Indian Cement

Industry
 INTRODUCTION

India is the world's second largest cement producer, accounting for

over 8% of global installed capacity

India's cement production is projected growth at a CAGR of 5.65%

and consumption at 5.68%.

Key government initiatives like urban infrastructure, commercial real-

estate, smart cities development and housing for all have aided demand
 Market Structure -Oligopoly

Neptune
Key players and regional disparities in the Indian Cement Industry
 Adani’s recent investment in the cement industry
A curious case of backward integration

The Adani Group successfully acquired Ambuja Cements and its subsidiary, ACC Ltd, from Switzerland's
01 Holcim Group for a substantial sum of $6.4 billion, with an open offer of $4 billion, totaling an industry-record
$10.4 billion. This acquisition stands as the largest deal within the cement industry.

This acquisition involved securing a 63.15% stake in Ambuja Cement, which, in turn, possesses a 50.05% stake
02 in ACC Limited. Additionally, the Adani Group directly holds a 6.64% stake in ACC Limited.

The acquisition of Ambuja Cements and ACC signifies a strategic move towards vertical integration. It serves to
03 strengthen the Adani Group's supply chain, catering to the diverse requirements of its infrastructure projects,
including expressways, ports, airports, and power plants.

Adani Group's competency in driving operational efficiency will result in significant margin expansion to become
04 the most profitable cement manufacturer in the country and anticipate going from the current 70 million tonne
capacity to 140 million tonne in next 5 years.
 Characteristics of Cournot Model

Large
Indian cement industry is highly fragmented, with a large number of
01 Number of
firms competing in a relatively homogeneous market
Firms

No Price Firms have limited pricing power due to the high level of competition.
02 Competition They may collude taking price competition out of consideration

Multiple
There are a significant number of firms and no one dominant firm
03 dominant
controlling the proceedings. Thus Stackelberg model is not applicable
firms

Production Firms are likely to make decisions based on their own production costs
04 costs and the market price which depends on production capacity/ output
Cement Pricing Cement prices in India have
increased by over 20% in the
last two years due to COVID-19
and the Ukraine-Russia crisis.

The increased cost of coal,

petcoke, and non-coking coal is
the main reason for the price hike.

In Delhi, cement prices are 10-

15% higher than last year, and in
Chennai, they are nearly 13%
higher.

As per industry experts, a Rs 50

hike in cement price in Chennai
is likely to increase the per sq ft
construction cost by Rs 20.
Impact of Government Policy on demand and pricing for cement industry

Oligopoly market, where large players have

Mercury
partial pricing control is the
due to closest
their rising Pricing
01 monopoly power. planet to the Sun

As per ICRA, cement production in India is

expected to increase by 12% YoY, driven by
Venus is the second planet Production
02 rural housing demand and the government's
from
strong focus on infrastructure the Sun
development

Since capital expenditure outlay was hiked to

Jupiterinis Budget
Rs. 10 lakh Crores a gas giant and this
2023-24, Budget
03 the biggest
will have a positive impact planet
on infrastructure
and cement industry.

Outlay of PMYes,
Awas Yojana
this is the increased
ringed one.by 66%
04 (Rs. 79,590 cr), this will It’s
alsoa gas
havegiant
a positive Govt. Schemes
impact on Real estate and cement industry.
 Importance of Product Differentiation

Product Differentiation Hotelling Model

• Limited horizontal differentiation due to • Not directly applicable; cement is not

standardized cement products spatially located like retail stores
• Limited vertical differentiation; products
adhere to national standards

Imperfect Information and

Market Power Switching Costs:

• Product differentiation used to establish • Firms rely on reputation and quality

brand recognition certifications.
• Market power driven by factors like • Consumer trust and loyalty key to
production capacity and market share cement market dynamics.
 Entry and Market Dominance in Indian Cement Industry

1 2 3

Entry Costs and Market Entry Deterrence with Capacity

Innovation as Entry Deterrence
Structure Investment

• High entry costs, including • Existing leaders strategically

• High entry costs, including
substantial capital requirements expand production capacity to
substantial capital requirements
• Concentration of major players deter new entrants.
• Concentration of major players
with established distribution • Scale economies achieved
with established distribution
networks through capacity growth reduce
networks
production costs.
Entry barriers and risks in the Cement Industry

01
Coal Price
Variation
04
Revenue leakage
through price change
02
High plant
maintenance
05
Transportation
costs and import
03 duties
Exemption limit on
capital gain
 INCENTIVES TO COLLUDE

PRICE LEADERSHIP BARRIERS TO ENTRY MARKET SHARING

REGIONAL CONCENTRATION MARKET STRUCTURE LIMITED SUBSTITUTES

 State level coordination by cement manufacturing firms
Industry leaders deciding on price range

Kolkata, Chennai,
Bhubneshwar Hyderabad
Century Cement, Madras Cements,
North Orissa Cements Ltd Central India Cement West

Delhi, Jaipur East Bhopal, Lucknow South Mumbai, Ahmedabad

Shree Cement, ACC, Birla Grasim/ Rajashree Cements,
Lakshmi Cement Corporation, Satna Gujarat Ambuja Cement
 CCI raids and fines imposed

Year Fines Imposed Companies

2012 ₹60 billions1 11 cement companies including Shree Cement and the
Cement Manufacturers' Association (CMA)

2016 ₹63 billions2 11 cement companies including UltraTech Cement Ltd,

ACC Ltd, Ambuja Cement Ltd and the CMA

2018 ₹2.06 billions3 7 cement companies forming cartel in Haryana Government

tender

1.https://www.livemint.com/Companies/klsOHq2ozaYaRy0WHdwzvO/SC-stays-CCI-penalty-of-Rs-6300-crore-on-cement-firms.html
2.
https://economictimes.indiatimes.com/industry/indl-goods/svs/cement/cci-imposes-rs-6700-crore-fine-on-10-cement-companies-including-acc-ultratech-and-lafarge-for-cartelizationarticleshow/5394
8286.cms
3.https://www.business-standard.com/article/companies/six-leading-cement-companies-forming-a-cartel-under-cci-scanner-118021301275_1.html
 Ways of preventing collusion

Strengthening regulatory
Random inspection and audits
framework
Includes the implementation of competition laws
This helps in detecting and deterring any
and regular monitoring by regulatory bodies like
the Competition Commission of India (CCI) to
collusive practices by keeping companies
deter collusion vigilant and compliant

Transparency and Public awareness and

information sharing advocacy
Establishing platforms for regular Building awareness can generate public
information sharing can help identify any
support for regulatory actions against anti-
suspicious activities among cement
manufacturers, thereby deterring collusive
competitive behaviors
practices

Encouragement of new
Imposition of hefty fines
enterants
Increased market competition often Heavy fines act as a significant
reduces the likelihood of collusion deterrent for companies engaging in
among existing players anti-competitive practices
Thank You