A New Era for the Indian Subcontinent? Part 1: India

Introduction

In its 66-year history, Pakistan has witnessed three military coups and extended rule by army generals, but now there is a suggestion, or hint, that a new chapter has begun following the country’s elections in May. A new chapter that includes better relations with its powerful neighbour, India, with whom there have been many problems over the years. At present India has some trade with Pakistan and Bangladesh; the question remains: can this be increased to promote peaceful relations between these countries? Can the ruling parties solve the acute problems of terrorism and civil unrest?

India
Cement demand to grow

India’s demand growth has been subdued, primarily due to a difficult macro environment and political paralysis. As a spokesman for Holcim told World Cement, “This affects the current price and volume development. Cost inflation pressure has partly eased as a result of a lower industrial output and flat imported coal prices”.

What of the Indian cement industry’s future? Some reports are upbeat, suggesting that the industry is expected to add 30 – 40 million tpa of capacity this year. The latest figures from Indian Brand Equity Foundation (IBEF) indicate that the industry has a current capacity of 324 million tpa, operating at 75 – 80% utilisation. With 183 large plants and over 365 small-scale plants, India is the world’s second largest producer of cement. Credit rating agency CARE Ratings, in its report The Indian Cement Industry, FY2013-16, predicts economic growth will increase from 5% during FY2013 to 7.8% during FY16 and that cement demand will run parallel at a CAGR of about 7.9% during the same period. The increasing focus of the government on strengthening infrastructure, promotion of low-cost affordable housing, and pre-election spending will drive cement demand.

Himanshu Jindal, Senior General Manager Finance, HeidelbergCement India Ltd, concurs. “We expect cement demand to grow in the coming years as it is anticipated that softening of interest rates and inflation would revive the demand for cement from individual house builders’ segment and large infrastructure and real estate firms. Increases in industrial production and economic activities due to recent government initiatives to improve GDP growth are also likely to boost cement demand.”

He points out that the sector has seen significant capacity additions during 2008 – 2010, primarily in South India, leading to demand-supply mismatch. “However, we expect the demand/supply position to reach near equilibrium around 2015 as there are no major capacity additions until 2016 due to higher replacement costs, unavailability of land and mining reserves for setting up greenfield projects and low operating margins at present. This will also improve the plant capacity utilisation of cement firms in the future, which we calculate to be around 70 – 75% at present.” This is a little lower than the figure from IBEF.

Initiatives, investments and acquisitions

The latest report from the working group on the cement industry for the 12th Five Year Plan states that India would need to add another 150 million t of capacity to keep pace with the activities in the business, financial, real estate and infrastructure sectors of the economy.

Last year, ACC announced an investment of Rs.3300 crore by 2015 to set up three grinding units and a clinker facility. One grinding unit and the new grinding facility will be set up at Jamul in Chhattisgarh where the existing facilities will be phased out. The new unit there will have a capacity of 2.79 million tpa. The other grinding units will be located at Sindri in Jharkhand and Kharagpur in West Bengal. In May of this year, Lafarge SA signed an agreement to raise €200 million through capital increase subscribed by Baring Private Equity Asia, and representing a 14% minority stake in Lafarge India Private Limited. The investment will fund Lafarge’s growth plans in India.

Two months later, CRH announced that My Home Industries Limited (MHIL) had reached an agreement to acquire 100% of the shares of Sree Jayajothi Cements (SJCL). This company has a 3.2 million tpa cement plant based in South India. With the addition of SJCL, MHIL becomes the market leader in the Andhra Pradesh region of South India.

Holcim has announced that it intends to streamline the ownership structure of its operations in India by increasing its shareholding in Ambuja Cements Ltd to 61.39% and in turn Ambuja will acquire Holcim’s 50.01% stake in ACC Ltd. The transaction is subject to regulatory and shareholders’ approval later this year. Meanwhile ACC Mineral Resources has entered into a JV with an MP state-run company to develop a coal block at Bicharpur in North-Central India. This is to mitigate the continuing threat of steadily increasing coal prices, shortfall and volatility in quality. Furthermore, Holcim will expand the Marwar Mundwa project in North-Central India with an overall capacity of 4 million tpa. No surprise to learn that the Swiss major continues to look for opportunities to further optimise its Group structure in the country. At present it is evaluating additional brown and greenfield investment proposals such as those involving ACC Tikaria and Ametha.

HeidelbergCement India recently completed a brownfield expansion to raise its Indian production capacity from 3.1 to 6 million tpa at its Damoh and Narsingarh plants in Damoh (M.P.). The company has also expanded cement capacity from 0.8 to 2.7 million tpa at its Jhansi grinding plant in Uttar Pradesh. One of the major highlights of the project was the construction of India’s longest overland belt conveyor, which carries limestone from the mines at Patharia, Damoh, to the Narsingarh plant, a distance of some 38 km.

Written by Paul Maxwell-Cook. This is an abridged version of the full article, which appeared in the October 2013 issue of World Cement. Subscribers can view the full article by logging in.

Read part two on Pakistan here.

Read the article online at: https://www.worldcement.com/asia-pacific-rim/25092013/a_new_era_for_the_indian_subcontinent_cement_sector_1_210/