Sunday, November 19, 2017

Table of Contents for Industry Focus: Cement & Cement Equipment





Industry Focus: Cement & Cement Equipment

Overcapacity needs Regional Consolidation

 

A cyclical industry with regional demand dynamics, India’s cement industry needs to enhance its capacity utilization, for which regional consolidation is necessary. While demand across sectors is not so robust, the outlook for the long term is positive on the back of fast track rollout of projects in the infra sector and government initiatives like ‘Housing for All.’ SATISH P CHAVAN reports.

 

Already the second largest producer of cement in the world, India's cement industry will likely see boom times as demand will soar across product verticals and regions. With nearly 390 million tonnes (MT) of cement production capacity, India accounts for 6.7 per cent of world’s cement output and production capacity is projected to touch 550 MT by FY 20. Of the total capacity, 98 is owned by private sector and rest with the public sector. The top 20 companies account for around 70 per cent of the total production. The industry has been going through consolidation phase with large Indian cement players preying on smaller ones and foreign cement majors acquiring controlling stake in Indian majors. According to data from VCCEdge, the Indian cement industry has seen seven M&A deals worth a total $3.3 billion since January 2013. Also the market is fragmented regionally and only regional strategies will help key players to grab more market share.

 

 

Cement manufacturing is a sophisticated process and each stage consumes lots of energy, making energy costs a large cost factor for the cement industry. Its production requires drive units which can stand up to harsh conditions and are also highly energy-efficient.  Manufacture, assembly, and maintenance, of quarry and sand pits equipments are focused by NORD gearmotors to power conveyors for mobile crushing and screening, overland conveyors, mixers etc. These are applications where NORD’s rugged low maintenance drive systems are used.
P L Muthusekkar, MD,  NORD Drivesystems

 

 

 

PECL is providing complete in-house construction of Civil, Mechanical, E&I, Refractory, Insulation, Shop Fabrication and Site Fabrication, and support commissioning services for cement sector and other Industrial plants.
We have an experience of 40 years in all capacity of cement plant and also worked on cement plant construction where equipments are supplied from various equipment manufacturers.
With all above in-house facilities of system design, and flexibility of buying the best suited equipment from the respective manufacture at competitive pricing, and executing full construction with in-house facilities, we can provide a complete EPC solution at very close to conventional split methodology of execution of cement plant.

Ajay Hans, Managing Director, Petron Engineering Construction Ltd

 

 

DEMAND DYNAMICS

As mentioned, the demand dynamics of cement sector are cyclical and also varies region wise. According to the Cement Manufacturers Association (CMA), currently implementation of the GST and RERA, compounded by a good monsoon, has affected construction activity which has caused a 2-3 per cent drop in prices across the country.

According to IBEF cement prices in India recorded a 6.7 per cent month-on-month growth in April 2017, thereby indicating the probability of growth in volume and profitability of cement companies in the quarter ending June 2017. 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. The cement capacity in India is estimated to be at 420 MT as of March 2017 with production growing at 5-6 per cent per year. The country's per capita consumption stands at around 225 kg. The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost 70 per cent of the total cement production of the country. A total of 188 large cement plants together account for 97 per cent of the total installed capacity in the country, with 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.

India Ratings and Research (Ind-Ra) has maintained a Stable Outlook on Indian cement manufacturers for FY18. Ind-Ra expects the operating profitability of cement manufacturers in FY18 to be around the FY16 and estimated FY17 levels, due to stable demand growth, despite an increase in input cost. Demand will be backed by an increase in government expenditure. Ind-Ra also expects the credit profile of cement manufacturers to remain stable on stable operating profitability and in the absence of debt-led capex.

Ind-Ra has revised down its FY17 growth estimates to 3 per cent-3.5 per cent from 4 per cent-6 per cent earlier. This revision is largely attributed to a blip in demand due to demonetization. Ind-Ra however expects the cement industry to grow 4 per cent-5 per cent y-o-y in FY18, driven largely by the demand stemming from infrastructure activities and a revival in housing demand in rural areas, both led by government spending. Ind-Ra expects stable cement demand to enable cement manufacturers to pass on increases in cost during FY18. Ind-Ra believes that a 38 per cent and 23 per cent increase in the allocation of funds towards the housing sector under Pradhan Mantri Awas Yojna and spending of The Ministry of Road Transport and Highways to Rs.290 bn and Rs.649 bn, respectively, would increase cement demand in FY18.

Ind-Ra expects cement producers to add additional 50 mtpa capacity over FY16-FY18 at a CAGR of 6 per cent compared to the CAGR of 4.9 per cent during FY13-FY16 (additional 40mtpa). The country’s eastern region will continue to lead supply growth and is likely to add 17mtpa through FY16-FY18, followed by north (14mtpa). The CAGR capacity additions in the eastern (10 per cent) and northern regions (7 per cent) may outpace cement demand in these regions.

Pan-India capacity utilisation remained stable in FY16 at around 70 per cent. However, Ind-Ra has revised pan-India capacity utilisation for FY17 to 65 per cent from 69 per cent-70 per cent, due to the weak demand outlook in 2HFY17 on account of demonetization. Ind-Ra does not expect capacity utilisation to improve significantly in FY18. It is likely to remain around 70 per cent during FY18.

Ind-Ra expects credit profile of cement manufacturers for FY17 to remain stable. The negative impact of a possible decline in operating profitability during 2HFY17 due to an increase in fuel cost and lower volumes will be compensated by the higher operating profitability reported by the companies during 1HFY17 due to lower fuel prices and higher demand. Median EBITDA margins for a sample of 17 cement companies improved to 15.37per cent in 1HFY17 (FY16: 14.38per cent, FY15: 15.07 per cent). Ind-Ra expects the credit profile of cement manufacturers to remain stable during FY18 in the absence of major debt-led capex plans and on an improvement in cement demand despite a possible increase in input costs.

A report by ICICI Securities projects average cement prices to rise by 6 per cent year-on-year (YoY) and 7 per cent on quarter-on-quarter (QoQ) basis across the country despite volume decline in the southern and central regions. The eastern region is likely to see a strong growth in demand for the key building material, it said. “Average pan-India cement prices are likely to be up 6 per cent YoY and 7 per cent QoQ, led by the western region where prices are likely to be up 10 per cent YoY and 15 per cent QoQ. Prices across other regions are likely to be up 3-7 per cent both YoY and QoQ,” the report adds.

“We estimate industry volumes to be up 1 per cent YoY as strong demand growth in the eastern region is expected to be offset by volume declines in the southern and central regions,” the brokerage said. The cement volumes in the southern and central regions are likely to be down YoY, owing to weak off-take in Tamil Nadu due to political matters and Uttar Pradesh, where sand mining issue continue to impact off-take, the report said. Volumes in the eastern region are likely to grow sharply by 20 per cent YoY, led by strong demand in Bihar, Jharkhand and Odisha and backed by increased government spending on road, housing and hospitals, ICICI Securities said.

Another report by Credit Ratings Services India Ltd (CRISIL) says the cement sector will witness 5 to 6 per cent CAGR over the next three fiscals on account of recovery in demand. Primarily, the demand would be driven by government's focus on affordable housing and increased spending on infrastructure like roads, railways and urban development, it added. The demand will double to 48 million tonnes (MT) over the next three fiscals as compared to the past three financial years. It, however, said supply would be down to 31 MT from 39 MT.

"We foresee a sharp recovery in demand this fiscal after demonetisation dealt a major blow leading to a 1.2 per cent de-growth last fiscal," says Crisil Ratings Senior Director Sachin Gupta.

He further added: "The industry should be able to rack up 5-6 per cent compound annual growth rate between this fiscal and 2020, or nearly twice as fast as between fiscals 2015 and 2017."

According to the rating agency, the surge in demand would also improve the operating metrics of cement makers. The cement segment, which is witnessing consolidation - last fiscal, had signed acquisitions of Rs.32,000 crore last fiscal. It was financed through debt of Rs.25,000 crore.

"The acquisitions totaled 42 MT of capacity, tantamount to the capacity addition seen in the past 2.5 years," said Crisil, adding that once these transactions are completed, acquirers will increase their installed capacity significantly to 37 per cent from 28 per. However, it also warned: "Their share of industry debt will increase from 17 per cent now to 45 per cent."

 

 

GLOBAL PROSPECTS

The eastern states of India are likely to be the newer and virgin markets for cement companies and could contribute to their bottom line in future.  In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world.  Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country. A large number of foreign players are also expected to enter the cement sector, owing to the profit margins and steady demand.

In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route.

With help from the government in terms of friendlier laws, lower taxation, and increased infrastructure spending, the sector will grow and take India’s economy forward along with it.

 

JSW CEMENT-WAGNER’S GROUP JV LAUNCHES EFC

Indian branded cement major JSW Cement signed a joint venture with Wagner’s Group of Australia to promote the concept and usage of Earth Friendly Concrete (EFC) in India.

JSW will hold 74 per cent stake in the JV while Wagner’s Group will hold the remaining 26 per cent in the venture. The JV will promote EFC and plans to create a category for geo polymer based cement in India.

Commenting on the JV Parth Jindal, MD- JSW Cement Ltd said,” We are pleased to announce our JV with Wagner Group, the only company in the world to commercially produce EFC on a very large scale. With this merger, we hope to expand our horizons in the industry and bring in growth & greater heights to the expansion of our company”

 

 

AMBUJA LAUNCHES COMPOCEM

Major player in the Indian cement market, Ambuja Cement, has launched cement — Ambuja Compocem. Its Chhattisgarh facility becomes the first cement plant in India to develop a composite cement after rigorous research of the last year and a half. The new offering – a combination of cement, fly ash and slag – has been introduced in Bihar and Jharkhand markets and thus opens yet another avenue of sustainable products in the construction industry.

Speaking on the launch of the innovative product, Managing Director and CEO, Ajay Kapur said, “Ambuja Compocem is yet another breakthrough product innovation from Ambuja Cement. We are proud this product was developed in our laboratory by the product development and innovation team. The introduction of Ambuja Compocem reiterates our strong commitment in creating products that help in sustainable construction. With the launch of Ambuja Compocem, we have achieved a three pronged sustainability approach by conserving natural resources, creating a greener product and fulfilling customer needs for a superior performance product. We call this approach – delivering True Value.”

With this, Ambuja Cement has addressed two vital aspects from customerRs.s perspective -- offering higher compressive strength and long-term durability. The advanced product caters to all segments -- Individual House Builders (IHB), large real estate and infrastructure projects in India.

In another independent development, the Ambuja’s Board of Directors initiated a study to explore the possibility of a merger with ACC Ltd, which could enable both to combine their strengths of business so as to benefit all the stakeholders. The Board has constituted a special committee of Directors with majority of Independent Directors to consider the matter further. It is hereby clarified that no decision to merge has been taken at this stage and the same will be considered by the Board once a recommendation is received from the special committee of Directors and the Audit Committee.