ´The cement production cost, according to us, is less than Rs 200; this includes all production costs, excise, transport, loading, unloading, and delivery. Today, the rate is around Rs 300, so they are making an extra profit of Rs 100 per bag. If the government of India or the Competition Commission had agreed to our suggestion to set up a cement regulatory authority, like they have done for the stock exchange and for insurance, then the price would have been under control. Some rules and regulations should have been framed by the government.´
Plant and machinery
According to Datta Arjun, Vice-President, Business Development, Penta India Cement and Minerals, there is an increasing move towards planning and designing cement equipment / plant with a focus on reduction in energy consumption and pollution. Datta says, ´The electrical energy consumption which is very prominent in a cement plant, has been reduced drastically recently, by the introduction of the vertical pre -grinder and roller press technology. The design of pre-calciner / burners in the pyro section is developed to conform to NOX emission levels. Coolers are also becoming more efficient.´
He further adds, ´Waste heat recovery system and alternate fuel use have become regular features in all plant designs. To save on natural resources, the focus is now on consuming less or zero water in the process. These concepts are implemented at the plant conceptualisation stage itself.
According to Datta, there is also a move towards increased automation in material handling, use of improved heavy machinery in mining, material analysis instruments, robotics in laboratory with the aim of reducing manpower requirement and assuring quality. From the logistics viewpoint, the adoption of efficient wagon loading and unloading technology and reduction of inventory, will also work well. Conditioning monitoring of equipment is necessary to reduce breakdown related maintenance and improve the efficiency of the plant.
Says Bidyut Bhattacharya, Chief Technical Director, Sinoma International Engg Co India, ´The Indian cement industry has, over the years, employed the best available technology for production. Thanks to a high degree of blended cement utilisation, Indian cement producers are at the forefront of fuel and electrical energy consumption on a per-tonne-of-product basis. An additional benefit in terms of sustainability is lower-per-tonne CO2 emission. Stricter regulatory requirements are leading increasingly towards greener technologies; and they, in turn, lead to further energy efficiency.´ Bidyut adds, ´For power, co-generation (through WHR technology) will give a big relief and should be made mandatory as it is in China. Usage of alternate fuels is also vital.´
Speaking about the emerging trends in the design of cement plants, Vivek Taneja, Head of Business Development (Power), Thermax, had this to say, ´Designing cement plants that can harness their waste heat for power generation, is being actively considered by the industry. Such a move, if backed by incentives available for renewable energy, can improve the profitability of the plants. Additionally, it will also help in better environment management as the waste heat after use for power generation will be let out at much lower temperatures. Cement plants can reduce their overall carbon footprint and also help in reducing the national dependence on fossil fuel.´
Vivek further adds, ´Timely policy changes and a well thought- out growth plan, fortified with incentives for energy conservation, will give a strong push to the cement industry. Although the order books of most plant and machinery manufacturers didn`t look exciting in 2013, the year ahead holds more potential. From our discussions on captive power requirements, we understand that the total capacity addition predicted during the 12th Five Year Plan will depend on the infrastructure development facilitated by government policies. If the present economic policy stasis continues, future capacity addition is going to be limited. However, we are optimistic about the potential in this sector from the long- term perspective.´
Housing major growth driver
According to Anand, the cement industry will see bright days in 2014. Housing, which consumes more than 67 per cent of cement consumption, will continue to be a major growth driver. Says Anand, ´I feel cement manufacturers are going see bright days this year. Corresponding to the huge demand for housing, which is a major consumer of cement, the demand is going to rise significantly. Presently the need for houses is there but people want houses that can fit their budget. They are not getting houses which they can afford, mainly because we have never made any long-term affordable housing policy for this country.´
According to him, costs are pushed up due to scarcity of land. Anand says, ´We have to have good FSI policies in place to tackle these problems. It is strange that in a country where we have huge capacity to produce cement and where we have a high demand for houses, we are not able to deliver housing to the people who need it. The government needs to give in-depth thought to the issue and come up with a solution that will help bringing down the cost of owning a house.´
Anand further adds, ´RBI loan granting norms are a bit convoluted. The RBI has given guidelines to all the banks that no fund can be given against land. I don´t understand this. Any bank would be interested in the security of their money and assured returns on investments. So any land with a clear title and which is going to give returns, should be automatically eligible for loans. Instead, the banks have taken a stand that they will finance only home loan or projects. As a result, builders are forced to borrow money from private lenders who charge exorbitant interest. Consequently, the extra prices are passed on to the customer. If the RBI corrects itself, things can become very easy. In cities like Mumbai, 80 per cent of the construction cost is land.´
´The infrastructure sector is expected to give a major boost to cement demand in 2014. With the new government coming in, it is expected that a renewed push will be given to stalled projects, and new projects will be initiated. All of this should auger well for cement demand. If the interest rate cycle goes on a downturn this year, as we hope it will, with moderation in inflation going forward, housing demand should also revive across cities. Rural housing demand should remain good, considering the expectation of a healthy agricultural growth this year,´ says Bangur.
RMC potential
The current production of RMC is around 15 to 20 million cu m a year as against a total concrete market of approximately 300 million cu m a year. Says DK Narang, Director, Ajax-Fiori, ´RMC holds significant potential. Bangalore was the city which transformed this whole process. Today in Bangalore, if anybody has to build a house even if it is 1500 sq ft or 2,000 sq ft, they prefer RMC. This trend has spread across cities, even Tier 2 cities. Of course, the conversion of cement into RMC has not reached its full level of potential. Though some markets have a high penetration level of even up to 70 per cent, we still have a long way to go.´
´Around 76 per cent of concrete demand originates from housing construction. The infrastructure sector (roads, power, airport, urban infrastructure, railways, etc) accounts for 17 per cent of the total RMC demand; it will continue to be driven by these sectors and will depend on the construction opportunities presented by these sectors. Around 79 per cent of the RMC demand was driven by Tier 1 cities in 2012-13. This can be attributed to higher awareness of the benefits of RMC usage, higher concentration of large scale projects coupled with focus on quality, timely delivery and control of wastage.
Also, space constraints, along with government and municipal bodies´ initiatives to control pollution, have encouraged the use of RMC. In 2012-13, the overall economic slowdown, sluggishness in construction activity, liquidity crunch and policy hurdles resulted in a lower demand growth of concrete,´ says Prabir Ray, Executive President, Ready Mix Concrete, Key Accounts and Building Products, UltraTech.
According to Anand Sundaresan, Vice Chairman and Managing Director, Schwing Stetter (India), 2013 was a forgettable year for the construction equipment industry, as well as the concrete equipment sector. Sundaresan says, ´With construction at a virtual standstill, the demand for concreting machinery fell by 15-20 per cent YoY, and considering that 2012 itself had already been a negative year, this represents a decline of 30 per cent from the peaks the industry had reached in 2011.´
Highlighting the shift in the concrete equipment market, Anand had this to say. oDuring the peak period, road work and large projects had ensured a demand for larger capacity machines. Now, due to the downturn and few fresh infrastructural projects, the demand is clearly for lower capacity machines. While some metros like Mumbai and Delhi still saw some high-rise buildings calling for high pressure pumps, other projects brought in business for the smaller capacity machines. The fact that the larger machines were no longer growth drivers hurt the topline of many companies. ´The year did see an increased interest in the boom pump which has a bright future in the years to come.´
Moving ahead
Says Ram Raheja, Director and Head-Architecture, S Raheja Realty, ´The key driver in any sector is always demand and there is a huge demand in the housing sector. An estimated 26.53 million homes in the budget category is required for urban areas by 2013-2014 while the need is double in the rural sector.
With general economic progress and the growing income of the middle class, the demand for affordable housing is also growing. Thus, real estate will remain one of the main sectors for the coming years and if the government makes adequate changes and supports the market with its policies, growth is inevitable. Therefore, if the developers and the government work together to provide quality housing to its population, I believe 2014 will witness a change in the growth curve.
In conclusion, here is a Buddhist story that serves to sum up the current scenario. One day, a young Buddhist on his journey home, came to the banks of a wide river. Staring hopelessly at the great obstacle in front of him, he pondered for hours on just how to cross such a wide barrier. Just as he was about to give up his journey, he saw a great teacher on the other side of the river.
The young Buddhist overcalled out to the teacher, ´Oh wise one, can you tell me how to get to the other side of this river?´
The teacher ponders for a moment, looks up and down the river and calls back, ´My son, you are on the other side.´