Cement Industry Analysis

FUNDAMENTAL ANALYSIS

FUNDAMENTAL ANALYSIS



ECONOMY ANALYSIS



INDUSTRY ANALYSIS



COMPANY ANALYSIS

COUNTRY ANALYSIS



The Indian economy grew at 9.6 per cent in 2006-07 and 9 per cent in 2007-08, emerging as the second fastest growing major economy in the world

2006-07

2007-08

Foreign Exchange Reserves

$247.76

309.72

FII

10.3

16.1

FDI

15.7

24.57

GDP GDP 12

Growth %

10

9.42

8.52

8

9.6

9.03

7.45

6 4

GDP 3.84

2 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Year

INVESTMENT IN FIXED ASSETS % OF GDP Investment (GDP %) 35

31.8

30 25

23.1

23.8

2004

2005

28.1

29.2

2006

2007

20 15 10 5 0 2008

INFLATION % of change 14 12.64

12

inflation rate

10 8

% of change

6 4

4.3

3.8

3.8

4.4

5.5

5.4

2 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 year

Industrial Production Industrial production growth rate 12.00% 10.00%

10.00%

GROWTH %

8.00% 6.00%

6.00%

6.50%

7.40%

7.90%

7.50%

4.00% 2.00% 0.00% 2003

2004

2005

2006

2007

2008

YEAR

annual percentage increase in industrial production (includes manufacturing, mining, and construction).

POSITION OF INDIA Rank Country 1 United States

GDP (purchasing power parity) (Billion $) 13,860

2 China

7,043

3 Japan

4,417

4 India

2,965

5 Germany

2,833

6 United Kingdom

2,147

7 Russia

2,076

8 France

2,067

9 Brazil

1,838

10 Italy

1,800

FUTURE OF INDIAN ECONOMY 

Over 300 million Indians are expected to have a household income of over US$ 6,000 by 2015.



India is among the world's youngest nations with a median age of 25 years



India has the second largest area of arable land in the world, making it one of the world's largest food producers - over 200 million tonnes of foodgrains are produced annually.



With the largest number of listed companies 10,000 across 23 stock exchanges,

FUTURE OF INDIAN ECONOMY 

India's healthy banking system with a network of 70,000 branches is among the largest in the world



According to a study by the McKinsey Global Institute (MGI), India's consumer market will be the world's fifth largest (from twelfth) in the world by 2025



India's middle class will swell by over ten times from its current size of 50 million to 583 million people by 2025



The number of companies incorporated has increased at an annual average of 55,000 companies in the last two years

INDUSTRY ANALYSIS

CEMENT INDUSTRY

CEMENT INDUSTRY 

India is the world’s second largest producer of cement after China with industry capacity of over 200 million tonnes (MT)



Total installed capacity was 204.29 MT as on August 31, 2008



Total despatches has been 100.17 MT during April–October 2008–09 100.96 MT during April–October 2008–09.

CEMENT INDUSTRY ANALYSIS India’s cement consumption grew 9.6% yoy.  South market witnessed strong demand supporting firm pricing (up 4.7% yoy) in the region.  The key concern dip in construction and infrastructure activities in the country. 

CEMENT INDUSTRY ANALYSIS Rebound in consumption growth; Central and South region outperform. Region Growth % India 9.6 South 16.3 West 9.8 Central 14.3 North 3.7 East 2.1

CEMENT INDUSTRY ANALYSIS 

Contradictory pricing trend emerge; realizations remained robust in South



Capacity utilization improves MoM but remains lower yoy



Key performers were players who have recently added capacities



Coal prices cool from peak; freight index fell to the lowest levels since 2002.

Consumption Growth & Capacity Addition 

Consumption in Million Tonnes and Capacity addition in Million Tonnes p a

Region

Consumption Sep 08 Sep 07 Aug 08

Capacity Addition

South

4.43 3.8

4.49 27.6

North

2.85 2.75 2.41 15.0

West

2.4

East

1.91 1.74 1.86 7.5

2.35 2.4

11.3

Mergers and Acquistions 

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.



Leading foreign funds 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

Cement Industry 

Entry barriers:     



Economies of scale Capital requirement Avg gestation period of 2-3 years Access to distribution channels Threat of new entrants: low

Bargaining power of suppliers: High   

Large and few sellers No substitutes Sellers’ product important input for buyer

Cement Industry 

Bargaining power of buyers: low/medium  



Intensity of competition: Medium      



Standard product No substitute

Equally balanced competitors Average industry growth High fixed costs Lack of switching cost Capacity augmentation in large increments High exit barriers

Substitutes: None

SWOT STRENGTHS  Second largest in the world in terms of capacity  Low cost of production

SWOT WEAKNESS Effect of global recession on Real Estate and Infrastructure.  Demand-Supply gap, Overcapacity  Increasing Cost of Production  High Interest rates 

SWOT OPPORTUNITIES  Strong growth of economy in the long run.  Increase in infrastructure projects  Growing middle class  Technological Changes  Increase in govt spending.

SWOT THREATS Imports from Pakistan affecting markets in Northern India.  Excess over capacity can hurt margins as well as prices. 

CHALLENGES Cement industry currently has one of the highest inventory levels in recent times.  Growth rates have slowed.  Capacity additions putting pressure on prices.  As a result the cement companies are looking for cutting production 

COMPANY ANALYSIS

Corporate office

Cement House 121, Maharishi Karve Road Mumbai - 400 020 India Tel: 91-22-66654321 Fax: 91-22-66317440

Overview 

Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete technology.



ACC's operations are spread throughout the country with 14 modern cement factories, more than 30 Ready mix concrete plants, 20 sales offices, and several zonal offices.



It has a workforce of about 10,000 persons and a countrywide distribution network of over 9,000 dealers.



It is the only cement company that figures in the list of Consumer SuperBrands of India

F. E. Dinshaw – the founder of ACC

ACC's First Board Meeting in 1936 at The Esplanade

BOARD OF DIRECTORS Mr N. S. Sekhsaria Chairman   Mr Paul Hugentobler Deputy Chairman  Mr Sumit Banerjee Managing Director  Mr S M Palia Mr Naresh Chandra Mr Markus Akermann Mr M L Narula Mr D K Mehrotra Mr R A Shah Dr Nirmalya Kumar Mr Shailesh Haribhakti Ms Shikha Sharma

Plant wise capacity Units

Capacity (MTPA)

Bargarh

0.96

Chaibasa

0.87

Chanda

1.00

Damodhar

0.53

Gagal

4.40

Jamul

1.58

Kymore

2.20

Lakheri

1.50

Madukkarai

0.96

Sindri

0.91

Wadi

2.59

New Wadi Plant

2.60

Tikaria

2.31

Total

22.41

Subsidiaries Bulk Cement Corporation (India) Ltd. (BCCI)  ACC Concrete Limited  Lucky Minmat 

Products & Services     

  

Ordinary Portland Cements OPC 43 Grade OPC 53 Grade Blended Cements Fly-ash based Portland Pozzolana Cement Portland Slag Cement Ready Mix Concrete Consultancy Services

Financial analysis Balance sheet  Profit & loss Account  Fund flow statement 

Financial highlight All figures in Rs. Million or as indicated 2007

2006

2005 (9M)

2004-05

2003-04

Gross Revenue

79,771

65,860

38,151

46,405

40,388

Profit After Tax

14,386

12,318

5,442

3,784

2,002

Dividend

4,389

3,220

1,686

1,430

800

Net Worth

41,527

31,420

21,300

15,770

13,184

Capital Employed

49,533

43,787

36,070

33,820

30,109

Borrowings

4,691

9,160

11,762

15,093

13,272

Debt-Equity Ratio

0.11

0.29

0.55

0.96

1.07

Book Value per 221.33 Share (Rs)

167.77

115.00

88.00

74.41

Earning per Share

76.75

66.02

30.02

21.23

11.68

Dividend per Share

20.00

15.00

8.00

7.00

4.00

Employees (Number)

10,032

9,231

9,170

8,995

9,115

Shareholders (Number)

1,27,476

1,10,455

97,219

1,05,165

1,20,803

Gross Revenue Year

Gross Revenue(in Rs. million)

2001-02

33338

2002-03

34654

2003-04

40388

2004-05

46405

2005 (9M)

38151

2006

65947

2007

79771

EBITDA Year

EBITDA(in Rs. million)

2001-02

4923

2002-03

4036

2003-04

5339

2004-05

7200

2005 (9M)

6337

2006

17561

2007

20462

PAT Year

PAT(in Rs. million)

2001-02

1304

2002-03

1039

2003-04

2002

2004-05

3784

2005 (9M)

5442

2006

12318

2007

14386

Dividends Year

Dividends (%)

2001-02

30

2002-03

25

2003-04

40

2004-05

70

2005 (9M)

80

2006

150

2007

200

Net Worth & Return on the Net Worth

Year

Net Worth(in Rs. million)

Return on Net Worth (%)

2001-02

9459

14

2002-03

10242

10

2003-04

13184

15

2004-05

15770

24

2005(9M)

21300

33

2006

31420

39

2007

41530

35

Book Value Per Share Year

Book Value Per Share(in Rs.)

2001-02

55

2002-03

60

2003-04

74

2004-05

88

2005 (9M)

115

2006

168

2007

221

EQUITY SHARE Company's Financial year

2006

2005

200405

200304

Rs. 76.75 #

66.02#

30.02#

21.23#

11.68#

13.74

16.44

17.74

17.25

21.62

1.90

1.38

1.50

1.91

1.58

Debt - Equity Ratio

0.11

0.29

0.55

0.96

1.09

Current Ratio

1.07

1.26

1.16

1.25

1.22

Earnings Per Share

2007

Earning-price Ratio Yield

%

a) High

Rs.

1,315

1,192

569

385

283

b) Low

Rs.

680

501

318

218

127

Key Ratios Ratio

2007

2008

Liquidity Ratios Current ratio

1.58

1.87

Quick ratio

1.05

1.26

Leverage ratio Debt-equity ratio

0.11

0.29

Total debt-equity

0.68

1.00

Proprietary ratio

0.60

0.53

Interest coverage ratio

70.72

27.03

Cont.. Ratio

2007 2008 Profitability ratios 20.5 20.85

Return on assets Return on capital employed Return on equity EPS Dividend pay out ratio

3.41

3.21

0.39

0.34

76.75 Rs 26.31%

66.02 Rs 22.72%

Shareholding Pattern Indian Bodies Corporate

shareholding Foreign Bodies Corporate Mutual Funds/ UTI Financial Institutions/ Banks Central Government/ State Government(s) Foreign Institutional Investors Bodies Corporate Individuals i. Individual shareholders holding nominal share capital upto Rs. 1 lakh. ii. Individual shareholders i.Shares held by Pakistani Citizens vested

Expected Dividend (TA) YEAR (X)

DIVIDEND (y)

x

xy

2003-04

4

-2

-8

2004-05

7

-1

-7

2005 (9 M)

8

0

0

2006

15

1

15

2007

20

2

40

54

40

Time series analysis A=10.8  B=3 

Y=a+bX  2008= 10.8+3(2008-2005) = 19.8  2009=10.8+3(2009-2005) = 22.8 

Intrinsic value 

For 2008; ROR =7.5% So= Div/(1+Ke)t+MV/(1+Ke)n = 19.8/(1.075)1+ 403/(1.075)1 = 374.9

Here, So<MV so Sale Is Good for investor 

2009

So will be 387.03 AS,So<MV seller should sell at current

BIBLIOGRAPY

www.indexmundi/India%20Invest  www.indiainfoline.com  www.business-standard.com  www.bseindia.com  www.moneycontrol.com  www.rediff/money.com/myportfoli www.rediff/money.com/myportfol 

BIBLIOGRAPY Portfolio Management by S.Kevin  Security Analysis and portfolio mgmt : Fischer Jordan  Capital market nov 2 edition  Business standard Nov 26 