Wednesday, 28 January 2015

Building Material-HIL and Visaka Industries

Modi wave is taking us along. He said “Swatch Bharat” and whole country lifted brooms. Big corporate houses announced big plans for bringing cleanliness in villages under their CSR activities. We are counting sanitryware companies to be the biggest beneficiaries of this (Our HSIL is doing great, it is at 415/- from our price of Rs. 90/-).  But we just forget the humble cement fibre sheets because every toilet made in villages or town is going to use these. We can’t forget the rocket…E-commerce sector…which is going to create huge investments in warehousing which is also about cement fibre sheets.

These sheets use Asbestos fibre which is banned in almost all of western countries due to perceived lung complications but as our poor in villages still use Kutcha roofs…these provide affordable roofing option to them so they aren’t going anywhere atleast over a medium term. Also the variant of Asbestos (Chrysotile) used in india is not perceived as dangerous.

But my reason for choosing these is not because of Modi Wave. But because these companies are investing heavily in next generation building materials. Indian building material industry is still about red clay bricks, high doses of steel and cement. Clay bricks are natural disaster as they are destroying much needed and in short supply soil. One Sq feet of carpet area with clay bricks walling consumes around 25 kg of top soil and around 8 Kg of coal. More emphasis is being put on energy efficiency rather than energy consumption.

Cement Fibre Boards/panels and Autoclave Aerated Concrete Blocks (AAC Blocks) are going to revolutionize the way we build our structures. Cement Fiber boards are made of cement, wood particle, fine silica, quartz and some other minerals...they are then cured under high pressure steam to get the desired high strength and stability. They act as substitute for wood and plywood but provide added protection against fire, water and termites.

Visaka is making Cement fibre Boards and panels, while HIL is also making the both but it has also entered into making AAC blocks ( Autoclaved Aerated Concrete) which are being used as a substitute for  clay bricks. While cement fiber boards and panels are mainly used for their aesthetic features (apart from some major functional benefits over their precursors) as substitutes for wood boards and drywalls, AAC blocks are a serious business.

AAC blocks are made by combining fly ash, quartz sand, cement, lime, water and aluminium (paste or powder). These are mixed and then aluminium (powder or paste) reacts with lime and fly ash, resulting in the formation of millions of microscopic hydrogen bubbles.  The hydrogen bubbles cause the concrete to expand to roughly double the times its original volume.  The hydrogen escapes into the atmosphere and is replaced by air leaving a high closed – cell aerated concrete. This concrete is cut into blocks and then baked in autoclave which uses steam and pressure to speed up the curing process and finish the other chemical processes. Curing at high pressures and high temperature steam in autoclaves finishes the curing process in hours in place of days. Temperature of steam is around 190° Celsius and at this temperature various materials reacts and gives AAC its strength and other unique properties. However our routine red clay bricks are generally cured at temperatures around 1200° Celsius, hence AAC blocks are not regarded as Fired bricks but a lightweight concrete.

Around 70% to 80% of the total volume of AAC block is air, which renders it lightweight. So due to low density its compressive strength is relatively lower, almost 50% of the regular clay bricks. The compressive strength is the capacity of a material or structure to withstand loads tending to reduce size. Like if you press a tomato with both hands, it will deform and break fairly easily as its compressive strength is weak. A sold brick or concrete has fairly high levels of compressive strength. Then there is Tensile strength which is when we try to expand something by force like we do it for rubber band. On an atomic level, the molecules or atoms are forced apart when in tension whereas in compression they are forced together.

Concrete is low in tensile strength, that’s why we reinforce it with steel for making roofs of our homes as steel has very high tensile strength. So RCC for roofing provides compressive as well as tensile strength required for a roof to withstand both types of pressures. 

The porous AAC structure

So AAC blocks due to their unique properties provide many advantages:

1.       As these are around 80% lighter so using these can save costs related to steel and cement since the weight of the building is lower. Costs related to labour , transportation and fuel are also reduced.

2.        Its porous structure and inorganic materials acts as a strong fire proofing component. They can withstand fire for up to 7 hours as compared to 2 of normal clay bricks.

3.       It is 100% eco friendly as it doesn’t use natural clay, no pollutants, no wastages, uses very less energy, uses industrial waste fly ash. So it is qualified for LEED credits and lowers carbon footprints.

4.       Due to the presence of high number of (80% of volume) air pores in it…it acts as a great thermal insulator. As air is one of the best thermal insulator…hence its porous structure acts as a great thermal insulator. A detailed study on the same is done in the later part of this analysis.

5.       AAC blocks block sounds better as they absorb it. They can also withstand earthquakes better due to their light weight and high comparative strength per unit of area.

6.       They can save energy costs by around 30% due to their superior thermal insulation capabilities.

7.       As their making is of high quality with sharp defined edges as compared to uneven structure of clay bricks, they require much less material in giving them a smooth, flat finish as compared to clay bricks as they require a lot of cement covering to give them a smooth finish.

It is being used globally at a much larger scale than India. In USA it comprises around 40% market share, 60% in Germany…its use is growing very fast in china. Some of the most iconic buildings in the world such as the The Palm, Burj Khalifa, Emirates Palace, Dubai Marina in Dubai; Four Seasons hotel in China; Royal Crescent Flats in London; One Central Park in Sydney to our very own world’s tallest residential building, the ‘World One’ by Lodha Group, leading hotels such as ITC, Marriott, The Leela, Lodha Bellisimo and Wockhardt hospital in Mumbai have used AAC blocks. The material has now seen tremendous acceptance amongst a vast range of developers, such as L&T, Lodha, Shapoorji Pallonji, Kanakia, Rustomjee, Raheja, Ahluwalia Contractors, Westcon, Mantri Developers, Embassy Group, etc.

Few years back, cost of clay bricks were around Rs. 2000/- per cubic meter (which comprises around 600 bricks) as compared to around Rs. 3500/- of AAC blocks…after that due to rising cost of labour and fuel and restrictions on clay mining, clay bricks now cost around 4000/- per cubic meter in most parts of the country…AAC blocks also cost around the same levels. In the North, the installed cost of 1 cu m of AAC blocks is approximately Rs 6,800 while the installed cost of 1 cu m of red brick is approximately Rs 5,800. Builders still prefer using AAC blocks considering the numerous benefits it offers.

There are around 1 lakh clay brick manufacturers existing across India. However, the method of manufacturing these bricks is inefficient as a large land spread is wasted in the process; the top layer of the agricultural soil is excavated, further damaging the land. Compared to clay bricks, AAC blocks are 10 times larger and 70 per cent lighter. They are factory made and their size helps to speed up construction unlike clay bricks.

However supporters of clay bricks challenge the claim made by AAC block manufactures that it saves 25-30% energy cost of the building. And I feel this is the most challenging part on the part of architects to convince any prospecting consumer. I am not a civil engineer so can’t claim to have in depth knowledge of the same but I have made an attempt to understand the real facts.

Supporters of clay bricks are of the view that as clay bricks have high Thermal Mass, so they can better withstand the climate variations than AAC Blocks which is high in Thermal Insulation but low in Thermal Mass. Some researches also conclude the same. Thermal Mass is the ability of a material or liquid to absorb or store heat. As bricks have high mass so they can absorb high amount of heat like from sun and then the same is released into the environment…this whole process takes long time (which is called Thermal Lag) which is the main factor in reducing energy costs of the building, Like bricks absorbs heat in the summer throughout the day and in the evening when outside climate is cooler, it releases the heat back to the environment keeping the house cool.

Thermal Resistance (insulation): Heat transfers from hotter to a colder body either by conduction or thermal radiation. Like steel…heat can transfer from or onto it fairly easily as it is a good heat conductor. Hence thermal insulation is the reduction of heat transfer…by reducing thermal conduction and by reflecting thermal radiation in place of absorption. Wood, cloth, Thermocol (polystyrene), Glass wool, rockwool, air etc. are examples of insulators. They can block the flow of heat and can thus save huge amount of energy.

However some are of the view that Mass is much more important than insulation (R) and it is too such an extent that insulation is not required at all. But this is not true. It can be true in an area where there is huge variation in the day and night time temperature like in desert. For the day time, it’ll absorb heat from external climate thus maintaining a cool interior climate…in the nights when temperature falls considerable as compared to day time…then stored heat in the bricks will release to external climate as heat will flow to cooler climate which is outside and thus maintains the comparatively warm interior climate as it will also give some of their heat to interiors. Next morning, their external walls will be cool and will be ready to absorb heat from fresh sun.

But in warmer climates like india…this Mass will not suffice as in the night there will not be much difference in day-night temperature and if interior is cooler due to any reason like Air conditioning then the stored heat will be released into the interiors and the AC unit will have to work harder to keep the interior cool. This is where insulation will come handy…if the interior is insulated from inside then it’ll prevent the outside stored heat from penetrating into the interiors and AC unit will use lesser energy. Thermal mass in summer conditions works like a heavy metal frying pan…if you want to fry an egg…it will take longer time to heat and if you put the flame off, it’ll still release the heat and your egg will be overcooked if not removed from the pan.

Placing insulation inside the interiors will work wonders in summer but not that well in winters as it’ll block the exterior heat but in the same way it’ll also block the heat released from the internal environment like our bodies. Hence the role of Insulation can’t be ignored and it’ll save a lot of energy if planned properly. Care needs to be taken of using insulation on the roofs also as roofs will be in contact of the sun most of the time. Flooring also due to its high mass absorb a lot of heat…so use of insulating materials like wooden flooring, use of mats  etc. will also save  energy costs.

Insulation materials like mineral wool, rock wool, vermiculite, foams, expanded polystyrene and extruded polystyrene are not yet proven and their impact can be dangerous to the humans. So it is best to integrate the insulation into the design of your building like keeping the inner walls separated from the exterior surface, which is exposed to weather conditions, just like a Thermos flask. In hot and humid climates, architects make use of natural ventilation with light construction and high roof of organic material like thatch, keeth (interwoven coconut leaves) or plain terracotta tiles. These can be seen in the houses of Kerala and Tamil Nadu. Rooftop garden can also be a good option for providing good insulation, it can also provide good supply of fresh home grown vegetables. Cavity wall insulation is another effective way.

Cavities in the walls

Thermal performance of modern buildings can be improved with intelligent architecture. Replacing conventional material like brick and concrete with autoclaved aerated concrete blocks, hollow blocks or other material with inherent higher R-values can improve buildings’ insulation.

So the future really seems bright for AAC blocks. HIL which commands nearly 23% share in Asbestos cement sheets in india clocks turnover of around 900-1000 crores…out of which AAC block is around 100 crore and growing at around 25%, its boards and panels business also contributes around 50 cr. It has also entered into CPVC and uPVC pipes…which are growing very fast. It sells all of its products except asbestos sheet under Aerocon brand. Asbestos sheets are sold under charminar brand.

Its asbestos sheets business is going to outperform in the future. The demand for asbestos sheets will rise alongwith rising rural income and spending. Indian asbestos sheets companies import asbestos fiber ,Chrysotile, which constitutes around 50% of total cost of Asbestos sheet production. Due to huge fall in oil prices, import bill of India for the oil is also going to half which will make rupee strong against dollar thus reducing cost of import for these companies. As global investors are pouring money into india due to better business climate and hopes of high growth, this will also make rupee strong.

Rupee hasn’t risen against the dollar much inspite of the fact that oil prices have more than halved. It is mainly because Indian oil companies generally take 6-8 weeks credit line for buying oil and as fall of the oil is sudden hence true impact of the same will be felt in coming months.

HIL is investing heavily for being a complete building products solution company. As I have explained earlier also that companies providing basic lifestyle products enjoy strong and better brand loyalty than companies providing flashy and sensory products like jubilant and coca cola. Sensory choices and preferences change quite easily as we also want to experiment…but we don’t compromise with basic life style needs so easily. A person having a liking for “India Gate Rice” would not easily change the brand as product differentiation with other companies is not very high…almost all rice taste same…so minor positives become big drawing factors. Finolex cables fits this perfectly. HIL is also investing big in creating “Aerocon” building material brand as a testimony of high quality and customer centric approach.

Visaka Industries is also having high share in Indian asbestos sheet sector of around 17% and derives turnover of around 1000 crores with its textile division contributing around 178 crores. It is also investing big in promoting its cement Fibre Board brand Vnext which is also a variant of AAC blocks but these are mainly used as a substitute for wood. But it is having relatively high debt of Rs. 246 cr as compared to around 60 cr of HIL.

HIL seems better prepared in its diversification journey with better balance sheet. But still I have added Visaka at Rs. 120/- as it has got scale of around 100 crores but I have yet to study the demand and benefit scenario of Vnext boards and its future plans. However HIL is a great buy. I am adding this from 680 to 640 today.

(I am not a civil engineer; hence it is highly possible that my views on Thermal Mass and insulation are wrong. Reviews and corrections are welcome)

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)


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