The Indian cement industry with a total capacity of about 157 m tonnes in FY06, is the second largest market after China. Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 50 per cent of the capacity, the balance capacity still remains pretty fragmented.

Despite the fact that Indian cement industry has clocked a production of more than 100 m tonnes for the last four consecutive years, the per capita consumption of around 125 kgs compares poorly with the world average of over 260 kgs and more than 450 kgs in China. This, more than anything, underlines the tremendous scope for growth in the Indian cement industry in the long term.

Industry Wish List Cement Manufacturers Association of India (CMAI) Reduce excise duty on cement from the current Rs 408/tonne to Rs 250/tonne Lower royalty on cement grade limestone In order to fully meet coal requirements of the cement industry, reduce import duties on coal/non-coking coal Abolish import duty on pet coke from the current 5% To encourage cement utilization, provide incentives for construction of cement roads, continue the housing sector sops, prioritise infrastructure projects such as ports, airports, etc. 50% reduction in railway freight for cement/clinker meant for export No levies /duties be charged on captive power generation as cement units have to depend on captive power for continuous running of their plants  Budget over the years Budget 2004-05 Budget 2005-06 Budget 2006-07 Excise duty on cement hiked by Rs 50 to Rs 400 per tonne. The FM has also emphasized a great deal on completion of various irrigation projects and the development of a multinational standard port in Kochi. Additional 2% education cess on all direct and indirect tax. The Finance Minister has proposed to extend such a measure to other infrastructure sectors. The IIG includes the like of IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank. The consortium will pool their resources to an extent of Rs 400 bn. Initially, airports, seaports and tourism will be the target sectors of the IIG. Excise duty on clinker increased to Rs 350 per tonne from Rs 250 per tonne. Customs duty on cement reduced from 20% to 15% in line with the reduction in peak customs duty rate. Deduction of upto Rs 1 lakh on the repayment of principal amount of housing loan. Customs duty on cement reduced from 15% to 12.5% in line with the reduction in peak customs duty. [Read more on Budget 2004-05] [Read more on Budget 2005-06] [Read more on Budget 2006-07]
Key Positives Infrastructure spending: The ongoing road construction project, airport privatization and river linking projects are fundamental long-term growth drivers for the industry. The Golden Quadrilateral project is already in its final leg, albeit delayed. Accelerated spending in infrastructure is likely to mute the cyclicality aspect of the cement business. Housing demand support: Cement demand has also remained healthy on account of strong support from the housing sector. Considering the steep shortfall in dwelling units in the country, prospects for the sector are promising. Demand-supply dynamics: Unlike the last decade, the oversupply situation in the cement sector has reduced, thus bringing along with it some degree of pricing power. So, the operating profit growth has been faster than the topline growth and the scenario is likely to continue in the near to medium term. Consolidation trigger: The industry is a lot more consolidated now than it ever was in the past. Top five players account for almost 50% of capacity. Fragmentation reduces pricing power and consolidated operations improve efficiency apart from providing pricing power.		Key Negatives Slow progress of reforms: Infrastructure spending, in the recent past has been largely restricted to the government. The private sector has not been provided with adequate impetus, which impacts the overall growth of the economy. Liberalizing FDI in the public infrastructure sector could provide a big fillip. But this has been slow to come by. Spiralling input costs: Cement is a commodity business and any company's ability to maintain margins is dependent on factors like access to coal and stable transportation cost apart from favourable pricing environment. The rise in input costs like coal prices and hike in petroleum product prices could pressurise margins. Rise in interest rates: Interest rates are showing signs of hardening. The impact of this on housing demand will play a crucial role on the future prospects of the sector. The importance of the housing sector in cement demand can be gauged from the fact that it consumes almost 70% of the country's cement. If this support wanes, it could tilt the odds against the cement manufacturers. Huge capex: Recently, demand has surpassed supply, resulting in healthy cement prices across the country. On account of favourable pricing scenario and growing demand for the commodity, almost all the players have lined up capacity expansion plans. However, this scenario is likely to change once the planned capacities come onstream. The announced capacities are expected to be operational by the end of calendar year 2008 leading to a situation of excess supply and in effect, driving down the current high realizations.

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