Cement sector growth depends on infra sector
There is a hope that cement industry is reviving at this moment. How do you see growth prospects of the industry in current year and next three years? Have you seen hints of growth by now?
To begin with, India is the second biggest cement producer in the world. At present, China is ahead of us with around 1.2 to 1.3 billion tonne capacity, and India stands at 450 million tonne. Year-on-year, we are witnessing a 10 per cent increase in the production capacity, with 65 per cent consumption aligned to the housing sector. That said, to improve the consumption patter of cement, the infrastructure sector must grow at 17-18 per cent of the GDP, which is hovering around 10 to 12 per cent. Worth to mention, China's spending on the infrastructure sector was 35 per cent of the GDP, which is unheard anywhere else in the world. But in India, we can be at a much faster speed. For that to happen, firstly, infrastructure spending has to be higher than 15 per cent. Secondly, our dependency on housing, which is consuming around 65 per cent of the segment, has to change, and it has to go more into road infrastructure, ports, hydro power, etc.
How do you see the demand of cement in three segments - residential, infrastructure and industrial construction?
This year, we have witnessed that capacities are getting added in the eastern part of the country, and housing sector has been instrumental in consuming more cement than any other sector, thanks to the progress in Pradhan Mantri Awaas Yojna. But this pattern will not be sustainable for long-term planning. Apart from housing, the only demand driver for cement would be roads. The demand will not only boost the cement sector but also will save forex as most bitumen used on the road sector is imported. India can save a lot of money if the government use cement instead of bitumen in road construction. Here, longevity and life of the road will be much higher, considering the kind of wear-and-tear we witness of the Indian roads.
How do you see cement industries' growth impacting your company and demand for your products?
From 2016 onwards, we have witnessed a consistent increase in our order book position for our equipment, primarily for packing plant. Importantly, the demands for our equipment are mainly coming from the existing cement plant and not from the greenfield projects.
Satellite grinding units, disconnected from mother clinker plant, primarily gave us a boost in our new packing plants. This was one area for us where the order came in handy. Satellite grinding units and satellite packing plants or blending plants gave us quite a substantial contribution. This is mainly because, considering the high logistic cost in cement transportation, which is around 25 per cent, coupled with geographical imbalance of cement plants, I think there will be a good demand for satellite grinding units and packaging plants.
If you look at the manpower deployment in a cement plant, maximum deployment is in packing. Hence, cement players are bringing more automation to their plants. In fact, automation should not be seen as removal of people.
With automation, you bring in higher efficiency in productivity. For e.g: a typical packing line operates at 10 tonne per hour TPH, but in reality, manually it operates at 80 tonnes per hour. Even if it operates at 90 tonne, customers will not be happy because they have paid for 120 tonne but their output is only 90 tonnes. So by automation, we get efficient packing machines and most importantly loading automatic to the trucks. From 80 tonne per hour if you are going to even 110 tonne per hour, your efficiency is so high that your return on investment (ROI) will be in less than 1.5 weeks. This was another area where we saw a lot of investment from our customers to improve their existing plant efficiency.
That means, you do not have to rely only on new plants for automation? Correct! Older plants possess a good area for automation business. Because, these age-old plants are in need for automation that will reduce the excess energy use and can have more productivity. The effort should be to increase the efficiency in productivity. How best you can utilise a resource or equipment, should be the objective.
How can the cement industry bring down the logistic cost?
Over the years, cement industry was focussed on improving grinding efficiency. However, nobody thought about how to produce cement holistically and deliver it to the consumer in the shortest period of time with lowest cost. For example, in a country like Germany, around 40 per cent of logistics takes place through inland water transport. In case of India, it;s a mere 1 per cent! The cost through waterways is much lower than roadways or railways. If cement manufacturers start using bulkers instead of bags, manufacturers will be able to save a huge cost. In fact, bulkers to be transported through railways will be a blessing in disguise for the cement sector. So if you commission a clinker somewhere near the coast or port and use bulkers, a manufacturer can save up to Rs 4-5 per bag.