Introduction
India is the second largest producer of cement in the world. No wonder, India’s cement industry is a vital part of its economy, providing employment to more than a million people, directly or indirectly. Ever since it was deregulated in 1982, the Indian cement industry has attracted huge investments, both from Indian as well as foreign investors.
India has a lot of potential for development in the infrastructure and construction sector and the cement sector is expected to largely benefit from it. Some of the recent initiatives, such as development of 98 smart cities, is expected to provide a major boost to the sector.
Aided by suitable Government foreign policies, several foreign players such as Lafarge-Holcim, Heidelberg Cement, and Vicat have invested in the country in the recent past. A significant factor which aids the growth of this sector is the ready availability of raw materials for making cement, such as limestone and coal.
Investments
According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.28 billion between April 2000 and March 2020.
Some of the major investments in Indian cement industry are as follows:
- In February 2020, Nirma Group announced acquisition of Emami Cement Limited (ECL) for an enterprise value of Rs 5,500 crore (US$ 786.95 million).
- In October 2019, UltraTech cement announced plans to invest Rs 940 crore (US$ 134.50 million) to increase the production of premium products for strengthening its position in eastern markets.
- Emami Cement currently has three cement manufacturing assets with a capacity of 5.6 million tonnes.
- In May 2019, SEBI approved Emami Cement Ltd’s initial public offering (IPO).
- JK cement planned to invest Rs 1,700 crore (US$ 246.7 million) to increase its production capacity to 15 million tonnes by end of 2020.
Government Initiatives
In order to help private sector companies, thrive in the industry, the Government has been approving their investment schemes. Some of the initiatives taken by the Government off late are as below:
- In Union Budget 2020-21, the Government of India has extended benefits under Section 80 – IBA of the Income Tax Act till March 31, 2020 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. 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 of cement from the housing segment. As per Union Budget 2019-20, 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.
Road Ahead
The eastern states of India are likely to be the newer and untapped 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 export and will logistically be well armed to face stiff competition from cement plants in the interior of the country. India’s cement production capacity is expected to reach 550 MT by 2025.
Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, cement industry is expected to reach 550-600 million tonnes per annum (MTPA) by the year 2025.
Number of foreign players are also expected to enter the cement sector owing to the profit margins and steady demand.
Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123
References: Media Reports, Press releases, Union Budget 2019-20, Edelweiss Securities Ltd.
