Ready to Roll
The construction industry has a significant role in the India's development and it contributes about 8-10 per cent to the gross domestic product (GDP) of the country on an average. There are issues like scarcity of labourers, particularly skilled ones, in typical construction sites. In smaller towns, people use site mixes, resulting in cement and dust pollution in the locality. The pollution control agencies becoming stringent and are not allowing one to conduct site mixes enables ready-mix concrete (RMC) units to proliferate, but only in urban areas.
They are yet to make their presence felt in the construction sites in semi-urban and rural areas, where the people are not apprised of the benefits of RMCs yet.
Developing nations like India need to have faster construction with high quality assurance, durability and a pollution-free environment, which can be achieved only with RMC.
Given the government's thrust towards infrastructure development and housing for all initiatives in the recent years, construction activity is expected to pick up pace in the times to come. Even the low per capital consumption of cement in the country at 180 kg per annum, with concrete accounting for 60 kg, is giving hope that the RMC industry has a lot of scope to expand from the present level. Per capita cement consumption in China is close to 2,000 kg per person per annum.
The cumulative current RMC capacity is estimated at 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," says Atul Desai is ED & CEO of Prism Johnson (RMC India Division). 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.
The RMC segment is concentrated in a few urban pockets of the country. 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.
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 projects may boost RMC demand in times to come, says Desai.
Overall economic slowdown since 2017 impacted commercial and industrial construction, combined with sluggish residential real estate activity and resulted in moderate rise in RMC market at an average 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 Rs 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," says Desai.
Real estate currently accounts for 60-65 per cent of RMC consumption with residential real estate occupying the majority share of 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, says Desai. 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. The biggest demand drivers for the country's RMC and batching plant segments will be the 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.
In fact, this industry is quite fragmented with unorganised segment cornering a major share of the cake. The top five RMC players are holding a market share of close to 35-40 per cent. And rest of the concrete requirement is being fulfilled by local players, said an industry source.
Majority forward integrated players with nation-wide business reach constitute organised segment, which maintains high standards of products, backed by accredited laboratories and research and development.
"Whereas, unorganised players are the local standalone ones, who cater 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," says Desai.
A lot of regulations and structural changes like implementation of the Real Estate (Regulation and Development) Act (RERA), and GST that have happened in the recent past will encourage the industry to continue its growth streak. So, there is going to be much more level-playing field for major players as well. However, Desai feels that proactive measures from the government like setting stringent and well-defined QA/QC and safety norms to discourage site mix, single window clearance for RMCs and designated green zones for RMCS in urban centres would go a long way in increasing the growth of RMCs in future.
- BS SRINIVASALU REDDY