STUDY OF INDIAN MARKET
History of Industry in India
1947 1969: Rapid growth stage
1969-1982: Control Period
1982-1989: Partial Decontrol
1989 onwards-till date: Total Decontrol
The trend in capacity utilization of the industry is interesting to analyze, as there are many
fluctuations all through the period. Starting with 10% in the beginning of the industry, the
capacity utilization peaked to around 99% in 1937-38. But this could not be sustained and the
capacity utilization fell sharply to 67% in 1950, improving marginally in the following two
decades. The period of controlled market, as mentioned before was characterized by oversupply
in the industry, which got reflected in negative CAGR of -0.73%. Whole of the period of 197071 to 1988-89 saw fluctuations, moving utilization levels to as low as around 65% in some years.
But after total decontrol, there was some sort of upturn in this trend due to increased production
levels and the ACGR went up to positive 0.93%. It may be mentioned here that the capacity
utilizations have been at their highest only after 1999- 2000 when it reached 85% and moreover
after 2004-05. In January 2007, it even went up to 100%, highest ever, guiding it to the average
of 94% for the financial year. This became possible only because the installed capacities did not
increase as much as production did, finally leading to closure of gap between supply and
demand. The overall period ACGR is just above the positive mark at 0.10%.
(Source: Government of India, 2006)
Indian Scenario of industry
Cement is the glue that holds the concrete together, and is therefore critical for meeting society's
needs of housing and basic infrastructure such as bridges, roads, water treatment facilities,
schools and hospitals. Concrete is the second most consumed material after water, with nearly
three tonnes used annually for each person on the planet. Being one of the basic elements for
setting up strong and healthy infrastructure, Cement plays a crucial role in economic
development of any country. Having more than a hundred and fifty years history, it has been
used extensively in construction of anything, from a small building to a mammoth multipurpose
project. Cement is an essential component of infrastructure development and most important
input of construction industry, particularly in the governments infrastructure and housing
programs, which are necessary for the countrys socioeconomic growth and development. It is
also the second most consumed material on the planet. The Indian cement industry is the second
largest producer of cement in the world just behind China, but ahead of the United States and
Japan. It is consented to be a core sector accounting for approximately 1.3% of GDP and
employing over 0.14 million people. Also the industry is a significant contributor to the revenue
collected by both the central and state governments through excise and sales taxes. The
manufacturing process of cement consists of mixing, drying and grinding of limestone, clay and
silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be
cooled in an air-cooling system to form clinker, which is the semi-finished form. This clinker is
cooled by air and subsequently ground with gypsum to form cement. There are different varieties
of cement based on different compositions according to specific end uses, namely, ORDINARY
PORTLAND
CEMENT,
PORTLAND
POZZOLANA
CEMENT,
WHITE
CEMENT,
PORTLAND BLAST FURNACE SLAG CEMENT and SPECIALISED CEMENT. The basic
difference lies in the percentage of clinker used. During the period from 2006 to 2008, total
cement consumption grew from 2,568 million tonnes to 28572 million tonnes, at a Compounded
Annual Growth Rate (CAGR) of close to 7%. The rapid increase in global cement consumption
is led by increasing demand for infrastructure in emerging economies, with Asia accounting for
66% of the global demand. China was the worlds largest consumer of cement in 2008 and
accounted for 48.73% of total cement consumption.
Growth and Evolution of Industry in India
The characteristics of the Indian cement industry need to be discussed to understand its structure
better. Firstly, it is a combination of mini (more than 300 units) and large capacity cement plants,
where majority of the production of cement (94%) in the country is by large plants. The
conventional method of cement manufacturing used by large plants (Rotary Kiln) needs high
capacity, huge deposits of lime stone in its vicinity, high capital investment and long gestation
period. Hence mini cement plants based on Vertical Shaft Kiln technology, suiting the small
deposits of limestone are becoming popular. Also they create less environmental pollution.
Against the requirement of `3900 per ton of capacity of large plants, capital costs for minicement plants come to about `1,600 to `1,900 per ton .The viability of the location plays a major
role in the economics of cement manufacturing . One of the other defining features of the Indian
cement industry is that the location of limestone reserves in select States has resulted in its
evolving in the form of clusters. The proximity of coal deposits constitutes another important
factor in cement manufacturing. Since cement is a high bulk and low value commodity,
competition is also localized because the cost of transportation of cement to distant markets often
results in the product being uncompetitive in those markets. There are at present seven clusters,
where SATNA (MADHYA PRADESH) cluster is the leader in capacity as well as production.
Others are CHANDRAPUR (NORTH ANDHRA PRADESH and MAHARASHTRA),
GULBARGA
(NORTH
RAJASTHAN,
JAWAD
KARNATAKA
and
NEEMUCH
and
IN
EAST
MP),
AP),
CHANDERIA
BILASPUR
(SOUTH
(CHATTISGARH),
YERRAGUNTLA (SOUTH AP), and NALGONDA (CENTRAL AP). Traditionally, cement has
been a heavily taxed sector with both the central and the state governments levying the taxes
which amount to around 30% of the selling price of cement or around 70% of the ex-factory
price (excluding local transport and dealer margins). The major taxes/ levies comprise central
excise duty; sales tax levied by the respective state governments; royalty and cess on limestone
and coal; and, duties on power tariff. The excise duty rates on cement are on specific basis, as
against ad valorem rates on most products. The cement industry is energy intensive and thus
power costs form the most critical cost component in cement manufacturing, of about 35% to
total cost of production. The issues here is the technology used (dry versus wet process), fuel
efficiency (efficient use of coal/lignite/any other material used for burning) and power efficiency
(power availability, use of alternative fuels, unit power consumption, cost and availability of
captive power). The scope for cost reduction through better energy efficiency may now be
limited for better performing companies since they have already reached the best feasible levels.
One more characteristic of the industry comes from it being capital intensive. Since the capital
intensity of a new cement project is high, access to capital has become a significant entry barrier.
The cost of a new cement plant can be equivalent to about 3 years of revenue. Another
distinguishing characteristic comes from it being cyclical in nature as the market and
consumption is closely linked to the economic and climatic cycles.
In India, cement production normally peaks in the month of March while it is at its lowest in the
month of August and September. The cyclical nature of this industry has meant that only large
players are able to withstand the downturn in demand due to their economies of scale,
operational
efficiencies,
diversification.
centrally
controlled
distribution
systems
and
geographical
