Building Green-block by block

Nov 2016 , by , in Eco-watch

Building Green – block by block

Globally, Autoclaved Aerated Concrete (AAC) was originally invented in early 1923 in Sweden, and has been around for over 90 years. The product has found global acceptance across Europe, Asia and USA.  In India, AAC is extensively used as a substitute of the conventional red clay bricks in residential, commercial and industrial construction activities.

Driven by recent growth in infrastructure and construction activities, the building material sector has recorded considerable growth over the last few years. However, the emphasis on environment sustainability is also increasing these days.AAC block, a light weight precast building material provides both construction economy and speed. It is also environment friendly as it is manufactured using 60-65% of fly ash (by weight), an unavoidable waste from coal/lignite-based thermal power plants. Due to its many advantages, AAC block is gaining popularity in India.

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Demand for green building materials

The conventional red clay bricks form the backbone of the Indian construction industry. Its manufacturing depends on soil as its major raw material and coal & other biomass as fuel. Not surprisingly, clay brick manufacturing is a major source of environment pollution as it consumes fertile land and emits greenhouse gases (carbon dioxide – CO2).

India’s red clay brick sector lack of institutional capacity along with the market size and demand potential of brick in construction activities, presents an opportunity to improve resource efficiencies and promote green building technologies such as fly ash-based AAC block.

Also known as autoclaved cellular concrete or autoclaved lightweight concrete or aerated brick, AAC block offers a unique combination of strength, low weight, cost-effectiveness and durability compared with a clay brick. It is a steam-cured mixture of fly ash, cement, lime and aeration agent. Other AAC products include wall panels, floor and roof panels and lintels.

Use of AAC block in construction activities offers interesting proposition for various segments of the society. For a project developer, an AAC block means faster construction along with cost saving; for an environmentally conscious peoples, it means eco-friendly product and for those who occupy buildings built with AAC block, it means better safety and lower energy costs for cooling or heating.

Price comparison between AAC and Clay brick 

Although the clay brick is comparatively cheaper, AAC block allows construction with speed and economy. The material also helps save costs, considering its  lightweight leading to savings on foundation structure work, mortar work, labour and energy consumption. Furthermore, as the non-excisable products are likely to be costlier after implementation of Goods and Service Tax Act, the selling price of AAC block would become more competitive.  Further, the issues attached with the key cost components of clay brick (shortage of labour and increase in fuel cost) and cost-competitiveness of AAC block are likely to shape the future growth of brick-making industry in India.

The potential of AAC manufacturing sector

The first AAC block manufacturing plant in India was set up in the early 1970s by Siporex India Pvt. Ltd. at Pune but, it is only over past few years that the manufacturing and usage of AAC block has grown significantly.  Till last year, the estimated number of AAC block manufacturing plants in India was more than 70 with total installed capacity of around 11 million CMPA.

The AAC block industry is estimated to be around Rs.1,500crore for FY15 which translates to just around 2%-3% of total brick industry. Hence, there is huge potential for AAC block manufacturing industry to grow further over the medium to long term.

AAC block manufacturing is a low entry barrier business as an average capacity of 100,000 CMPA requires a tentative investment of around Rs.20 crorefor a small and regional player. Further, the fly ash being the key raw material is available in plenty at very minimal costs which assures uninterrupted manufacturing of AAC block and encourages fresh capacity addition in future.

But, the intensified competition and price war in the AAC market has resulted in a continuous decline in the price of AAC block over past three years or so. This has led toa sharp drop in the operating profitability of AAC block manufacturers but at the same time has helped to narrow down the gap with the sales price of cheaper clay brick.

With increasing acceptance of the product, the AAC block manufacturers registered continuous growth in total operating income (TOI) over past five years. However, profitability has shown declining trend due to significant increase in installed capacities of AAC block in short span of time together with the strong competition from cheaper clay bricks.

The Challenges

The logistic intensiveness of the product forces the manufacturers to operate with three-four manufacturing plants at different locations to cater the different geographies and increase the market share. Moreover, the plant needs to be located in the vicinity of the Thermal power plant for uninterrupted supply of key raw material – fly ash at low cost (transportation costs).

 

Source: Financial aggregates of top three AAC manufactures of India solely engaged into AAC block business with operational track record of more than five years.

Furthermore, real estate construction activities is one of the major consumers of AAC block which exposes the manufacturer to the risks and cyclicality associated to the sector which is also currently passing through a sluggish market scenario. AAC block also faces stiff competition from relatively cheaper clay brick which has been in use since many decades and has established presence with wider reach in the construction activities.

 

Rating Dispersion

The way forward

There is a huge demand potential for AAC block considering eco-friendly and cost-effective natured substitute product, increasing price parity against the conventional clay brick and its miniscule market share in overall brick industry. Furthermore, with the increasing awareness and acceptance for usage of green building products amongst developers and consumers coupled with the regulatory restrictions, non-availability of clay bricks in certain markets and anticipated growth in the real estate sector enhanced by Government of India’s ‘Housing for All by 2022’ and ‘Smart City’ mission, the market for AAC block is expected to exhibit strong growth going forward.

Courtesy: Indo-Bhutan Construction Solutions (P) Ltd

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