ECONOMIC OUTLOOK
Due to the COVID-19 pandemic and Russia-Ukraine War Influence, the global market for
Concrete and Cement estimated at USD 477480 million in the year 2023, is projected to
reach a revised size of USD 774700 million by 2028, growing at a CAGR of 8.4% during the
forecast period 2023-2028. The APAC region will be the largest market for cement. The
replacement of technologically obsolete and small manufacturing plants with
better-equipped manufacturing units will lead to the strong growth of this market in APAC.
The cement demand is expected to grow by 7-8 per cent to around 382 million metric
tonnes in the current fiscal, helped by tailwinds of strong demand from rural housing and
infrastructure sectors, a report by ICRA said on Wednesday. It also mentioned about
"likely contraction in operating margins by 270-320 bps to 16.8-17.3 per cent"
for the industry on account of high input costs and inflationary pressure.
The cement production in the first 11 months of FY22 was at 323 million MT, which is
higher by 22 per cent Y-o-Y. The demand, which was adversely impacted in November 2021 due
to cyclones and unseasonal rains, picked up from December 2021.
The operating profitability of cement producers will decline by around 15% year-on-year
to around US$11/t in the 2023 financial year due to growing fuel costs. However, a 17%
growth in cement demand in the quarter from April to June 2022 would mitigate the impact
of this. The Growth in the cement market in the 2023 year will be driven by
non-residential sectors such as infrastructure development and commercial projects. By
region, growth is anticipated to increase fastest in eastern regions, followed by central
and southern regions but the northern and western regions could be more subdued. It added
that any significant delay in the reduction of petcoke and coal prices or any company that
was unable to increase its cement prices would add further pressure to the market.
INDIAN INFRASTRUCTURE MARKET
Real gross domestic product
The fiscal deficit for 2021-22 is expected to moderate to 6.9% of GDP from the previous
years high of 9.3% of GDP, which was primarily driven by the socio-economic welfare
expenditure on the pandemic. The government has targeted a further improvement to 6.4% of
GDP for the next fiscal (April 2022- March 2023).
Fiscal deficit to moderate to 6.9% of GDP in FISCAl 2022; sharp improvement over 9.3%
in Fiscal 2021
OUTLOOK
While initial forecasts of real GDP growth for fiscal 2023 (April 2022- March 2023) are
in the range of 7.5% to 8.0%, the recent geo-political developments in Ukraine pose a
downside risk. Inflation is also expected to remain elevated in the near term. Other key
factors which can impact growth in the coming year are energy prices and the future
trajectory of the COVID-19 pandemic.
As per the report, the demand for rural housing was supported by a robust rabi harvest
and better crop realisation. The progress of kharif sowing amidst a modest hike in MSPs of
such crops for the upcoming marketing season, would determine farm sentiments going
forward.
On the infrastructure segment, the significant increase by 24% in capital expenditure
to Rs. 7.5 trillion in FY2023 budget estimates over FY2022 revised estimates, led by Rs.
1.8 trillion for roads and Rs. 1.4 trillion for railways is expected to augur well for
cement demand, it added.
On the urban housing, notwithstanding potential challenges due to increasing interest
rates, the growth in employee headcounts and salaries for many IT/ITES companies, and
demand for better and larger homes on account of the shift to the hybrid working model in
customer segments working in IT/ITES, BFSI and related sectors is likely to support demand
going forward.
In FY23, operating income is expected to increase by around 11-13%, majorly supported
by volumetric growth as well as an expected increase in net sales realisation. However,
the elevated input costs are likely to adversely impact the operating margins and decline
by 440-4902 bps to 15.9%-16.4%, which are expected to be the lowest over the last seven
years.
Commenting on the credit metrics of the cement companies in FY2023, the capacity
addition is likely to increase in FY2023, the debt reliance is likely to be rangebound
owing to the healthy liquidity of the cement companies. Hence, the leverage (TD/OPBIDTA)
at 1.3x and coverage, DSCR at 3.3x in FY2023 are expected to remain healthy."
Infrastructure Boom:
• Recent announcement by PM Modi Ji on Independence Day of a $1 Trillion Dollar
National Infrastructure Plan "Gati Shakti" shall give further impetus to an
already flourishing core manufacturing sector
• Bidens $1.2 Trillion Infrastructure Bill in the USA has kempt the sentiment
around the core manufacturing and infrastructure sector is very spirited worldwide
• All the core infrastructure companies Cement and Steel are delivering their
life-time best profit results and their respective shares are soaring at all time highs in
the stock markets.
Cement Industry Outlook:
India is the worlds second largest cement producer with a cumulative production
capacity of 540 Million tonnes per annum (‘MTPA) in 2020. The pandemic led to a
slowdown and delay in capacity expansion projects.
The cement demand in India is estimated to touch 419.92 MT by FY 2027. As India has a
high quantity and quality of limestone deposits through-out the country, the cement
industry promises huge potential for growth. India has a total of 210 large cement plants
out of which 77 are in the states of Andhra Pradesh, Rajasthan, and Tamil Nadu. Nearly 33%
of Indias cement production capacity is based in South India, 22% in North India, 13% in
Central and West India, and the remaining 19% is based in East India. Indias cement
production is expected increased at a CAGR of 5.65% between FY16-22, driven by demands in
roads, urban infrastructure and commercial real estate. The consumption of cement in India
is expected grow to at a CAGR of 5.68% from FY16 to FY22. As per Crisil Ratings, the
Indian cement industry is likely to add ~80 million tonnes (MT) capacity by FY24, the
highest since the last 10 years, driven by increasing spending on housing and
infrastructure activities.
INVESTMENTS
• FDI inflows in the industry, related to the manufacturing of cement and gypsum
products, reached US$ 5.48 billion between April 2000-March 2022.
• As per DGCIS, Indias export of Portland cement, aluminous cement, slag cement,
supersulphate cement and similar hydraulic cements stood at US$ 118.15 million in FY21.
• In 2021, working remotely is being adopted at a fast pace and demand for
affordable houses with ticket size below Rs. 40-50 lakh (US$ 53,694-67,118) is expected to
rise in Tier 2 and 3 cities, leading to an increase in demand of cement.
Some of the major investments and development in Indian cement industry are as follows:
• In June 2022, UltraTech Cement approved Rs. 12,886 crore (US$ 1.65 billion)
capital expenditure to increase capacity by 22.6 million tonnes per annum (MTPA) through
brownfield and greenfield projects.
• PE/VC investments in real estate stood at US$ 3,442 million in the first half of
2022 (January-June 2022)
• PE/VC investments in infrastructure stood at US$ 2,692 million in the first half
of 2022 (January- June 2022)
• Cement production in India increased by 19.4% in June 2022 compared to June
2021.
• In May 2022, Adani Group acquired a 63.1% stake in Ambuja Cements Ltd along with
related assets. Ambujas local subsidiaries include ACC Ltd, which is also publicly
traded.
• In February 2022, ACC Limited, announced the successful commissioning of a 1.6
MTPA Grinding Unit (GU) at Tikaria in Uttar Pradesh.
• In November 2021, UltraTech Cement announced its commitment to the Global Cement
and Concrete Association (GCCA) 2050 Cement and Concrete Industry Roadmap to produce
carbon- neutral concrete by 2050.
• In November 2021, Dalmia Cement announced plans to produce 100% low carbon
cement by 2031. The company has a US$ 405-million carbon capture and utilisation (CCU)
investment plan to help it realise its goal.
• Dalmia Cement plans to spend US$ 1.35 billion to increase its installed cement
capacity by 52% to 50MT/yr from 33MT/yr before FY2024.
• In November 2021, Dalmia Cement announced plans to invest US$ 70.1 million for
setting up its upcoming 2MT/yr cement plant in Bokaro, Jharkhand.
• In October 2021, JK Cement Ltd. signed a long-term strategic Memorandum of
Understanding (MoU) with Punjab Renewable Energy Systems Private Limited (PRESPL). The MoU
is part of JK Cements attempts to decarbonize its operations and significantly scale-up
the use of biomass-based and alternate fuels as replacements to fossil fuels, like coal,
in its manufacturing operations.
• In October 2021, JSW Group collaborated with Salesforce to support an ambitious
digital strategy. Using Salesforces Sales Cloud and Service Cloud, JSW Group will offer a
single group interface, enhancing distribution, customer experience and supply chain for
the large project division across its steel and cement businesses.
• In October 2021, Hyderabad-based Penna Cement Industries, received approval from
the capital markets regulator Securities and Exchange Board of India (SEBI), to go ahead
with its Rs. 1,550 crore (US$ 206.75 million) initial public offering (IPO).
• In September 2021, Ambuja Cement launched ‘Concrete Futures Laboratory, a
one-stop solution that will enable budding professionals to test, learn and experience
various aspects of cement and concrete.
• In September 2021, the Odisha government approved Ramco Cements expansion plan
with an additional grinding capacity of 0.9 MTPA capacity at Haridaspur in Jajpur with an
investment value of Rs.190 crore (US$ 25.5).
GOVERNMENT INITIATIVES
In order to help private sector companies, thrive in the industry, the Government has
been approving their investment schemes. Some of the initiatives taken by the Government
off late are as below:
• As per the Union Budget 2022-23:
o Higher allocation for infrastructure- US$ 26.74 billion in roads and US$ 18.84
billion in railways is likely to boost demand for cement.
o Under the housing for all segment, 8 million households will be identified according
Rs. 48,000 crore (US$ 6.44 billion) set aside for PM Awas Yojana. o The government
approved an outlay of Rs. 199,107 crore (US$ 26.74 billion) for the Ministry of Road
Transport and Highways, and this step is likely to boost the demand for cement.
• As per Invest India, National Infrastructure Pipeline (NIP) expanded to 9,305
projects from 7,400 projects.
• In October 2021, Prime Minister, Mr. Narendra Modi, launched the ‘PM Gati
Shakti - National Master Plan (NMP) for multimodal connectivity. Gati Shakti will bring
synergy to create a world- class, seamless multimodal transport network in India. This
will boost the demand for cement in the future.
• The Union Budget allocated Rs. 13,750 crore (US$ 1.88 billion) and Rs. 12,294
crore (US$ 1.68 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission
and Swachh Bharat Mission.
Company Outlook, Risk and Financial Highlights
a) Outlook
The new management, with rich and diverse backgrounds in core Engineering and
Manufacturing sector are fully resolved to restore the plant to its former glory.
Presently the control of the company has been handed over to us and work is underway in
line to commence commercial production. The overhauling of the plant is completed and
trial runs are being conducted.
Execution Strategy:
> An immaculate execution strategy to revive the plant in record time and operate at
the best industry standards
> Bringing new investments for technology upgradation and expanding the capacity
following best pollution control norms by investing in pollution control equipment.
> Three phase revival strategy to restoration of the grinding plant, development of
mine and clinker facility and moving on to capacity addition in line with our growth
strategy
> Addition of latest engineering innovations to the existing line of machinery to
operate at one of the lowest cost of productions in the Industry and increased capacity
> Industry veterans with a combined experience of over 150 years are part of the
revival and restoration team.
> Financial Engineering by experts to keep the cost of capital at the lowest and
ensure sufficient working capital to sustain our operationalization plan for the factory.
The management is thankful for the support offered by the Government of Telangana in
the revival stage and is certain that the Company shall face a turnaround by the end of
next fiscal.
b) Risks and Concerns
Companies in the global cement industry are facing major challenges: If they are to
improve productivity while simultaneously decreasing costs, they need high-performance
products that are also energy-efficient and offer maximum availability and flexibility.
These products also need to comply with environmental regulations while providing maximum
safety for employees, machines and material.
Bheema Cements Limited shall strive for better output and alternative products to
increase the topline. Further the Company shall keep a good liquidity flow to meet the
capex and the working capital.
c) Internal Financial Control Systems and their Adequacy
The Company has adequate internal financial control systems and procedures in all
operational areas and at all levels equipments procurement, finance, administration,
marketing and personnel departments. The Company also has Internal Audit systems
commensurate with its size and nature of business. The internal audit function will be
done by a firm of Chartered Accountants. The Audit committee reviews the internal audit
reports and the adequacy of internal controls from time to time.
d) Financial review
The Highlights of Financial Operational Performance are given below:
(Rs. In Lakhs)
| Particulars |
2021-22 |
2020-21 |
| Total Income |
30.91 |
61.42 |
| Total Expenditure |
3220.43 |
2467.87 |
| Profit before Tax |
-3189.52 |
-2406.45 |
| Provision for Tax |
0.00 |
0.00 |
| Profit after Tax |
-3695.89 |
-2406.45 |
e) Human Resources Development and Industrial Relations
The Company believes that the quality of its employees is the key to its success in the
long run and is committed to provide necessary human resource development. The Company is
in process of hiring resources with vast experience and expertise in the industry.
Industrial relations during the year are cordial and the Company is committed to
maintain the same in future.
RISKS AND AREAS OF CONCERN
Our comprehensive Risk Management System (RMS) framework helps us identify risks and
opportunities and monitor their movement. It ranks each risk based on two parameters:
a) likelihood of the event and
b) the impact it is expected to have on the Companys operations and performance to
form a risk heat map.
The risks that fall under the purview of high likelihood and high impact are identified
as primary risks. RMS also identifies the potential emerging risks.
This structured process of identifying risks supports the management in making
strategic decisions and in developing detailed mitigation plans. The identified risks are
then integrated into the Companys planning cycle, which is a rolling process, and is
reviewed periodically to make the business and operations sustainable and secure. Some of
the risks may be ongoing, while a few could be emerging risks due to the changing
environment around our business operations.
KEY RISKS IDENTIFIED RISKS
1. Ongoing case with the Electricity Department in the Supreme Court
2. Creating sufficient liquidity for working capital requirements post the commencement
of the plant.
3. Raw material prices for fly ash and slag has increased multifold.
A well-considered plan has been laid down to address the risks. We are going to adopt
more sustainable and efficient energy modes and options. We are investing continuously to
make our plants compatible for fuel flexibility and enhanced capacity. Health and Safety
Maintaining safety of all stakeholders, be it internal or external, is a humongous task,
especially in todays challenging times where we wish to promote our vision of ‘Zero
Harm in our day-to-day operations (road safety, safe project execution, safe supply chain
movements, etc.).
Health and Safety As we continue to face the COVID-19 pandemic, our commitment towards
safeguarding the health of our people, and efforts to ensure safety at our workplaces has
been in greater focus. On the COVID front, the Companys management has worked proactively
to protect our people against the disease by implementing a set of dynamic guidelines (as
per the evolving situation).
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