D&B Industry Research Service’s report on the Indian cement
industry studies the various dimensions of the industry and assesses
the future prospects for the industry. In addition to this, D&B
Industry Research Service also encapsulates the emerging trends
in the cement industry and analyses some of the industry’s
Some of the emerging trends and major concerns of the Indian cement
industry analysed in this report are:
• Fragmentation in the industry
• Rising share of blended cement production
• Possibility of excess capacity in the cement industry post
• Adequate availability of coal – a major fuel for the
• A well connected logistic network – a major requisite
for the industry
• Greater movement of cement through the bulk route
• Increasing pace of consolidation with entry of global cement
• Possibility of fall in cement exports, along with marginal
cement imports into the country
• Intense competition necessitating changes in company strategies
• Vertical integration by cement companies
Section I – Industry dynamics deals with
the environment in which the cement industry operates, and covers
the various facets that determine the dynamics of the industry.
The cement industry is one of the basic infrastructure industries
and is a significant contributor to the Indian economy in terms
of employment generation, tax revenues, and industrial growth. The
per capita consumption of cement is considered an important indicator
of the country’s economic development, as it is used in almost
Government policies, competition and ensuing consolidation activities
in the Indian cement industry over the years has given rise to an
oligopolistic industry structure. Though the concentration of capacities
among the larger players has increased in recent times on account
of consolidation activity, the industry still exhibits some degree
of fragmentation. Around 60 per cent of the total capacity is scattered
among approximately 50 large cement companies and over 200 mini
cement plants. There is thus scope for further consolidation activity
in the industry.
The cement industry is currently in the midst of an interesting
phase of robust demand, very high capacity utilisation and firm
prices. Demand for cement in the domestic market remains robust,
driven by demand from all user segments. Demand from the housing
sector continues unabated driven by rising income levels, fiscal
incentives and a moderate interest rate regime. The rapid growth
recorded by the services sector has led to robust demand for commercial
real estate and thus demand for cement. In addition, the government’s
keenness to improve the infrastructural facilities in the country
and the surge in industrial investments has led to higher demand
for cement from these two segments. Domestic cement consumption
grew at an accelerated pace of 9.4 per cent (CAGR) during FY04-FY07
as compared to a CAGR of 7.5 per cent over the last 15 years.
Domestic cement production has kept pace with the rise in cement
consumption. Additionally, the industry has witnessed a greater
acceptance of blended cement. This is reflected in the steady rise
in share of Portland pozzolana cement (PPC) in total cement production
from 19.1 per cent in FY99 to 60 per cent in FY07. Unlike production,
capacity additions in the industry tend to be bunched together,
given the indivisible nature of investments in the industry. The
bunching up of capacity additions distorts the demand-supply equilibrium
in the industry and has an adverse effect on the industry’s
profitability. The industry witnessed substantial additions to capacity
in FY02, which led to an overcapacity situation. However, since
then incremental capacity additions have slowed down and the demand-supply
equilibrium has been restored. Consequently, the industry has observed
an increase in the operating rates and in prices.
The industry is now investing heavily in augmenting its cement capacity
to be able to cater to the expected rise in demand. The planned
capacity additions in the cement industry are likely to add (around)
80 million tonnes of capacity (FY08-FY10). On-time commissioning
of these capacities could tilt the demand-supply situation towards
overcapacity. However, capacity additions are likely to miss the
scheduled deadline due to delays on various fronts, such as environmental
clearances, delays in supply of equipment, among others. A situation
of overcapacity in the cement industry is therefore likely to emerge
On the resources/inputs front, while there are no problems with
respect to availability of limestone, there are concerns with regard
to availability of adequate quantity of coal — a major fuel
— to the industry. Coal receipts by the cement industry have
been lower than the assured coal linkages granted to the industry.
In a recent policy change, the government has reduced the assured
coal supply to around 75 per cent of the cement industry’s
total coal requirements. Cement companies are resorting to coal
imports and use of alternative fuels (pet coke, lignite) to meet
their fuel requirements.
Logistics is another area of concern for the industry, and distribution
cost is one of the major costs for the industry. Cement companies
are working towards strengthening their distribution network, while
concurrently trying to bring down distribution costs. The industry
has witnessed a rise in movement of cement through the sea route.
Most of the cement sales in the country occur through retail network
in the bagged form. The industry is now witnessing a gradual change
towards movement of cement through the bulk route. Split-location
units are another move adopted by companies to cut down on distribution
costs. Under this concept, the clinkerisation unit is located close
to the limestone reserves, while the grinding units are located
at 2–3 different
locations, generally closer to the markets.
Cement prices, being market determined, have risen sharply since
March 2006 largely due to an improvement in the demand-supply dynamics.
Cement prices in most of the markets are ruling at all-time highs.
Due to the consistently high cement prices, the government has adopted
various measures to facilitate imports. This attempt is to ease
cement supply and thus rein in rising cement prices; prices have,
however, continued to rise.
The rise in input costs has also contributed to the rise in cement
prices. Energy, raw material and distribution are the major expenses
for the cement industry. The industry is constantly working towards
reducing these costs, through measures such as use of alternative
fuels, setting up captive power plants, and greater production of
Section II – Global perspective analyses
the scenario in the global cement industry. Globally, cement production
has grown at a CAGR of 7.7 per cent over the last 6 years. The industry
is, however, witnessing shifts in production patterns with most
of the growth occurring in the developing markets. China and India
have emerged as the largest producers and consumers of cement in
the world. The global cement industry is highly localised, with
demand for cement in most of the countries being met by domestic
producers. Thus, international trade in cement is limited. Global
cement exports account for only around 7 per cent of the total global
Demand for cement is closely related to overall economic development
and tends to vary across countries, depending on the level of industrialisation
and infrastructure development. Global cement majors are strengthening
their production bases across countries to mitigate the locational
risk associated with operating in individual countries. This has
led to increased consolidation activity in the global cement industry.
Consequently, the level of concentration in the industry has increased
and the top six global players account for around 28 per cent of
the global cement capacity. The pace of consolidation activity at
the global level is likely to continue.
With the Indian cement industry’s huge potential, the country
could witness the entry of more global cement majors or the strengthening
of production bases by existing companies. Global cement majors,
who adopted the inorganic route to gain entry into the Indian cement
industry, already control a substantial part of cement capacity
in the country.
India’s share in international cement trade (exports) stood
at 5 per cent in 2006. Middle East is one of India’s largest
cement export markets, accounting for around 25 per cent of India’s
total cement and clinker exports. The region is witnessing substantial
additions to cement capacity and there are concerns of a possible
fall in cement exports to the Middle East from India. Cement and
clinker exports from India declined in FY07, as companies diverted
exports to the domestic market to capitalize on the higher domestic
The Indian cement industry faces a possible threat from imports,
following the removal of all duties (basic customs duty, CVD and
SAD) on imported cement. The threat is from Pakistan, India’s
immediate neighbour, which currently has excess cement capacity.
However, D&B Industry Research Service does not expect cement
imports into the country to occur on a large scale, largely due
to infrastructural constraints.
Section III – Industry performance reviews
the financial performance of the industry over the last 5 years.
In line with the cyclical upturn in the cement industry, the financial
health of the industry has improved considerably in FY07. The industry
has recorded a sharp rise in sales, and marked improvement in profitability.
During FY07, its PBDIT (NNRT) margin improved by 9.3 percentage
points to 28.9 per cent, while its net profit margin improved by
7.4 percentage points to 16.8 per cent as compared with margins
earned in FY06. Cement companies across the sector fared well during
FY07. Returns recorded by the cement companies also improved considerably.
Backed by the strong cash flows and moderate interest rate regime,
the cement industry has been able to bring down its debt-equity
ratio, as also its interest incidence.
D&B Industry Research Service expects the cement industry to
continue recording healthy sales growth. However, rising input costs
— coal, power tariff, prices of transportation fuels —
remains a cause of worry.
Section IV – Strategic insight reviews the
level of competition in the industry, the growth prospects for the
industry, and assesses the intensity of various risks the Indian
cement industry faces. Competition in the Indian cement industry
has intensified over the last 2 years, with the global cement majors
gaining a major foothold in the country. Cement companies are looking
for innovative strategies to capture a substantial market share
and survive amidst aggressive competition.
The strategies adopted include non-price instruments such as branding,
greater expenditure on advertising, innovative packaging, strengthening
of their distribution networks as well as several customer-focussed
initiatives. Companies are also integrating vertically by moving
into the ready-mix concrete business in an attempt to retain their
clients. Regional players are also moving out of their regions in
an attempt to establish a pan-India presence. This is expected to
intensify the level of competition in the industry.
Prospects look bright for the Indian cement industry. Cement consumption
would remain robust, driven by higher offtake by all user segments,
while prices would remain high because of the tightness in the demand-supply
situation. Backed by these, the industry is expected to register
rise in sales revenue during FY08 and FY09.
Though there is immense growth potential, the Indian cement industry
does face some risks. These include poor infrastructure facilities
in the country, possible slowdown in implementation of government
policies regarding infrastructure, among others. There are also
concerns of a situation of overcapacity emerging in the industry
leading to a fall in capacity utilisation rates.