Summary

The Indian cement industry has witnessed a phenomenal capacity addition to the
tune of about 52 mn tonnes in the last two financial years which accounted for about
24% of the industry''s capacity of 218 mn tonnes at the end of FY09. In the last two
financial years, the cement industry has registered a double-digit growth in capacity
addition compared to moderate growth of 3-7% registered during period FY 03-07.
As a result, industry's capacity utilisation rate which showed a rising trend upto
FY07, has dropped to a level of 83% in FY09.
In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth
reported in FY08. However, cement consumption growth in FY09 at 8.4% has been
able to maintain its multiplier factor with GDP growth at 1.25 times.
In FY09, all the regions except the Western and the Northern region have
outperformed the industry in consumption growth. The Eastern region continued its
buoyant performance and registered the highest cement consumption growth of
11.3% on yoy basis. The Southern and Central regions also reported impressive
double-digit growth of 10.4% in cement consumption. But, the Northern region has
registered the lowest growth in the cement demand on yoy basis. Comparatively,
poor demand growth registered by the Western region was on account of high base
of the last year and also slightly subdued demand.
With focus on capacity addition, many small/medium players have been able to
capture more market share and consolidate their position in the industry in the last
two years. Market share of top five individual companies taken together show a
decline to a level of 44.3% in FY09 from 46.3% in FY08.
Eventhough the utilisation rate dropped, average cement prices in FY09 rose by
about 5% on yoy basis. But, the growth in cement prices remained slightly subdued
compared to 21% and 14%, registered in FY07 and FY08, respectively.
On the regional front, prices in the Southern region were firm and ruling consistently
at the highest level amongst all the regions in FY09. However, due to slowdown in
the cement offtake and relatively low operating rate, prices in the Northern region
remained at the lowest levels compared to other regions.
In FY09, the cement industry witnessed a fall in profitability. Eventhough, average
realisation for the industry increased by about 4% on yoy basis, cost of production
Indian Cement Industry has increased by 18.5% on yoy basis. Power and fuel cost for many cement companies increased in FY09 mainly on account of substantial increase in coal prices. As a result, the operating profit margin of the industry dropped by about 8-
9% in FY09. Also, higher interest rates and depreciation provided on expanded
capacities took its toll on the net profit margin of the industry which witnessed a
decline by about 5% in FY09.
Going forward, cement companies would be benefited by their focus on captive
power generation which would help them to reduce power & fuel cost. With
reduction in coal prices, we have estimated that per tonne power & fuel
cost of the industry will decline by about 12% in FY10 on yoy basis.
We have estimated that break-even cushion (defined as the ratio of
overall capacity utilisation rate of the industry to the utilisation rate at the breakeven
point in a particular year) of the industry has notably increased to 2.4 times in
FY09 compared to an average level of 1.1 times in the period FY 02-05. With
comfortable break-even cushion value, the cement industry is in better position to
operate at lower utilisation rate and avoid substantial price cuts. We
do not foresee a notable drop in average realisation of the industry in FY10.
We have estimated the domestic cement demand to grow at a CAGR of
about 8.8% in the next two years. Cement demand in the next year would largely be
driven by low-cost housing segment in rural & semi-urban regions and
government's focus on infrastructure development in the country.
The level of consolidation in the cement industry had slowed down in the last couple
of years. However, one analysis suggests that the Net Present Value (NPV) of a
Greenfield plant is still higher than the NPV of an acquired unit, leading us to the
conclusion that further consolidation in the industry is still away.

Table of Contents

EXECUTIVE SUMMARY

Section A
1 Introduction
1.1 Overview
2 Demand-Supply Analysis
2.1 Overall Demand-Supply scenario
2.2 Region-wise Demand-Supply scenario
2.3 Detailed Regional Analysis
2.4 Region-wise Capacity Utilisation Rate
2.5 Inter-regional cement movement in FY 08
3 Demand Drivers
3.1 Real Estate
3.2 Infrastructure
3.3 Industrial Expansion projects
3.4 Region-wise demand drivers
4 Supply Dynamics
4.1 Past supply Statistics
4.2 Blending dominates
4.3 Region-wise Projected Planned Capacity addition
5 Cost Analysis
5.1 Power & fuel cost
5.2 Freight & Forwarding expense
5.3 Raw Material (RM) cost
6 Cement Prices
7 Market Competition & Consolidation
7.1 Market Share of major players
7.2 Industry Aggregates
8 Outlook
8.1 Overall projected Demand-Supply situation
8.2 Regionwise projected Demand-Supply situation
8.3 Margins & Prices
8.4 Consolidation still a mile away...
9 SWOT Analysis
10 Company Profiles
10.1 Associated Cement Company Ltd. (ACC)
10.2 Ambuja Cements Ltd.
10.3 Grasim Industries Ltd.
10.4 UltraTech Cement Ltd.
10.5 India Cements Ltd.

Section B (Annexures)
1 Cement Industry Basics
1.1 Types of Cement
1.2 Cement Manufacturing Process
1.3 Industry Characteristics
2 Key Statistics-Financial Performance
3 Key Statistics-Operational Performance
4 Capacity Expansion Projects by Major Companies
5 Raw material costs & consumption
6 Industry Developments

Section I
LIST OF FIGURES
A-1 Trends of Capacity, Production and Capacity utilisation
A-2 Trend of Conversion Ratio
A-3 Regionwise price trend in FY 09
A-4 Major cement producing & consuming states in FY 09
A-5 Trend of capacity addition
A-6 Regional statistics FY 09
A-7 Regional scenario in FY 09
A-8 North-Overall scenario
A-9 North-State-wise scenario at the end of FY 09
A-10 North-Position of top players at the end of FY 09
A-11 Price trend in Delhi
A-12 South-Overall Scenario
A-13 South-State-wise scenario at the end of FY 09
A-14 South-Position of top players at the end of FY 09
A-15 Price trend in Chennai
A-16 West-Overall scenario
A-17 West-State-wise scenario as at the end of FY 09
A-18 West-Position of top players at the end of FY 09
A-19 Price trend in Mumbai
A-20 East-Overall scenario
A-21 East-State-wise scenario as at the end of FY 09
A-22 East-Position of top players at the end of FY 09
A-23 Price trend in Kolkata
A-24 Central-Overall scenario
A-25 Central-State-wise scenario at the end of FY 09
A-26 Central-Position of top players at the end of FY 09
A-27 Trend of capacity utilisation rate
A-28 Sector-wise cement demand
A-29 Bifurcation of investments in infrastructure sector
A-30 Product Mix
A-31 Cost per unit-Industry Average
A-32 Trend of bifurcation of captive power capacity of the industry
A-33 Consumption and import of coal by cement industry
A-34 Change in industry-wide dispatch mix
A-35 Trend of Cement dispatch mix
A-36 Distribution of proven reserves of limestone at the end of FY 07
A-37 Average yearly cement price trend
A-38 Market Share of Major Players in FY 09
A-39 Regional scenario-Market share of top five players
A-40 Trend of industry averages
A-41 Comparison of operating margin-Q4 FY 09 Vs Q2 FY 09
A-42 Projected Capacity Utilisation trend
A-43 Trend of international coal prices
A-44 Trend of diesel prices
A-45 Break-even Cushion
A-46 NPV of acquisition Vs Greenfield plant

LIST OF TABLES
A-1 Growth trend in Past 5 years
A-2 Regional scenario in FY09
A-3 Status of top 10 players (capacity-wise)
A-4 Capacity addition by small/ medium players
A-5 Cement demand statistics
A-6 Companywise Exports
A-7 North-Inter-regional cement movement
A-8 South-Inter-regional cement movement
A-9 West-Inter-regional cement movement
A-10 East-Inter-regional cement movement
A-11 Central-Inter-regional cement movement
A-12 Inter-regional cement movement in FY 08
A-13 Estimated cement demand from the infrastructure sector
A-14 Regionwise demand drivers
A-15 Regionwise capacity addition
A-16 Projected capacity additions
A-17 State-wise power tariff
A-18 Cost comparison of grid and captive power
A-19 Company-wise Captive power capacity addition announced
A-20 Trend of government linkage of coal
A-21 Alternate fuel consumption
A-22 Dispatch mix for cement companies
A-23 Per tonne freight cost
A-24 India's Limestone position
A-25 Limestone cost
A-26 Change in market share of some cement companies
A-27 Industry averages
A-28 Overall projected demand-supply situation
A-29 Region-wise projected demand-supply situation

Section II
LIST OF FIGURES
B-1 Types of Cement
B-2 Cement Manufacturing Process

LIST OF TABLES
B-1 Per capita consumption
B-2 Duty structure
B-3 Net Sales
B-4 Operating profit
B-5 Net profit
B-6 Operating profit margin
B-7 APAT margin
B-8 Interest coverage ratio
B-9 Region-wise/state-wise production & capacity
B-10 Region-wise/state-wise cement consumption
B-11 State-wise surplus/deficit scenario
B-12 Company-wise capacity
B-13 Company-wise production
B-14 Company-wise dispatch
B-15 Total export scenario
B-16 Company-wise exports
B-17 Region-wise product mix
B-18 Company-wise product mix
B-19 Overall product mix
B-20 Cement dispatch mode
B-21 Company-wise dispatch mix
B-22 Average cement prices
B-23 Changes in Duty structure
B-24 Company-wise dispatch
B-25 Capacity Expansion projects
B-26 Limestone cost
B-27 Gypsum cost
B-28 Fly Ash cost
B-29 Limestone consumption
B-30 Coal consumption
B-31 Power consumption
B-32 Power consumption pattern
B-33 Cost per tonne of cement produced
B-34 Industry developments