Broking Houses : Active Customer Base
Source : HDFC Securities
Broking Houses : Volume Market Share
Source : HDFC Securities
Cement Prices : M-o-M Change in (%)
Source : Reliance Securities
Cements : Segments Driving Demand
Source : Trust Group
Cement : Capacity Chart
Soure : Trust Group
Residential Property : Prices of Key Cities
Source : Kotak Institutional Equities
Companies covered –
Century textiles, J K Cement, Birla Corp, Ultratech Cement, Sanghi Industries, Star Cement
- The demand for cement may continue to be driven further by the pick-up in the infrastructure projects viz. bridges, roads, ports, metro rails and low budget housing segment, bringing opportunities for growth in this sector.
- The cement sector may witness incremental demand outpacing incremental supply in the next three fiscals. However, the demand-supply gap will remain, considering the excess installed capacities.
- First quarter of FY 2017-18 witnessed a drop of 3.30% in cement production due to shortage of sand, slowdown in real estate activity, drought (in a few States) and transitional issues related to the implementation of the Real Estate (Regulation and Development) Act (RERA)
- Cement demand in the second quarter of FY 2017-18 was adversely impacted by the implementation of the Goods and Service Tax (GST), continued sand shortage, intermittent and irregular rainfall in different areas resulting in a meagre growth of 0.62%.
- Third quarter (Oct to Dec) of FY 2017-18 cement production witnessed a growth of 11.38% year-onyear, while growth during the fourth quarter (Jan to March) would be about 16%, mainly due to low base in FY 2016-17 on account of the impact of demonetisation.
- Outlook for overall cement demand in FY 2018-19 appears to be positive with demand expected to grow at 6-7% p.a. Low utilization levels coupled with increasing power & fuel costs will continue to pose challenges.
- The per capita consumption of cement in India is very low at around 225 kg as compared to the world average of about 540 kg and 800 kg in developed countries.
- Housing sector is the biggest demand driver of cement, accounting for about 65 per cent of the total consumption in India
- Headwinds for Cement industry are expected to continue with companies unable to fully pass on the cost escalations to consumers
J K Cement
- Aiming to almost double our grey cement production capacity to 18 MnTPA in the next four-five years. The increased capacity will enable us to reinforce our prominence in the northern and western markets that promise attractive growth
- There is increasing presence of small and mid-sized cement players diminishing market concentration
- Growing adoption of cement instead of bitumen in construction of roads
- As per IBEF Report, June 2018 India has a cement production capacity of ~455 MT, of which almost 98% is dominated by the private sector. The top 20 companies account for ~70% of the total production
- Grey cement registered a growth of 16% in production volumes over the last year. North and South region recorded a rise to the tune of 17% and 14%, respectively.
- White cement registered a growth of 2% y-o-y in production volumes, whereas the value-added product, wall putty showed a growth of 14% on y-o-y basis
- India’s cement production capacity is expected to reach 550 million tonnes by 2025. Growth in the cement sector in 2018-19 is likely to be fairly high driven by the slew of infrastructure projects like Bharatmala, Smart Cities, PM Awas Yojana and Housing for All. The Union Budget 2018-19 looks promising with increased allocations to infrastructure spending, energising the segment
- The cement industry depends on limestone and other raw materials. However, availability of limestone is limited and thus, it is essential to promote the use of blended cement, which uses alternative raw materials such as fly ash and slag. The increase in the cost of these alternative materials — now fly ash is available on auction and slag on the basis of prevailing market prices — may further increase production costs
- Cement industry is highly energy intensive and ~23% of its total expenditure consists of power and fuel costs
- The domestic cement sector is the second largest market globally and accounts for 6.9 per cent of the world’s cement output
- The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption in India. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at 9 per cent
- Power and fuel costs increased significantly owing to sharp rise in pet coke and coal prices, lower availability of domestic coal on account of priority given to the power sector and restrictions on pet coke use
- Demand in Uttar Pradesh was heavily impacted during the first nine months of the year due to prolonged scarcity of sand and aggregates.
- Prices in North India remained subdued and sharp increase in road freight and fuel prices put pressure on margins
- Partly compensated by the performance in Eastern Markets, which witnessed an upswing in demand.
- Cement companies are likely to face pressure on their profit margins in the near term on rising prices of pet coke, coal and diesel. Higher power and fuel and freight costs in the near term are likely to continue to put pressure on the margins
- Non availability of railway rakes is posing a key risk to the industry as the movement of both inbound as well as outbound materials are getting constrained affecting the volumes.
- The cement prices are expected to improve in the near future, buoyed by a pick-up in construction activity and easing sand availability. However, if commodity prices do not ease, realisation gains will be offset by higher expenses, keeping margin growth subdued for the industry
- India is the world’s second largest cement producer. In anticipation of demand, ~ 90 million tonnes of capacity was added during the past five years
- FY 2017-18 was also a year of challenges as major States imposed a ban on sand mining, arising out of environmental concerns and entry of the unorganised sector. Sand is used as raw material by the construction industry and the ban impacted construction activity in Uttar Pradesh, Madhya Pradesh, Bihar, Tamil Nadu, Maharashtra and Rajasthan
- Supreme Court of India introduced a ban on the use of petcoke in Haryana, Rajasthan and Uttar Pradesh to curb pollution and even though the restriction was subsequently relaxed, there was a hike in import duty on petcoke from 2.5% to 10%
- Overall energy cost rose by 23% attributable to substantial increase in petcoke and coal prices.
- The capacity utilization of industry during FY-18 was around 65% against 68% during FY-17
- The raw material cost per tonne of sale has increased by around 21% in FY-18 over FY-17
- Power and fuel cost per tonne of sale has increased by around 23% in FY-18 over FY-17 mainly because of increase in coal and petcoke cost and comparatively lower production over FY-17
- The East India market will continue to be deficit to the extent of 10 million tonnes per annum of cement, making it necessary to import cement from outside East India and other regions.
- A cement company that can grow its operations with the least capital is inevitably the one that is most successful.
- The manufacture of clinker entails the transportation of limestone and coal to the plant; the manufacture of cement entails the transportation of clinker and other materials to its plant; the marketing of cement entails expenses to reach material to consumers. Inevitably, the Company with the lowest logistic cost is attractively placed to be the most competitive.
- Some 210 large cement plants together account for 410 million tonnes of installed capacity in the country, while 350 mini cement plants make up the rest. Of the total 210 large cement plants in India, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
- Cement production in India increased from 230.49 million tonnes during FY2011-12 to reach 297.56 million tonnes during FY2017-18
- Export of cement, clinker and asbestos cement increased at a CAGR of 10.37% between FY2011-12 and FY2017-18 to reach US$ 433.87 million.
- However, during the same period, imports of cement, clinker and asbestos cement increased at a CAGR of 11.14% to reach US$ 174.36 million.