Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Cement: Regional Dynamics - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 10, 2003

    Cement: Regional Dynamics

    The Indian cement industry is the second largest in the world and had a total installed capacity of around 144 m tonnes in FY03. In order to understand the dynamics of the cement industry, it is necessary that we consider the demand supply situation across various regions in the country. This is so because cement is a product of high volumes and therefore transporting it over large distances can prove to be uneconomical. This makes it imperative for the plants to be located near markets. In some cases the plants also tend to be located near the limestone reserves (a major raw material for cement) from where the cement is transported to nearby states.

    This leads to a scenario where the demand supply situation in one region can be vastly different from other region. However, in places where limestone reserves are high, there can be transport of cement from one region to the nearby region thus resulting in a situation where production in one region can affect the demand supply situation in the other region.

    The Indian cement industry can be divided into five regions namely the North, South, West, East and the Central region. Let us study the demand supply situation in each region.

    Northern region: The northern region mainly consists of the states of Punjab, Haryana, Delhi and Rajasthan. The region has close to 25 m tonnes of capacity and produced 24 m tonnes of cement in FY03, indicating a capacity utilisation of more than 95%. However the total demand in the state is close to 21m tonnes indicating that the surplus production of around 3 m tonnes is targeted towards states like Gujarat and MP. On account of the low demand supply gap, the prices have remained stable in this region. Also since Gujarat Ambuja and ACC dominate these markets, their alliance has lent some stability to prices. Going forward, the demand is likely to come from housing sector as these states have low industrial development. Prices are likely to remain stable unless there is a major capacity addition.

    Western Region: The western region consists of the states of Maharashtra, Gujarat and Goa. The region has around 28 m tonnes of capacity and produced 19 m tonnes of cement in FY03 indicating a capacity utilisation of around 68%. This is the second biggest market in the country. High demand anticipation on account of rapid industrialisation and urbanisation has led to reckless capacity addition in this region and as a result supply has outstripped demand and thus it will take some time before the prices stabilise in this region. Gujarat Ambuja is the market leader in Gujarat whereas ACC, Gujarat Ambuja and L&T are the major players in the market of Maharashtra.

    Southern Region: The Southern region consists of the states of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. This region is the largest market in the country with an installed capacity of around 44 m tonnes and production of around 33 m tonnes, indicating a capacity utilization of around 75%. The state of Andhra Pradesh is rich in limestone reserves and as a result produces surplus cement, which is transported to the states of Maharashtra and other nearby regions. On account of high demand supply mismatch the prices have remained subdued in this region. Going forward, price improvement is likely to be the major growth driver for cement companies in this region as demand growth is expected to be lower than the domestic average. Also since there is no major greenfield expansion in sight, this would further help in the price recovery. Although regional players like India cements and Madras cements are strong in these markets, national players like ACC and Grasim also have their presence in this region.

    Eastern Region: The eastern region mainly consists of the states of Orissa, Bihar, Jharkhand, far Eastern states and West Bengal. The eastern region has a total capacity of 22 m tonnes and the region produced around 17 m tonnes of cement in FY03 indicating a capacity utilisation of around 77%. Most of the states like Orissa and West Bengal are cement deficit and service their requirements from the limestone rich Bilaspur belt. The demand has grown at around 9% in this region in the past decade and we expect the trend to continue. Lafarge, on the back of some acquisitions has emerged as a market leader in this region.

    Central Region: The central region comprises of the states of UP and MP and has a total capacity of 18 m tonnes. The plants in this region worked at almost full capacity in FY03. Although Grasim and L&T have a significant presence in this region, smaller players largely dominate this region.

    Due to the fragmented nature of the cement industry, it becomes imperative that we analyse the Indian cement market regionally. From the above regional segregation, we can safely assume that the companies in the Eastern, Northern and Central region are well placed to capitalise on cement demand growth. On the other hand, it may be a while before players in the southern and western regions will benefit from improved cement demand.



    Equitymaster requests your view! Post a comment on "Cement: Regional Dynamics". Click here!


    More Views on News

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    UltraTech: One of the Weakest Quarters in Years (Quarterly Results Update - Detailed)

    May 18, 2017

    Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms