RCC Cements Ltd Management Discussions

INDUSTRY OUTLOOK

The outlook for the cement industry in India is promising, driven by strong demand from infrastructure projects, urbanization, and housing development. The Indian cement industry is proceeding with expansion plans and capacity additions, despite dampened demand expected to persist through the first half of FY25. Cement giants foresee a modest 6-7% volume growth this fiscal year, even though the period has begun with a pricing downturn.

Indian cement demand is projected to grow by 6-7% in FY25, following a strong 7-8% YoY growth in the last quarter of FY24. Despite a pricing downturn due to increased competition, average cement prices declined by around 1.5% in FY24.

Indias cement industry, as per CRISIL Ratings, plans to increase its capacity by 150-160 MT between FY25 and FY28, building upon the 119 MT annual capacity addition over the last five years, to cater to growing infrastructure and housing demands.

Cement consumption is expected to reach 450.78 million tonnes by the end of FY27.

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 worlds 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.Thegovernment 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.

The Cement sector has received good investments and support from the Government in the recent past.

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. Indias 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.

The cement industry in India grew by an estimated 8-10% during the 2023-24 fiscal year, with total cement production crossing the 400 million tons mark. This growth was supported by strong demand from both the public and private sectors and the continued expansion of infrastructure and real estate development.

The cement industry in India experienced significant growth in the fiscal year 2023-24, driven by several factors:

1. Government Initiatives: The Indian governments focus on infrastructure development, including roads, highways, and urban development, significantly boosted cement demand. The Pradhan Mantri Awas Yojana (PMAY), Smart Cities Mission, and various infrastructure projects have been major drivers.

2. Increased Construction Activity: The post-pandemic recovery saw a resurgence in construction activities, both in residential and commercial sectors. This increase in construction led to higher consumption of cement.

3. Rural Demand: The demand for cement in rural areas also grew, supported by government schemes for rural housing and infrastructure, along with a general increase in disposable income in rural households.

4. Sustainability Initiatives: The industry has been increasingly focusing on sustainability, with investments in green cement, alternative fuels, and technologies that reduce carbon emissions, which has also attracted investments and growth.

5. Capacity Expansion: Major cement players continued to expand their production capacities to meet the rising demand, leading to an overall increase in production levels.

6. Price Fluctuations: While the industry saw growth, it also experienced price volatility due to fluctuations in raw material costs, particularly coal and petcoke, which are crucial for cement production.

7. Export Growth: There was a notable increase in cement exports, driven by demand from neighboring countries and regions with less developed cement production capabilities.

Overall, the Indian cement industry maintained a positive growth trajectory in 2023-24, underpinned by strong domestic demand and favorable government policies. The industry is expected to continue growing, driven by ongoing infrastructure projects and the expansion of urbanization in India.

MARKET SIZE

In 2023, the market size of Indias cement industry reached 3.96 billion tonnes and is expected to touch 5.99 billion tonnes by 2032, exhibiting a CAGR of 4.7% during 2024-32. As India has a high quantity and quality of limestone deposits throughout 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 reached 374.55 million tonnes in FY23, a growth rate of 6.83% 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 FY27. It would thus begin the 2028 financial year at 715-725 MT/ year in installed capacity.

Indias cement production for FY24 is expected to grow by 7-8% driven by infrastructure-led investment and mass residential projects.The Indian cement industry is proceeding with expansion plans and capacity additions, despite dampened demand expected to persist through the first half of FY25. Cement giants foresee a modest 67% volume growth this fiscal year, even though the period has begun with a pricing downturn.Indian cement demand is projected to grow by 6-7% in FY25, following a strong 7-8% YoY growth in the last quarter of FY24. Despite a pricing downturn due to increased competition, average cement prices declined by around 1.5% in FY24.

The consumption of cement in India is expected to grow at a CAGR of 5.68% from FY16 to FY22. Indias cement industry, as per CRISIL Ratings, plans to increase its capacity by 150-160 MT between FY25 and FY28, building upon the 119 MT annual capacity addition over the last five years, to cater to growing infrastructure and housing demands.Cement consumption is expected to reach 450.78 million tonnes by the end of FY27.

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 of late are as below:

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.

• As per the Union Budget 2023-24:

o The 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.

o Under the housing for all segment, in 2023-24 the budget estimate for Pradhan Mantri Awas Yojana is US$ 9.63 billion (Rs. 79,590 crore), a 66% rise from the last years budget estimate of US$ 6.43 billion (Rs 48,000 crore) in 2022-23.

In 2023-24, the Indian government has launched several initiatives to support the growth of the cement industry, primarily by driving infrastructure development, encouraging sustainable practices, and improving the overall business environment. Here are the key government initiatives:

1. National Infrastructure Pipeline (NIP)

• Investment Boost: The NIP continues to be a significant driver of cement demand, with plans to invest around INR 111 lakh crore by 2025 across sectors like energy, roads, urban infrastructure, and railways. The ongoing execution of these projects is expected to substantially increase the demand for cement.

2. Pradhan Mantri Awas Yojana (PMAY)

• Affordable Housing: The PMAY scheme, aimed at providing affordable housing for all, continues to drive the demand for cement. The governments target to build millions of homes under this scheme by 2024 has resulted in a steady increase in construction activities, benefiting the cement industry.

3. Gati Shakti - National Master Plan

• Holistic Infrastructure Development: Launched in 2021 and further expanded in 2023-24, Gati Shakti aims to bring together 16 ministries for integrated planning and coordinated implementation of infrastructure projects. This initiative is set to streamline project approvals, reduce construction time, and significantly boost cement demand.

4. Smart Cities Mission

• Urban Development: The continued focus on developing smart cities across India involves extensive construction activities, including roads, buildings, and utilities, which in turn drives cement consumption. The governments push in 2023-24 to expedite these projects is likely to benefit the cement industry.

5. Bharatmala Pariyojana

• Highway Development: Bharatmala, the highway development program, continues to be a cornerstone in the governments infrastructure strategy. The programs expansion in 2023-24 includes the construction of new highways and the upgrade of existing ones, leading to a significant increase in cement demand.

6. National Green Hydrogen Mission

• Sustainability Initiatives: The governments focus on promoting green hydrogen and reducing carbon emissions has encouraged the cement industry to invest in cleaner technologies and sustainable practices. While this is a long-term initiative, the policies introduced in 2023-24 have started paving the way for greener cement production.

7. PLI Scheme for Building Materials

• Production-Linked Incentives (PLI): The government has extended the PLI scheme to building materials, including cement, to encourage domestic manufacturing and reduce dependence on imports. The incentives provided under this scheme in 2023-24 are expected to drive capacity expansion and technological upgrades in the cement sector.

8. Revised Mining Laws

• Raw Material Availability: In 2023-24, the government made amendments to the mining laws to ensure better availability of limestone and other essential raw materials for cement manufacturing. These changes aim to streamline the allocation process and reduce bottlenecks, ensuring a steady supply chain for the industry.

9. Increased Focus on Logistics

• Logistics and Supply Chain Efficiency: The governments focus on improving logistics through initiatives like Dedicated Freight Corridors (DFCs) and the development of multimodal logistics parks will help reduce transportation costs for cement manufacturers, thereby improving their competitiveness.

10. Atmanirbhar Bharat Abhiyan

• Self-Reliance in Manufacturing: The continued push for self-reliance under the Atmanirbhar Bharat Abhiyan has encouraged domestic production of cement and related materials. The governments support in the form of policy reforms, financial incentives, and infrastructure development is expected to sustain the industrys growth in 2023-24.

The governments initiatives in 2023-24 are heavily focused on infrastructure development, sustainability, and improving the ease of doing business, all of which are expected to drive growth in the cement industry. These measures, combined with ongoing reforms and support for domestic manufacturing, are likely to ensure sustained demand and development in the sector.

ROAD AHEAD

The road ahead for the cement industry in India is marked by several growth opportunities, driven by increasing infrastructure development, urbanization, and sustainable practices. However, the industry also faces challenges that require strategic planning and adaptation.

The Indian government is firmly focused on infrastructure development to spur economic growth and is striving for full infrastructure coverage to establish smart cities. The government plans to increase the capacity of railways and the facilities for handling and storage to enable the transfer of cement and cut out on transportation costs. These measures are expected to result in increased construction activity in the country, thereby boosting demand for cement.

The eastern states of India are likely to be the newer and untapped markets for cement companies and could contribute to their bottom line in future. In the next 10 years, India could become the main exporter of clinker and grey 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. Indias cement production capacity is expected to reach 550 MT by 2025. A number of foreign players are also expected to enter the cement sector owing to the profit margins and steady demand.

The road ahead for the cement industry in India is promising, with substantial growth opportunities driven by infrastructure development, urbanization, and sustainability initiatives. However, navigating the challenges of raw material costs, environmental compliance, and market uncertainties will require strategic investments in technology, sustainability, and operational efficiency. Companies that can innovate and adapt to these evolving conditions will be well-positioned to thrive in the coming years.

OUTLOOK

The cement industry in India has a promising outlook, driven by several key factors that suggest continued growth and expansion in the coming years:

1. Infrastructure Development:

• Government Initiatives: The Indian governments emphasis on infrastructure development, including projects like Smart Cities, affordable housing (Pradhan Mantri Awas Yojana), and the expansion of roads, highways, and railways, will significantly boost demand for cement.

• Urbanization: The ongoing urbanization trend and the development of urban infrastructure, including metro projects, commercial spaces, and industrial corridors, will further drive cement consumption.

2. Housing Demand:

• Affordable Housing: The governments focus on affordable housing, coupled with rising disposable incomes and favorable demographics, will continue to fuel residential construction.

• Real Estate Recovery: After a period of slowdown, the real estate sector in India is witnessing a gradual recovery, which is expected to translate into higher demand for cement.

3. Sustainability and Innovation:

• Green Cement: There is a growing emphasis on sustainability, leading to the development and adoption of green cement. Companies are increasingly focusing on reducing their carbon footprint and enhancing energy efficiency.

• Technological Advancements: The adoption of advanced technologies, such as waste heat recovery systems and alternative fuels, will contribute to the industrys growth by reducing costs and improving operational efficiency.

4. Capacity Expansion:

• Investment in New Plants: Many major cement companies are investing in capacity expansion, either through new plants or by expanding existing ones, to meet the anticipated rise in demand.

• Consolidation: The industry is also likely to witness consolidation, with larger players acquiring smaller companies to increase market share and achieve economies of scale.

5. Economic Growth:

• GDP Growth: Indias economic growth, projected to remain robust, will be a key driver of cement demand across various sectors, including infrastructure, real estate, and industrial construction.

• Foreign Direct Investment (FDI): Increased FDI in infrastructure and construction sectors will further boost the cement industrys growth prospects.

6. Challenges:

• Raw Material Availability: The industry may face challenges related to the availability and cost of raw materials, such as limestone, coal, and power.

• Environmental Regulations: Stricter environmental regulations could impact production processes and costs, necessitating investments in cleaner technologies.

The future outlook for the cement industry in India is positive, with strong growth anticipated over the next decade.

However, the industry will need to navigate challenges related to environmental sustainability, raw material availability, and technological advancements to maintain its growth trajectory.

SWOT ANALYSIS OF CEMENT INDUSTRY

Strengths

1. Large and Growing Market:

o India is the second-largest producer of cement globally, with a significant domestic demand driven by infrastructure development and real estate growth.

2. Strong Infrastructure Focus:

o Government initiatives like the Bharatmala and Sagarmala projects, Smart Cities Mission, and housing schemes like PMAY create consistent demand for cement.

3. High Production Capacity:

o The industry has a well-established production capacity, with many large players having extensive networks of plants and distribution channels.

4. Sustainability Initiatives:

o Increasing focus on producing eco-friendly cement, use of alternative fuels, and reduction in carbon emissions are enhancing the industrys sustainability profile.

5. Robust Supply Chain:

o A well-developed supply chain network ensures the efficient distribution of cement across the country, even to remote areas.

Weaknesses

1. High Energy Costs:

o Cement production is energy-intensive, with significant costs associated with fuel and electricity. Fluctuations in coal and petcoke prices can affect profitability.

2. Environmental Concerns:

o The industry is one of the largest emitters of CO2, and stringent environmental regulations can increase operational costs.

3. Overcapacity in Certain Regions:

o Some regions in India face overcapacity, leading to lower utilization rates and competitive pressures, which can drive down prices and margins.

4. Dependence on Government Projects:

o A significant portion of demand comes from government infrastructure projects, making the industry vulnerable to changes in government policy or budget constraints.

Opportunities

1. Rural and Affordable Housing:

o Growing demand for affordable housing in rural and semi-urban areas presents a significant opportunity for cement manufacturers.

2. Urbanization and Smart Cities:

o The push towards urbanization and the development of smart cities will continue to drive cement demand for the foreseeable future.

3. Technological Advancements:

o Adoption of new technologies for energy efficiency, waste management, and production processes can reduce costs and improve margins.

4. Export Potential:

o With global demand rising in certain regions, Indian cement manufacturers have opportunities to increase exports, especially to neighboring countries.

5. Innovation in Products:

o Development of new types of cement, such as low-carbon or green cement, can open up new markets and meet the growing demand for sustainable construction materials.

Threats

1. Raw Material Shortages:

o Fluctuations in the availability and cost of raw materials like limestone, coal, and gypsum can disrupt production and impact profitability.

2. Environmental Regulations:

o Increasingly stringent environmental regulations may lead to higher compliance costs and capital expenditure on pollution control measures.

3. Economic Slowdown:

o An economic downturn could reduce demand for cement, particularly if it impacts infrastructure spending and real estate development.

4. Competition:

o Intense competition among domestic players, as well as from global entrants, can lead to price wars, impacting profitability.

5. Logistical Challenges:

o The industry depends heavily on an efficient transportation network. Any disruption in logistics, such as strikes, fuel price hikes, or transportation bottlenecks, can severely impact supply chains.

The cement industry in India is well-positioned for growth due to strong domestic demand and government support. However, it must navigate challenges related to environmental regulations, energy costs, and competition. By capitalizing on opportunities in rural housing, urbanization, and sustainability, the industry can continue to thrive.

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 (iFC) 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 Companys 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 Companys operations include cyclical demand and pricing in the Companys 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: 02.09.2024	Chairman
	DIN:03320351