2014 CemWeek's India Cement Sector Sentiment Survey

SURVEY

GLOBAL CEMENT INDUSTRY. KNOWLEDGE.

A I D N I

CEMWEEK’S INDIA CEMENT SECTOR SENTIMENT SURVEY

OCTOBER 2014

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FOREWORD

T

he CW Group is delighted to release the 5th Annual India Cement Sector Business Sentiment Survey and share this year’s findings with the members of the sector.

Once again, the CW Group was able to have insight into the core of the Indian cement sector, now presenting to you ample and reliable data on industry relevant topics. This year’s business sentiment survey follows the tradition we began four years ago, namely that of bringing you important information on the development of views belonging to active members of the Indian Cement industry.

Surveying India’s cement sector sentiment would not have been possible without valuable help from those who responded to our questions and made their views available on the second largest cement industry in the world. We also thank our sponsor, Siemens, without whom this survey could not have been released.

We are fully aware that the findings of this year’s survey reflect the momentary reality of the industry and that the survey does not offer a complete and unequivocal view of the industry. Nonetheless, we believe that this survey is insightful enough to help in the development of business strategies. Do not hesitate to contact us should you wish to continue the dialog and hear more about our views.

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Robert Madeira Managing Director and Head of Research, CW Group E: rm@cwgrp.com | T: +1-702-430-1748 Laura Goldner Senior Consultant, CW Group E: lg@cwgrp.com | T: +1-832-622-8921

CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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INTRODUCTION

F

uture better prospects seem to be the rationale of why many Indian cement industry players are confident that the market will follow an ascending trend in the months to come. Moderate optimism runs like a red thread in the answers of the respondents, but unlike in our previous surveys, confidence in the future is based on more solid and firm opportunities bound to happen in the future.

As opposed to last year, when 26 percent of the respondents evaluated that the industry performed “well” during the first half of the year, in 2014 23 percent of those surveyed gave the same assessment to the industry’s performance. Thirty percent of them considered that the industry performed poorly, while 50 percent described the evolution as “good”. Overall, these percentages point towards lowered assessments of the industry’s conditions for the first half of the year. Lowered demand and more restrictive governmental legislation on environmental issues can be identified as the causes of fewer industry players positively evaluating the sector’s performance.

More so, construction activity slowed down in India on account of the political elections.

Higher cement demand in the months to come is, however, almost a sure thing for most of those surveyed.

Prospective of higher demand on the market made 29 percent of the respondents confident that their careers will come to grow and evolve. In 2013, 21 percent of the respondents had similar expectations in their careers’ evolution, pointing that more industry players are now seeing real chances at experiencing a career boost.

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CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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The concern that occupies the first spot in the top of challenges the industry will face in the future is related to the oversupply of cement on the market. Thirty percent of the respondents identified this difficulty as being crucial in the future, the percentage being similar to the one from last year. Profitability is thought to continue to be a hard thing to reach in the months to come. The challenge was identified as being an acute one since last year, when 23 percent of the respondents believed profitability to be the main issue in the future. This year, 27 percent of those surveyed had the same answer.

When talking about how profitable the industry will be in the next months, the views of the respondents are almost evenly split. Last year, 23 percent of the respondents believed that their earnings will decrease, but this year positivity seems to emerge on this aspect, 55 percent of the respondents being confident that profitability will improve, while the rest 45 percent see no change in profit figures. Once again, prospects of increased demand sit at the bottom of why industry actors are more hopeful about the future.

Overall, the future increase in profitability of the cement industry in India is still dependent on whether the much needed infrastructure projects go through or not.

Even if the demand improves to the figures that are expected by the most optimistic analysts of the market, energy prices, environmental worries of the government and fuel availability will continue to loom over the evolution of the Indian cement market.

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SURVEY FINDINGS

1.

DEMOGRAPHICS For 2014, our survey base consisted of a mix of industrial professionals able to give us meaningful insight in the industry, as well as first-hand evaluation of the performance of the industry. We benefited greatly from the experience and observational capabilities of such industry actors. Unlike previous years, involvement from cement companies dropped to 42 percent, but the contribution of equipment vendors rose to 27 percent.

2% CONSULTING AND RESEARCH

8% 4%

47%

OTHER PLANNING, FINANCE & OTHER ADMINISTRATIVE PRODUCTION, OPERATIONS & ENGINEERING

28%

SALES & MARKETING TRADING AND LOGISTICS

CEMENT COMPANY

13% 8%

CEMENT TRADER EQUIPMENT VENDOR INDUSTRY ANALYST, CONSULTANT

8%

CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

OTHER

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COMPANY TYPE

43%

28%

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FUNCTIONAL AREA

11%

INDUSTRY FUNCTIONAL AREA AND ORGANIZATIONAL LEVEL The respondents to the survey numbered participants representing various branches of the industry: sales and marketing, trading and logistics, production and engineering, consulting and research.

Among the categories of companies which answered to the question of the survey, cement companies occupy the first place, amounting to 42 percent of the respondents, the figure dropping by 8 percent when compared to last year. Equipment vendors followed with 27 percent of the answers, and industry analysts with 9 percent.

Three quarters of the respondents identified themselves as senior managers, while 25 percent of those surveyed are managers. The rest of 30 percent are professional members of staff.

EMPLOYEE

The sample surveyed matches the five regions that contribute to the Indian cement industry. As opposed to 2013, when 25 percent of the responses came from the south, this year 43 percent of them come from this region. Twentyeight percent of the answers came from the west, while the northern region reached an 18 percent survey presence. The eastern region amounted for 9 percent of the respondents, while 2 percent of the answers came from the northeastern part of the country.

SENIOR MANAGEMENT (eg. CEO, Head, GM, EVP or SVP)

45%

PROFESSIONAL STAFF

30%

MANAGEMENT (EG. REGIONAL MANAGER, DIRECTOR)

26%

WEST SOUTH

LOCATION

NORTHEAST NORTH EAST 0%

5%

10%

15%

20%

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25%

30%

35%

40%

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SURVEY FINDINGS

2.

FINDINGS RECENT PERFORMANCE Our 2014 survey shows mixed evaluations concerning the industry’s performance during the last 6 months. Forty-two percent of the respondents find that the industry evolved “well”, 29 percent considered it poor or terrible, 29 percent found it OK and only 2 percent described it as “excellent”. In our last survey, 26 percent described the industry’s performance during the previous six months as “well”, so we can say that more people met with satisfying results this year. On the other hand, the percentage of those who found the industry’s evolution as poor or terrible is similar to the one from our previous survey.

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CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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Q

Generally speaking, how has the cement industry performed in the past 6 months?

EXCELLENT 2%

WELL 42%

OK

POORLY 29%

TERRIBLE 9%

20%

Off the different functional areas, professional staff members were the most positive about the sector’s recent performance, 36 percent of them deeming it as “well” and none of them considering the last 6 months to have been “terrible”. On the other hand, senior managers were the only ones to consider that the industry did “excellent”.

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SURVEY FINDINGS

Q

Looking back at the past 6 months how did it meet your expectations?

Almost half of those surveyed this year claim that the industry’s performance in the last 6 months met their expectations, while 40 percent of them said that the industry’s evolution was below their expectations. Compared to last year’s results, when 36 percent of the respondents considered that the past performance met their expectations, the results are encouraging. Nonetheless, fewer industry players believed that the industry’s evolution exceeded or far exceeded their expectations during the last six months. Last year, 18 percent responded in this fashion, while this year only 6 percent were satisfied with their evolution in similar terms.

FAR EXCEEDED

MET MY EXPECTATIONS

EXCEEDED

BELOW MY EXPECTATIONS 2%

4%

44%

NOWHERE NEAR MY EXPECTATIONS 40%

9%

Amongst those most content were those occupying senior management and management positions. Most of them consider that the past performance of the market met their expectations and some even go as far as stating that their expectations were far exceeded.

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CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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Q

How will the next 12 months perform compared to the last 6 months?

Optimism continues to be the name of the game for the participants in our survey. Seventy percent of them believe that the next 12 months will come with “somewhat better” results compared with the previous 6 months. As opposed to last year, when 8 percent considered the future will bring about worse or “a lot worse” results, this year only 4 percent are pessimistic in what the industry’s future evolution is concerned. More so, in 2013 most of the respondents were cautious in their forecasts, 37 of them believing that not much will change in the industry, while this year only 16 percent are reluctant in having high hopes.

MUCH BETTER 9%

SOMEWHAT BETTER 71%

ABOUT THE SAME

SOMEWHAT WORSE 16%

4%

The next 12 months are thought to be fruitful for the industry. The government has already announced its intentions of supporting the development of infrastructure, and it has also made plans to invest in housing in urban and rural areas. Talks about investments in ports and other such large scale projects are still in progress and are thought to materialize soon enough. More so, the demand for urban and rural housing is expected to be on the rise. All in all, these developments can only affect the cement market in a positive manner, an increase in demand being easily foreseeable in the months to come.

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SURVEY FINDINGS

Q

How will profitability change?

Even though high demand will positively influence the performance of the industry, those working in the sector are not eager to be too confident in the profitability increased demand will attract. As opposed to last year, when 45 percent of those surveyed believed that their profits will grow, this year half of them have such hopes for the future, while 48 percent consider that no major changes will be experienced in profit margins.

We believe that cautiousness in this respect could be caused by weariness on whether India’s government will go through with its announced infrastructure and construction plans or not. Though there concerns are realistic ones, only 2 percent of the participants forecast their profits to dwindle in the next 12 months- a percent far smaller than that of 2013, when 23 percent of the respondents believed that profitability will decrease.

On the other hand, those amongst the 50 percent confident that profitability will increase base their beliefs on finding more export partners and benefiting from more domestic opportunities.

IMPROVE 50%

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NO CHANGE

DECREASE 48%

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2%

Q

How do you estimate that your input costs will change?

Our survey revealed that more participants are confident that input prices will improve or stay the same. Last year’s figures have shown negative, or at least guarded, perceptions on the matter, with 40 percent of those surveyed believing that input costs would worsen. This year, only 18 percent have such a view for the following 12 months.

Fifty-seven of the respondents consider that input prices will stay the same, while 25 percent see them improving.

When compared to last year’s figures, the differences are stark. Optimism on input prices reveals that industry actors are regaining confidence in the sustainability of the cement industry, yet fuel security and the increasing price of energy prices remain an issue that cannot slip the minds of those working in the sector.

IMPROVE

STAY THE SAME

25%

57%

WORSEN 18%

Respondents in senior management positions are the ones most hopeful in better input prices for the next 12 months, being closely followed by professional staff members. The only respondents of who foresee input prices to worsen are those in management positions and members of professional staff. In 2013, unenthusiastic views on the topic belonged mostly to those in senior management positions, so this year we are seeing a reverse in this situation

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SURVEY FINDINGS

Q

Are you confident your career will see a boost in the next 12 months?

In what career prospects are concerned, last year’s survey marked the beginning of a trend which we continue to notice in this year’s findings. There are, nonetheless, some notable differences that have to be underlined. First of all, the percentage of those who are fairly confident that they will experience a career boost grew by 9 percent. Secondly, if last year as many as 8 percent of those surveyed were highly concerned about their careers or even thought that they were at risk, none of this year’s respondents had such views.

HIGHLY CONFIDENT 13%

FAIRLY CONFIDENT 56%

STAY THE SAME 31%

Most of those who are fairly confident that their careers will see a boost in the upcoming months work in cement companies or are equipment vendors. Those interviewed from this type of companies either think that their careers will stay the same or come to meet an upgrade in the next 12 months.

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Q

Will your company hire more employees?

The growth in demand that is in sight for the cement industry is, nonetheless, not encouraging enough to lead to the hiring of more people. Slightly more than half of those surveyed claim that their personnel number will most likely stay the same, whilst 36 percentage of them are hoping to be able to hire a bit more people in the months to come. Compared to last year, fewer companies are showing their intention to make changes in personnel numbers. This year’s survey has shown that 5 percent of those interviewed, with 3 percent less than last year, consider that the next 12 months will see workers being laid off.

Those most confident that the numbers of employees will grow are senior managers, 16 percent of them considering that their companies will hire a lot more people during the next year. Divergent opinions can be identified on the side of professional staff members, 15 percent of them believing that workers will be laid off in the future.

A LOT MORE 7%

A BIT MORE 36%

REMAIN THE SAME 52%

LAY OFF WORKERS 5%

Both half of the respondents from cement companies and the equipment industry mostly believe that their companies’ personnel number will remain unchanged. The rest of them are inclined to believe that the workforce will grow a bit more in the next 12 months.

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CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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SURVEY FINDINGS

Q

What will be your company’s most important theme for the next 12 months?

Controlling costs seem to no longer the most important theme for cement sector actors. If last year this was a min issue for 42 percent of the respondents, this year only 23 percent of the respondents identified the main issue as being price related. Improving domestic sales occupies the first place in the top of the sector’s main theme for the next 12 months. As many as 24 percent of those surveyed found this to be a priority, with 3 percent more than last year.

The change in dynamics is not surprising when taking into consideration the fact that domestic demand was subdued in the first half of the year on account of political turmoil. Improving domestic sales also became an urgency for companies which are looking to seize the opportunities the new government projects in infrastructure and building will cause.

Among other themes worth mentioning are ending new export opportunities, capacity expansion and securing coal and fuel.

CAPACITY EXPANSION ENVIRONMENTAL ISSUES IMPROVING DOMESTIC SALES SECURING COAL AND FUEL OTHER (SALES MIX OPTIMISATION) 9%

23%

2%

CONTROLLING COSTS FINDING NEW EXPORT OPPORTUNITIES OPERATIONAL IMPROVEMENT SECURING LIMESTONE 20%

25%

5% 2%

5% 2%

Cost control remains to be a main theme for professional staff members and less so for senior managers. Capacity expansion and finding new export opportunities are the main themes as identified by senior manager and managers.

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Q

What is the biggest challenge the Indian cement sector will face in the next few years?

When asked to assess what is the biggest challenge the following years hold for the cement industry and businesses, the options on the respondents varied widely. There is still a great part of those working in the industry which is not confident in the fact that the demand of cement will come to meet the supply, the biggest challenge for them being dealing with excess capacity. Thirty percent of the respondents recognize excess capacity as being the main challenge the industry will come to overcome, keeping in line with last year’s survey when 34 percent of those surveyed responded in the same way. As opposed to last year, when 20 percent found profitability to be a difficulty to overcome, 32 percent has the same answer in this year’s survey.

The clean energy bills which are now being pushed by the new government greatly worry seven percent of the respondents. The government is pushing to increase the importation of coal and the use of alternative sources of energy, and this can only mean that fuel and energy prices will grow significantly. A percent as small as 5 consider the biggest challenge to be the shortage of skilled labor. These concerns are grounded in the fact that more and more young Indians are steering clear of jobs in construction, being more interested in careers in the service sector.

ENERGY PRICES PLANT EFFICIENCY REGULATORY 7%

7%

ENVIRONMENT/EMISSIONS PROFITABILITY SHORTAGE OF SKILLED LABOR 36%

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2%

EXCESS CAPACITY RAW MATERIALS AVAILABILITY 32%

5% 7% 5%

CEMWEEK 2014 INDIA CEMENT SECTOR SURVEY

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CONCLUSION

T

he CW Group and CemWeek Magazine’s 5th Annual India Cement Sector Business Sentiment revealed that Indian cement sector players are regaining confidence in a more profitable future, yet remaining cautious about relying on exceedingly enthusiastic expectation for the months to come. The previous performance of the market has taught those working in the sector that being guarded about future prospects is a safer way of approaching the Indian cement sector.

The last six months were assessed as having been reasonable, if not mildly satisfying, for the majority of those who have answered to our survey’s questions. The general understanding is that, in the context of political turmoil that took over India in the past six months, the industry performed acceptably, and that once the new government starts to put into motion its announced plans, the sector will come to benefit on account of increased demand.

Growth in demand is something that most sector players are anticipating for the following month. Infrastructure projects and the housing plans announced by the Indian executive have created expectations for an increase in demand that could reach 7-8 percent. Profitability is expected to grow due to the hike in consumption; nevertheless those surveyed are still wary about excess capacity. Coupled with concerns on fuel security, input prices and export opportunities, excess capital is an issue to which cement companies will have to find a solution as soon as possible.

The findings of this year’s survey are encouraging and point towards a rebalancing of the entire sector. After some difficult years, it seems that the Indian cement sector is rediscovering a more solid direction.

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