Analysis of Indian Cement Sector

Opportunities in Indian Cement Sector

Introduction

In this article, we are going to analyse the Indian Cement Sector. The opportunities in infrastructure and thereby in cement sector have multiplied after declaration of the Budget 2019-20.

Government has a focused the Infrastructure growth (roads and railways), Metro stations, ‘Housing for All’ scheme, Industrial as well Rural Development etc. in the Budget 2019-20. Therefore, the cement sector can get a direct advantage of these various types of infrastructure developments.

We are going to discuss the parameters like production capacity, consumption pattern, also what are the reasons behind the opportunities and growth in the Indian Cement Sector in coming years.

A.Production Capacity

Let us see the current status of production capacity of the cement sector in India.
As far as overall world market is considered, China is the largest producer of cement. After China, India is the second largest cement producer. The total production capacity of India is 510 MTPA (Million Tonnes per Annum) and this production capacity can grow up to 550 MTPA by 2025 as per the current growth the corresponding demand.
When we consider the India’s last year’s consumption for FY2018-19, it was 328 MT, however the overall production for FY2018-19 was 337 MT. Thus, India’s cement sector is having a current production capacity of 510 MTPA ie. around 500MTPA, but the annual production is just 337 MTPA. Thus, Indian Cement Industry is currently working at 65%-70% of its annual production capacity.
Hence, we can say that after proposing a boost in the Infrastructure and overall development supported by the government as mentioned in the last weeks Budget 2019-20, Indian cement sector can utilise its 100% production capacity in near future. Thus, cement sector in India can enjoy this simultaneous demand and growth advantage surely for next 5 years. Since government have its full focus on the country’s economic and development activities.

B.Consumption Growth

The consumption growth for last 3 years is more than 4.3%, while the inflation of the cement prices have increased by 5%-6%.
Therefore, from overall revenue side, the Indian cement sector can grow at the rate of 10%-11%. This growth can go up to 12%-15% with if the Indian cement sector players execute the aggressiveness in their business strategies for improving the operational efficiency.
India’s top 20 cement companies contribute to the 70% of the overall Indian cement sector annual capacity of 510 MT. Thus, these top 20 players are producing almost 350 MT. As far geographical positioning of the sector is concerned, the production capacity is higher in Rajasthan and southern Indian states than west and east states.

Let us see which are the 4 big opportunities for Indian Cement Sector

1.Smart City Initiative

Under the ‘Smart City Initiative’ by the government, 100 cities are proposed under this project and the number of cities covered is further going to increase in future.
Thus, this Smart City Project will offer a great demand for the Indian cement sector.

2.’Housing For All’

As per the government’s vision under ‘Housing for All’ scheme, every Indian should have at least one home by 2022. This is also a great opportunity in the real estate sector. And with the development of real estate sector, the basic raw material required ie. cement is also going to grow at the equal pace.
Almost 65% of the demand in the cement sector comes from Housing and Real Estate Sector. So we can understand how the cement sector can get a direct boost from real estate and housing sector.

3.Infrastructure & Industrial Development

As far as the current progress of roads, railways and metro infrastructure development is concerned, almost 20% of the cement consumption is from public infrastructure.
Thus, we can see (Housing + Infrastructure Development), togetherly contribute 85% of the cement consumption. And the remaining 15% consumption of cement is from Industrial development.

4.Per Capita Consumption

According to the survey done for different countries, it is seen that cement sector can grow at the rate of around 1.2 times the GDP growth of that country.
If we consider the capita consumption of cement in a developing countries, it is around 210 Kg, while overall world average per capita consumption is around 580 kg. Therefore, in proportion to the future economic and development growth, the per capita consumption of cement in India can grow from 210Kg to 580 Kg.
This is also a very good signal for the future growth and opportunities for the cement sector in India.