A presentation on cement industry and audit

1. S. S. Kothari Mehta & Co.
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2.  Cement Industry –An Introduction
 About Cement & Cement Industry(S
No. 4,5,6,7)
 Process of Cement Manufacturing(S
No.8,9,10,11,12)
 Overall Industry (S No.13,14,15)
 Cost And Price ( S No. 16,17,18)
 Audit Overview (S No.19,20)
 Recent Development in Industry (S
No.21,22)
 Cartelization in Cement Industry- A
Case Study( S No. 23)
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3. Introduction
Given the vast geographical size and massive population of the country, various construction activities
undertaken by the Central Government, State Governments ,Public sector undertakings and other
organizations including private sectors generate huge demand for cement.
Being the most essential raw material in any kind of construction activity with no close substitute, Cement
Industry plays crucial role in the infrastructural development of the country.
Reiterating its focus on infrastructure development in the Twelfth Plan(F.Y. 13-17),Planning Commission has
projected an investment of US $1 Trillion during the plan period of which private sector is expected to
contribute at least 50% .
Indian Cement Industry today ranks Second in the world, producing quality cement that matches the world’s
best and has its footprints in around 30 countries of the world through Cement/Clinker exports.
Cement Industry with categorical demand from Housing 64%,Industrial 6%,Commercial & Institutional13%
and Infrastructure 17%, has also its bearing on other sectors of economy like Power,Steel,Real Estate ,Coal
and Transportation.
As envisaged in the Budget 2012,Government’s plan for massive infrastructure development in Housing,
Roads & Highways,Railway,Aviation,Power & Utilities etc. ,cement industry is set to play a crucial role to
provide the impetus to the growth of the country.
This presentation is meant to give an overview of the Cement Industry and its manufacturing process to
have an insight of the industry in view of audit.
- Saurabh Pandey
saurabh.pandey@icai.org/sca@live.in
Source:CMA,Business Standard, Parliamentary Report on Cement Industry
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4. Cement
Cement is a mixture of compounds, consisting
mainly of silicates and aluminates of calcium,
formed out of Calcium Oxide, Silica, Aluminum
oxide and Iron oxide. Cement is manufactured by
burning a mixture of limestone and clay at high
temperatures in a kiln, and then finely grinding
the resulting clinker along with gypsum. The end
product thus obtained is called Ordinary Portland
Cement (OPC). In India, OPC is manufactured in
three grades, viz. 33 grade, 43 grade and 53 grade,
the numbers indicating the compressive strength
obtained after 28 days, when tested as per the
stipulated procedure. Apart from OPC, there are
several other types of cement, most of them
meant for special purposes, e.g. Sulphate
Resistant Cement, Coloured Cement, Oil well
cement, etc. However, there are some general
purpose cements, the commonest one being
Portland Pozzolana Cement (PPC)and Portland
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slag Cement (PSC).

5. “Cement is one of the fundamental elements for setting up strong and healthy infrastructure
of the country and plays an important role in economic development and welfare of the nation “
• In India there are around 365 Small and 140 large cement plants, combined
production capacity of which is Approx. 234 Million Tones. Keeping the tune with
global standard, the Indian cement industry has transited itself into more advanced
one .
• At present Indian cement industry is positioned at second after china.
• The capacity of the sector which was 29 MT in 81-82,rose to 219 Mt at the end of FY
09.it took 8 decades to reach the 1st 100 MT capacity ,while the 2nd 100 MT was
added in just 10 years.
• According to Indian cement industry forecast to 2012 ,India's cement production will
grow at a compound annual growth rate (CAGR) of around 12 % during 2011-12-13-
14 to reach 303 MT as against 234 MT capacity of present.
• CMA is targeting to achieve 550 MT capacities by 2020.
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6. • With resumption in housing market ,regular government spending on rural sector
and infrastructure spend and permission of 100% FDI in cement industry ,growth in
domestic cement demand is likely to remain strong.
• Given the soaring potential for growth, few MNC’s have been eying the Indian
cement market and planning to acquire domestic companies. Companies like
Lafarge ,Heidelberg and Italicementi have made couple of acquisitions ,Holcim have
increased stake in Ambuja Cements and ACC to gain full control. During FY 11
Ultrtech merged itself with Samrudhi cement to become largest cement company in
the country .
• German cement major Heidelberg and domestic giants including Ultratech and
Reliance Cements have evinced interest to be the joint venture partner in state run
Rashtirya Ispat Nigam ‘s proposed Rs 1000 Cr. 3 MTPA cement plant at Vizag.
• To magnetize investors for tapping the infrastructure opportunities across the
country and in turn to provide required stimulus to Indian cement industry ,Govt
has taken initiative like Introduction of Tax free bonds,Formation of infrastructure
debt fund and formulating a Comprehensive policy for developing Public Private
Partnership projects (PPP’s).
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7. Cement- Input/Output Overview
Raw Process Product/Output
Material/Input • Mining  Clinker/RMC
• Limestone/Soil • Crushing  OPC (Non-
• Gypsum/Slag • Grinding Slag)
• Coal • Blending  PPC
• Pet coke • Pre-Heating  PSC/PBFSC
• HSD Oil • Clilnkerization  GGBS
• Fly Ash • Cement
Grinding
Power Misc. Exp. Freight
• Electric • Vehicle & • Limestone
Supply –Grid Equipment's lifting and
Power • Material movement
• DG Set &Instruments from mines to
(Own etc. plant
Generation) • Operational • Fuel and other
&Functional inputs
Exp. • Distribution of
Product 7

8. Basic Chemical
Component-
Calcium(Ca),Silicon(
Si),aluminum(Al)
,Iron(Fe)
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9. Excavation from mines(Blasting) → Crushing → QC of Crushed Limestone → Pre Blending
Stock Pile → Grinding at VRM → Blending Silo→ Pre Heating → Calcination → Cooling →
Clinker → Mix of gypsum → Cement
 Limestone is excavated from mines .sometimes clay or any other raw material is added to
improve the quality of raw material excavated.
 Huge and large lime stones now dumped into crusher to convert the stones into small
and manageable chunks of around 20 mm size.
 limestone obtained from crusher goes for quality check .now after sorting out unsuitable
limestone passing through conveyor belt it goes to vertical raw mill (VRM) for grinding
material.
 Now through conveyor belt powdered from of RM comes to Blending silos to mix them
homogeneously.
 Before calcination it comes to preheating and then to kiln for calcination @ tempo of
1400-1500°C.
 After calcination RM get cooled to get Gray colored nodules which is called Clinker. Then
clinker stored in silos for further processing on cement milling. Clinker when mixed with
gypsum produces cement. 9

10. A Machine Overview
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11. Cement Production Process –Flow Chart of Raw Material processing
Quarrying Crushing Pre-Blending Raw Grinding & Blending
Mines
Finish Grinding Burning
Packing & Distribution
Clinker Cooling
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12. Cement Manufacturing Process in detail
 The production process for cement consists of drying, grinding and
mixing limestone and additives like bauxite and iron ore into a powder
known as “raw meal”.
For producing OPC, clinker
 The raw meal is then heated and burned in a pre-heater and kiln and
and gypsum are used and for
then cooled in an air cooling system to form a semi-finished product, producing Portland
known as a clinker. Clinker (95%) is cooled by air and subsequently *Pozzolana+ Cement (“PPC”),
ground with gypsum (5%) to form Ordinary Portland Cement (“OPC”). clinker, gypsum and fly ash
Other forms of cement require increased blending with other raw
materials. are used. In the production
of Portland Blast Furnace
 Blending of clinker with other materials helps impart key characteristics Stag Cement (“PSC”),
to cement, which eventually govern its end use. granulated blast furnace slag
from steel plants is added to
There are two general processes for producing clinker and cement in
India : a dry process and a wet process. clinker.
The basic differences between these processes are the form in which
the raw meal is fed into the kiln, and the amount of energy consumed in
each of the processes.
 In the dry process, the raw meal is fed into the kiln in the form of a dry
powder resulting in energy saving, whereas in the wet process the raw 12
meal is fed into the kiln in the form of slurry.

13. About the Industry
Indian Cement Industry as on 31st March 2011 Name of cement company Installed capacity(MT)
Statistics - Large Cement Plants Grasim Industries Ltd 25.65
42 Ultra Tech Cement Ltd 24.3
Companies (Members) (Nos.)
JP Associates Ltd 17.15
Cement Plants (Nos.) 139
India Cements Ltd 14.05
Installed Capacity (Mn. t.) 234.3 Madras Cement Ltd 13.72
168.29 Shree Cement Ltd 12
Cement Production (Mn. t.) 2010-2011
Dalmia Cement Ltd 9
Plants with Capacity of Million tonnes and 97
above (Nos.) JK Cement Ltd 8.42
Chettiand Cement 8.2
Manpower Employed (Nos.) Approx. 1,20,000
Century Tetxtiles And ind 7.8
Turnover in 2010 (Mn. US$) around 18,000 Lafarge India P Ltd 7.55
Birla Corp Ltd 7.38
Statistics - Mini & White Cement Plants Kesoram Industries Ltd 7.25
Cement Plants (Nos.) Approx. 365 Penna Cement Ltd 6.5
Installed Capacity (Mn. t.) 11.10 (P) Binani Cement Ltd 6.25
6.00 (P) Total Capacity held by majors(77 175.22
Cement Production (Mn. t.) 2010-11 % of Industry)
Source -CMA Others (23 % of Industry) 51.68
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14. About the Industry
Regional Capacity
Western
13%
Eastern
14% Southern
41%
Northern
21%
Central
11%
Presence of Cement Industry in Indian States
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15. About the Industry
 Our country is the second major cement producing country following the China. we have 140
large and 365 mini cement plants.
 Leading players in the Industry are -
Ultratech,Gujarat Ambuja,JK Cement,ACC, Madras cement etc.
 Southern region in the country is the biggest contributor in cement production .
 India has total capacity of 226.90 MT as on March
2010 comprised of Northern region 48.27 MT,
Central region 26.01 MT, Eastern region 31.89 MT ,Western Region 28.62 MT and southern
region 92.11 MT.
 Rajasthan, AP, Tamilnadu,MP,Gujarat are the prominent cement industry contributor states
.the southern region has an excess capacity trend owing to profuse availability of limestone
,the Western and Northern regions generally has more demand than availability.
 Bangladesh ,Nepal,Sri Lanka,Maldives,Mauritius and UAE are major export destinations for
the cement industry.Export constitutes less than 1% of the capacity
 India is largely self-sufficient in cement production and its import is less than 1 million tonnes.
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16. Cost & Price
Contributing Ratio-Industry Feature
Power Elements affecting Price of Cement
Others • Excise/Duty and Gov. levies(Electricity
38% 30%
Duty,Royalty on Limestone,Entry Tax
Water Cess,Rural Infra. Tax etc.)
Raw Freight • Freight
Material 15% • HSD
17% • Coal/Pet coke
• Season/Mansoon
• Rupee Escalation/Fiscal Policy
Raw Material Power Freight Others
• Limestone • Electric • Transporters • Material &
• Gypsum/Slag supply • Own vehicle Equipments
• Coal • DG Set • Toll charges • Instruments
• Pet coke • Penalties • Operational
• HSD Oil etc. &Functional
• Fly Ash Exp.
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17. Initiatives for the Costing and Pricing elements-Cost Control
• Limestone-Due to limited resources of Limestone ,there are talks with National council
for cement and building materials (NCCBM) for R& D of Geopolymeric Cement which
require some chemical bonding instead of Lime to avoid paucity of lime and soil erosion.
• Fly Ash & Slag-To reduce consumption of limestone and to conserve it, substitutes are
being used like substitution of clinker by using fly ash and blast furnace slag.
• Utilization of Fly ash procured from Power Plants and slag generated from steel plants
reduces dust emission by 9800 tonnes /annum and CO2 emission by 33.6 million
tonnes/annum
• Concerns have been raised for depriving to use own Fly ash being produced by captive
power plants of cement industry as cement industries are compelled to supply 20 % of
their own fly ash to manufacturers of Fly ash Bricks,tiles etc.
• Fuels-To conserve fossil fuel energy resources and minimize the adverse impact of
Global warming ,co-processing of industrial waste like Paint sludge,Refinery
sludge,Plastic waste and Tyre chip,Red –mud and other than industrial waste like Rice
husk and cow dunk are being used by cement manufacturers.
• Power -Cement industry has vast untapped potential for cogeneration of power by
waste heat recovery as 30-40% of total heat input is released as waste heat from exit
gases.it is estimated that 4.4 MW of electricity can be generated from 1MTPA capacity
plant by waste heat recovery.
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18. Initiatives for the Costing and Pricing elements-Cost Control
• Coal-Govt has to take necessary steps to sufficient allocation of coal linkage through
Fuel supply agreement (FSA) to cement manufacturers so as to avoid use of Petcoke as
subsidiary and resorting to import of coal/petcoke.
• Presently two indigenous coal suppliers of cement industries i.e. Coal India Ltd. And
Singareni Colleries Co.Ltd.are supplying only 48 % of total requirement due to this FSA
and Linkage procedure of Ministery of coal ,obliging cement manufacturers to source
their fuel requirement from various other avenues.
• High taxes and Levies-
Since Taxes and levies on cement constitute 60% or more of the Ex-factory price ,CMA
has submitted a report “CEMENT INDUSTRY – PRE-BUDGET MEMORANDUM – 2012-13 to
address the following issues to the Government-
1. Uniform and specific rate of Exicse Duty on cement instead of composite rate on MRP
2. To scrap duty on Coal,Pet coke ,Gypsum and other fuels being used as raw material
input .As due to short supply of indigenous coal ,Cement Manufacturer is heavily
dependent on Imported coal and Pet coke.
3. Abolition on import duty on Tyre Chips which is being used by the industry as an
alternative fuel.
4. To classify cement as Declared Goods in excise to put it on equal footing with other core
sectors like coal,steel,crude oil,jute,cotton yarn etc.
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19. Audit Environment of Cement Industry-A view
Mines
(Limestone)
 Corporate infrastructure
Planning &  IT and Management Procurement of
Analysis  Data compilation and RM etc.
generation
 Accounting Environment
 SOP
Sales &
Production
Distribution
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20. Audit Process –An overview
• Types of RM • Requisition • Gate Receipt (Entry)
• Resources of RM and • Approval & Authority • Weighment & Inspection
market condition • Quotation and selection • Quality Check & Approval
• Periodical budget of RM • PO • Recording and processing
• Procurement of RM → • Terms of PO → • Storage and allocation
• Storage of RM • User’s specification and
• Allocation of procurement compliance • Documentation
• Recording of procurement • Necessary follow-up and • Intimation to Finance
and documentation action deptt.(Accounts/Tax)
↓
• Buyers and agreements • Production detail • Consumption
• Transportation and • Packing & storage • MIS of consumption
contracts
• Quality measures during pattern
• Dealers arrangements
← packing and control ← • Analysis of consumption
• Credit patterns and control
• Tagging and stitching report
• Debtors control and
management • Waste and control • Actions on analysis report
• Sales Vs. Production • MIS of Production • Industry pattern and
• Demand & Supply of market reported deviation ,if any
• Excise & VAT/CST
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21. Some facts about the Industry in terms of Recent Developments
Steps for alternative fuels –Energy saving and reduction of carbon emission
“If the Indian cement industry can increase thermal substitution to just five per cent, GHG (greenhouse gas)
emissions could reduce by over 17 lakh tonnes of carbon annually,”
- Mr G. Jayaraman, Executive President of Birla Corporation Ltd.
• Madras Cement Ltd, the flagship company of Ramco Group, is using waste materials like Rice husk, Hazelnut
shells, Paper sludge or cow dung as alternative fuels and saving over Rs 8 crore annually.
• UltraTech's Gujarat Cement Works is utilising Tyre chips, Rubber dust and other such material, resulting in
reduction of about 30,000 tonnes of carbon emission a year. And that Lafarge's Arasmeta plant is substituting
almost 10 per cent of the coal used in its kilns with Rice husk to increase energy savings and reduce carbon
emission.
• Indeed, cement majors are increasingly burrowing through newer industrial, municipal and agricultural wastes to
utilise these as alternative fuels to fire their kilns, not only to save costs but also contribute to India's efforts to
snip carbon intensity by 25 per cent of 2005 level by 2020.
• This is part of a world-wide trend in the cement sector, with the Japanese cement industry utilising over 450 kg of
waste per tonne of cement manufactured and European plants achieving a thermal substitution rate of over 40
per cent.
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22. Some facts about the Industry in terms of Recent Developments
• India produces over six million tonnes of hazardous waste and about 50 million tonnes of non-hazardous
and municipal wastes, apart from a large quantity of agro-waste. With cement making capacity set to
increase from about 320 million tonnes this fiscal to 550 mt by the end of the next Plan Period, industry
planners feel that cement makers should further sharpen focus on alternative fuels.
• Cement majors are taking new initiatives in this direction. Madras Cement's Alathiyur plant, for example,
has demonstrated that burning of pet coke and alternative fuels such as coffee husk and cashew nut shells
could result in a saving of Rs 8 crore annually — its average pet coke consumed is about 82,000 tonnes and
alternative fuel about 9,000 tonnes.
• Similarly, India Cements Ltd's Dalavoi plant has shown that consumption of just 30 tonnes of LSHS sludge,
which has a heat value of over 9000 kCal/kg, can result in savings of about Rs 3 lakh annually.
• Dalmia Cement has identified ‘red mud' as an effective substitute for high-cost bauxite (used as additive to
manufacture clinker) — this is an industrial waste from Malco's aluminium plant.
• ACC's Madukkarai unit launched Project Zero Fuel Cost in early 2010, when thermal substitution rate was
0.9 per cent. It increased the rate to 3.41 per cent by use of wastes from textile units, rejected shampoos
and face powder and plastic.
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23. Latest : Cement Cartelization(Penalty on Cement giants) Impact
• The CCI passed the order following a probe by the
Director General of Investigation on a complaint
filed by Builders Association of India. Cement
companies have been under scrutiny since past one
year.
• CCI felt the cement firms’ act of controlling supplies
and determining prices was not only detrimental to
consumers but also to the economy since cement is
a crucial input in construction. India is the second
biggest producer of cement after China with a
capacity of 310 million tonnes.
• The Competition Commission of India (CCI) has
levied a penalty of over Rs 6,300 crore on 11
cement companies for price cartelisation.
• These companies have to pay 50 per cent of their
profit for the fiscal years ended 2010 and 2011
within 90 days. However, almost all the companies
plan to contest the order. The industry body Cement
Manufacturers Association has also been fined Rs
73 lakh for providing the platform for cartelisation.
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Presentation to be circulated to the Professional Staff of SS Kothari Mehta & Co.