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Summer project report on Study of Consumer Behaviour in Cement Decision making
Academic Guide
Industry Guide
Prof. A.K. Dey
Mr.Prasad Rao
Senior Professor, Marketing
Senior Manager-Marketing
Birla Institute of Management Technology
Dalmia Cement (Bharat) Ltd.
By Lakshmi Kannan PGDM 09DM057
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Acknowledgement
It is my honor hon or to get an opportunity to pursue pu rsue my summer internship with Dalmia Cement (Bharat) Ltd,, Chennai . I would like to thank Dalmia Cement (Bharat) Ltd. for giving me an opportunity to undertake u ndertake a summer internship in the company. I express my sincere thanks to Mr.Antony Joseph, Asst. Executive Director for giving me opportunity and permission, to undertake this project in Marketing Department in their esteemed Organization. I extend special gratitude to Mr.Prasad Vikram Rao who is my industry mentor for helping me throughout the project project and guiding me extensively in its execution. I am obliged by the the support extended by everyone at the Dalmia Cement (Bharat) Ltd., Chennai. I express my heartiest thanks to my academic mentor Prof. A.K. Dey for his valuable suggestions and guidance at various stages of the project.
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Summer Project Certificate
This is to certify that Miss. LAKSHMI KANNAN Roll No. 09DM057 a student of PGDM has worked on a summer project titled STUDY OF CONSUMER BEHAVIOUR IN CEMENT DECISION MAKING at Dalmia Cements (Bharat) Ltd after Trimester-III in partial fulfillment of
the requirement for the Post Graduate Diploma in Management programme. This is her original work to the best of my knowledge.
Date:___________
Signature ________________
(_________________________) Name of Faculty
BIMTECH SEAL
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TABLE OF CONTENTS Chapter 1 Executive Summary 1.1 Major Findings 1.2.Conclusion 1.3.Recommendations
Chapter2 Problem Definition 2.1Background to the Problem 2.1.1. Company Overview 2.1.2.Industry Analysis 2.1.3.Types of Cement 2.1.4.Market Players 2.1.5.Consumption Pattern 2.1.6.Regional Pattern 2.1.7.Cement Manufacturing Technology 2.1.8.Cost 2.1.9. Government Policies 2.1.10.Consolidation Opportunity-Mergers and Acquisitions 2.1.11.Competitor Analysis-Porter’s 5 Forces Model 2.1.12.Segmentation 2.2Statement of the Problem
8 8 9
9 9 12 15 17 24 26 27 33 34 37 40 41 44
Chapter 3 Approach to the Problem 3.1 Research Objective
44
3.2 Scope of Study
44
Chapter 4 Research Design
5
4.1 Type of Research Designs used
44
4.2.Information needs 4.3.Data Collection from Secondary Sources 4.4.Data Collection from Primary Sources 4.5.Scaling Technique 4.6.Questionnaire Development and Testing 4.7.Sampling Technique 4.8.Fieldwork
44 45 45 46 47 48 48
Chapter 5 Data Analysis 5.1 Methodology 5.2Plan of Data Analysis 5.2.1.Exploratory Research 5.2.2.Descriptive Research 5.2.3.Factor Analysis 5.2.4.Sample Input 5.2.5.Sample Output
48 48 48 49 51 52 54
Chapter 6 Results 6.1 Result of Study 6.1.1 Factor Analysis
66 66
Chapter 7 Limitations and Caveats 7.1 Limitations
67
6 Chapter 8 Conclusions & Recommendations 8.1 Conclusions
67
8.2 Recommendations
68
Chapter 9 Exhibits 9.1 Questionnaires and Forms
68
9.2.Spss output
81
Bibliography
92
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List of Tables
Table1
Revenue Breakup
10
Table2
Dalmia Cement’s Market Share
10
Table3
Market Share in terms of Sales
11
Table4
Cement Volumes for the Fiscal Year 2009
17
Table5 Table6
Cement capacity that can be sold Likert Scale
38 43
Table7
Differences between 2 segments
46
List of Graphs
Chart1 Chart2 Chart 3
Major Market Players Segmentation Overall Cement Production
18 25 26
Chart4
Cement consumption pattern
27
Chart5
Cement process
28
Chart6
Result
66
Chart7
Socioeconomic Class
67
Chart 8 Chart 9 Chart 10
Dalmia Vajram Preference Decision maker Location-wise distribution of respondents
68 69 69
Chart11
Incomewise Distribution
70
8
List of Figures Figure1 Figure 2
Cement Maufacturing Process Flow chart Cement Manufacturing Process
30 31
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1. EXECUTIVE SUMMARY The project is performed at Dalmia Cements (Bharat) Ltd, Chenn ai. The project focuses on studying the consumer behavior in selecting Cement for construction. This will give Dalmia Cements an insight into the market and try to identify the major factors expected by the consumers during cement purchase. Cement customers are broadly classified into 3 segments-Individual housing, Industrial Construction and Government infrastructure. Individual houses constitute nearly 50% of the total by volume (Source: Indian Brand Equity Foundation).Government Infrastructure and Industrial Construction account for 25% each of the total by volume. The Cement companies are interested in the individual housing segment because it is highly profitable segment by value compared to the other two segments. This segment is most profitable because the bargaining power of individual house owners is less whereas the government and industries make bulk purchase and ask for low prices. Therefore, the customer segment chosen for this project was Individual houses segment which is profitable by volume and value. This marketing project focuses on finding out the major factors that influenced their decision making in choosing cement. Exploratory research was first carried out with 4 masons to get an insight into the cement industry’s current trends. Then, a questionnaire was prepared and pretested with 6 individual owners. The questionnaire listing various factors affecting their decision process was refined and administered with 75 individual house owners. Then, the data was analyzed using SPSS Software. Factor analysis was done to summarize the major factors that influenced decision making of cement buyers.
1.1. MAJOR FINDINGS The research was conducted in Chennai’s suburban areas in Kanchipuram district and in Kanchipuram. 1. There are 3 major factors that influence the purchase decision of individual house owners, namely a. The properties of cement like strength, durability, quick setting, and fineness play a major role in choosing cement. b.Secondly, the company’s sales and marketing actions like media promotion, service, competitive pricing comes out to be an important factor.
10 C.The recommendation of mason influences the customer in making the choice of cement. 2. Ultratech and Dalmia Vajram are the most preferred cements in this sample of 75. 3. People belonging to A1 and A2 socio-economic classes are the major customers in this individual housing segment. 24 % of A1 class prefers Dalmia Vajram and 17.3% of A2 prefers Dalmia Vajram among other cements in this sample of 75. Factor Analysis for A1 Socio-economic class and A2 socio-economic class were done separately. The results are similar to the factor analysis done for the entire sample. That is, the 3 major factors , namely, the physical properties of cement, recommendation by influencers like mason and the sales and marketing efforts of the company play a major role in purchase decision holds true for both the A1 and A2 Socio-economic class who are the major customers of cement. A1-Businessmen, middle and senior Executives A2-Businessmen, middle and senior executives with college education, supervisors, graduate shop owners
4. Brand bought based on mason’s / contractor’s recommendations: 85% 5. Location : This chart represents the percentage of respondents in each locality covered by the survey. 6. Income wise Distribution : 42.6% of the sample belongs to 20001-30000 categories and
29.3%
belongs to 30001-50000 slabs. 7.Agewise Distribution: 37% of the respondents surveyed are within 46-50 years and 33% belongs to 51-55 years
1.2.CONCLUSION 1.There are mainly 3 factors that contribute to the purchase decision of cement – a.The properties of cement like strength, durability , quick setting, fineness,no cracks. b.Recommendation by mason plays a major role. c.The company’s sales and marketing efforts like price,brand building,media,service also influenc e the customer. 2.People belonging to A1 and A2 socio-economic classes are the major builders of individual houses. Therefore, the advertisements can focus on this segment in order to motivate them.
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1.3.RECOMMENDATIONS 1. As all the cement companies follow the Bureau of Indian Standards in cement production, the properties of the cement offered by different companies remain almost similar. There will not be much of product differentiation. Therefore, the companies can focus on their sales and marketing efforts and try to stand out only with the help of promotion, service, delivery,etc. The recommendations of maso ns also play a major role. As the mason’s recommendation plays a major role in selection of cement by the consumer,the company can make special promotional effort to reach the masons by organizing a meet-giving away presentation on features of brand, dinner, gifts,etc.to promote the brand. 2.Brand building exercise needs to be done consistently to create awareness among the consumer. 3.Reasonable prices are expected by the majority of the consumers. In contrast, Ultratech and Dalmia Vajram which are priced higher, enjoy higher market share inspite of lower priced brands. This shows that the brand quality perception in consumer’s minds is related to price. People are willing to pay a higher price for premium brands.
2.PROBLEM DEFINITION 2.1. BACKGROUND TO THE PROBLEM 2.1.1. COMPANY OVERVIEW
The company was founded in 1935 by Jaidayal Dalmia, with the cement division being set up in 1939 in South India.It concentrates on cement, sugar and power .The company boasts of over 70 years of strong experience. In the pre-independence period, the Dalmia Group had set up four cement plants, out of which two got affected by partition and Independence. The remaining two are operational as Dalmia Cement and made strategic investments in Orissa Cements Limited (OCL). DCBL has always been the pioneer in introducing new technologies, which the other peers in the same industry follow today. They are known to be the leader in their industry segment in the niche category.
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TABLE1 Revenue Breakup Cement Business
72%
Sugar Business
16%
Refractories and Power
12%
Source:Bloombergutv DCBL has business interests in two major segments namely Cement and Sugar with share of ~72% and 16% respectively for FY09 and rest coming comin g from Power and others. DCBL has cement c ement plants in Southern States of Tamil Nadu (Dalmiapuram & Ariyalur) and Andhra Pradesh (Kadapa), with combined capacity of 9 million tons per annum (MnT). With ~51% of its cement getting sold in Tamil Nadu, 25% in Kerala, 11% in Karnataka, 9% in Andhra Pradesh and rest 4% in eastern and other regions, DCBL enjoys double digit market share in its region. DCBL is a pioneer in super specialty cements like Oil well, Railway sleeper and Air strip. DCBL also ha s three Integrated Sugar Mills in the State of UP with installed capacity of 22,500 22,50 0 tons of cane crush per pe r day, distillery capacity of 80 kilo litres per day (KLPD) & cogeneration facility. DCBL also has stake in OCL ~ 21.7% having cement manufacturing capacity of 5.4 MnT .
TABLE 2 Dalmia cement’s Market share Company
Place
Market share
Dalmia Cement
Tamil Nadu
12%
Dalmia Cement
Kerala
13%
OCL India
West Bengal
8%
OCL India
Orissa
29%
Source:Bloombergutv
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TABLE 3 Cement Volumes for the Fiscal Year 2009 Cement Volume
FY09(MT)
Dalmia Cement
3.41
OCL India
2.71
Total
6.14
Source:Bloombergutv Dalmia Cement takes the credit of being the first to develop specialty cement for Railway Sleepers way back in 1976. In the year 1984,Dalmia Cement developed a special cement for petroleum oil wells,an import substitute product,for the first time in India. They developed the air strip Cement Ce ment for the first time in India. Impressed by the techno-leadership of Dalmia Cement,the World Bank set up the Regional Training T raining Centre for cement industry at Dalmiapuram,one of its kind in South India,in association with Dalmia Cement in the year 1991. Dalmia Cement has the distinction of being one of the first companies in India to be awarded the ISO 9000 certification. Cement accounts for 70% of revenues.Current Operating capacity is around 9MT. Recently, Dalmia Cement has increased its stake in OCL India to 45.4%.Enterprise Value of cement c ement unit and OCL India around Rs3300 cr and Current Cement capacity of OCL India around 5.3 MT Dalmia Cement plans 10 MT of additional Greenfield capacity by 2013 .
2.1.2.INDUSTRY ANALYSIS The Indian cement industry with a total capacity cap acity of 200 million tonnes (including mini plants) p lants) has emerged as the second largest market after China, surpassing developed nations like the USA and Japan.
14 Low cost technology and extensive restructuring have made some of the Indian cement companies the most efficient across global majors. In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth reported in FY08. However, cement consumption growth in FY09 at 8.4% has been able to maintain its multiplier factor with GDP growth at 1.25 times. In FY09, all the regions except the Western and the Northern region have outperformed the industry in consumption growth. The Eastern region continued its buoyant performance and registered the highest cement consumption growth of 11.3% on yoy basis. The Southern and Central regions also reported impressive double-digit growth of 10.4% in cement consumption. But, the Northern region has registered the lowest growth in the cement demand on yoy basis.Comparatively, poor demand growth registered by the Western region was on account of high base of the last year and also slightly subdued demand. With focus on capacity addition, many small/medium players have been able to capture more market share and consolidate their position in the industry in the last two years. Market share of top five individual companies taken together show a decline to a level of 44.3% in FY09 from 46.3% in FY08. Even though the utilisation rate dropped, average cement prices in FY09 rose by about 5% on yoy basis. But, the growth in cement prices remained slightly subdued compared to 21% and 14%,registered in FY07 and FY08, respectively. On the regional front, prices in the Southern S outhern region were firm and ruling consistently at the highest hi ghest level amongst all the regions in FY09. However, due to slowdown in the cement off take and relatively low operating rate, prices in the Northern region remained at the lowest levels compared to other regions. In FY09, the cement industry witnessed a fall in profitability. Even though, average realisation for the industry increased by about 4% on yoy basis, cost of production has increased by 18.5% on yoy basis. Power and fuel cost for many cement companies increased in FY09 mainly on account of substantial increase in coal prices. As a result, the operating profit margin of the industry dropped
15 by about 8- 9% in FY09. Also, higher interest rates and depreciation provided on expanded capacities took its toll on the net profit margin of the industry which witnessed a decline by about 5% in FY09. Going forward, cement companies would be benefited by their focus on captive power generation which would help them to reduce power & fuel cost. With reduction in coal prices, the authors have estimated that per tonne power & fuel cost of the industry will decline by about 12% in FY10 on yoy basis. Cement is a fine powder, which when mixed with water undergoes chemical change and thereafter allowed to set and harden is capable of uniting fragments or masses of solid matter together to produce a mechanically strong material. Cement can be used as binding material with water, for bonding solid particles of different sizes like bricks, stones or aggregate to form a monolith. Cements used in construction of buildings and civil engineering works contain compounds of lime, silica and alumina as their principal constituents and can be called as complex compounds. Cement is a very essential commodity used in the construction of buildings and other structures.Cement is a binder, a substance which sets and hardens independently, and can bind other materials together. It is also the second most consumed material on the planet (WBCSD 2002-World Business Council for Sustainable Development) It is consented to be a core sector accounting for approximately 1.3% of GDP and employing over 0.14 million people. Also the industry is a significant contributor to the revenue collected by both the central and state governments through excise and sales taxes. Cement is considered preferred building material and is used worldwide for all construction works such as housing and industrial construction, as well as for creation of infrastructures like ports, roads, power plants, etc. Indian c ement industry is globally competitive because the industry has witnessed healthy trends such as cost control and continuous technology upgradation. Some of the reasons for its popularity and universal acceptance are listed below:
a. Cement can be produced in large volumes in controlled condition, packed and
transported
b. Cement is several times stronger binding material than lime and clay c. It can be mixed and used at will with locally available materials at site d. When stored properly in ordinary atmosphere does not deteriorate for reasonably longer time
16 e. When mixed with water, starts setting and acquires sufficient strength in a day or two, where as other binding materials require much longer time f. When water is added to quick lime, lot of heat is generated, but in case of cement, heat generated is unnoticeable and comparatively much lesser g.It can withstand compressive stresses well. Where tension and shear stresses occur it gives good bond to steel reinforcement and transfers excess stresses to steel. h. It is produced from the materials like limestone, hematite, baux ite, clay, etc which are abundantly available in the upper crust of the earth. The Indian cement industry is extremely energy intensive and is the third largest user of coal in the country. It is modern and uses latest technology, which is among the best in the world. Also, the industry has tremendous potential for development as limestone of ex cellent quality is found almost throughout the country.India is the world's second largest producer of cement after China.Indian cement industry is the largest with overall capacity of 217.9 million tonnes. Cement contributes significantly to the GDP of the nation directly and indirectly. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country. Cement industry has contributed around 8% to the economic development of India. Despite some consolidation, the industry remains somewhat fragmented and merger and acquisition possibilities are strong. Investment norms including guidelines for foreign direct investment (FDI) are investor-friendly. All these factors present a strong case for investing in the Indian market.
2.1.3.TYPES OF CEMENT There are some varieties in cement that always find good demand in the market. Among the different varieties of cement, India produces Ordinar y Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement,Rapid Hardening Portland Cement and Sulphate Resisting Portland Cement. The share of blended cement in total cement production has increased from 29 per cent in 1997-98 to 54.5 per cent in 2003-04. Ordinary Portland Cement (OPC): Also referred to as grey cement or OPC, it is of much use in
ordinary concrete construction. In the production of this type of cement in India, Iron (Fe2O3),
17 Magnesium (MgO), Silica (SiO2), Alumina (AL2O3), and Sulphur trioxide (SO3) components are used.There are 2 grades of cement – OPC43 and OPC53.It accounts for 70% of the consumption.OPC comes in 3 different grades-Ordinary Portland Cement 33, 43, 53 grade (OPC), 53-S (Sleeper Cement). 33, 43 and 53 grade in OPC indicates the compressive strength of cement after 28 days when tested as per IS: 4031-1988, eg, 33 Grade means that 28 days of compressive strength is not less than 33 N/mm2 (MPa) . Similarly for 43 grade and 53 grade the 28 days compressive strength should not be less than 43 and 53 MPa respectively. 43 and 53 grade are also being introduced in PPC and PSC shortly by the Bureau of Indian Standards (BIS) Portland Pozolona Cement (PPC): As it prevents cracks, it is useful in the casting work of huge
volumes of concrete. The rate of hydration heat is lower in this cement type. Fly ash, coal waste or burnt clay is used in the production of this category of cement. It can be availed at low cost in comparison to OPC. PPC produces less heat of hydration and offers greater resistance to attack of aggressive environment, gives long-term strength and enhances the durability of structures. PPC is manufactured by inter grinding OPC clinker with 15-35% of pozzolanic material. Pozzolanas are essentially siliceous or aluminous material, which in itself possesses no cementitious properties, which will be in finely divided form and in the presence of moisture react with calcium hydroxide, liberated in the hydration process, at ordinary temperature, to form compounds possessing cementitious properties. The pozzolanic materials generally used are fly ash or calcined clay. PPC is used in heavy load infrastructure and constructions such as marine structures, hydraulic structures, mass concreting works, plastering, masonry mortars, and all applications of ordinary Portland cement. White cement: It is a kind of Ordinary Portland Cement. The ingredients of this cement are inclusive
of clinker, fuel oil and iron oxide. The content of iron oxide is maintained below 0.4% to secure whiteness. White cement is largely used to increase the aesthetic value of a construction. It is preferred for tiles and flooring works. This cement costs more than grey cement. Portland Blast Furnace Slag Cement (PBFSC): PBFSC consists of 45 per cent clinker, 50 per cent
blast furnace slag and 5 per cent gypsum and accounts for 10 per cent of the total cement consumed. It has a heat of hydration even lower than PPC and is generally used in the construction of dams and similar massive constructions. PSC is obtained by mixing blast furnace slag, cement clinker and gypsum and grinding them together to get intimately mixed cement. The quantity of slag varies from 30-70%. The gain of strength of PSC is somewhat slower than OPC. Both PPC and PSC will give more
18 strength than that of OPC at the end of 12 months. PPC and PSC can be used in all situations where OPC is used, but are preferred in mass construction where lower heat of hydration is advantageous or in marine situations and structures near seacoast or in general for an y structure where extra durability is desired.For eg, Marine structure, structures near the sea, sewage disposal treatment works, water treatment plants, etc Oil Well Cement: Made of iron, coke, limestone and iron scrap, Oil Well Cement is used in
constructing or fixing oil wells. This is applied on both the off-shore and on-shore of the wells. Sulphate Resistant Cement : Sulphate Resistant Cement is used in projects such as dams that are
exposed to high amounts of sulfates. It is also used wherever there are constructions that are in direct contact with clay soil, which contains a large amount of sulfate salt, such as foundations and pillars. Sulphate Resistant is a pre-blended, ready-to-use cement base grout containing non-ferrous fluidities and anti-shrinkage compounds blended with siliceous aggregate and Portland cement. A highly sulphate resistant cement, with an extremely low C3A content, is utilized in the manufacture of Sulphate Resistant Grout. This special cement is very resistant to attack from sodium and magnesium sulphates found in ground water. SRC can be used for Foundation, Piles, Basements, Underground structures, sewage and water treatment plants and coastal works, wh ere Sulphate attack due to water or soil is anticipated
2.1.4. MARKET PLAYERS The larger players in the industry control nearly 53% of the capacity and revenues for the sector in India. The key players in the country include Associated CementCompanies (ACC), Ultratech Cements, Grasim Industries, Gujarat Ambuja Cement and India Cements Limited. The market share of the major cement players, in terms of revenue and production.
TABLE4 Market Share in terms of Sales S.No
Cement
Market Share
19 1.
ACC
17%
2.
Grasim
15%
3.
Ultratech
12%
4.
Ambuja Cements.
9%
5.
Other players
47% Source:CMA
CHART1 Major Market Players
. Source:Cement Manufacturer’s Association Associated Cement Companies Ltd (ACC)
Associated Cement Companies Ltd manufactures ordinary Portland cement,composite cement and special cement.It has twelve manufacturing plants located throughout the country with exports to
20 SAARC nations. The company plans capital expenditure through expansion of existing units and/or through acquisitions. Non-core assets are to be divested to release locked up capital. It is also expected to actively pursue overseas project engineering and consultancy services. Birla Corp
Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting, cement, jute goods, yarn, calcium carbide etc. The cement division has an installed capacity of 4.78 million metric tonnes and produced 4.77 million metric tonnes of cement in 2003-04. The company has two plants in Madhya Pradesh and Rajasthan and one each in West Bengal and Uttar Pradesh and holds a market share of 4.1 per cent. It manufactures Ordinary portland cement (OPC), portland pozzolana cement, fly ash-based PPC, Low-alkali portland cement, portland slag cement, low heat cement and sulphate resistant cement. Large quantities of its cement are exported to Nepal and Bangladesh. Going forward, the company is setting up its captive power plant to remain cost competitive.
Century Textiles and Industries Ltd (CTIL)
The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper, shipping,property & land development, builders and floriculture. Cement is the largest division of CTIL and contributes to over 40 per cent of the company's revenues. CTIL has four plants that manufacture cement, one in Chhattisgarh,two in Madhya Pradesh and one in Maharashtra. Going forward, the company has scripted a three-pronged strategy closing down its shipping business, continuing with its chemicals and adhesive division, and focusing on cement, rayon and paper as its longterm business plan.
Grasim-UltraTech Cemco
Grasim's product profile includes viscose staple fibre (VSF), grey cement, white cement,sponge iron, chemicals and textiles. With the acquisition of UltraTech, L&T's cement division in early 2004, Grasim has now become the world's seventh largest cement producer with a combined capacity of 31 million tonnes. Grasim (with UltraTech) held a market share of around 21 per cent in 2003-04. It has plants in Madhya Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu and Gujarat among others. The company plans to invest over US$ 9 million in the next two years to augment capacity of its
21 cement and fibre business. It’s also plans to focus on its international ventures, ramping up the capacity of Alexandra Carbon Black in Egypt to 1,70,000 tonne per annum (from 1, 20,000 tpa) and raising the capacity of the carbon black plant in China from 12,000 tpa to 60,000 tpa. Gujarat Ambuja Cements Ltd (GACL)
Gujarat Ambuja Cements Ltd was set up in 1986 with the commencement of commercial production at its 2 million tonne plant in Chandrapur, Maharashtra. The group has clinker manufacturing facilities at Himachal Pradesh, Gujarat, Maharashtra, Chhattisgarh, Punjab and Rajasthan. The company has a market share of around 10 per cent, with a strong foothold in the northern and western markets. Gujarat Ambuja is India's largest cement exporter and one of the most cost efficient firms. GACL has a 14.45 per cent stake in ACC, making it the second largest cement group in the country, after GrasimUltraTech Cemco. The company has free cash flows that it is likely to use to grow inorganically. The company is scouting for a capacity of around two million tonne in the northern and western markets. It has also earmarked around US$195-220 million for acquisitions India Cements
India Cements is the largest cement producer in so uthern India with plants in Andhra Pradesh and Tamil Nadu. Its product portfolio includes ordinary Portland cement and blended cement.The company has limited its business activity to cement, though it has a marginal exposure to the shipping business. The company plans to reduce its manpower significantly and exit non-core businesses to turnaround its fortune. It also expects the export market to open up, with the Gulf emerging as a major importer. Jaiprakash Associates Limited
Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is part of the Jaypee group with businesses in civil engineering, hospitality, cement, hydropower, design consultancy and IT. It has plants located in Rewa & Bela (Madhya Pradesh) and Sadva Khurd (Uttar Pradesh). The company is upgrading its capacity to 6.5 million tonnes through the modernizing of the existing units and the commissioning of a new grinding unit at Tanda (Uttar Pradesh) with an investment of US$ 163 million. The company manufactures a wide range of world class cement of OPC grades 33, 43, 53, IRST-40 and special blends of pozzolana cement.
22 Madras Cements
Madras Cements Ltd is one of the oldest cement companies in the southern region and is a part of the Ramco group. The company is engaged in cement, clinker, dolomite, dry mortar mix, limestone, ready mix cement (RMC) and units generated from windmills. The company has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement plant in Karnataka. Madras Cements plans to expand by putting up RMC plants. As Karnataka is a promising market, the company is further expanding its capacity from the present 1.5 million tonnes to 3.4 million tonnes through an investment of US$ 9 million.
Holcim
Holcim is a key player in aggregates, concrete and construction related services. It has a strong market presence in over 70 countries and is a market leader in South America and in a number of European and overseas markets. Holcim entered India by means of a long-term strategic alliance with Gujarat Ambuja Cements Ltd (GACL). The alliance aims to strengthen their clinker and cement trading activities in South Asia, the Middle East and the region adjoining the Indian Ocean. Holcim also intends to use India as an additional base for its IT operations, R&D projects as well as a procurement sourcing hub to generate additional synergies and value for the group. Italcementi Group
The Italcementi group is one of the largest producers and distributors of cement with 60 cement plants, 547 concrete batching units and 155 quarries spread across 19 countries in Europe, Asia, Africa and North America. Italcementi is present in the Indian markets through a 50:50 joint venture company with Zuari Cements. All initiatives in southern India are routed through the joint venture company, while Italcementi is free to buy deals in its individual capacity in northern India. Lafarge India
Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement capacity of 5 million tonnes and a clinker capacity of 3 million tonnes in the country. Lafarge commenced operations in 1999 and currently has a market share of 3.4 per cent. It exports clinker and cement to Bangladesh and
23 Nepal. It produces Portland slag cement, ordinary Portland cement and Portland pozzolana cement. The Indian cement plants are located in Chhattisgarh and Rajasthan. Lafarge Cement has become the largest cement selling firm in the Indian markets of West Bengal, Bihar, Jharkhan d and Chhattisgarh. The recent years have witnessed a surge of foreign direct investment in the cement sector. International players like France's Lafarge, Holcim from Switzerland, Italy's Italcementi and Germany's Heidelberg Cements hold more than a quarter pie of the total capacity.
Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and enjoys a market share of about 23-25 per cent. It will further invest about US$ 2.49 billion in the next five years to set up plants and raise capacity by 25 mt in the country. Holcim has a global sale worth about US$ 20 billion, where India contributes US$ 2 – 2.5 billion.
Italcementi Group, the fifth largest producer of cement in the world acquired full stake in the K.K. Birla promoted Zuari Industries' cement, to strengthen its presence in India lining up US$ 300 million investment to increase the capacity of Zuari Industries from 1.7 mtpa to about 6-7 mtpa. Moreover, it plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects.
The French cement major, Lafarge, acquired the cement plants of Raymond and Tisco with an installed capacity of 6 mtpa. It plans to double its capacity to 12 mt over the next five years by adopting the greenfield expansion route.
Heidelberg cement has entered into an equal joint-venture agreement with S P Lohia Group controlled Indo-Rama cement. It aims at a 50 per cent controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in Maharashtra. Heidelberg is also taking over Mysore cement of S K Birla group at a consideration of US$ 93 million.
REGIONWISE PLAYERS NORTHERN REGION
1.Grasim Industries Ltd 2.Ambuja Cements Ltd. 3. A C C Ltd
24 4. Prism Cement Ltd. 5.Birla Corporation Ltd. 6.Shree Cement Ltd. 7.J K Cement Ltd. 8.Binani Cement Ltd.
EASTERN REGION
1.Ambuja Cements 2.Grasim Industries Ltd. 3.A C C Ltd. 4.Ultratech Cement Ltd. 5.Birla Corporation Ltd. 6.Century Textiles & Inds. Ltd. 7.O C L India Ltd.
SOUTHERN REGION
1.Grasim Industries Ltd. 2.A C C Ltd. 3.Ultratech Cement Ltd. 4.India Cements Ltd. 5.Madras Cements Ltd.
25 6.Dalmia Cement (Bharat) Ltd. 7.Chettinad Cement Corpn. Ltd. WESTERN REGION Ambuja Cements Ltd. Grasim Industries Ltd. A C C Ltd. Ultratech Cement Ltd. Century Textiles & Inds. Ltd. Sanghi Industries Ltd.
FOREIGN PLAYERS
1.Lafarge 2.Holcim 3.Italcementi Group
2.1.5.CONSUMPTION PATTERN & DEMAND DRIVERS In the current fiscal (2009-10) cement consumption has shot up, reporting, on an average, 12.5% growth in consumption during the first eight months with the growth being aided by strong infrastructure spending,especially from the govt sector. The overall outlook for the industry is positive and shows significant growth on the back of robust demand from housing construction,National Highway Development Project and other infrastructure development projects. Cement is mainly used in Independent houses, housing complexes, commercial complexes and infrastructure. The demand drivers for the cement sector continue to be housing, infrastructure and commercial construction, etc.
26 Housing sector acts as the principal growth driver for cement. However, in recent times, industrial and infrastructure sector have also emerged as demand drivers for cement. Individual housing sector is the major consumer of cement (50% of cement demand) followed by the government infrastructure sector. The customers are categorized as retail customers and industrial customers Retail customers:
People who build their own houses or contractors who opt to buy cement through distribution channel are the retail customers. A retail customer can buy cement from a retail outlet (Hardware shop) from his area Industrial customers: A customer who has a registered company and buys large quantities of cement
can buy cement directly from sales points. Government is an industrial customer. CHART2 Consumption Pattern in India
25% Housing
50%
Infrastructur Corporate
25%
Source:Indian Brand Equity Foundation Sectoral Report
Over the next five years, the numbers of households are expected to increase at a CAGR of 2.3 per cent, against a population growth rate of over 1.7 per cent. The growth in urban households will be
27 higher than rural households, shifting the rural-urban household ratio from 70:30 to 67:33. As the growth in households is higher than the population growth, it will accelerate the demand for new houses. Higher demand and greater affordability due to lower interest rates and tax breaks is expected to trigger an unprecedented housing boom. The housing finance industry has estimated a latent demand of 33 million houses and forecasts a growth of 50 per cent per annum till 2007. With the housing sector accounting for 50 per cent of the current cement demand, this boom is expected to propel even higher cement demand.
2.1.6.REGIONAL PATTERN Transporting cement, a bulk commodity, it over long distances is uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions. north, south, west, east and the central region. The southern region accounts for the largest share in overall production (29 per cent) due to the vast availability of limestone. This is followed by the northern (21 per cent) and the western regions (19 per cent).
CHART3 Cement Production
19%
21%
North South East & West
29%
Source:Indian Brand Equity Foundation Sectoral Report
28 Cement consumption varies across regions due to the differences in the demand-supply balance, per capita income and the level of industrial development in each state. In 2008-2009, northern India accounted for the highest proportion of cement consumption (32 per cent), followed by the southern (28 per cent), western (25 per cent) and eastern regions (15 per cent). Over the years it has been observed that demand in the east has been driven by the housing sector, whereas infrastructure, investments in industrial projects and the housing sector (in varying proportions) have propelled demand in the western, northern and southern regions. The western and northern regions are the most lucrative markets due to their higher price p rice realisations.
CHART4
Cement Consumption Pattern 40 30 20
Cement Consumption Pattern
10 0 North
South
East
West
Source:Indian Brand Equity Foundation
Among the Indian States,Maharashtra is leading in consumption(12.18%) followed by Uttar Pradesh.In production terms,Andhra Pradesh is leading with 14.72% of total production.Northern and Southern regions consume around 20-30% while the central and western region consume only around 16-18%. Therefore, the competition in the cement industry industr y in India is increasing at a rapid rate. There are several players in the cement industry. Many foreign players are also entering Indian Markets by acquiring substantial stakes in Indian Companies. The Indian Cement Market is flourishing with multiple brands.
29 The Cement industry is currently dominated by b y 20 Companies which account accoun t for 70% of the market. Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 60% of the capacity, the balance capacity still remains pretty fragmented.
2.1.7.CEMENT MANUFACTURING TECHNOLOGY The manufacturing process of cement consists of the mixing, drying and grinding of limestone, cla y and silica into a composite mass.The mixture is then heated and burnt in a pre-heater and kiln to be cooled in an air cooling system s ystem to form clinker, which is the semi-finished form. This clinker is cooled by air and subsequently ground with gypsum to form cement. Portland cements are made by grinding g rinding a mixture of limestone, clay and other ot her corrective materials, viz. Laterite, Bauxite,etc. Essential constituents mainly are Lime, Silica, Alumina and Iron Oxide. The process of manufacturing consists of grinding of raw materials into fine powder, mixing them and burning in a kiln at about 1400 deg. C. The resultant product is called Clinker. Clinker is cooled, ground to fine powder with gypsum. The end product is cement.
There are three types of processes to form cement - the wet, semi-dry and dry processes. In the wet/semi-dry process, raw material is produced by mixing limestone and water (called slurry)and blending it with soft clay. In the dry process technology,crushed limestone and raw materials are ground and mixed together without the addition of water. The dry and semi-dry processes are more fuel-efficient. The wet process requires 0.28 tonnes of coal coa l and 110 kWh of power to manufacture one tonne of cement, whereas the dry process requires only 0.18 tonnes of coal and 100 kWh of power. Coal and power costs account for 35 per cent of the total cement production costs. With 95 per cent of the total capacity based on the modern dry process technology, the Indian cement industry has become more cost efficient. Top companies in the cement industry match quite well with world standards in terms of energy energ y (thermal energy Kcal/kg of clinker - India 665 against 690 of Japan) and pollution norms (SPM of 40 in India against 20 in Japan).
CHART 5
30
Cement process 5 %
Dry Wet & Semi-dry
95%
Source:Indian Brand Equity Foundation Sectoral Report
The main raw materials used in the cement manufacturing process are limestone, sand, shale, clay, and iron ore. The main material, limestone, is usually mined on site while the other minor materials may be mined either on site or in nearby nearb y quarries. Another source of raw materials is industrial by-products. The use of byproduct materials to replace natural raw materials is a key element in achieving sustainable development.
31
Figure 1
32 Figure 2 Cement Manufacturing Process
Raw Material Preparation-Blasting and Crushing of Limestone
Mining of limestone requires the use of drilling and blasting techniques. Th e blasting techniques use the latest technology to ensure vibration, dust, and noise emissions are kept at a minimum. Blasting produces materials in a wide range of sizes from approximately 1.5 meters in diameter to small particles less than a few millimeters in diameter. Material is loaded into trucks for transportation to the crushing plant. Through a series of crushers and screens, the limestone is reduced to a size less than 100 mm and stored until required. Depending on size, the minor materials (sand, shale, clay, and iron ore) may or may not be crushed before being stored in separate areas until required. Grinding
33 The raw materials are next ground together in a rawmill. Passing into the rawmill, the mixture is ground to rawmix. It is important that the rawmix contains no large particles in order to complete the chemical reactions in the kiln, and to ensure the mix is chemically homogenous. In the wet process, each raw material is proportioned to meet a desired chemical composition and fed to a rotating ball mill with water. The raw materials are ground to a size where the majority of the materials are less than 75 microns. Materials exiting the mill are called "slurry" and have flowability characteristics. Blending and Homogenization
This slurry is pumped to blending tanks and homogenized to ensure the chemical composition of the slurry is correct. This slurry is conveyed to the blending system by conventional liquid pumps. Following the homogenization process, the slurry is stored in tanks until required. In the case of wet process, water is added to the rawmill feed, and the mill product is a slurry with moisture content usually in the range of 25-45% by mass. In the case of a dry process, the rawmill also dries the raw materials, usually by passing hot exhaust gases from the kiln through the mill, so that the rawmix emerges as a fine powder. This is conveyed to the blending system by conveyor belt or by a powder pump. Homogenization: Calcium and silicon are present in order to form the strength-producing calcium silicates. Aluminium and iron are used in order to produce liquid ("flux") in the kiln burning zone. The liquid acts as a solvent for the silicate-forming reactions, and allows these t o occur at an economically low temperature. Insufficient aluminium and iron lead to difficult burning o f the clinker, while excessive amounts lead to low strength due to dilution of the silicates by aluminates and ferrites. Very small changes in calcium content lead to large changes in the ratio of alite to belite in the clinker, and to corresponding changes in the cement's strength-growth characteristics. The relative amounts of each oxide are therefore kept constant in order to maintain steady conditions in the kiln, and to maintain constant product properties. In the dry process, each raw material is proportioned to meet a desired chemical composition and fed to either a rotating ball mill or vertical roller mill. The raw materials are dried with waste process gases and ground to a size where the majority of the materials are less than 75 microns. The dry materials
34 exiting either type of mill are called "kiln feed". The kiln feed is pneumatically blended to ensure the chemical composition of the kiln feed is well homogenized and then stored in silos until required. Pyroprocessing-Formation of climker
Clinker Rotating kiln
Whether the process is wet or dry, the same chemical reactions take place. Basic chemical reactions are: evaporating all moisture, calcining the limestone to produce free calcium oxide, and reacting the calcium oxide with the minor materials (sand, shale, clay, and iron). This results in a final black, modular product known as "clinker" which has the desired hydraulic properties. In the wet process, the slurry is fed to a rotary kiln, which can be from 3.0 m to 5.0 m in diameter and from 120.0 m to 165.0 m in length. The rotary kiln is made of steel and lined with special refractory materials to protect it from the high process temperatures. Process temperatures can reach as high as 1450oC during the clinker making process. In the dry process, kiln feed is fed to a preheater tower, which can be as high as 150.0 meters. Material from the preheater tower is discharged to a rotary kiln with can have the same diameter as a wet process kiln but the length is much shorter at approximately 45.0 m. The preheater tower and rotary kiln are made of steel and lined with special refractory materials to protect it from the high process temperatures. Regardless of the process, the rotary kiln is fired with an intense flame, produced by burning coal, coke, oil, gas or waste fuels. Preheater towers can be equipped with firing as well. The rotary kiln
35 discharges the red-hot clinker under the intense flame into a clinker cooler. The clinker cooler recovers heat from the clinker and returns the heat to the pyroprocessing system thus reducing fuel consumption and improving energy efficiency. Clinker leaving the clinker cooler is at a temperature conducive to being handled on standard conveying equipment. Finish Grinding and Distribution
The black, nodular clinker is stored on site in silos or clinker domes until needed for cement production. Clinker, gypsum, and other process additions are ground together in ball mills to form the final cement products. Fineness of the final products, amount of gypsum added, and the amount of process additions added are all varied to develop a desired performance in each of the final cement products. Each cement product is stored in an individual bulk silo until needed by the customer. Bulk cement can be distributed in bulk by truck, rail, or water depending on the customer's needs. Cement can also be packaged with or without color addition and distributed by truck or rail.
2.1.8.COST Over the past seven years, cost of cement production has grown at a CAGR of 8.4%.Also, the producers have been able to pass on the hike in cost to consumers on the back of increased demand. Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tons in FY 09, at a CAGR of 13.6%, which has been reflected in higher profit margins of the industry.To reduce the cost of production, the industry has focused on captive power generation. Proportion of cement production through captive power route has increased over the years. Also, cement movement by rail has increased over the years. Freight and energy costs are also increasing; however, in the current market scenario, manufacturers have the flexibility to pass on the increase in costs to end consumers. Let us have a look at the cost factors affecting the cement industry Capacity Utilization: Since the industry operates on fixed cost, higher the capacity sold, the wider the
cost distributed on the same base. But one should also keep in mind, that there have been instances wherein despite a healthy capacity utilization, margins have fallen due to lower realizations. Power: The cement industry is energy intensive in nature and thus power costs form the most critical
cost component in cement manufacturing (about 30% to total expenses). Most of the companies resort
36 to captive power plants in order to reduce power costs, as this source is cheaper and results in uninterrupted supply of power. Therefore, higher the captive power consumption of the company, the better it is for the company. Freight: Since cement is a bulk commodity, transporting is a costly affair (over 15%). Companies,
which have plants located closer to the markets as well as to the source of raw materials have an advantage over their peers, as this leads to lower freight costs. Also, plants located in coastal belts find it much cheaper to transport cement by the sea route in order to cater to the coastal markets such as Mumbai and the states of Gujarat and Tamil Nadu. On account of sufficient reserves of raw materials such as limestone and gypsum, the raw material costs are generally lower than freight and power c osts in the cement industry. Excise duties imposed by the government and labor wages are among the other important cost components involved in the manufacturing of cement. Operating margins: The company should have a consistent record of outperforming its peers on the
operational performance front i.e. it should have higher operating margins than its competitors in the industry. Factors such as captive power plants, effective capacity utilization results in higher operating margins and therefore these factors should be looked into. Since cement is a regional play on account of its high freight costs, the company should not have all its plants concentrated in one region. It should have a geographical spread so that adverse market conditions in one region can be mitigated by high growth in the other region.
2.1.9.GOVERNMENT POLICIES Government policies have affected the growth of cement plants in India in various stages. The control on cement for a long time and then partial decontrol and then total decontrol has contributed to the gradual opening up of the market for cement producers. The stages of growth of the cement industry can be best described in the following stages: Price and Distribution Controls (1940-1981)
During the Second World War, cement was declared as an essential commodity under the Defense of India Rules and was brought under price and distribution controls which resulted in sluggish growth. The installed capacity reached only 27.9 MT by the year 1980-81.
37 Partial Decontrol (1982-1988)
In February 1982, partial decontrol was announced. Under this scheme, levy cement quota was fixed for the units and the balance could be sold in the open market. This resulted in extensive modernization and expansion drive, which can be seen from the increase in the installed capacity to 59MT in 1988-89 in comparison with the figure of a mere 27.9MT in 1980-81, an increase of almost 111%. Total Decontrol (1989)
In the year 1989, total decontrol of the cement industry was announced. By decontrolling the cement industry, the government relaxed the forces of demand and supply. In the next two years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall economic liberalization had peaked; ironically,however, the economy slipped into recession taking the cement industry down with it. For 1992-93, the industry remained stagnant with no addition to existing capacity. Government Controls
The prices that primarily control the price of cement are coal, power tariffs, railway, freight, royalty and cess on limestone. Interestingly, all of these prices are controlled by government Opening up the FDI channel
The impact of government policies on cement demand has been steadily decreasing with the sector being gradually deregulated. At present, 100 per cent foreign direct investment (FDI) is permitted in the cement industry. Lafarge was the first foreign company to enter the Indian market in 1999.
State policies and export norms to encourage investment
Both the state and export policies promote cement production. Exporters can claim duty drawbacks on imports of coal and furnace oil up to 20 per cent of the total value of imports. Most state governments offer fiscal incentives in the form of sales tax exemptions/deferrals in order to attract investment. In some states, this applies only to intra-state sales, like Madhya Pradesh and Rajasthan. States like Haryana offer a freeze on the power tariff for 5 years, while Gujarat offers exemption from dut y on electricity.
38 Urban Land Ceiling Act repeal could be a driver
The Urban Land Ceiling Regulation Act (ULCRA) enacted to control and prevent the concentration of urban land, has been repealed in many states. This could facilitate the development of such land for housing and other construction.
Union Budget 2010 Though cement is the most essential infrastructure input, the tax on cement is the highest amon g the items required for building infrastructure. The total government levies and taxes on cement constitute 60 per cent or more of the ex-factory price, Levies and taxes on cement in India are far higher than most of the other countries in the Asia-Pacific Region where the average tax is just 11.4 per cent, with the highest levy of 20 per cent being in Sri Lanka. While steel attracts four per cent VAT, for cement it is as high as 12.5 per cent. The Union Budget of 2010 has been a mixed bag for cement industry. In the Union Budget of 2010,although the government has refrained from loweing the taxes and duties on cement,the government has decided to spend Rs. 1.37 lakh crore for Infrastructure Development and The government has increased budgetary allocation for roads under NHDP. Further, with more incentives being spelled out for the infrastructure and housing sector.The government has proposed to allocate19,894 crore for Road Development. The introduction of coal cess is proving to b e having a multiplier effect across board in terms of cost rise. Cement companies claim that production cost will have to rise because of this. This coupled with the excise rollover of about 2% will surely increase price of cement per bag. The existing excise rate of bulk cement after the proposed changes will become 10% or Rs 290 per tonne whichever is higher from 8 % or Rs 230 per tonne now. Clinker price of Rs 300 per tonne will now become Rs 375 per tonne.
Wherever retail cement price exceeds Rs 190 per bag, the existing excise rate of 8% of retail sale price will become 10%. If the retail cement price does not exceed Rs 190 per bag, the existing rate of Rs 230 per tonne will stand enhanced to Rs 290 per tonne.
39
2.1.10.CONSOLIDATION OPPORTUNITY:MERGERS AND ACQUISITIONS The cement industry in India is still highly fragmented with over 50 players. The presence of excess capacity in the industry has triggered large-scale consolidation, a trend expected to continue during the next 3-4 years. For cement companies based in India, South-East Asia and the Middle East there are potential and lucrative export markets. Low cost technology and extensive restructuring have made some of the Indian cement companies the most efficient across global majors. Despite some consolidation, the industry remains somewhat fragmented and merger and acquisition possibilities are strong. Increased activity in infrastructure and a booming real estate market have seen foreign firms vying to acquire a share of the pie.
Holcim strengthened its position in India by increasing its holding in Ambuja Cement from 22 per cent to 56 per cent through various open market transactions with an open offer for a total investment of US$ 1.8 billion. Moreover it also increased its stake in ACC cement with US $ 486 million, being the single largest acquirer in the cement sector.
Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund and Emerging Market Fund have together bought around 7.5 per cent in India’s third-largest cement firm India Cements (ICL) for US$ 148.19 million.
Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim Industries’ 53.63 per cent stake in Shree Digvijay cement
Some of the other major mergers and acquisitions in the recent past include CRH acquiring My Home Industries for US$ 462 million, Lafarge buying L&T Concrete’s ready-mix concrete (RMC) business for US$ 349 million and Heidelberg consolidating its business with Mysore cement and Indorama, and Italcementi acquiring 100 per cent stake in Zuari cement and 95 per cent stake in Shree Vishnu among others.
40
TABLE5 Cement capacity that can be sold
East
1.20 mT
West
2.36 mT
North
10.37 mT
South
9.42 mT
Total
23.35 mT Source:CRISIL
According to CRISIL estimates, given the demand-supply gap of roughly 40 million tonnes, capacity addition is expected over the next five years. Of this, almost 30 million tonnes will be met through greenfield/brownfield expansions and 10 million tones through blending. The capacity addition of 30 million tonnes would require an investment of around US$ 2.2 billion. Consolidation is expected to increase further in the cement industry. Around 23 million tonnes of additional capacity could be sold simply because on a stand-alone basis these units are unviable. As part of a larger group, their operations could be cost effective. This opens up a number of possibilities for acquisitions and mergers. Cement industry in India is currently going through a consolidation phase. Some examples of consolidation in the Indian cement industry are: Gujarat Ambuja taking a stake of 14 per cent in ACC, and taking over DLF Cements and Modi Cement; ACC taking over IDCOL; India Cement taking over Raasi Cement and Sri Vishnu Cement; and Grasim's acquisition of the cement business of L&T, Indian Rayon's cement division, and Sri Digvijay Cements. Foreign cement companies are also picking up stakes in large Indian cement companies. Swiss cement major Holcim has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's acquisition has led to the emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat Ambuja
41 Cements combine and the Aditya Birla group through Grasim Industries and Ultratech Cement. Lafarge, the French cement major has acquired the cement plants of Raymond and Tisco. Italy based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in Andhra Pradesh, and German cement company Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group controlled Indo- Rama Cement. Though the industry saw consolidation by domestic players starting in the mid-1990s, it was only in the late 1990s that foreign players entered the market. The structure of the industry can be viewed as fragmented, although the concentration at the top has increased, as the top 5 players control around 60.28% of market share, which was 55% in 1989-90, whereas the other 39.72% of market share is distributed among 50 minor players. The fragmented structure is a result of the low entry barriers in the post decontrol period and the ready availability of technology.The extent of concentration in the Indian cement industry has increased over the years. This Concentration is mainly because of the focus of the larger and the more efficient units to consolidate their operations by restructuring their business and taking over relatively weaker units. Also the relatively smaller and weak er units are finding it difficult to resist the cyclical pressure of the cement industry. Some of the key benefits (ICRA 2006) accruing to the acquiring companies from these acquisition deals includeEconomies of scale resulting from the larger size of operations _ Savings in the time and cost required setting up a new unit _ Access to newer markets _ Access to special facilities / features of the acquired company _ Benefits of tax shelter The cement industry is witnessing a number of multinationals entering the market and mergers and acquisitions in domestic market itself, bringing smaller players under the umbrella of larger comp anies, and larger companies coming under the umbrella of global players. The booming demand for cement, both in India and abroad, has attracted global majors to India. In 2005-06, four of the top-5 cement companies in the world entered India through mergers, acquisitions, joint ventures or greenfield projects. These include France's Lafarge, Holcim from Switzerland, Italy's
42 Italcementi and Germany's Heidelberg Cements. The consolidation witnessed in the industry in recent times has resulted in two crucial domestic deals. First being the de-merger of L&T’s cement (renamed as Ultratech Cement Ltd.) division and its acquisition by Grasim. This has led to the creation of cement giant, making the Ultratech- Grasim combine the market leader in the country in terms of market share, particularly in the South. The other consolidation effort was seen when Gujarat Ambuja acquired 14.4% stake in ACC in 2000 (India Infoline 2003). Following this Holcim took a big stake in ACC in the year 2005 and has recently announced an acquisition of 14.8% in Gujarat Ambuja Cement Ltd., now Ambuja Cements Ltd. Thus, the top two groups in the industry, Aditya Birla Group (Grasim and Ultratech Cements Ltd. combine) and Holcim Group (Ambuja Cements Ltd. - ACC Ltd. combine) now control more than 45 % of total capacity in the country. Therefore,these players provide various offers to push the sales of their cement products.The consumer makes a choice from these multiple offers in hand.
2.1.11. COMPETITOR ANALYSIS-PORTER’S 5 FORCES MODEL Supply
The demand-supply situation is tightly balanced with the latter being marginally higher than the former.
Demand
Housing sector acts as the principal growth driver for cement. However, in recent times, industrial and infrastructure sector have also emerged as demand drivers for cement.
Barriers to
High capital costs and long gestation periods,high capacity.Access to limestone
entry
reserves (principal raw material for the manufacture of cement) also acts as a significant entry barrier.
Bargaining
Licensing of coal and limestone reserves, supply of power from the state grid and
power of
availability of railways for transport are all controlled by a single entity, which is the
suppliers
government. However, nowadays producers are relying more on captive power, but the shortage of coal and volatile fuel prices remain a concern.
Bargaining
Cement is a commodity business .The industries and government make bulk
43 power of
purchases.So,they bargain and the value of the segment is less compared to
customers
individual customers whose bargaining power is less.
Competition
Due to large number of players in the industry and very little brand differentiation to speak of, the competition is intense with players resorting to expanding reach and achieving pan India presence
PORTER’S 5 FORCES MODEL Threat of Substitutes LimitedOnly bitumen in road, and engineering plastics in building offer some element of competition,
44 \
Bargaining Power of Suppliers-Very High Monopolistic control of external cost element (coal,power, transportation and taxes) results in high bargaining power with the government
Inter Firm Rivalry-Intense
Large number of players, intermittent overcapacity; marginal product differentiation; high storage costs; and, high exit barrier in form of significant capital investment has led to stiff competition in the industry.
Threat of New EntrantsLimited High capital investment, broad distribution network and oversupplied market deter new entrants. However, technology and manpower are easily available.
2.1.12.SEGMENTATION Differences between 2 Segments
TABLE6
Bargaining Power of Buyers-Limited
The individual house owners do not make bulk purchase.So,have less bargaining power.
45 Differences between 2 segments
Parameter
Housing
Govt
1.Share/size by vol
50%
25%
2.Consistency of
steady
sporadic/economy related
3.Buying system
No tenders
Tenders-lowest bid
4.No.
Multiple clients
Lesser
5.Tech expertise
Low
High
Demand
Since the government does bulk purchase of cement,it can bargain over the price.As a result,the cement sales to government will reduce profits.Whereas,the retail consumer’s power is low and they contribute to 50% of volume which is higher than the government.Therefore,the key consumer is retail consumer. Target Customer Definition for Dalmia Cements
Private Housing Segment (Individual Houses) 1.Geographic segmentationRegion-South India State-Kerala,Andhra Pradesh,Karnataka,Tamil Nadu
City-
Outskirts of Tier-I cities like Bangalore,Hyderabad,Cochin,
Chennai
Tier-II cities like Madurai,Ernakulam.
Rural Areas
2.Demographic segmentation-
Age: 25-55
46 Family cycle-Married
Socio-economic class-A,B,C
2.2.STATEMENT OF THE PROBLEM To identify key factors leading to the purchase of a particular brand of cement
3.APPROACH TO THE PROBLEM 3.1.RESEARCH OBJECTIVE To study the consumer behaviour in cement, esp. decision making w.r.t. brand choice; and to recommend an appropriate marketing strategy to Dalmia Cement based on the above
3.2.SCOPE OF STUDY This study focuses on consumers who bought cement in Chennai & suburbs recently.
4.RESEARCH DESIGN 4.1.TYPE OF RESEARCH DESIGNS USED 1.Exploratory Research Design -The primary objective of Exploratory Research is to provide insights
into, and an understanding of the problem from a small sample. 2.Descriptive Research Design- It is used to describe the characteristics of relevant consumer
groups.It is a structured design marked by a clear hypothesis of the problem.
4.2.INFORMATION NEEDS The information that is needed is profile of the customer and customer’s choice of cement.
4.3.DATA COLLECTION FROM SECONDARY SOURCES The secondary data was collected from the company and the company’s website.
47 The web has been a major source of collection of secondary data where from data regarding the Indian Cement Industry was collected with regards to a brief history, government regulations. The data collected gives us a view of the major players in the industry and their current competitive position in the market. The data was also collected from hardware stores and masons to get an insight into the cement industry and current trends in the industy.
4.4.DATA COLLECTION FROM PRIMARY SOURCES The basic research paradigm is followed: 1) Define the target population. 2)Select a sampling technique. 3)Determine the sample size. 4) Do the research on the sample. 5) Infer results from the sample back to the population. Target Population
The population consists of all individual house owners in Chennai alone. The sample was chosen based on judgemental sampling. That is, the sample elements was chosen in Kanchipuram district of TamilNadu. The bargaining power of individual house owners is less as far as purchase of cements is concerned. The government and the industrial customers go for bulk purchase.So,their bargaining power is high.Therefore,the value of that segment is less compared to the value of the individual housing segment.
4.5.SCALING TECHNIQUE Interval Scale is used in this project.In interval scale,numerically equal distances on the scale represent equal values in the characteristic being measured.
48 The Scaling Technique used is Likert Scale.It is a non-comparative scaling technique.A noncomparative scaling technique evaluates one object at a time.7-point Likert Scale is used.1-Not important and 7 represents Important.High score represents favorable attitude and low score represents an unfavorable response. Likert scale is easy to construct and administer.Respondents easily understand the scale. For example,
TABLE7 Likert Scale
Not important
Very Important
a.Reasonable Price of Cement
1
2
3
4
5
6
7
b.Strength of cement
1
2
3
4
5
6
7
c.Quick setting
1
2
3
4
5
6
7
d.Durability of cement
1
2
3
4
5
6
7
e.Color of Cement
1
2
3
4
5
6
7
f.Trusted Brand Name
1
2
3
4
5
6
7
g.Unadulterated
1
2
3
4
5
6
7
h.Direct Delivery from factory
1
2
3
4
5
6
7
i.Ideal Customer Service
1
2
3
4
5
6
7
j.Reduction in Cracks
1
2
3
4
5
6
7
k.Fineness of Cement
1
2
3
4
5
6
7
l.Available in nearby shops
1
2
3
4
5
6
7
49 m.Recommended by
1
2
3
4
5
6
7
n.Recommended by shopkeeper
1
2
3
4
5
6
7
o.Recommended by engineer
1
2
3
4
5
6
7
p.Used widely
1
2
3
4
5
6
7
q.Extensive Media coverage
1
2
3
4
5
6
7
Mason / contractor
4.6.QUESTIONNAIRE DEVELOPMENT AND PRETESTING In order to perform the survey, a questionnaire is designed keeping in mind the study of the market Questionnaire for Study of Cement Preference The questionnaire prepared must aid in gathering primary data from the customers, i.e. from the market. The questionnaire was designed based on the following paradigm: The individual question content was designed Question structure and wording was decided The questions were arranged in proper order. The form and layout was designed. The questionnaire was pretested with 6 respondents and then refined before actual research.
4.7.SAMPLING TECHNIQUE Sample was selected based on qualitative factors like number of variables,nature of research.The sampling method adopted is Judgement Sampling, a Non Probability sampling method .Judgement sampling is a form of convenience sampling in which the population elements are selected based on the
50 judgement because the researcher believes that the sample is representative of the population of interest.
4.8.FIELD WORK A sample size of 75 was researched.The research was done in Chennai and suburban areas of Chennai.
5.DATA ANALYSIS 5.1.METHODOLOGY 1.Exploratory Research was done initially with 4 masons to get an insight into the problem. 2.Questionnaire was prepared and the research was carried out with a sample of 6. 3.The questionnaire was modified and was administered with a sample of 75. 4.Factor analysis was carried out.
5.2.PLAN OF DATA ANALYSIS 5.2.1.EXPLORATORY RESEARCH-PILOT INTERVIEWS. Null Hypothesis H 0:To find out the major factors influencing choice of cement.
Survey on cement usage in Individual houses and Flats: Mason is found to be the decision maker in both individual houses and flats. But, in case of individual houses, the customer has a say in selecting cements. However, in most cases, mason decides the cement because he is believed to possess technical expertise. Sample size=4 Location: A Construction site in Chennai A mason and a worker at a construction site in Chennai said that they prefer Dalmia Cements because of the following reasons:
51 It is old and hence trustworthy. The main reason for preferring Dalmia Cements is that it is strong. They can mix extra bags of sand with Dalmia Cement whereas that cannot be the case with other cements. No cracks if Dalmia Cements is used. They feel that Dalmia cements is unadulterated whereas other c ements are mixed with ash/rock powder. A mason said that he would like to go for Coromandel and another preferred UltraTech Setting time with Coromandel is Fast. Setting time with Ultratech is very fast. They find that Ultratech/coromandel is unadulterated. 3.People give importance to unadulterated,strong cements which sets and hardens fast and price. 5.2.2.DESCRIPTIVE RESEARCH Null Hypothesis H 0: There are 3 dimensions namely, cement properties, company’s sales and
marketing actions and recommendation by masons which influence the decision making of the cement customers. Descriptive Research was done with a sample of 75 to find out the consumer behaviour in choosing cement. Factor Analysis using SPSS is done to identify the major factors responsible for the purchase decision. The research method used in this project is factor analysis. Factor analysis is primarily used for data reduction and summarization. As there are a large number of variables, most of which are correlated and which must be reduced to a manageable level, so these relationships among the sets of many interrelated variables are examined and represented in terms of a few underlying factors with the help of SPSS. 5.2.3.FACTOR ANALYSIS
52 Factor analysis is basically an interdependence technique in which an entire set of interdependent
relationships are examined. It is used to identify underlying dimensions or factors, that explain a set of correlations among a set of variables. Each variable is expressed as a linear combination of underlying factors. If the variables are standardized,the factor model may be represented as : Xi = Ai1F1+Ai2F2+Ai3F3+………………….+AimFm+ViUi Where Xi = ith Standardized variable Aij = Standardized Multiple Regression coefficient of variable i on common factor j. F = Common factor Vi = Standardized Regression coefficient of variable i on unique factor j Ui = The unique factor for variable i. M = number of common factors. There are a number of techniques that can be used to assist in the decision concerning the number of factors to retain: • Kaiser’s criterion; • scree test The communality is measured which helps in finding the amount of variance that the variable shares with the other variables, which in turn, gives the proportion of variance explained by the common factors. Bartlett’s test of sphericity is used to examine if the variables are uncorrelated in the population. Also, the appropriateness of the method of factor analysis is tested by the Kaiser-Meyer-
53 Olkin (KMO) measure of sampling adequacy index. Higher values between 0.5 and 1.0 indicate that
the method is appropriate and values below that indicate the inappropriateness of the method. The data for the purpose of the analysis will be collected with the help of survey s and questionnaire from a pre- defined sample of respondents. The process of data collection is structured, which means that a formal questionnaire is prepared and questions are pre-arranged in a specific order. The Order bias was removed by changing the order of listing of attributes after every 5 interviews. 5.2.4.SAMPLE INPUT
There are 17 Questions in questionnaire and sample size was 75.Each question was given a response on a 1-7 Likert Scale representing 1-Not important 7-Very important
54
5.2.5.SAMPLE OUTPUT
Factor extraction involves determining the smallest number of factors that can be used to best represent the interrelations among the set of variables. There are a variety of approaches that can be used to identify (extract) the number of underlying factors or dimensions. Principal Components analysis attempts to produce a smaller number of linear combinations of the original variables in a way that captures (or accounts for) most of the variability in the pattern of correlations.It provides an empirical summary of the dataset. 1.Correlation Matrix
In the Correlation Matrix table, we should look for correlation coefficients of .1 and above If we don’t find any in our matrix then we should reconsider the use of factor analysis.
55
There are many coefficients in the correlation matrix which are above 0.1.Therefore,we can go ahead with the factor analysis.
56
2.Kaiser’s criterion
Two statistical measures are also generated by SPSS to help assess the factorability of the data:
Bartlett’s test of sphericity (Bartlett, 1954), The Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy (Kaiser, 1970, 1974 ).
The Bartlett’s test of sphericity should be significant (p<.05) for the factor analysis to be considered appropriate. The KMO index ranges from 0 to 1, with .5 suggested as the minimum value for a good factor analysis (Tabachnick & Fidell, 2001). One of the most commonly used techniques is known as Kaiser’s criterion, or the eigenvalue rule.Using this rule, only factors with an eigenvalue of 1.0 or more are retained for further investigation. The eigenvalue of a factor represents the amount of the total variance explained by that factor. We should also check that the Kaiser-Meyer-Olkin Measure of Sampling Adequacy (KMO) value is .5 or above. The Barlett’s Test of Sphericity value should be significant (i.e. the Sig. value should be .05 or smaller). In this experiment, the KMO value is .501, and the Bartlett’s test is significant (p=.000), therefore factor analysis is appropriate.
KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
.501
Bartlett's Test of Sphericity
Approx. ChiSquare
301.744
Df
136
Sig.
.000
KMO should be >0.5 to carry out factor analysis
p<0.05.Therefore,factor analysis is appropriate.
57 2
3.Communality, h , is the squared multiple correlation for the variable as dependent using the factors as predictors. The communality measures the percent of variance in a given variable explained by all the factors jointly and may be interpreted as the reliability of the indicator .
The factor loadings are the correlation coefficients between the variables and factors. Factor loadings are the basis for imputing a label to different factors. The squared factor loading is the percentage of variance in the variable, explained by a factor. The sum of the squared factor loadings for all factors for a given variable is the variance in that variable accounted for by all the factors, and this is called the communality. The factor analysis model does not extract all the variance; it extracts only that proportion of variance, which is due to the common factors and shared by several items. The proportion of variance of a particular item that is due to common factors (shared with other items) is called communality. The proportion of variance that is unique to each item is then the respective item's total variance minus the communality. In this experiment focused on subjects' cement preferences the extracted factors explain over 80% of preferences for strength but only 37% for customer service. In general, communalities show for which measured variables the factor analysis is working best and least well.
80% variance due to common factors
Initial - By definition, the initial value of the communality in a principal components analysis is 1.
37% variance due to common factors.
58
4.Eigenvalue Table
Eigenvalues: The eigenvalue for a given factor reflects the variance in all the variables, which is accounted for by that factor.A factor's eigenvalue may be computed as the sum of its squared factor loadings for all the variables.
To determine how many components to extract the Kaiser’s criterion of eigenvalue of 1 or more has to be followed.If we look in the Total Variance Explained table and scan down the values provided in the first set of columns, labelled Initial Eigenvalues. The eigenvalues for each component are listed. In this experiment only the first 5 components recorded eigenvalues above 1 (3.743,2.235, 1.724, 1.668,1.208,1.149,1.008). But,the first 2 components explain a total of 48.258% of the variance . Component 1 now explains 31.9 % of the variance and Component 2 explains 17.237%. The total variance explained (48.258 %) does not change after rotation, just the way that it is distributed between the two components.
The percent of variance accounted for by each principal component
The variance explained by all the 3 components.
59 5.Scree test
Another approach that can be used is Catell’s scree test (Catell, 1966). This involves plotting each of the eigenvalues of the factors and inspecting the plot to find a point at which the shape of the curve changes direction and becomes horizontal. Catell recommends retaining all factors above the elbow, or break in the plot, as these factors contribute the most to the explanation of the variance in the data set.There are 2 breaks in this screeplot.So,2 components need to be considered.
60
6. Component Matrix
This table contains component loadings, which are the correlations between the variable and the component. Because these are correlations, possible values range from -1 to +1.This matrix contains the coefficients used to express the standardized variables in terms of the factors.These coefficients or factor loadings express the correlation between factors and variables.A coefficient with a large absolute value indicates that the variable and the factor are closely related. Once the number of factors have been determined, the next step is to interpret them. To assist in this process the factors are ‘rotated’. This does not change the underlying solution— rather, it presents the pattern of loadings in a manner that is easier to interpret.
a
Component Matrix
Component 1
2
3
Strength
.884
Quick setting
.884
Durability
.867
Fineness
.867
Reduction in cracks
.419
Reco by mason
.312
-.691
.507
Reco by engr
.312
-.691
.507
Reco by sk
-.588
Extensive media Direct delivery Price
.487 .326
.330
-.419 .329
.622
Nearby availability
.591
Trusted brand
.477
Ideal customer service
.387
color Unadulterated used widely Extraction Method: Principal Component Analysis. a. 3 components extracted.
.438 .394
61
The most commonly used orthogonal approach is the Varimax method, which attempts to minimise the number of variables that have high loadings on each factor 6.Rotated Component Matrix
Rotation serves to make the output more understandable and is usually necessary to facilitate the interpretation of factors. The sum of eigenvalues is not affected by rotation, but rotation will alter the eigenvalues (and percent of variance explained) of particular factors and will change the factor loadings. In the Rotated Component Matrix ,we can see the loadings of each of the variables on the two factors that were selected. We should look for the highest loading variables on each of the component — these can be used to help us identify the nature of the underlying latent variable represented by each component. In this example the main loadings on Component 1 are items like strength,durability, quick setting,fineness,no cracks. Another important factor is recommendation by mason The main items on Component 2 are service,media,pricing. In the next factor analysis,we remove the factors like delivery, Reco by shopkeeper, used widely, color, unadulterated ,etc.
62
Component Transformation Matrix . Provides the correlations between the factors in
the original and in the rotated solutions. Component Transformation Matrix Compo nent
1
2
3
1
.945
.257
-.205
2
.326
-.812
.484
3
.042
.523
.851
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
63
Factor Analysis-2
After eliminating a few variables like color, unadulterated, used widely etc, the factor analysis is again performed. 1. Correlation Matrix
The correlations between factors and variables are greater than 0.1
64 2.Communalities
81% variance due to common factors
3.Eigenvalue Matrix
Variance explained by each component
More than 57% Variance explained by all 3
65 4.Component Matrix
a
Component Matrix
Component 1
2
3
Strength
.888
Quick setting
.888
Durability
.863
.305
Fineness
.863
.305
Reduction in cracks
.423
Reco by mason
.327
-.692
.538
Reco by engr
.327
-.692
.538
Reco by sk
-.601
Extensive media Direct delivery Price
.475 .334
.323
-.394 .353
.637
Trusted brand
.546
Nearby availability
.515
Ideal customer service
.399
Extraction Method: Principal Component Analysis. a. 3 components extracted.
.472
66 5.Rotated Component Matrix
Rotated Component Matrix
a
Component 1
2
Durability
.918
Fineness
.918
Strength
.890
Quick setting
.890
Reduction in cracks
.421
3
Reco by mason
.929
Reco by engr
.729
Reco by sk
.568
Direct delivery
.449
Price
.755
Trusted brand
.620
Nearby availability
.589
Ideal customer service
.578
Extensive media
.522
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 5 iterations.
67 6.Component Transformation Matrix
Component Transformation Matrix Compo nent
1
2
3
1
.946
.295
2
.321
-.816
3
-.036
.497
Provides the correlations between the factors in the original and in the rotated solutions.
-.130 .481 .867
68
Component Transformation Matrix Compo nent
1
2
3
1
.946
.295
2
.321
-.816
3
-.036
.497
Provides the correlations between the factors in the original and in the rotated solutions.
-.130 .481 .867
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
Factor Analysis for A1 Socio-economic class and A2 socio-economic class were done separately. The results are similar to the factor analysis done for the entire sample. That is, the 3 major factors , namely, the physical properties of cement, recommendation by influencers like mason and the sales and marketing efforts of the company play a major role in purchase decision holds true for both the A1 and A2 Socio-economic class who are the major customers of cement. For A1 Socio-economic class,
69
6. RESULT Therefore, finally there are 3 underlying factors, mainly 1. Properties of cement like strength, durability, quick setting, no cracks, fineness etc. 2. Recommendation by mason is a major influencing factor. 3. Company’s sales and marketing actions like promotion, service, pricing etc. Some observations made during the field work are: 1. Mostly, the owners go by the engineer and mason’s recommendations. 2. The cement is selected based on the quality, strength, durability, no cracks, fineness, etc. 3. The company’s efforts also play a major role in boosting cement sales like pricing, media, service, etc. 4. The cement that was most preferred in sample of 75 was UltraTech and Dalmia Vajram. The cements that followed were Mahasakthi.
CHART 6 Result
70 Retail Price Metrics in Chennai as on
Dalmia Vajram – Rs.220 Ultratech-Rs.220 Zuari-Rs.215 Priya-Rs.218 ACC-Rs.222 Coromandel-Rs.222 Ramco-Rs.219 Mahasakthi-Rs.215 Chettinad-Rs.218
Reasonable prices are expected by the majority of the consumers. But, Ultratech and Dalmia Vajram which are priced higher enjoys higher market share. This shows that the brand quality perception in consumer’s minds is related to price.People are willing to pay higher price for premium quality brands. 4.People belonging to A1 and A2 socio-economic class are the major individual home buyers,i.e.,the main customers of cement.
CHART 7 Socio-Economic Class
71
2.6% 10.6%
4%
45.3%
A1 A2
37.3%
B1 B2 C
A1-Businessmen ,middle and senior Executives A2-Businessmen , middle and senior executives with college education , supervisors, graduate shopowners B1-Businessmen with school-level education, graduate salesmen and supervisors, junior executive and supervisor with college education B2-Shopowners,self-employed professional with elementary education, salesmen and supervisors without graduation and graduate petty trader C-Petty trader with school-level education and salesmen, supervisor with elementary education. The chart below shows that 24 % of A1 class prefers Dalmia Vajram and 17.3% of A2 prefers Dalmia Vajram among other cements in this sample of 75.So,A1 and A2 are potential customers for Dalmia Vajram.
CHART 8 Dalmia Vajram Preference
72
4%
1.3%
1.3% 24%
A1 A2 B1
17.3%
B2 C
5. Brand bought same as mason’s / contractor’s recommendations : 85%
CHART9 Decision Maker
8%
7%
Mason
85%
Self Friend
6. Location : This chart represents the percentage of respondents in each locality covered by the survey.
CHART 10 Location-wise distribution of respondents
73
30 25 20 15
Location
10 Percentage of respondents
5 0
Location Nanganallur Ullagaram Puzhuthivakkam Madipakkam Keelkattalai Moovarasampet Kanchipuram
Percentage of respondents 21.33333 17.33333 8 13.33333 8 5.333333 26.66667
7. Income wise distribution :42.6% of the sample belongs to 20001-
30000 category and 29.3% belongs to 10001-15000 slab.
CHART11 Incomewise Distribution
74
Percentage of Respondents 4% 29.3% 10001-15000
18.6%
5.3%
15001-20000 20001-30000 30001-50000
42.6%
50001-75000
8.Age-wise Distribution of Respondents
CHART12 Age-wise distribution of respondents
12 % 33%
<40
17%
<45 <50 <55
37%
7. LIMITATIONS AND CAVEATS 1. This sample is restricted to Kanchipuram district of TamilNadu.
75 2. As per the company’s source, the cement preference varies from one city to another.So; there is ample opportunity for cement companies to promote their brand.
8. CONCLUSIONS 1. There are mainly 3 factors that contribute to the purchase decision of cement – a. The properties of cement like strength, durability, quick setting. B.Recommendation by mason plays a major role. C.The company’s efforts like price, brand building, media, and service also influence the customer. 2. People belonging to A1 and A2 socio-economic classes are the major builders of individual houses. Therefore, the advertisements can focus on this segment in order to motivate them.
8.1. RECOMMENDATIONS 1. As all the cement companies follow the Bureau of Indian Standards in cement production, the properties of the cement offered by different companies remain almost similar. There will not be much of product differentiation. Therefore, the companies can focus on their sales and marketing efforts and try to stand out only with the help of promotion, service, delivery, etc. The recommendations of masons also play a major role. As the mason’s recommendation plays a major role in selection of cement by the consumer, the company can make special promotional effort to reach the mason by organizing a meet-giving away presentation on features of brand, dinner, gifts, etc. to promote the brand. 2. Brand building exercise needs to be done consistently to create awareness among the consumer. 3. Reasonable prices are expected by the majority of the consumers. In contrast, Ultratech and Dalmia Vajram which are priced higher, enjoy higher market share inspite of lower priced brands. This shows that the brand quality perception in consumer’s minds is related to price. People are willing to pay a higher price for premium brands.
76
9. EXHIBITS 9.1. Questionnaires and forms SUMMER PROJECT-CEMENT SURVEY
Questionnaire Serial No Name of the Respondent:
__________________________________________________________ _
Address:
__________________________________________________________ _____ __________________________________________________________ _____ __________________________________________________________ _____
1a
Could you tell me up to what level you have studied?
EDUCATION: ___________________________________________________
1b
Could you also tell me what is your occupation?
OCCUPATION: ___________________________________________________
Education
School
School
SSC/
Some
Grad./
Grad./
upto
Upto
HSC
college
PG
PG
4 yrs
5-9 yrs
but not
- Gen.
- Prof.
IlliTerate Occupation
77
Grad.
1
2
3
4
5
6
7
1. Unskilled workers
E2
E2
E1
D
D
D
D
2. Skilled workers
E2
E1
D
C
C
B2
B2
3. Petty traders
E2
D
D
C
C
B2
B2
4. Shop owners
D
D
C
B2
B1
A2
A2
5. - None
D
C
B2
B1
A2
A2
A1
6. - 1 – 9
C
B2
B2
B1
A2
A1
A1
7. - 10+
B1
B1
A2
A2
A1
A1
A1
8. Self-employed prof.
D
D
D
B2
B1
A2
A1
9. Clerical/Salesmen
D
D
D
C
B2
B1
B1
10. Supervisory level
D
D
C
C
B2
B1
A2
C
C
C
B2
B1
A2
A2
B1
B1
B1
B1
A2
A1
A1
Businessmen/ Industrialists with No. of employees :
11. Collegers/Executives - Junior 12. - Middle/Senior
1c.
RECORD SEC: ______________________________
CONTINUE - ONLY IF SEC A, B OR C CODED. ELSE - TERMINATE.
78 2.
Could you please tell me your age in completed years?
Age:
_____________ Years
3a. Could you tell me what kind of construction work is presently being done for your home? SINGLE CODING
Ensure construction pertains to independent house New Construction
1
CONTINUE
Extension – Multiple Rooms
2
CONTINUE
Extension – Single Room
3
CONTINUE
Major alteration or renovation work
4
CONTINUE
Minor alteration or renovation work
5
TERMINATE
None of the above
7
TERMINATE
3b. Could you please tell us when the construction started and when is the scheduled date of completion? ____________________
ASK ALL
4a. Have you purchased cement in the last 6 months for this present construction? SINGLE CODING
Yes
1
79 No
2
CONTINUE IF CODED 1 IN 4a ELSE TERMINATE
4b
Could you tell me at what stage of construction you are presently in? SINGLE CODING
Digging for foundation not started
1
TERMINATE
Ground Floor Foundation laid
2
Pillars and beams in place
3
Walling completed
4
Roofing completed
5
Finishing work going on
6
CONTINUE
1st/2n /3r floors Pillars and beams in place
7
Walling completed
8 CONTINUE
Roofing completed
9
Finishing work going on
10
House warming over
11
AWARENESS & USAGE
TERMINATE
80 5a When you think of cement used for constructing houses, which brand or company name comes to your mind first? Which others can you think of? RECORD UNDER OTHERS
FIRST MENTION
OTHER MENTIONS
5b Listed here are various brands of cements used for constructing houses. Which of these brands have you heard of? Any others? MULTIPLE CODING POSSIBLE. NOTE: BRANDS CODED IN 5a, ALSO TO BE CODED HERE. Brands
ACC Coromandel Cements
5b – Aware
1 2
81 Chettinad Cements
3
Dalmia Vajram
4
India Cements
5
Ramco Cements
6
Ultratech
7
NEEDS & PERCEPTIONS
6.Listed here are aspects that various people look for while buying cement. I would like to know your opinion on these aspects. Please rate the importance of following factors in selecting a Cement.
Not important a.Reasonable Price of Cement b.Strength of cement
Very Important 1
1
2
2
3
4
5
6
3
4
5
6
7
7
c.Quick setting
1
2
3
4
5
6
7
d.Durability of cement
1
2
3
4
5
6
7
3
4
5
6
7
e.Color of Cement
1
2
82 f.Trusted Brand Name
1
2
3
4
5
6
7
g.Unadulterated
1
2
3
4
5
6
7
h.Direct Delivery from factory
1
2
3
4
5
6
7
i.Ideal Customer Service
1
2
3
4
5
6
7
j.Reduction in Cracks
1
2
3
4
5
6
7
k.Fineness of Cement
1
2
3
4
5
6
7
l.Available in nearby
1
2
3
4
5
6
7
1
2
3
4
5
6
7
n.Recommended by shopkeeper
1
2
3
4
5
6
7
o.Recommended by engineer
1
2
3
4
5
6
7
p.Used widely
1
2
3
4
5
6
7
q.Extensive Media coverage
1
2
3
4
5
6
7
shops m.Recommended by Mason / contractor
DECISION MAKING & PURCHASE BEHAVIOR
7a
Can you tell me what type of contract this is? SINGLE CODING
A full (labour + material) contract construction – complete responsibility is with building contractor Specified material contract – complete responsibility with the building contractor but I specify
1
2
the materials Labor contract construction only – labor alone is contracted. Materials are bought by me
3
83 Is being done by myself completely
7b
4
. Can you please tell me how the brand of cement was chosen? SINGLE CODING Builder selected the brand and did not take my opinion
1
Builder gave me options and took my opinion before 2 finalizing the brand I specified the brand to the builder and asked him to use that
3
brand
7c Please recall the time when you bought the first batch of cement for the present construction that you have undertaken. Can you tell me who all were involved in deciding the brand of cement you selected? Any others? MULTIPLE CODING Self
1
Spouse/ Other family members
2
Friends/ Relatives
3
Building contractor
4
Architect/ interior designer
5
Hard ware store/ Cement dealer
6
Mason
7
Others (specify) ______________
8
IF RESPONDENT IS INVOLVED IN DECISION MAKING (1 CODED IN 7c) THEN CONTINUE,
84 7d Recollect the time when you purchased the first batch of cement, for this construction. Which all brands did you consider for purchase? You may or may not have bought all brands, but specify all the brands that you evaluated? MULTIPLE CODING POSSIBLE
7e Which of these brands did you actually buy, the first time you bought cement for your construction? If you have bought multiple brands in your very first batch of purchase, specify all? MULTIPLE CODING POSSIBLE
7f Which of these brands did you buy so far, for your construction? Take in to consideration all the purchases you might have made for this construction? Any others? MULTIPLE CODING POSSIBLE
7g Which of these brands did you buy, the last time you bought cement for your construction? If you have bought multiple brands in the last occasion, specify all? MULTIPLE CODING POSSIBLE
7d –
7e –
7f –
7g –
First time
So far
Last time
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
Brands Considered
ACC Coromandel Cements Chettinad Cements Dalmia Vajram India Cements
85 Ramco Cements Ultratech Don’t Know/Cant Say
6
6
6
6
7
7
7
7
X
99
99
99
IF NOT INVOLVED IN DECISION MAKING (1 NOT CODED IN 7c) THEN GOTO 9a ELSE CONTINUE
ASK 8a IF AWARE OF DALMIA BUT NOT CONSIDERED FOR PURCHASE. DALMIA CODED IN 5B BUT NOT IN 7D
7h Rate these cements in terms of price and quality on 1-7 scale,with 1- representing low price and 7-suggesting high price.Similarly 1 for quality represents low quality and 7 -represents high quality.
86
Brands
Price
Quality
ACC Coromandel Cements Chettinad Cements Dalmia Vajram India Cements Ramco Cements Ultratech
8a You are aware of Dalmia Vajram, but did not consider this brand for purchase? What are the reasons for not considering Dalmia Vajram? Any others? MULTIPLE CODING POSSIBLE
8a It is not a good quality cement
1
The retailer does not give any discount
2
It is not easily available
3
It is priced higher than other brands of cement
4
It was not recommended by friends/ relatives
5
My mason/ building contractor/ engineer did not recommend the brand
6
Have used it before and was not satisfied with it
7
87 The shopkeeper recommended a different brand when I asked for Dalmia / Dalmia Vajram/ Vajram Others(Specify)__________________________________________________________
8
ASK 8b IF BOUGHT DALMIA (CODED IN 7F) ELSE GOTO 9 8b You have bought Dalmia cement for your construction. What are the reasons for buying Dalmia, when there are so many other brands available in the market? MULTIPLE CODING POSSIBLE
It is overall a good quality cement available in the market today
1
The retailer gave me an additional discount
2
It is easily available
3
It is reasonably priced
4
It was recommended by friends/ relatives
5
I was advised to use it by my building contractor/ mason
6
It was advised by the shop keeper
7
Have used it before and was satisfied with it
8
Others(Specify)__________________________________________________________
9
9a.Could you tell me how many bags of cement have you purchased so far?
88 9b. From which types of store have you bought cement most often, for the present construction? SINGLE CODING
Hardware store
1
A store selling only cement
2
A store selling cement & brick/sand/coir/bamboo/blue metal
3
9c. Did your mason/ building contractor recommend any brand for this present construction? SINGLE CODING
9d.
Yes
1
No
2
Which brand did he recommend? MULTIPLE CODING POSSIBLE
Brands Masons recommendation
ACC Coromandel Cements Chettinad Cements Dalmia Vajram India Cements Ramco Cements Ultratech
1 2 3 4 5 6 7
10. Please tell me your family’s monthly household income, i.e the income of all earning members in your family
89 put together after excluding taxes. This is required purely for research purpose and confidentiality will be maintained. CODE IN GRID BELOW. SINGLE CODING ONLY.
Less than Rs 5000
1
Rs. 5001- 6000
2
Rs. 6001-10000
3
Rs. 10001-15000
4
Rs. 15001-20000
5
Rs. 20001-30000
6
Rs. 30001-50000
7
Rs. 50001- 75000
8
75000+
9
Don’t Know 10
9.2 SPSS OUTPUT Factor Analysis
Thank you for your help.
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Factor Analysis-2
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