Future evolution drivers of aggregate industry
In spite of challenges, the aggregate industry looks attractive. As captured earlier in the reports, we estimate the growth of aggregates industry in double digits. Non availability of high quality fine aggregates and restriction on natural sand dredging will open an opportunity for manufactured concrete/plaster sand.
Compliance to environment is improving and is now becoming more suitable for corporates/responsible players to enter this industry. With Government’s focus on complex infrastructure projects such as metro railway, trans harbour link, bullet train, etc., the durability of the structure becoming a more crucial parameter, superior quality aggregates would be the requirement, which should suit the responsible players.
Following will be the future evolution drivers having bearing on the growth of aggregates industry and its emergence as an organised responsible industry:
Urbanisation and smart cities
River sand dredging restrictions
Rules and regulations and statutory compliance
Political and social issues
Brief description of each of the above drivers is given below:
Infrastructure growth & housing
Infra projects like metro, bullet train, airports, flyovers, etc. are demanding high volume, high quality aggregates and manufactured sand requirement for their projects. This is helpful for organised high capacity players to cater as it is near to the cities. Infra-projects like intercity roads, ports, railways are executed by infra companies by setting up their own captive aggregates plants.
The details of projects are as follows:
Roadways: India has second largest road networks in the world. In 2017-18, it was spanning over a total of 5.5 million km consisting of National Highway 1,20,543, state highway 1,55,222 km, other roads 52,07,044 km (source: https://cesroads.com/nh/).
As per Union Budget 2018-19, the government has provided an outlay of Rs 1.21 lakh crore ($18.69 billion) for the road sector. Between FY09 and FY19, budget the outlay for road transport and highways increased at a robust CAGR of 20.91 per cent.
National highways: The total national highways length increased to 122,434 km in FY18 from 92,851 km in FY14. Year-on-year highway construction is growing at a very fast rate and touched around 30 km per day with 10,824 km in 2018-19. It is targeted to touch 2,00,000 km by 2022. (=>For FY 2018-19 - Aggregates requirement is approximately 270 million tonnes per annum)
Rural roadways: The roads are constructed to connect people and villages, which helps faster growth of the country. Rural road connectivity is 86 per cent in 2018 as against 56 per cent in 2014.
Pradhan Mantri Gram Sadak Yojana (PMGSY) III: The scheme was announced in Union Budget 2018-19. The scheme aims at consolidation of through routes and major rural links connecting habitations to gramin agricultural markets, higher secondary schools and hospitals. The project period is 2019-20 to 2024-25. Target is to consolidate 1,25,000 km of road length. Estimated cost is Rs 80,250 crore, Centre share is Rs. 53,800 crore and State share is Rs.26,450 crore. Total of 5,99,090 km of road length is constructed under PMGSY schemes I, II and III, since it’s inception.
=>(Aggregates requirement of 320 Million Tonnes per annum)
Railways: Railway route up to 2017-18 – 68,442 km. Railway Infrastructure investment are expected to increase from 59 billion US$ in 2013-17RE to 124 billion US$ in 2018-22E. Average addition of 1,200 km per annum is projected. Further, renovation and conversion of tracks account of around 3,000 to 4,000 km distance.
=>(Aggregates requirement of 110 million tonnes per annum)
Bullet train: 650 km long, Mumbai-Ahmedabad high speed Bullet Train is expected to be completed by 2023 with a projected cost of US$16 billion. This will have aggregate consumption of around 22 million tonnes.
=> (Total Aggregates requirement of 22 Million Tonnes)
Metro projects: India’s metro rail network has grown rapidly to figure among the top 10 largest metro networks in the world. Metro rail has emerged as a preferential transport alternative in Tier-I cities faced with growing population, high traffic and increased pollution.
Metro projects in 21 cities with 1,415 km of length having investment of Rs.4.09 trillion have been approved and the metro network is expected to increase rapidly in all Tier - I, Tier-II cities.
=>(Aggregates Requirement for above projects would be around 80 to 90 million tonnes)
Dedicated Freight Corridor Corporation of India Limited (DFCCIL):
Western Dedicated Freight Corridor – 1,504 km
Eastern Dedicated Freight Corridor – 1,856 km
East west Corridor – 2,328 km
North south Corridor – 2,327 km
East Coast corridor – 1,114 km
Southern Corridor – 829 km
=>(Aggregates requirement for corridor is 350 million tonnes i.e. 50 million tonnes per annum)
Other infrastructures: The Government of India is also focusing on the growth of transportation sectors other than roadway and railway such as construction of airports, ports etc.
Airports: Investments to the tune of Rs 420 to 450 billion are expected in India’s airport infrastructure between FY 2018-2023. India is expected to become third largest aviation market in terms of passengers by 2024.
Ports: Port sector in India is being driven by high growth in external trade. In FY 2019, traffic on major ports of the country reached 699.05 million tonnes. Non-major ports of India are witnessing strong growth. Special Economic Zones (SEZs) are also being developed in close proximity to the port. The Government of India is aiming to create port capacity of 3200 MMT by 2020 and also executing National Maritime Development Programme with an outlay of $11.8 billion. India has long coastline of about 7,517 km with more than 200 ports, providing ample opportunities for the port sector.
Affordable houses: The Pradhan Mantri Awas Yojana (PMAY) scheme was launched by the Government of India to boost the affordability of houses against an inflated real estate sector. The scheme aims to achieve its objective of “Housing for All” by 31 March 2022.
PMAY urban: The scheme aims at construction of total two crore houses by 2022. Over 6.8 lakh houses are already constructed.
PMAY rural: One crore houses to be constructed by 2019. House size increased from 20 sq m to 25 sq m.
Power: The Government is targeting to provide 24x7 power. In the budget speech it is assured that, “By 2022, every single rural family, except those who are unwilling to take the connection, will have electricity and a clean cooking facility”.
Urbanisation & Smart cities
India’s unique pattern of urbanisation is not a corollary, but a driving force of this growth story. Its cities contribute about two-thirds of its economic output and are the main recipients of FDI. Seventy per cent of future employment is expected to be generated in Indian cities, with emerging cities (population less than 1 million) driving consumption expenditure. With 70 per cent of India’s built environment for 2030 yet to take shape, its impending urban transformation also represents significant opportunities for domestic and international investments.
This urbanisation will lead to faster growth of the economy which will offer far greater opportunities to the building material industry in which aggregates will also benefit.
100 Smart cities to be completed by 2022
Total cost of the project is Rs 2,03,172 crore. The objective of the Smart Cities Mission is to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of ‘smart’ solutions. The focus is on sustainable and inclusive development and the idea is to look at compact areas, create a replicable model which will act like a light house to other aspiring cities. The Smart Cities Mission of the Government is a bold, new initiative. It is meant to set examples that can be replicated both within and outside the Smart City, catalysing the creation of similar smart cities in various regions and parts of the country.
River sand dredging restrictions
Most of the states in India are restricting extraction of sand from river bed deposit due to which manufactured sand requirement grew at a CAGR of 33 per cent from FY 2013-14 to FY 2018-19.
In 2017-18, the Ministry of Mines (MoM) conducted a survey of 14 major sand producing states and it was noticed that there was a deficit in sand requirement. The deficit is partially due to the judicial bans on sand mining without ensuring ways to meet the growing demand. Bans by the courts or the National Green Tribunal (NGT) have led to the shortage of sand supply in many states.
The Indian aggregates industry is changing fast with entry of organised RMC players, growth of RMC industry. The increase in complex infrastructure projects calls for the need of high/consistent quality aggregates in higher volumes coupled with stringent quality parameters for those aggregates. As fulfilling all these parameters is difficult for local players, there is an opportunity for organised players to make an entry.
The present measurement unit of aggregates in many cities of India is still volumetric and has started changing to weighment basis due to demand by the corporate customers like RMC Industry, Infra companies etc.
Logistics – rail / road / water
The aggregates are usually moved from the quarries to its customers within a radius of 15-120 km. However, in the East and certain parts of North these distances can be in excess of 150 km going up to 250 km.
In the current scenario majority of the aggregates are moved by road transport and vehicles with capacity of 10 to 25 MT are used. Aggregates transportation through rail is not feasible due to smaller lead distance from quarries to the market. However, water transport is practiced to a small extent for export to Bangladesh and nearby countries.
As Quarry zones are moving away from cities, transportation distances are increasing. In order to reduce logistic cost, it becomes imperative to use higher capacity vehicles. Stringent implementation of overload restrictions would create level playing field for all players (organised / unorganised).
Rules and regulations & statutory compliance
Quarry licensing rules, explosives rules, mine safety rules and environmental rules are being enforced with greater vigor. This is also leading to stronger compliance requirements. Further, with Royalty becoming an important source of revenue the State Governments have also become watchful of the Industry. This makes life difficult for the smaller players who have been used to an environment where implementation of law and rules was lax. Competition from local players will be reduced with stringent implementation of compliance due to which there is a vast scope for organized players to enter into the market.
Political & Social Issues
Stable Government from 2019-2024 will further speed up the projects and will help in boosting the growth of the economy.
Contribution of new products are important for any business and in aggregates business the products listed below have future growth in the market: -
M sand technology (concrete and plaster) - air classifier, wash plant, etc.
Dry mix mortar
Recycling of construction waste
In the next issue, we will see more information on M-Sand technology.
ABOUT THE AUTHOR:
Sanjay Nikam is CEO & Principal Consultant of SURU09 Business Services, which is into aggregates, M-sand, ready mix concrete, dry mix mortar, fly ash and GGBS industry. He has worked in reputed organisations like Holcim of Singapore, Ultratech cement, Ambuja/ACC Cement , Robo Silicon , RMC India, etc. Sanjay is a Director of Aggregates Manufacturers association. Sanjay is also a visiting faculty at IIT Mumbai. He has an international exposure like China Aggregate Association as a part of Global aggregate association.