Naresh Kumar Surepelly and Rajabahadur V. Arcot
The recent global economic slowdown has created a climate of business uncertainty. Governments are struggling to balance operating budgets by reducing federal taxes on one hand and increasing their spending on the other. Added to the fiscal challenges, State borrowings are spinning out of control making it difficult to rein the deficits and there seems to be no hope of creating more employment. Compared to this scenario, India seems to be better placed. India’s challenges differ slightly; inflation, essentially attributed to supply side constraints, is the country’s major problem. The State is also grappling with budget deficit because of falling revenues and increasing subsidies the State doles out because of political considerations.
The global economic slowdown is likely to have only a marginal effect on India because of its robust domestic consumer-demand driven economy. According to most analysts, India’s economic growth will remain on track. This is well substantiated by the manufacturing purchasing managers' index (PMI),which bounced back from 50.4 in September to 52.0 in October, 2011. Additionally, many companies in India witnessed revenue growth during the first two quarters of the current fiscal year. While profit margins remained subdued because of the industry’s inability to manage their costs, some companies performed exceedingly well despite escalating commodity prices. Among cement companies, UltraTech Cement posted a 140 percent growth in its net profit, Holcim group companies ACC and Ambuja Cements have posted 67 percent and 13 percent growth in their net profits. With the continuing robust domestic demand, India’s cement industry provides excellent growth opportunities for automation suppliers.
India, with an installed annual production capacity of 300 million tons (MT), is the second largest cement producer in the world with 137 large and over 360 mini plants. Cement industry in India has been expanding for more than a decade and it has tremendous potential for future growth due to the burgeoning growth in real estate, infrastructure & construction, and such other industries.
Presently, over 90 percent of the total cement production capacity in the country is based on latest environment friendly dry process technology and the remaining 10 percent is based on old wet and semi-dry process technology. India produces ordinary portland cement (OPC), portland pozzolana cement (PPC), portland blast furnace slag cement (PBFS), rapid hardening portland cement, oil well cement, sulphate resisting portland cement, and white cement.
Industry experts are of the opinion that the cement industry in India will experience double-digit growth rate in the coming years. Resulting from the country’s recent economic advancements, the demand for office space, retail space, real estate, hotels, hospitals, roads, multiplexes, industrial construction, and such others has been escalating. And this robust demand will provide impetus for growth of cement industry in India. According to Cement Manufacturers Association (CMA), the industry has already exceeded the set target of 290 MT by increasing production capacity to 300 MT in the first nine months of the fiscal year 2011-12, and it expects the industry capacity to reach 320 MT by the end of this fiscal year. By 2020, CMA plans to achieve a target of 550 MT capacity.
Some of the State initiatives in the union budget 2011-12 include tax free bonds, infrastructure debt funds, a comprehensive policy for developing public private partnership projects (PPPs), allocation of $46.5 billion for infrastructure in 2011-12, which is an increase of 23.3 percent of allocated budget in 2010-11, and such others. The State, which also plays a major role in developing the country’s infrastructure, is planning to implement the projects, worth more than $1 trillion, which includes $500 billion for construction projects in its 12th five-year plan (2012-17). These factors will accelerate cement consumption and spur the industry’s robust growth over the next five years.
Recent Investment Initiatives
Shree Cement plans to invest $220 million to set up a 2 MT clinkerisation unit at Raipur, Chhattisgarh; the Builders Association of India (BAI) has planned to set up a 10 MTPA capacity cement plant in Anantpur, Andhra Pradesh with an investment of $650 million; MP Birla Group has signed a memorandum of understanding (MoU) with the Assam Mineral Development Corporation to start a 1 MT cement plant with an investment of $100 million; a joint venture (JV) of over $560 million between Sagar Cements and Vicat Group of France is going to commence its operations in 2012; a 50:50 joint venture (JV) between the Hyderabad-based My Home Group and Ireland's CRH a leading building material company, has planned to scale up its existing cement production capacity of 5 MTPA to 15 MTPA by 2016 with an investment of $1 billion.
The industry’s dominant players include large domestic companies such as UltraTech, Gujarat Ambuja, JK, ACC, Century, Madras, apart from global cement majors, such as Lafarge, Holcim, Italcementi, and Heidelberg. Global companies entered the Indian market in the last few years lured by the opportunities in this industry. Some of these companies are also planning to add production capacities through new projects or brownfield project expansions.
Driven by the domestic consumption demand, glass manufacturing industry in India is witnessing a double digit growth rate. Industries such as automotive, consumer durable goods, real estate, food & beverage, healthcare, pharmaceutical are the major consumers of glass industries. According to All India Glass Manufacturers’ Federation (AIGMF), the consumption of glass will account for 19 percent in automotive, 12- 15 percent in pharmaceuticals, 10 -12 percent in consumer goods, and 9 percent in construction in the next couple of years.
Currently, India’s glass industry produces a little over 12,000 tons per day, which includes container glass, float glass and flat glass. The per capita glass consumption is 1.2 kg. Some of the leading players in the glass industry include AGI Glaspac, Ashoke Enamel & Glass Works, BDJ Glass Industries, Empire Industries, Saint Gobain Glass India, Hindusthan National Glass & Industries (HNGI), Nannumal Glass Works, OM Glass Works and others.
Recently, HNGI announced plans to invest $320 million for capacity addition of 1000 TPD through its brownfield expansion of its Nasik unit and new plant at Naidupetta. HNGI Float Glass a subsidiary of HNGI has also planned to invest $180 million to expand its capacity to 300 TPD. AGI Glaspac plans to invest $130 million to expand their capacity to 450 TPD in its Andhra Pradesh unit. Saint Gobain Glass India, a leading float glass manufacturing company is planning to invest $170 million to start its new plant in Rajasthan in the next two years.
India’s economy is on the high growth trajectory; there is sustainable industrial growth due to consumer driven demand. Growth in one sector boosts parallel growth in another; so when industries expand, the infrastructure and ancillary industries need to improve – this dovetails into growth for the cement and glass industries. Ultimately, this market growth will provide tremendous opportunities for automation and technology suppliers.
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