1. EXECUTIVE SUMMARY
In last ten years, Cement sector has recorded a CAGR of 8%, against the world
cement industry average of 3.5% and China’s cement industry growth rate of 7.2%. Today
this industry not only outshines that of developed countries such as US and Japan but also
has become the second largest cement producer in the world after China.
The cement industry has continued its growth trajectory over the past ten years.
Domestic cement demand growth has surpassed the economic growth rate for the past three
years. Cement demand in the country grows at roughly 1.5 times the GDP growth rate.
The key drivers for cement demand are real estate sector, infrastructure and industry
expansion projects. Among these real estate sector is the key driver of cement demand. The
demand for cement is closely related to the growth in the construction sector. Consequently,
cement demand has been posting a healthy growth rate of around 8 per cent since 1997-98,
propelled by the increased thrust on infrastructure development, and the higher demand from
the housing sector and industrial projects.
Cement is bulky commodity and cannot be easily transported over long distances
making it a regional market place, with the nation being divided into five regions. Each
region is characterized by its own demand-supply dynamics. Over the past few years the cost
of cement production has grown at a CAGR of 8.4%.
With increase in infrastructure development activity with projects such as state and
national highways, and global demand has led Indian cement industry to increase their
production capacity. This intern has attracted the top cement companies in the world to enter
the Indian market and take the advantage of growth in demand.
The government has considered spending more than US $1 trillion on infrastructure in
the 12th
five year plan. Apart from this railways, urban infrastructure, ports, airports, IT
sector, organized retailing, malls and multiplexes will be the main sectors driving the demand
of cement in the country. So we can see that cement industry is moving towards both
challenges and opportunities poised by the presence of domestic and global players in the
Indian market. This trend is likely to continue in the coming years.
Taking these facts into consideration, an attempt is made to study in depth about the cement
sector and its growth prospects in India. The outcome of the study have led to some
interesting findings which show a positive sign for the future growth of cement sector in
India.

2. FINDINGS-
The cement industry in India has grown from an installed capacity of 5 MTPA at the
end of First 5-year Plan (1951-56) to an installed capacity of about 320 MTPA in
2012.
The structure of the market in cement sector tends to be generally dominated by large
plants. Some major global players like Holcim (212 MT), La’Farage (199MT),
Heidelberg (112MT), Italcementi (81 MT) and Cemex (97 MT) together account for
nearly 25 percent of the global capacity.
Indian cement industry is dominated by 20 companies which account for over 70 % of
the market. The major players like ACC, Ultra Tech and Ambuja Cements have been
quite successful in meeting the demand and supply of cement.
The cement manufacturing process may be divided into three classes i.e. wet process,
semi-dry/semi wet process and dry process. The old cement plants are based on wet
process but the new plants invariably adopt the dry process except in rare cases where
the raw materials characteristics may decide for wet or semi dry process. The dry
process is very much superior in terms of fuel economy. Due to this single main factor
a number of older wet process plants are getting converted to dry process. All new
capacity to be added in future is likely to be of dry process and even some of the
existing units may also change the process to become competitive. As such, the share
of cement capacity using dry process would further increase in future. The induction
of advanced technology has helped the industry immensely to conserve energy and
fuel and to save materials substantially.
Indian cement industry has also acquired technical capability to produce different
types of cement like Ordinary Portland Cement(OPC), Portland Pozzolana
Cement(PPC), Portland Blast Furnace Slag Cement(PBFS), Oil well Cement,
Sulphate Resisting Portland Cement, White cement etc.
Selling and distribution of cement was under Government control since August 1942 .
In February 1982 the Government allowed partial decontrol of cement and the same
was in force till February 1989. Since than, under total decontrol announced by the
Government in 1989, cement factories are free of any control on sale and distribution
of cement.
Cement industry’s overall capacity utilization has not been very satisfactory although
there are few ups and downs in the past few years.

3. The factors contributing towards low capacity utilization include:
o Poor quality coal with up to 45% ash content and irregular supply.
o Power cuts, power tripping and unstable supply voltage.
o Transportation bottlenecks in transporting cement and coal over.
o Transportation bottlenecks in transporting cement and coal over long
distances.
o Lack of operational experience and trained manpower with the newly
emerging large size plants to absorb and adopt the technological
developments.
o Lack of proper plant maintenance system.
With the free sale and distribution of cement, the cement producers now experience a
different market situation and the industry is now subjected to increased competitions
with respect to availability of high quality cement. This means lower cost of
production, increased production efficiency, use of most modern technology for
energy efficiency and quality cement production.
Absorption and adaption of technology depends to a great extent on the research &
development activities of the licensees. The major R&D organizations devoted to
cement industry in India are National Council for Cement and Building
Materials(NCCBM), Central Research Station(CRS) of ACC Limited, Dalmia
Institute of Scientific and Industrial Research(DISIR).
The demand for cement in India has been influenced mainly by the housing,
infrastructure and irrigation etc.
Opportunities and Concerns -
o The government of India plans to increase its investment in infrastructure to
US $ 1 trillion in the twelfth five year plan.
o More than 500 SEZ proposals.
o Infrastructure projects in the pipeline such as dedicated freight corridors,
development of new industrial cities under the Delhi – Mumbai industrial
corridor, National investment & manufacturing zones under the national
manufacturing policy, up gradation of existing and the new ports & airports.
o Growth in Tourism sector fuelling the increase in the construction of hotels in
the country.
o Upcoming industrial clusters & infrastructure development in emerging tier –

4. II & tier – III cities.
o The growing population and increased Urbanization in the country.
Rich raw material reserve, world class technology adoption together with healthy
domestic demand gives Indian cement industry the cushion for further improvement.
Cement is highly taxed commodity in India; there is no import duty for import of
cement into the country.
Inadequate railway infrastructure – Due to cement being bulky in nature, transportation of
cement is always difficult. Distribution expenses is the fourth largest cost component &
accounts for 13 % of the total cost of the industry. Cement carried by the railways fell 11.8 %
to 7.52 MT in August, 2012 from 8.53 MT in the year 2012 earlier, amid on increase in
freight fares of as much as 24%. For cement transportation over long distances, railway
infrastructure is considered more cost efficient over road. But inadequate railway
infrastructure forces all cement players to heavily depend on roads. The increased transport
cost affects competitiveness of the industry. But shortages in covered wagons in Indian
railways forces cement manufacturers to opt for expensive road transport.
Cement & Clinker Dispatches by Rail
Year Cement Clinker Cement & Clinker combined
2010 - 11 35.00% 50.00% 37.00%
2009 - 10 36.00% 50.00% 38.00%
2008 - 09 38.00% 56.00% 40.00%
2007 - 08 38.00% 57.00% 41.00%
Major Concerns – Railway -
o Non-availability of wagons not only throw into disarray, the dispatch plans
and affect production of cement, it also obliges rake availability a consistent
problem.
o Frequent shifting of priorities of rakes by railways to various sectors i.e.,
fertilizers, food grains and power resulting in substantial despatch losses to the
cement companies as it is not possible for them to shift their mode of transport

5. frequency.
o Inadequate infrastructure facilities at terminals like platform, double line,
access road etc.
o Railways policy circulars, issued from time to time in a bid to increase the
turnaround of wagons, have not only created for the cement plants operational
problems both at loading and unloading points but have also made them liable
to pay penalties, wharf age and demurrage charges.
Inadequate use of concrete in road development – In India most of the roads have
been used to develop surfaced road and only 2 % of the total road length in the
country is made of concrete but concrete roads have average life cycle of 50 years and
helps to save fuel consumption up to the level of 15 %. In order to develop cost
effective environment friendly roads government should encourage the use of fly-ash
based cements for road development. This kind of initiative will result in a gainful
deployment of waste pollutant like fly - ash in one hand and boost the domestic
cement industry on the other.
RECOMMENDATIONS-
All manufacturers should endeavor to set up and strengthen R&D infrastructure
particularly aimed at absorbing /adapting/developing newer technologies for better
energy efficiency, quality enhanced and optimum operating efficiency. The co-
ordination between the R&D plans of the licensor and those of the licensees should be
clearly established.
All the concerned cement plants should endeavor to set up computerized kiln and mill
simulations which have revolutionized the operators training in these areas for gaining
or improving operating knowledge at lower cost, lesser time and practically no risk.
To start with, use of these simulators may be taken-up on a centralized basis.
Cement industry should be provided with access to inputs, particularly coal, pet coke
and gypsum at nil rates of customs duty and differences in tax treatment need to be
removed to offer a level playing field to domestic production imports. The import of
duty of cement should also have a duty.
Cement industry being energy intensive, the energy conservation and alternate
cheaper, renewable and environment friendly sources of energy have assumed greater
importance for improving productivity. Some of the major challenges that are going to

6. face by the cement industry are quality of the raw materials like coal, fuel, fly ash and
inconsistent power supply.
The application of nanotechnology to cement and concrete is expected to result in
development of eco-friendly, high performance cements / binders and concrete with
improved durability characteristics. It would also help in achieving the goal of
sustainable development.
To sustain the level of competitiveness, government needs to provide level playing
field in terms of
o Improved Infrastructure
o Lower Taxes
o Ensure quality coal
o Consistent power supply
o Exploring export market
FUTURE OUTLOOK
Despite apprehensions about the impact of inflation and a slowdown in industrial production
and overall economic scenario, the outlook for the cement sector remains positive in respect
of growth in demand in the foreseeable future. Infrastructure and housing are still moving
apace. However what is of concern to the industry are staggering rise in input costs and
pressures to cap selling prices at the same time. Unless the industry is able to recover cost
increases, through suitable adjustments in selling prices through rational economic
considerations, the cement industry will be under pressure.
A large number of foreign players are also expected to enter the cement sector in the next 10
years, owing to the profit margins, constant demand, and right valuation. Consolidation of the
cement sector too will take place and cement plants producing less than 1 million tonnes will
find it difficult to survive in this market. Cement companies will go for global listings either
through the FCCB route or the GDR routes.
The industry experts project the sector to grow by 9 to 10% for the current financial year
provided India's GDP grows at 7%. With help from the government in terms of friendlier
laws, lower taxation, and more infrastructures spending, the sector will grow and will take
India’s economy forward along with it.
From the analysis, it is understood that the ACC LTD and Ambuja Cements are over
shadowing all other companies in terms of performance. So our suggestion to other

7. companies operating is to increase their customer base, decrease their cost of productions and
improve their performance with respect to sales, financial prudence and capacity utilization.
Indian companies would have to identify the threat from global cement players entering the
market and find demand for the product in neighbouring countries and continents. Smaller
companies should consolidate their businesses to survive in the market, which will be
dominated by larger players.
The companies have to get a higher share of sales in the market. This would require multi-
product entities. Indian companies need to focus on products other than just cement like
RMC(Ready Mix Concrete) and should research on new building materials that will create a
niche for them in the market.
To produce high quality cement and in the cheapest and most efficient manner possible, new
technologies have to be adopted. New technologies have to be introduced and implemented
across various plants and factories for enhanced control and efficient production of the
product. Process automation has to be employed to create high quality products.
To gain a high visibility in the market and pose stiff competition to most multinational
brands, research is going to be the key. Research to develop newer, cheaper and more
efficient technologies for creating cement and other products will create the necessary
competitive advantage to the companies and it will help them grow with respect to their
competitors. Niche products like cement with fragrance, pre-collared plasters can also be
developed for increased consumption.
The main opportunities which can drive the demand in the coming years are the expected
improvement in the economy and corporate spending. This could lead to a pick up in the
demand from institutional clients. Also with the general elections slated in FY14. The
government may dole out higher benefits to the low and middle income groups. The increase
in the disposable income of these groups might trickle down to higher housing demand in
FY14-15. The per capita consumption of cement at ~156kg is significantly lower than the
world (396kg) and china’s average(1390kg). Thus, in the next 3-5 years, the thrust of the
government on infrastructure construction along with rising real-estate penetration could lead
India to be one of the most lucrative cement markets in the world.
Furthermore, since the demand could not grow in synchronisation with the high pace of
capacity addition over FY06-11. The industry is plagued by an over capacity situation, in a
moderate growth phase, the pricing power of the players vying for a higher market share.
This combined with escalating raw material and fuel costs leads to a decline in profitability
for the incumbents.

8. With the pace of infrastructure development in the overall economy expected to increase over
the next 3 to 5 years, the rising institutional mix will also increase the penetration of RMC,
which has a very high penetration rate in the developed world.
Another trend, which might play out over the years is raising “inorganic activity”. The large
global or domestic players might look to grow through the inorganic route given the lengthy
process of acquiring land and other environmental clearances required to setup Greenfield
plants. However, this is not going to be easy, since most of the smaller players have strong
profitability and would only sell at a high premium to the replacement costs. Many global
players are very small players in India and hence they may use this route to establish their
presence on one of the largest and fastest growing markets.
CONCLUSION:
The cement industry is expected to grow steadily in the near future.In the present scenario of
hectic competition it has been seen that the biggest player in the market remains strong and
stands very competitive in terms of various aspects to its competitors. The companies will
have to make huge investments on research and ensure on developing new products in the
area of cement to withstand the intense competition to be faced from the strong players.
Though the prospects of growth are very high for the cement sector, it is always important for
companies to formulate proper strategies in terms of product development to distribution to
become more profitable. In essence, we can say that the future of cement sector looks bright
and there is huge prospect for improving business in this sector.