After dilly-dallying for over two years, FMCG major Nirma has shelved its plans for a foray into the cement sector. The Rs 2,200-crore Indian company, which owns the Nirma brand, is facing problems in acquiring land for its project and has hence decided against setting up the cement plant in Mahuva in Bhavnagar. In addition, the project cost had also been continuously rising.
In 2004, the company had proposed to set up a Rs400-crore cement unit of 1.2Mt capacity in Mahuva i, to be executed in 30 months by one of the group companies. However, in just one year the cost of the project was revised upwards to anywhere between Rs500 crore and Rs600 crore and even after over two years of the announcement, the land has not been acquired.
"The company had not been able to procure land and simultaneously the project cost, too, had escalated. Together, the two factors have made the project unviable," sources in the cement industry told ET. A company spokesperson confirmed that the cement project was on hold. "Cement project is delayed because of delay in acquiring land," he said, refusing to elaborate.
Another reason for a hold-up in the project has been the scale. While all the existing players in the state are expanding, with just a little over 1Mt capacity unit, Nirma’s proposed plant did not have economies of scale in its favour. Gujarat has been one of the lucrative cement making destinations with the presence of all the big players such as Gujarat Ambuja, Birla group, ACC and Sanghi. Most of these cement units are expanding through debottlenecking or brown-field expansion. The cement capacity in the state itself is likely to grow from current 18Mt capacity to about 30Mt capacity in four years.
"Gujarat is a cement surplus state where prices are lower than other states. To be a viable player in the state, it is imperative that costs of production are low. This can come from scale as well as technology, both of which are difficult to procure for a new player," sources said.