Economy & Market

Cement Financing Systematic approach

Published

15 years ago

July 31, 2011

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Cement is among the most vital ingredients required for the growth of an economy. A growth in demand for cement reflects an uptick in the activities in the business, financial, real estate and infrastructure sectors of the economy. In the last decade, cement demand has grown consistently at a multiple of over 1-1.2 times of GDP growth underpinned by the rising demand for housing and infrastructure. To meet this demand, cement companies invested briskly in expanding capacities leading to increased fund need. However, innovative methods of financing is still evolving in this brick and mortar industry. The cement industry requires financing for its working capital and capital expenditure requirement. Working capital cycle starts right from the time of material procurement, production and sale of finished goods till the realisation of sales proceeds. The primary requirement is in building up raw materials, additives, fuels, stores & spares, clinker and finished goods inventory. Debtors are generally in non-trade segment of business. The sector incurs capital expenditure for its regular capex requirement, expansion of existing capacities and setting up of new capacities.The development of industry post decontrol was dependant on fiscal incentives, financing from international institutions (IBRD, etc) and local developmental financial institutions. With the passage, just as the industry has evolved, the development financial institutions too have become banks.During the early stages, capacity addition was dependent on promoters and leveraging capabilities. The debt equity ratio of sector used to be 2 to 2.5 times of debt to equity. The sector profitability was weak so promoter/companies used to survive on fiscal incentives provided by the government. The construction activities were weak and companies were not having the financial motivation to expand. Thus, despite being one of the oldest industry, no company could acquire/add sizeable capacities to reckon with.With the opening up of the economy in 2001, together with a flourish in information technology, communication and entertainment (ICE) sectors, the demand for cement saw a sustainable growth of over 8 per cent. The profitability improved which was ploughed back in further capacity addition.
Working Capital Financing
Working capital needs are met through traditional banking channels. Companies opt for working capital arrangements through (i) consortium banking arrangement or (ii) multiple banking arrangement. The common modes of financing working capital are cash credit, WCDL, export packing credit, etc. However, the following two products also help companies in managing working capital.Apart from use of cash credit, WCDL & packing credit, companies also use buyers credit and supplier’s credit facilities provided by various banks. Under the buyers credit facility, banks pay to the company’s import vendors and company pays to the bank on a pre-determined date with interest. Similarly companies also use supplier’s credit facility.
Channel financing: To reduce debtors in their books, companies use channel financing for its large dealers. Bankers do their own due diligence and provide credit facilities to dealers which are exclusively used for payment or clearing dues of the company. The onus on the company is the continuity of dealership. If there is disruption, companies are required to inform the banks.
Financing of Capital Expenditure
Long term financing usually takes the form of (i) equity (ii) debt and (iii) hybrid (mix of debt & equity).
Equity: It is a permanent form of money which is mobilised by the promoters and through public participation. In case of an established company promoters can invite private equity funds. Besides companies issue ADRs/GDRs in foreign capital markets.
Debt: Companies raise debt through banks and other FIs. Depending on the financial strength, companies evaluates the various debt raising options. Debt raising can be done in (i) foreign currency and (ii) rupee, and can be further segregated into secured and unsecured borrowings depending on whether any collateral has been provided to the lender.
Common Modes of Long Term Financing
For raising long term funds the industry uses various instruments in the domestic as well as the foreign capital markets depending on the interest cost, accessibility to various markets and risk appetite, etc.Debentures: Over the years industry has reduced the use of debentures as a mode of financing due to high interest as well as compliance cost. Proportion of debentures has reduced drastically from 34 per cent in FY06 to 14 per cent in FY10.
FC/Rupee Term Loan: Foreign currency loans in the form of ECBs appeals the industry due to its low cost and rupee term loan due to its relatively low cost and flexible end use. Requirement has increased as is evident from the increase in its proportion of 48 per cent in FY 06 to 57 per cent in FY10.
Sales Tax Deferment Loan: Appeal of incentives provided by various government has attracted the industry. Interest free sales tax deferment loan also improves the overall weighted average cost of theborrowings.Foreign Currency Convertible Bonds (FCCB): Some players also access international markets by issuing FCCB. It has an option to convert the bonds into equity at a pre-determined price on a specific date. Many players tie up with IFC for financing their capex needs. Companies also access ECA financing from the Exim Banks of the countries from where they are importing major equipments, ie, Hermes and Coface.
MNC’s generally borrow in local markets for local expansion and for acquisition financing they opt for offshore financing based on cost benefit analysis.
Challenges faced by the industry

With rise in capital cost and longer time for implementation, judicious mix of internal accrual, equity and debt became critical.
Locally long term maturity debt papers can be placed only with life insurance companies or some banks.
Cost of borrowing in foreign currency (ECBs) is still competitive with full hedging as compared to domestic borrowings. But keeping the currency risk and interest rate risk unhedged may result/put companies into deep trouble.
With over capacity in the sector, the equity route for mobilising money is also not cheap. Equally PE money is costlier funds require exit route at a higher price.
Hence companies should have systematic approach of risk management relating to leveraging and debt servicing.

Concrete

Cement Makers Reaffirm Commitment to Sustainable Growth

Published

6 days ago

June 5, 2026

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World Environment Day spotlight on innovation and circularity

On World Environment Day, the Indian cement industry reiterated its commitment to supporting India’s climate ambitions through sustainable manufacturing, resource efficiency and the adoption of cleaner technologies.

The Cement Manufacturers’ Association (CMA) said the sector remains aligned with the Government of India’s Net Zero commitments and is accelerating efforts to reduce its environmental footprint while supporting the country’s infrastructure and development agenda.

Parth Jindal, President, CMA and Managing Director, JSW Cement, said the industry is increasingly adopting cleaner technologies, improving energy efficiency and expanding the use of alternative fuels and raw materials. He also highlighted the growing importance of circular economy practices, where industrial by-products and waste streams from one sector are utilised as resources in another.

“The Indian Cement Industry is aligned to the Government’s commitments on carbon mitigation and is accelerating the adoption of cleaner technologies, resource efficiency and circular economy practices while actively exploring the potential of Carbon Capture, Utilisation and Storage (CCUS) as a critical pathway for deep decarbonisation,” said Jindal.

He added that coprocessing industrial waste and by-products helps conserve natural resources, reduce disposal requirements and lower the environmental footprint across multiple sectors.

According to Jindal, sustainability is no longer limited to manufacturing processes but is increasingly influencing investment decisions, innovation strategies and long-term growth plans within the industry.

Echoing similar views, Dr Raghavpat Singhania, Vice President, CMA and Managing Director, JK Cement, said sustainable development extends beyond emissions reduction and must also focus on responsible resource utilisation and waste minimisation.

“Sustainability in the built environment cannot be measured by emissions alone. It is equally about how efficiently we use resources, how effectively we minimise waste and how responsibly we create the infrastructure that will serve future generations,” said Singhania.

He noted that the cement industry is advancing its sustainability agenda through greater resource efficiency, increased circularity, technological innovation and continuous improvements in manufacturing practices. As a key contributor to India’s infrastructure development, the sector has a critical role to play in balancing economic growth with environmental responsibility.

On the occasion of World Environment Day, industry leaders reaffirmed their commitment to supporting India’s climate goals while delivering the materials required for resilient, durable and sustainable infrastructure.

Concrete

Building a Greener Future Together

Published

7 days ago

June 4, 2026

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Environmental sustainability requires immediate action, not just long-term commitments and discussions. Recycling, circular economy practices, and technology-driven waste management can help industries reduce environmental impact while supporting sustainable growth.

Author: Jignesh Kundaria, Director and CEO, Fornnax Technology

World Environment Day serves as an important reminder that environmental sustainability can no longer remain confined to discussions, reports, or long-term commitments. The environmental challenges facing the world today demand immediate, measurable, and collective action. Across industries and communities, waste generation continues to outpace our ability to process it responsibly, placing increasing pressure on ecosystems, natural resources, public health, and the well-being of future generations.

One of the most significant shifts required today is a change in how society perceives waste. Rather than being viewed as a material to be discarded, waste must be recognised as a valuable resource that can contribute to both economic growth and environmental protection when managed through the right technologies and systems. This mindset forms the foundation of the circular economy model that countries across the world are increasingly adopting to reduce landfill dependence, recover valuable materials, and create more sustainable industrial ecosystems.

India has made meaningful progress in strengthening awareness around sustainability, recycling, and environmental responsibility over the past decade. Significant efforts are being made to formalise the recycling sector through improved infrastructure, technology adoption, policy implementation, and broader stakeholder participation. These developments are creating a stronger foundation for responsible waste management and resource recovery across the country.

However, achieving long-term environmental impact requires collaboration from all stakeholders. Industries, policymakers, technology providers, and communities must work together with greater accountability to strengthen recycling ecosystems, encourage responsible waste management practices, and create sustainable outcomes through consistent execution rather than temporary interventions.

As someone closely associated with the recycling industry, I firmly believe that technology will play a decisive role in addressing future environmental challenges. Advanced recycling systems have the potential to recover valuable resources, reduce pollution, minimise landfill burdens, and conserve energy, creating a more sustainable future for generations to come. This belief is deeply reflected in Fornnax’s motto, “Committed to Create a Green Future,” which embodies our commitment to building long-term environmental value through innovation and responsible action.

At the same time, technology alone cannot deliver meaningful change. Real progress requires intent, awareness, participation, and a shared sense of responsibility. Sustainable development can only be achieved when innovation is supported by collective action and a genuine commitment to environmental stewardship.

On this World Environment Day, let us move beyond conversations and take meaningful steps towards creating a cleaner, greener, and more sustainable planet. By embracing innovation, strengthening recycling ecosystems, and acting responsibly today, we can create lasting environmental impact and secure a better future for generations to come.

Concrete

Dalmia Bharat Acquires Jaiprakash Associates Cement Assets for ₹2,850 Crore

Published

2 weeks ago

May 25, 2026

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Dalmia Cement executed a Business Transfer Agreement with Jaiprakash Associates and Adani Infra, to acquire 5.2 MnTPA of cement capacity across Madhya Pradesh and Uttar Pradesh.

Dalmia Cement (Bharat) announced on May 22, 2026 that it had signed a Business Transfer Agreement with Jaiprakash Associates Limited and Adani Infra (India) Limited for the acquisition of cement plants located at Rewa in Madhya Pradesh and Churk, Chunar and Sadwa in Uttar Pradesh. The deal was struck at an enterprise value of ₹2,850 crore and is expected to close within two weeks of execution.

The acquired assets from Jaiprakash Associates include 5.2 MnTPA of cement capacity and 3.3 MnTPA of clinker capacity. The package also covers 99 MW of thermal power capacity and railway sidings at Rewa, Chunar, and a common siding at Churk. This infrastructure gives the acquisition immediate operational utility beyond just production tonnage.

The transaction has a long backstory. Dalmia Cement had originally entered into a framework agreement with Jaiprakash Associates in December 2022, covering the sale of these business assets along with a long-term clinker supply arrangement. However, before the deal could be completed, Jaiprakash Associates was admitted to insolvency proceedings under the Insolvency and Bankruptcy Code. The earlier agreements could not be consummated as a result.

In an official statement, Puneet Dalmia, Managing Director & CEO, Dalmia Bharat, said, “I am very excited about addition of these assets in our portfolio. This serves as a great strategic fit for Dalmia. It helps us move forward in our journey to be a pan India player and provide a strong head start to serve the high potential markets in Central region. I am optimistic that the expansion potential of these assets along with close proximity with Dalmia’s captive mines will help us create a capacity hub for the future”.

Following the approval of Adani Group’s resolution plan for Jaiprakash Associates under the IBC framework, Dalmia approached the new management to revive discussions. The fresh Business Transfer Agreement was executed to settle all pending disputes, legal proceedings, and arbitration matters arising from the original framework agreement with Jaiprakash Associates.

Expanding market reach

Dalmia added, “Our familiarity with these assets under the earlier tolling arrangement gives us a deep understanding of the facilities and helps us establish strong connect with channel partners and vendors. We believe that this will help us in faster ramp up of capacities and quicker inroads into the market. As we look forward, I am very confident that we will be able to leverage the strengths of Dalmia to operate these assets in a manner where we can maximise value creation for all our stakeholders.”

With the addition of these plants, Dalmia Bharat’s total installed cement capacity will rise to 54.7 MnTPA upon consummation. The company has further expansion projects underway at Belgaum, Pune, and Kadapa, which are expected to take overall capacity to 66.7 MnTPA by Q2 to Q3 FY28.

The Central India location of the Jaiprakash Associates plants gives Dalmia Bharat faster access to markets in Madhya Pradesh and Uttar Pradesh than a greenfield build would have allowed. The company also cited debottlenecking and brownfield expansion as near-term opportunities at the acquired sites. Dalmia Bharat said the assets were expected to contribute positively to EBITDA and overall returns, given the pricing environment in the region and the company’s cost structure.