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| Grasim follows ACC, slows down RMC expansion |
| Chandan Kishore Kant / Mumbai May 21, 2009, 00:20 IST |
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The 218-million-tonne domestic cement industry seems to be in no mood to be aggressive on the ‘readymade concrete’ (RMC) front despite the better growth prospects it provides in the long run. The reason cited by cement makers is the slowdown in urban housing and infrastructure projects.
Within six months of the Swiss cement major, Holcim’s, decision of putting its RMC expansion on hold in 2009, domestic cement giant Aditya Birla group too has slowed its RMC expansion citing a decline in demand from the organised real estate sector.
The Birla group, which presently operates 66 RMC units with a capacity to produce 11.4 million cubic metres, planned to set up 96 units earlier. “We earlier planned to reach 96 units, but we have decided to go slow on it. We were working on 11 units, but have stopped the projects for the time being,” said Sanjeev Bafna, deputy chief financial officer of Grasim Industries. The company, on a standalone basis, has 39 RMC units whereas its wholly-owned subsidiary UltraTech Cement operates 27 units.
Though the sales volume of RMC increased 24 per cent year-on-year for Grasim, the average realisation grew only 3 per cent in FY09 from Rs 2,731 per cubic metre to Rs 2,804 per cubic metre. In case of UltraTech, realisations remained flat at Rs 3,066 per cubic metre in FY09 as against Rs 3,060 in FY08.
Last December, Holcim (which has its operations across the country through ACC and Ambuja Cements) had put its expansions on hold after adding 20 units in 2008 taking it to a total of around 40 RMC plants. Holcim operates its RMC business in India through ACC Concrete.
Lafarge is the leading player in RMC with 75 units. The Rs 1,480 crore acquisition of L&T Concrete pushed the company straight to the top with the acquired 66 units in May last year. A spokesperson for the company told Business Standard: “We are neither aggressive nor regressive on RMC expansion. We have no reasons to revive our long term plans and we are progressing accordingly.”
Industry analysts pointed out that for most cement players, RMC has not yet reached a breakeven level. “RMC is still a loss-making operation. However, when volumes grow substantially, by the end of FY11 the segment will be profitable,” they added.
For instance, ACC Concrete — a subsidiary of ACC, with an annual capacity to produce 7 million cubic metres, reported a loss of Rs 96.81 crore during calendar year 2008. The company plans to invest Rs 600 crore to take its RMC units to 200 by 2012.
In India, RMC’s growth has not kept pace with growth in the cement industry mainly because RMC units are unable to compete with the age-old practice of site mixing. Its growth is directly linked to the growth of bulk cement, especially in urban centres.
RMC is primarily for urban regions where construction activities have dropped substantially. “This had lead to a dip in capacity utilisation of RMC units to as low as 60 per cent till February this year,” said an industry analyst with a domestic brokerage firm. The slowing down of RMC expansion has to be a temporary phenomenon and most cement companies can ramp up the capacity of RMC far quicker than cement-making units, said industry experts.
The country’s construction sector’s RMC consumption is less than 5 per cent of the total cement consumption. On the contrary, in developed countries, RMC makes up around 60 per cent of the cement consumption.
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