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Holcim aims at robust growth in India
Mar 9, 2010

Last week we attended the conference call held by Holcim, one of the leading suppliers of cement in the world. It was held to discuss the company’s performance and future prospects. We attended the same to get an overview of the global construction industry and to understand the prospects of Asia Pacific, and in particular India’s construction sector. The global construction industry and India’s share

The global construction market accounts for US$ 7.5 trillion or 13% of global GDP. Global cement demand is estimated to be around 3 bn tonnes, while demand for aggregates and ready mix concrete is around 20 bn tonnes and 1.6 bn cubic meters respectively. These three materials account for 10% of global construction industry. (Source: Holcim presentation, January 2010).

Of the total global construction industry, India accounts for 3%, totaling to around US$ 247 bn placing it in the 9th ranks. However, construction sector includes aggregates and ready mix concrete sales too. Domestically, consumption of other form of construction materials is very low or almost nil. Recently demand for ready mix concrete is on the rise. This is mainly driven by growing organised real estate sector. Otherwise, cement is by and large the most widely used construction input. Thus, in terms of cement production, India is second largest producer after China.

Thus, India’s cement industry is expected to grow at the rate of 10% in this calendar year. Talking about the long term outlook of India’s cement industry, it is expected to continue to grow at the rate of 8%. These estimates are based on policymakers’ and economists’ (world over) estimates about India’s economic growth, which is around 6% to 8%. The construction material industry tracks economic growth and the multiplier is factor approximately is 1.25 times of GDP.

Largest construction markets
Global ranking 2009E 2020E
USA 1 2
Chnia 2 1
Japan 3 4
Germany 4 6
Spain 5 7
France 6 11
Italy 7 12
South Korea 8 5
India 9 3
UK 10 9
Canada 11 10
Brazil 12 14
Australia 13 15
Russia 14 8
Indonesia 15 13
Source: Holcim presentation, January 2010

Demand drivers for construction material
As we know, developed countries are facing the problem of aging population. On the other hand, emerging markets are facing problems related to population. However, this huge manpower is the growth driver of these developing countries. With increase in population in general, there is an increase in demand for goods and services. Shelter is a basic necessity. Hence, demand for construction material is set to increase. Additionally, the nuclear family concept and increasing urbanisation has further boosted the demand of cement.

Considering the above mentioned reasons and economic outlook of regions across the globe, the various nations’ share in global construction industry is likely witness a sea of change. With that the rankings would be reassigned. Asia Pacific regions stand to gain on account of growing economies. Economic outlook for Africa Middle East remains stable. Latin American construction industry is also expected to report soild growth. The losers being developed regions that are witnessing slow recovery (Europe and North America).

Holicm’s India operations
Holcim operates in India through ACC and Ambuja Cements. It has acquired stake in these companies directly and indirectly over the years. The move was part of the Holicm’s strategy to diversify its geographical revenues and gain strong foothold in emerging, growing economies. To bank up on India’s infrastructure growth story Holcim has by now acquired controlling stake in both the companies. This move of largest cement manufacturer highlights India’s growth prospects. An entrepreneur ventures into new territories to explore upcoming opportunities. The success of the venture depends upon strategies followed, risks taken considering the balance sheet strength.

The parent has scaled up capacity of both the companies and plans to take up total group capacity to 50 Mt by the end of 2010. The management believes that its India operations are likely to grow at the rate of 10% in volumes terms considering the revival in construction activity. The management is optimistic about volume growth. However, they maintain a cautious tone while taking about pricing scenario. During the first half of the calendar year, the management does not expect any reversal trend in prices as it is the peak of the construction cycle. However, with the onset of monsoons, price variations may be expected. We believe prices are likely to come under pressure mainly on account of planned capacities coming on stream. Delays in project execution (cement capacities) and implementation of planned investments by policymakers, may provide some relief to softening cement prices.

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