June 2015

For Internal Use Only Not For External Distribution

Cement

Key conclusions

Cement demand improved in 2014-15 after a 2 year slow down

H1 2014-15 : Demand improved by 9% y-o-y over a low base and mainly due to delayed monsoons
and improved consumer sentiments post general elections

H2 2014-15 : Demand growth remained muted at 1% mainly due to slowdown from rural areas and
cuts in infrastructure spending by the government amid tight finances

Demand expected to pick up in the medium term

H1 2015-16 : Demand growth expected to remain muted at about 2% y-o-y due to unseasonal rains,
slowdown in rural areas and gradual pick up in government spending

H2 2015-16 : Demand growth expected at about 10% y-o-y over a low base and expected revival in
government spending in infrastructure projects

Until 2019-20 : Demand to grow at 8-8.5% CAGR, mainly driven by infrastructure and housing
segment

East & Central to grow better led by state government focus on development

Average operating rates to touch 80% over next 5 yrs, improve in 2014-15 in 5 years

For Internal Use Only Not For External Distribution

Steady capacity addition of about 23-24 MTPA expected in 2015-16, post which additions limited

Credit profile healthy for large players, small players to see some improvement

OPM estimated to have improved by 50 bps in 2014-15 with improved realisations, to continue to
improve by about 100 bps in 2015-16 and 2016-17

Margins improve more for small players on a sharp erosion of 2013-14, flat for large players

Returns to improve in 2015-16 with improving utilisations, margins

2

Demand improved in 2014-15 after a two year slow

down
Demand growth improved in 2014-15

12%

285

13%
10%

10%
9%

235

7%

6%
185

4%

5.2%

3.0% 2.7%

135

Demand (LHS)

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

85

14%
12%
10%
8%
6%
4%
2%
0%

Demand growth (%)

Source: CRISIL Research

Delayed monsoon and improved consumer sentiments post general elections

resulted in a healthy in cement demand during H1 2014-15, which increased by 9% yo-y
However, growth in H2 2014-15 remained muted at 1% y-o-y mainly due to cuts in
government spends

For Internal Use Only Not For External Distribution

(mn tonnes)

Demand to improve gradually with increasing government

spends
Demand to grow at 8-8.5% CAGR over next 5 yrs. Past 5 yrs demand at a lower 4.3% CAGR with the effect of 2 bad yrs FY13, FY14
15.0%

13.1%

11.0%
8.0%

7.1%
6.2%

12.0%

10.0%
8.7%

8.7%

10.3%
10.2%
6.4%

8.0%

9.7%
7.8%
7.1%
6.7%

6.6%

10.1%

5.2%

8.5%

5.8%
2.7%

3.0%

Source: CMA, CRISIL Research

Better economic growth

Cement demand from infra likely to grow
by 8-8.5% CAGR led by roads, irrigation,
urban infra
Share of infra in cement consumption to
increase

Proportion of infra in cement demand to rise

20%

21%

Commercial and
Industrial

22%

25%

Infrastructure

58%

54%

2010-11E to 2014-15E

2015-16P to 2019-20P

FY20P

FY19P

FY 18P

FY17P

FY16P

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY94

FY93

-1.9%

For Internal Use Only Not For External Distribution

4.2%
-0.6%

Housing

Source: CRISIL Research

Central, East, North to grow faster among regions

8.5-9%

8.5-9%

8-8.5%

Region-wise demand growth

7.5-8%

7-7.5%
6.5%

6.7%

5.7%
5.0%

0.1%

North

South
2010-11E to 2014-15E

Source: CRISIL Research

East

West
Central
2015-16P to 2019-20P

202 MT

4.3%

250 MT

8.3%

372 MT

15%

17%

18%

19%

21%

20%

16%

17%

18%

30%

25%

24%

19%

20%

20%

2009-10

2014-15

2019-20P

North

South

East

West

Central

Source: CRISIL Research

Central region demand to be driven by infra, housing development in MP with stable political scenario

South South demand to start picking up as AP & Telangana demand expected to pick up with stabilisation of operations
of the states; Real estate construction activity likely to be slow in Chennai, Kochi; moderate growth expected in Bangalore

North: Punjab, Haryana, NCT all expected to drive infra demand; Slow real estate activity in NCT but Chandigarh to grow
moderately

West: Delayed infra projects in Maharashtra to drive demand going forward. Mumbai and Pune real estate growth to
improve

East: Infra development across states to be healthy; Patna, Guwahati, Bhubaneswar real estate activity to be slow,
Moderate growth in Kolkata, Raipur

For Internal Use Only Not For External Distribution

All regions to witness pick-up in growth 2015-16 onwards

Capacity addition to almost halve over next 5 yrs

Major capacity additions expected in North

(MTPA)

136 MTPA

Announced Installed Capacity Addition

Source: CRISIL Research

12
3

2019-20P

24

32%

31%

23%
26%

12%
18%

23%

23%

37%

2010-11 to 2014-15

2015-16P to 2019-20P

North

Expected new announcements

East

West

South

Central

Source: CRISIL Research

Capacity additions to continue to be steady in 2015-16; decline thereafter

Most addition to happen in North and East, where utilisation rates are higher currently

Mostly large and mid players in the fray with strong financials

North capacity additions to cater to North and Central region

8
9

2018-19P

22

2017-18P

23

2015-16P

2011-12

2010-11

2009-10

2008-09

24

2014-15

33

2013-14

34

2012-13

41
17

2016-17P

70 MTPA

16%

For Internal Use Only Not For External Distribution

Capacity additions to slow down from 2016-17 onwards

Traditionally 25-30% of Central consumption has been catered through cement from other regions

Capacity additions in the South to continue despite lower operating rates

Players adding capacity to cater to West, East region, Most capacity addition in recent past in AP, Karnataka

Ease of limestone, rail availability in the South region further aids capex plans
6

Large players to comfortably fund capex

Majorly large and mid players to set-up capacities
New, 3.4%

Large,
42.5%
Medium,
53.6%

Source: CRISIL Research

Large players

Internal accruals comfortable to fund capex needs for large players

Strong financial flexibility of most players in case they need to take debt

Credit profile to be impacted at the least on account of capex for large players

For Internal Use Only Not For External Distribution

Small, 0.4%

Mid and small-sized players

Most mid-sized players are expected to have sufficient internal accruals to fund capex

But, some mid and small-sized players will need to raise debt/equity in order to fund capex

Operating rates to improve owing to pickup in demand

(MT)
50 85%

77%

40

84%
73% 75% 79%
71%
70%
69%
74%

89%

Average operating rate over next 5 yrs 80%

FY20P

FY19P

FY 18P

FY17P

0%

FY16P

FY15

20%

FY14

10

FY13

40%

FY12

20

FY11

80%
60%

FY10

Operating rates improved in 2014-15 owing

to improved demand and lower effective
capacity additions 11 mtpa as compared to
the average yearly additions of 30 mtpa over
the past 5 years

100%

30

Addition to effective capacity

Incremental demand

Source: CRISIL Research

Operating rates in south to remain lower

despite improving demand owing to
continued capacity additions

Operating rates highest in the central region

95%
87%

86%

92%
84%
76%

Over next 5 yrs proportion of capacity addition:

North-37%, East-23%, South-23%, West-26%,
Central-32%

Proportion of inbound cement in West and

Central higher at 25-30% of consumption, this
to support southern players to utilise
capacities better

80%
72%

78% 80%
58%

Central

West

East

Average over past 5 yrs

Pan India

North

65%

For Internal Use Only Not For External Distribution

Pan- India operating rates improves first time in the past 5

years

South

Average over next 5 yrs

Source: CRISIL Research

8

Use of blended cement to continue to rise

Increasing proportion of PPC cement
14-15%

201516P

15-16%

201415E

~20%

200910E

77-78%
75-76%

7-8%

70-72%

29-30%

200304E

7-8%

60-61%

~45%
OPC

7-8%
8-9%

~45%
PPC

~10%

PBFSC

Source: CMA, CRISIL Research

Limited limestone reserves, better quality to increase usage of blended cement

Slag transportation difficult - usage of slag cement limited to East, Central regions

Most construction activity happening on PPC; PWD manuals now changed to prescribe PPC

Blending ratio is expected to rise to 1.36 by 2015-16

For Internal Use Only Not For External Distribution

201617P

Blending standard:

PPC cement BIS standard flyash 10-25% of the mass of cement

Slag cement BIS standard slag 25-65% of the mass of cement

9

Prices expected to rise by 5-6% over next 2 years

Price rise expected to be moderate

No major supply constraints foreseen

Demand to grow better going forward

East and West to witness lower growth

compared to other regions

East prices at the highest level; capacity

additions in the region to ease supply
Lower demand growth in the West to limit
price rise

Higher price growth expected in Central

region owing to better demand growth

South, West perform better in price growth in 2014-15

Region

2013-14E

2014-15E

2015-16P

2016-17P

North

-1.2%

3.5%

4-6%

6-8%

West

-3.5%

7.1%

2-4%

4-6%

East

-1.0%

-2.4%

2-4%

4-6%

South

-0.2%

11.2%

5-7%

5-7%

Central

-0.5%

4.7%

6-8%

7-9%

Modest price growth expected

Rs / bag
400
350
300
250
200
150
100
50
0

13%

12%

13%

314

310

327

344

5%

5%

365

278
231

239
5%

244
2%

245

6%

15%

For Internal Use Only Not For External Distribution

10%
5%

1%
-1%

0%
-5%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16PFY17P

Prices
Price growth

Source: CRISIL Research

10

Operating margins to improve owing to rise in

realizations

Profitability estimated to improve by 50 bps in 2014-15 with better realisations

Further improvement expected in 2015-16 led by improved demand & realisations

Stress on small players to take time to ease

2014-15E
Net realisations

change

5.0%

2015-16P
Net realisations

261 /bag

change

5.0%

2016-17P
Net realisations

change

5.7%
290 /bag

274 /bag

Power & fuel cost

-5%

Power & fuel cost

-2%

Power & fuel cost

-0.1%

Raw material

8%

Raw material

6%

Raw material

7%

Freight expenses

5%

Freight expenses

6%

Freight expenses

5%

Cost of sales

4%

Cost of sales

4%

Cost of sales

4%

Operating margin

53 bps

Operating margin

96 bps

Operating margin

106 bps

16.2%

17.2%

18.2%

For Internal Use Only Not For External Distribution

Cost increase to continue at sustained pace

Sensitivity to returns higher for smaller players

Operating margins estimated to improve marginally

Net margins: improvement seen for mid and small sized players

28.7%
17.6%
21.5%

21.5%

20.5%

15.0%
16.5%

15.9%
19.1%

18.0%

16.5%

18.0%
11.8%

15.3%

13.2%

11.1%

8.4%

8.3%
5.2%

12.1%

2009-10
2009-10

2010-11
Large

2011-12

2012-13
Mid

2013-14
2014-15 E
Small

Small players also make healthy RoCEs, however subject to

higher volatility
25.6%
23.6%
19.4%
14.3%
12.5%
6.8%

2009-10

21.1%
17.4%
16.3%
12.8%
12.8%
10.0%
6.8%
3.9%

18.5%

2010-11

2011-12
Large

Mid

2012-13
Small

2013-14

-0.5%
2010-11

7.0%
3.6%

3.5%

8.7%

7.6%

8.3%

9.5%
8.5%

6.6%

9.1%
13.0%

10.6%

10.2%

-1.4%
2011-12

Large

2012-13
Mid

2013-14

2014-15 E

Small

Large: A C C Ltd., Ambuja Cements Ltd., Century Textiles & Inds. Ltd.,
India Cements Ltd., J K Cement Ltd., Ramco Cements Ltd., Shree Cement
Ltd., Ultratech Cement Ltd. (account for close to 47 per cent by capacity)
Mid: Birla Corporation Ltd., Heidelberg Cement India Ltd., J K Lakshmi
Cement Ltd., Mangalam Cement Ltd., O C L India Ltd., Orient Paper &
Inds. Ltd., Sagar Cements Ltd. (account for close to 10 per cent by
capacity)

For Internal Use Only Not For External Distribution

29.0%

Small: Anjani Portland Cement Ltd., Deccan Cements Ltd., Gujarat

Sidhee Cement Ltd., K C P Ltd., Kakatiya Cement Sugar & Inds. Ltd.,
Keerthi Industries Ltd., Saurashtra Cement Ltd., Shiva Cement Ltd., Shree
Digvijay Cement Co. Ltd. . (account for close to 2 per cent by capacity)

Player sizing by installed capacity

2 MTPA
SMALL

8 MTPA

MID

LARGE
12

Credit profiles vary for players by size

Interest coverage has deteriorated significantly for medium
players; consistently low for smaller players

Higher gearing levels for mid and small players

1.3

14.8
13.1

1.3
1.1

0.5

0.6

0.5

0.7

0.6
0.4

8.8
5.9

0.4

0.4

8.9

7.6

4.2
1.9

6.4

6.3

4.9

7.6

4.7
2.8

2.6

3.0
1.6
2.6

2009-10

2010-11

2011-12
Large

Source: CRISIL Research

Mid

2012-13

2013-14

2009-10

2010-11

Small

2011-12
Large

2012-13
Mid

2013-14

Small

Source: CRISIL Research

Highest gearing, lowest interest coverage for small players

Credit profile of Small players to improve in 2014-15 owing to improvement in profitability

2014-15 E

For Internal Use Only Not For External Distribution

0.8 0.9

0.9
0.7

13

For Internal Use Only Not For External Distribution

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