The cement industry hopes to add a minimum of 25 million tonne a year for the next few years and is set to grow in double digits over a period of time. Though the top five or six players garner more than 50% of the industry?s share, the possibility of consolidation among smaller players is unlikely as they continue to enjoy growth. India Cements is gearing up to meet future challenges through various initiatives, says N Srinivasan, vice-chairman and managing director, Indian Cements Limited, in an exclusive interview with FE?s R Ravichandran. Excerpts:
Where does the industry stand now? Please give us an overview.
The cement industry in the country has grown very rapidly, particularly in the last four to five years and has reached a total capacity of 220 million tonne or so. Close to 60 million tonne of capacity has been added in the last two years, and this signifies the huge demand for this commodity in the domestic market. Most of the players have ploughed back their profits into creating sufficient capacity to meet the demand over the years. States which lag behind in infrastructure and residential developments have set their focus on creating the necessary infrastructure and housing to woo investments, which in turn augurs well for the industry. Except for a brief while, may be in the next fiscal, the industry will continue to grow in double digits for the next few years.
What are the prospects and the challenges for the industry?
The government is emphasising greatly on infrastructure. There is also a huge demand from private players to create residential and commercial spaces across many cities. If the signs of revival in the world economy are any indications, then the industry has a bright future ahead. More investment will be seen in developing infrastructure in a greater way. The industry will continue to witness a capacity addition of anything between 25 to 30 million tonne a year for the next few years.
There are a number of challenges before the industry. Apart from the availability of coal, power, logistics, supply-chain management and the lack of coal wagons to meet industry requirements are found to be the biggest challenges. With the projected addition of 25 to 30 million tonne annually, the shortage in fuel, wagons and logistics problems continue to haunt the industry in a big way.
Do you foresee any impact on the industry due to the huge capacity addition during the next fiscal?
If one were to believe that the industry will see a sharp addition during the next fiscal, then the oversupply will definitely have an impact on the industry. The capacity addition always happens in bunch. Being cyclical in nature, one has to go through the ups and downs of the industry. However, it remains to be seen where and what the size of the capacity addition will be in order to arrive at the exact impact on the industry. Contrary to projections, it is expected that the industry will stop at 260 to 270 million tonne capacity during 2010-11, which is manageable. By the last quarter, one will probably know the exact status of the industry. However, it is strongly believed that the demand will overtake supply over the years.
With major players chalking out huge capacity additions over the next two to three years, do you foresee consolidation in the industry?particularly smaller players being acquired by bigger ones?
I don?t think the industry will undergo consolidation. Firstly, the cost of acquisition has gone up substantially over the years. Secondly, one has to first understand that the capacity additions being talked about will not happen exactly as estimated, for various reasons. Not only do these require huge investments but they also need the delivery of equipment on time and the availability of fuel and power. Thirdly, the smaller players are generally niche players and have their pockets of business. Despite more than 50% of the domestic requirements being met by the top five or six players, the industry is still a fractured one and small players in particular, are niche and profitable ones.
What is your growth strategy in order to develop into an integrated cement major?
We are growing according to our plans and we want to grow sensibly, based upon our earnings. We also want to maintain the debt below our equity. Our 1.5-million tonne Rajasthan unit will be completed by August next year. As said earlier, we will achieve a capacity 18 million tonne as scheduled. We have plans for the north and north eastern regions and will take them up accordingly. Given the developments, by becoming an integrated player, Indian Cements can be very competitive. We have acquired two ships for capitive purposes and have also embarked upon captive power projects. We are on the look out for coal mines in the country. Going forward, we will also look at other areas in order to become an integrated player.