The Hindu Business Line : Ready mix concrete biz becoming attractive

Chennai, May 15 The ready mix concrete (RMC) business is considered an emerging business opportunity for large players in the construction and cement sectors who are bound to invest in this area in the coming years.

Industry leaders in the business peg last year’s commercial sales of RMC at about 12 million cu.m valued at about Rs 4,500 crore. The growth in infrastructure projects and construction industry are driving the growth of the RMC business.

Based on the demand for RMC equipment, manufacturers say that the industry has been growing at about 30 per cent yearly for the last 2-3 years and is likely to sustain at this level for the next few years.

The organised segment of the business is dominated by a few large players — RMC producers will have to be market leaders in the construction business or have access to cement or aggregates, be able to support the capital intensive business and deal with a customer base that is restricted only to large developers and infrastructure players.

Cement manufacturers who have maintained a low profile in the RMC business say that with growth in construction in the coming years, the RMC business would be increasingly attractive.

Primary lure

The primary factors making RMC more attractive is that with large construction projects, quality and time are crucial. Though RMC would be 15 per cent costlier as compared to on-site mix of concrete, RMC offers significant benefits in consistent quality, which cannot be matched by manual labour in large projects.

Using RMC, projects can be completed 3-4 times faster as compared with on-site mixing of concrete. Builders can cover about 15 cu.m. an hour using RMC against just 3-4 cu. M. with on-site mix.

Land bottleneck

A major bottleneck to investment is the land cost, say industry experts. The business is essentially centred near large cities where there is demand and the RMC plants have to come up in locations close to construction points.

Investors are getting around land cost hurdles by opting for renting or leasing. Also, the demand is spreading from the urban centres to the smaller towns, which makes it more viable. For instance, in Tamil Nadu, apart from Chennai, more RMC players are looking at industrial towns like Coimbatore and Tiruppur where construction is booming. Similarly, the Delhi-NCR market is expanding to Chandigarh and Lucknow, they say.

Some issues that need to be addressed are the skew in taxation — a contractor working for a developer cannot avail of a VAT set off for inputs, which adds 12.5 per cent to the cost.

Paperwork

Also, there are a host of statutory clearances and paperwork relating to setting up the RMC plant that handicap the organised sector, say industry representatives. Besides, transportation cost at about Rs 300 a cu.m. adds to the cost of RMC.

For the unorganised sector, the entry barriers are few. A basic plant with a capacity of 30 cu.m. and related equipment like pumps and truck would involve investments of Rs 4-6 crore.

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