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The Indian cement industry with a total capacity of about

190 m tonnes in financial year-2008 is the second largest market after

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

growth in the Indian cement industry in the long term .Although

consolidation has taken place in the Indian cement industry with the top five

players controlling almost 50% of the capacity, the balance capacity still

remains pretty fragmented.Cement, being a bulk commodity, is a freight

intensive industry and transporting cement over long distances can prove to

be uneconomical. This has resulted in cement being largely a regional play

with the industry divided into five main regions viz. north, south, west, east

and the central region.

While the southern region always had excess capacity in

the past owing to abundant availability of limestone, the western and

northern region are the most lucrative markets on account of higher income

levels. However, with capacity addition taking place at a slower rate as

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

pace at which infrastructural activity is taking place in different regions, the

players have lined up expansion plans accordingly.

Despite the growth of the Indian cement industry, India’s per

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

become the next economic superpower.


This section provides the overview and financial information on

prominent players in the Indian cement sector, like

o Associated Cement Company Ltd. (ACC),

o Grasim Industries Ltd.,

o Ambuja Cements Ltd.,

o UltraTech Cement Ltd.,

o J.K. Cement Limited,

o Madras Cements Ltd.,

o Jaypee Group.

o Binani Cement Limited

o Prism Cement Limited

Ambuja Cements:-HSBC value Ambuja Cements at a target 2010e

EV/EBITDA of 5.5x, which is at a discount to its historical trading range

of 7-10x and in line with its industry peers. “We value Ambuja Cements in

line with ACC, which we believe is its closest comparable.

Our target price is Rs 50 and we have an Underweight rating on the

Madras Cements: HSBC value Madras Cements at 4x EV/EBITDA.

HSBC is underweight on the stock with a target price of Rs 60.

India Cements:-With a worsening macro outlook and likely oversupply in

2009, HSBC value India Cements at 4.5x 2010e EV/EBITDA, which is at a

discount to its historical trading range of 5.5x-8.5x. HSBC gave the target

price of Rs 80, with an Underweight rating on the stock.

Shree Cements:-The stock has traded in a narrow EV/EBITDA band of 4-

6x in the last two years. A concentration of the company’s operations in

northern India could make it more vulnerable to potential oversupply in 2009;

“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

increased to 10.3 % and consumption in Jan(08) 10.8% and in Dec(08) 0.9%

and in Jan(09) increased to 11.0% and the supplies in Jan(09) become 0.5% in

excess which is a indicator that cement industry has a significant growth

over the year .



Historical cement demand supply model

(m tonnes)
Year-end installed capacity FY04 FY05 FY06 FY07 FY08 FY09
Actual effective capacity 144 152 158 166 199 222
(-) Mothballed capacity 144 152 158 166 180 207
Effective installed capacity 8.5 8.2 8.5 8.3 5.7 4.9
Domestic consumption 136 143 150 158 174 202
Export (cement + clinker) 114 121 136 149 164 178
Domestic consumption + 9 10.1 9.2 8.9 6 6.1
Surplus / deficit) 123 131 145 158 170 184
% surplus (wrt effective 13 12 5 0 4 18
Actual utilisation 10% 9% 3% 0% 2% 9%
Average prices 86% 88% 95% 99% 97% 91%
Change in average price 141 153 163 206 231 239
Capacity growth 3% 8% 6% 27% 12% 4%
Domestic demand growth 5% 6% 4% 6% 10% 16%
5.80% 6.40% 12.00% 9.90% 10.10% 8%

Historically, the sustainable capacity utilisation in the cement industry has


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

capacity in the industry is based on modern and environment-friendly dry

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

recovery in cement plants and thereby reduction in emission level.

 New Investments

• Shree Cements will invest almost US$ 244.12 million this year, of

which half will be invested towards setting up two grinding units at

Rajasthan and Uttarakhand to augment its capacity. The other half will

be towards the two power plants in Bangur.

• ACC Ltd will spend US$ 575 million on capacity expansion in 2009 and

2010. ACC is expanding capacity by a third to 30 MT by 2010.

• Binani Cement has signed a memorandum of understanding with the

Gujarat government to set up a 2.5 MTPA greenfield cement plant in

Gujarat at a cost of US$ 169.40 million. Binani Cement has also

initiated talks with a few foreign institutional investors (FIIs) to raise

US$ 307.99 million for its new projects.

• Bheema Cements Ltd is planning to invest US$ 116.42 million in setting

up a new manufacturing line of 1.5 MT capacity at its plant in Andhra


 Mergers and Acquistions (M&As)

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

contributing to 7 per cent to the total deal value.

• Holcim strengthened its position in India by increasing its holding in

Ambuja Cement from 22 per cent to 56 per cent through various open

market transactions with an open offer for a total investment of US$

1.8 billion. Moreover, it also increased its stake in ACC Cement with

US$ 486 million, being the single largest acquirer in the cement


• Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset

Management Fund and Emerging Market Fund have together bought

around 7.5 per cent in India's third-largest cement firm, India

Cements (ICL), for US$ 124.91 million.

• Cimpor, the Portugese cement maker, paid US$ 68.10 million for

Grasim Industries' 53.63 per cent stake in Shree Digvijay Cement.

• CRH Plc, the world's second biggest maker and distributor of building

materials, acquired a 50 per cent stake in My Home Industries Ltd for

almost US$ 372.64 million.

• Vicat SA, a French cement maker acquired a 6.67 per cent stake in

Hyderabad-based Sagar Cement for US$ 14.35 million.

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the housing

sector boom and urban development, continue being the main drivers of

growth for the Indian cement industry.

• 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

National Highways Development Project (NHDP).

• Appointing a coal regulator is looked upon as a positive move as it will

facilitate timely and proper allocation of coal (a key raw material)

blocks to the core sectors, cement being one of them.

Keeping in mind the global meltdown which is impacting the cement companies

in India, the government reimposed the counter-veiling duty (CVD) and

special CVD on imported cement in January. This is likely to provide a level

playing field to domestic companies.


Table 3: Forecast cement demand supply model

(m tonnes) FY09 FY10E FY11E FY12E
Year-end installed capacity 224 250 287 300
Actual effective capacity 207 231 257 283
(-) Mothballed capacity 4.9 4.9 4.9 4.9
Effective installed capacity 202 226 252 278
Domestic consumption 178 187 205 226
Export (cement + clinker) 6.1 5 8 9
Domestic consumption + export 184 192 213 235
Surplus / (deficit) 18 35 38 43
% surplus (wrt effective capacity) 9% 15% 15% 15%
Actual utilisation 91% 85% 85% 85%
Average prices 239 240 240 240
Change in average price 3% 0% 0% 0%
Capacity growth 16% 12% 11% 10%
Domestic demand growth 8% 5% 10% 10%

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

The above all factor’s are increasing in a considerable rate indicating a

positive sign towards the growth of the sector.


From the above chart we can see that

o ACC contibuted 11.8% to the sector

o L&T 11.3%
o Grasim 9.6%
o Gujrat Ambuja 7.6%
o India Cement 6.9%
o Madras 3.3%
And other’s 49.5% to the sector . So, ACC being the sector leader
contributing a major part of supplies.


ACC Limited is India’s foremost manufacturer of cement with a countrywide

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.

Among the first companies in India to include commitment to environment

protection as a corporate objective, ACC has won several prizes and accolades for

environment friendly measures taken at its plants and mines.

The manufacturing cost per tonne of ACC Ltd, India’s largest cement

manufacturer by capacity, is the highest in the Indian cement industry, say


ACC’s manufacturing cost is Rs1,529 per tonne against the industry average

of Rs1,056 per tonne.

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

Birla Corp. Ltd has the second highest manufacturing cost, Rs1,339 per

tonne, followed by UltraTech Cement Ltd, at Rs1,240 per tonne.

The ACC share closed on Monday on the Bombay Stock Exchange at

Rs1,285.95, gaining 2.83% on a day when the benchmark Sensex rose 639.63

points or 3.47%.

The Karvy report has an “underperformer” rating on ACC, based on the

rationale that “the cement price would decline and freight and coal cost

would increase, which would lead to de-rating of valuation”. The price-

earnings multiple of ACC stands at 19.52, higher that the industry average of


“ACC has the oldest plants,” says Sourav Mallik, associate director

(investment banking) at Kotak Mahindra Capital Co. Ltd, the investment

banking arm of Kotak Mahindra Bank Ltd. “Some plants are inefficient and it

is uneconomical to run them.”

ACC has 14 plants at 12 locations nationwide—

• Madukkarai in Tamil Nadu,

• Wadi (two) in Karnataka,

• Chamda in Maharashtra,

• Bargarh in Orissa,

• Damodhar in West Bengal,

• Sindri and Chaibasa in Jharkhand,

• Jamul in Chhattisgarh,

• Kymore in Madhya Pradesh,

• Tikaria in Uttar Pradesh,

• Lakheri in Rajasthan, and

• Gagal (two) in Himachal Pradesh.

The company has a manufacturing capacity of around 21mtpa and hopes to

expand it to 27mtpa by 2009.


Product Development has always been an important activity at ACC, arising

out of a focus on quality and process improvement. It has been a constant

partner, driving research, innovation and evaluation. In 1964, a centralized

research facility - the Central Research Station (CRS) was established in


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

by highly qualified scientists and technologists who carry out product

development work in cement and allied fields.

ACC has effectively pledged its reputation as the market leader in the

quality of cement. Maintaining this lead calls for harnessing the resources

and expertise of the company - from applied research and production to


Accordingly, all ACC factories are equipped with state-of-the-art process

control instrumentation and associated quality control and testing

laboratories. Trained engineers, chemists and technicians man these. The

Central Laboratory at ACC Thane Complex is used as a reference laboratory

for diagnosis and resolving specific trouble-shooting cases.

As a result of this focus on quality, ACC cement specifications exceed those

set by BIS by a wide margin. Today, all ACC cement plants have the ISO

9001 Quality Systems certification. This demonstrates our tradition of

providing reliable and consistent quality through the application of modern

technology, and justifies the preferences of a nationwide customer base.


2006 Subsidiary companies Damodhar Cement & Slag Limited, Bargarh Cement Limited and Tarmac
(India) Limited merged with ACC

2006 ACC announces new Workplace policy for HIV/AIDS

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

2007 ACC commissions Wind energy farm in Tamilnadu.

2008 Ready mixed concrete business hived off to a new subsidiary called ACC Concrete Limited.

2008 ACC Cement Technology Institute formally inaugurated at Jamul on July 7.

2008 First Sustainable Development Report released on June 5.

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

growth of supply at 4.84% as also the rate of growth of capacity addition

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

is the key driver and accounted for almost 55% in FY 07.

During the period FY 03 – 07, capacity additions in the country (30.6 mn

tonnes) were at a slower rate compared to demand growth leading to higher

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

2007, prices stood at Rs. 245 - Rs. 250 per bag.

Low capacity addition coupled with higher utilization rate also led to increase

in proportion of production of blended cements in product mix. Blended

cement accounted for 68% of product mix in FY 07 as compared to 49% in

FY 03.

Cement is a bulky commodity and cannot be easily transported over long

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.

The Southern region dominated the cement consumption at 44.5 mn tonnes in

FY 07, accounting for about 30% of total domestic cement consumption.

During FY 03-07, Southern region has witnessed highest CAGR of cement

demand growth at 10.4% followed by Northern and Eastern regions at 8.9%

and 9%, respectively.

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

consumers on the back of increased demand. Average realizations have

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


To reduce the cost of production, the industry has focused on captive power

generation. Proportion of cement production through captive power route has

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%.

Domestic Cement industry is highly insulated from global cement markets.

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

imported from neighbouring countries. However, due to logistics issues and

lack of port handling capabilities, imports of cement will remain negligible and

do not pose a threat to domestic industry.

Cement demand is expected to remain buoyant driven by boost in

construction sector in the country. As per estimates, investment of USD 25

bn is required in urban housing, USD 450 bn will be required in

infrastructure related projects and industrial expansion projects would

witness investments of USD 88 over the next five years.

We estimate domestic cement demand to grow at a CAGR of approximately

10% for the next 5 years. The current tight demand - supply situation is

expected to extend up to end of calendar year 2008 owing to delays in

capacity expansion programmes by various companies.

We expect prices to remain firm till the end of CY2008 due to tight demand

- supply situation and increase in input costs. Thereafter as new capacities

come in, we may witness a softening in prices in some regions.


Cement production: too early to say worst is over

The shares of cement companies have been moving up again, on the back of a decent

rise in January dispatches for some companies. Industry data show that cement

production and despatches increased by 12.6% and 12.7% year-on-year (y-o-y) in

December, after growing by 9.8% and 12% y-o-y in November.

The government’s numbers show that all-India growth in cement production was

8.7% in November and 11.6% in December. The momentum is likely to be kept up in

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

January are up 12% and 12.5%, respectively.

The numbers have sparked some hope among analysts that demand for cement has

picked up. The reasons for the higher demand include pre-poll spending and strong

rural demand.

A research report by broking firm says, “With the revival of

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

ahead of street expectations. Further, cement companies are also expected to

benefit from softening coal and crude prices.”

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

means that it’ll be difficult to show high growth in February 2009.

But perhaps the biggest reason not to set too much store by the rebound in cement

despatches is the opinion of the cement producers themselves. The Grasim

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

under pressure in FY10 as more capacities come on stream.

Cement sector to see M&As' by 2009-end'

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

compulsion to restructure, they opine.

"Large players or MNCs will make acquisitions when new entrants and small

companies start feeling margin pressures." Apart from issues relating to oversupply,


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


Experts believe companies like Reliance, Holcim and Lafarge are waiting for an

appropriate time to consolidate. It is also understood that Gujarat Sidhee,

Saurashtra Cement and Andhra Cement are waiting for a good valuation to get


"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

line and bottom line," said an investment banker on condition of anonymity.

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.

-Cement consumption in India is forecasted to grow by over 22% by 2009-10 from


-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.

Indian Cement Industry Forecast to 2012

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

rough guide to the direction in which the market is likely to move