Indian Cement Industry: Break-even Cushion to anchor fall in cement prices …..

The Indian cement industry has witnessed a phenomenal capacity addition to the tune of about 52 mn tonnes in the last two financial years which accounted for about 24% of the industry’s capacity of 218 mn tonnes at the end of FY09. In the last two financial years, the cement industry has registered a double-digit growth in capacity addition compared to moderate growth of 3-7% registered during period FY 03-07. As a result, industry’s capacity utilisation rate which showed a rising trend upto FY07, has dropped to a level of 83% in FY09.

In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth reported in FY08. However, cement consumption growth in FY09 at 8.4% has been able to maintain its multiplier factor with GDP growth at 1.25 times.

In FY09, all the regions except the Western and the Northern region have outperformed the industry in consumption growth. The Eastern region continued its buoyant performance and registered the highest cement consumption growth of 11.3% on yoy basis. The Southern and Central regions also reported impressive double-digit growth of 10.4% in cement consumption. But, the Northern region has registered the lowest growth in the cement demand on yoy basis. Comparatively, poor demand growth registered by the Western region was on account of high base of the last year and also slightly subdued demand.

With focus on capacity addition, many small/medium players have been able to capture more market share and consolidate their position in the industry in the last two years. Market share of top five individual companies taken together show a decline to a level of 44.3% in FY09 from 46.3% in FY08.

Eventhough the utilisation rate dropped, average cement prices in FY09 rose by about 5% on yoy basis. But, the growth in cement prices remained slightly subdued compared to 21% and 14%, registered in FY07 and FY08, respectively. On the regional front, prices in the Southern region were firm and ruling consistently at the highest level amongst all the regions in FY09. However, due to slowdown in the cement offtake and relatively low operating rate, prices in the Northern region remained at the lowest levels compared to other regions.

In FY09, the cement industry witnessed a fall in profitability. Eventhough, average realisation for the industry increased by about 4% on yoy basis, cost of production has increased by 18.5% on yoy basis. Power and fuel cost for many cement companies increased in FY09 mainly on account of substantial increase in coal prices. As a result, the operating profit margin of the industry dropped by about 8-9% in FY09. Also, higher interest rates and depreciation provided on expanded capacities took its toll on the net profit margin of the industry which witnessed a decline by about 5% in FY09.

The level of consolidation in the cement industry had slowed down in the last couple of years. However, one analysis suggests that the Net Present Value (NPV) of a Greenfield plant is still higher than the NPV of an acquired unit, leading us to the conclusion that further consolidation in the industry is still away.

The report elucidates facts on the Indian Cement industry, supplemented by the latest statistics. The report is divided into two sections. Section I mainly covers performance of the industry in the last financial year and also analysis of past five years’ data. Section II covers information on some technical aspects about the product and basics of the cement industry alongwith exhaustive database. Following are the few points with are emphasised to accomplish the report:

Section I
• Performance of the Cement industry over past five years with assessment of trends of capacity addition, production and capacity utilisation.
• Evaluation of overall demand – supply scenario in the country covering the trend of domestic consumption and exports for past five years.
• Cement industry being driven by the regional dynamics, detailed analysis of demand – supply situation in the five distinct regions in the country is covered.
• Estimation of cement demand from the demand driving sectors like real estate, infrastructure etc. covering regionwise demand drivers.
• Cost analysis of the industry with emphasis on power & fuel cost, freight cost, raw material cost and evaluation of average cost of production, average realization and margins of the industry.
• CARE’s perspective on regionwise future capacity addition, regionwise cement demand, identification of cement deficit/surplus regions in the country, break even position of the industry and consolidation.

Section II
• Brief on peculiar characteristics of industry, types & applications of various types of cement and a brief on cement manufacturing process.
• Comprehensive database of financial statistics of different cement companies.
• Key operational statistics of cement industry covering detailed regional scenario.

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