INSTITUTE OF MANAGEMENT, NIRMA UNIVERSITY

SEMESTER VII

INDUSTRY ANALYSIS

GROUP ASSIGNMENT

CEMENT INDUSTRY

SUBMITTED TO:

PROF. ANAND DEO

SUBMITTED BY:

GROUP 2
NAME ROLL NUMBER
Aalok Sharma 187102
Kirtan Singi 187128
Kirti Satwani 187129
Lavina Daryani 187131
 ACKNOWLEDGEMENT

We would like to offer our deepest gratitude to all those people who assisted us in completing this
project. We would firstly like to extend our gratitude to Professor Anand Deo for his constant support in
terms of providing resources from his side at all the levels of the assignment and his generosity in
clarifying all our doubts and concepts, which not only helped us in conceptual clarity of the business
idea but also proved to be a great aid in completing the business plan successfully. Moreover, his
guidelines also provided a robust foundation to the completion of this analysis.

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 TABLE OF CONTENTS

Sr. No. Topic Page No.

1. Industry Overview 4
2. SWOT Analysis 9
3. PESTEL Analysis 15
4. Porter’s 5 Forces Analysis 18
5. Strategy towards Buyers and Sellers 20
6. Target Market and Market Structure 25
7. Future Forecasting of the Industry 27
8. Conclusion 28
9. References 29

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 INDUSTRY OVERVIEW

India is the world's second-largest cement production. It is responsible for more than 7% of the world's
installed capacity. India's infrastructure and construction sectors have a lot of room for growth, and the
cement industry is likely to profit greatly from it. Some recent initiatives, such as the creation of 98 smart
cities, are projected to provide the sector a significant boost. Several foreign players, including Lafarge-
Holcim, Heidelberg Cement, and Vicat, have recently invested in the country thanks to favourable
government policies. The ready availability of raw resources for creating cement, such as limestone and
coal, is a crucial aspect that promotes the sector's expansion. In FY21, India produced 294.4 million
tonnes (MT) of cement, compared to 329 million tonnes (MT) in FY20.

History

Argillaceous cement was first produced in 1889 by a business based in Kolkata. In the early 1900s, the
business began to take on a more organised form. In 1914, India Cement Company Ltd was founded in
Porbandar with a capacity of 10,000 tonnes and a production capacity of 1000 tonnes. The cement
industry in India received its first boost during World War I, and it has since grown at a rapid pace in
terms of production and installed capacity. The Nascent Stage of the Indian Cement Industry was the
name given to this period in history. The Concrete Association of India was founded in 1927 to raise
public knowledge about the benefits of cement. The price and distribution control system was formed in
the Indian cement industry in 1956 to provide a fair price model for consumers and manufacturers. In
1977, the government allowed new industrial units (as well as existing units undergoing capacity
expansion) to charge a greater price for their goods. After a few years, the government implemented a
three-tier pricing system, with various prices for cement produced in high, medium, and low-cost
facilities. To boost the cement sector, the Indian government implemented a quota system in 1982. The
industry was de-licensed in 1991, which resulted in faster expansion and the availability of cutting-edge
technology for modernization. Major firms made significant investments in capacity growth, and the
sector placed a greater emphasis on exports to take advantage of the worldwide market opportunity.

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Market Size

Cement production reached 329 million tonnes (MT) in FY20, with 381 MT expected by FY22.
However, consumption was 327 MT in FY20 and is expected to rise to 379 MT by FY22. India consumes
195 kg of cement per capita, significantly less than the global average of 500 kg and China's 1000 kg.
By 2020, cement manufacturing capacity is expected to reach 550 MT. Because India has abundant and
high-quality limestone reserves throughout the country, the cement sector has enormous expansion
potential.

The government's strong focus on infrastructure development is predicted to boost cement production in
India by 4-7 percent YoY in FY22.

The Indian cement business, according to CLSA (institutional brokerage and investment organisation),
is seeing increased demand. ACC, Dalmia, and Ultratech Cement are among the company's key
participants. Cement businesses in India reported a strong increase in profitability in the second quarter
of FY21, as demand for the industry grew due to rural revival. The demand outlook remained solid as
the rural markets normalised. CLSA anticipates a 14% YoY increase in EBITDA in the cement sector
for its coverage stocks in FY21.

Investments

Cement and gypsum products drew US$ 5.87 billion in Foreign Direct Investment (FDI) between April
2000 and March 2021, according to data supplied by the Department for Promotion of Industry and
Internal Trade (DPIIT).

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Working remotely is likely to become more popular in 2021, and demand for cheap residences with
ticket sizes of less than Rs. 40-50 lakh is expected to surge in Tier 2 and 3 cities, resulting in an increase
in cement demand.

The following are some of the big investments in the Indian cement industry:

• Ambuja Cement stated in August 2021 that it would invest Rs. 310 crore (US$ 41.82 million) in
its Ropar Unit, Punjab, to enhance its manufacturing capacity and meet rising demand from the
manufacturing sector for house construction and public infrastructure development. By June
2023, the expansion activities should be completed.
• JSW Cement announced a deal with Synergy Metals Investments Holding Ltd. and Apollo
Global Management Inc. in July 2021 to finance Rs. 1,500 crore (US$ 202.35 million) in
investment money and increase its production capacity from 14 million tonnes to 25 million
tonnes.
• Shree Cement stated in July 2021 that it would invest Rs. 600 crore (US$ 80.94 million) in a
cement grinding factory in West Bengal and begin construction by August 2021. 150 direct jobs
and over 1,000 indirect jobs are estimated to be created as a result of the project.
• Ambuja Cements and ACC stated in June 2021 that they would invest in Industry 4.0 as part of
their 'Plants of Tomorrow' programme, which intends to increase cement production through
greater plant optimisation, increased plant availability, and a safer operational environment.
• 3B Binani Glassfibre Sarl Luxembourg, a subsidiary of Binani Industries, was purchased by
UltraTech Cement in March 2021.
• ACC's new grinding unit in Sindri, Jharkhand's Dhanbad District, was commissioned in January
2021, adding 1.4 million tonnes per annum to the existing 3 MTPA unit.

Market Share and Margin

Ultratech Cement, Lafarge Holcim Group, Dalmia Bharat, Shree Cement, and Nuvoco Vistas are among
the prominent participants in the Indian cement business. In the cement sector, there are two types of
revenue generation: trade and non-trade. The dealer/distributor network is part of the trade route, while
direct interaction with infrastructure/construction businesses is part of the non-trade route. For
manufacturers, the trade segment delivers larger realisations. In the cement sector, trade/retail sales
account for 65-70 percent of total sales. Many retail-oriented enterprises, such as Lafarge, Shree
Cements, and Nuvoco Vistas, have retail shares of 75 percent to 85 percent.

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For the same manufacturer, the price difference between trade and non-trade is between Rs 30 and Rs
80. Region, volume, project type, and relationship all have a role in the disparity. It's worth noting that
most infrastructure project prices are set ex-freight on a road basis. Let us now focus our attention to
non-trade cement. The first significant cost gain comes from bulk transportation reductions, and the
second significant cost benefit comes from no dealer commissions. However, due to rising costs, the
cement businesses' trade segment stays more popular, resulting in increased profits. Due to price and
volume discrepancies, the profitability gap between the trade and non-trade segments ranges from 1%
to 4%.

Contribution to Circular Economy

The contribution of the cement sector to the circular economy is generally divided into two categories:
(i) Circular Supply Chain, and (ii) Recovery and Recycling.

1. Circular Supply Chain

By boosting the use of renewable energy for electrical power generation, the Indian cement
industry is playing a crucial role. Between 2010 and 2017, the installed renewable energy
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 capacity (wind and solar) in cement factories increased by more than 40% to 276 MW. Apart
from solar photovoltaic, the cement industry is attempting to harness solar energy via thermal
means.

2. Recover and Recycling

Circular economy is also supported by the creation of blended cements, composite cements, and
the use of performance improvers in cement. The use of fly ash and granulated blast furnace slag
(GBFS) in the production of blended cements such as Portland Pozzolana Cement (PPC) and
Portland Slag Cement (PSC) is also advantageous for natural resource conservation, clinker
factor reduction, and CO2 emissions reduction, as well as environmental sustainability.

Geographical Distribution

Madhya Pradesh is India's largest cement manufacturer, with 23 cement facilities spread across the state.
Gujarat is followed by Andhra Pradesh, which has 19 plants, Rajasthan, which has 15 plants, and Andhra
Pradesh, which has none.

• Katni, Jamul, Satna, Durg, Maihar, and Neemach are the major cities in Madhya Pradesh.
• Vijayawada, Karimnagar, Cementnagar, Krishna, and Adilabad are the major cities in Andhra
Pradesh.
• Hopur, Chittorgarh, and Udaipur are the three major cities in Rajasthan.
• Bhadravati is a major city in Karnataka.
• Porbandar is the fifth largest city in Gujarat.

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 SWOT ANALYSIS

The following is the SWOT Analysis of the key players in the Indian Cement Industry:

ULTRATECH CEMENTS

Strengths in the SWOT Analysis of Ultratech Cements:

1. Cement demand has risen in lockstep with solid economic growth, owing to the following factors:
increase in the housing sector (over 30%), which is a key demand driver. Ports, airports, power
plants, dams, and irrigation projects are examples of infrastructure projects.
2. Ultra Tech can deal directly with limestone tenders, eliminating the need for a middleman. Local
transporters are used by the company, as they provide the most cost-effective transportation. As
a result, the additional cost is reduced, making cement more affordable to the average citizen.
3. The manufacturing plant at Ultra Tech employs cutting-edge technologies and imported
machines. The Company's Koala unit is the only one in India with a desalination plant in this
sector. The desalination facility uses the waste gases from the chiller, making the product
reusable and environmentally benign, and therefore contributing to the environment.
4. The Aditya Birla Group is the world's ninth largest cement producer. Ordinary Portland cement,
Portland Pozzolana cement, and Portland blast furnace slag cement are among Ultra Tech's
products. The corporation exports more than 2.5 million tonnes each year, accounting for almost
30% of the country's overall exports.
5. Ultra Tech's distribution network is extremely widespread throughout the country, with over
5,500 dealers and 30,000 retailers. As a result of its robust distribution channels, Ultratech is
beginning to establish a strong position in the market, giving its competitors a leg up.

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Weaknesses in the SWOT Analysis of Ultratech Cements:

1. Lack of consumer awareness programme owing to low marketing mix the firm is experiencing
issues with effective promotion, as a result of which customers are unaware of the product,
resulting in lower sales despite the product being a decent product.
2. The company has a difficulty with a correct marketing mix, which leads to a state of confusion,
and the product does not reach the customers in a timely manner, and many of them are unaware
of it.
3. Delay in supply as the company is located in the outskirts of the city, and its facility is not located
in every city, there is a delay in the product's supply.

Opportunities in the SWOT Analysis of Ultratech Cements:

1. With India's low per capita cement consumption of 102 kg compared to the world average of 260
kg and a focus on infrastructure development, Ultra tech has a lot of room to grow.
2. Ultratech has the potential to expand into new marketing areas. It can enter into MOUs
(memorandums of understanding) with the government to supply cement for government
projects. Ultratech can also maintain its market position as a competitor.
3. Cement demand remains consistent, resulting in increased foreign investment in the sector. The
ancient manner of road construction is being replaced with contemporary concrete roads as part
of the road transformation process.

Threats in the SWOT Analysis of Ultratech Cements:

1. As a large cement sector emerges, ACC (Associated Cement Companies) faces more competition
to improve its price, product, and satisfy its dealers and customers. Low-cost brands are
mushrooming among the lower-income customer base.
2. Jaypee Cement, Prism Cement, and Birla Cement are some of the major players. ACC cement is
consuming a significant portion of the market. Due to India's rapid growth, numerous new
multinational cement companies are projected to emerge in the future years, causing significant
disruption and maybe igniting a price war.
3. Timber is also being studied as a cost-effective and long-lasting cement alternative. Many
countries, such as Japan, Indonesia, and Singapore, are now embracing timber in building due to
the constant threat of earthquakes in those locations.

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AMBUJA CEMENTS

Strengths in the SWOT Analysis of Ambuja Cements:

1. Ambuja Cements is one of India's leading cement producers. Even though the industry has seen
major capacity increases, demand growth in India has been moderate. Ambuja Cements has a
robust dealer network, which has helped the company to thrive in the face of fierce competition.
2. The company has a very strong network on the west coast, which has helped it maintain a strong
market position in Mumbai, Surat, and Cochin for many years. There are places that are primarily
covered by Ambuja cement.
3. Ambuja has gained a cost advantage through infrastructure by streamlining its processes and
avoiding low-cost inputs.
4. Ambuja Cements is a well-known firm with a strong financial foundation. When HOLCIM
(another big infrastructure operator) invested in Ambuja, it enhanced its financial resources even
more.
5. Ambuja's marketing consistency is exemplified by two renowned advertisements. The first is the
phrase "Iss cement mein jaan hai," which drew attention from customers all around the country.
The second was the Great Khali's marketing campaign, which claimed that only Ambuja cement
could build homes that would not be demolished even by khali. The brand has done an excellent
job of capturing the quality of "strong" and portraying it on a regular and consistent basis.

Weaknesses in the SWOT Analysis of Ambuja Cements:

1. Ambuja's revenues are heavily reliant on the Indian market. The Indian market provided 99.5
percent of the company's revenue in FY2014.
2. Unlike many of its competitors, Ambuja does not provide a wide range of products. This limits
its ability to grow its market share.
3. While Ultratech focuses on major contracts and large buildings, Ambuja is known for modest
jobs and thus loses its brand image in the builder lobby.

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Opportunities in the SWOT Analysis of Ambuja Cements:

1. India is the world's second-largest cement producer. Cement manufacturing in the country is
likely to increase rapidly. This provides an opportunity for Ambuja to capitalise on the increased
demand.
2. Infrastructure investment is predicted to increase, which will increase demand for cement in the
country. During the 12th five-year plan, the planning commission expected a $1 trillion
investment.
3. GST would benefit the cement industry since overall taxation will be reduced from the current
25% to around 18%. GST is also expected to lower logistics costs.
4. Ambuja, as a core India Company, can reap various benefits from the government's measures to
enhance production in India.
5. In the cement industry, "Who can produce the most" is the guiding principle. Ultratech now has
the largest production capacity. However, even Ultratech runs out of stock from time to time,
and demand is considerable. As a result, higher production may be able to assist the brand in
reaching new heights.

Threats in the SWOT Analysis of Ambuja Cements:

1. The Competition Commission of India (CCI) issued an order to end cartelization in the cement
industry after receiving complaints from the Builders Association of India (BAI).
2. The cement sector is very competitive, both for Indian and international companies. This gives
the industry a little market share.

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ACC CEMENTS

Strengths in the SWOT Analysis of ACC Cements:

1. Winning the Superbrand award on many occasions is an accomplishment in and of itself for
ACC. ACC won the prize in both 2006 and 2007, demonstrating that their customers are satisfied
and that the brand is trustworthy in the broadest sense. ACC cements is consistently ranked as
one of the top three brands in the cement business (Ambuja, Ultratech, and ACC).
2. ACC has a large and diverse distribution network, with around 9,000 dealers and distributors
across India. ACC is able to reach every corner of India thanks to its extensive distribution
network.
3. ACC is recognised to participate in a variety of CSR programmes. The ACC scholarship, which
began in February 2016 and is a fantastic idea, is one of them. They run their own HIV and AIDS
treatment centres and publish quarterly newsletters to promote socially responsible actions.

Weaknesses in the SWOT Analysis of ACC Cements:

1. Ambuja is gradually eroding the market with its BTL ads. Ambuja just did an ATL ad with the
Great Khali (WWE), and the ad received a lot of positive feedback. Overall, ACC cements'
manufacturing strength is great, but its marketing and push strategy is mediocre.
2. ACC Cement was the first brand to receive the Superbrand award in 2006 and 2007, but Ultratech
got the same honour in 2011. This demonstrates that Ultratech has reclaimed the brand equity
that originally belonged to ACC cements, as evidenced by data.
3. Because ACC's footprint in India is limited, it faces competition from Ultratech, which exports
large quantities of cement. Ultratech can enhance its turnover by a significant percentage by
exporting.
4. Many dealers report that ACC has such a strong relationship with corporates that during the
summer months, when there is a lot of building going on, most cement goes to builders, leaving
retailers unable to sell. Ultratech, on the other hand, has a consistent presence throughout the
year, thus they prefer Ultratech, which has a consistent supply, to ACC, which has a variable
supply.

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Opportunities in the SWOT Analysis of ACC Cements:

1. One of the primary advantages of ACC cements is that it is a leading brand in the cement sector,
which is growing due to rising infrastructure demand in India. This need will not diminish any
time soon, given the growing population and improving economic conditions.
2. By investing in branding activities for a year or two, ACC cements can easily regain market share
and brand equity, and become India's leading brand. Sure, Ultratech is a competitor, but Ultratech
is a new company, whereas ACC has a long history in India to back it up.
3. One of the most important factors in ACC cements' growth will be its single product – ready mix
concrete. RMC is in higher demand as a result of the government's push to develop cement roads,
and ACC is a brand noted for being a pioneer in RMC.
4. ACC is already well-known for its industrial excellence. It may use the same power to begin
exporting around the world, which will help it improve overall turnover and profits.

Threats in the SWOT Analysis of ACC Cements:

1. The market is increasingly crowded, and ACC must consider Ultratech and Ambuja cements in
addition to others. It must also consider Birla White, Binani, Ramco Cements, and a slew of other
cement manufacturers. Whereas a decade ago, ACC had to worry about only a few participants
in the market, the market has suddenly opened up to a slew of new players.
2. When a corporation competes on price, its bottom line suffers. The threat to ACC is the same.
Due to the large variety of brands available, ACC is forced to compete on price, which has a
negative impact on its bottom line.
3. When dealers begin to sell products that are less expensive but of higher quality, the market share
will begin to shift. ACC and Ambuja are vying for second place, but both companies risk losing
market share to these small, regional players. These players can become strong in their regions
since they are regional and dedicated.

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 PESTEL ANALYSIS

The following is the PESTEL Analysis of the Indian Cement Industry:

Political Factors Affecting the Cement Industry:

1. The following rates, which are mostly controlled by the government, are used to determine the
price of cement:

Rates of coal Tariffs for electricity Transport (Railway and road tariffs) On limestone, there is a
royalty and a cess. Imposition of taxes (Excise duty and VAT)

2. The Indian government intends to boost infrastructure investment to $1 trillion in the next Five-
Year Plan, which will increase cement demand.
3. Infrastructure developments such as dedicated freight corridors, enhanced new airports, and ports
are expected to boost economic activity significantly, resulting in a significant increase in cement
consumption.
4. Most state governments, in order to entice investment to their individual jurisdictions, have
enacted legislation.
5. Government programmes such as NREGS, Indira Awaas Yojana, and increased minimum
support prices promote rural income, boosting cement consumption.

Economic Factors Affecting the Cement Industry:

1. Cement demand is linked to the country's GDP growth. During the recent decade, the average
cement demand to GDP ratio was 1.2. Following the growth rate of GDP, the cement sector is
developing at a pace of 8 to 10% CAGR.
2. Any global economic instability, such as political unrest in the Middle East, can result in a
significant spike in crude oil prices, raising the cost of fuel, electricity, and freight significantly.
3. The country's hotel construction is being fueled by the tourism sector's growth. Emerging tier-II
and tier-III cities' industrial clusters and infrastructure development. The country's population is
expanding and urbanisation is increasing. In order to address present shortages and future growth,
rising per capita income will lead to an increase in housing demand.

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Social Factors Affecting the Cement Industry:

1. Cement production operations are dispersed across India, with a little regional imbalance.
2. ULTRATECH, JAYPEE CEMENT, LAFARGE CEMENT, and other branded cements are
preferred by Indian consumers. It has also been observed in the past that mini cement plants with
low brand value and image are unable to compete with the cement behemoths.
3. Based on the current growth rate and capacity expansions in the Indian cement industry, it is
predicted that the cement sector would generate a significant number of jobs over the next 4-5
years.

Technological Factors Affecting the Cement Industry:

1. The wet process is rapidly superseded by the dry process, as can be observed. It emphasizes the
growing demand for energy efficiency and shows what a true future cement plant should look
like.
2. Technological advancements in the design of cement kilns and furnaces may encourage the use
of wastes such as tyres in cement kilns, minimising the need of expensive fuels such as coke and
coal, and thereby lowering cement manufacturing costs.
3. Enhanced technology will be required to replace coal with low-cost, environmentally acceptable
alternative fuels such as fuel made from bio-mass wastes such as Jatropha Carcus fruit,
Pongamia, and algae.
4. The cost of limestone per tonne can be reduced by effectively locating limestone sources and
employing efficient mining procedures.

Legal Factor Affecting the Cement Industry:

Land acquisition for limestone mining, as well as the establishment of integrated units and grinding
units, necessitates a thorough legal process.

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Environmental Factors Affecting the Cement Industry:

1. In India, stack dust emissions from various sources are limited to 150 mg/Nm3 for existing cement
plants and 100 mg/Nm3 for plants in severely polluted areas. However, in our country, the maximum
for new plants is 50 mg/Nm3, which is comparable to several developed countries.

1. Because cement production is a high-emission, energy-intensive operation, it must use cutting-

edge technology to achieve energy efficiency and meet environmental criteria.
2. Under the PAT1 concept, each unit (Designated Consumers (DC)) will be assigned a three-year
Specific Energy Consumption (SEC) target to satisfy. Any further savings will be eligible for the
Energy Saving Certificate programme. It might be traded with DCs who are running low on
targets. This trade might be done on a bilateral or exchange basis.
3. The National Mission on Enhanced Energy Efficiency (NMEE) is promoting the Perform,
Achieve, and Trade (PAT) scheme, which will assist India's energy-intensive major industry
units in improving their cost effectiveness in terms of energy efficiency.

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 PORTER’S FIVE FORCES ANALYSIS

Porter’s Five Forces Analysis provides a “competitive forces” framework that allows us to better
understand the different dimensions that govern competition within an industry. Porter’s five forces are
–

• Competitive rivalry
• Threat of substitutes
• Bargaining power of buyers
• Bargaining power of suppliers
• Barriers to entry and exit.

Threat of New Entry

1. With a capital cost of roughly Rs. 7,200 per tonne, getting into the industry is costly.
2. New competition is limited by limited raw material sources (limestone, gypsum) and stringent
government permissions.
3. Economies of scale benefit large players.
4. Broad distribution and marketing channels are valuable strategic assets that are difficult to
duplicate by new firms, limiting entry.
5. As expenses rise, the IRR for new green-field capacity decreases.
6. There are significant entrance hurdles in general.

Competitive Rivalry

1. Large businesses benefit from economies of scale.

2. Because cement cannot be transported between regions, competition is regional in nature.
3. Due to overcapacity, a drop in demand weakens prices, resulting in no meaningful pricing power.
4. Moderate competitive competition in general.

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Supplier Power

1. Most enterprises have their own limestone sources, thus there is no need for a provider.
2. Coal ties have weakened, forcing industries to rely more on alternate fuels, where suppliers can
set pricing.
Price rises in the cement sector, according to producers, are related to increases in the cost of
transportation and raw materials. This means that suppliers have the capacity to compel the industry to
adopt new prices. Overall, suppliers have moderate to high power.

Threat of Substitution

There is no danger because there is no substitute for cement. Other construction materials, such as wood,
are only appropriate for low-rise structures. Steel, on the other hand, can be utilised for medium to high-
rise structures, however most building codes require structural steel to be encased in concrete for fire
protection. As a result, cement's importance rises, and the threat of alternatives diminishes.

Buyer Power

1. The housing sector consumes about 65 percent of cement in India, with retail consumers
accounting for the majority of customers. However, retail purchasers have little power over
pricing.
2. The absence of substitutes also results in a lack of buyer power.
3. A small number of cement companies dominate local marketplaces.
4. Demand is inelastic, meaning that it exists at all price levels.
5. There is no overall buyer power.

Findings

• Competitive rivalry in the industry is moderate;

• Threat of substitutes is weak;
• Buyer power is minimal;
• Supplier power is high; and
• Entry barriers are high.

In essence, the horizontal supply chain has price power over end customers, yet the vertical component
of competition (threat of new entry and danger of substitution) is absent due to a lack of distinct
manufacturing advantages.

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 STRATEGY TOWARDS BUYERS AND SELLERS

Demand and Supply

Year Demand(Million Tonnes) Supply(Million Tonnes)

2020 249.00 294.4
2019 328.00 337.32
2018 296.00 297.56
2017 272.00 279.81
2016 269.00 283.46
2015 256.00 270.04
2014 245.00 255.83
2013 239.00 248.23
2012 221.00 230.49
2011 165.63 216.00
2010 206.00 206.60
Table-1(Demand and Supply have been used as a proxy for Consumption and Production).

From the above data and graph, it can be inferred that we have always had a surplus for cement in
the industry for the years 2010-2019.
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Factors Affecting Demand and Supply

GOVERNMENT POLICIES
India being the second-largest producer of cement in the world and a developing country has a very
high demand for new infrastructure and housing and at the forefront of this push is our Government
with goals like

• Housing for everyone by 2022.

• Development of 98 new smart cities.

• In Union Budget 2021-22, the Government of India has extended benefits under Section 80 -
IBA of the Income Tax Act till March 31, 2021, to promote affordable housing in India.
• The Union Budget has allocated Rs 139 billion (US$ 1.93 billion) for Urban Rejuvenation
Mission: AMRUT and Smart Cities Mission. The government’s infrastructure push combined
with housing for all, Smart Cities Mission, and Swachh Bharat Abhiyan is going to boost
cement demand in the country. The move is expected to boost the demand for cement from
the housing segment. As per Union Budget 2020-21, Government planned to upgrade 1,
25,000 km of road length over the next five years.
• An outlay of Rs 27,500 crore (US$ 3.93 billion) has been allotted under Pradhan Mantri Awas
Yojana in the Union Budget 2020-21.

• The MMDR Amendment Act, 2015 has replaced the practice of ‘first-cum first serve’ with
mineral block allotment and has introduced auctions to bring in transparency and avoid
discretion.
• The policy enables the transfer of captive mining leases and mergers and acquisitions among
companies having captive leases. All mining leases are granted for 50 years.

Over the years the Indian government has also put in place several foreign policies to strengthen and
improve our cement industry. One of the policies being to attract foreign companies to invest in this
sector which saw investments from companies like Lafarge-Holcim, Heidelberg Cement, and Vicat.

Comprises 95% of the core raw material for cement production. The cement sector governs demand,
supply, and pricing of limestone (as well as coal) to some extent. According to some estimates, around
180-250 kg of coal and about 1.5 tonnes of limestone is required to produce a ton of cement. Cement
manufacturing consumes minerals such as gypsum, Quartz, bauxite, coal, kaolin (china clay), and iron
ore too in varying amounts.

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Another major raw material is coal (.25 tonne required per tonne of cement) has been an issue in the
past years in terms of both quantity and quality but certain regulations passed by the government in
2014 have improved the situation. Although recently in August of 2020 India's Coal imports dropped
by 35% due to subdued demand.

The demand for raw materials of cement such as limestone and gypsum is expected to witness
disruptive growth in the next few decades. The second-largest cement industry in the world, the
Indian Cement industry stands at 545 MTPA of installed capacity as of 2019.

Limestone is also a leading contributor to the Indian exchequer in terms of value from the non-
metallic minerals basket. The total contribution in FY 2017 amounted to INR 26.73 billion through
payments under Royalty, District Mineral Foundation (DMF), and National Mineral Exploration
Trust (NMET). The sector contributed INR 2.2 billion through Corporate Social Responsibility (CSR)
activities that covered areas such as living conditions (economic, social, and environmental) and
infrastructure that benefited local communities.

PRICING OF COMMODITY

The price of the commodity also affects the demand for the commodity. An increase in the price of
normal goods can lead to a decrease in demand for normal goods and vice versa. Demand may not
get significantly affected in the case of essential goods. But since cement is a normal good, its price
affects the demand.

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According to economic times, due to supply constraints, the cement price is expected to rise by
Rs.15-

20. This increase may lead to a decrease in the demand of 30%. This prediction exhibits how
the price of the commodity can affect the demand of the commodity.

A similar instance of 2011- The price of the cement decreased from Rs.283 to Rs.276. This
decrease in price leads to an increase in demand and year on year growth of 10.1% of ACC,
AMBUJA, ULTRATECH, and other major cement brands.

TRANSPORTATION
Transportation has a major role in the total cost of cement. Sourcing raw material and moving
cement into the market together contributes more than 35% of the total cost. The industry is
still facing some transportation challenges like poor road infrastructure, delays because of
the roads passing through villages which increase the cost. Transport is controlled by brokers
and it is complex to deal with them. In recent years some units are installed near limestone
mines and grinding units near coastal areas which opens up the river transport. But still, there
is very low usage of river transport.

ENVIRONMENTAL FACTORS
Environmental factors affect the demand and supply of the cement. During the monsoon
season, cement demand decrease by mid-June, and due to heavy rain caused construction
work to slow down. Poor monsoon rain help to boost the demand as it allows the construction
companies to continue their work. Natural disasters also affect the demand for cement.
Construction increase in the region faced disaster. Production of cement has its impact on
the environment, causing pollution and is the reason behind global warming. So the
government’s rules and regulations sometimes become a barrier to the supply of the cement.

COMPLEMENTARY GOODS
Complementary Goods are the goods that are consumed together as a combination.
Therefore, an increase or decrease in the price of one commodity will increase or decrease
the demand for the other commodity.

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The perfect example of a situation like this can be the cement industry, wherein, change in
the price of the products used with cement significantly affects demand. That is, an increase
in the price of sand that is used with cement for the construction purpose will affect the
demand of the cement.

In Nov 2019, there was a shortage in the supply of sand due to floods in rivers. Post the
receding of the flood and with the easing of supply of sand, the cement’s (only the top brands
like ACC, UltraTech, Ambuja, and other brands) price got hiked by 25-30%. The price before
the increase in supply was around 250-270 and then it increased to 380/50 kg bag within 3
days of an increase in the supply of sand.

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 TARGET MARKET AND MARKET STRUCTURE

TARGET MARKET

The target market is the market segment that a firm is positioning while marketing and
developing the product. It consists of potential buyers (buyers who can afford the commodity
at the prevailing price). Though, it includes both existing and non-existing buyers.
ACC and UltraTech’s cement market is divided into two major parts- Housing-related and
Infrastructure related. ACC offers different products for these categories namely OPC and PPC.
Both of them have their own merits and demerits.

Ordinary Portland Cement (OPC)

OPC’s targeted market is the infrastructure industry. It is used in building High-rise buildings,
Roads, Dams, Bridges, and Flyovers. OPC cement’s initial strength is visible within three
days of work. It takes less time to set and therefore ideal for making roads and other
mentioned things. It is a pure form of cement but may become less durable due to aggressive
weather. Though OPC’s initial strength is good, it has less strength when compared to PPC.
Also, OPC is a less durable form of cement. Generally, OPC includes Grade 53, 43, and 33-
grade cement. Now, comparing both the companies’ OPC prices-
• ACC’s OPC Cement- 370/50 kg- Offers only 43 and 53-grade cement.
• UltraTech’s OPC Cement- 380/50 kg- Offers only 43 and 53-grade cement

Portland Pozzolana Cement (PPC)

PPC Cement is used in building residential constructions. While OPC is used for large
constructions, PPC is suitable for concrete slabs. It is not a pure form of cement. PPC is made
by mixing Supplementary Cementitious Materials like fly ash, slag cement, and silica fume.
PPC contains 15- 35% of these materials in the normal cement. The reason behind adding
this is- it costs less, is more profitable, has greater strength in long term, and is more durable
than OPC. PPC’s initial strength is visible from 7 days. Whereas, it’s maximum strength is
achieved after 28 days. Comparing the prices of PPC offered by the two companies-
• ACC’s PPC Cement: 370/50 kg
• UltraTech’s PPC Cement: 380/50 kg

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MARKET STRUCTURE

The cement industry plays an important role in any country’s growth. And in India, it has grown
in the past few years and still has a large scope for expansion. The Indian cement industry is
Oligopolistic. Because among more than 100 firms, 70% of the market of cement is covered
by the top 11 -12 firms. UltraTech Cement Ltd., Ambuja Cement Ltd., and ACC Cement are
some of the major players. So the production is controlled by the few players in the cement
market which are divided into five regional markets: North, West, Central, East, and South.
Some other reasons for this completion are

• The high cost of cement production plants is a barrier for the newcomers and the
existing players. The cost of setting up a new plant is very high, requires a lot of
investment. And to the operational cost of the running plant is very high, to exit the
market will incur a huge loss for the firm.
• There is no alternative or substitute practically of the cement in the market. So the
cement industry has a high degree of supplier power. Alternatives, if any do not
pose a threat as they can’t provide the same kind of use and value to the consumer.
The dependency of the consumer on products is high.
• Some major companies like ACC Ltd. And Ambuja Cement are operating almost in
every zone, And companies belonging to the same parent group are competing
individually with each other in the same or different regional markets.
• Most of the market players in India are associated with the Cement Manufacturers
Association, CMA. So the existence of an effective trading association stops new
players to enter the market.
• It is observed that there is a similarity is an increase or decrease in the profit or loss
of the cement manufacturers. Production cost is the same market is highly similar.

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 FUTURE FORECASTING OF THE INDUSTRY

India holds the second position in the global cement industry with a production volume of
297.56 Mn tons in FY 2018 which is around 8% of total global production. The consumption
in India is expected to increase at a compound annual growth rate (CAGR) of 4.38%. And
the production of cement is expected to reach 410.21 Mn tons by FY 2024 as it is expanding
at a CAGR of 3.83% during FY 2019-24. The following can be the reasons for the growth
of the cement industry.

• The Indian government has undertaken several projects of construction like road and
highways in rural and urban areas. Developing industrial hubs in different parts of the
country. Science the primary material for the execution is cement will drive the
growth of the Indian cement industry.
• Low cost of import of raw materials as all the essential minerals used for the
manufacturing of cement-like limestone, bauxite, iron ore, etc. are available in
abundance in India. This is making the cement business profitable and driving the
supply side.
• Demand in the housing segment was highest with 38% by the rural housing sector
and 32% by the urban housing sector in FY 2018. This will help in the fast execution
of government schemes like Pradhan Mantri Awas Yojna and Housing for all.
• The population of India is also increasing very fast. Which will increase demand in
the housing sector.

The consumer today has many sources of information, flooded with advertisements, and well
equipped for research. So the functional benefits are not enough to attract the customers the
way used to be earlier. Today the emotional connection is the best way to get the attention of
the customer and affect his decision. This has been recognized by so many companies and they
started to bring more emotional content in their advertisement to connect with the consumer.

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 CONCLUSION

India is the world's second-largest cement producer, accounting for more than 7% of global
installed capacity. In FY20, India's total cement production capacity was around 545 million
tonnes (MT). The private sector owns 98 percent of total capacity, while the state sector owns
the balance. Around 70% of India's total cement production is produced by the top 20
businesses. Because India has abundant and high-quality limestone reserves throughout the
country, the cement sector has enormous expansion potential.

Because of the growing demand from various sectors, including as housing, commercial
development, and industrial construction, the cement industry is predicted to reach 550-600
MTPA by 2025.

In February 2021, India's cement production increased by 7.8% over February 2020.

In FY22, cement production is predicted to rise ten percent to twelve percent, with utilisation
hovering around 65 percent.

According to CARE Ratings, cement production in India is likely to rise by 4-7 percent YoY
in FY22, owing to the government's strong focus on infrastructure development.

The Indian cement business, according to CLSA (institutional brokerage and investment
organisation), is seeing increased demand.

Growth in Infrastructure and real estate sector, post-COVID-19 pandemic, is likely to augment
the demand for cement in 2021. Indian cement companies reported a healthy growth in earnings
and demand for the industry increased on the back of resuming construction activities post
COVID-19 lockdown imposed by the government.

From the above report it can be safely assumed that cement industry in India is on the rise.
With the government policies and political environment in its support, and with demand on the
rise cement industry has a good growth potential in future. Though there are high entry barriers
for this industry but if a business is able to surpass these barriers a huge number of growth
opportunities awaits them.

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 REFERENCES

• Indian Brand Equity Foundation (IBEF). (August, 2021). Indian Cement Industry
Report. Retrieved from https://www.ibef.org/industry/cement-india.aspx
• Padole, Sameer. (September, 2021). A Brief Overview of Indian Cement Industry.
Retrieved from https://in.investing.com/analysis/a-brief-overview-of-indian-cement-
industry-200497335
• Anonymous (April 12, 2020) Swot Analysis of Key Players. Retrieved from
https://www.mbaskool.com/brandguide/real-estate-and-construction/10252-ambuja-
cements.html
• Anonymous (April 12, 2020) Swot Analysis of Key Players. Retrieved from
https://www.mbaskool.com/brandguide/real-estate-and-construction/10259-ultratech-
cements.html
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• Anonymous (August, 2019) Production volume of cement in India from financial year
2008 to 2019 with a forecast until 2022. Retrieved from
https://www.statista.com/statistics/420530/production-of-cement-in-india

• accoy Mart (March 04, 2020) What is the Difference Between OPC and PPC
Cement https://mccoymart.com/post/what-is-the-difference-between-ppc-and-opc-
cement/
• Industry Analysis: Cement. (2014, June 22). Safal Niveshak. Retrieved November 8,

2021, from https://www.safalniveshak.com/industry-analysis-cement-part1/

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