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ACC to focus on blended cement - Views on News from Equitymaster
 
 
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  • Aug 17, 1999

    ACC to focus on blended cement

    According to newspaper reports, Associated Cement Companies (ACC) has decided to shift its product mix in favour of blended cement, to 80% of its total production. Currently, the company has a product mix in the ratio of 60:40, where 60% is accounted from by blended cement and 40% from ordinary portland cement (OPC).

    ACC, India's second largest cement producer, has an aggregate cement capacity of 1.3 mn tpa. It is implementing an expansion plan under which the cement capacity is expected to rise to 15 m tonnes by 2001.

    The decision to focus on blended cement has been taken in an environment where the OPC type accounts for 70% of total cement production in India. The OPC type is preferred by construction agents because of its tendency to give the concrete immediate strength. On the other hand, individuals involved in the construction of self-owned property prefer the blended cement, which is superior in quality and strength to OPC.

    The company could initially witness a resistance to acceptance of the product by construction agents. However, in the long term, once the product is well accepted, it would enable the company to improve price realisations. This may be possible as blended cement is essentially a value-added product, which could command a premium in the market.

    The shift in product mix would reduce the company's dependence on the traditional raw materials viz. limestone and energy, as blended cement is manufactured by mixing fly ash (waste of power plants) and slag (waste from steel plants). As the production costs would be lower due to lower raw material consumption and cost, the company would definitely stand to gain in terms of better sales margins.

    ACC has made a bold decision to focus on the manufacture of blended cement. This is so because it is as yet uncertain whether construction agents would switch from the use of OPC. Currently, blended cement accounts for only a small fraction of total cement consumption within the country (in Mumbai OPC accounts for 99% of cement consumption). As ACC would not be able to serve the markets with OPC, it is possible that it could lose its stronghold over such markets till blended cement becomes more popular amongst users. This could result in the company becoming more dependent on retail level construction activity to drive its volume growth.

     

     

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