CHAPTER - V

COST OF PRODUCTION AND

MARKETING ASPECTS OF
CEMENT INDUSTRY
 V. COST OF PRODUCTION AND MARKETING ASPECTS OF
CEMENT INDUSTRY

1. COST OF CEMENT PRODUCTION

This chapter examines the various cost factors that operate in

producing cement and cost of cement production per tonne of select cement

plants. In the second part of this chapter, the marketing aspects of the

Andhra Pradesh Cement Industry and select plants are discussed at length.

The cost of cement production has gone up very abnormally when

compared to many products of other industries as most of the items like

coal, power, railway freight, taxes contribute to 65 per cent of the cost are

controlled by government. Apart from this, the investment cost per tonne

of the installed capacity of cement has been rising steeply. It increased from

Rs. 650 per tonne in late 70’s to Rs. 1000 - Rs. 1500 per tonne in mid 80’s.

During the 90’s the investment cost per tonne by the end of Vm Plan rose to

Rs. 3500/- which is almost five times more when compared to the late 70’s

investment cost. This is further likely to cost about Rs. 4000/- per tonne in

the IX Plan. Cement was partially decontrolled in February, 1982. The cost

of various inputs of cement has been increasing steadily from year to year

particularly in the last seven years.

The Table 5.1 depicts the information about the cement industry’s

average cost per tonne.

245
Table: 5.1

THE ANDHRA PRADESH CEMENT

INDUSTRY’S AVERAGE COST OF PRODUCTION PER TONNE

COST FACTOR Rs.PER TONNE % OF COST

1. Limestone and Gypsum 150.00 6

2. Power 400.00 16

3. Coal 250.00 10

4. Freight 350.00 14

5. Administration and Other Costs 300.00 12

6. Interests and Depreciation 300.00 12

7. Duties and Taxes 750.00 30

TOTAL COST OF PRODUCTION 2500.00 100

Source: Unpublished secondary sources.

246
 THE A.P. CEMENT INDUSTRY’S AVERAGE CEMENT
COST OF PRODUCTION PER TONNE

6%

12%
■ Limestone & Gypsum □ Power
□ Coal □ Freight
□ Administration & Other Costs □ Interest & Depreciation
□ Duties & Taxes
 According to the sources from the industry, it costs R$.2,500 to

produce one tonne of cement by means of limestone, power, coal, freight,

administration, capital related costs and duties and taxes. The main raw

material - limestone and gypsum costs only 6 per cent i.e. Rs.lSO in the total

cost of cement production per tonne. The cost incurred by means of Power

and coal being Rs. 400 and Rs.250 which account for 16 and 10 per cent

respectively. And at the same time, freight and administration costs are

Rs.350 and Rs.300 which account for 14 and 12 per cent respectively. Apart

from the above, the capital related costs are Rs.300 per tonne which account

for 12 per cent. Finally, the duties and taxes incurred being the maximum of

Rs.750 which account for 30 per cent on total cost of cement production.

All the above factors except freight is almost the same to most of the plants.

Since the new plants are efficient, the fuel consumption (power and coal) will

be less and cost effective. However, for new plants, the interest and

depreciation is quite heavy. But in the case of old plants, this situation is

vise versa. The most crucial cost element freight will differ from plant to

plant depending upon the markets they serve. While cement prices on the

average didn’t show increase over last three years, but the input costs of

different items continued to mount.

The Graph shows the information about the increase in the cost of

cement inputs : from 1982 to 1990 and from 1990-91 to 1997-98.

247
 INCREASE IN COST OF CEMENT INPUTS
FROM 1982 TO 1990 AND FROM 1990-91 TO 1996-97

400
Rs./TONNE OF CEMENT

o T— CM CO 10 CO CO
o> er» 05 05 05 05 05 05 05
CM
CO
o
o>
T"
O)
CM
05
CO
05
4
05
10
05
CD
05
1^-
05
o> o> 05 05 05 05 05 05 05
T— T- v- T- T— T“ T“ T— T—

YEAR

Note: The growth -rate during the period 1982 -1990 being Rs. 75/- per annum
 During the first eight years, i.e. from March 1982 to March 1990 the

increase in the cost of inputs was only about Rs.600 per tonne, i.e. an annual

increase of about Rs.75 per tonne on an average. In the next eight years, i.e.

from 1990-91 to 1997-98, the increase in the cost of inputs jumped

considerably by Rs.1615 per tonne, i.e. on an average of about Rs.202 per

tonne per annum. The increase in the cost of cement inputs was maximum in

the year 1991-92 which amounted to about Rs.400 per tonne.1 In the last two

years i.e. 1996-97 and 1997-98, there was no significant change in the

increase of cement input costs.

The increase in the cost of major inputs of cement during the period

between March 1982 (i.e. at the time of partial decontrol) and March 1998, is

given in Table 5.2.

5.1.1. COAL

Coal is used as a raw material in the cement industry. It plays a dual

role in the manufacture of cement. Firstly, it acts as a fuel to provide

requisite heat and temperature for the formation of clinker, secondly the ash

1. Parthasarathy, R Chakravarthy, S.M. Cement Industry : Emerging

Trends, The Contact Advertising and Communications, 1810, Gyani

Bazar, Kotla Mubarakpur, New Delhi, P: 295.

248
Table: 5.2

INCREASE IN COST OF MAJOR CEMENT INPUTS

FROM MARCH 1982 TO MARCH 1996

COSTS IN
% INCREASE
INPUT
OVER THE
MARCH MARCH MARCH MARCH MARCH PERIOD
1982 1990 1996 1997 1998

l.Coal, Average cost 263.00 534.00 891.00 991.00 1013.00 385

Rs. / tonne

2.Railway freight on coal 125.35 303.00 550.60 605.70 703.50 561

for average lead of
1000 km. RS. / tonne

3.Power charges 0.46 1.28 2.70 3.39 4.10 891

Rs. / KWh.

4.Packing charges 67.84 132.00 156.00 156.00 106.00 156

Rs. / tonne of cement

5.Central excise duty 135.00 225.75 350.00 350.00 350.00 259

Rs. / tonne

6. Railway freight on 145.10 286.90 474.20 521.60 584.20 403

cement for average
lead of 750 km. Rs. /
tonne

7.Weighted average of 7.59 17.46 25.00 25.00 32.50 428

Royalty, cess, cess
Surcharge, MRT on
Limestone, Rs. / tonne

8.Wages at minimum 887.30 1676.70 3390.30 3974.15 4168.90 470

level, Rs. / month

Source: Partha Sarathy, R. Chakravarthy, S.M. Indian Cement Industry :

Emerging Trends, P:296.

249
content in the coal combines chemically with limestone to form clinker.

Thus, coal is a very crucial input and occupies the central stage in the

industry. The quality of coal fed to the plant also has a direct effect on its

performance. Deterioration in quality of coal not only increases the fuel

consumption but also decreases the output of grinding mills and has many

other ill effects. Therefore, adequate availability of the requisite quality of

coal is of great importance to cement industry.

When the time of partial decontrol announced by the government in

the year 1982, coal average cost per tonne was only Rs. 263 and this was

increased to Rs.534 by March 1990. The coal average cost per tonne was

Rs.991 in March 1997 as against the previous year’s i.e. Rs.891. In March

1998, the coal average cost per tonne crossed one thousand rupee mark i.e.

Rs.1013 and the coal costs per tonne increased over the period i.e. from

March 1982 to March 1998 and it was 385 per cent.

5.1.2. RAILWAY FREIGHT ON COAL

During the year 1981-82, the railway freight on coal for average load

of 1000 km. per tonne was Rs.125.35 and further this was sharply increased

to Rs.303 in March 1990. The railway freight on coal per tonne was

Rs.605.70 in the financial year 1996-97 as against the previous year’s

250
Rs.550.60. In March 1998, the average railway freight on coal increased to

Rs.703.50 and this was increased over the period between March 1982 and

March 1998 and the increase being 561 per cent.

5.1.3. POWER

Power is the most common form of energy that is utilised by both

domestic and industrial users. Thus power has acquired importance and is

considered as one of the core sector industries. Power has always been

recognised as one of the important parameters of the country’s economic

growth. Power shortages are affecting most of the industries including

cement industry. As cement production is continuous and an energy

intensive, the industry required uninterrupted power supply. Any power

stoppages/shortages severely affect the industry and cause heavy damages to

costly and imported equipments. Recent incentives for setting up of

independent power plants by the private sector entrepreneurs has given a

fillip to the industry to some extent.

In the year 1991-92, the power costs per kwh was only 0.46 and

further this was increased to Rs.1.28 per kwh in 1989-90. During the year

1996-97, the power costs per kwh was Rs.3.39 as against the previous year’s

cost of power that was only Rs.2.70 and the power prices increased over the

period to 891 per cent.

251
5.1.4. PACKING CHARGES

During the time period i.e. March 1982 to March 1996, there was an

increasing trend in the cost of packaging per tonne of cement, after that some

significant situation, declining trend come into the picture because of change

in the policy of the central government towards the Jute Packing Order. In

March 1982, the packing charges per tonne of cement being only Rs.67.84

and this was more than doubled i.e. Rs.132 in the year 1991-92. The packing

charge per tonne of cement was Rs.156 in March 1997 which was also same

in the previous year. In March 1998, the packing charges per tonne of

cement were declined to Rs.106 because of change in the policy decision by

the government and the packing charges increased over the period i.e.

1981-82 to 1997-98 and they account for only 156 per cent. This was

minimum percentage increase when compared to the cost of other major

inputs.

5.1.5. CENTRAL EXCISE DUTY

There have been discussions whether excise duty structure for cement

industry could be Ad-Valorem. The cement industry represented to

government to continue excise duty at the specific rate. The request of

cement industry is that cement production is a continuous process and its

shelf of life in silo/bags is limited. Therefore around 70-80 per cent cement

252
produced in the factory is normally removed to sale depots on stock transfer

basis and its sale price is fixed at the time of its actual sale. Around 18 to 25

per cent of value constitute freight. Therefore value for excise arrived at by

deducting transport and other expenses after leaving the factory will vary

considerably depending on the location of the plant, marketing region, mode

of transport etc.

Also in case of cement industry, the present regime with specific duty

has simplicity, certainty and finality present in the system and there is no

leakage; thus 100 per cent compliance is assured with no litigation. In March

1992, the central excise duty per tonne of cement was only R$.135 and

further this figure was increased to Rs.225.75 in the year 1989-90. The

central excise duty was increased by government from Rs.330 to Rs.350 in

March 1995. From that day onwards, there was no change in the excise duty.

The central excise duty per tonne of cement increased over the period i.e.

1981-82 to 1997-98 was approximate 259 per cent.

5.1.6. RAILWAY FREIGHT ON CEMENT

In the financial 1981-82, the railway freight on cement for average

lead of 750 kms. per tonne was only Rs.145.10 and further this was increased

to Rs.286.90 in 1989-90. The railway freight on cement reached Rs.521.60

in 1996-97 as against that of the previous year’s i.e. Rs.474.20. In March

253
1989, the railway freight on cement for average lead of 750 kins, per tonne

was Rs.584.20 and this cost element increased over the period i.e. 1981-82 to

1997-98 was 403 per cent.

5.1.7. ROYALTY, CESS, CESS SURCHARGE, MRT ON LIMESTONE

During the year March 1982, the royalty, cess, cess surcharge, MRT

on limestone were only Rs.7.59 and further they were increased to Rs.17.46

in 1989-90. The cost of all the above mentioned elements being Rs.25 per

tonne in March 1996 and there was no change in this cost element upto 10th

April 1997. The Government of India, Ministry of Steel and Mines has

increased the rate of royalty on limestone in all states and union territories

except the state of West Bengal from Rs.25 per tonne to Rs.32 per tonne with

effect from 11-4-1997 under the Mines and Minerals (Regulation and

Development) Act, 1957.2

5.1.8. WAGES

In the financial year 1981-82, the wages at minimum level was only

Rs.887.30 per month and further this was increased to Rs.1676.70 in 1989-90.

2. Indian Cement Industry, Statistics, Cement Manufacturers’ Association,

New Delhi, September 1998, P: 67.

254
The most important cost element wages per month reached to Rs.3974.15 as

against previous year’s Rs.3390.30. During the year 1997-98, the wage

element cost crossed Rs.4000 mark and reached R$.4168.90 and this cost

element increased over the period was approximate 470 per cent.

Apart from the above cost elements, some other cost elements namely

sales tax on cement, sales tax on stores and spares/raw materials and packing

materials, octroi etc., has also caused to increase the cost of cement

production. The total levies/duties (excise duty, sales tax, royalty on

limestone/coal, government duty on power tariff etc.) on cement amount to

Rs.767 per tonne as on 31st December, 1998.

The following facts are worth mentioning regarding the rise in the

cost of some of these inputs in the period subsequent to March 1996 :

• The government was unable to place a regular railway/union budgets for

the year 1996-97 before Parliament because of general elections, later

both the budgets were presented to the Parliament in July 1996 and they

increased the railway freight by 10 per cent with effect from August 1996.

• Besides the usual increase in Dearness Allowance, a new wage settlement

came into force from 1st April, 1996.

• High Speed Diesel Oil prices are increased by 15 per cent from 6th July,

1996.

255
 The pit head prices of all grades of coal increased from time to time in

1996-97.

The effect of increase in the cost of various elements of inputs during the

period from April 1996 to March 1997 was about Rs.240 per tonne of

cement.3 Apart from the above hikes in various elements, again there has

been a 12 per cent increase in railway freight with effect from 1st April, 1997.

The freight on coal has been further increased from 15th October, 1997 by

upward revision in the classification of coal by one step. Power tariffs have

been hiked by most of the State Electricity Boards. The prices of petroleum

products also were increased in 1997-98. All these hikes have contributed to

an average increase in the input cost of cement by about Rs.12 per bag

during March 1997 to March 1998.4

3. Parthasarathy, R. Chakravarthy, S.M. Cement Industry : Emerging

Trends, The Contact Advertising and Communications, 1810, Gyani

Bazar, Kotla Mubarakpur, New Delhi, P : 297.

4. 37th Annual Report: 1997-98, Cement Manufacturers* Association, New

Delhi, P: 5.

256
5.1.9. COST OF CEMENT PRODUCTION PER TONNE OF
SELECT MAJOR CEMENT PLANTS :

For the study of growth and prospects of the cement industry in

Andhra Pradesh, three major and mini-cement plants are selected for the

purpose. The cost of cement production per tonne of select cement plants are

as follows:

RAASI CEMENT LIMITED:

The Table 5.3 depicts the information about the cement cost of

production per tonne of Raasi Cement Limited.

The approximate cost of production of Raasi Cement per tonne being

Rs.2150. The company has to spend amounts that vary from factor to factor

as shown in the Table 5.3. The limestone and gypsum the main raw material

used in the production of cement costs only Rs.150 and its percentage is 6.98

in the total cost. Whereas “duties and taxes” shows the highest amount i.e.,

Rs.645 per tonne and its percentage is 30. The next highest cost factors are

power, interest and depreciation being Rs.325 and Rs.300 respectively and

their percentages are 15.2 and 13.95. The remaining cost factors - coal,

freight and administration and other costs being Rs.735 and the percentage

being 33.95. As all these cost factors are the necessary ingredients in the

production of cement, they can not be avoided even if we wish to reduce the

cost of cement.

257
Table: 5.3

RAASI CEMENT LIMITED

CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Limestone and Gypsum 150.00 6.98

2. Power 325.00 15.12

3. Coal 225.00 10.47

4. Freight 290.00 13.48

5. Administration and Other costs 215.00 10.00

6. Interests and Depreciation 300.00 13.95

7. Duties and Taxes 645.00 30.00

TOTAL COST OF PRODUCTION 2150.00 100.00

Source : Unpublished records of the company.

258
 RAASI CEMENT LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

□ Limestone & Gypsum ■ Power

□ Coal m Freight
□ Administration & Other Costs □ Interest & Depreciation
□ Duties & Taxes
MADRAS CEMENTS LIMITED :

The Table 5.4 shows the information about the cement cost of

production of Madras Cements Limited.

The cost of production of Madras Cements per tonne being Rs.2000.

This company spend Rs.150 towards limestone and gypsum, the main raw

material used in the production of cement and its percentage is 7.50 in the

total cost of Rs.2000, whereas “duties and taxes” shows the highest amount

i.e., Rs.620 per tonne and its percentage is 31. The next highest factors are

power and freight being Rs.300 and Rs.275 respectively and their percentage

is 15 and 13.75. The remaining cost factors - coal, administration, interest

and depreciation costs being Rs.225, Rs.230 and Rs.200 and its percentages

are 11.25, 11.50 and 10 respectively in the total cost of production per tonne

of Madras Cements Limited.

K.C.P. LIMITED:

The Table 5.5 reveals the information about the cement cost of

production per tonne of K.C.P. Limited.

The approximate cement cost of production per tonne of the K.C.P.

Limited being Rs.2,300. This company is spending Rs.154 towards the

limestone and gypsum, which was little bit high when compared to the Raasi

and Madras Cements and its percentage is 6.70 in the total cost whereas

259
Table: 5.4

MADRAS CEMENT LIMITED

CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Limestone and Gypsum 150.00 7.50

2. Power 300.00 15.00

3. Coal 225.00 11.25

4. Freight 275.00 13.75

5. Administration and Other costs 230.00 11.50

6. Interests and Depreciation 200.00 10.00

7. Duties and Taxes 620.00 31.00

TOTAL COST OF PRODUCTION 2000.00 100.00

Source : Unpublished records of the company.

260
 MADRAS CEMENTS LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

150
300

225

275

□ Limestone & Gypsum □ Power

□ Coal □ Freight
□ Administration & OtherCosts □ Interest & Depreciation
■ Duties & Taxes
Table: 5.5

K.C.P. LIMITED
CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Limestone and Gypsum 154.00 6.70

2. Power 432.00 18.78

3. Coal 275.00 11.96

4. Freight 350.00 15.22

5. Administration and Other costs 319.00 13.87

6. Interests and Depreciation 70.00 3.04

7. Duties and Taxes 700.00 30.43

TOTAL COST OF PRODUCTION 2300.00 100.00

Source : Unpublished records of the company.

261
 KCP LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

154

319 350

□ Limestone & Gypsum □ Power

□ Coal □ Freight
□ Administration & Other Costs □ Interest & Depreciation
■ Duties & Taxes
duties and taxes shows the amount i.e., Rs.700 per tonne and its percentage is

30.43. The next important cost factor interest and depreciation, which shows

the lowest amount i.e., Rs.70 per tonne and its percentage is only 3.04. The

next highest cost factors are power, freight, administration and coal being

Rs.432, Rs.350, Rs.319 and Rs.275 respectively and the total percentage of

these cost factors are 59.83.

SAGAR CEMENTS LIMITED:

The Table 5.6 gives the information about the cement cost of

production per tonne of Sagar Cements Limited.

One of the most profitable mini-cement company, Sagar Cements

Limited spend only Rs.1807 to produce one tonne of cement. The company

has to spend amounts that vary from factor to factor as shown in the table

5.6. Limestone and gypsum the main raw material used in the production of

cement costs only Rs.120 and its percentage is 6.64 in the total cost. Whereas

power and coal, which are essential to produce cement shows the highest

amount i.e., Rs.650 per tonne and its percentage is 35.97. The next highest

cost factor duties and taxes being Rs.555 and its percentage is 30.72. The

lowest cost factor salaries and wages being only Rs.62 and its percentage is

3.43. The remaining cost factors stores, repairs and maintenance, capital

262
Table: 5.6

SAGAR CEMENTS LIMITED

CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Raw Materials 120.00 6.64

2. Stores, Repairs and Maintenance 86.00 4.76

3. Power and Fuel 650.00 35.97

4. Salaries and Wages 62.00 3.43

5. Interest and Depreciation 163.00 9.02

6. Administration and other costs 171.00 9.46

7. Duties and Taxes 555.00 30.72

TOTAL COST OF PRODUCTION 1807.00 100.00

Source: Company records.

263
 SAGAR CEMENTS LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

□ Raw Materials □ Stores, Repairs & Maintenance

□ Power & Fuel ■ Salaries & Wages
□ Administration & OtherCosts □ Interest & Depreciation
■ Duties & Taxes
related costs and selling, general and administration expenses being Rs.86,

Rs.163 and Rs.171 respectively and their percentages are 4.76,9.02 and 9.46.

SRI CHAKRA CEMENTS LIMITED:

The Table 5.7 depicts the particulars about the cost of production per

tonne of Sri Chakra Cements Limited.

One of the loss making companies in the mini-plant sector is the

Sri Chakra Cements Limited. The cost of production of cement of this

company is more when compared to that of Sagar Cements Limited. The

total cost incurred to produce one tonne of cement being Rs.2180 in the

company. The raw materials used in the production of cement costs Rs.140

and its percentage is 5.95, whereas “power and coal” shows the highest

amount i.e., Rs.675 per tonne and its percentage is 33.50. The next highest

cost factors are interest and depreciation, duties and taxes being Rs.485 and

Rs.400 respectively and their percentages are 24.07 and 19.85. The lowest

cost factor is salaries and wages which amount to Rs.85 per tonne and its

percentage is 4.22. The next lowest cost factors are stores, repairs,

maintenance and administration and other costs being Rs.95 and Rs.155

respectively and their percentages are 4.71 and 7.70.

264
Table: 5.7

SRI CHAKRA CEMENTS LIMITED

CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Raw Materials 120.00 5.95

2. Stores, Repairs and Maintenance 95.00 4.71

3. Power and Fuel 675.00 33.50

4. Salaries and Wages 85.00 4.22

5. Interest and Depreciation 485.00 24.07

6. Administration and other costs 155.00 7.70

7. Duties and Taxes 400.00 19.85

TOTAL COST OF PRODUCTION 2015.00 100.00

Source: Unpublished records of the company.

265
 SRI CHAKRA CEMENTS LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

140

675

□ Raw Materials □ Stores, Repairs & Maintenance

□ Power & Fuel (■Salaries & Wages
□ Administration & Other Costs □ Interest & Depreciation
■ Duties & Taxes
HEMADR! CEMENTS LIMITED :

The Table 5.8 shows the particulars of cement cost of production per

tonne of Hemadri Cements Limited.

The cost of production in the Hemadri Cements Limited is more when

compared to the cost of production in the remaining two select mini-cement

plants. The total cost incurred to produce one tonne of cement been Rs.2290

in this company. The raw materials used in the production of cement costs

Rs.143 and its percentage is 6.24. Whereas ‘power and coal’ shows the

highest amount i.e. Rs.903 per tonne and its percentage is 39.43 in the total

cost of production. The next highest cost factors are duties and taxes,

interest and depreciation being Rs.556 and Rs.346 respectively and their

percentages are 24.28 and 15.11. The lowest cost factor is stores, repairs and

maintenance shows the amount i.e. Rs.84 per tonne and its percentage is 3.67

in the total cost of production per tonne. The next lowest cost factors are

salaries and wages and administration and other expenses being Rs.106 and

Rs.152 and their percentages are 4.63 and 6.64.

The Andhra Pradesh Cement Industry is also bearing some type of

costs incurred by the Indian Cement Industry. Whereas the new mini­

cement plants bear some extra costs in the production of cement per tonne.

The cost of production per tonne of cement for the existing and new firms are

entirely different. The Andhra Pradesh Cement Industry procures all the

266
Table: 5.8

HEMADRI CEMENTS LIMITED

CEMENT COST OF PRODUCTION PER TONNE

COST FACTOR Rs. / TONNE % OF COST

1. Raw Materials 120.00 5.84

2. Stores, Repairs and Maintenance 107.00 5.22

3. Power and Fuel 700.00 34.06

4. Salaries and Wages 127.00 6.18

5. Interest and Depreciation 425.00 20.68

6. Administration and other costs 165.00 8.02

7. Duties and Taxes 411.00 20.00

TOTAL COST OF PRODUCTION 2055.00 100.00

Source : Unpublished records of the company.

267
 HEMADRI CEMENTS LIMITED
CEMENT COST OF PRODUCTION PER TONNE
FIG. IN Rs.

903

■ Raw Materials □ Stores, Repairs & Maintenance

□ Power & Fuel □ Salaries & Wages
Q| Adm in it rati on & Other Costs □ Interest & Depreciation
g Duties & Taxes
necessary resources from the vicinity of the state and incurred more or less

same cost regarding coal, power, cess, royalty, cess surcharge on limestone,

excise duty, freight on coal, cement wages, administrative and packaging

charges.

2. MARKETING ASPECTS OF CEMENT INDUSTRY

After decades of government control over price and distribution of

cement, in March 1989, Government of India announced total decontrol of

cement: earlier in 1982 the full and tight control were partially removed as a

first step. This was a bold step indeed, particularly in the era of controls and

permits when the theory of public sector commanding heights of economy

was still a political dogma.' The results were dramatic. The industry sprang

up and shifted gear to a healthy growth rate and sometimes even went on to a

overdrive in creating capacity. The shortage of cement became a forgotten

story and market turned into a surplus are necessitating the industry to find

markets off-shore. An importing country became an exporting one almost

overnight.

These changes had also dramatic implications both to the growth of

the industry as well as the pattern of distribution and marketing over the

whole country. This led initially to self-sufficiency. Once the existing

268
demand was fully met, the situation changed into one of surplus and a strong

competitive atmosphere permeated the market. This led to aggressive

marketing and it was not uncommon to see the prices softening at times to

the detriment of producers, whenever the demand-supply cycle entered a

supply-surplus situation. The consumer could now exercise his right to

choose the product of his liking. Thus marketing, which was totally absent in

the control era, assumed importance.

Competition entering the market scene, accentuated by new entrants

to the scene, resulted first in companies trying to increase their individual

market sham of the existing markets. Developing brand equity assumed

first priority. Market leaders started taking shape in different markets and

market segments. They could command a premium in price and a better

market share for their products, owing to consumers developing a perception

of their quality and superiority of their product and quality service. The

next sophistication that naturally followed in a consumer oriented market

was introduction of multiple grades of cement according to strength. This

provided further differentiation in the range of products, such as Ordinary

Portland Cement 43, 53, Portland Pozzolana cement, Portland Slag cements

etc. offered to the market to cater to the slowly widening rage of consumer

requirements, moving away from a single commodity of the earlier years.

269
Thus the consumer not only had a range of products to choose from but also

had a host of suppliers competing to cater to his specific requirement.

“SELLERS MARKET TO BUYERS MARKET”

Till 70*s the Indian Cement market was a “Sellers Market” and the

consumer used to be in long Q’s for getting cement However in 80’s the

Indian Cement Industry came with huge capacities and most of the demand

was met with confidently. In 90’s because of the change in government

policies towards cement industry, the entire Indian market demand is fully

met and also entered the World cement market. In 90’s, again the installed

capacities of the industry have gone up on a large scale and the entire Indian

cement market has become a “Buyers Market” and “Brand” and “Quality”

play a vital role now.

The Andhra Pradesh cement industry is no exception for this type of

change in the market.

5.2.1. PRODUCT

The market leader Raasi Cement Limited manufactures Ordinary

Portland cement in grades 43 and 53, Portland Pozzolana cement and

Portland Slag cement as per Bureau of Indian Standards (ISI) for domestic

use and as per British Standards (BS) for exports.

270
 Madras Cements Limited is producing Ordinary Portland cement in

grades 43 and 53, Portland Pozzolana cement from their Jayanthipuram unit

in Andhra Pradesh.

The KCP Limited hosts a state-of-the-art cement manufacturing plant

at Macherla, Andhra Pradesh to produce Ordinary Portland cement in

grades 43 and 53 as per Bureau of Indian Standards (ISI) for domestic

purpose.

The following Table 5.9 depicts the information about the variety of

cement produced and the brand names of the select cement plants in major

cement industry.

The Andhra Pradesh mini-cement plants are also producing all the

varieties or grades of cement produced by the major plants to fact the

competition from the major counterparts as well as to complete their product

line.

One of the major player in the mini sector, Sagar Cements Limited is

producing Ordinary Portland Cement in 43 and 53 grades, Sulphate

Resistant Cement, Slag Cement as per standards established by the Bureau

of Indian Standards for domestic consumption.

Sri Chakra Cements which caters to the needs of local markets is

manufacturing Ordinary Portland Cement with 43 and 53 grades only.

271
Table: 5.9

SELECT MAJOR CEMENT PLANTS

THEIR PRODUCTS AND BRAND NAMES

COMPANY NAME VARIETY OF CEMENT BRAND NAME

1. Raasi Cement Ltd. 1. Ordinary Portland Cement

OPC 43 Grade Raasi

OPC 53 Grade Raasi Gold

2. Portland Pozzolona Cement Raasi

2. Madras Cements Ltd. 1. Ordinary Portland Cement

OPC 43 Grade Ramco

2. Portland Pozzolona Cement Ramco Super Grade

3. The K.C.P. Ltd. 1. Ordinary Portland Cement

OPC 43 Grade K.C.P.

OPC 53 Grade K.C.P.

Source: Company records.

272
 The cement manufactured by the Hemadri Cements Limited confirms

to the standards prescribed by the Bureau of Indian Standards (BIS) and of

higher quality in all respects. The company is having BIS license for the

manufacture of Ordinary Portland Cement with 33,43 and 53 grades and

Portland Pozzolana Cement is useful both for industrial and other purposes.

The following Table 5.10 reveals the information about the products

and their brand names produced by select mini-cement plants in Andhra

Pradesh.

5.2.2 PRICE

The cement pricing is a very peculiar phenomenon when compared to

other industries. While all the industries fix their prices considering the cost

of production, administrative expenses, duties and taxes, profit, freight etc.

For cement industry, the market fixes the price since the freight plays a

pivotal role in cement marketing and competition among the players

concentrating in any given market.

For instance, imagine that ex-works price is fixed at Rs.110 per bag

for a plant in Nalgonda District in Andhra Pradesh. It has to fix the per -

bag price in Hyderabad at Rs.120 (freight from Nalgonda district to

Hyderabad is Rs.10) and for Mumbai at Rs.145 (freight from Nalgonda

district to Mumbai is Rs.35). However, for the plant in Wadi, it will work

273
Table: 5.10

SELECT MINI CEMENT PLANTS

THEIR PRODUCTS AND BRAND NAMES

COMPANY NAME VARIETY OF CEMENT BRAND NAME

1. Sagar Cements Ltd. 1. Ordinary Portland Cement

OPC 43 Grade Sagar Priya

OPC 53 Grade Sagar Priya Gold

2. Portland Pozzolona Cement Sagar Priya Super

Grade

3. Sulphate Resistant Cement Sagar Priya

2. Sri Chakra Cements Ltd. 1. Ordinary Portland Cement

OPC 43 Grade Sri Chakra

OPC 53 Grade Sri Chakra Gold

3. Hemadri Cements Ltd. 1. Ordinary Portland Cement

OPC 43 Grade Hemadri

OPC 53 Grade Hemadri Gold

Source: Company records.

274
out Rs.125 per bag (freight from Wadi to Mumbai is Rs.15). In case there is

competition between these two plants, the price is going to be settled in

between Rs.130 to Rs.140 per bag with different profit/loss for two plants.

From the above, one can observed that where there is no cement

plant and cement is required to reached from a long distance, the cement

prices continue to be high when compared to the places where cement plants

are nearby. There are instances where cement was sold at a loss of Rs.I5 per

bag by cement producers due to stiff competition among the cement

producers and sluggish demand. Cement prices in Andhra Pradesh markets

were around Rs.85 to Rs.95 during the last quarter of the 1998.

Thus, the market itself determines the price of cement considering

the freight, demand and supply, season etc. Apart from this, cement being a

process industry and as it cannot be stored for long despite market recession,

demand etc., it has to be sold to allow the production to go on. Due to these

reasons, cement prices will be at the lowest level during monsoon season

when the demand is very low.

The Andhra Pradesh Cement Industry’s major plants set their

product prices taking into consideration various costs incurred in the

manufacturing of cement viz., coal, freight on coal, freight on cement, sales

tax, excise duty, packaging expenses, handling costs etc. These companies

are adding some mark-up for the cost of production and fixed a final price

275
for the cement. The Cement Manufacturers* Association is also sometimes

monitor the prices of cement of different brands from time to time. The

pricing of cement will also depend on the competition expanded in the

market and the demand in the market and season etc. The select cement

plants for study in the major sector viz., Raasi Cement Limited, Madras

Cements Limited and KCP Limited also fixed their cement prices after

considering all the above points.

The Andhra Pradesh mini-cement plants are forced to fix their

cement prices lower than the prices fixed by the large plants even though the

quality of cement is same from these two sectors. The Sagar Cements

Limited, Sri Chakra and Hemadri Cements also fixed their product prices

after observing the prices of market leader Raasi, and some other major

counterparts Madras Cements, KCP Cements etc.

Apart from the above, almost all the cement companies including

select major and mini companies are introduced different discounts and

allowances which are intended to as round the clock sales persons. In

general, discounts and allowances are granted on the basis that the customer

will in turn perform some marketing activities. These includes quantity, cash

and seasonal discounts, promotional brokerage, freight allowance etc.

276
5.2.3. PLACE

CHANNELS OF DISTRIBUTION:

Distribution channels play a vital role in achieving the marketing

objectives of a company. These distribution channels create time and place

utilities for a product or service. The main function of this marketing mix

element is to find out appropriate ways through which goods are to be made

available to the markets. Channels are the tools used to move the final

product from factory premises to the final consumer hands.

Most of the cement companies in Andhra Pradesh have successfully

established multiple channels to send their cement to various classes of

markets/consumers. The market leader Raasi Cement Limited have followed

the below mentioned channels to meet the needs of various customers.

MANUFACTURER

Distributors C & F Agent

Dealer/Stockists Dealers

Builders & Buyers / User User Exports

Govt. Agencies & Thro* Consignee
Industrial Users

277
 The Andhra Pradesh cement market leader Raasi Cement Limited

with its 4000 plus distribution network system sells their Raasi brand cement

to the vast Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharashtra,

Orissa markets. This company is maintaining large dealer network covers

both urban and rural markets supported by company run

dumps/warehouses and marketing offices at strategic locations afford Raasi

a competitive advantage in the market.

Madras Cements Limited also established different channels to meet

the needs of different customers. The significant number of dealers pushing

the Ramco brand cement into the vast Andhra Pradesh market. This

company established a dealer network upto the nook and corner of the

Andhra Pradesh and created a breakthrough in the rural Andhra Pradesh.

One of the oldest cement brands from Andhra Pradesh KCP has

successfully developed a team of strong 1800 dealer network who invest their

maximum effort to push the most famous brand of cement in Andhra

Pradesh.

The main aim of the establishment of mini-cement plants is to cater to

the needs of small and local markets. For this, almost all the mini-cement

plants in Andhra Pradesh including the select plants have established

conventional distribution channels to send their cement to the near

278
consumer. These mini plants established direct, one line and two line

channels for sending their products to the final consumer hands.

PHYSICAL DISTRIBUTION:

Raasi and Madras Cements Limited have developed distribution and

delivery systems entailing optimum mix of rail and road dispatch aimed at

minimising the freight cost and ensuring prompt deliveries. The KCP’s fresh

cement is supplied directly through their own transportation system. Access

to the country’s broad gauge line by a private railway siding also facilitates

easy transportation of KCP cement.

The select mini-cement plants except Sagar Cements Limited use only

roadways to send their finished product to the factory surrounding markets

whereas Sagar Cements Limited supplies the cement from its two plants to

the distant markets by using road and rail transports aimed at minimising

the freight cost and ensuring prompt deliveries.

5.2.4. PROMOTION

One of the important marketing mix element promotion includes the

following aspects viz., advertising, sales promotion, personal selling, public

relations and publicity. To reach the target market effectively, each and

every company’s marketing manager must coordinate all the promotional

279
mix elements with the marketing mix elements viz., product, price and place.

In 90’s, the cement market has become a “buyers market” and this has

changed the attitude of cement manufacturers towards the introduction of

more promotional activities.

The market leader Raasi Cement Limited has been spending a big

amounts on this activity. Raasi introduces various print media, broadcast

media and narrocast media advertisements and at the same time uses

number of other media viz., transit media, wall paintings, hoardings, neon

signs etc. for their product advertisements. Raasi Cement Limited

sponsored various programs in Gemini and Eenadu Television networks.

Apart from the above, Raasi also introduces various sales promotional

activities viz., quantity discounts, cash discounts and freight allowances to

their channels member and also conduct mason meetings, dealer conferences

and provide after sales services to the big customers.

More or less almost all the major plants are spending significant

amounts on these promotional mix elements. The Madras Cements Limited

introduced various print media and broadcast media advertising for their

Ramco brand cement. Apart from the above media, this company also used

wall painting, shop painting, highway painting, hoardings and arches to

create awareness in the consumers/customers minds. This company is also

280
frequently conducting mason meetings, dealer meetings and architect

meetings to give more and latest information to that class of people.

The KCP is also introducing various print and broadcast media

advertising into leading Telugu Dailies as well as sponsoring various

programs in Gemini and Eenadu Television networks. A well trained team

of sales force has made a breakthrough in the sales of this company. Apart

from the above, KCP is also introducing various trade promotional activities

to boost up the company sales.

The Andhra Pradesh mini-cement plants are not having that much of

financial strength to compete with major players in the industry. Only the

Sagar Cements very frequently giving their product advertisements in

leading Telugu Dailies and also using wall paintings, highway paintings,

hoardings, arches etc. This company is also introducing various quantity

and cash discounts to the channel members to more offtake. The remaining

two select mini-cement plants namely Sri Chakra and Hemadri cements are

spending very minimum amounts on this crucial marketing mix element.

5.2.5. PACKAGING DEVELOPMENTS

Earlier the cement producers are required to pack 50 per cent of the

total cement production in jute bags. This is against the interest of the

consumer because jute bags are permeable in nature. Government did not

281
include ‘cement’ for compulsory packaging for jute years 1997-98 and

1998-99 as per Government Order, dated 30th June 1997.5 Since, cement is

packaging with superior packaging material viz.,

Paper/HDPE/Polypropylene etc. Consumer is becoming increasingly quality

conscious and exercises his choice regarding the particular brand of product

and packaging. In the present cement market, number of manufacturers

invested their maximum effort to catch the eye of the consumer, it is

necessary to provide suitable identification of colour and design for quality,

product brand and packaging. This would discourage adulteration of

cement, which is undesirable.

Taken into consideration of above important aspects, the Andhra

Pradesh Cement Industry uses the superior packaging material viz.,

Paper/HDPE/Polypropylene etc. to get the competitive edge over their

competitors. The select cement plants in major and mini plants sector are

also using the above said superior coloured packaging material for packing

of cement.

The Andhra Pradesh Cement Industry’s focus has shifted from

product to customer. Cement companies are paying special attention to

5. 37°* Annual Report: 1997-98, Cement Manufacturers’ Association, New

Delhi, P: 3.

282
packaging, prompt delivery, advertising campaigns and sales promotion

activities to popularise brands. Also conferences, seminars and exhibitions

are being held for retailers, stockists, dealers and architects to promote sales

and distribution activities.

***

283