rcc cements ltd share price Management discussions


<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS REPORT </dhhead>

INDUSTRY OUTLOOK

In India the cement industry has tremendous potential for development as limestone of good quality is found throughout the country. Cement is an important element in any construction initiative, from building a small factory to building multi-purpose projects. It is, therefore, correctly ranked as a basic industry. The Indian cement sector accounts for about 1.2% of GDP and employs more than 0.5 million people. India is the world’s second largest cement producer with Rs. 509 million tonnes per year (mtpa) of cement production capacity and accounts for over 8% of the global installed capacity of the total capacity, 98% is owned by the private sector and the remainder by the public sector. Some 70% of the total production is accounted for by the top 20 companies. In order to boost economic growth, the Government of India is strongly focused on infrastructure development and is aiming for 100 smart cities. The government also intends to expand the capacity of the railways and the handling and storage facilities to ease the transport of cement and reduce the cost of transportation. Due to the growing demands of various divisions, i.e. housing, commercial construction and industrial construction, the demand for the cement industry is expected to constantly reach 550-600 million tonnes per annum by 2025. India has a lot of development potential in the infrastructure and construction sectors and is expected to benefit to a large extent from the cement sector. Some of the recent major initiatives are expected to provide a major boost to the sector, such as the development of 98 smart cities. At present, the Installed capacity of cement in India is 500 MTPA with production of 298 MTPA The Cement sector has received good investments and support from the Government in the recent past. FDI inflows in the industry, related to the manufacturing of cement and gypsum products, reached US$ 5.48 billion between April 2000-June 2022. 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 and infrastructure stood at US$ 338 million and US$ 795 million respectively in September 2022. Cement production in India increased by 12.1% in September 2022 compared to September 2021. In October 2022, UltraTech announced that it has been granted Environmental Product Declaration (EPD) certificates for four of its cement products, which are Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Slag Cement (PSC) and PCC (Portland Composite Cement). As per the Union Budget 2022-23, there was a higher allocation for infrastructure to the tune of US$ 26.74 billion in roads and US$ 18.84 billion in railways is likely to boost demand for cement. 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. 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. Several government schemes such as MGNREGA, PM Garib Kalyan Rozgar Abhiyan and state-level schemes such as MatirSrisht (West Bengal) and public work schemes (Jharkhand) have aided demand 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. Growth in Infrastructure and real estate sector, post-COVID-19 pandemic, is likely to augment the demand for cement in 2022. The industry is likely to add an 8 MTPA capacity in cement production. As per DGCIS, India’s export of Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements stood at US$ 118.15 million in FY21. India exported cement to countries such as Sri Lanka, Nepal, the US, the UAE and Bangladesh. The Government of India is strongly focused on infrastructure development to boost economic growth and is aiming for 100 smart cities. The Government also intends to expand the capacity of railways and the facilities for handling and storage to ease the transportation of cement and reduce transportation cost. These measures would lead to an increased construction activity, thereby boosting cement demand. The future outlook of the cement sector looks on track with pandemic easing out.

In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for export and will logistically be well armed to face stiff competition from cement plants in the interior of the country. India’s cement production capacity is expected to reach 550 MT by 2025. The cement demand in India is estimated to touch 419.92 MT by FY 2027 driven by the expanding demand of different sectors, i.e., housing, commercial construction, and industrial construction.

 

MARKET SIZE

The cement demand in India is exhibiting a CAGR of 5.65% between 2016-22. 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, of which 77 are in Andhra Pradesh, Rajasthan, and Tamil Nadu. Nearly 32% of Indias cement production capacity is based in South India, 20% in North India, 13% in Central, 15% in West India, and the remaining 20% is based in East India. Indias cement production is expected to increase at a CAGR of 5.65% between FY16-22, driven by demands in roads, urban infrastructure and commercial real estate. Indias cement production was expected to range between 380-390 million tonnes in FY23, a growth rate of 8-9% year-on-year (yoy). Between FY12 and FY23, the installed capacity grew by 61% to 570 MT from 353 in FY22. The Indian cement sectors capacity is expected to expand at a compound annual growth rate (CAGR) of 4-5% over the four-year period up to the end of the FY27. It would thus begin the 2028 financial year at 715-725 MT/ year in installed capacity. The consumption of cement in India is expected to grow 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 in the last 10 years, driven by increasing spending on housing and infrastructure activities. .

 

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 2023-24:

Government approved an outlay of US$ 32.57 billion (Rs. 2.7 lakh crore) for the Ministry of Road Transport and Highways which is likely to boost demand for cement.

Under the housing for all segment, in 2023-24 the budget estimate for Pradhan MantriAwasYojana is US$ 9.63 billion (Rs. 79,590 crore), a 66% rise than the last year’s budget estimate of US$ 6.43 billion (Rs 48,000 crore) in 2022-23.

? 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 allocatedRs. 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.

 

ROAD AHEAD

The cement industry in India is globally competitive as the industry continues to witness positive trends such as cost control, continuous technology up-gradation and increased construction activities. Major cement manufacturers in India are also increasingly using alternate fuels, especially bio-energy, to fire their kilns. This is not only helping to bring down production costs of cement companies, but is also proving effective in reducing emissions. With the ever-increasing industrial activities, real estate, construction and infrastructure, in addition to the onset of various Special Economic Zones (SEZs) being developed across the country, there is remain a growing demand for cement.

Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, cement industry is expected to reach 550-600 million tonnes per annum (MTPA) by the year 2025.Number of foreign players are also expected to enter the cement sector owing to the profit margins and steady demand.

 

OUTLOOK

The domestic cement industry is expected to have a volumetric growth of 7-8 per cent in F.Y. 2023-24, helped by a rise in demand from the housing and infrastructure sector, giving a stable outlook for the sector according to a report by ICRA.

Besides, the softening of input costs would help the cement industry to improve its operating profits before interest, tax, depreciation and amortisation by 14-18 per cent Year-on-Year (YoY) to Rs 900-950 per MT in F.Y. 2023-24.

Moreover, supported by healthy demand prospects, the capacity addition in the cement industry is estimated at 63-69 million metric tonnes (MT) between F.Y. 2023-24 and F.Y. 2024-25.

In this, a capacity worth around 33-36 million MT will be added in F.Y. 2023-24 and around 30-33 million MT in F.Y. 2024-25."The cement capacity is expected to rise by 6 per cent in FY2024, the highest addition in the last five years," according to a report by ICRA..

ICRA has given a "stable" outlook for the cement sector. Steady demand from the housing and infrastructure sectors along with a pick-up in industrial capex is expected to support volume off take.

Power and fuel costs, which were at a peak in H1 F.Y. 2022-23, eased in H2 F.Y. 2022-23 and are expected to further moderate in F.Y. 2023-24, improving the operating margins.

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.

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.

 

SWOT ANALYSIS OF CEMENT INDUSTRY

Strengths

The cement industry has many strengths to be considered. Cement is, literally, the building block of the construction industry. Almost every building constructed relies on cement for its foundation. There is also a strong reputation behind the cement industry.

Second largest in the world in terms of capacity: In India there are approximately 200 large and 300 mini plants with installed capacity of 360 million tonnes. There is a low cost of production due to the easy availability of raw materials and cheap labour. Cement is, literally, the building block of the construction industry. Almost every building constructed relies on cement for its foundation. The cement business is a $10 billion industry, measured by annual cement shipments. There is also a strong reputation behind the cement industry. Cement is a solid material and consumers rarely have complaints about the product. Regional distribution plants have also made cement widely available to any type of buyer.

 

Weaknesses

Cement Industry is highly fragmented and it is also highly regionalized and Low value commodity makes transportation over long distances uneconomical.The cement industry is not without its drawbacks. The cement industry relies on construction jobs to create a profit. Another weakness is the cost of transport; the cost of transporting cement is high and this keeps cement from being profitable over long distances

It also impact the health of the human. Due to Highly dusty environment at the time of dumping the cement is hazardous for health. It affects human’s respiratory system adversely.

High Interest rates on housing: The re-pricing of the interest rates in the last four years from 7% to 12% has resulted in the slowdown in residential property market.But the cement industry heavily relies on weather. About two-thirds of cement production takes place between May and October. Cement producers often use the winter months to produce and stockpile cement, to meet demand. Another weakness is the cost of transport; the cost of transporting cement is high and this keeps cement from being profitable over long distances. In other words, shipping cement costs more than the profit from selling it.

 

Opportunities:

The cement industries has opportunities as well. One such opportunity is the cement industrys efficiency. Cement industry can attract the best of people by designing & structuring Rewards, Accolades, and Flexible

Compensation & Benefits. Creating the supportive culture in the organization wherein people are open to innovate.

Indian economy has been one of the stars of global economics in the recent years. Infrastructure accounts for 35% of cement consumption in India. And with increase in government focus on infrastructure spending, such as roads, highways and airports, the cement demand is likely to grow in future.There has been increase in the purchasing power of emerging middle-class with rise in salaries and wages, which results in rising demand for better quality of life that further necessitates infrastructure development and hence increases the demand for cement. Heavy demand of housing and other sectors in which Cement is to be treated as raw material. Foreign direct Investment in the Retail and other Sector may surge demand of Cement in coming years.

 

Threats

The nature of the economy have uncovered a number of threats to the cement industry. The cement industry greatly relies on construction. The current economy has lessened the number of construction jobs, which in turn hurts the cement industry. The availability of power from the State Electricity Boards is another area of concern with acute shortages in power availability in Tamil Nadu and Andhra Pradesh. Availability of indigenous coal from the nationalized coal companies and the quality of supplies is another area of concern. This problem has however been mitigated to a large extent due to the coal linkages obtained during the last two years to cater to the requirements of the recent capacity expansions in Andhra Pradesh. The ever-rising cost of energy in the form of petroleum products will also have its impact on the power and transportation costs.

 

INTERNAL CONTROL SYSTEM

Pursuant to the acquisition, the Management of the Company is in the process ensuring that systems and processes for ensuring that Internal Financial Controls (?FC’) have been laid down in the Company and that such controls are adequate and operating effectively. Consequently, an IFC framework, to commensurate with the size, scale and complexity of the Company’s operations is being developed. The systems, standard operating procedures and controls forming part of the IFC will be reviewed by the internal audit team whose findings and recommendations will be placed before the Audit Committee. The Internal Audit team will be responsible for regularly monitoring and evaluating the efficacy and adequacy of internal control systems in the Company and its compliance with systems, procedures and policies at all locations of the Company. The internal control systems and procedure are continuously monitored to enhance its effectiveness and to be commensurate with the scale and nature of its operations.. During the year the Audit Committee of the Board regularly met to discharge its functions. The Audit Committee reviews compliance to the Revenue Recognition of the Company. Internal audit activities are undertaken as per the Annual Audit Plan as approved by the Audit Committee and the committee reviews compliance with the plan. The Audit Committee regularly meets with the statutory auditors to review their observations on the financial reports.

 

HUMAN RESOURCES

Our Company believes that targets of the Company can only be reached with efforts from all its employees. Our Company recognizes that job satisfaction requires congenial work environment that promotes motivation among employees and therefore results in enhanced productivity, and innovation and also provide avenues for employee training and development to identify their potential and develop their careers in the Company. The Company values contribution of its employees and follows the principle of informing all its employees about its future growth strategies

 

CAUTIONARY STATEMENT

Investors are cautioned that this discussion contains statements that involve risks and uncertainties. Words like anticipate, believe, estimate intend, will, expect and other similar expressions are intended to identify "Forward Looking Statements". The company assumes no responsibility to amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Actual results could differ materially from those expressed or implied. Important factors that could make the difference to the Company’s operations include cyclical demand and pricing in the Company’s principal markets, changes in Government Regulations, tax regimes, economic developments within India and other incidental factors.

For and on behalf of the Board of
RCC Cements Limited
Sd/-
Place: New Delhi Sachin Garg
Dated: 29.08.2023 Chairman
DIN: 03320351