X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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: A regional story - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Cement: A regional story
Nov 2, 2002

The cement industry is going through a phase of high volumes and poor realisations. On one hand, oversupply has led to poor realisations while on the other cement demand has been on the rise due to healthy demand from the housing and infrastructure sectors. Inspite of national average realisations falling, prices have been strong in some regions in comparison with others. So why is it that certain regions of the country have better prices compared to the others? Cement prices are influenced by factors like demand supply mismatch and extent of competition. Though prices have been weak all over the country due to oversupply, prices in the north and east are comparatively better than those in west, south and central India.

Consolidation in the eastern region is higher on a comparative basis and this has positively impacted the realisations in this region. ACC-Gujarat Ambuja (GACL) combine is the dominant player in this region. Lafarge and the L&T- Grasim combine are the other major cement producers in this region. The strategic alliance between GACL and ACC and Grasim and L&T has led to a better volume and price understanding between the various players in this region. Apart from consolidation a favourable demand supply position is also currently a feature of the region.

FY02 Capacity
(m tonnes)
Production
(m tonnes)
South 44.8 29.9
North 25.2 21.9
West 22.3 17.2
East 21.0 16.7

On the other hand, in the northern region the demand supply mismatch is very low. The capacity in this region is nearly 25 m tonnes while demand is nearly 22 m tonnes. Also the dominant player in this region is the ACC- GACL combine and is in a good position to dictate prices. This has led to firmer cement prices in this region.

In the south, demand supply mismatch is large. Capacity stands at 45 m tonnes wile the demand is just 30 m tonnes. Also the level of consolidation is low in this region. Both these factors have led to a low price realisation in this region. The situation is similar in the western region. Cement capacity stood at 22 m tonnes while demand was only 17 m tonnes. Also high fragmentation in the cement market in this region has led to a break down in the cartel formed by the major players.

Cement prices are a factor of demand and supply, but one factor that can help firm up prices is the extent of consolidation in the market. Cement markets in western countries are highly consolidated (2-3 players control nearly 80-90% market share) and this has led to better understanding on production and pricing issues. Higher consolidation will also help avoid the occurrence of an adverse demand supply mismatch scenario. In the Indian context a high level of fragmentation (40-45%) in the domestic market has meant intense competition among producers. Successive cartels have fallen due to undercutting by smaller cement producers.

India has a surplus cement capacity to the extent of nearly 38 m tonnes. Capacity additions have been a regular feature in the last decade, as the government gave adequate sales tax incentives to set up plants with a large capacity. The current decade however may see a different trend where capacity addition will be at a lower pace due to lack of incentives. While consolidation in the cement industry will crawl along, the demand supply gap is expected to close at a faster clip, which brings relief to producers.

Equitymaster requests your view! Post a comment on "Cement: A regional story". Click here!

  

More Views on News

INDIA CEMENTS Announces Quarterly Results (1QFY19); Net Profit Down 20.5% (Quarterly Result Update)

Aug 13, 2018 | Updated on Aug 13, 2018

For the quarter ended June 2018, INDIA CEMENTS has posted a net profit of Rs 210 m (down 20.5% YoY). Sales on the other hand came in at Rs 14 bn (down 6.9% YoY). Read on for a complete analysis of INDIA CEMENTS's quarterly results.

DALMIA BHARAT Announces Quarterly Results (1QFY19); Net Profit Down 24.2% (Quarterly Result Update)

Aug 13, 2018 | Updated on Aug 13, 2018

For the quarter ended June 2018, DALMIA BHARAT has posted a net profit of Rs 1 bn (down 24.2% YoY). Sales on the other hand came in at Rs 24 bn (up 2.7% YoY). Read on for a complete analysis of DALMIA BHARAT's quarterly results.

ULTRATECH CEMENT 2017-18 Annual Report Analysis (Annual Result Update)

Aug 9, 2018 | Updated on Aug 9, 2018

Here's an analysis of the annual report of ULTRATECH CEMENT for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of ULTRATECH CEMENT. Also includes updates on the valuation of ULTRATECH CEMENT.

UltraTech: Ramping Up Efficiencies for the Acquired Plants (Quarterly Results Update - Detailed)

Nov 11, 2017

Higher depreciation and working capital at the acquired plants impacted the company's profitability.

ACC: Jamul and Sindri Plant Stabilisation Boosts Performance (Quarterly Results Update - Detailed)

Nov 9, 2017

Increased focus on premium products and stabilisation of Jamul and Sindri plant capacities bolstered ACC's performance during the quarter ended September 2017.

More Views on News

Most Popular

This is a Must-Have Stock for Your Portfolio(The 5 Minute Wrapup)

Aug 8, 2018

Tanushree just released the permanent wealth blueprint report. This report includes three safe and steady stocks. I like one in particular. Here's why

Trading in These Times: 8% Gains in 3 Days!(Profit Hunter)

Aug 9, 2018

Here are 2 stocks you can buy right now! And there are plenty more opportunities to come...

Banks are Raising FD Rates and That's Good News(Vivek Kaul's Diary)

Aug 7, 2018

Lending to the retail segment remains strong, whereas lending to the service sector has picked up dramatically.

Why HDFC Equity Fund Disappointed Its Investors(Outside View)

Aug 9, 2018

Though popular, HDFC Equity Fund is not among the best performers anymore. Here is the reason behind its underperformance that has left investors disappointed.

HDFC AMC Makes 65% Listing Gains! Should It Attract Mutual Fund Investors?(Outside View)

Aug 8, 2018

PersonalFN explains if investors should invest in schemes of HDFC Mutual Fund looking at the listing gains of HDFC AMC.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS