JANUARY 09, 2012 An MMR, Braj Binani Group Publication VOLUME I l Cement majors record increase in cement production and despatches For cement companies in India, 2011 has remained a challenging year. Lower demand and higher input costs have dampened performance of these companies in the past one year. However, cement majors like ACC Cement, Ambuja Cement and UltraTech Cement have recorded an increase in production and despatches of cement between 5 and 11 per cent in December 2011. ACC Cement, India’s secondlargest cement maker, has reported a growth of 6.28 per cent in production to 20.3 lakh mt in December this year, as against 19.1 lakh mt last December. There was also a growth of 8.85 per cent in its despatches to 20.9 lakh mt as against 19.20 last December. ACC has also recorded 11.55 per cent increase in cement production to 236.6 lakh mt in the calendar year 2011 as against 212.1 lakh mt in the corresponding period last calendar year. ACC’s despatches have also increased by 11.86 per cent to 236.8 lakh mt between January and December 2011 as against 211.7 lakh mt during the corresponding calendar period last year. Production at Aditya Birla Group’s UltraTech Cement grew 10.84 per cent to 35.7 lakh mt in December 2011 as against 32.21 lakh mt in December last year. Its despatches for the month also increased by 10.6 per cent to 36.2 lakh mt as against 32.73 lakh mt last December. The cement production for the period between April and December 2011 stood at 284.8 lakh mt as against 279.9 lakh mt during the same period last year. Similarly, despatches stood at 28501 lakh mt between April and December 2011 as against 279.6 lakh mt during the corresponding period last year. Ambuja Cements, one of the cost-efficient cement companies in India, has recorded 6.82 per cent increase in production to 19.11 lakh mt in December 2011 as against 17.89 lakh mt in December 2010. Similarly, the company has recorded 5.75 per cent increase in its despatches to 19.31 lakh mt in No. 17 l 1 JANUARY 09, 2012 December 2011 as against 18.26 lakh mt in December 2010. For the calendar year 2011, Ambuja Cement has registered 4.19 per cent increase in production to 209.69 lakh mt from 201.24 lakh mt during the corresponding period in 2010 and 4.15 per cent in despatches to 209.59 lakh mt from 201.23 in the corresponding period during 2010. According to industry experts, India’s cement consumption is expected to grow at a CAGR of 11 per cent between 2011-12 and 2013-14. It is estimated that the government’s support to several infrastructure projects, road net works and housing facilities will propel the growth in cement consumption in the near future. Under-the-weather realty sector may see sunny days in 2012 Cement price sores relation between the States and the Manufacturers Housing being one of the basic necessity of human being and cement being one of the basic material for the construction of houses, any hike in cement prices are bound to affect the growth and expansion of a state. The unabated hike in cement price from Rs 220 per 50 kg bag in January 2011 to Rs 310 per 50 kg bag this year has led to opposition from the State governments. The Chief Minister of Himachal Pradesh P K Dhumal has urged Prime Minister Manmohan Singh to declare cement as controlled item and bring it under the purview of Essential Commodities Act to make the commodity cheaper in the state. The Chief Minister said the problem of higher price of cement in the state started after the commodity was decontrolled in 2002 and exempted from the purview of Essential Commodities Act to facilitate market competition. “The decontrol of cement has hit the consumers hard in Himachal instead of benefiting them,” said Dhumal. His counterpart in Chhattisgarh Chief Minister Raman Singh came under attack from the combined opposition in the Assembly, who demanded roll back in cement prices, which have increased by Rs 100 in the past few months. Both these states Himachal Pradesh and Chhattisgarh are manufacturer of cement. Almost all the cement majors have set-up their plants or have their presence in these states. The governments of these states have given subsidised lands and incentives in the form of power and transport subsidy to set-up cement plants. “Incentives to cement companies amounts to Rs 350 crore per year, “said Kishan Kapoor, state industries minister, Himachal Pradesh. The cement companies on their part maintain that that cement is a deregulated item and so the government cannot force them to bring down the prices and the higher prices are due to high transportation cost. In Chhattis garh t h e e l e ct e d representatives accused the government of hand-in-glove with the cement manufacturers and P K Dhumal, Chief Minister, Himachal Pradesh Raman Singh, Chief Minister, Chhattisgarh threatened to prevent cement plants from functioning, whereas in Himachal Pradesh the government alleged that three major cement manufacturing companies are fixing retail prices at various locations in an arbitrary and irrational manner and as a result cement was cheaper in neighbouring states – Punjab and Haryana - and costly in the producing state. The threat to prevent cement plants from functioning in Chhattisgarh forced reduction in prices by Rs 30-40, while in Himachal Pradesh, after a prolonged discussion with the cement companies ACC, Ambuja and Jaypee have agreed to reduce the price by Rs 25 per 50 kg bag. About the Essential Commodities Act In its endeavour to ensure availability of essential commodities to the consumers and to protect them from exploitation by unscrupulous traders, the Government of India has armed itself with the Essential Commodities Act, 1955 and the Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980 (PBM Act,1980). The Essential Commodities Act, 1955 provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential for maintaining or increasing supplies or for securing their equitable distribution and availability at fair prices. The enforcement/ implementation of the provisions of the Essential Commodities Act,1955 lies with the State Governments and UT Administrations. The global realty consultancy firm Knight Frank, in its recent analysis of the realty sector, disclosed that residential property price declined by 10 per cent last year, whereas it increased between 10 per cent and 30 per cent in 2010 in metro regions like Chennai, NCR, Bengaluru and Mumbai. The analysis divulged that the realty sector endured most the impact of the economic crunch. Also, the number of projects launched in the past two years is a clear indication of the slowdown in the sector. According to the analysis, more than 3, 61,0000 residential units were launched during 2010 in the following top 7 cities of NCR, Kolkata, Chennai, Hyderabad, Mumbai, Bengaluru and Pune. In contrast, in 2011 only over 1, 72,000 units were launched -- a decline of 52 per cent from the last year. Moreover, 39 per cent or over 300,000 units of the total housing inventory, pertaining to under construction projects, are still waiting for buyers. The metro that most manifested the slowdown in the realty sector is, of course, the Mumbai real estate market, the biggest in the country. For example, about 19,000 units were launched in 2011, when compared to the nearly 55,000 housing units launched in 2010. The slump of 65 per cent less project launches brought to the fore the lukewarm interest of buyers, perhaps because the Mumbai property market is exorbitantly priced. Moreover, Mumbai has over 40,000 housing units (or 32 per cent of the inventory) with not a single taker. However, looking into the future of the real estate sector in the country, For representation purpose only the picture is not all that cheerless and murky. However, the comment of Pranab Datta, Vice Chairman & Managing Director, Knight Frank India, reflects apprehension when he says, “What is in store for the real estate sector in 2012 appears to be the biggest question.” In Knight Frank’s outlook for 2012, Datta observed, “In terms of the commercial office market the performance of the service industry has a significant bearing. The slowdown in global economy which impacts the Indian BPO sector and muted expansion plan of domestic players will exert pressure on the commercial office property market. The commercial office market will continue to remain subdued on account of weak global and domestic economic indicators. As policy deadlock breaks and reforms gather steam, leasing activity will improve. However, rentals will remain under check because of a strong supply pipeline in major commercial centers.” It is hoped that the deadlock between buyers and developers would break in favour of buyers, in terms of the residential segment. If this happens, the unexpressed demand from buyers, who are waiting in anticipation of price correction, would convert into better fortunes for the residential property market. However, the interest rate, inflation and employment have resulted in buyers behaving more cautiously before rushing headlong into investing in property. One wonders if the longawaited real estate regulator bill and FDI would come to the rescue of the ailing sector in 2012.