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Premium: Cement Industry – the wrecked driver of Indian Economy


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Cement is a key ingredient in the development of the economy as it is indispensable for nation building and has a direct linkage with the nation’s health and growth. It is also evolving from a mere commodity into a branded product.

The demand for cement is strongly correlated to the rate of economic development and it gets adversely affected due to the slowdown in economic and infrastructure development activities. With a capacity of nearly 400 million tonnes, India is the second largest cement producer in the world.

In India, the Housing Sector is the biggest demand driver of cement, accounting for about 67% of the total consumption. The other major consumers of cement include Infrastructure at 13%, Commercial construction at 11% and Industrial construction at 9%. Thus, construction of houses in rural and urban areas remains the biggest driver of cement consumption.


India’s cement industry is a vital part of the economy, providing employment to more than a million people. The domestic cement sector is the second largest market, globally and contributes 8% to the global cement production.

A total of 188 large cement plants account for 97% of the total installed capacity in the country, while 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu. The Indian cement industry is dominated by the top-20 players who account for almost 70% of the total cement production.

Products – raw and finished

Land, limestone and coal are the basic inputs for manufacturing cement and any increase in their prices adversely affects the profit margins of the industry.

Availability of mining land for limestone is a rising concern as it requires huge capital expenditures. Fuel – another key component of the cement industry cost structure which the industry benefited from due to the decline in crude oil prices.

With cement manufacturing requiring large quantities of coal to meet its kiln and captive power generation needs, consistent supply of this fuel at reasonable and stable prices remains a key area of concern for the Industry.

The Industry produces 3 basic types of finished products:

  • Grey Cement: Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement
  • Whiite Cement – White cement, Wallcare putty and white cement based products. It is mainly used as base work for interior and exterior application for both residential and commercial segment as well as for Tiles, Paints and Putty manufacturing.
  • Ready Mix Concrete and a range of specialty concretes with specific functional properties



The Price of cement varies throughout the country based on the quality of the finished products and the distance between the quarry-factory-end customer as logistics plays an important role in the final end.

Currently a government portal has been setup which discloses the price of cement based on every manufacturer plant location which is used as the benchmark wholesale prices for any buyer who can register and place an order immediately. These prices are quite lower compared to the retail prices available for the end consumers in the Indian market.

Here is a snapshot of the Cement Companies along with the prices of cement: (click on the image for a more detailed one)

Cement Companies State Wise along with the prices of cementTurning Opportunities to Challenges

The cement industry bears strong correlation with the domestic economy and hence the optimistic outlook on the Indian economy should reflect well on the cement industry.

The cement market in India is expected to grow at a compounded annual growth rate (CAGR) of 8.96% during the period 2014-19. According to CII, the annual cement demand will reach 550-600 million tonnes by 2025.

Cement demand has remained weak primarily due to low consumption from end-user sectors (including rural demand due to sub-par monsoon), procedural delays in clearances for industrial and infrastructure projects (initiatives for concretization of the roads and introduction of Bharat Mala project involving construction of 5300 Km road), weak government spending in infra projects (expected to gain traction with the Government allowing mobilisation of funds in real estate through approving listing of REITs), legacy and sector specific issues (increase in royalty by 30% with the introduction of Mines and Minerals Development Regulation ordinance).

Chart “Cement Capacity & Production” shows the current installed v/s actual production capacity at the top companies. On the backdrop of “Make in India” and other infrastructure projects, the Industry has created a lot of capacity with an average production of 63%

Cement Capacity Production April 2016

Chart “Cement Production and YoY Growth” shows the overall production of cement throughout the country for the past 10 years. During the previous year i.e. 2015, the Industry witnessed a better positive growth only in the months of August at +5.07% and October at +11.52%.

The year 2016 seems to have turned a corner for the Industry by clocking in a growth of +8.69% in January, 2016 and +13.03% in February, 2016. Also for the same months, Production has been the highest ever in the Industry at 25,879 thousand tonnes in January, 2016 and 25,495 thousand tonnes in February, 2016.(highest production over the past 12 years).

Cement Production February 2016

Moreover, the cement industry is confronting excess capacity resulting in lower capacity utilization. The lower capacity utilization is due to the excess capacity created on the back of government’s projection of potential cement demand arising out of the thrust given for infrastructure development like Make in India, Housing for all by 2022 (entails the construction of 40 million houses in rural areas and 20 million houses in urban areas), creation of 100 smart cities, and roads concretisation program (roads account for the highest cement consumption under the infrastructure segments and an estimated 7,037 kilometres of road during the year is slated to be constructed by the infrastructure industry during 2015-16).

Other hindrances to the growth of the sector include high taxes and administrative burden, stringent pollution control norms and regulations covering land acquisition and clearances for mining, shortage of railway wagons and transit delays affect plant operations including service to customers.


Here are the Top 12 companies by Market Capitalization.

Cement Companies Financial April 2016

Note: TTM = Trialing 12 months (January, 2015 to December, 2015)

Cement Companies Share Price April 2016

Future Prospects

Construction material is critical for meeting the society’s need for housing and infrastructure. Consumption could pick up well beyond 6% if investments in infrastructure development and Urban Transformation (AMRUT), and Housing for All (including low cost housing) are accelerated. Demand in the housing sector may be stimulated with a gradual reduction in interest rates, wider supply of disposable incomes and household savings.

Capacity utilization would gradually come down on account of the mismatch in capacity addition and demand. Growth in infrastructure activities is also expected to fuel cement consumption on account of investment in infra projects like freight corridors (Western and Eastern), railways, smart cities, metro railways, roads and highways, among others.


We are looking to add Cement companies to our Long-Term/Medium-Term portfolios as we get more clarity. More on that in a separate post.

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Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

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