The Indian cement industry was deregulated in 1982 and since then it has attracted huge investments from both Indian and foreign investors. India is the largest producer of cement in the world and provides employment to more than a million people. Aided by suitable government policies and immense potential of development in the infrastructure and construction sector, several foreign cement majors like Lafarge Holcim and Heidelberg have invested large funds in the cement sector. Ready availability of raw materials such as coal and limestone at close proximity to cement manufacturing plants contributes to this sector’s growth. At present the total cement production capacity is around 450 million tonnes, which is expected to go up, supported by a pick-up in the housing segment and higher infrastructure spending. Increasing demand from the industrial and commercial construction segment should also contribute significantly to the cement industry and take total production capacity to 550-600 million tonnes in the next 5-7 years. The main demand driver of cement is the real estate sector, which accounts for nearly 65% of the total consumption in our country. The other major consumers of cement include public infrastructure and industrial development sectors accounting for a market share of 20% and 15%, respectively. Power and fuel costs account for 25%-30% of the total operating cost for the cement industry and hence cement companies are now increasingly turning towards waste heat recovery systems to lower their operating costs. Waste heat recovery system is an energy recovery heat exchanger that recovers thermal energy from the exhaust gas and converts it into electrical energy.
Heidelberg Cement Group is a market leader and a prominent player in the global cement industry. Heidelberg Cement India Ltd is a subsidiary of Heidelberg Cement Group, Germany with manufacturing facilities in Uttar Pradesh, Madhya Pradesh and Karnataka and has carved a niche for its brand “mysem” across the country on the back of excellent quality. Heidelberg reported a strong set of fourth quarter FY2018 earnings, with YoY sales growth of 16% and EBIDA increase of 63%. Moreover, volume grew 5% YoY due to strong demand and operating profit surging 63% YoY. The overall cement sector ended FY18 on a strong note as majority of companies including Heidelberg recorded decent volume growth in spite of multiple challenges and disruptions in the form of ban on sand mining and rising fuel prices. The Heidelberg Cement stock quoting at Rs 140 on the Indian exchanges can be bought by portfolio investors for a 20% price appreciation in the next one year.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.