A Brief Overview of Indian Cement Industry

Across the world, cement production growth remained subdued over the last five years. India has the lowest per capita cement consumption at 200 to 250 kg compared to other major cement-producing countries. Our per capita cement consumption is around 50% of the global average of 500 to 550 kg. China and Korea have occupied the top two slots with per capita cement consumption of 1650 to 1750 kg and 900 to 950 kg, respectively. Notably, we are the second-largest cement consumer next to China worldwide.

All India Cement Demand

Demand for infrastructure construction and affordable housing drove the domestic cement demand that grew at 5% CAGR between 2015 and 2020. However, the Covid-19 pandemic pulled down cement demand in fiscal 2020 and 2021. The cement demand couldn't sustain a decent 12% and 9% growth witnessed in 2019 and 2018. Central and State governments' curb on infrastructure spending coupled with multiple issues such as excessive monsoon rains, sand unavailability, scarcity of labor, and water negatively impacted demand. The housing sector's share in cement demand has declined over the past five years. Various factors were responsible for this, such as slow economic growth, pale demand, high inventories, and buyer-unaffordability. While housing is expected to be an essential volume contributor, infrastructure should increase its contribution based on the central government's higher investments in railways, roads, and irrigation space. The revised estimates in FY2021 over-budgeted outlay in FY2022 were favorable for the Ministry of Road Transport and Highways and PMGSY by 10% and 9%, respectively.

Focus on improving the road infrastructure, State and national highways have propelled cement demand from the road vertical in five years. You should note that higher usage of paver blocks & concrete tiles and flyover construction has increased the cement intensity of road projects.

Cement Industry Market Share and Margin

The major players in the Indian cement industry include Ultratech Cement (NS:ULTC), Lafarge Holcim (SIX:HOLN) Group, Dalmia Bharat, Shree Cement, and Nuvoco Vistas. There are two modes of revenue generation in the cement industry—trade and non-trade. The trade route includes the dealer/distributor network, whereas the non-trade route includes direct dealing with the infrastructure/construction companies. The trade segment yields higher realizations for manufacturers. The share of trade/retail sales is between 65%-70% in the cement industry. However, many retail customer-focused companies like Lafarge, Shree Cements (NS:SHCM), and Nuvoco Vistas have retail shares between 75%-85%.

Trade and non-trade price differences vary between Rs 30 – Rs 80 for the same manufacturer. The difference is generally due to region, volume, project type, and relationship. Note that infrastructure project prices are usually fixed at ex freight on a road basis. Now let us turn to non-trade cement. The significant cost benefit comes from bulk transportation savings, and the second considerable savings come from no commissions to dealers. However, the cement companies' trade segment remains more favorite due to higher prices, ultimately increasing profitability. The difference in trade and non-trade segment profitability varies between 1%-4% due to differences in price and volume.

Cement Demand Outlook in India

Cement demand declined by 2% year-on-year in Fiscal 2021 due to the country's Covid-19 pandemic and strict lockdowns. According to CRISIL (NS:CRSL) Research, cement demand should clock a 6%-7% CAGR from fiscal 2021 to Fiscal 2026 on Government of India's infrastructure spending and meaningful boost in housing demand, compared to a 4.5%-5.5% CAGR witnessed during fiscals 2015 to fiscal 2020.

Cement Supply in India

Among all cement manufacturers in India, Ultratech Cement had a manufacturing capacity of 111.4 MMTPA at the end of December 2020, driven by acquisitions. Lafarge Holcim followed it with a total of 64.2 MMTPA and Shree Cement (40.4 MMTPA). In absolute terms, Ultratech cement has the maximum capacity additions. Nuvoco Vistas witnessed the fastest growth in percentage terms, with its total installed capacity doubling over the last five years after the Emami (NS:EMAM) Cements acquisition. Other cement companies such as JK Cement, Shree Cements, and JK Lakshmi cement saw decent capacity growth due to expansion to newer territories. Among the more prominent players, Birla Corp, ACC (NS:ACC) (Lafarge Holcim), and Nuvoco Vistas have high utilization levels touching 90% or above in FY2020. On the contrary, the recent expansion of Shree Cement, Ramco Cement, and JK Cement resulted in lower industry utilization levels.

Over the last two years, companies such as Nuvoco Vistas Corporation Ltd (NS:NUVO), The Ramco Cements Ltd (NS:TRCE), and UltraTech Cement Ltd (NS:ULTC) have witnessed the sharpest revenue growth among the mid and large players. It resulted in market share gains for these companies. Going ahead, Dalmia Bharat, Nuvoco (consolidated), and Ultratech Cement should witness further growth in market share driven by ram up of acquired capacities and commissioning of new.