Where Is the Cement Industry in India Heading Exactly? – Industry Investing

IntroductionIndia stands second in the world in cement production. The cement industry in India then naturally becomes a major aspect of the Indian economy, as it employs over a million people. The Indian cement industry drew massive investments from within India and also from other countries, after 1982 when it was deregulated.The cement sector is likely to benefit in a big way from India’s enormous potential in construction and overall infrastructure development. Major government plans like the ones in which it proposes to develop nearly 100 smart cities will definitely prove to be an enormous boost to the sector.Anticipating these developments in the country, backed by related foreign policies by the Indian government, investments by many foreign cement giants are getting attracted. Ready accessibility to raw materials like limestone and coal to produce cement is a factor that is majorly driving growth of the cement sector.Market demandIn India, the demand for cement is expected to increase due to government’s push for large infrastructure projects, leading to 45 million tonnes of cement needed in the next three to four years.By 2025, the demand for cement in India is estimated to be nearly 600 million tonnes per annum. The housing sector, among all, drives the highest demand for cement in India, as it takes 67% of the total consumption. The rest of the cement is almost equally consumed by commercial and industrial constructions, and infrastructure.Cement companies have a big responsibility to increase their capacity to nearly 56 million tonnes to cater to the growing demand. By the end of 2016, India’s cement capacity may grow eight per cent to 395 MT. The capacity is further expected to increase to 421 MT by the time 2017 ends.Some 20 companies dominate the cement industry of India as they produce 70% of the total cement in the country. Take a look at the scenario in India:- 97% of total installed capacity – 188 large cement plants
- Rest – 365 small plantsThe large plants are majorly located in Rajasthan, Andhra Pradesh, and Tamil Nadu.InvestmentsThe country’s cement sector has recently drawn heavy investments as more and more construction and infrastructural activities are leading to continuous rise in demand.During the period from April 2000 to December2015, US$ 3.101 billion of FDIs were drawn by cement and gypsum products, says the data released by India’s Industrial Policy and Promotion department.Major investments have been made by best cement manufacturing companies in India, which are recognized as producers of best cement for construction.- UltraTech Cement in the process to acquire Jaiprakash Associates factories for Rs 16,500 crore.
- Birla Corporation Ltd to acquire Lafarge India’s 2 cement assets for Rs 5,000 crore.
- Dalmia Cement (Bharat) Ltd expanding business in the North East with an investment of Rs 2,000 crore.
- JSW Group plans to expand its cement production capacity to 30 MTPA from 5 MTPA by setting up grinding units closer to its steel plants.
- UltraTech’s Greenfield grinding units in WB and Bihar.Government initiativesThe Government of India, in its 12th Five Year Plan, planned to increase the cement industry’s capacity to 150 MT by investing huge amounts in infrastructure.Similarly, the main objective behind constituting the Cement Corporation of India in 1965 was to make the country’s cement production self-sufficient. The CCI has 10 units across India. At the same time, the government is approving various investment schemes introduced by the private sector to encourage their growth in the cement industry.Here are the highlights of some such government initiatives:- A slew of measures to augment investments in infrastructure in Budget 2016-17, as demand for cement will be directly proportional to growing spends on infrastructure.
- Allocation of Rs 7,296 crore for Urban Rejuvenation Mission which includes smart city development.
- The allocation for Pradhan Mantri Gram Sadak Yojana raised to Rs 19,000 crore for FY17.Apart from the central governments, some states have also taken major initiatives to promote cement production.- Launching of low-priced cement by Tamil Nadu Government. The sale begins at Rs190crore a bag.
- A bulk cement handling unit has been set up at Kochi Port, sanctioned by Kerala Government, at an investment of Rs 160 crore.
- Proposals worth Rs 9,200 crore have been approved by the investment promotion board of Andhra Pradesh. These include 3 cement plants and a few other projects’ concessions.Economic growth and environmental protection are not at odds. They’re opposite sides of the same coin if you’re looking at longer-term prosperity. – Henry PaulsonTo reduce energy consumption and find innovative ways to produce cement in a more efficient way, India needs to push for energy efficient measures. A water positive cement manufacturing company, for instance, achieves two things. First, produce best cement for construction, to stay in the competition. Secondly, it establishes a way of saving water even in such massive production.India has over the time realized the need for newer methods to cut down on energy consumption. For this it is collaborating with Switzerland to bring technology and systems of more efficient cement production. India’s ability to meet the ever increasing demand for cement from the infrastructure sector depends on the success of this step.The cement industry in India has been appealed by the government to abide by its decision to avoid bitumen for all the new road construction projects and instead adopt cement. The reason given for this is that cement is not just durable but also cheaper in the long run, plus it is a low maintenance product.The road aheadFor the best cement manufacturing company/ies in India, the states in the eastern region of the country are emerging to be fresher unexplored markets. These regions can create the cement demand for future. On an even larger scale, in the coming decade, a lot of developing nations, including Middle East and Arica, are likely to look at India as a significant source for importing clinker and gray cement. This will lead to a better preparedness of the cement industry in India. Amongst the hundreds of cement plants within the country, the ones located near the ports at advantageous positions will have to be prepared to stand a tough competition from plats that are located in the country’s interior. For instance, the cement plants on Visakhapatnam and Gujarat ports which are located on the sea shores, will need to be logistically well armed.Besides, the cement industry in India is expected to attract a large number of foreign cement production companies. The major lure for the foreign players is the constant demand for cement and superb profit margins the cement business brings. Looking at the current cement market scenario, the domestic cement companies too look poised to go for global listings through GDR or FCCB.While the Government of India is taking so many measures to improve the support the cement market by creating friendlier laws such as increased infrastructure spending and lower taxation, the sector is showing a lot of results by growing with leaps and bounds. This makes it remain a major part of India’s economic development story. And while seeing its own growth, the cement industry, due to its sheer industry size and efforts to make more water positive cement manufacturing companies, is also contributing to environmental sustainability effectively.

Sources of Friction: Why Investment Expertise Often Fails to Help You and What You Can Do About It – Industry Investing

Most of the time when I talk to people about the investment industry I get the distinct sense that they would rather talk about almost anything else. While there are certainly many potential causes for such an understated response, I also don’t get the sense that an overwhelming degree of satisfaction is usually one of them. Rather, there seems to be a persistent state of frustration lurking under the surface that occasionally reveals itself in comments like, “I’d like to be able to get more confident with my investing”, and, “Do you ever get to talk to the person managing the money?”To the extent that lurking frustration exists, it is not for lack of investment expertise. Not only are there thousands upon thousands of investment professionals, but there are also terrific credential programs like the CFA and the CFP, a substantial and diverse active management industry that has a business model predicated on developing proprietary insights, and research that suggests it works. For example, the study “Best Ideas” [Cohen, Polk, and Silli, 2010] shows that the typical active money manager actually does outperform with his/her best ideas (the problem is that most portfolios also contain a lot of other ideas which aren’t nearly as good).So why do investors continue to be frustrated when all of this expertise is available? The answer, in a word, is friction.Sources of frictionJust like the progress of any vehicle is slowed down by the friction created by its contact with the road, so too is the efficient transfer of investment expertise constrained by a variety of structural sources of “friction” in the industry.One important source of investment friction is the tendency of many firms to focus more on the business of investment management than on the profession of investing. Because the universe of significant investment opportunities is limited in a competitive environment, managers must settle for progressively less attractive alternatives as a fund grows larger — and this dilutes performance. The conflict of interest between an investment manager’s desire to grow assets (and therefore business profits) and an investor’s desire for a smaller fund focused exclusively on best ideas is one way in which investment expertise often fails to benefit clients.A second source of friction is essentially a corollary of the first: Many firms fail to focus on the types of activities that are closely associated with generating superior investment returns. For example, many firms persist in charging high fees for investment services despite widespread evidence that high fees detract from returns. Many run portfolios that look very similar to their benchmarks rather than concentrating on best ideas (i.e., high active share). Many react (and overreact) to short-term results for which there is very little information content (i.e., low signal to noise ratio). Each of these types of activities is a well-known structural impediment to good investment performance and each is the result of a choice, a tradeoff, made by an organization’s leaders. While it is unfortunate such impediments exist, they are absolutely avoidable.A third source of friction is over-specialization. When an environment remains stable for a long period of time the most successful entities are those that focus on a very narrow area of expertise. Examples include narrowly defined functional silos such as industry-specific analyst coverage and very narrowly defined investment mandates. In such an environment, flexible business approaches and policies to insure against large losses represent unnecessary opportunity costs. In a more tumultuous environment, however, the costs of focusing too narrowly can be debilitating and sometimes even deadly. It’s fine to pack only swim suits and t-shirts for the beach as long as the weather stays nice. If it gets cold and rainy, you’ll wish you had better choices.What you can doWhile various sources of friction often prevent investors from deriving as much benefit as they might from the industry, the good news is that they also provide a clear target for improvement. If you want things to run more smoothly and efficiently, just reduce or eliminate the sources of friction. For investment firms this is simply a matter of making policy choices — of choosing to focus, on the margin, more on the exercise of investing than on the business of investment management. For investors, this is just a matter of identifying the firms that are not only willing to accept, but to actually encourage, making the tradeoffs that benefit investment results.Another way for investors to derive more benefit from the investment services industry is to find better user interfaces. Steve Jobs revolutionized the computer industry by developing a graphical user interface (GUI) that made it much easier for normal people to interact with computers. The same needs to be done with investment firms. While a great deal of investment expertise does exist, only a small subset of that resides with organizations that have cultures truly oriented to helping people. Without such a culture, the path of least resistance is for that expertise to first benefit investment firms and their employees.The investment services industry is interesting as a case study because it defies so many well established norms in other industries. Exceptionally few businesses in a competitive environment can afford to persist with processes and behaviors that impede performance and client satisfaction. If you went to a nice restaurant and ordered an expensive meal and the waiter came out and just threw it down in front of you without explanation and walked away, you would probably be miffed and might consider never coming back. Oddly, the same behavior happens with investment firms all the time — except in these cases investors tend to resign themselves to accepting such treatment. You can do better, but you will almost certainly need to look for new approaches that avoid old, and predictable, sources of friction.