India is the second largest cement producer in the world with cement production at 144 million tons and consumption at 117 million Tons, surpassing developed countries like USA and Japan. But, the industry is highly fragmented in nature with more than 55 companies controlling a total capacity of around 140 million tons. The Indian cement industry has tremendous scope for improvement in the long run, in spite of the fact that it has produced more than 100 million tons of cement for two consecutive years now.
The Cement Industry is oligopolistic by nature. This deal which took years to complete will enable
Grasim to reap economies of scale, and at the same time, provide the Company with enough market
power. However, the company is not willing to stop here and it plans to do more aggressive investment
in the cement sector.
The industry structure is such that the entire industry has been divided into four main zones—east,
west, south and north. The reasons for doing so is that cement, being a bulk commodity, can not be
economically moved for long distances. Moreover, as the availability of a sizeable amount of limestone
reserves is one of the key factors in determining the location of a cement plant, the plants gather
around such reserves. This has resulted in clusters of cement plants (Refer to Exhibit-I for details). The
southern region has a higher supply of limestone than demand, whereas the markets are more lucrative
in the northern region.
As the potential of the industry is huge, foreign players are naturally very interested. They are planning
to acquire domestic companies’ rather than setting up greenfield ventures. Companies like Lafarge of
France and Italicementi of Italy have already made a couple of purchases and Holchim has tied up
with Gujarat Ambuja more recently. However, it won’t be easy for foreign players as the industry is
rather fragmented and the median capacity is only 1 million tons.
Before 2000, Grasim Industries marketed different brands of cement in different regions. They
had Grasim Super in the East, Vikram and Aditya Cement in the North, Grasim Super, Rajashree and
Vikram Cement in the West and Rajashree Cement and Birla Super in the South. This lead to
fractured brand building exercises, which resulted in additional expenditures. Therrefore, in 2000,
under the recommendation of Boston Consulting Group, “umbrella branding” was sought to be
introduced. An umbrella brand “Birla Plus” was launched first in the North zone and then subsequently
in the East, West and South. |
