Cement Segment

CEMENT SURVEY ANALYSIS

INTRODUCTION The Indian cement industry with a total capacity of about190 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. . 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. 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. The cement industry in India is estimated at rs. 24-25 billion in value terms and 114 million tonnes by volume. the domestic cement industry is highly fragmented, with over 50 cement players and more than 120 manufacturing plants.

• Cement sector is characterized by the following: 1.

Units concentrated near raw material sources or markets

2. High freight costs 3. Small value chain 4. Regional variation and volatility in prices and margins 5. High debt levels 6. Regional distribution of demand 7. Seasonality of demand and cyclicality of the industry 8. High entry barriers

Historical cement demand supply model Year-end installed capacity Actual effective capacity (-) Mothballed capacity Effective installed capacity Domestic consumption Export (cement + clinker) Domestic consumption Export Surplus / deficit) % surplus (wrt effective capacity) Actual utilisation Average prices Change in average price Capacity growth Domestic demand growth

FY04 FY05 FY06 FY07 FY08 FY09 144 152 158 166 199 222 142 152 158 166 180 207 8.5 8.2 8.5 8.3 5.7 4.9 136 143 150 158 174 202 114 121 136 149 164 178 9 10.1 9.2 8.9 6 6.1 123 131 145 158 170 184 13 12 5 0 4 18 10% 9% 3% 0% 2% 9% 86% 88% 95% 99% 97% 91% 141 153 163 206 231 239 3% 8% 6% 27% 12% 4% 5% 6% 4% 6% 10% 16% 5.80% 6.40% 12.00% 9.90% 10.10% 8.00%

Historically, the sustainable capacity utilisation in the cement industry has been 80-85%. This implies FY09 and FY10 are unlikely to be years of overcapacity in the traditional sense

• CEMENT BRANDS : •

ACC CEMENT

•

BIRLA WHITE CEMENT

•

BIRLA SUPER CEMENT

•

BIRLA SUPREME

•

BIRLA COASTAL

•

JK LAXSHMI CEMENT

•

GUJRAT AMBUJA CEMENT

•

MANIKGADH CEMENT

•

KAMDHENU CEMENT

•

COROMANDEL CEMENT

•

BIRLA STAR

•

ULTRATECH CEMENT

•

BIRLA GOLD

•

BIRLA EVEREST CEMENT

•

VIKRAM CEMENT

•

VASODATTA CEMENT

•

BINANI CEMENT

•

SPAN CEMENT

•

ORIENT CEMENT

•

DALMIA CEMENT

•

CHETTINAD CEMENT

•

DHANDAPANI CEMENT

Current Price Trend for Grade A Cement Region North

State Delhi Punjab Haryana West Rajasthan Maharashtra (Mumbai) Maharashtra (Pune) East West Bengal Orissa Bihar South Tamil Nadu Andhra Pradesh Kerala Karnataka Central Uttar Pradesh Madhya Pradesh • (Prices for Grade B is Rs 10 to Rs 12 less than Grade C is Rs 20 less than the Grade A) • Grades for cement vary from market to market

Rate (Rs 50 per kg bag) 250-255 260-265 260-265 245-250 270-275 265-270 265-270 240-245 240-245 245-250 220-250 255-260 255-260 250-255 235-240 the Grade A and Prices for

• Mechanics of Distribution Channels of Sector •

Companies invariably hire C&F agents or transport cements to own or government warehouses either via roadway or railways.

•

Incase of exports, cement reaches the nearest port via roadways or railways and is then transferred to the importing country.

•

Domestically, from C&F agents or warehouses the cement is transported to the dealers/distributors and in turn to sub dealers who finally sell it to the end users. There may or may not be physical ownership of goods.

•

In the second case, dealers and sub dealers take order from buyers and place it to the companies, co ordinate and monitor the timely dispatch of said orders, transportation of goods and final delivery.

•

Distributor network in cement industry is highly dominating and companies are compelled to hire as they do not really have that rapport and touch with the end consumer of their product. Apart, from this, the distributors have storage facilities as well which help control well in the entire supply chain as they are the ones who bring orders and therefore are directly responsible for the business that a manufacturer would do.

DISTRIBUTION MODEL OFCEMENT : Primary distributio n

REGIONAL DISTRIBUTIO N CENTRE

MAIN DISTRIBUT ION CENTRE

Secondary distribution

WARE HOUSEPUNE DHAKKA,KHADKI DHAKKA,LONI DHAKKA.

DISTRIBUTORS

Tertiary distribution

End users

End users

DEALERS

OBSERVATIONS • SHOP ANALYSIS Weight of one bag: cost of one bag: Margin earned by dealers:

50 kgs. 265 rs 3- 4%

•

OPERATING COST STRUCTURE OF LTV

CEMENT GODOWNS

KEY FINDINGS : • •

•

There are three types of players in market: large seller, medium scale seller, small scale seller. There are two types of cement category available in the market OPC (ordinary Portland cement ) and PPC (pozzalana Portland cement ) which is graded asGRADE A and GRADE B.The main difference is between the concreting hours CEMENT CATEGORY

GRADED

CONCRETING CAPACITY

COMPOSITION

Grade A

53 graded

8 hours

Coal + clinker

Grade B

43 graded

24 hours

Made from fly ash

Opc category includes - Birla super Binani ACC Vasodatta,etc.

• Ppc category includes - Birla shakti, Birla gold etc

OWNERS EXPENSE : It includes various shop expenses 

(Electricity, Refreshments, tax),

 (Drivers salary, Insurance, Vehicles Maintenance cost, Fuel cost, Tyre cost, Emi),  Promotional/advertising cost of shop(optional),Payment to sales manager, Employee.

•

& incase of shortage 7-10 %. • •

•

EXPENSES

Distributor Margin earned per bag is 3 – 4%.

Peak season is from –November to June Off season is from-July to October.

Loading/unloading charges is Rs.1 per bag.

Electricity

Rs.500

Telephone expense

Rs. 1000

Refreshment

Rs.1000

VAT

12.50%

Supervisor salary

Rs.5000

Helper

Rs.1000

Total

8500

Note: promotional activity are optional

•

CHARGING PATTERN: Charging patterns

km

1.5 to 2 ton truck 3w Category

Maximum carried Free home delivery

20 bags 5-10 km radius

36 BAGS

----

Note : free deliver is given to those who are regular customers or to those who buy in large bulks.

Charged delivery as per km

Charge as per bag

3-7 km

Rs.100

Rs.160

7-10 km

Rs.150

Rs.250

Above 15 km

Rs.200

Rs.400

For 3 -7 km

Rs.4-5 per bag

Rs.5 per bag

For 7-10 km

Rs.7 per bag

Rs.7-8 per bag

15 km and above

Rs.10 per bag

Rs.12 per bag

•

Average inventory : retailers

Standards no. of bags kept

Sales per day

Liquidator

Reorder purchase pattern

(In terms of no. of days taken to finish the stock) Micro retailer

Below 75

50

1

Small retailer

200

100

1

Medium retailer

400

250

1-2

Large retailer

600 above

300-350

1-2

Purchase order is given to the company when the stock is at 70 % of finishing edge

THANK YOU