Presented By: Sushant Nayyar Neeraj Lal Aman Narula Anu Sikka Megha Chopra Sudeep Modak

WMG - XIX

INTRODUCTION

India is the second largest producer of cement in the world next to China. The cement industry contributes approximately 6% of the overall global production. This position has been achieved because of Indias sustained growth at an average rate of 8.1% per year between 1981 and 2008. The installed capacity of the industry was 198 million tonnes per annum in 2008. Meanwhile, domestic consumption and exports stood at 173 million tonnes and 6 million tonnes respectively in 2008. The cement consumption, on a conservative basis, is likely to go up to 225 million tonnes by 2010-2011

About Cement Industry

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 (WBCSD 2002). 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. 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. Hencemini 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 Rs. 3500 per tonne of capacity of large plants, capital costs for mini-cement plants come to about Rs. 1,400 to Rs. 1,600 per tonne (ICRA 2006). 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 (CMA 2007).Others are Chandrapur (North Andhra Pradesh and Maharashtra), Gulbarga (NorthKarnataka and East AP), Chanderia (South Rajasthan, Jawad and Neemuch in MP),Bilaspur (Chattisgarh), Yerraguntla (South AP), and Nalgonda (Central AP).

Evolution of the Indian Cement Industry:

Invention of Cement Ever since civilizations first started to build, the world has sought a man made bonding material that would bind stones into a solid, formed mass. During theP aleolithic Age, men used to enjoy adequate shelter provided by nature. The Bronze Age witnessed the use of building materials from a clay based mixture and airhardening lime. The Egyptians advanced to the discovery of lime and gypsum mortaras a binding agent for building such structures as the Pyramids. The Greeks made further improvements and finally the Romans developed cement that produced structures of remarkable durability (Cement Association of Canada 2006). The secret of Roman success in making cement was traced to the mixing of slaked lime with Pozzolana, a volcanic ash from Mount Vesuvius. This process produced cementcapable of hardening under water. During the Middle Ages this art was somehow lost.In the 18th century, big efforts started in Europe to understand why some limes have hydraulic properties (Cimenterie Nationale 2007). John Smeaton often referredto as father of civil engineering in England concentrated his work in this field andmade the first modern concrete by adding pebbles as a coarse aggregate and mixing powered brick into the cement in 1759. A number of discoveries followed. It was in1817 that Louis Vicat conducted work on the hydraulic nature of the lime-volcanicash mixture. He was the first person to accurately determine the proportions of limestone and silica required to make the mixture of cement. He published the results of his research, but did not apply for a patent. Finally, in 1824 Joseph Aspdin patented The Beginning of Indian Cement Industry , The attempt to produce cement in India dates back to 1889 when a Calcutta firm attempted to produce cement from Argillaceous (kankar). But the first organized effort on mass scale to manufacture Portland cement commenced in Madras (Washermanpet), in 1904, by South India Industries Limited (Cement Manufacturers Association 1964; Gadhok 2000)

Evolution of the Indian Cement Industry: Cont

Control Period (1969-1982) The Indian cement sector had been under strict government control for almost the whole of the period. Government intervention took place both directly and indirectly. Direct intervention happened in the form of government control overproduction, capacity and distribution of cement, while indirect intervention took the8form of price control Partial Decontrol (1982-1989) On account of the above-mentioned difficulties in the cement industry the government of India introduced a system of partial decontrol in 1982. A levy quota of 66.60 % for sales to government and small house builders was imposed on existing units while for new and sick units a lower quota at 50% was established Total Decontrol (1989 onwards) Finally in 1989, the cement industry was considered to
be prepared for free market competition, and all price and distribution controls on sale of cement were withdrawn. The system of freight pooling was abandoned and a subsidy scheme to ensure availability of cement at reasonable prices in remote and hilly regions of the country was worked out. The industry was then de-licensed in July 1991 under the policy of economic liberalization. By removing all controls on the cement sector the government hoped to accelerate growth and induce further modernization and expansion investments. It was after this decontrol that the Indian cement industry moved towards globalization, with increasing emphasis on the exports. The expansion of the industry was evident after the decontrol where capacity as well as many fold.

MAJOR COS IN INDIA

Promoted in 1982 by Mr. Narotam Sekhsarai, MD of the company Plant was setup in Technical collaboration of Krupp Polysius AG at Vadnagar near Veraval in Gujarat Installed capacity of the plant was to produce 700000 tonnes of cement annually Civil construction of the plant began in November 1984 and kiln was fired in June 1986 & production began in sept. 1986 Six operating plants in the country Company has 10% market share in India

Over 25-30% of the production cost of cement is power To keep power costs to the minimum ,focus is always on improving efficiency at kilns to get more output for less power. The company has set up a captive power plant at a substantially lower cost than the national grid. First cement company to receive the ISO 9002 quality certification. The only cement company to be awarded the National Quality Award in recognition of total quality management

The focus of organization has been always been on the following key points:

Best quality cement Good packaging Logistic management - strong distribution network. Customer service.

There was a proper selection of Dealers who had good market reputation and financial Integrity Monitoring Direct sales Force Projection of dealers as a representative company

Dealer Selection
Capital invested Warehouse space Sub dealer network Sales Volume forecast Inventory Logistic support Infrastructure

Marketing factors could be divided into four basics categories:

Product Place Promotion Price

Types of cement produced at Ambuja Cements are: Portland Pozzolana cement (PPC) Ordinary Portland cement (OPC) About 75% of all the cement produced goes into ready-mix concrete High quality product

Sea-borne bulk cement transportation facilities has brought many coastal markets (domestic as well as export markets) within easy reach Appropriate selection of dealers and suppliers

Ambuja Cement 200 Rs/50 Kg for ordinary Portland Cement 205 Rs/50 Kg for Portland Pozzolana Cement

Binani-205 Rs/Bag Siddhi Cement- 198 Rs/Bag ACC-200 Rs/Bag Ultratech-200Rs/Bag

Here 1 Bag= 50 Kg

Seminars and workshops for masons, architects, contractors etc. Technical executives in the company are provided information on the best use of Ambuja cement for making strong structures Advertising and Publicity campaign

Strengths High productivity Low Energy Consumption Ability to sell total production Competitive Advantage Consumer Preferences Consistency in Performance High Quality Taken over by Swiss Company Holcim

Weakness

Not able to exploit the advantage of being nearer the sea coast

Opportunities

There is increase in Demand in India They can undertake some Projects in Future They can go Global

Threats

Good number of Competitors High Capital Cost Raw Material ,Transportation and Power cost are increasing so it will lead to low profitability

Porters Five Force Model

The Indian cement industry has large number of cement producers thus making it a low concentration market. It is believed that if these four companies do not increase their market share in the coming years, then their combined share could drop. 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(Bharat Book Bureau 2004

With the announcement of the Indian Government in the budget for the FY 2010-2011 to pump in more than Rs.1.73 trillion in infrastructure(Thomson Reuters Corporate n.d.), the cement industry becomes a very attractive market to enter, thus increasing the threat of new entrants. Although the investment to set up a cement plant is huge, still looking at the future opportunities Indian steel and infrastructure giants like Jindal Steel works and Reliance Group are also eyeing a share in this huge market (Wordpress n.d; Economic Research India Limited 2010).

Now-a-days Timber is also being considered as one of the substitutes of cement. In many countries like Japan, Indonesia, Singapore etc are now using timber in construction since those areas are high earthquake affected. They now prefer timber which is cheap and long lasting for years. But timber cannot be considered, as one of the major substitutes of cement, therefore cement is one of the main components of any construction. Without cement, construction work is next to impossible as it provides strength to the building.

The boom in the infrastructure industry of India has benefited the cement industry immensely. In the present day context, cement producers have become more powerful than buyers. In the current situation, most of the companies are moving into direct marketing, thus removing middlemen. Despite enough competition, due to high institutional demand of cement, small-time buyers are usually targeted as a secondary market by the cement companies. Thus, buyers are not left with much bargaining power.

The basic raw materials used in the cement manufacturing process are limestone, sand, shale, clay, and iron ore. The main material, limestone, is usually mined on site while the other minor materials may or may not be mined there. Since all the raw materials are natural resources, they are under the Governments control. Companies have to buy rights from the government to set- up the cement plant. So there are no such suppliers in the cement industry.