Cement industry, upbeat on prime minister's much-ambitious highway development project and the booming housing segment, witnessed the biggest ever merger in L&T-Grasim deal, even as the foreign majors adopted a cautious path with a "wait and watch" policy in 2003.
Notwithstanding the drought that hit the country in early part 2003, the Rs 30,000 crore (Rs 300 billion) cement industry is expecting a modest eight per cent growth even though the GDP is expected to grow 6-7 per cent.
| On firm footing |
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L&T-Grasim successfully merges ACC takes over Orissa's Idcol Cement |
Close on the heels of "complex" Rs 2,200 crore (Rs 22 billion) L&T-Grasim deal, slated to become a benchmark for future merger and acquisition, the other competitor, ACC, was all smiles with Orissa government deciding to handover Idcol Cement to it.
Gujarat Ambuja is trying a different strategy to give a tough fight to the bigwigs by trimming its liabilities as part of efforts to make its products competitive in the market.
The industry, however, still continues to bear the brunt of high input costs along with high tariffs for power, apart from high excise, sales taxes and limestone royalty.
Interestingly, the passing year was no different for government-owned small players as they continued with losses and some of them were on the verge of going into private hands.
Foreign players like Lafarge, Blue Circle, Holders Bank and Ital Cementi had not initiated any noteworthy aggressive step to consolidate their existing market share.
The L&T-Grasim combine along with ACC-Ambuja duo will now hold nearly 40 per cent of the overall domestic market share.
The existence of two huge units would reduce the frequent price fluctuations in domestic market.
Polarisation of big domestic players will bring in checks and balances for the foreign players in future.
The 17.5 million capacity L&T-Grasim deal was struck at $78 a tonne capacity, well within global $68-80 range for merger and acquisitions.
By adding L&T capacity, Grasim would be able to raise its total capacity to 31 million tonne commanding over 22 per cent of 120 million tonne capacity for large plants.
The cement demand grew at a positive rate due to spurt in construction activities, fuelled by cheap home loans as low as 6.75 per cent and also due to the thrust for road construction under NHDP and Pradhan Mantri Gram Sadak Yojana.
Though the cement industry grew by nearly five per cent in April-September, it expects an overall growth to over eight per cent by the fiscal end.
The lower than expected growth of the industry during the first half was attributed to the 'twin factors' of bad monsoon and transporters strike, which affected supplies in many parts of the country.
These two factors affected both supplies and consumption badly in the first half, though the production and despatches started picking up after September 2003 and would continue to maintain the trend till the start of the next fiscal.
The cement production witnessed a 4.7 per cent growth in April-November 2002 at 75.15 million tonnes against 72 million tonnes a year ago.
Despatches also grew by 4.37 per cent to 75 million tonnes during the first eight months of the current fiscal as compared to 71.86 million tonnes last fiscal.
Uttar Pardesh recorded the highest output growth in 2003, followed by West Bengal, Maharashtra and Karnataka.
Bihar, Gujarat and Chhattisgarh were the top three states in terms of negative production growth.
Production growth was the highest in the central region at eight per cent, followed by south at seven per cent, west at four per cent and north at three per cent while the eastern region recorded a negative four per cent growth.
The cement consumption witnessed positive growth in 2003, except Himachal Pradesh, Gujarat, Bihar, Orissa and Tamil Nadu where it was negative.
The consumption, however, registered an impressive growth in Uttaranchal, Rajasthan, Karnataka and Kerala.
Central region comprising Uttar Pradesh and Madhya Pradesh recorded the highest eight per cent consumption growth during the year.
Southern region recorded six per cent consumption growth, followed by north at five per cent and east at two per cent while west clocked a one per cent negative growth, mainly due to 13 per cent negative consumption growth in Gujarat.
In the variety wise production, OPC still leads at 45 per cent of the total output closely followed by PPC variety at 44 per cent.
On the export front, nothing encouraging happened despite the existence of huge export potential to neighbouring nations.
Cement exports increased by 10 per cent while the clinker export witnessed 57 per cent increase during the year.
Prices during the first half witnessed a depressing trend due to the 'twin-factor' while during the start of the second half it started climbing up, especially in Tamil Nadu, J&K and the north-eastern states.
The decision to raise excise duty by Rs 50 in the Union Budget put more pressure on the bottomlines of the most of the cement companies.
However, the industry favoured a continuance of special excise duty in place of introduction of advalorem duty, which it felt would be difficult to administer as prices vary widely on a day-to-day basis.
The price level also got affected by the variation in the sales taxes across states, the maximum being at 24 per cent in Tamil Nadu.
