The organised segment continues to focus on innovative special concrete, quality and timely delivery, while the unorganised players tend to reduce the operating costs by lower compliances tax evasions and employing unskilled labour at cheaper costs, says Atul Desai.
The construction industry is having a significant role in the India's development and it contributes about 8-10 per cent to GDP on an average. Developing nations like India need to have faster construction with high quality, durability and a pollution-free environment, which can be achieved only with ready-mix concrete (RMC).
Overall economic slowdown impacted commercial and industrial construction combined with sluggish residential real estate activity and resulted in moderate rise in RMC market at a CAGR of 4-5 per cent to reach an estimated Rs 215 billion (58 million cubic meters) in 2015-16 from Rs 184 billion (50 million cubic meters) in 2012-13. This growth is anticipated to increase to 6-8 per cent CAGR touching close to 300 billion (81 million cubic meters) by 2020-21. The growth in RMC demand may be primarily attributed to government-infused spending in infrastructure and expected demand from affordable housing.
Growth trends & future projections
Real estate currently accounts for 60-65 per cent of RMC consumption with residential real estate occupying the majority share (38-42 per cent). Further while infrastructure constitutes about 32-35 per cent of RMC demand, industrial and commercial construction constituted about 26-28 per cent of the total RMC consumption in 2016-17.
RMC penetration, measured as the proportion of cement consumed in commercial RMC to total cement consumption in India, is expected to increase to 10 per cent by 2020-21 from the current 7 per cent on the back of healthy demand growth, increased usage in infrastructure projects and penetration of RMC plants in tier-II/ tier-III cities, consistent quality requirements, stringent project timeline, and higher focus on safety and quality norms amongst others. RMC penetration in India has gradually risen with increasing acceptability and usage of higher grade of concrete; however, the current levels are very low compared to other developed economies such as USA, Europe and China where it is above 65-70 per cent.
Southwest, India is anticipated to continue to grow faster than rest of India and is expected to contribute close to 70 per cent of total growth of RMC. North and East may have stable growth and their contribution to RMC growth is only 10 per cent, which may remain more or less range bound till 2020-21.
The biggest demand drivers for the country's RMC and batching plant segments will be the Indian Government's large-scale infrastructure and housing for all scheme. These infrastructure projects include the Bharatmala Pariyojana, Sagarmala, the Smart Cities Mission and the Pradhan Mantri Awas Yojana, and Affordable housing. The Government initiatives on the dedicated freight corridors have also provided opportunities for setting up new RMC plants across the country. With rapid urbanisation, the Indian construction industry has witnessed a major move towards complex architectural structures in commercial buildings, elevated driveways, coastal highways, bullet trains, etc., which may further fuel the demand for high performance concrete.
National capacities & regional/metro capacities
The cumulative current RMC capacity is estimated at about 60,000 cu.m/hr with a relatively comparative spread of commercial and dedicated batching plants across India. RMC demand also has increased at a CAGR of 4-5 per cent. However, owing to inadequate awareness and soft government norms, conversion from site mix is at a very negligible pace especially in small towns and rural areas.
Mumbai and Delhi alone constitute close to 45-50 per cent of total consumption in West and North respectively whereas, Bengaluru and Hyderabad put together constitute about 45 per cent of total consumption in South.
Going further, tier-II and tier-III cities may catch up soon, and the concentration of capacities is expected to gradually rise in such cities too.
Hotspots of growth
Key demand centres of western and southern regions are the most favourable markets for RMC business. Mumbai, Nagpur from West and Chennai, Hyderabad and Amravati from southern region are among the top ranked cities for RMC business attractiveness.
Mumbai leads the city-wise attractiveness list. Construction of multiple metro rail corridors, coastal road, trans harbour sea link and Mumbai-Nagpur Expressway to name a few may spurt RMC demand.
Challenges for growth
Site mix is still prominent due to lack of awareness and lack of focus on quality control and quality assurance - grey areas neglected by the Government authorities.
Capacity utilisation continues to remain low across regions due to restricted traffic hours, limited hours of functioning, stringent regulatory norms and diverse nature of business.
Low capex encourages growth of unorganised players, a segment which is yet to professionalise this business in the right direction.
Availability of consistent quality raw materials.
Increasing credit exposure to the real estate segment, which is under stress due to drop in sales and liquidity crunch is a major concern.
Issues at hand
Deterioration in quality due to site mix.
Limited supply of consistent quality river sand and availability of aggregate nearer to major city.
Freshly-made RMC needs to be placed or used in a fixed time frame, but transportation is a constraint due to huge traffic congestion and entry restrictions in city.
The perishable nature of RMC necessitates the need for the RMC batching plant to be located near construction sites. However, the setting up of commercial plants in metro cities is a challenge due to space constraints as there is no designated zone for RMC units,
Output is restrained due to reduction of working hours - no night work is entertained in residential zones.
Unrealistic short duration and multi-layer Government approvals lead to uncertainty of the plant locations.
Increase in credit exposure to real estate segment has led to huge working capital requirements.
Limited existence of product differentiation and less technological know-how due to spurt in local players is also a significant issue.
Unethical practices by local players.
Outward transport: 12-15 per cent (Unpredictable oil prices, which are directly linked to global crude oil prices are as well increase the cost.)
Power: 2-3 per cent
Wages: 7-8 per cent
Other overheads: 4-6 per cent
Cost due to high working capital because of huge credit exposure to real estate developer segment
Operating margins: 3-6 per cent
The organised segment continues to focus on innovative special concrete, quality and timely delivery. The segment is thus marred with high operating cost owing to high overheads and expenses, which are incurred on training, safety, technology, continuous R&D, QA/QC and testing to bring about transparency in the process. Huge credit exposure also carries significant cost.
The unorganised players, on other hand, tend to reduce the operating costs by lower compliances tax evasions and employing unskilled labour at cheaper costs, overlooking safety/quality norms with minimal upkeep and maintenance of the batching plant.
RMC is operated in the local market, but provides global solutions, which are a real differentiator.
Quality and customised concrete suitable for each application, combined with speed at optimum cost differentiates RMC with site mix.
RMC being a service oriented industry; timely reach to the customer is significant.
Quality authorised labs affiliated to recognised professional bodies to ensure quality assurance and control.
Value offerings in form of special products - providing complete concrete solutions as below mentioned give an edge:
A.PRISM RMC Dyecrete: Aesthetic, though durable, solution to floor dTcor is the best replacement of erstwhile paver blocks. It is safe and minimises accidents. Above all it's available in variety of designs and patterns to colour ones imagination.
B.PRISM RMC Perviouscrete: Instant solution to water logging at walkways/landscape/parking zones, additionally it may help in water harvesting and storing too.
C.PRISM RMC Elitecrete: Solution for thermal insulation. It is a lightweight concrete, which beats the heat on terrace floor, and is the best alternative to conventional brick-bat coba.
D.PRISM RMC Portacrete: Solution in portable ready-to-pour bags (30 kg) available for small concrete pours like stand- alone columns, starters, etc. and a quality replacement to site mix for all grades.
E.PRISM RMC Easycrete: High-performance concrete solution to congestion of steel reinforcement in the structural components like columns/beam-column junction/slabs, where concrete placement becomes easier due to its flowable and self-compacting properties.
F.PRISM RMC FRCcrete: Solution to rapid wear and tear, cracking. The addition of special fibres (steel/polypropylene) increases the structural integrity and improves durability. Best suited for concrete slabs/industrial floors, etc.
G.PRISM RMC Repaircrete: Strengthening solution for extra life. This ready to pour micro-concrete is best suited used for jacketing of structural members, and all types of repair work where quality, workmanship and space is a constraint.
H.PRISM RMC UTWT: Durable concrete solution towards early opening of road to common man. Reduced thickness concrete road, faster in construction with reduced maintenance cost and improved service life.
Additionally we have,
1.Megacrete: Solution to high strength concrete for tall towers,
2.Environcrete: Solution towards ôgo greenö concept, utilising fly ash and GGBS, which are byproducts of thermal power plants and steel units respectively.
3.Thermocrete: Solution towards reducing heat of hydration in mass concrete
4.Coastcrete: Solution to aggressive attacks from sulphates, chlorides in water and soil.
Cement downstreams v/s standalone players
RMC is a local business, provides global solutions.
Its more construction service oriented business and hence may be seen as standalone business.
RMC provides opportunity to cement companies to understand the customer closely, thereby avoiding commercialisation of cement.
Various options of cement are available.
RMC may also offer aggregate crushers opportunity to ride on value chain, locking the customers.
Pragmatically, since local flavour is more prominent and a lot of options w.r.t cement are available, standalone plants preferably supported by aggregate supply back up may be desired.
Organised v/s unorganised players
Majority forward integrated players with nation-wide business reach constitute organised segment. They have large operational setups with huge capacities in anticipation of meeting the long-term demand. The product offerings are application based superior ones and they maintain highest safety standards. Their labs are usually certified by professional bodies like BIS/QCI/NABL and are well equipped. Continuous R&D is part and parcel of business, resulting in to new product developments and implementation of out-of-box innovations. Driven by professionalism, lots of focus is on training and development of the team.
Whereas, unorganised players are the local standalone one, who caters to regional demand with smaller capacities thriving on moderate profitability. Prices are generally lower and product offerings are standard replicated ones. Desired standards and quality are rarely implemented. Safety is a big concern. Grades widely used are replicated and on-the-job training is usually carried out.
Impact of demonetisation
Demonetisation had majorly hit residential real estate construction, which is characterised by large cash transactions. Furthermore, demonetisation also severely impacted unorganised players thriving on tax evasion and cash payments.
Impact of GST
Cement will attract 28% GST resulting in increased costs for the infrastructure sector. GST in India was a dream to reform various area of economy and taxation system. Implementation of GST has benefitted organised players as the same has brought about transparency in dealings.
Recommendations to the Government
Construction industry in India is in developing stage and the role of Government in bringing about changes is very significant as many areas need complete revamping. A few suggestions relevant suggestions are below mentioned:
Stringent and well-defined QA/QC and safety norms need to be laid down by the Government, which discourages and completely abolishes usage of site mix.
RMC being environment-friendly and pollution-free industry, the Government must enforce usage of RMC at all levels and ban site mix.
RMC being a green industry needs to have designated zones for setting up plants in major cities with long term approval of 10 years to reduce establishment cost.
Long terms single-window approvals from the Government, avoiding multiple agencies for ease-in-business and sustainability is expected.
Value concrete and environment-friendly solutions like UTWT for roads, Dyecrete for pavements and perviouscrete to avoid water logging may be recommended or even made mandatory as the case be.
To avoid accidents and have a safe ride, paver blocks need to be banned and better alternative solutions like Dyecreteùstamped concrete need to be specified.
Solution to traffic restrictions need to be worked out and permission to transport through transit mixers 24x7 should be allowed.
Quality authorisation from BIS/QCI should be mandatory not only for prequalification and tenders, but also for small sites.
Sops may be considered for encouraging RMC industry towards its valuable contribution by becoming environment friendly in "go green" concept utilising fly ash and GGBS.
About the author
Atul Desai is Executive Director & CEO of Prism Johnson (RMC India Division) a Rajan Raheja Group. Desai is currently helming RMC (India) Division employs over 3500 employees and operates a total of 101 ready-mixed concrete and aggregate crushing plants in 44 towns and cities across the nation. He possesses a strong business and leadership record as CXO and has a deep understanding of the consumer and business landscape in the Indian region. Desai is also a Secretary of Ready Mixed Concrete Manufacturers' Association (RMCMA).