India’s Bullish Cement Sector is Unfolding Opportunities for Regional Players

Indian cement sector has been deregulated in 1982 and since then it has been growing steadily. The growth in the cement industry in India is linked to its economic progress. Like any other emerging economy, India growing real estate and infrastructure spending is fueling demand in the cement sector.

In FY 23, the total installed capacity of cement production in India is over 550 million metric tons, with a total production of 390 million tons. The production of cement in India has grown by a CAGR of 4.9% between FY 12 to FY 23, as per the analysis by The India Watch. The South Asian economy is the second-largest cement market in the world, after China.

65% of the demand emanates from the real estate sector, while infrastructure constitutes 25% of the demand. The remaining market is run by industrial development.

Hitherto, the Indian cement market is run by a few large players including Ultra tech, CCI (PSU), Dalmia, Birla, JSW, Adani, Orient, etc. The top 20 players comprise 70% of the aggregate cement production in India. The remaining production is led by around ~ 450 other smaller and mid-sized companies.

Factor(s) Driving Cement Production in India

There are numerous factors that are driving the cement production in India as mentioned below

• The Indian real estate market is picking up fast after the pandemic. Both housing as well commercial real estate is soaring. It is estimated that by 2030, the size of Indian real estate will reach USD 1 trillion.
• India’s large population naturally makes real estate, a priority sector. The growing population, the surge in per capita income, and younger demographics in the country are some of the major growth drivers behind real estate. Even during the pandemic, despite softening demand, Indian real estate continued to expand.
• India is also a country with widening housing shortages, which has led the government to come up with the ambitious Pradhan Mantri Awas Yojna (PMAY) or Housing for All scheme. Under the aegis of the project, affordable homes are built across metros, smaller cities, urban corridors, rural areas, etc. India’s growing affordable home market will also drive demand for the cement industry.
• Indian government is investing heavily in the infrastructure sector including 100 smart cities, railway networks, dedicated freight corridors, metro networks, airports, ports, urban transit systems, etc. India will be investing USD 1.4 trillion by 2025 to give a facelift to the infrastructure. This will push ahead the demand for cement in India.
• Under the Bharatmala Yojna, NHAI (National Highway of India) plans to build up to 200,000 Km network of highways by 2024. Likewise, the country is aggressively building local road networks and bridges, feeder lines, rural roads, etc.
• India is also ramping up the export of cement. It exports to the USA, UAE, Sri Lanka, etc. Under the Aatm Nirbhar Bharat (Self-reliant India), the government is also supporting the cement industry.

Challenges of the Indian Cement Industry

The Indian cement industry also faces multiple challenges despite being critically linked with the overall economy and infrastructure growth.

The Indian cement industry is one of the biggest contributors to Green House Gas (GHG) emissions in India. The sector consists of around ~ 8% of the overall GHG emission in the country. The greenhouse emissions in the cement industry are a mix of the usage of electricity, burning fossil fuel, and calcination of limestones.

The cost of freight is a major challenge in the cement industry. In most cases, the manufacturing unit has to be created in remote places close to limestone mines. These further increase cost overrun.

Despite striking progress in the past, the overall per capita cement usage in India is close to 200- 235 kgs. In contrast, the global average is 500 kgs while countries like China boast a per capita average of over 1000 kg.

Like other manufacturing businesses, the cement sector in India is plagued by other challenges such as the cost of land acquisition, higher tariffs, rise in lending rates, etc.

The cyclicity of demand can also not be completely ward—off in the cement sector. The sector largely depends on other industries such as real estate, roadways, infrastructure, etc. and hence a possible slowdown in such sectors will weigh on the demand for cement in India.

Regional players will emerge

The Indian cement industry will continue to grow despite challenges and bottlenecks. As the Indian economy expands and its housing & infrastructure sector move forward, the cement industry will have to play a pivotal role, thereby driving demand in a positive direction.

While big players will continue to consolidate, India will also witness smaller and regional players entering the market on a strong footing. One of the reasons behind the trend will the rise in logistics costs. As the transportation cost of cement is high, it makes sense for more regional players to cater to the local demand rather than big entities operating at central levels.

Amongst all the categories, cement has one of the highest costs of transport and distribution. It is generally 20% of the overall sales value.

To some extent with the use of algorithm-backed logistics, better use of GPS, and increased use of automation, the cost of logistics can be optimized. However, beyond a point, they might yield the best result. A suitable approach is to create more regional businesses and manufacturing units that can manage local demand.

Taking help from a Consulting or Business Advisory in India

To start a cement business in India requires access to multiple data points, information, and on-ground support. Though the task can be done by the businesses and investors themselves, it is advisable to seek help from professional consultants, as it can greatly simplify the overall task. This will enable the business or the investor to focus on their core business, while the consulting company can take care of the rest.

A consulting company can offer a wide range of services that will include but not limited to-

• Prepare feasibility studies, detailed project reports, preliminary analyses, etc. to check the viability of the business idea.
• Work on corporate presentations and investor decks
• Prepare market studies, opportunity scanning, and market research reports packed with valuable intelligence and consumer information.
• Custom intelligence on the value chain, consumers, pricing, competition, supply chain & logistics, machinery & equipment, regulatory policies, etc.
• Assistance in evaluating and identifying warehouses, factory spaces, office spaces, etc.
• Assistance in company formation and other legal obligations.
• For further information, feel free to connect at info@theindiawatch.com