Cement Industry

Cement is a binding material used in building and engineering. It begins as a powder that when mixed with water creates a heavy paste that when allowed to dry forms a very sturdy, rocklike surface that will hold together structural elements such as bricks and stone. The cement industry involves the production of cement powder and its marketing and sales as well as its usage by cement masons in the construction industry. The type of cement commonly sold and utilized in the cement industry is Portland cement. Significance 1. According to the Portland Cement Association, the cement industry in the United States produces and ships $8.6 billion worth of cement each year. There are 118 cement plants in the country, and the United States ranks third in cement production behind China and India. In terms of masonry, the US Bureau of Labor Statistics reports that over 229,000 individuals are employed by laying cement and that the industry is expected to grow by 11% over the next two decades, employing an additional 26,000 new masons.

History 2. Cement itself dates to ancient Greece and Rome where it was formed from volcanic ash and lime. John Smeaton is credited with a primitive form of Portland cement that he created in 1756 for use in the construction of a lighthouse in England. In 1824, Cement in its modern form was patented by Joseph Aspdin. Aspidin named his invention "Portland Cement" as he believed that when it dried it resembled a type of limestone quarried in Portland, England, that was known as Portland Stone. The commercial manufacture of cement began to be widespread in1850 across Europe and the United States.

Features of Cement Production 3. The cement industry is affected by the general rate of construction in the United

States; however, it is not as greatly influenced by times of economic downturn because cement is utilized in all phases and types of construction, making it always in demand in some areas. Sales of cement are seasonal in nature across much of the country, with peak times being in the spring and summer when the majority of outdoor construction takes places in the Midwest and Northeast portions of the United States. The cement industry is also considered to be regional in nature because it is quite expensive to haul powdered cement in the large quantities that are typically needed for building projects. This causes companies utilizing cement to search out the closest source of cement possible to reduce transportation costs. Though there are only 118 cements plants in the country, there are several hundred cement suppliers who absorb the cost of transporting the cement to their facilities. It is then the responsibility of contractors to pay to have the cement hauled to their work site, either in their own

vehicles or by the supplier. When contractors search for a cement supplier, distance is considered as well as the actual price per ton of the cement itself, with an effort made to buy as close to their location as possible.

Features of Cement Masonry 4. In addition to being involved with general construction, cement masons are widely employed to work with concrete, which is formed with cement. Cement masons are responsible for preparing work sites by building framework and planning the best strategy for pouring the concrete. Masons then continue their work, mixing the concrete personally by combining cement with other raw materials or supervising the mixing completed by other laborers. They then oversee the pouring of the concrete and work to shape and finish the concrete according to its intended use. Concrete is used in a variety of ways, including foundations, parking and walking surfaces, and building structures, and no matter what the purpose of the concrete, cement masons are responsible for the finished product.

Issues 5. A variety of issues are important to the cement industry. The most important of

these fall into the category of environmental concerns. Cement manufacturers are responsible for meeting Federal clean air and water standards as well as informing communities that surround their plants about any potential effects of the factory's presence to the environment. Cement manufacturers must also be concerned with energy efficiency in their plants as well as the amount of greenhouse emissions they release into the atmosphere. Another interest and issue in the cement industry is the United States' commitment to improved infrastructure to stimulate the economy, which will place increased demands upon cement production. Both cement manufacturers and masons must adhere to standards set by Occupational Safety and Health Administration (OSHA).

Fast rising Government Expenditure on Infrastructure sector in India has resulted a higher demand of cement in the country. In the same direction, participation of larger companies in the sector has increased. For raising efficiency in the sector, the Planning Commission of India in the 10th plan has formed a 'Working Group on Cement Industry There is a total number of 125 large cement plants and more than 300 small cement plants operating in India presently.

Cement Industry

Total production The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum.

KPMG Consultancy Pvt. Ltd. The report submitted by the organization has made several Indian recommendations for making the Indian Cement Cement Industry more competitive in the international Sector market. The recommendations are under consideration. Cement industry has been decontrolled from price and distribution on 1st March 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance.

The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. Actual cement production in 2002-03 was 116.35 million tonnes as against a production of 106.90 million tonnes in 2001-02, registering a growth rate of 8.84%. Technological change Major players in cement production technological upgrading and are Ambuja cement, Aditya Cement, Continuous assimilation of latest technology has been going J K Cement and L & T cement. on in the cement industry. Presently 93 per cent Apart from meeting the entire domestic of the total capacity in the industry is based on demand, the industry is also exporting modern and environment-friendly dry process cement and clinker. The export of technology and only 7 per cent of the capacity is

cement during 2001-02 and 2003-04 was 5.14 million tonnes and 6.92 million tonnes respectively. Export during AprilMay, 2003 was 1.35 million tonnes. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd.

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. One project for cogeneration of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The The Planning Commission for the induction of advanced technology has helped the formulation of X Five Year Plan industry immensely to conserve energy and fuel constituted a 'Working Group on and to save materials substantially. Cement Industry' for the development of cement industry. India is also producing different varieties of The Working Group has identified cement like Ordinary Portland Cement (OPC), following thrust areas for improving Portland Pozzolana Cement (PPC), Portland Blast demand for cement; Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate i. Further push to housing Resisting Portland Cement, White Cement etc. development programmes; Production of these varieties of cement conform ii. Promotion of concrete Highways to the BIS Specifications. Also, some cement and roads; and plants have set up dedicated jetties for promoting iii. Use of ready-mix concrete in bulk transportation and export. large infrastructure projects. Further, in order to improve global competitiveness of the Indian Cement Industry, the Department of Industrial Policy & Promotion commissioned a study on the global competitiveness of the Indian Industry through an organization of international repute, viz.

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Sector structure/Market size India is the world's second largest producer of cement after China, with cement companies adding nearly eight million tonnes (MT) capacity in April 2009, taking the total installed capacity to 219 MT. A few of the leading manufacturers are the UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc. With the boost given by the government to various infrastructure projects, road networks and housing facilities, growth in the cement consumption is anticipated in the coming years. According to Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, cement production could rise to 236.16 MT in FY11 and touch 262.61 MT in FY12. With almost total capacity utilisation levels in the industry, cement despatches have maintained a 10 per cent growth rate. Total despatches grew to 170 MT during 2007–08 as against 155 MT in 2006–07. Moreover, cement despatches were 15.95 MT in July 2009, showing a growth of 9.92 per cent as compared to 14.51 MT in July 2008. During July 2009, cement production was 16.23 MT, registering a growth of 10.63 per

cent as compared to 14.67 MT in July 2008. Between April to July 2009, cement production totaled 66.38 MT while cement despatches totaled 65.80 MT. 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 •

JSW Cement, part of the OP Jindal Group, plans to set up cement units near the group’s steel plants at Kurnool, Andhra Pradesh, and Vijayanagar, Karnataka. The units which will have a combined capacity of 5.5 MT per annum will be set up at a cost of US$ 393.1 million.

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Anil Ambani Group company Reliance Infrastructure will invest US$ 2.1 billion to set up cement plants with a total capacity of 20 MT per annum over the next five years.

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Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company, plans to set up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$ 463.2 million.

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Jaiprakash Associates Ltd has inked a MoU with state-owned Assam Mineral Development Corporation Limited (AMDC) for setting up a 2 MT per annum capacity cement plant at an estimated cost of US$ 221.36 million.

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Iron ore mining firm Rungta Mines (RML), the flagship company of SR Rungta group, plans to set up a one million tonne cement plant in Orissa with an investment of around US$ 123 million.

Mergers and Acquistions (M&As) •

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 sector.

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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.

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Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim Industries' 53.63 per cent stake in Shree Digvijay Cement.

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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.

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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.

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The government has increased budgetary allocation for roads under National Highways Development Project (NHDP).

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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. Road Ahead According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase to 241 MTPA by FY 2010-end. India's cement industry is likely to record an annual growth of 10 per cent in the coming years with higher domestic demand resulting in increased capacity utilisation. Moreover, according to the Centre for Monitoring Indian Economy (CMIE), cement production is expected to grow by 8.1 per cent and demand for the same is likely to rise by a healthy 7-7.5 per cent in FY 2009-10. Exchange rate used: 1 USD = 48.57 INR (as on July 2009)

The cement industry is one of the vital industries for economic development in a country. The total utilization of cement in a year is used as an indicator of economic growth. Cement is a necessary constituent of infrastructure development and a key raw material for the construction industry, especially in the government’s infrastructure development plans in the context of the nation’s socioeconomic development. Cement Industry In India Prior To Independence The first endeavor to manufacture cement dates back to 1889 when a Calcutta based company endeavored to manufacture cement from Argillaceous (kankar). But the first endeavor to manufacture cement in an organized way commenced in Madras. South India Industries Limited began manufacture of Portland cement in 1904.But the effort did not succeed and the company had to halt production. Finally it was in 1914 that the first licensed cement manufacturing unit was set up by India Cement Company Ltd at Porbandar, Gujarat with an available capacity of 10,000 tons and production of 1000 installed. The First World War gave the impetus to the cement industry still in its initial stages. The following decade saw tremendous progress in terms of manufacturing units, installed capacity and production. This phase is also referred to as the Nascent Stage of Indian Cement Industry. During the earlier years, production of cement exceeded the demand. Society had a biased opinion against the cement manufactured in India, which further led to reduction in demand. The government intervened by giving protection to the Industry and by encouraging cooperation among the manufacturers. In 1927, the Concrete Association of India was formed with the twin goals of creating a positive awareness among the public of the utility of cement and to propagate cement consumption. After Independence The growth rate of cement was slow around the period after independence due to various factors like low prices, slow growth in additional capacity and rising cost. The government intervened several times to boost the industry, by increasing prices and providing financial incentives. But it had little impact on the industry. In 1956, the price and distribution control system was set up to ensure fair prices for both the manufacturers and consumers across the country and to reduce regional imbalances and reach self sufficiency. Period Of Restriction (1969-1982) The cement industry in India was severely restrained by the government during this period. Government hold over the industry was through both direct and indirect means. Government intervened directly by exercising authority over production, capacity and distribution of cement and it intervened indirectly through price control. In 1977 the government authorized higher prices for cement manufactured by new units or through capacity increase in existing units. But still the growth rate was below par.

In 1979 the government introduced a three tier price system. Prices were different for cement produced in low, medium and high cost plants. However the price control did not have the desired effect. Rise in input cost, reduced profit margins meant the manufacturers could not allocate funds for increase in capacity. Partial Control (1982-1989) To give impetus to the cement industry, the Government of India introduced a quota system in 1982.A quota of 66.60% was imposed for sales to Government and small real estate developers. For new units and sick units a lower quota at 50% was effected. The remaining 33.40% was allowed to be sold in the open market. These changes had a desired effect on the industry. Profitability of the manufacturers increased substantially, but the rising input cost was a cause for concern. After Liberalization In 1989 the cement industry was given complete freedom, to gear it up to meet the challenges of free market competition due to the impending policy of liberalization. In 1991 the industry was de licensed. This resulted in an accelerated growth for the industry and availability of state of the art technology for modernization. Most of the major players invested heavily for capacity expansion. To maximize the opportunity available in the form of global markets, the industry laid greater focus on exports. The role of the government has been extremely crucial in the growth of the industry. Future Trends •

The cement industry is expected to grow steadily in 2009-2010 and increase capacity by another 50 million tons in spite of the recession and decrease in demand from the housing sector.

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The industry experts project the sector to grow by 9 to 10% for the current financial year provided India's GDP grows at 7%.

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India ranks second in cement production after China.

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The major Indian cement companies are Associated Cement Company Ltd (ACC), Grasim Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltd and Madras Cement Ltd.

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The major players have all made investments to increase the production capacity in the past few months, heralding a positive outlook for the industry.

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The housing sector accounts for 50% of the demand for cement and this trend is expected to continue in the near future.

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. Over the past five years (FY03-07), cement demand has grown at a CAGR of 8.37% higher than the CAGR of supply at 4.84%. 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% of cement demand

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% in FY 03 to 93.8% in FY 07. This 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 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 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%. 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 resulted in higher profit margins of the industry. To reduce the cost of production, the industry is increasing its focus 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.

Indian Cement Industry: Break-even Cushion to anchor fall in cement prices ….. 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 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, CARE Research has estimated that per tonne power & fuel cost of the industry will decline by about 12% in FY10 on yoy basis. CARE Research has 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. CARE Research does not foresee a notable drop in average realisation of the industry in FY10. CARE Research has 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. The report elucidates facts on the Indian Cement industry, supplemented by the latest statistics. The report is divided into two sections. Section I mainly covers performance of the industry in the last financial year and also analysis of past five years’ data. Section II covers information on some technical aspects about the product and basics of the cement industry alongwith exhaustive database. Following are the few points with are emphasised to accomplish the report:

Indian Cement Industry: Break-even Cushion to anchor fall in cement prices ….. 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 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, CARE Research has estimated that per tonne power & fuel cost of the industry will decline by about 12% in FY10 on yoy basis. CARE Research has 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. CARE Research does not foresee a notable drop in average realisation of the industry in FY10. CARE Research has 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. The report elucidates facts on the Indian Cement industry, supplemented by the latest statistics. The report is divided into two sections. Section I mainly covers performance of the industry in the last financial year and also analysis of past five years’ data. Section II covers information on some technical aspects about the product and basics of the cement industry alongwith exhaustive database. Following are the few points with are emphasised to accomplish the report:

Section I

Indian Cement Industry: Break-even Cushion to anchor fall in cement prices ….. 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 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, CARE Research has estimated that per tonne power & fuel cost of the industry will decline by about 12% in FY10 on yoy basis. CARE Research has 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. CARE Research does not foresee a notable drop in average realisation of the industry in FY10. CARE Research has 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. The report elucidates facts on the Indian Cement industry, supplemented by the latest statistics. The report is divided into two sections. Section I mainly covers performance of the industry in the last financial year and also analysis of past five years’ data. Section II covers information on some technical aspects about the product and basics of the cement industry alongwith exhaustive database. Following are the few points with are emphasised to accomplish the report:

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Globalization of Indian Cement Industry Nov, 13 2009



(India) -- Globalization of Indian cement industry has helped the industry to restructure itself to cooperate with the changes in global economic and trading system. The Indian cement industry is one of the oldest industries. It has been catering to India's cement requirements, since its inception in the British Raj in India. Although most of the players in the Indian cement industry were private organizations, industry was highly regulated. With the rapid growth of the Indian economy after the 1990s, the infrastructural development of the country was fantastic. The increase in construction activities has led to increase in demand for updated quality building materials and other related products. Cement is one of the main elements of the building; there is a growth in the cement industry in India. Consumption of cement in India has increased by nearly 7.5%. With the globalization of the Indian cement industry many foreign cement producers to engage in contracts and deals with their Indian counter parts to get a share of growth. Globalization of Indian cement industry comprises more foreign companies entering into mergers and acquisitions of Indian cement companies. For example, Heidelberg Cement - Indorama Cement Heidelberg Cement Company signed an agreement on a 50% joint venture with the Indorama Cement Ltd., located in Mumbai, which was originally occupied by the Indorama SP Lohia Group. Heidelberg Cement Company is the leading German cement company. Heidelberg Cement was established in 1873 and has a long and prosperous history. Is one of the best in the world to Heidelberg Cement Company has its bases in different countries. Heidelberg Cement Company has two production units in India. A grinding plant in Mumbai and a cement terminal near Mumbai port. A clinker plant comes up in the State of Gujarat. Holcim Cement - Gujarat Ambuja Cement (GACL), Holcim Cement signed an agreement to acquire 14.8% of Gujarat Ambuja Cement (GACL). With new products, skilled personnel superb leadership, and an excellent marketing strategy, this tie good lead over other competitors. Holcim Cement Company are among the leading cement manufacturing and supplying companies in the world. It is one of the largest employers in the world which has a workforce of 90,000. The Holcim Cement Company has units in over 70 countries worldwide. Italcementi cement - Zuari Cement Limited Italcementi Cement Company with help from Francois Ciments, a subsidiary for its global operations, has acquired shares in the famous Indian cement - Zuari Cement Limited. The purchase was at 50% of the shares and the deal was for around 100 million Euros. Italcementi Cement is the 5th largest cement manufacturing company in the world. Production capacity in Italcementi Cement Company has around 70 million tonnes a year. With the construction boom in India, the company looks for a stable future. In 2001 Italcementi cement into the Indian market scenario. It took over the factory in Zuari Cement Limited in Andhra Pradesh in southern India. The joint venture earned around 100 million Euros and an operating profit of 4 million Euros. Lafarge India is a subsidiary of Lafarge Cement Company in France. It was established in 1999 in India with the acquisition of Tisco and Raymond cement factories. Lafarge Cement currently has three cement production units in India. One of them is in Jharkhand, which is used for grinding and the other two are in Chhattisgarh, which is used for manufacturing. The Lafarge Cement Company was established in year 1833 by Leon Pavin. Lafarge Cement Company is located in France is the leading cement company in the world. It has plans to increase cement production through technological innovation and maximizing the capacity of the plant. It has a large network of distributors in the eastern part of India. The Lafarge Cement Company is currently producing nearly 5.5 million tonnes of cement in the Indian cement market.

The Indian cement industry Intro: The Indian cement industry has seen an upward trend despite the global economic slowdown and plans to add around 85-90 million tones of capacity over next two years. The Indian cement industry has witnessed a strong FY 2009 (Apr-Mar), with the cement manufacturers’ posting robust dispatch growth of 8.1 percent year-on-year (y-o-y). This was largely aided by the surge in demand since November 2008 due to the pre-election spending on infrastructure and rural projects. According to provisional numbers released by Cement Manufacturers Association of India, cement consumption was also at its peak during FY 2009 registering 8.6 percent y-o-y growth, which also exceeded the 8 percent growth expectation of industry analysts. Among major regions, the northern region reported the highest growth of 19.6 percent y-o-y led by incremental demand from major projects, namely, Commonwealth Games, sewerage line project in Punjab, national irrigation project in Haryana, Delhi Metro, flyover and Delhi airport. The re-imposition of Counter Veiling Duty (CVD) and special CVD on imported cement has also contributed to growth from northern players. On the other hand, the southern region has reported growth of 12.8 percent y-o-y driven by higher demand from irrigation projects. The eastern region has reported growth of 8.8 percent while the western region has reported 11.2 percent growth in dispatches. The central region’s dispatches have reported growth of 10.5 percent y-o-y due to spending by the UP government on low-cost housing. However, all India consumption growth of 8.6 percent in FY 2009 (Apr-Mar) was lower compared to the consumption growth of around 10 percent in the last three years. Among major players, Shree Cement, Jaiprakash Associates, Dalmia Cement and Grasim have reported impressive growth of 28.4 percent, 28 percent, 23.7 percent and 21.3 percent year-on year, respectively. Madras Cement and UltraTech Cement have also reported good growth that is higher than the industry average. The strong growth in the dispatches of these players was primarily on account of capacity additions. Birla Corp has reported negative growth of 7.9 percent in dispatches. Analysts’ feel that the recent uptrend in demand for cement is short term in nature; as the relatively weaker macro-economic scenario would exert pressure on the demand drivers for cement. Oversupply to cut into pricing power

Cement Manufacturers Association, in its provisional numbers, mentioned that with the addition of around 13.5 million tonnes capacity, India’s total cement capacity will stand at 212 million tones at the end of FY2009. This capacity addition seems to be modest, however, it is to be noted that 75 percent (22 million tonnes) of capacity addition in FY 2009 should have been much more than the provisional numbers of CMA. The Indian cement industry is planning to add around 85-90 million tones of capacity over next two years. An analyst from domestic brokerage firm said, “We assume that even if 20 percent of the planned capacities fail to materialize, still fairly large capacities (70 million tones) would be added in next two years.” This additional capacity will create an over-supply kind of situation in the market and will eventually put pressure on cement prices in the coming years. Another factor to influence the cement prices is the monsoon season, which is just around the corner. During monsoon season (July-September), cement dispatches usually slowdown due to decrease in construction activities. This will result in softening of cement prices. Meanwhile, some of the cement manufacturers are reluctant to bow down due to oversupply situation. ACC Ltd, the largest cement producers in India, has recently said that the company will remain firm on its prices. Another domestic player who has a strong hold in North region confirmed that they will follow the other cement majors in the country with respect to cement prices. Keeping in mind the above-mentioned factors, analysts expect cement prices to fall by Rs 1013/bag (to Rs 232-234) in this monsoon season and may continue to decline further to levels of Rs 220 by March 2010.

Since last three months, the average cement prices have been moving up. During the period Jan-Mar 2009, the cement manufacturers hiked cement prices several time taking the average cement prices to Rs 265 per 50 kg bag from Rs 237-245 per 50 kg bag. Cement utilization to peak Cement capacity utilization in India have registered an uptrend in the last five years due to strong growth in consumption. However, capacity addition during the period lagged the incremental demand in the country. The FY 2003-08 period witnessed cement capacity addition of 36.7 million tones as against the incremental demand of 56.4 million tones. This has resulted in the industry’s capacity utilization level increasing to 95.8 percent in FY 2008 from 80 percent in FY 2003. However in FY 2009, cement capacity utilization declined to 86 percent from 96 percent in the previous year. Analysts have estimated that the utilization levels will further decline to 80 percent in FY 2010 due to addition of huge capacities and slowdown in demand. On month-on-month basis, the capacity utilization peaked in March 2008 at 104 percent and started declining thereafter. Capacity utilization declined from 104 percent in March 2008 to around 87 percent during December 2008; however it bounced back in the positive terrain to 96 percent in March 2009, due to recovery in cement demand.

Declining coal prices to support margins The import prices of coal, a key input for cement, declined to US $180 per tonne during July 2008 from US $80 per tonne in August 2007. The prices, however, corrected by 65 percent since then and are currently hovering in the range of US $60-65 per tonne. The cement manufacturer’s uses coal not only to generate power, but it is also a key input in cement production. Hence, the more-than-doubling of coal prices in the last couple of year had resulted in a substantial increase in the manufacturing cost of cement to Rs 400 per tonne (Rs 20 per bag). “But, with the 65 percent decline in the imported cost of coal from the peak has resulted in significant savings for the cement manufacturers,” said a senior analyst from Angel Broking.

The Indian cement industry is number two in the world behind China and has left behind developed markets such as the US and Japan. With just a meagre per capita consumption of 28 kg in the 1980’s, now it has risen to 110 kg in the 2000’s. This sounds like an impressive growth but in terms of per capita consumption, India is still well behind the global average and this process of catching up with international averages will drive future growth in the Indian cement industry. With huge investments planned in the Indian Infrastructure both by government and private sector, booming housing construction and expansion in corporate production facilities is likely to fast forward the growth in the Indian cement industry. For cement companies based in India, South-East Asia and the Middle East there are potential and lucrative export markets. Low cost technology and extensive restructuring have made some of the Indian cement companies the most efficient across global majors. Despite some consolidation, the industry remains somewhat fragmented and merger and acquisition possibilities are strong. Investment norms including guidelines for foreign direct investment (FDI) are investor-friendly. All these factors present a strong case for investing in the Indian market.

This report on the Indian Cement Industry covers all the important aspects of the Indian Cement Industry with valuable information and data to help the busy managers and investors to arrive at an informed decision. Please Note: this report is updated at the time of purchase so please allow 2 working days for delivery.