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What does 2016 have in store?

Published

3 years ago

October 19, 2021

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ICR team takes a look at some published information to peep into the year ahead.

India Brand Equity Foundation

Concrete demand
India?s cement demand is expected to reach 550-600 million tonnes per annum by 2025. The sectors boosting this demand are housing, infrastructure, commercial construction and industrial construction.

Cement demand in India is expected to increase due to the government?s push for large infrastructure projects, leading to 45 million tonnes (MT) of cement needed in the next three to four years.

To meet the rise in demand, cement companies are expected to add 56 MT capacity over the next three years. The cement capacity in India may register a growth of eight per cent by next year end to 395 MT from the current level of 366 MT. It may increase further to 421 MT by the end of 2017. The country?s per capita consumption stands at around 190 kg.

The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost 70 per cent of the total cement production of the country. A total of 188 large cement plants together account for 97 per cent of the total installed capacity in the country, with 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.

Investments
On the back of growing demand, due to increased construction and infrastructural activities, the cement sector in India has seen many investments and developments in recent times.

According to data released by the Department of Industrial Policy and Promotion (DIPP), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 3.1 billion between April 2000 and September 2015.

Some of the major investments in the Indian cement industry are as follows: Birla Corporation Ltd, a part of the MP Birla Group, has agreed to acquire two cement assets of Lafarge India for an enterprise value of Rs 5,000 crore.

Dalmia Cement (Bharat) Ltd has invested around Rs 2,000 crore in expanding its business in the North East over the past two years. The company currently has three manufacturing plants in the region – one in Meghalaya and two in Assam. JSW Group plans to expand its cement production capacity to 30 MTPA from 5 MTPA by setting up grinding units closer to its steel plants.

UltraTech Cement Ltd has charted out its next phase of greenfield expansion after a period of aggressive acquisitions over the last two years. UltraTech has plans to set up two greenfield grinding units in Bihar and West Bengal.

UltraTech Cement Ltd bought two cement plants and related power assets of Jaiprakash Associates Ltd in Madhya Pradesh for Rs 5,400 crore.

JSW Cement Ltd has planned to set up a 3 MTPA clinkerisation plant at Chittapur in Karnataka at an estimated cost of Rs 2,500 crore.

Andhra Cements Ltd has commenced the commercial production in the company?s cement plants – Durga Cement Works at Dachepalli, Guntur and Visakha Cement Works at Visakhapatnam.

Government Initiatives
In the 12th Five-Year Plan, the Government of India plans to increase investment in infrastructure to the tune of $1 trillion and increase the industry?s capacity to 150 MT. The Cement Corporation of India (CCI) was incorporated by the Government of India in 1965 to achieve self-sufficiency in cement production in the country. Currently, CCI has 10 units spread over eight states in India.

In order to help the private sector companies thrive in the industry, the government has been approving their investment schemes. Some such initiatives by the government in the recent past are as follows:

The Government of Tamil Nadu has launched low priced cement branded ?Amma? Cement. The sale of the cement started in Tiruchi at Rs 190 a bag through the Tamil Nadu Civil Supplies Corporation (TNCSC). Sales commenced in five godowns of TNCSC and will be rolled out in stages with the low priced cement available across the state from 470 outlets.

The Government of Kerala has accorded sanction to Malabar Cements Ltd to set up a bulk cement handling unit at Kochi Port at an investment of Rs 160 crore.

The Andhra Pradesh State Investment Promotion Board (SIPB) has approved proposals worth Rs 9,200 crore including three cement plants and concessions to Hero MotoCorp project. The total capacity of these three cement plants is likely to be about 12 MTPA and the plants are expected to generate employment for nearly 4,000 people directly and a few thousands more indirectly.

India has joined hands with Switzerland to reduce energy consumption and develop newer methods in the country for more efficient cement production, which will help India meet its rising demand for cement in the infrastructure sector.

The Government of India has decided to adopt cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable and cheaper to maintain than bitumen in the long run.

Road Ahead
The eastern states of India are likely to be the newer and virgin markets for cement companies, and could contribute to their bottom line in the future. In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.

A large number of foreign players are also expected to enter the cement sector, owing to the profit margins and steady demand. In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route. With help from the government in terms of friendlier laws, lower taxation, and increased infrastructure spending, the sector will grow and take India?s economy forward along with it.

Reliance Securities

Weak Earnings
Cement firms? Q3 earnings may dip on dismal pricing environment. Cement companies are likely to witness a muted growth in y-o-y earnings A delay in capex revival along with dismal pricing environment is likely to affect performance of cement companies in the third quarter of this fiscal, says a Reliance Securities report. "Cement companies are likely to witness a muted growth in y-o-y earnings. The performance of cement companies is likely to be affected in the December 2015 quarter due to delay in capex revival along with dismal pricing environment," the report said.

Average volume growth is expected to the tune of six percent year-on-year mainly led by volume push, whereas average realisations are down by one percent y-o-y and two per cent on a q-o-q basis. Notably, softened fuel and input prices are likely to arrest margin erosion from realisations dip as operating cost/tonne is expected to decline by three per cent y-o-y, the report said. Companies having substantial exposure in eastern, western and central regions are likely to report maximum deterioration in operating margins as realisations in these regions have witnessed an average yearly decline of 4-6 percent y-o-y.

The report foresees FY17 as being better for cement companies mainly on account of low base of volume growth, realisations recovery, expected pickup in construction activities in the busy season and possible pickup in rural consumption. The report said that the demand environment remained tepid. Demand scenario remained abysmal and it could not see a convincing bounce-back post the seasonal overhang owing to impediments to private investments and decelerating rural demand. "Cement companies under our coverage have witnessed an average volume growth of 6 per cent mainly led by new capacity and volume push," it said.

ICRA

Moderate Demand
Given the capacity overhang and a moderate demand growth, capacity utilisation is likely to decline marginally to 70 per cent in FY16, says an ICRA report. India?s cement demand is likely to improve gradually in the medium term in line with recovery in infrastructure, investment cycle and overall economy, says a report from ICRA.

The results of policy initiatives taken by the new government will take time to materialise. With demand growth showing a sluggish trend during the first half of FY16, ICRA expects the pace of recovery in the cement industry to be moderate at 3.8-4.0 per cent during 2015-16.

Given the capacity overhang and a moderate demand growth, capacity utilisation is likely to decline marginally to 70 per cent in FY16. But it is expected to improve to 73 per cent in FY17 driven by both pick up in demand as well as slowdown in new capacity addition, adds the report.

All-India cement production grew by 1.26 per cent in the first half of FY16 compared with 9.73 per cent in the corresponding period of FY15.

Sabyasachi Majumdar, senior vice-president, ICRA Limited, said, "The overall growth of 1.26 per cent in H1 FY16 was impacted by continued muted demand from key consuming industries (real estate and infrastructure), slow recovery in infrastructure spending and high base effect (as cement demand had increased by 9.73 per cent in the corresponding period last year). Further, muted growth in the Minimum Support Price (MSP) for crops for FY2015-16 as well as drought conditions affected agricultural incomes and post-monsoon rural demand for cement for housing and other purposes."

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

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3 years ago

October 21, 2021

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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

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Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

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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.

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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

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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.