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india CemWeek A CemWeek Publication

Cement VOLume 1

issue 7

july / august 2012

& construction Materials

The Industry’s High Cost of

RMC:

Doing Business

A Trending Product with Serious Growth Potential

Record Fines Handed Down for Major Industry Players

2012 India Cement Sector Sentiment Survey Highlights

Strength in Presence An Interview with FLSmidth’s Per Mejnert Kristensen

News

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Analysis

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Market Coverage

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Interviews

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People


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FEATURES

DEPARTMENTS

4

STRENGTH IN PRESENCE

8

THE HIGH COST OF DOING BUSINESS

24

An interview with Per Mejnert Kristensen Examines the impact of rising borrowing costs on the industry

INDIA READY MIX CEMENT A trending product with serious growth potential

FOCUS 10

1

EDITOR’S LETTER

3

NUMBERS IN BRIEF

16

Much Work Ahead Petcoke’s popularity on the rise

PROFILE JK Lakshmi: Expanding capacity isn’t just about MTPA

44

ANALYST RECOMMENDATIONS

46

STOCK PERFORMANCE

INDIA CEMENTS CHILMAKUR

Highlights of the latest in broker recommendations Comprehensive data on major cement companies in India

A FLSmidth project case study

12

2012 INDIA CEMENT SECTOR SENTIMENT SURVEY Highlights from the CW Group’s 3rd annual India cement sector survey

21 22

JAGAN CASE NET WIDENS Three cement companies summoned to testify in CBI’s investigation

RECORD FINES HANDED DOWN

cement 28

MARKET AND COMPETITION

31

PEOPLE

32

VOLUME AND PRICING

36

M&A and FINANCE

34

PROJECTS AND EXPANSIONS

42

REGIONAL UPDATE

CCI hands down a US$1.1 billion fine

construction & building materials

38

INFRASTRUCTURE & PROJECTS

40

EQUIPMENT UPDATES

New residential township project in Navi Mumbai New products launched by several manufacturers including Hyundai, Taiyuan and

Increase in cement prices expected Lafarge India welcomes new CEO Strong growth witnessed in all regions at the end of the June quarter Jaypee Group continues to field offers for its cement assets UltraTech and India Cements receive environmental green light to move forward

Pakistan’s cement sector comes under financial pressure

CemWeek rOBERT MADEIRA CemWeek diana heeb bivona CemWeek ANTHONY FITZGERALD BMWeek BMWeek BMWeek

cemweek publisher head of cw group reasearch

iccm manager

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letter from the editor

Much Work Ahead ndia’s recent crippling power outage highlighted the ongoing problems of an infrastructure unable to support not only its growing population, but also an economy that is fighting to maintain its strong growth. The fact that one-third of India’s 1.2 billion people still have no access to electricity is an indicator that much work still lies ahead in developing the country’s infrastructure. The need to more fully develop India’s transportation, energy, water and waste infrastructure is massive, and the recent power outage serves as a wakeup call with regard to how huge of an undertaking this remains. There is no question that much construction lies ahead. That is a good thing not only for the economy as a whole, but for the cement industry specifically. If the government overcomes its current state of inaction and bureaucratic wrangling and re-emphasizes infrastructure development, the benefits would be numerous. Despite recent turbulence facing the cement sector, it is still fundamentally

poised to enjoy those benefits, and some are waiting patiently for that ramp up to occur. In the interim, some are turning their attention to new markets. ICCM highlights this in its profile of the ready mix cement market in, “A Trending Product with Serious Growth Potential.” Industry partners are also looking ahead at how to better serve an evolving market. Many have worked diligently to institute best practices that have allowed them to maintain their competitiveness—not always an easy case for a global provider. The article, “Strength in Presence,” an interview with Per Mejnert Kristensen, EVP of FLSmidth in Denmark illustrates how one company has successfully stayed connected to local markets, building a strong presence that has allowed it to remain competitive in a global market. July marked the end of speculation on the CCI’s ruling regarding cartelization in the market. There is no doubt that the agency’s harshly worded ruling and resulting fines sent a clear message to the industry,

but it also illustrated that much work lies ahead for India’s cement industry--not just in how it operates, but where it is going and how it will continue to evolve. It is a discussion that is likely to be both reflective and innovative, and at the forefront of the GMI Forum’s Cement Business & Investment (CBI) India 2012 event in Mumbai on October 10 and 11, 2012. As always, we welcome your input. If you are interested in contributing to the ICCM magazine with an article, or simply want to share your feedback, contact us at editor@cemweek.com.

Diana Heeb Bivona iccm manager

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numbers IN BRIEF India: Petcoke’s Popularity on the Rise The usage of petcoke as a coal substitute is growing. It is becoming the Indian cement sector’s fuel alternative of choice, but a rise in prices could slow demand. India’s annual coal demand for 2012 to 2017 is projected to be between 63 and 96 million tons. As the demand for fuel rises, the expectation is that petcoke demand will also rise, claiming an even greater share of the market, provided conditions remain favorable. Although petcoke is mostly supplied to the Indian cement sector by domestic operations (e.g., Reliance and Essar), more than ten percent of its consumption is expected to be covered through imports in 2012. Notably, the United States’ export volumes of uncalcined petcoke to India more than doubled in 2011 compared to 2010. And in the first five months of 2012, U.S. exports to India had already reached 84 percent of the entire 2011 volume. This positive trend is expected to continue in the second half of the year, as this is when consumption normally booms. In these conditions, petcoke imports could surpass 1.5 million tons by the end of 2012.

SOLID FUEL PRICES (USD / TON) Petroleum coke, not calcined (US exports to India) 150

Richards Bay 6000 kc NAR fob Steam Coal Spot Price/South Africa Petroleum coke, not calcined (US exports)

105

The price of petcoke imports is also on the rise and could soften a further hike in petcoke imports. Petcoke prices were estimated to have exceeded, once again, the level of coal prices by the end of the first half of 2012. In May 2012, CW Group’s in-house benchmark metric of U.S. uncalcined petcoke supplied to India (all HGIs and all sulphur grades) reached an FOB export price of 94.3 USD/ton, closing the gap with coal prices. In comparison, Richards Bay, one of India’s steam coal suppliers, settled at 94.99 USD/ton in the same month.

60 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12

The recent coal price evolution sustains the expected gap increase between petcoke versus coal in terms of prices, at least in the short run. Richards Bay prices plummeted by around ten percent in the span of only one month, reaching 85.83 USD/ton in June 2012. This may just have been its bottom, as July preliminary price points reveal a certain level of revigoration.

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FLSmidth

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strength in presence An Interview with Per Mejnert Kristensen, EVP

FLSmidith in Chennai

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India will be a very important and strong market for many years to come.”

ICCM: How important is the Indian market to FLSmidth? Kristensen: India has been for many years, and will be in the coming years, one of the top most important markets for FLSmidth. There is no doubt about that. ICCM: How does India fit within the FLSmidth framework? Does FLSmidth follow a different strategy in India? Kristensen: We have a very strong tradition in India. Particularly in the last seven to eight years, we have been extremely focused on building up our capabilities in India, and that serves a dual purpose. One, to be the strongest player in the Indian market, to serve our customers as best as we can, and to be as close to them as we can. Secondly, to grow our engineering and back office center to support our global operations.

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We have built up a huge engineering organization in India, especially in Chennai where we have more than 4,000 engineers doing a fantastic job not only serving the local market, which they have been doing and are doing successfully, but also in being our back office where most of our engineering is now being done. Our office in Chennai is a very strong, very professional set up. It is by far our largest single location, and it goes to show our very strong focus and emphasis on the Indian market. Therefore, I think if you look specifically at the last four or five years, we have definitely been the dominant player in the Indian market. ICCM: What is the outlook for India’s cement sector over the medium to longterm from FLSmidth’s perspective? Kristensen: If we talk about the Indian market as such, we are very much aware

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of the development going on in India. It may be that they have slowed down a bit, but they had been developing strongly in the previous five to ten years. India was the largest builder of cement capacity, excluding China, building up new capacity to the tune of 30 million tons a year. That has slowed down the last couple of years, but when you invest a lot in our industry, what you typically see is that for a period investments will slow down before they pick up again. Furthermore, issues such as lower government spending on infrastructure and higher interest rates, in the short term, will have an immediate impact on investment levels. We have no doubt whatsoever that the Indian market over the medium to longterm will develop very strongly in terms of cement consumption and capacity requirements. If you look at the cement consumption now, India is up to around 200 kg per capita. I’m not suggesting


Formerly the Vice President, Head of Project Division EMEA/ APAC for FLSmidth from 2009 to early 2012, Per Mejnert Kristensen is now the company’s Group Executive Vice President of cement. He has been with FLSmidth since 1992 and holds degrees in Mechanical Engineering and a Bachelor of Commerce degree.

they will reach the consumption levels of China, which has been around 1,000 to 1,500 kg per capita. However, in all respects—like population, population growth, economic growth, urbanization and a need for infrastructure—everything points in the direction that India will be a very important and strong market for many years to come. That is why we also have the largest domestic operation in India, to serve this growing market.

pliers, so we are now competing for the various packages. That may be changing a bit now.

ICCM: From FLSmidth’s perspective, is there something different about doing business in India or unique in terms of how you operate here?

You do have other technical issues to consider. For example, half of India is very dry, so you have to account for that in development, but that is what we also see in other parts of the world. Therefore, I would say it’s more a matter of understanding the local culture and characteristics than it is fundamentals.

Kristensen: I think every market has its own characteristics, including the Indian market. It shares similarities with other markets, but of course there are differences with Indian customers, such as the tendency to split the projects up among several different sup-

There is also the issue of understanding the local culture, the local way of doing business, the special needs of the Indian customers. That is why we have a very strong Indian organization, headed by an Indian, in our cement division so they know exactly what the customer requires.

ICCM: The current focus for FLSmidth in the cement markets in the US and Western Europe appears to be on devel-

oping solutions targeting ongoing environmental concerns, which is an area of concern given upcoming environmental regulations. With regard to India, is this a similar focus that you see? Are manufacturers still focused on building new capacity, or are you seeing a different agenda emerging? Kristensen: The trends in India on environmental conditions are changing. Dust emission norms for new plants are getting closer to world standards. There is also focus on NOx and SOx, and norms on the same are expected to be issued by the Ministry of Environment in six to 12 months. More energy efficient plants in terms of power and fuel consumption is a major requirement for large plants, and FLSmidth is fully capable of meeting these requirements. FLSmidth also offers waste heat recovery and alternative fuel usage, which are an added value that goes over and above client expectations. BMWeek CemWeek CW Group

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The

High Cost

of Doing

Business The vice-chairman of one of India’s leading cement companies speaks out about the impact the country’s rising costs of borrowing are having on the industry. A deteriorating rupee, high interest rates, and the looming threat of a downgrade to junk status by Standard & Poor’s (S&P) has many companies walking a proverbial tightrope. 8

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ecently, N Srinivasan, vicechairman of India Cements, commented on India’s current economic environment. His remarks surprised many, as Srinivasan rarely publically comments on the cement industry or the state of the economy. In his speech, Srinivasan suggested that one reason why growth in the cement industry has slowed is the high cost of money. He contends that many cement companies are thinking twice about expanding because of current borrowing costs, and his analysis is backed up by some rather grim facts. One Thing after Another In the quarter ending in March, India’s growth slowed to 5.3 percent, a nine-year low, from the previous quarter’s 6.1 percent. India’s national bank placed the blame for the slump on weak investment and decelerating industrial output. By June, the rupee deteriorated further (down between 25 and 30 percent against the dollar over the last year), and the S&P was warning the country could lose its investment grade rating. To add insult to injury, around the same time, the Reserve Bank of India (RBI) announced that it would leave key interest rates unchanged because of inflation concerns. This move disappointed many who had hoped for a rate cut to kick-start growth in Asia’s third-largest economy. While the government rejected the S&P’s analysis of the economy and officials downplayed its significance, most agreed that a downgrade to “junk” status could have very serious and negative implications. A downgrade to junk status would translate to an increase in overseas borrowing costs for Indian companies and a decline in foreign investment. The banking sector would also be negatively impacted as government bond prices would decline, affecting the capital base of banks. Moreover, a downgrade could affect the ability of banks to tap into foreign investors for funding. Among the Highest Borrowing costs in India are among the highest in the world. Estimates based on

IMF data indicate that, over the last five years, the average nominal cost of borrowing trended around 12 percent. When looking at emerging market economies, only Indonesia has had a higher cost at 14 percent while China enjoys six percent. Cost of capital does not fare much better in India. The country’s real cost of capital (i.e., adjusted for inflation) over the previous five years sat at an estimated five percent while China’s, in comparison, was only three percent. As experts point out, the cost of raising funds for businesses through instruments such as commercial paper and corporate bonds will probably remain high, at least in the months to follow, as liquidity conditions remain tight and borrowing from banks remains a costly option.

Options for Restructuring Limited Compounding the issue is the weakening rupee, which is hurting the ability of Indian companies to service foreign currency debt. The S&P indicates that “half of the 48 companies in India with foreign currency convertible bonds (FCCBs) maturing this year, could default on their payments.” The amount of FCCBs set to redeem between now and December is close to US$5 billion. To avoid defaulting on payments, companies will be forced to restructure their bonds or find alternate sources of funding. For companies lacking a strong credit profile, the task of doing so will saddle them

with a huge financial burden. Estimates suggest that interest expenses will rise by 25 percent on average for companies that are able to find funding to pay off FCCBs. Driving Capital Costs When looking for the culprit of the country’s high rate of borrowing, some analysts contend that the government is to blame, pointing to a link between government borrowing and government bond yields over the last decade. As the government has borrowed more heavily, government bond yields have climbed, pushing up the cost of borrowing for individuals and businesses alike. Furthermore, it has been suggested that greater government borrowing is likely to drain even more funds from the private credit market. When bundled with the government’s unwillingness to allow corporations to access capital freely

from global capital markets, the hope that borrowing costs will drop any time soon begins to dim. One can only speculate that this gloomy outlook may have sparked Mr. Srinivasan’s decision to break his self-imposed silence with regard to speaking with the media. Regardless of his motives for speaking publically, he may well be voicing the concerns of corporations throughout India. His belief that a “wait and see” approach would possibly include the tabling of plans for expansion, at least in the short-term, by many Indian companies may be an unavoidable consequence of the country’s current financial woes. BMWeek CemWeek CW Group

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case study

flsmidth project

India Cements Chilmakur

By reusing existing equipment from a competitor and inserting FLSmidth technology in parallel, the plant got an innovative solution to its capacity challenge. A successful collaboration cut costs and increased plant capacity by 35 percent. The objective The Chilamkur plant wanted to increase capacity from 3,400 to 4,500 tpd in the most economical manner possible. Originally supplied by a competitor for a capacity of 3,000 tpd, the equipment was later upgraded by the competitor to 3,400 tpd. Now, however, India Cements was eager for a new, more innovative upgrade solution. Defining the project FLSmidth and the plant’s senior management thoroughly discussed the potential bottlenecks and challenges of a new solution. A competitor had recommended replacing the plant’s existing preheater tower with a new

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4,500 tpd capacity tower. FLSmidth, however, suggested a different, less obvious approach that made more financial sense. Teaming up, India Cements and FLSmidth defined the ideal upgrade solution. The solution Rather than replacing the existing preheater with a new, higher capacity tower, FLSmidth recommended installing a balancing tower, thereby utilising the existing preheater as well. The existing tower was de-rated to the capacity of 2,800 tpd, which has reduced pressure drop across the old preheater. A new, high-efficiency preheater tower was installed for the balancing capacity of 1,700 tpd. Since the capacity was

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“It was a pleasure to work with FLSmidth, mainly because they value good customer relations – readily accepting customers’ ideas and converting them into successful projects.” Duraisamy Sivagurunathan, President Manufacturing, India Cements.


less for the balancing tower, its size was smaller and thereby less expensive. The technical solution included the following: ■■ New, 4-stage balancing preheater tower with inline calciner for a production capacity of 1,700 tpd ■■ Modifications to tertiary air duct connection to the new tower ■■ New, additional Tirax Coal Mill exclusively for new calciner firing capacity (15 tph production) ■■ New coal firing system exclusively for the new calciner The already existing booster fan and ESP of flash dryer for coal were used as the preheater fan and de-dusting unit for the new tower. Challenges Gas distribution between the two preheater towers was one of the most significant chal-

lenges. FLSmidth modified the existing tertiary air duct, provided branching between the two towers and keenly monitored the solution during commissioning to ensure success. The coal conveying piping was another major issue, solved by a new fine coal bin in the new preheater tower. The new tower was constructed with a pre-engineered steel structure in a very short time. Results The plant achieved all its guaranteed performance parameters, such as 1,700 tpd production on a consistent basis from the balancing tower and 15 tph for the coal mill. It was a model project in which the customer and FLSmidth worked hand in hand. For example, FLSmidth helped the plant’s civil consultant determine the optimum size and location for the new tower, and FLSmidth gave the plant guidance on its dust handling system for the existing GCT (gas conditioning tower) as well. BMWeek CemWeek BMWeek BMWeek

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“They’re good partners and team players, and they freely discuss things with customers. They are also quite responsive to customers’ problems. We would use them again for future projects, mainly due to the good customer relation and their ability to implement innovative ideas.” Duraisamy Sivagurunathan, President Manufacturing, India Cements. CW Group CW Group CW Group

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focus Highlights from the

2012 India Cement Sector Sentiment Survey

The CW Group is pleased to release the 3rd Annual India Cement Sector Sentiment Survey and share the findings with the cement sector. In three short years, the CW Group has established what has become an industry-standard survey, not only for India but for other regions worldwide. 12

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Survey Overview The cement industry occupies an important place in the Indian economy with its strong linkages to the construction, transportation, coal and power sectors. As a result, the market perception and main priorities for the next period become valuable insights. The current survey’s updated information is comparable with that collected in 2011 and permits the identification of trends in expectations, performance and challenges. Despite a currently more challenging environment for the cement industry, the last six months’ performance was considered satisfactory, as both bottom and top-line growth were mostly achieved. An upward trend in absolute costs had been anticipated, and the increase was partially absorbed by operational efficiency exercises and partially transferred to customers. Due to rising input costs, cost control measures will remain a key theme for next year also. Demographics For both 2011 and 2012 the sample base comprised a mix of Indian industry professionals, aiming to capture a more accurate overview from their experience, perceptions and approaches. Compared to 2011, the pool of respondents has overall remained the same, but 2012 did experience a slight increase in cement company and equipment vendor involvement. The companies that participated in the survey represent a variety of roles within the industry—from sales and marketing, production and engineering, to research, logistics and planning. The functional participation remained quite constant between 2011 and 2012, with the main distinction being a five percent increase in the sales and marketing area. The sample corresponds to the five regions that comprise the Indian cement industry. The northern and western regions each participated at nearly 30 percent, consistent with last year’s survey, followed by the southern region which reached 26 percent

ACTUAL PERFORMANCE

Terrible 42%

36%

Poorly Ok

39%

43%

Well Excellent

2011

2012

EXPECTATIONS FOR THE NEXT YEAR

A lot worse Somewhat worse 35%

32% About the same Somewhat better

33%

43%

2011

2012

survey presence (a 5% increase). The eastern and northeastern regions participated at ten and two percent, respectively. Recent Performance Compared to results in the 2011 second annual CemWeek India Cement Business Sector Sentiment Survey, the number of respondents who considered performance to be “satisfactory” over the last six months dropped from 42 to 36 percent. On the other hand, respondents who evaluated the performance as “at least satisfactory” increased by four percent to 43 percent.

Much better

Based on the new results, 55 percent of respondents considered the industry to have performed “well” or “excellent,” and only ten percent believed it had done “poorly” or “terrible.” The highest performance excellence was expressed by the Eastern region at 27 percent. The recent performance perception does not correlate with the level of expectations. Even if respondents were optimistic about the last six months’ industry performance, those who considered their expectations as “just being met” or “not met” represented

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feature 72 percent. On the other hand, this percentage is eight percent lower than last year’s 80 percent. Furthermore, those who believed their expectations have been exceeded or far exceeded increased from 20 percent to 28 percent.

EXPECTATIONS OF CAREER PROSPECTS

Mixed Optimism Perceptions for the next twelve months are optimistic. Although only 13 percent of those surveyed believe performance will be “much better” in the coming year, compared to 20 percent last year, those who anticipate a “somewhat better” performance increased. Overall, a majority expect an improved performance, followed by 32 percent who believe the current level will remain the same, while 12 percent are preparing for worse results. In terms of expectations by segment, the most optimistic are cement traders, as 73 percent believe in a “somewhat” or “much better” outlook. This view is further supported by industry consultants and cement companies, at 59 and 58 percent optimism, respectively. Being directly influenced by the next period’s slowdown in capital expenditure, optimism among equipment vendors dropped significantly from 87 percent to 45 percent.

At risk 31%

29%

Probably the same Fairly confident

43%

46%

2011

2012

In terms of profitability over the next twelve months, a majority 57 percent believes profitability will register an improvement, and 32 percent expect stagnant levels. This may be the result of the last period’s focus on cost controls and cumulative operational improvements. The remaining 11 percent are preparing to handle a profitability decrease. Investment and Career Prospects Major capital investments are still expected, but in a slightly lower proportion compared to 2011. Those who said their companies’ capital budget will increase in the next twelve months dropped to 57 percent from 63 percent last year. Current investment levels will be maintained by 35 percent of the respondents’ companies, a three percent increase over last year’s survey, and

Highly confident

the remaining eight percent will choose to invest less in the coming year. CHART 13 Next year’s market prospection had an influence on career prospects sentiments as well. Over two-thirds of respondents are fairly and highly confident in their career improvement, the same as last year’s results. Those who expect their career prospects to remain “probably the same” decreased slightly from 31 percent to 29 percent, while those who consider their careers to be “at risk” doubled from two to four percent. The most optimistic survey respondents come from the cement trader segment, followed by cement companies and equipment vendors. At the same time, the highest rate of those considering their careers at risk is nine percent, a view held in both the cement trader and equipment vendor sectors. Those sectors are directly impacted by the slowdown in demand growth and capacity expansions. Key Industry Concerns Compared to 2011 results, the cement industry’s three main themes registered slight decreases of two to eight percent. For 30 percent, “controlling costs” is now considered the industry’s main issue. After dropping eight percent, “improving domestic sales” is now ranked as the second theme at 29 percent. Following operational improvement (10%), capacity expansion proved to be an

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“jam tomorrow” market, always looking into the future for reasonable financial returns. There is substantial appetite for Indian cement assets, but it appears that the sellers’ expectations are out of sync with those of the buyers. When a market is faced with excess capacity and increasing input costs, then there is always the propensity to cut costs. This is a natural reaction of the cement industry, but unlike the macrodriven topics, cost cutting has winners and losers. Some can cut costs better than others and can improve the efficiency of their businesses accordingly.

important issue and a key focus area for the next twelve months. Capacity expansion’s seven percent showing comes mainly from respondents in the northern and western regions. Furthermore, the majority of survey respondents considered it either a top priority or an important focus for the Indian cement industry to meet emerging US and EU emissions standards. In fact, 79 percent of survey respondents revealed their companies’ dispositions to reduce CO2 emissions by trading off profits. The current result is two percent higher than in 2011. Conclusion In summary, the Indian cement industry has passed a demanding year, and the next period will be sprinkled with both challenges and opportunities. The CW Group and CemWeek’s third annual India Cement Sector Business Sentiment Survey offers solid insights about sentiments held among industry participants and professionals, its main sectors and regions. On the whole, the last six months’ industry performance was considered reasonable and met over 70 percent of the sample’s expectations. Although the level of opti-

mism was higher in the second annual survey, the majority of respondents expect to register the same or just somewhat better performance in the next twelve months. The survey respondents have clearly pointed out the next period’s challenges, the dominant ones being excess capacity, energy prices, CO2 emissions and profitability. The less optimistic views of equipment manufacturers may be an indication that they face shorter order books and foresee a decrease in new capacity additions going forward. On the other hand, the excess capacity issue that worries the vast majority of respondents goes straight to the heart of a fragmented market. There have been conflicting views as to whether the Indian market is fragmented or consolidated, with arguments raging from both sides of the debate. However, the excess capacity that has led to low utilisation rates indicates that, given the nature and structure of this market, it is very difficult to deliver an orderly build up of capacity. Whether this will lead to more consolidating moves will depend on the cash positions of the relevant players and their expectations for the future. There is a danger that the Indian cement market may become a

The other interesting outcome of this survey is the industry’s concern regarding CO2 emissions. It is apparent that the Indian authorities take this issue seriously and there are moves afoot to curb and control pollution. As a whole, it is interesting to remark that the above issues are not specific to the Indian cement market. In fact, these same issues are applicable to many other geographical markets (Europe for example). We have noticed that post-crisis there is a convergence of strategic issues in the global cement sector, for there is really no place to hide following the catastrophic collapse of demand in the Western World. In order to support healthy business growth, the Indian cement industry’s three main focus areas will be controlling costs, improving domestic sales and operational improvements. These are mainly driven by the majority’s expectations of the same level or worsening prices for input costs and at least the same results in profitability. BMWeek BMWeek BMWeek

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Please visit CemWeek.com to download the full survey for free or contact inquiries@cwgrp.com to arrange for a more detailed discussion of this survey and its findings.

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JK Lakshmi Expanding Capacity Isn’t Just About MTPA With its leadership development awards, JK Lakshmi is expanding its capabilities along with its capacity

apacity development and efficient use of existing capacity are front-line challenges for most Indian firms, but JK Lakshmi Cement (JKLC) seems to have found its balance. After a tough year in the FY2010 - 2011 cycle, the firm has bounced back strongly. FY2011 - 2012 saw the firm reporting 100 percent capacity utilization and 26.3 percent year-over-year top line growth in the fourth quarter alone. Now, the company is poised to complete a series of projects by the end of 2014 that would dramatically expand its footprint, capacity and presence in the Indian markets. A part of this strong performance may be attributed to JK Lakshmi’s capacity development work with its staff. In July, a joint study by Great Places to Work Institute India and The Economic Times recognized the firm as one of the country’s outstanding employers among firms with more than a thousand employees. Survey participants also gave the company second place honors in the “Leadership Development” category out of more than 600 firms included in the study. Moving Forward Strong internal leadership will allow the company to move forward with its expansion and development plans at the plant level. Now in its 30th year of operation, JKLC operates a large cement plant at Jay-

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kaypuram in Rajasthan, with grinding units near Ahmedabad and Jarli, which provides 4.29 mtpa. The company operates a network of 2,200 dealers and 70 strategically located cement dumps in the North and Western states of India. However, by the end of 2014, the company plans to significantly increase its installed capacity, ready-mix plant numbers, and market presence in the region’s key markets. Rather than doing this with one large new site, the expansion is taking place through a series of capacity additions and smaller

site openings planned in rapid succession through 2014. An early milestone was the successful June opening of a ready-mix concrete plant in Kota. The plant, which was built as a Schwing Stetter CP-30 RMC plant, is wholly computerized and capable of producing 30 cubic meters of concrete per hour. The Kota location represents the third Rajasthan area site for JKLC readymade cement products, and the company has tentative plans to add ten more JK Lakshmi RMC plants to its operational network over the next three years. This will help the firm build its footprint and cap-

TOTAL OPERATING INCOME (Crore Millions) 2,500

1,250

0 FY2009

CW Group Coal Week CemWeek BMWeek INDIA CEMENT & CONSTRUCTION MATERIALS MAGAZINE CemWeek CW Group Coal Week BMWeek CemWeek BMWeek CW Group Coal Week

FY2010

FY2011

FY2012

FY2013 E

FY2014 E


It is currently operated under BIFR with a 1.4 mtpa capacity. Through investments and system upgrades, JKCL plans to fully integrate the site into its own management and distribution structure throughout 2013 and the first part of 2014. By no means finished, the firm will simultaneously spend 1,200 crores to set up a Greenfield cement plant in Durg, Chhattisgarh. The equipment has been ordered and the plant is expected to come on stream by October of 2013, adding 2.7 mtpa to the firm’s overall capacity. Rapid Integration By April of 2014, JKCL plans to have 8 mpta online from capacity augmentations, reviving Udaipur and the new Durg facility. It is a fast expansion and one that will test the firm’s abilities to quickly integrate new operational features and abilities to market conditions. However, environmental and cost control planning has the firm well positioned for growth throughout the expansions, particularly when considering forward energy costs.

italize on the trending preference of construction site managers for RMC products. Furthering this incremental expansion, JKCL has augmented the kiln capacity in its Rajasthan plant. The move brought an additional 330,000 tons of production online for 2012, easing demand pressure on the company given its 100 percent capacity utilization rate for FY2011 - 2012 in a region where the average utilization rate

is just 77 percent. This expansion is being supported by the addition of split grinding units in Orissa and Jharkhand throughout the spring and summer of 2012, with both sites expected to be fully online by the Fall of 2012. As the Rajasthan plant winds down its expanded kiln project and integrates with the new split grinding units, the JKCL Udaipur site is in the early stages of revival.

Over the last year, JKCL has increased its use of biomass as fuel, reclaimed more power through waste heat recovery, and improved its overall energy efficiency. On a per ton basis, its power and fuel costs are down 14.5 percent year-over-year. All told, the company has access to 87 MW of inexpensive captive power capacity, more than enough to support its current capacity. Add increased biomass use to the bank of captive energy, and the firm can shield itself quite well from market fluctuations in energy costs for the near future. By managing these core costs, investing in internal leadership development and expanding its overall capabilities through RMC sites, JKCL is proving that bottom line growth isn’t strictly bound to mtpa metrics. Instead, the firm is building a more well-rounded profile to ensure healthy double-digit growth in its profitability going forward. BMWeek CemWeek CW Group

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CBI India 2012 Can you afford not to attend?

With just over two months to go to the inaugural Cement Business & Industry India 2012 (CBI India 2012) Conference, GMI reports that there have been exciting developments in the content-rich and knowledge-oriented forum for India’s technical and business cement professionals. As one of the conference’s main sponsors, the India Cement & Construction Materials (ICCM) journal is excited about this prestigious global event.

T

he conference, to be held at the Leela Hotel in Mumbai on October 10 - 11, 2012, features a rarely seen roster of international and domestic thought-leaders as speakers. These highly-esteemed professionals will cover topics in a dual-track format, allowing attendees to choose between technical and business sessions running concurrently. Session topics include innovation, regional and Indian competition, operational efficiency, the cement plant of tomorrow, traditional and alternative fuels, finance and strategy, just to name a few. On the technical side, events will showcase industryleading speakers such as FLSmidth, SKF, Loesche, Grace, Cachapuz and Browz. On the business side, speakers from the United States, UK, Turkey, Saudi Arabia, Egypt, Oman, France, Singapore, Hong Kong and many other locations will join in to share the latest thinking and research. CBI India 2012 will also include a gathering of a number of top C-level leaders. The CW Advisors, a member of the CW Group, and Mr. Jean-Michel Allard, retired deputy CEO and board member at France-based Vicat Group, in which Sagar and Bharathi Cement form an integral part, will host the unique CEO Executive Forum. A pre-conference workshop, “Facing the Challenge of Shifting Markets,” will be held on October 9, 2012 at the Leela Mumbai Hotel. The workshop will be delivered by the CW Group Senior Advisors and will address timely and important issues facing the cement sector as it looks at the rim of the Indian Ocean and beyond. As of press time, limited seating was still available.

ENDORSEMENTS

cbi The Leela Hotel in Mumbai where CBI will be held on Oct 10-11,2012

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speaker highlights

Highlight of select speakers

Patrick Peneert graduated as a civil engineer in 1976. He then spent three years as a civil servant at the M.A.M.R. Muthiah, Managing French Ministry of Industry. Following that, Mr. Peneert set up and managed a consultancy agency on energy Director & President of the CMA savings. In the mid 1980s, he spent six years with Charbonnages de France Energie to redevelop coal conIndia, Chettinad Cement (India) sumption in France before joining SSM COAL in 1989 as a senior trader and area manager for steam coal, • Alok Sanghi, Director, Sanghi coking coal, petcoke and anthracite. Since May 2009, Mr. Peneert has been the Vice President of Purchasing Industries (India) • Alok Agarwal, at Lafarge (Paris headquarters), in charge of sourcing Lafarge’s solid fuel need. Senior ED of Marketing & Strategy, Binani (India) • Deepak Ahuja, Manager, Ayman Ismail is the Head of Trading at ASEC Cement, the international trading arm for ASEC Cement Alternative Fuels & Raw Materials, ACC Group. Mr. Ismail holds a Mechanical Power Engineering degree from Alexandria University (1994) and a (India) • Vijaykumar Kulkarni, Managing diploma in Management and International Business. After extensive experience in the engineering and Committee & Principal Consultant, project management field, he shifted to the cement and trading business in 2002. Previously, he has RMCMA (India) • Amit Dalmia, Executive worked with Orascom Cement as head of contracts and supply for the Middle East and Africa and BU Director, Blackstone India (India) • Michel manager, and with Lafarge as Head of Contracts and Operation. Folliet, Chief Industry Specialist, IFC (USA) • Stuart Evans, Chairman, Novacem (UK) • Deepak Ahuja is the Manager of Alternative Fuels and Raw Material at ACC and the Chief Manager Ayman Ismail, Head, ASEC Trading (Egypt) - Process Engineer at ACC. Mr. Ahuja provides support to ACC’s cement plant in order to mitigate the • Farouk Miah, VP Head of Equity Research, effect of waste utilization in cement manufacturing. He prepared the business plan based on the waste NCB Capital (Saudi Arabia) • Patrick Peneert, market and cement plant capability and minimized the gap between the supply chain team and the Vice President - World Solid Fuels Sourcing, cement plant. He has conducted more than 25 successful co-processing trials on cement kilns to Lafarge (France) • Tahir Askin Soyer, Chief demonstrate that there is no impact on process, production, emission and quality if the waste stream Coal Trader, Capex Industries (Turkey) • Fabian is fed in regulated dosage. R. Munz, Head of Fuel Trading Asia-Pacific & Africa, HeidelbergCement Trading (Singapore) Robert Madeira holds an MBA from the Harvard Business School and a triple-major from Brown • Abdul Hadhi, Coal and Petcoke Editor, Argus University. Mr. Madeira is the founder, Managing Partner and Head of Research for the global CW Media (Singapore) • Mark Bryant, Business Group, the leading global cement sector advisory and analytics firm of which CW Advisors is a corner- Development, Browz (USA) • Mangleshwar stone along with CW Research and the ubiquitous CemWeek cement industry portal. He has extensive Verma, Sr. Manager, Oman Cement (Oman) • functional experience in management consulting, corporate development/M&A and investment man- Jean-Michel Allard, ex-Deputy CEO and board agement. Mr. Madeira works with heavy building material companies worldwide—notably in the cement member, Vicat (France) • Robert Madeira, manufacturing space, equipment vendors, sector investors and principals—as an advisor, providing critiManaging Director & Head of Research, CW cal insights and decision support. Group (USA) • Terry Pavlopoulos, Partner, CW Advisors (UK) • Claudia Stefanoiou, Michel Folliet is the Chief Industry Specialist at the International Finance Corporation, the private Senior Analyst, CW Group (Romania) • sector arm of the World Bank, Washington, USA. Mr. Folliet was born in France where he graduated in And for the technology track, CBI India mechanical engineering from l’École Centrale de Lyon. He also holds an MBA from George Washington will count on speakers from FLSmidth, University in the United States. He joined IFC in 2006 after 25 years of experience in the cement industry, SKF, Loesche, Grace, Cachapuz, having worked for Ciments Français and Lafarge in France, the USA, Venezuela, Bangladesh, Malaysia and KHD, Browz, AMCL and Crescent, Cameroon. After starting his career in process engineering, automation, and plant operations, he held the among many others. positions of Technical and Industrial Director, Project Director, VP of International Development and Country General Manager.

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Mark Bryant is Director of International Business Development at BROWZ, a global compliance and risk mitigation software solution and service povider. Mr. Bryant manages international business development from the London office. Previously, he handled development in the United States before being promoted to his current role. Prior to joining BROWZ, Mr. Bryant worked in commercial real estate redevelopment, finance and investments. He earned his Master Degree in Business Administration from Pepperdine University in Los Angeles. Alok Agarwal is currently working with Binani Industries, India as the Senior Executive Director responsible for Marketing, Corporate Strategy and M&A function. He has in the past worked with cement majors like Lafarge as an Executive Committee Member in India and with Holcim as Director in Indonesia. Mr. Agarwal has over 34 years of experience in a variety of industries serving in multi-functional roles. He is a qualified Chartered Accountant and a Management Graduate (MBA) from the University of Delhi and has attended advanced management programs at Harvard, LBS, Wharton and NUS. Stuart Evans is a seasoned chairman, nonexecutive director and entrepreneur in Cleantech and ICT. He brings experience of VC-backed start-ups as well as public firms on LSE, AIM and NASDAQ. Mr. Evans was the founding CEO of Plastic Logic (a spin-out from Cambridge that has now raised over US$500 million to develop electronic readers) and Cotag International (early RFID start-up that is now part of Siemens). His early career was spent at IBM and McKinsey, and he obtained an MBA from the Harvard Business School and MA from Cambridge. Mr. Evans is a Chartered Director and Member of the Institute of Directors. He has been twice named a Technology Pioneer by the World Economic Forum in Davos.

cbi 20 JULY/AUGUST 2012

Abdul Hadhi is Argus Media’s Coal and Petcoke Editor for the Asia-Pacific. Mr. Hadhi tracks the regional thermal, coking coal and petroleum coke markets. He monitors market developments and keeps close contact with industry participants. Mr. Hadhi has spent more than 20 years covering the energy, financial and property markets for major international newswires and newspapers. Before joining Argus, he managed petrochemicals news coverage.

For more information or to register for the workshop and the main conference contact Andre M. Cholewinski (ac@ gmiforum.com) at +1-203-516-7424. Alternatively, you may also contact the India team through Sushanth Swaroop (ss@gmiforum.com) or Sharon Neetal (CBIIndia2012@gmiforum.com) at +91 40 6598 7803 or +91-98850 35455. www.gmiforum.com.

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focus benefit obtained by the investors from the state of Andhra Pradesh.” Since the initial investigation was opened, the case has burgeoned, with the CBI net reeling in three cement industry players including N Srinivasan, managing director of India Cements. In June, the CBI questioned Srinivasan extensively about the quid pro quo investments India Cements made into Jagan companies.

Jagan Case Net Widens to Industry

India Cements reportedly invested Rs 135 crore in the Jagan companies (Bharati Cements and Jagati Publications) in return for additional water allocation for its units in Andhra Pradesh doled out by the government of YS Rajasekhara Reddy, Jagan’s father. The CBI alleges that Reddy’s government issued two orders which provided two of India Cements’ plants in the region with additional water from the Krishna and Kagna rivers. According to the CBI, the additional allocation allowed India Cements to double its production in the state. Srinivasan is not the only industry executive the CBI is interested in interviewing. According to news reports, the agency also wants to talk to the managing directors of Penna Cements and Dalmia Cements and issued summons to both in June to appear before them.

The MDs at three Indian cement companies are summoned to testify in the CBI’s investigation of Jagan Reddy. Accusations abound Both companies also face allegations of that cement executives invested in Jagan companies in exchange investing in Jagan companies in exchange for water and mineral rights in the state of Andhra Pradesh. for limestone mine allocation rights. P In August 2011, the high court directed the Central Bureau of Investigation (CBI) to probe YS Jagan Mohan Reddy after receiving a petition from P Shankar Rao, congress member of the legislative assembly from Secunderabad Cantonment and Yerran Naidu. Seven days later, the CBI’s Anti-Corruption Branch in Hyderbad registered a case under the Prevention of Corruption Act 1988 against Reddy and 73 others. The charges include criminal con-

spiracy, cheating, criminal breach of trust and falsification of accounts. Since then, the charge sheets have been modified and expanded three times, with charges against individuals and companies mounting. To summarize the case, the CBI alleges that Jagan Reddy was involved in offenses which involved a “huge magnitude of government largesse and corporate dealings as part of quid pro quo arrangement, for the

Pratap Reddy, Managing Director of Penna Cements and a close confident of the now deceased Rajasekhara Reddy, allegedly invested RS 45 crore in Jagan companies under the Pioneer Infrastructure Holding umbrella, and Dalmia Cements reportedly invested Rs 95 crore in Jagan businesses for mining leases in the Kadapa district. As of the ICCM publication deadline, Penna and Dalmia had yet to appear before the CBI to answer questions related to the case. BMWeek CemWeek CW Group Coal Week BMWeek BMWeek

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focus

Record Fine Handed Down The three-year old watchdog agency, Competition Commission of India, handed down a US$1.1 billion price-fixing fine against eleven major cement manufacturers, rocking the industry. While most manufacturers plan to appeal the fine and are digging in for a protracted litigation process, industry watchers begin to speculate as to the mid- to long-term effects on the sector.

n June 21, Ashok Chalwa made his first major ruling as head of the Competition Commission of India (CCI)—a ruling that, while expected for several months, still sent shock waves through the Indian cement sector as the CCI leveled roughly a US$1.1 billion price-fixing fine against eleven major cement firms for colluding to underuse plant capacities in order to create an artificial cement shortage. MAJOR FIRMS FINED Among those firms involved are UltraTech Cement, part of the Aditya Birla Group, Holcim-controlled ACC and Ambuja Cement, India Cements, Lafarge India, JK Cements, Madras Cement, Century Cements and Jaypee Cements. The large fine totals approximately 50 percent of all firms’ net profits for the fiscal years ending in March 2010 and March 2011. Individually, Jaiprakash Associates and Century were hit the hardest, with a penalty demand of Rs 1,324 crore and Rs 274 crore, respectively. The Cement Manufacturers’ Association (CMA), the country’s industry body, was also fined in the ruling. Industry watchers following the ruling speculated that the heavier than expect-

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JULY/AUGUST 2012

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ed fine reflected an increasingly critical approach by the three-year-old regulating agency. The agency apparently is sending a message that it is not afraid to tackle corruption even in high-profile industries. EXECS DENY CHARGES, APPEAL Executives at the companies involved have denied price fixing. In statements to the press, UltraTech head O.P. Puranmal-

PENALTY ASSESSED

PENALTY

(Crore)

CMA

0.73

JK Cement

128.54

Binani Cement

167.32

India Cements

187.48

Madras Cements

258.63

Century Textiles

274.02

Lafarge India

480.01

ACC

1147.59

Ambuja Cements

1163.91

UltraTech Cement

1175.49

Jaiprakash Assoc.

1323.6

Total

6307.32

ka reaffirmed, “We have not indulged in any cartelization.” N Srinivasa, managing director of India Cements, issued a similar denial to Reuters stating, “We deny the charges of cartelization, there is no question about it.” The companies were ordered to pay the fine within ninety days; however, several firms have announced that they will appeal the CCI’s decision, and the litigation process is expected to be protracted. Furthermore, the CCI indicated that it would continue to monitor the industry’s activities in the future and if any additional violation of the ‘cease and desist’ order were found, additional penalties may be assessed. CONCERNS MOVING FORWARD The penalties assessed were based on an examination of the companies’ conduct over the 2009 to 2011 period and does not look at the timeframe after March 2011. This has raised some concerns that further probes and penalties for anti-competitive behavior in fiscal year 2012 could occur. Speculation by analysts regarding how that may affect the industry’s pricing power in

the near term remains high. IDFC analysts Salil Desai and Shirish Rane encapsulated the ruling’s impact to clients: “As a longer-term impact on pricing power—considering the quantum of penalty, we believe the top cement companies are likely to be cautious in following the extremely strong production and pricing discipline exhibited by them in the last 15 to 18 months. Moreover, the threat of a penalty in future might also dissuade the smaller companies from sacrificing volumes for pricing growth.” In related news, the Builders’ Association of India (BAI) is asking the CCI to review the quantum of penalty assessed on cement manufacturers. The BAI argues that the construction industry is a major driver of the country’s economy and that the unfair practices of cement companies adversely impacted not only the industry, but also the economy. The group is requesting that the CCI, “review the quantum of penalty and also conduct an enquiry into the losses incurred by contractors due to such profiteering by cement manufacturers and consider reimbursing the losses to the contractors.” BMWeek

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FEATURE India Ready Mix Cement:

A Trending Product With Serious Growth Potential The early enthusiasm for ready mix has evolved into constant and rising demand n accidental meeting is credited with bringing Ready Mix Cement (RMC) to India in the 1990s. Despite being a 100-year-old product in other regions of the world, there were no RMC plants in India until Manohar Kelka met a representative of Putzmeister at the Bauma Exhibition. Within a year, Kelka had visited the Putzmeister RMC facilities in Germany and struck a deal with Miller Mixer to set up the first known RMC site in India. Since then, RMC’s growth has been small but steady. Early adopters have praised the product for offering more options in customization, higher on-site quality, and lower resource usage than traditionally mixed cement. While their initial enthusiasm for RMC has been a major factor in the number of RMC production sites being opened around the country, RMC still represents a

24 JULY/AUGUST 2012

fraction of the overall Indian market. Analysts peg its share at between four and eight percent of overall production, depending on the region of the country. Despite this small foothold, the potential for RMC growth is undeniable. Looking at other major cement markets, RMC is clearly just getting started in India. China uses nearly 50 percent RMC, and the U.S. is nearing 75 percent RMC penetration (other cement uptake is made up for by precast, retail bag sales, etc.). Making a similar production shift in India is thus a matter of matching supply to demand, overcoming market barriers, and perfecting the distribution process. Matching RMC supply to demand RMC is most commonly demanded in urban environments and for government projects such as dams, airport expansions

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and roadways. With the overall infrastructure sector accounting for nearly 35 percent of total cement demand, the question of RMC’s success becomes a matter of appropriately matching the supply to the demand. There is an understandable reluctance to outpace demand among RMC suppliers. Coming off the recent hard years when overall spending on cement dropped and resource prices rose, bottom line numbers are a concern. Producers also want to be sure that their new production capabilities can be tailored to more than one market channel. The counterbalance to hesitance is analysts’ predictions that demand for RMC could rise as much as 25 percent annually in the mid-term. In that case, firms who miss the opportunity also miss out


The potential for RMC growth is undeniable.”

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FEATURE on significant growth and profits. The challenge becomes finding the balance. The major RMC producers—Lafarge, Holcim, UltraTech, Prism, JK Lakshmi, and Grasim Industries—are all looking for smart ways to come out ahead. A typical approach is the development of a dedicated RMC production site near both major projects and existing corporate infrastructure. JK Lakshmi is doing this in Rajasthan, where the bulk of its traditional mixing and grinding facilities are located. The firm has opened three dedicated RMC sites, with plans to add ten more around the region’s second and third tier cities. These are perceived as markets with an attractive blend of government and commercial demand for cement and a not-yetfully-mature market for development projects. Thus, it is hoped that these types of expansions will help the firm expand its footprint and sales channels without generating unacceptable levels of risk. Overcoming market barriers Of course, it’s not just locational challenges; there is also the relative newness of RMC compared to traditionally mixed cement products. “Ready mix as a category itself is still new to many people,” says Cristobal Lopez, Vice President of Marketing, Lafarge Concrete. In 2010, the company launched a major television campaign to educate the public about the potential of RMC and pitch it as the product for more “modern” construction, hoping to gain market share and remove some of the newness from RMC as a product. Certification and activism by the industry is also helping. The National Ready Mix Concrete Association (NRMCA) has certified more than 250 small-scale and large-scale RMC sites. The Ready Mixed Concrete Manufacturers Association (RMCMA) is a non-profit group encouraging sustainable development and the expansion of RMC in India as the building material of choice. NRMCA backs this with its Green-Star awards for environmental excellence in production.

26 JULY/AUGUST 2012

Winning over the public with education and environmental issues is a key factor in maximizing the positive perception and subsequent sales of RMC. While public works can drive the market for a time, the high RMC usage rates in other highly developed nations are driven by smallscale residential, industrial, and commercial acceptance and preference for the product. A similar shift in preferences in India can be created as consumers learn more about the benefits of RMC, but until that education process is completed, onsite mixing remains the dominant and default planning option for site managers. Ready-Mix Concrete Uptake

COUNTRY

Est. % of cement use

US

75

CHINA

50

INDIA

6

Perfecting the distribution process Improving distribution systems will help education efforts. As public awareness increases, site managers will want their RMC delivered with no potential for holding up the job. The advantages of RMC— batch consistency, cost and quality—can be counteracted by difficulty in maintaining a sufficient cement supply throughout

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the project. As a result, some of the cement distribution sites common elsewhere are becoming fixtures in India as well. The most visible example is the cement mixing truck. Unnecessary in on-site mixing, such trucks can reduce mix volumes for transport, lower manual labor costs, and prevent hardening before the cement is in place. Coupled with computer controlled batching sites, cement mixing trucks can provide a stream of on-demand customized cement to almost any site, though transport times in congested areas need to be accounted for in planning. As distribution is improved and more automation is included, firms will be able to capitalize on the investments they’ve made in the last five to six years opening RMC stations. While not necessarily losing money, the sites have been seen as “investments” rather than “profit centers” as markets slowly rebounded from the 2008-2009 downturn. With the swing now moving the other way, RMC’s major players are poised to lock in the full 25 percent annual growth analysts predict for RMC in the years ahead and enjoy first move advantages when India follows the road of other nations toward a 50 percent or more market share for RMC. BMWeek CemWeek CW Group BMWeek BMWeek

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cement market & competition

M

arket and competition

he delayed monsoon season benefits cement sales as construction continues, but with capacity additions and regional oversupply, many cement makers are expected to raise their prices to protect profit margins. In other news, the Cement Manufacturers Association confirms several cement companies have stopped supplying sales data to the organization, suggesting possible fallout from the CCI’s recent investigation.

Sales Boosted The delayed monsoon season is lending to continued construction activities, boosting prospects for cement makers. This is also leading to expectations of better performance in the April to June quarter, stoking positive sentiments for the cement sector. In the first two months of the quarter, the industry’s sales posted robust growth of 9.6 percent, and analysts suggested June would see the momentum continue, as the monsoon delay helped construction go on. Holcim-owned Ambuja Cements reported a 7.3 percent rise in its June sales. However, ACC posted only a 2.6 percent rise in sales for the month. Despite some volatility during the quarter, the average all-India price for a 50 kg bag was around Rs 300. Protecting Margins India cement makers are cutting production and raising prices slightly in a bid to protect margins and keep firms profitable. Capacity utilization might drop by 1,100 basis points to 75 percent, largely due to capacity additions over the year-ago level,

28 JULY/AUGUST 2012

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Vying for Deal India firms like Tata Consultancy Services (TCS), Wipro and Infosys are reportedly jockeying for a Cemex outsourcing contract that could be worth billions of dollars.

CEMENT: MARKET AND COMPETITION

focus

The seven-year outsourcing deal is in its last stage of bidding and covers both IT and business process outsourcing. Sources said the deal might also involve the sale of Neoris, a subsidiary of Cemex that provides IT services and consulting.

cuts in production due to regional oversupplies, and the impact of the monsoon season on cement dispatch. Analysts expect the sector to report an 18 percent growth in sales and a significantly high growth of 20 percent in profit. The operating margins are expected to be under pressure, down 25 to 50 bps, mostly due to an increase in freight costs. Strong sales profit growth is projected for Madras Cement, Mangalam Cement, Shree Cement, JK Cement and JK Lakshmi Cement. ACC and UltraTech Cement might also do well, while Ambuja Cements might witness healthy profit growth. Birla Corporation and India Cements are likely to report weak performance. No More Sales Data Indian cement makers have reportedly stopped supplying sales data to the Cement Manufacturers Association (CMA). Analysts suggest the Competition Commission of India (CCI) ordering a hefty penalty of Rs 6,300 crore last month may have precipitated the move. According to media reports, Aditya Birla Group’s UltraTech, Jaiprakash Associates, Shree Cements, India Cements, and Madras Cements have not yet provided

their production and dispatches numbers for June. Normally, by the tenth of every month, the CMA publishes the sector’s monthly numbers on its website, but this time it has not. Coal Prices Decline Global thermal coal prices have declined 13 percent this year to date, which could benefit margins for India-based cement makers. According to a report from Money Control, “Cement companies that depend on imported coal should benefit, although benefit would come in phases and sizably from 2QFY13. If these coal prices sustain, we expect EPS upgrade of 18 to 25 percent for India Cements and Shree Cement and two to ten percent for the rest of our cement coverage over FY13/14.” Power Supply Threatened Coal India announced it would cut supplies to four of UltraTech Cement’s captive power plants located in Rajasthan, Chhattisgarh and Madhya Pradesh if it finds that the plants are not in compliance with earlier covenants. Coal India wrote to 16 captive power plants on July 9 threatening to snap long-term linkages. Apart from the UltraTech units, the rest are mostly small steel makers. Coal India says the four UltraTech units were picked because the captive plants were found to be incomplete.

“As part of our transformation process, we are constantly seeking to drive more innovation, to make our company more competitive, flexible and efficient. Recently, we have been exploring the possibility of outsourcing some backoffice support services. We haven’t made any decisions yet, nor signed a contract with any company. We will continue exploring alternatives and will share any developments that warrant sharing,” Jorge L Pérez, spokesperson for Cemex said.

Raids on Fake Facilities Officials conducted raids in Mehrbhaan on facilities allegedly manufacturing fake cement. Police raided and sealed a plant manufacturing cement in Gonsgarh village. “We had a tip-off that this factory was manufacturing fake cement and packing it in bags that bore stickers of well-known cement manufacturing units like ACC. We raided the unit and found a truck loaded with such bags ready to leave the unit. Apart from this we also found a large number of empty bags that has stickers of these well known companies,” Inderjeet Singh SHO said. The owners and operators of the facility escaped the raid. The police have booked the owner of the unit, Sohan Singh, and the manager of the unit, Vinod Kumar, for cheating and infringing copyright laws. The police have sent samples of cement being manufactured at this unit for testing.

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CEMENT: MARKET AND COMPETITION Move toward Captive Power Rising power costs and uncertainty over supply has India based cement companies investing in captive power plants. The cement industry now has nearly 4,000 MW of installed captive power capacity, including coal-based plants, diesel generating sets and wind turbines. Electricity costs account for nearly a third of the variable cost of producing cement, according to Mr. A.V. Dharmakrishnan, Chief Executive Officer, Madras Cements. By putting up captive power plants, cement companies hope to control this cost as much as possible. Some companies, such as Madras Cements, have put up captive power plants to take care of all their electricity requirements. Others, like ACC, use captive power to meet just some of their requirements. It is suggested that as the cement companies expand their manufacturing capacity, they will simultaneously invest in captive power plants, sourcing coal even through imports. 30 JULY/AUGUST 2012

Expansion Halted Kesoram Industries has once again delayed expansion plans, saying the market remained unfavorable. The company suggests it will focus on turning around current operations, even as it continues to see losses. According to one report, the company stalled expansion of its cement division a year ago in view of unfavorable market conditions, delaying a proposed Rs 1,200 crore investment into a 2.5 million ton plant in Karnataka. Kesoram produces 7.5 million tons of cement a year at its plants that are running at a capacity comparable with current industry standards, according to management. Anti-Dumping Duties Extended India has extended an existing anti-dumping duty on white cement from Iran until April 11, 2013. This one-year extension follows the anti-dumping directorate’s recent move to initiate sunset review investigations on white cement imports from the UAE and Iran.

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JK White Cement Works and Birla White filed the petition seeking sunset review. Combined, the companies provide about 99.10 percent of the total white cement production in the country. Plants Shuttered Four plants in Chhattisgarh have reportedly been shut down for alleged air pollution violations. According to the Chhattisgarh Environment Conservation Board (CECB), two UltraTech plants and one Ambuja Cement and Lafarge plant have been closed. The four units, all in the Baloda Bazar district, have a total capacity of ten million tons a year and employ about 5,700, including contract workers. Dr. SK Upadhyay of the CECB regional office in Raipur indicated UltraTech closed its units in Hirmi and Rawan on July 6, while Ambuja and Lafarge shut their units on July 1. Closure notices to the unit management were issued on July 3 except for Ambuja, which closed on its own.


CEMENT: PEOPLE

P

eople

afarge India welcomes a new CEO, and PR Ramasubrahmaneya Rajha, one of the industry’s highest paid MDs, sees his total remuneration package double in 2011-2012. Meanwhile, Indian workers at a plant in Angola are to receive back pay, and those wanting to return home will receive reparations.

Salary Doubles Madras Cements Chairman and MD, PR Ramasubrahmaneya Rajha, one of the highest paid owner-managing directors in India, has seen his total remuneration nearly double in 2011-12 compared to the previous year. According to the latest annual report, the company paid Rajha a remuneration of over Rs 29 crore in 2012, compared to Rs 15.6 crore in 2011. Lafarge India Gets New CEO Lafarge India has installed a new CEO, Martin Kriegner, as part of its reorganization efforts. “I am happy to return to India as Country CEO, at a time when the construction sector is evolving quickly in the country. By combining all of our activities together, we will be able to support this evolution by offering integrated and innovative solutions at an earlier stage of construction in close proximity with our customers, allowing the full benefits of our innovative products and services to be realized,” Martin Kriegner said. Kriegner joined Lafarge in 1990 and became the CEO of Lafarge Perlmooser,

Austria in 1998 before he moved to India as Head of Cement activity in 2002. Prior to this assignment, he served as Regional President, based in Kuala Lumpur. Lafarge has four cement plants in India: two plants in the state of Chhattisgarh and a grinding plant each in Jharkhand and West Bengal. Workers Paid Most of the Indian workers employed at a cement plant in Sumbe in Angola have been paid part of their pending dues, and arrangements will be made for repatriation of those who want to return to India. The redress of grievances of around 1,100 Indian workers by Angolan authorities came a day after External Affairs Minister S M Krishna spoke to his Angolan counterpart Georges Chickoty, asking him to address the issue. According to a media report, a penalty imposed on 22 workers in custody was paid following Krishna’s discussions with Chickoty and subsequent discussions that the cement company management had with Angolan authorities.

focus Terry Pavlopoulos Joins CW Advisors CW Advisors welcomed Terry Pavlopoulos as a new partner in London, UK to deepen service capabilities and expand global reach. “It is with great pleasure that we announce Terry joining the firm. He brings a unique, complementary consulting and advisory skill set and is one of the global cement industry’s thought leaders,” said Robert Madeira, Managing Director and Head of Research at CW Advisors parent company, the CW Group. Terry Pavlopoulos said, “The CW Group has established itself as the global cement industry’s leading go-to source not only for the widest and deepest analytical platform, but for its stellar roster of consulting clients around the world.” He added, “I will bring additional focus to delivering management consulting and transaction related services to our clients as well as helping the CW Group management develop the franchise further to be able to support our clients better across the continents. It is a first rate team that and I am excited to join.”

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cement volume and pricing

V

olume and pricing

n average, cement demand was expected to hit 58 million tons at the end of the June quarter, thanks largely to strong growth in all regions. Cement prices were cut in June in anticipation of a slowdown in construction resulting from the approaching monsoon season, but some analysts project a rise in prices moving into FY2013.

Demand to Grow Cement demand nationally is expected to hit 58 million tons at the end of the June quarter, up ten percent year-on-year. According to one prominent research firm, this is primarily on the back of a small base of one percent growth last year and strong

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demand momentum in the western and eastern regions. Buoyancy in the housing, industrial and infrastructure sectors were driving western regional consumption, which was projected to grow 12 percent YoY for the quar-

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ter. Consumption in the eastern region was expected to grow by ten percent on stronger demand, particularly from West Bengal and Bihar. In the northern region, consumption grew by 11 percent in the quarter with strong demand noted in Punjab and Rajasthan.


Price Cut India cement firms cut cement prices in June even as prices in other locations had already dipped in May. According to one report, prices had declined by Rs 5 to 12 per 50 kg bag in the north, west and east. Firms were looking to reduce prices by around Rs 8 to 10 per 50 kg bag in anticipation of a slowdown in construction activities with the expected arrival of the monsoon. The price cuts in a scenario of excess supply could affect the profitability of cement companies in the short-term. In June, a 50 kg bag of cement cost between Rs 260 to 300 across the country.

Prices to Rise in FY13 The Centre for Monitoring Indian Economy (CMIE) projects that Indian cement prices will rise 5.9 percent in FY2013 as demand picks up. “With costs expected to continue to rise, cement prices are likely to increase in tandem and remain on the higher side. We believe prices are expected to rise by 5.9 per cent during FY13,” the CMIE said in its monthly review. According to its report, the average cement prise was Rs 259 per 50 kg bag in FY11. The price then started moving up, from Rs 283 per bag in April 2011 to 312 in March 2012 and Rs 323 in April 2012. Cement demand remained muted during the April to October 2011 period. However, demand picked up in the second half of the year and led to a ten to 11 percent increase in dispatches. FY2012 also saw recovery in cement prices, CMIE said.

CEMENT: volume and pricing

Southern regional demand witnessed a ten percent YoY growth thanks to a negative base of six percent and firm demand in Tamil Nadu. Consumption growth slowed down in the central region owing to slow awarding of infrastructure projects in Uttar Pradesh under the newly formed government.

focus Slight Rise in Production ACC and Ambuja reported a slight increase in production at its units. ACC produced 1.97 mt, while Ambuja’s output was at 1.78 mt in June. During the corresponding month last year, production of ACC and ACL stood at 1.96 mt and 1.65 mt, respectively. Sales for ACC likewise grew to 1.96 mt compared to 1.91 mt, while Ambuja’s stood at 1.79 mt over 1.66 mt last year. During the January-June period this year, ACC’s production stood at 12.86 mt, against 12.18 mt in the year-ago period. Its sales grew to 12.79 mt during the first six months of this year compared to 12.18 mt in the same period last year. For its part, Ambuja production for the first six months grew to 11.67 mt against 10.79 mt in the same period last year, while its sales for the period stood at 11.67 mt compared to 10.77 mt in the corresponding period last year.

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cement projects and expansions 5

p

1 rojects and expansions

CC plans a new five million ton per annum integrated cement complex in Andhra Pradesh, and Chettinad Cement and Aditya Birla also make plans to expand capacity. Meanwhile, UltraTech and India Cements receive the green light from the Environmental Ministry to move forward with their expansion efforts. 57.5 billion rupees in new cement facilities and about 11.6 billion rupees in expanding its metal and chemical plants in the state. The investments will be made over the next three years and are in addition to about 60 billion rupees the group has already invested in Karnataka, a group representative said.

Expanding Regionally Swiss cement maker Holcim-controlled ACC is considering a Rs 5,000-crore integrated cement complex in Andhra Pradesh. The company is planning to build a 5 mtpa integrated cement complex, along with an 8 mtpa cement-grinding unit and a 100MW captive power plant at the Gollapalli village, Mandal Mylavaram in the Kadapa district of Andhra Pradesh. To support the cement plant, the company is also creating a 7 mtpa captive limestone mine. Chettinad Cement is looking to expand its Karikkali plant in Dindigul in Tamil Nadu to be able to produce 7 mtpa. It is planning

34 JULY/AUGUST 2012

to increase the capacity of its captive power plant from 48 MW to 78 MW. The combined cost of the project is Rs 565 crore. The company is building a 5 mtpa cement plant in Chincholi in the Gulbarga district in Karnataka with an investment of Rs 1800 crore. A cement-grinding unit in Ahuj in Solapur in Maharashtra and a 2 mtpa grinding unit in Vishakapatnam in Andhra Pradesh are also planned. Aditya Birla is looking to spend US$1.3 billion to expand capacity in the Karnataka state. Chairman Kumar Mangalam Birla announced the company would invest

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Finally, according to Industry Department officials, the State High Level Committee (SHLC) cleared a proposal by JK Cements (Western) to establish a cement plant at Chittapur Taluk in the Gulbarga district. Environmental Clearance Received The Environment Ministry’s expert panel has given its approval for environment clearance for UltraTech Cement’s capacity expansion in its clinker plant from 3.59 mtpa to 6.2 mtpa and its cement plant from 4 mtpa to 10.33 mtpa. It also plans to expand its captive power plant from 46 MW to 122 MW. The plants are located in the Damodarpura and Khor villages in the Neemuch district of Madhya Pradesh. The company will have to set aside five percent of its total project cost of Rs 1,950 crore for enterprise social commit-


India Cements also received the green light to expand capacities at its existing two plants. The company sought Terms of Reference (TOR) approval for expanding capacities in Padaveedu in Salem district and at the Sankaridurg plant in Dalavoi in the Ariyalur district. The Environmental Ministry approved the TRO of India Cements, and the company is moving ahead cautiously. “We are getting the required approvals in advance. Nothing is on the board. We want to be ready and when there is a need we should not be seen as waiting for regulatory approvals,” officials said. Steel Makers Enter Cement Market Media reports suggest Visakhapatnam Steel Plant (VSP) is planning a slag-based steel plant for Rs 2,000 crore and that the VSP will generate over 800,000 tons of slag every year as a by-product, of which some 1,000 tons can be exported and used in cement manufacturing. To that end, VSP has expressed interesting in setting up its own cement plant. “We want to set up this cement plant with private participation. L&T, KCP Cements and a few other cement giants have already expressed their interest to join hands with VSP. Vizag Steel Plant will take a 50 percent stake in the proposed plant,” N S Rao, Director, VSP said. Of the total project cost, 50 percent will be borne by VSP. The project would be completed in two years from the day of signing, with the current expansion of the plant, from three million to 6.3 million tons, fully completed by the end of this financial year.

captive jetty and bulk terminal near Sanjay Gandhi National Park. The terminal and the jetty have been proposed on a 1.67 hectare plot at Varsave village off Ghodbunder Road at Thane, adjacent to the national park.

CEMENT: projects and expansions

ment, spending an estimated Rs 110 crore annually for environmental protection. Thirty-three percent of the total plant area of 222.142 hectares has to be developed as a green belt, and UltraTech officials will be responsible for ensuring adherence to environmental guidelines.

UltraTech asserts that the site doesn’t encroach on wildlife dwellings, but national park officials insist there have been numerous sightings of leopards and crocodiles in the area. JSW Steel also plans to invest around US$1.1 billion to build cement and steel plants in Karnataka. The company’s Chairman, Sajjan Jindal, said the company’s existing ten million metric tons a year plant in Karnataka state is operating at 85 to 90 percent of its total capacity, as iron ore supplies are still not adequate to run the plant at full tilt. Bulk Terminal Opposed India’s Forestry Ministry is reportedly concerned about UltraTech’s plan to build a

UltraTech officials also assert the site is 8.5 km from the park, a claim contested by the park officials who say the site is next to their boundary wall. Under UltraTech’s proposal, cement would be brought to the terminal via Vasai creek, hence the need for the jetty. The proposal came up for clearance at the Maharashtra Coastal Zone Management Authority meeting last month. At that time, UltraTech was told to get the necessary clearances from the Forest Department.

focus Cancellation Sought

South American Expansion

Residents of Gujarat have asked the government to cancel a permit for the two million ton Nirma cement plant in the area. The project would reportedly destroy a massive wetland that recharges groundwater in more than ten villages and would keep seawater from seeping inland, turning fields barren.

An India based cement maker has expressed interest in building a plant in Paraguay and is sending a team to inspect possible sites there. This would involve a technical meeting which will be attended by the CEO of Investment and Export (Rediex), Oscar Stark, the national director and managers Directorate of Investment Attraction and Business Environment (Daian), the president of the National Cement Industry (INC), Carlos Krussel Llano, and the technical state agency.

In December 2011, the Ministry of the Environment revoked clearance to the cement plant, rejecting the state government and Nirma’s contention that the plant was to border wasteland. The ministry said clearance had been granted based on “undisclosed and incorrect information.”

Currently, apart from the state-owned INC, there are only two private cement plants in Paraguay: Tasser, which has begun to operate, and another plant scheduled to begin production toward the end of this year.

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cement m&a and finance

m

&a and finance

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eports of multiple deals for Jaypee Group cement assets are in the works with interest expressed from UltraTech, Lafarge and CRH, to name a few. However, no deal appears to have been cemented between any of the parties. Prince Holdings and Reliance up the ante with regard to shares owned, and two large private equity firms enter talks to buy a large stake in the Shiram Group. Is a Deal Close? Sources say the Aditya Birla Group was close to completing a deal to acquire Jaypee’s five million ton Gujarat unit, but differences over valuation and other issues threw a wrench in the deal. Enter Irishbased CRH, who is reportedly now in talks to purchase the Jaypee Group’s plants in Gujarat and Andhra Pradesh. If the deal with CRH goes through, it is expected to be provide between Rs 8,000 and 9,000 crore for Jaiprakash Associates and will help the company reduce its total consolidated debt of roughly Rs 45,000 crore. It has also been reported that Jaiprakash Associates is in talks to sell one of its cement units to UltraTech Cement. JP Associates is seeking a valuation of about Rs 40 billion for the division. Shiram Discussions Underway Private equity firms Blackstone Group and Kohlberg Kravis Roberts and Company (KKR) are in discussions to buy a large stake in the cement unit of Shiram Group, according to media reports. Shriram, which took a controlling stake in Andhra

36 JULY/AUGUST 2012

Pradesh-based Sree Jayajothi Cements, plans to raise more than Rs 400 crore to bolster operations. Private equity investors are reportedly being sought. KKR already holds a stake in Dalmia Cements. Shares Increased Prince Holdings increased its stake in India Cements to 28.24 percent from 8.3 percent. The company had 7.91 crore shares or a 25.77 percent stake in India Cements before the transaction but now holds 8.67 crore shares in the company. Reliance Mutual Fund has raised its stake in Madras Cements by purchasing 90,000 shares. This raises its interest to 5.01 percent or 1.193 crore shares. Prior to the acquisition of shares through open market transaction in BSE and National Stock Exchange, Reliance Capital Trustee controlled 1.184 crore shares, amounting to a 4.97 percent stake in Madras Cements. Profit Reports UltraTech announced a positive quarter ending in June, where profits rose 14 percent to Rs 778 crore. According to reports, its cement and clinker production was up five percent to 9.94 million tons, while pro-

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duction of white cement and wall-care putty jumped 17 percent to 2.25 lakh tons. HeidelbergCement’s India based unit also indicated that its profits rose, up 46.42 percent in the second quarter of the year. Profits came in at Rs 19.27 crore, mostly on the back of increased sales. In comparison, it reported Rs 13.16 crore net profit in the April-June quarter of the last fiscal year. In contrast, Sagar Cements profits fell 77 percent to Rs 4.1 crore as its margins were squeezed by higher costs. Revenue remained flat at around Rs 150 crore. The company cites the negative effect of increasing power and fuel costs for the decline in profits. BMWeek CemWeek CW Group BMWeek BMWeek

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CONSTRUCTION materials

I

nfrastructure & projects

he second phase of the Vaibhava project in Bangalore is launched by the Value & Budget House Corporation and Godrej Properties announced a new residential township project in Navi Mumbai. Adani Kandla Bulk Terminal plans to build a dry bulk terminal at the Kadla Port Trust and SPML Infra bags two new orders, including the Nagaur lift project. NEW PROJECTS Nod of Approval The Cabinet Committee on Infrastructure (CCI) gave its nod to the proposed development of the Raibarelly-Jaunpur section of NH-231 in Uttar Pradesh. The two-laning with paved shoulders project is worth Rs 647.98 crore and is being constructed under the NHDP Phase IV initiative. The project will be executed on a DBFOT basis in BOT (annuity) mode of delivery. The project covers the districts of Raebareily, CSM Nagar, Partapgarh and Jaunpur in Uttar Pradesh and is expected to improve the infrastructure of Uttar Pradesh and reduce the time and cost of travel for traffic, especially between Raibarelly-Jaunpur. Pune-Satara Highway Makeover The National Highway Authority of India (NHAI) has appointed Reliance Infrastructure as the nodal agency to makeover the Pune to Shindewadi road stretch at Satara. The Pune-Satara corridor is set to have 13 flyovers and 29 vehicular and 16 pedestrian underpasses. Out of the 13 flyovers, ten will be in the Satara district and three will be in Pune. The underpasses and flyovers would come at Ajantha Chowk, Bhuinj Phata, Limb Phata, Surur Phata and

38 JULY/AUGUST 2012

Joshi Vihir. The expected cost of the makeover is not yet known. Godrej to Launch Township Project Godrej Properties announced that it would launch a Rs 800-crore residential township project in Panvel in Navi Mumbai. The project is scheduled to launch in 2013 and is expected to be completed in six years. The township will spread across 110 acres and will have a saleable area of 35-lakh square feet. Godrej properties entered into a part-

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nership with a group of individuals eligible for 65 percent of the profits generated and have already received proposals from both developers and landowners. VHBC Launches Second Phase The Value & Budget Housing Corporation (VBHC) announced the launch of the second phase of its Vaibhava project in Bangalore. Phase II encompasses development of ten lakh square feet of real estate consisting of 13 towers and 31 blocks containing 1,462


Construction materials: infrastructure & projects

residences with a price range between Rs 7.72 lakh and Rs 22.24 lakh. The VBHC also plans to launch nine budget homes across Bangalore, Mumbai, Baroda and NCR at a total cost of Rs 300 crore. SPML Bags New Orders Gurgaon-based SPML Infra bagged two new orders worth Rs 358.27 crore. The orders include the Nagaur lift project, which is expected to be constructed at a cost of Rs 324.91 crore. The project involves construction of a cluster water distribution network, clear water reservoirs, pump houses and allied works. The company has also been charged with operating and maintaining the lift project for ten years post-commissioning. Adani to Develop Dry Bulk Terminal Adani Kandla Bulk Terminal, a subsidiary of the Adani Ports and Special Economic Zone (APSEZ) signed a concession agreement to develop a dry bulk terminal at Kandla Port Trust (KPT). The project is worth approximately Rs 1,200 crore and will be commissioned within two years. The 20 mtpa terminal is said to be one of the largest bulk terminals on the western coast of India, which Adani will construct on a BOT basis. Once completed, the terminal is likely to minimize cargo handling costs on the back of increased productivity thanks to its proximity to cargo generating centers. Residential Development Platforms Launched Godrej Properties (GPL) recently launched a Rs 770 crore residential development platform consortium headed by APG Group. The residential platform involves the development of mid-income residential projects in NCR, Pune, Mumbai, Bangalore and Chennai regions. The project involves 29:71 ratios by GPL and other investor groups and involves some global majors in real estate financial management firms such as the Sparinvest Property Fund II.

update on PROJECTS Another RInfra Project Reliance Infrastructure (RInfra), a subsidiary of the Reliance Group, kicked off operations of its sixth road project in Haryana. The company commenced the work through its Special Purpose Vehicle (SPV) GF Toll Road. The project, RInfra’s first venture, is executed on a BOT basis and is expected to cost Rs 800 crore. Once completed, the project will be transferred back to the government after a 17-year concession period and will connect major tourist destinations, corporate offices, industrial zones and international airport (T3) throughout Delhi. Santacruz-Chembur Link Road Costs Escalate The already delayed Santacruz Chembur Link Road (SCLR) in suburban Mumbai is expected to cost the taxpayers even more. The project now sees a three-fold rise in costs and a time overrun of almost four years. The project is now estimated to cost Rs 435 crore compared to its original

cost of Rs 115 crore, an increase of 278 percent. The Santacruz-Chembur Link Road is being constructed as part of the World Bank-funded Mumbai Urban Transport Project (MUTP) and will enhance the eastwest connectivity in Mumbai once completed and operational. Clouds of Uncertainty The much-awaited Ennore Manali Road Improvement Project (EMRIP), which was expected to be completed by June 2013, is facing even more hurdles, such as the shifting of structures in NTO Kuppan and Cherian Nagar, the eviction of anglers near Chennai Port Trust (ChPT) zero gate, and the relocation of the Bhavani Amman temple. The project was initially conceived at an estimated cost of Rs 100 crore. However, repeated obstacles and delays have pushed the project’s cost to around Rs 600 crore. Once complete, the project will improve the 30 km road network in north Chennai that connects all the container freight stations (CFSs) that handle containers for the Chennai port.

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construction materials

E

quipment updates

yundai Construction introduces a new generation of Wheel Loaders while Taiyuan Heavy Machinery Group launches a new mining forward excavator. A new 55 ton crawler crane from Hitachi Sumitomo hits the international market and Sany Zhantong Machinery rolls out its first bulldozer. and capacity and a comprehensive performance unit among big-ton high-end diaphragm wall grabs in China.

Powerful Diaphragm Wall Grab Beijing-based Sany Heavy Machinery launched the strongest power Diaphragm Wall Grab in China: SH520. The new, strongest power unit can achieve 52-ton pull strength, 85-meter depth, a 800-1500 mm width diaphragm wall, and is characterized by the largest working radius, multi-purpose lifting function with the shortest open-close grab time. These features make the SH520 the strongest in power

40 JULY/AUGUST 2012

New Wheel Loaders Hyundai Construction Equipment launched a new generation of Wheel Loaders, the SL730 and SL760. The newly launched wheel loaders are technologically advanced, with low fuel consumption, enhanced reliability, robust structure and efficient maintenance systems. The loaders are designed for excellent stability and working-range. With an overall operating weight of 10,200 kg and 17,200 kg, the loaders are perfect for varied applications such as dry or wet sand, clay, gravel, and iron ore such as gypsum/phosphate, and can also be used for aggregates handling. Two New E-Series Hammers Construction equipment giant Caterpillar has added two hammers, H95Es and H75Es, to its offerings. The two hammers

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are designed for backhoe loaders and small excavators. The company launched the hammers to expand its E-Series hammer line. The new hammers are sized and shaped to curl and tuck under a Cat backhoe loader boom for easy transport on the machine without boom damage or affecting traffic. Double Drive Head Drilling Rig Sunward is now offering a new, multi-functional SWSD 2512 double drive head drilling rig. The rig, which is the first in China, has a work efficiency over ten times that of other drilling machinery. Sunward developed the multi-functional SWSD 2512 to meet the demands of the Hengli Group construction site in Dalian which consists of high-rise buildings of 68 and 53 floors and requires a pile foundation of 35 to 60 meters, which is a difficult task. New Truck Powered by CNG Zoomilion successfully launched two 8m3 truck mixers with Shaanxi Automobile-made CNG (compressed natural gas) chassis. The launch marked another solid step by Zoomilion in the field of developing new-energy truck mixers. The new engine is powered by natural gas and the main ingredient used in the mixer is CH4,


New Low Emission Additions JCB recently launched new backhoe loaders and telescopic handlers with several mid-sized excavators that meet the latest Stage IIB/Interim Tier 4 emissions requirements sans the use of exhaust after treatment systems. The new backhoes and telehandlers contain JCB’s own 4-cylinder Eco Max diesel engines, which are exclusively designed to meet the new standards. The absence of after treatment systems has provided several advantages as it reduces costs and provides visibility for the operator. which does not produce any kind of toxic substance, such as sulfide, when burned. Besides reducing the cost by roughly 40 percent, the new mixer is highly ecofriendly. New Mining Forward Excavator Taiyuan Heavy Machinery Group recently launched a new mining forward excavator, the WK-75. The group launched the excavator for Mongolia Datang International Xilinahote Mining. With the most advanced technical performance and highest production capacity, the WK-75 is the world’s largest mining excavator. It is most suitable for digging, stripping and loading of heavy iron mine, open cut coal mining and non-ferrous metal mining. The WK-75 can also be used with a mobile crusher with a production capacity of around 9000 to 12,000 tph or a mining dump truck of 360 tons or above. Redesigned Scissor Lifts The Haulotte Group introduced the redesigned and enhanced compact version rough-terrain scissor lifts C2668RT and

Sany First Bulldozer Sany Zhangtong Machinery (Sany Zhongtong) rolled out its first bulldozer: SYT7. The new bulldozer will fill the gaps in the earthmoving machinery industry. The

bulldozer features a load-sensing and variable hydraulic system. This feature helps to save energy by up to 20 percent compared to traditional bulldozers. North Traffic’s New Truck Crane North Traffic recently launched a new truck crane with U-shaped boom. The new boom can effectively display the mechanical property of the material and greatly reduces the weight of the lifting boom. This improves the lifting capacity of the largetonnage truck crane, its stability, and reliability. Through its extensive research and development, North Traffic has established unique and independent patent technology for its truck cranes.

construction materials: EQUIPMENT UPDATES

C3368RT. The new scissor lifts are now equipped with Kubota Tier IV-compliant engines and feature significant noise reduction and fuel economy (about -5% compared to the current engine). The fourwheel drive scissor lifts are easy to operate with full proportional and ergonomically designed controls and have 11-inch ground clearance. The new, redesigned machines feature standard outriggers that prevent potential impact damage.

New Electric Scissor Lifts To expand its Global range, Aichi launched three new electric scissor lifts: the Skytowers SV06DNS, SV08DNL, and SV06DNL. The scissors have a platform height of 5.8 m, 7.77 m and 6.1 m and capacities of 230 kg, 230 kg and 360 kg respectively. Designed for applications such as painting, wallpapering, installation and maintenance, the new scissor lifts are Aichi’s fifth global series. The Skytowers are electrically driven by an AC motor and consist of a specially designed inverter that offers long duty cycles at the work site. The AC motor also reduces maintenance costs and saves time. New 55t Crawler Crane Hitachi Sumitomo launched a new 55t on crawler crane for international markets. The new crane, SCX550E, has a lifting capacity of 55 tons at 3.7 meters and can be configured with booms from ten to 52.7 meters. With a 1040 mm wide operator’s cabin fitted with large windows, a heater and a cooler box, the new crane promises convenient operation and maintenance with high performance. Other features of the crawler include a simplified winch system with integrated reduction gear, freefall function, anti-two bloc, secondary boom hoist limiting device, and automatic drum lock.

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regional news

Pakistan’s cement sector is feeling the pain of higher input costs as sluggish export demand and a slowdown in the construction and housing sector take their toll. Exports continue to decline as manufacturers look for ways to boost it. Nepal’s Udayapur Cement struggles with ongoing fuel issues that affect production, and Sena Kalyan Sangstha in Bangladesh opens bidding for a third line at its Mongla Cement plant. Pakistan Pakistan’s cement sector remained under financial pressure during FY 2011-12 due to devaluation in the Pakistani rupee and an increase in input costs, mainly electricity, diesel, paper sack and gypsum. The All Pakistan Cement Manufacturers Association indicated local cement dispatches increased to a record level of 23.947 million tons, registering an increase of 8.84 percent. However, exports remained under

42 JULY/AUGUST 2012

pressure throughout the year and declined by 9.12 percent to 8.568 million tons. FY 2011-12 marked the third straight year of a decline in cement exports.

export demand, non-revival of construction sector in the country, lack of investment in the housing sector, and government inability to initiate mega projects.

The cement sector added three million tons of additional production capacity in the year 2011-12 as its total production capacity increased by 7.23 percent to 44.217 million tons from 42.235 million tons in 2010-11. Capacity utilization remained under pressure due to sluggish

In related news, Pakistani cement makers want international bodies to inspect shipments bound for India to speed up the process of accreditation. Aizaz Mansoor Sheikh, Chairman All Pakistan Cement Manufacturers Association (APCMA), has written a letter to Shri Sharad Gupta,

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Director General Bureau of Indian Standard suggesting that inspection of Pakistani cement units should be conducted through international firms for BIS license.

coal or raw materials, forcing it to halt production frequently. Reportedly, an Indian coal dealer that supplies coal to the factory halted deliveries due to lack of payment.

Recently, representatives of the Pakistan cement industry had approached BIS officials for issuance of quality certificates/ licenses to Pakistani cement units, as their certificates had expired and had been issued by Indian authorities for the last year and a half. Now, these units are unable to export cement to India, as the BIS license was necessary.

In other news, officials are proposing to include an additional Rs 1 tax on every packet of cement sold in the market to be used specifically for rural electrification. The Community Electrification Department at the Nepal Electricity Authority was scrapped two years ago for lack of funds. Supporters of the proposed tax hope to start the program up again.

Meanwhile, cement exporters in Pakistan cut prices by as much as 13 percent for shipments to India, on the back of currency fluctuations. Deprecation of PKR means Pakistani cement manufacturers reduced the commodity price by US$9 per ton. With the current decline, cement is now being exported to India at an average price of US$60 per ton, compared to US$69 previously.

Bangladesh Sena Kalyan Sangstha has opened a tender for its third line at the Mongla Cement plant. The company is inviting local and foreign firms to submit EOIs for the installation of a third cement grinding mill. Details are available on the company’s website.

Nepal The country’s largest cement plant, Udayapur Cement Industry, stopped production because of a lack of fuel to power its kilns. The factory has been stymied by one problem after another in connection with broken machinery and a shortage of

Finally, the country’s Department of Environment (DoE) fined Holcim Bangladesh Tk 27.62 lakh for reportedly releasing fly ash into the air. According to the DoE, the managing director for Holcim Bangladesh acknowledged the program and requested six months to set up the necessary equipment to prevent further air pollution.

Raw Material Blending Optimization Fauji Cement plant in Attock, Pakistan successfully completed test runs of its SpectraFlow online analyzers. Fauji Cement Company (FCC), headquartered in Rawalpindi, operates the cement plant, located in the province of Punjab. The cement plant is one of the most efficient and best maintained in Pakistan and has an annual production capacity of 1.165 million tons of high quality Portland cement. In 2009, Fauji Cement built a second kiln line to expand its production capacity and invested in a raw material proportioning (RMP) solution in combination with a SpectraFlow online analyzer to optimize its stockpile blending. The expanded operation increases turnover at the stockpile from which both kiln lines are fed with raw material. The combination of pre-blending and raw mix proportioning software, together with the SpectraFlow online analyzer, resulted in a significant reduction of additives by providing raw meal with the correct kiln feed quality. Up to 98 percent of the raw meal now comes directly from the stockpile. ABB’s SpectraFlow analyzer uses SOLBAS technology, which is an innovative application of the wellknown and environmentally friendly Near Infrared (NIR). The NIR ranges from 700 to 2500 nanometers and uses standard lights as the analyzer’s source. ABB employs its long used Fourier Transform Infra-Red (FTIR) spectrometer concept to obtain the final spectra. This ensures a high stability and repeatability of the analysis and enables the exchange of calibrations between spectrometers. ABB assisted in previously revamping Fauji Cement’s existing line; however, this is ABB’s first order for a complete electrification of a cement plant in Pakistan.

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analyst recommendations

ACC Emkay has given ACC a “Hold” rating with the price target set as Rs 1,220 against Rs 1,154. Intense competition affected cement prices during the normal peak period in May. While surplus cement is likely to continue to midterm, another 80 mtpa is expected to be added in the current fiscal year. High power and coal costs further affected earnings, leading to the hold rating by Emkay. JK Lakshmi Cement

Marwadi Shares & Finance (MSFL) continued with a “Buy” for JK Lakshmi Cement based on the strong fourth quarter figures posted by the company that, despite a drop of Rs 430 million on account of the company’s changeover to the new depreciation method, have kept profit figures in line with estimates after adjustment. Strong realization and volumes and a demand upswing are other factors favoring the company. The price target has been set at Rs 80 against CMP of Rs 64. Madras Cement

A strong performance surpassed 4QFY2011 adjusted net profit figures of Rs 320 million, more than doubling to Rs 730 million in the same quarter in 2012, leading Angel Broking to recommend a “Buy” for JK Lakshmi Cement with a price target of Rs 79 against the current market price (CMP) of Rs 63.

While EBITDA were clinched lower than estimates due to high freight cost, cement revenues and realizations did better than expected with an increase in volumes. However, the sand mining ban in Andhra Pradesh could continue to affect cement off-take. Moreover, the higher freight costs will also continue to affect bottom line figures. As such, Emkay is issuing a “Hold”

for Madras Cement with a price target at Rs 138 against a CMP of Rs 136. Shree Cement Strong figures in the fourth quarter coupled with higher volumes and realization as well as expected improvement in performance have given Shree Cement a “Buy” rating from Marwadi Shares & Finance (MSFL) with a price target of Rs 3,048 against a CMP of Rs 2,612. Prabhudas Lilladher has given an “Accumulate” rating to Shree Cement. The company’s brownfield expansion plans at Rajasthan and its future Greenfield expansion plans at Chhattisgarh are comforting factors. Additionally, sales of Shree Cement focused in the Northern and Central regions, known for stable demand, is another encouraging factor. The price target has been set at Rs 2,980 against a CMP of Rs 2,358. BMWeek CemWeek CW Group Coal Week BMWeek BMWeek

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CW Group CW Group

ratings changes Date

Broker

Company

Rating

Target Price

Current Market Price

7-Jun-12

Emkay

ACC

Hold

1,220.00

1,154.00

24-May-12

Angel Broking

JK Lakshmi Cement

Buy

79.00

63.00

22-May-12

MSFL

JK Lakshmi Cement

Buy

80.00

64.00

25-May-12

Emkay

Madras Cement

Hold

138.00

136.00

8-Jun-12

Prabhudas Lilladher

Shree Cement

Accumulate

2,980.00

2,358.00

22-May-12

MSFL

Shree Cement

Buy

3,048.00

2,612.00

44 JULY/AUGUST 2012

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stock performance Stock performance of leading cement companies As a regular service to our readers, we will provide here a listing of the latest in stock performance, keeping you up to date with the latest in stock trends. Additional company stock performance information is available on our website: www.cemweek.com/india.

Performance in the past 90 days Company

Start Date

Start Price

End Date

End Price

Difference

% Change

CCL INTER

2-May-12

58.05

30-Jul-12

126.9

68.85

118.6

JK CEMENT

2-May-12

135.1

30-Jul-12

207.25

72.15

53.4

CHETTINAD CEM

2-May-12

566

30-Jul-12

770

204

36.04

JK LAKSHMI

2-May-12

64.1

30-Jul-12

84.85

20.75

32.37

DECAN CEMENT

2-May-12

171.25

30-Jul-12

221.8

50.55

29.52

AMBUJA CEME

2-May-12

148.45

30-Jul-12

179.55

31.1

20.95

ULTRATECH CM

2-May-12

1414.45

30-Jul-12

1634.85

220.4

15.58

KAKATIYA CEM

2-May-12

78

30-Jul-12

87

9

11.54

HEIDEL CEM

2-May-12

31.3

30-Jul-12

34

2.7

8.63

SHREE CEMENT

2-May-12

2825

30-Jul-12

3063.6

238.6

8.45

KCP LTD

2-May-12

32.5

30-Jul-12

35.2

2.7

8.31

ACC LTD

2-May-12

1211.3

30-Jul-12

1298.2

86.9

7.17

MADRAS CEM

2-May-12

149.4

30-Jul-12

158.5

9.1

6.09

PRISM CEMENT

2-May-12

47.5

30-Jul-12

49.75

2.25

4.74

OCL INDIA L

2-May-12

94.2

30-Jul-12

97.9

3.7

3.93

SAGAR CEM.

2-May-12

173.5

30-Jul-12

175.55

2.05

1.18

MANGALAM CEM

2-May-12

134.1

30-Jul-12

132.4

-1.7

-1.27

KALYANPUR CE

12-Apr-12

30.5

10-Jul-12

30

-0.5

-1.64

INDIA CEMENT

2-May-12

87.5

30-Jul-12

80.85

-6.65

-7.6

N C L IND

2-May-12

45.2

30-Jul-12

41

-4.2

-9.29

BIRLA CORPOR

2-May-12

255.2

30-Jul-12

218.05

-37.15

-14.56

RAIN COMMODI

2-May-12

38.95

30-Jul-12

32.3

-6.65

-17.07

KEERTHI

27-Apr-12

30.2

30-Jul-12

23.1

-7.1

-23.51

PANYAM CEMEN

2-May-12

72.2

30-Jul-12

49.35

-22.85

-31.65

46 JULY/AUGUST 2012

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Most popular on CemWeek.com The most-read stories on CemWeek over the past two months reflect the industry's mixed outlook. The India column shows the 20 most popular stories from CemWeek featuring India-related coverage, and the Global column shows the global events that gathered the most attention worldwide during the period. Visit CemWeek.com to access the full stories.

India

global

1

Holcim reportedly angling for Jaypee cement assets

1

Turkey's Nuryol Cimento orders Europe's largest mill

2

India: Birla, Lafarge eyeing Jaypee Cement assets

2

Construction stalls at new plant in Mozambique

3

Report: Aditya Birla angling for Jaypee stake

3

Construction market growing in Germany

4

India: Result of anti monopoly probe out soon

4

CGD sells Cimpor stake to Camargo

5

Report: Andhra Pradesh cement firms may see weak Q1

5

China: Cement firms to cut energy use, reduce CO2 output

6

Kashmir traders want cement shipped through LOC

6

Colombia's Argos moves intno new, greener headquarters

7

Madras Cement chief sees salary almost double last year

7

China cement prices tumble anew

8

Jaypee plans to dilute minority stake in cement unit

8

Cemex UK acquiraes new Volvo trucks

9

India shutters four cement units on environmental violations

9

Egypt-based Arab Cement opens new production line

10

India’s ACC plans to build cement complex

10

Cement firms express support for EPA policy revisions

11

India: HeidelbergCement seen as a safe pick

11

Titan banking on overseas units to drive growth

12

Holcim may ask ACC, Ambuja to pay royalties

12

Spain: Cosmos plant to cool cement kilns on poor demand

13

Lafarge to appeal India fine

13

Report: Egypt cement prices rise anew

14

India Cements expansion plan is approved

14

Votorantim calls Cimpor swap a platform for growth

15

Private equity firms line up for India’s Shiram cement

15

Qatar National Cement to set up new unit

16

Holcim to appeal India fines

16

Saudi per capita cement consumption at record level

17

India cement firms likely to contest CCI ruling on cartel

17

Sinoma secures project with Saudi's Southern Cement

18

India Cements MD summoned to appear in graft case

18

ADOCEM vows to continue environmental programs

19

India cement firms hoping for stay in cartel penalties

19

Russian state wants Kuznetsk plant shuttered

20

Report: India’s JP said to be in talks to sell one cement unit

20

Italcementi seals deal with West China Cement

INDIA CEMENT & CONSTRUCTION MATERIALS MAGAZINE

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RESEARCH

The CW Group publishes a series of unique data-rich reports on a periodic basis for the global cement sector. These must-have reports for cement traders, analysts, investors, equipment vendors are indispensable in understanding changing market conditions, monitor the latest cement prices, stay up to date on new cement capacity projects among many other key outlook and competitive dimensions. The reports are available on an annual subscription basis. Contact us at sales@cwgrp.com to learn more. Global Cement Market Data Service

Global Cement Retail Price Report

Global Cement Trade Price Report

Global Cement Volume Forecast Report

Cement Plant & Capacity Monitor

Statistical update on key cement markets worldwide

Comprehensive report on local retail cement prices worldwide

Detailed data and chart report on cement prices

Current and outlook for cement volumes

Tracking new cement plants and expansions

$475 per user / year

$1,200 + S&H per user / year

$2,300 + S&H per user / year

$1,200 + S&H per user / year

$1,300 + S&H per user per year

Rolling monthly updates (Monthly updates)

Quarterly updates (4 updates per year)

Quarterly updates (4 updates included)

Semi-annual updates (2 updates included)

Updated every 2 months (6 updates included)

48 countries covered*

25 key markets

70+countries covered*†

Individual countries & global

Global scope, ex-China

■■ ■■ ■■ ■■

Cement consumption Cement production Cement trade and/or Select cement prices

Online (CemWeek.com)

■■ Actual retail prices per bag ■■ Range of prices and avareges ■■ Gray and/or white cement ■■ Weekly price data points Hard copy

■■ ■■ ■■ ■■ ■■

Gray, white and / or clinker Monthly import prices Monthly export prices Regional price indices Monthly trade volumes Hardcopy

■■ ■■ ■■ ■■

3-year volume outlook Historical volumes Capacity utilization Annual volumes Hardcopy

■■ ■■ ■■ ■■

New cement plants Plant expansions Overview of project Location details Hardcopy

* Subject to change; † Actual country data reported on different lags; S&H: Shipping and Handling for reports distributed in physical hardcopy;Discounted group and corporate rates available upon request

We know the cement industry well. Let us guide you. For more information please contact us at inquiries@cwgrp.com or on +1-702-430-17 48 848 N. Rainbow Blvd., Box #1658, Las Vegas NV, 89107, USA


India Cement & Construction Materials (vol 1 / issue 7)