Professional Documents
Culture Documents
INDUSTRY
PREPARED BY:
KANU.VIJ
SUVASINI AGARWAL
INTRODUCTION
China. Despite the fact that the Indian cement industry has clocked
production of more than 100 m tonnes for the last five years, registering an
average growth of nearly 9%, the per capita consumption of around 150 kgs
compares poorly with the world average of over 260 kgs and more than 450
kgs in China. This, more than anything underlines the tremendous scope for
consolidation has taken place in the Indian cement industry with the top five
players controlling almost 50% of the capacity, the balance capacity still
intensive industry and transporting cement over long distances can prove to
with the industry divided into five main regions viz. north, south, west, east
northern region are the most lucrative markets on account of higher income
compared to growth in demand, the demand supply parity has been restored
to some extent in the Southern region for the medium term. Considering the
capita production of 115 kilograms per year lags the world average of over
250 kgs and China’s production of more than 450 kgs per person. Clearly
there remains room for tremendous growth in the industry in India. But if
India is to reach its potential, the free hand of the market must be left
unfettered. For this to happen, the Indian government must make sure that
foreign companies that have a history of price fixing and market collusion
receive appropriate regulation. If market shares get fixed, India will be the
loser and the gap between India and China will only grow in the race to
o Jaypee Group.
of 7-10x and in line with its industry peers. “We value Ambuja Cements in
stock,”
Madras Cements: HSBC value Madras Cements at 4x EV/EBITDA.
discount to its historical trading range of 5.5x-8.5x. HSBC gave the target
“We therefore value it at the lower band of its EV/EBITDA range, i.e.3.5x.
Date Production (% change) Consumption (% change) Capacity utilisation (%) Excess supply(%)
Jan-08 5.2 10.8 102.4 1.0
Feb-08 (0.9) 5.4 101.2 0.1
Mar-08 11.2 (0.3) 104.1 1.8
Apr-08 (8.3) 10.7 91.9 (1.1)
May-08 (0.9) (9.8) 89.1 0.4
Jun-08 (1.5) 2.0 86.5 (0.2)
Jul-08 (0.1) (1.3) 86.4 0.0
Aug-08 (10.2) (2.5) 77.3 (1.1)
Sep-08 5.6 (9.5) 81.6 1.0
Oct-08 6.2 4.9 86.3 1.2
Nov-08 (2.9) 3.1 83.3 0.4
Dec-08 10.3 0.9 91.7 1.7
Jan-09 2.0 11.0 93.4 0.5
The table above highlights the fact that consumption of cement has not
taken back seat and industry is growing and has been operating at the near
equilibrium levels. Supply has fallen short only for last monsoon which is
usually a slack period for this industry. It is clearly can be noted from the
above data the production in Jan (08) 5.2% and in Dec (08) production
and in Jan(09) increased to 11.0% and the supplies in Jan(09) become 0.5% in
SUPPLIE’S ESTIMATE’S
80-85%. This implies FY09 and FY10 are unlikely to be years of overcapacity
in the traditional sense.
Technological change
Continuous technological upgrading and assimilation of latest technology has
been going on in the cement industry. Presently, 93 per cent of the total
process technology and only 7 per cent of the capacity is based on old wet
and semi-dry process technology. There is tremendous scope for waste heat
New Investments
• Shree Cements will invest almost US$ 244.12 million this year, of
Rajasthan and Uttarakhand to augment its capacity. The other half will
• ACC Ltd will spend US$ 575 million on capacity expansion in 2009 and
Pradesh.
A growing and robust economy was noteworthy in terms of the total number
of mergers and acquisitions (M&A) in India 2007, with the cement sector
Ambuja Cement from 22 per cent to 56 per cent through various open
1.8 billion. Moreover, it also increased its stake in ACC Cement with
US$ 486 million, being the single largest acquirer in the cement
sector.
• Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset
• CRH Plc, the world's second biggest maker and distributor of building
• Vicat SA, a French cement maker acquired a 6.67 per cent stake in
Government Initiatives
sector boom and urban development, continue being the main drivers of
• Increased infrastructure spending has been a key focus area over the
last five years indicating good times ahead for cement manufacturers.
• The government has increased budgetary allocation for roads under
Keeping in mind the global meltdown which is impacting the cement companies
The above model is a forcast model for the growing cement sector from
FY09 to FY12 the contributing factor’s taken to consideration are
o Export
o Domestic Consumption
o Average Prices
o Capacity Growth and
o Domestic Demand Growth
network of factories and marketing offices. Established in 1936, ACC has been a
pioneer and trend-setter in cement and concrete technology. ACC’s brand name is
synonymous with cement and enjoys a high level of equity in the Indian market.
protection as a corporate objective, ACC has won several prizes and accolades for
The manufacturing cost per tonne of ACC Ltd, India’s largest cement
analysts.
ACC’s manufacturing cost is Rs1,529 per tonne against the industry average
India, the second largest cement market in the world, has a total installed
capacity of 170 million tonnes per annum (mtpa), according to a report on the
sector by domestic brokerage Karvy Stock Broking Ltd that was released
last week.
Demand for cement in the country stood at 154.9mtpa for the year ended
March.
Birla Corp. Ltd has the second highest manufacturing cost, Rs1,339 per
Rs1,285.95, gaining 2.83% on a day when the benchmark Sensex rose 639.63
points or 3.47%.
rationale that “the cement price would decline and freight and coal cost
earnings multiple of ACC stands at 19.52, higher that the industry average of
14.86.
“ACC has the oldest plants,” says Sourav Mallik, associate director
banking arm of Kotak Mahindra Bank Ltd. “Some plants are inefficient and it
• Chamda in Maharashtra,
• Bargarh in Orissa,
• Jamul in Chhattisgarh,
Thane.
The research complex now renamed as ACC Thane Complex, spread over
an area of 8000 sq m has modern labs with the latest equipment and manned
ACC has effectively pledged its reputation as the market leader in the
quality of cement. Maintaining this lead calls for harnessing the resources
marketing.
set by BIS by a wide margin. Today, all ACC cement plants have the ISO
2006 Subsidiary companies Damodhar Cement & Slag Limited, Bargarh Cement Limited and Tarmac
(India) Limited merged with ACC
2006 Change of name to ACC Limited with effect from September 1, 2006 from The Associated
Cement Companies Limited.
2006 ACC receives Good Corporate Citizen Award 2005-06 from Bombay Chamber of Commerce
and Industry
2006 New corporate brand identity and logo adopted from October 15, 2006
2006 ACC establishes Anti Retroviral Treatment Centre for HIV/AIDS patients at Wadi in Karnataka–
the first ever such project by a private sector company in India.
2007 ACC partners with Christian Medical College for treatment of HIV/AIDS in Tamil Nadu
2007 Sumant Moolgaokar Technical Institute completes 50 years and reopens with new curriculum
2008 Ready mixed concrete business hived off to a new subsidiary called ACC Concrete Limited.
2008 ACC wins CNBC-TV18 India Business Leader Award in the category India Corporate Citizen of
the year 2008
Outlook of 2008
The Cement industry has continued its growth trajectory over the past seven
years. Domestic cement demand growth has surpassed the economic growth
rate of the country for the past couple of years. The growth rate of cement
demand over the past five years at 8.37 % was higher than the rate of
during the same period. Demand for cement in the country is expected to
continue its buoyant ride on the back of robust economic growth and
infrastructure development in the country.
The key drivers for cement demand are real estate sector, infrastructure
projects and industrial expansion projects. Among these, real estate sector
average capacity utilization rates from 81.3% to 93.8% during the same
period. This has exerted pressure on average prices which have increased
from Rs. 156 per bag in FY 03 to Rs. 216 per bag in FY 07. In December
Low capacity addition coupled with higher utilization rate also led to increase
FY 03.
distances making it a regional market place, with the nation being divided into
five regions. Each region is characterised by its own demand-supply dynamics.
Over the past five years, cost of cement production has grown at a CAGR of
8.4%. Also, the producers have been able to pass on the hike in cost to
increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonne in FY 07,
at a CAGR of 13.6%, which has been reflected in higher profit margins of the
industry.
To reduce the cost of production, the industry has focused on captive power
increased over the years. Also, cement movement by rail has increased over
the years.
Market share of top five players in the industry has increased from 42% in
FY 02 to 56% in FY 07. In FY 07, Holcim group captured a leadership position
with market share of 22.6% followed by Aditya Vikram Birla group at 19.4%.
Exports have been constant at about 6% of total cement demand for past
few years. With GoI intervention, making cement duty free, cement is being
lack of port handling capabilities, imports of cement will remain negligible and
10% for the next 5 years. The current tight demand - supply situation is
We expect prices to remain firm till the end of CY2008 due to tight demand
CONCLUSION
rise in January dispatches for some companies. Industry data show that cement
The government’s numbers show that all-India growth in cement production was
January—the Aditya Birla group has said that cement production and despatches
are up 9.76% and 7.35%, respectively, ACC Ltd’s production and despatches for
picked up. The reasons for the higher demand include pre-poll spending and strong
rural demand.
infrastructure and private house building activity, the cement industry has given an
impressive performance in the last two consecutive months. But sustaining such
growth is uncertain, as the real estate segment, which consumes about 55% of the
total cement produced, has still not revived due to overall economic slowdown.
However, we expect that the overall volume growth in FY2009 will be certainly
There is, however, also a base effect at work here. According to analysts at Morgan
Stanley, the y-o-y growth in the three-month moving average of cement dispatches
was at a low of 4.9% in January 2008, which is why they expect high growth of
11.4% in the three-month moving average of cement despatches for January 2009.
In February 2008, however, the three-month moving average went up to 8%, which
But perhaps the biggest reason not to set too much store by the rebound in cement
management, for example, points out that although cement demand can be expected
to grow in line with the gross domestic product growth, prices and margins will come
Mumbai: The 207-million tonne Indian cement industry may witness M&A activity
again by the end of 2009, say industry watchers. However, this time, valuations will
be low and deals will be driven by a strategic desire to exit rather than financial
"Large players or MNCs will make acquisitions when new entrants and small
companies start feeling margin pressures." Apart from issues relating to oversupply,
small
companies may have made expansions at high costs and will have to spend on brand
building; hence, returns may not be up to their expectations and they will look to be
acquired,.
Experts believe companies like Reliance, Holcim and Lafarge are waiting for an
acquired.
"Many sellers are not willing to sell at low valuations. Also, no cement company is
running into losses as yet, though they may have reported de-growth in their top
The cement industry witnessed 7 high valuation M&A deals in 2006, which reduced
to 2 in 2007. In 2008, however, the number of deals increased to 3; two MNCs, CRH
and Vicat, entered India by acquiring stakes in My Home Industries ($462 mn) and
Sagar Cement (Rs 70 crore) respectively. The third deal in 2008 was in the RMC
space, where Lafarge acquired L&T concrete’s RMC business ($349 mn).
Valuations have dipped to $75-100 per tonne now, from the peak level of $300 per
tonne. Incidentally, French cement maker Vicat bought stake in Sagar Cements for
half the value of what a rival had paid a year earlier. Among the large global players
in the cement industry, Cemex is the only company that is not present in India.
Key Findings
-Domestic demand for cement has been increasing at a fast pace in India and it has
surpassed the economic growth rate of the country.
-Among the states, Maharashtra has the highest share in consumption at 12.18%,
followed by Uttar Pradesh.
-In production terms, Andhra Pradesh is leading with 14.72% of total production
followed by Rajasthan.
-Housing sector is expected to remain the largest cement consumer in coming years.
India is fast emerging on the world map as a strong economy and a global power. The
country is going through a phase of rapid development and growth. All the vital
industries and sectors of the country are registering growth and thus, luring
investors. And cement industry is one of them. To throw light on the Indian cement
industry, RNCOS has launched its report 'Indian Cement Industry Forecast to
2012' that gives an extensive research and in-depth analysis of the cement industry
in India. This report helps clients to analyze the competitive dynamics and emerging
opportunities critical to the success of the cement industry in India. Based on this
analysis, the report gives a future forecast of the market that is intended as a
BIBLIOGRAPHY
GOOGLE.COM
WIKIPEDIA.COM
ACC.COM