Summers Report On Indian Cement Industry(specially Ultra Tech Cement)

SUMMER TRAINING REPORT ON SALES AND DISTRIBUTION NETWORK OF ULTRA TECH CEMENT

SUBMITTED IN PARTIAL FULFILLMENT OF POST GRADUATE DEPLOMA IN BUSINESS AND MANAGEMENT SUBMITTED BY: KAPIL KUMAR PGDM2007-09 SECTION-A

INSTITUTE FOR INTEGRATED LEARNING IN MANAGEMENT GRADUATE SCHOOL OF MANAGEMENT KNOWLEDGE PARK II GREATER NOIDA

1

INDEX ACKNOWLEDGEMENT. . . . . . . . . . . . . . . . . . PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. CEMENT AND ITS TYPES 2. INDIAN CEMENT INDUSTRY 1.1 1.2 1.3 1.4 1.5 1.6 1.7

OVERVIEW STRUCTURE MAJOR PLAYERS GOVT. POLICIES CEMENT EXPORTS PORTER’S 5-FORCE MODEL SWOT ANALYSIS

3. INTRODUCTION ULTRA TECH CEMENT 3.1 PRODUCTION UNITS 3.2 ULTRA TECH ADVANTAGES 3.3 AWARDS 3.4 EXPORTS

4. PROJECT WORK 4.1 OBJECTIVE OF THE STUDY 4.2 RESEARCH DESIGN 4.3 DATA ANALYSIS & FINDINGS 4.4 LIMITATIONS 4.5 RECOMMENDATIONS

5. CONCLUSION 6. ANNEXURE 7. BIBLIOGRAPHY

2

ACKNOWLEDGEMENT PERSEVERANCE,

INSPIRATION

AND

MOTIVATION

HAVE

ALWAYS PLAYED A KEY ROLE IN THE SUCCESS OF ANY VENTURE.SO HEREBY, IT’S MY PLEASURE TO RECORD THANKS & GRATITUDE TO THE PERSONS INVOLVED. FIRST, I THANK Mr.SUBODH JAIN, DSM, ULTRA TECH CEMENT, FOR HIS CONTINUOUS SUPPORT, STIMULATING SUGGESTIONS AND HELPING ME ALL THE TIME DURING MY PROJECT. A SPECIAL THANK GOES TO MR.ROSHAN LAL & MR.VIKAS, ULTRA TECH CEMENT.BOTH OF THEM WERE ALWAYS READY TO LISTEN & GIVE ADVICE.MR..VIKAS HAS BEEN A FRIEND AND A GUIDE.HE WAS ALWAYS THERE TO MEET & TALK ABOUT MY IDEAS. I AM ALSO GREATLY INDEBTED TO MY MENTOR MR.GANESH SINGH.HE WAS THERE TO LISTEN ME & HELP ME OUT IF I EVER HAD ANY PROBLEM.HE HAS BEEN SO LENIENT ALSO. AT LAST, THANKS TO MY FAMILY MEMBERS & ALSO TO FRIEND NAVIN FOR BEING SO SUPPORTIVE.

KAPIL KUMAR

3

PREFACE Indian economy is facing a boom in the real estate. This is directly related with the cement sector. Ultra Tech cement being one of the top three players in the Indian market and the most exported Indian cement is an important part of the sector. During my project, I carried out a research for Ultra Tech cement and tried to find out its current market position, reasons behind any shortcomings and also found out some methods of increasing Ultra Tech cement sales. The report also gives a detailed idea about the Indian cement industry and the key players.

4

WHAT IS CEMENT? •

Cement is a mixture of limestone, Clay, Silica and Gypsum. It is a fine powder which when mixed with water sets to a hard mass as a result of hydration of the constituent compounds. It is the most commonly used construction material. Cement is manufactured by burning a mixture of limestone and Clay at high temperatures in a kiln, and then finely grinding the resulting clinker along with Gypsum. The end product thus obtained is called Ordinary Portland Cement (OPC).

Different Types of Cement There are different varieties of cement based on different compositions according to specific end uses, namely Ordinary Portland Cement, Portland Pozolona Cement, Portland Blast Furnace Slag Cement, White Cement and Specialized Cement. The basic difference lies in the percentage of clinker used. 1. Ordinary Portland cement (OPC): •

OPC, popularly known as grey cement, has 95% clinker and 5% of Gypsum and other materials. It accounts for 70% of the total consumption. White cement is a variation of OPC and is used for decorative purposes like rendering of walls, flooring etc. It contains a very low proportion of iron oxide. Ordinary Portland cement is the most commonly used cement for a wide range of applications. These applications cover dry-lean mixes, general-purpose ready-mixes, and even high strength pre-cast and pre-stressed concrete.

5

2. Portland Pozolona Cement (PPC): •

Portland pozzolana cement is Ordinary Portland Cement blended with pozzolanic materials (power-station fly ash, burnt clays, ash from burnt plant material or Siliceous earths), either together or separately. Portland clinker is ground with Gypsum and Pozzolanic materials which, though they do not have cementing properties in themselves, combine chemically with Portland cement in the presence of water to form extra strong cementing material which resists wet cracking, thermal cracking and has a high degree of cohesion and workability in concrete. PPC has 80% clinker, 15% pozolona and 5% gypsum and accounts for 18% of the total cement consumption. It is cheaply manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. It has a lower heat of hydration, which helps in preventing cracks where large volumes are being cast.

3. Portland Blast Furnace Slag Cement (PBFSC): •

PBFSC consists of 45% clinker, 50% blast furnace slag and 5% Gypsum and accounts for 10% of the total cement consumed. It has a heat of hydration even lower than PPC and is generally used in construction of dams and similar massive constructions. Portland blast-furnace slag cement contains up to 70 per cent of finely ground, granulated blastfurnace slag, a nonmetallic product consisting essentially of Silicates and Aluminum-silicates of Calcium. Slag brings with it the advantage of the energy invested in the slag making. Grinding slag for cement replacement takes only 25 per cent of the energy needed to manufacture Portland cement. Using slag cement to replace a portion of Portland cement in a 6

concrete mixture is a useful method to make concrete better and more consistent. Portland blast-furnace slag cement has a lighter colour, better concrete workability, easier finish ability, higher compressive and flexural strength, lower permeability, improved resistance to aggressive chemicals and more consistent plastic and hardened consistency. 4. White Cement: •

White Portland cement has essentially the same properties as gray cement, except for color, which is a very important quality control issue in the industry. It is manufactured using fuel oil (instead of coal) and with iron oxide content below 0.4% to ensure whiteness. Special cooling technique is used. It is used to enhance aesthetic value, in tiles and for flooring. White cement is much more expensive than grey cement.

5. Specialized Cement: •

Oil Well Cement: is made from clinker with special additives to prevent any porosity.

•

Rapid Hardening Portland cement: It is similar to OPC, except that it is ground much finer, so that on casting, the compressible strength increases rapidly.

•

Water Proof Cement: OPC, with small portion of calcium stearate or non-saponifibale oil to impart waterproofing properties.

7

INDIAN CEMENT INDUSTRY-AN OVERVIEW Cement production commenced in India as early as 1914. The first cement unit was set up at Porbandar in 1914 with a capacity of 1,000 tones per annum.Cement is the preferred building material in India. It is used extensively in household and industrial construction. Earlier, government sector used to consume over 50% of the total cement sold in India, but in the last decade, its share has come down to 35%. Rural areas consume less than 23% of the total cement. Availability of cheaper building materials for non-permanent structures affects the rural demand. Demand for cement is linked to the economic activity in any country. Broadly, it can be categorized into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The real driver of cement demand is creation of infrastructure; hence cement demand in emerging economies is much higher than developed countries where the demand has reached a plateau. In India too, the demand for cement will be affected by spending on infrastructure (including housing). With the boost given by the government to various infrastructure projects, road network and housing facilities, growth in the cement consumption is anticipated in the coming year. The favorable housing finance environment is expected to fulfill the vast housing requirements, both in rural and urban areas. The increase in infrastructure projects by the government coupled with the construction of the Golden Quadrilateral and the North-South and East-West corridor projects have led to an increase in consumption of cement. This increase is expected to continue in the future. The reduction in import duties is not likely to affect the industry as the cement produced is at 8

par with the international standards and the prices are lower than those prevailing in international markets. The graph below show the consumption of cement in different areas of housing, infrastructure and industries.

9

Structure of the industry Domestic players:

Associated Cement Companies Ltd (ACCL) Associated Cement Companies Ltd manufactures ordinary Portland cement, composite cement and special cement and has begun offering its marketing expertise and distribution facilities to other producers in cement and related areas. It has twelve manufacturing plants located throughout the country with exports to SAARC nations. The company plans capital expenditure through expansion of existing units and/or through acquisitions. Non-core assets are to be divested to release locked up capital. It is also expected to actively pursue overseas project engineering and consultancy services.

Birla Corp Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting, cement, jute goods, yarn, calcium carbide etc. The cement division has an installed capacity of 4.78 million metric tones and produced 4.77 million metric tones of cement in 2003-04. The company has two plants in Madhya Pradesh and Rajasthan and one each in West Bengal and Uttar Pradesh and holds a market share of 4.1 per cent. It manufactures Ordinary Portland cement (OPC), Portland pozzolana cement, fly ash-based PPC, Low-alkali Portland cement, Portland slag cement, low heat cement and sulphate resistant cement. Large quantities of its cement are exported to Nepal and Bangladesh. Going forward, the company is setting up its captive power plant to remain cost competitive.

10

Century Textiles and Industries Ltd (CTIL) The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper, shipping, property & land development, builders and floriculture. Cement is the largest division of CTIL and contributes to over 40 per cent of the company's revenues. The company has an installed capacity of 4.7 million tones with a total cement production of 5.43 million tones in 200304. CTIL has four plants that manufacture cement, one in Chattisgarh, two in Madhya Pradesh and one in Maharashtra. Going forward, the company has scripted a three-pronged strategy closing down its shipping business, continuing with its chemicals and adhesive division, and Focusing on cement, rayon and paper as its long-term business plan.

Grasim-UltraTech Cemco Grasim's product profile includes viscose staple fiber (VSF), grey cement, white cement, sponge iron, chemicals and textiles. With the acquisition of UltraTech, L&T's cement division in early 2004, Grasim has now become the world's seventh largest cement producer with a combined capacity of 31 million tones. Grasim (with UltraTech) held a market share of around 21 per cent in 2005-06. It has plants in Madhya Pradesh, Chattisgarh, Punjab, Rajasthan, Tamil Nadu and Gujarat among others. The company plans to invest over US$ 9 million in the next two years to augment capacity of its cement and fiber business. Its also plans to focus on its international ventures, ramping up the capacity of Alexandra Carbon Black in Egypt to 1,70,000 tone per annum (from 1,20,000 tpa) and raising the capacity of the carbon black plant in China from 12,000 tpa to 60,000 tpa.

11

Gujarat Ambuja Cements Ltd (GACL) Gujarat Ambuja Cements Ltd was set up in 1986 with the commencement of commercial production at its 2 million tonne plant in Chandrapur, Maharashtra. The group has clinker manufacturing facilities at Himachal Pradesh, Gujarat, Maharashtra, Chattisgarh, Punjab and Rajasthan. The company has a market share of around 10 per cent, with a strong foothold in the northern and western markets. Its total sales aggregated US$ 526 million with a capacity of 12.6 million tonne in 2003-04. Gujarat Ambuja is one of India's largest cement exporter and one of the most cost efficient firms. GACL has a 14.45 per cent stake in ACC, making it the second largest cement group in the country, after Grasim-UltraTech Cemco. The company has free cash flows that it is likely to use to grow inorganically. The company is scouting for a capacity of around two million tonne in the northern and western markets. It has also earmarked around US$ 195-220 million for acquisitions

India Cements India Cements is the largest cement producer in southern India with a total capacity of 8.81 million tonne and plants in Andhra Pradesh and Tamil Nadu. The company has a market share of 5.4 per cent with a total cement production of 6.36 million tonne in 2003-04. Its product portfolio includes ordinary portland cement and blended cement. The company has limited its business activity to cement, though it has a marginal exposure to the shipping business. The company plans to reduce its manpower significantly

12

And exit non-core businesses to turnaround its fortune. It also expects the export market to open up, with the Gulf emerging as a major importer.

Jaiprakash Associates Limited Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is part of the Jaypee Group with businesses in civil engineering, hospitality, cement, hydropower, design consultancy and IT. It has an annual capacity of 4.6 million tonne with plants located in Rewa & Bela (Madhya Pradesh) and Sadva Khurd (Uttar Pradesh). The company has a market share of 3.8 per cent with the cement division contributing US$ 172 million to revenue in 2003-04. The company is upgrading its capacity to 6.5 million tonne through the modernizing of the existing units and the commissioning of a new grinding unit at Tanda (Uttar Pradesh) with an investment of US$ 163 million. Jaiprakash Associates has decided to concentrate on its core business of construction and engineering and leave its cement plant to its subsidiary Jaypee Rewa Cement Ltd. The company manufactures a wide range of world class cement of OPC grades 33, 43, 53, IRST-40 and special Blends of pozzolana cement.

JK Synthetics JK Synthetics, a Singhania Group company, started manufacturing nylon at Kota in 1962. Subsequently, it diversified into PSY/PFY, nylon tyre-cord, cement (in 1975), acrylic and white cement (in 1984). The company has a market share of 2.7 per cent. JK Synthetics Limited is restructuring its business divisions into two separate entities- JK Cements and JK Synthetics. After the restructuring, it will be left with a cement plant at Nimbahera in

13

Rajasthan, with a capacity of 3.26 million metric tonne and manufacturing white cement.

Madras Cements Madras Cements Ltd is one of the oldest cement companies in the southern region and is a part of the Armco group. The company is engaged in cement, clinker, dolomite, dry mortar mix, limestone; ready mix cements (RMC) and units generated from windmills. The company has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement plant in Karnataka. It has a total capacity of 5.47 million tonne annually and holds a market share of 3.1 per cent. Madras Cements plans to expand by putting up RMC plants. As Karnataka is a promising market, the company is further expanding its capacity from the present 1.5 million tonne to 3.4 million tonne through an investment of US$ 9 million.

Foreign players: Holcim Holcim, earlier known as Holder bank, has a cement production capacity of 141.9 million tonne. It is a key player in aggregates, concrete and construction related services. It has a strong market presence in over 70 countries and is a market leader in South America and in a number of European and overseas markets. Holcim entered India by means of a longterm strategic alliance with Gujarat Ambuja Cements Ltd (GACL). The alliance aims to strengthen their clinker and cement trading activities in

14

South Asia, the Middle East and the region adjoining the Indian Ocean. Holcim also intends to use India as an additional base for its IT operations, R&D projects as well as a procurement sourcing hub to generate additional synergies and value for the group.

Italcementi Group The Italecementi group is one of the largest producers and distributors of cement with 60 cement plants, 547 concrete batching units and 155 quarries spread across 19 countries in Europe, Asia, Africa and North America. Italcementi is present in the Indian markets through a 50:50 joint venture company with Zuari Cements. All initiatives in southern India are routed through the joint venture company, while Italcementi is free to buy deals In its individual capacity in northern India. The joint venture company has a capacity of 3.4 million tonne and a market share of 2.1 per cent.

Lafarge India Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement capacity of 5 million tonne and a clinker capacity of 3 million tonne in the country. Lafarge commenced operations in 1999 and currently has a market share of 3.4 per cent. It exports clinker and cement to Bangladesh and Nepal. It produces Portland slag cement, ordinary portland cement and portland pozzolana cement. The Indian cement plants are located in Chhattisgarh and Rajasthan. Lafarge Cement has become the largest cement selling firm in the Indian markets of West Bengal, Bihar, Jharkhand and Chhattisgarh.

15

Two players call all the shots; For the first time in India, two companies - Grasim and Gujarat Ambuja, along with their associate companies, control almost 50% of India’s cement capacity and supply. In a commodity business, where profits move disproportionately with even small changes in cement prices, this is a significant development The emphasis laid by the government on the development of physical infrastructure mainly roads, airports, seaports and railroads and the boom in housing driven by easy availability of cheap housing credit have been the key growth drivers for the sector. Government is the single largest buyer of cement. Historically, in the last year, drive to complete pending infrastructure project has driven demand growth. One of the major cement consuming projects is the Golden Quadrilateral Project-Besides construction and modernization of four airports and two seaports. Gujarat Ambuja has always traded at a premium to

16

its peers due to its higher operational efficiency, presence in high growth markets and fiscal benefits. This edge got further sharpened post ACC acquisition that added to scale as well as geographical diversity. Grasim and ultra tech on the other hand are doing so well to capture the more and more market share.

Major Consolidations With an installed capacity of around 157 million tonne per annum (mtpa) at end-March 2007, large cement plants accounted for 93% of the total installed capacity in India. The installed capacity is distributed over across approximately 129 large cement plants owned by around 54 companies. The structure of the industry is fragmented, although, the concentration at the top is increasing. The fragmented structure is a result of the low entry barriers in the post decontrol period and the ready availability of technology. However, cement plants are capital intensive and require a capital investment of over Rs. 3,500 per tonne of cement, which translates into an investment of Rs. 3,500 million for a 1 mtpa plant. The cement industry has witnessed substantial reorganization of capacities during the last couple of years. Some examples of the consolidation witnessed during the recent past include: Gujarat Ambuja taking a stake of 14% in ACC; Gujarat Ambuja taking over DLF Cements and Modi Cement; India Cement taking over Raasi Cement and Sri Vishnu Cement; Grasim's acquisition of the cement business of L&T; Indian Rayon's cement division merging with Grasim; Grasim taking over Sri Dig Vijay Cements; L&T taking over Narmada

17

Cements; ACC taking over IDCOL. Multinational cement companies have also initiated the acquisition process in the Indian cement market. Swiss cement major Holcim has picked up 14.8% of the promoters stake in Gujarat Ambuja Cements (GACL). In January 2006, Holderind Investments (Holcim Mauritius), an indirect, wholly-owned subsidiary of Holcim, acquired 200 million equity shares of GACL at a price of Rs.105 per share from the promoters. Post-sale, the share of promoters in the company is 9%. Holcim also made an open offer to acquire an additional 20% stake in GACL at Rs. 90.64 per share. Earlier, Holcim had entered into a strategic alliance with GACL, and acquired a 67% controlling stake in Ambuja Cement India. Through this holding company, Holcim acquired a majority in Ambuja Cement Eastern and a substantial stake in ACC. Ambuja Cement India holds a 34% share in ACC and a 97% share in Ambuja Cement Eastern. Holcim's acquisition has led to the emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine (capacity of 33.5 mt) and the Aditya Birla group through Grasim Industries and Ultratech Cement (combined capacity of 31.1 mt). Lafarge, the French cement major, had acquired the cement plants of Raymond and Tisco in the recent past, and has an installed capacity of 5 mtpa. Italy based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in AP, with a capacity of 3.4 mtpa. Recently, Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group controlled Indo-Rama Cement. Heidelberg Cement is expected to take a 50% controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in Maharashtra. As on March 2006, ACC was the largest player with a capacity of 18.64 mtpa. UltraTech CemCo Ltd.1 now occupies the second 18

slot with a capacity of 17 mtpa (which includes 1.5 mtpa of subsidiary Narmada Cement). The Gujarat Ambuja group has emerged as the third largest player with a capacity of 14.86 mtpa. Grasim ranks fourth with a capacity of 14.12 mtpa. Other leading players include India Cements, Jaypee group, Century Textiles, Madras Cements, Lafarge, and Birla Corp.

Reasons behind these consolidations; As discussed above, the cement industry is witnessing a number of Mergers & Acquisitions (M&As). The extent of concentration in the industry has increased over the years. This concentration is mainly because of the focus of the larger and the more efficient units to consolidate their operations by restructuring their business and taking over relatively weaker units. The relatively smaller and weaker units are finding it difficult to withstand the cyclical pressure of the cement industry. Some of the key benefits accruing to the acquiring companies from these acquisition deals include: ❑ Economies of scale resulting from the larger size of operations ❑ Savings in the time and cost required to set up a new unit ❑ Access to new markets ❑ Access to special facilities / features of the acquired company ❑ And, benefits of tax shelter.

19

State wise Capacity

As cement is a low value commodity, freight costs assume a significant proportion of the final cost. Transporting costs render the prices of cement in distant destinations uncompetitive. For instance, it is financially infeasible to transport cement by road over 250 kms. Railways are mostly used to transport cement over longer distances. However, its bulky nature and infrastructure bottlenecks render even rail transport unviable over very long distances (that is why Madras Cements or India Cements, located in the south, can hardly make a difference to the fortunes of west-based companies like Gujarat Ambuja). Therefore, manufacturers tend to sell cement at the nearest market first and sell in distant markets only if additional realization is greater than freight costs incurred. This is the reason for showing regional demand

rather

than

state

demand

in

case

of

cement.

Region wise Capacity • The Indian cement industry has to be viewed in terms of five regions:•

North (Punjab, Delhi, Haryana, Himachal Pradesh, Rajasthan, Chandigarh, J&K and Uttranchal);

•

West (Maharashtra and Gujarat);

•

South (Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry, Andaman & Nicobar and Goa);

20

•

East (Bihar, Orissa, West Bengal, Assam, Meghalaya, Jharkhand and Chhattisgarh); and

•

Central (Uttar Pradesh and Madhya Pradesh).

Northern Region Punjab Delhi Haryana Himachal Pradesh Rajasthan J&K TOTAL West Maharashtra Gujarat TOTAL South Tamil Nadu Andra Pradesh Karnataka Kerala TOTAL East Bihar Orissa West Bengal Assam Meghalaya Jharkhand Chattisgarh TOTAL Central U.P. M.P. TOTAL

2173.34 500.00 172.00 4060.00 16299.34 200.00 23404.68 8950.00 12937.00 21887.00 12913.18 19831.02 9744.00 420.00 42908.20 1000.00 2761.00 2291.66 400.00 3475.01 11287.33 21215.00 6297.00 16185.00 20482.00

21

South accounts for 33.03% of cement production capacity of the country, with Andra Pradesh accounting for 15.27% of the total production capacity of India. It has an installed capacity of around 20mn tons of cement and ranks first in the country, followed by Tamil Nadu with 9.94% of the total production capacity. North accounts for 18.02% of the total production capacity, with Rajasthan at 12.55% of the total production capacity of the country. West accounts for 16.85% of the total production capacity. Maharashtra and Gujarat have production capacity of 6.89% and 9.96% respectively. East and Central Regions account for 16.33% and 15.77% of the total production capacity of the country respectively. Trade between these regions is on a very low scale mainly because of the transportation bottlenecks and uncompetitive cost of transportation. 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

Mechanics of Distribution Channels of Sector Companies invariably hire 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 agents or warehouses the cement is transported to the dealers/distributors and

22

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, ENERGY AND TRANSPORT REQUIREMENTS The cement industry is dependent on three major infrastructural sectors of the economy: coal, power and transport. The inputs from these three sectors account for roughly 50% of the cost of cement. Both the availability and the cost of these inputs have a vital bearing on the fortunes of the cement players. All these sectors are largely in the State sector, and, historically cement companies have had virtually no control on the cost or availability of these inputs. Hence, the industry response has largely been in the form of achieving efficiency gains and finding alternatives (captive power, use of waterways). One additional external influencer of the cement industry performance is the taxes and levies imposed by the Central and State Governments. These together account for around 30% of the selling price of cement in the Indian context.

23

The shortage in domestic coal production coupled with the poor quality has resulted in cement companies resorting to importing coal, or going in for open market purchase of coal, or using alternative fuel such as lignite or pet coke. Use of imported coal has become an essential feature of the Indian cement industry and has shown a rising trend during the last few years.

Power and Fuel cost form the largest proportion of the cost structure. This reflects the effects of the trend in rising global oil and fuel prices. On the other hand Employee costs form the smallest proportion of over all cost. This is essentially because cement industry is a very capital intensive industry. This also accounts for the huge depreciation and interest costs which accrue on the plant and machinery. Moreover, the labour employed is essentially semi-skilled excluding the top management which bring down labour costs.

24

GOVERNMENT POLICIES Government policies have affected the growth of cement plants in India in various stages. The control on cement for a long time and then partial decontrol and then total decontrol has contributed to the gradual opening up of the market for cement producers. The stages of growth of the cement industry can be best described in the following stages: Price and Distribution Controls (1940-1981): During the Second World War, cement was declared as an essential commodity under the Defense of India Rules and was brought under price and distribution controls which resulted in sluggish growth. The installed capacity reached only 27.9 MT by the year 1980-81.

25

Partial Decontrol (1982-1988): In February 1982, partial decontrol was announced. Under this scheme, levy cement quota was fixed for the units and the balance could be sold in the open market. This resulted in extensive modernization and expansion drive, which can be seen from the increase in the installed capacity to 59MT in 1988-89 in comparison with the figure of a mere 27.9MT in 1980-81, an increase of almost 111%. Total Decontrol (1989): In the year 1989, total decontrol of the cement industry was announced. By decontrolling the cement industry, the government relaxed the forces of

26

demand and supply. In the next two years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall economic liberalization had peaked; ironically, however, the economy slipped into recession taking the cement industry down with it. For 1992-93, the industry remained stagnant with no addition to existing capacity The things that primarily control the price of cement are coal, power tariffs, railway, freight, royalty and cess on limestone. Interestingly, all of these prices are controlled by government. Coal: The consumption of coal in a typically dry process system ranges from 2025% of clinker production. This means for per ton clinker produced 0.200.25 ton of coal is consumed. This contributes 35-40% of the production cost. The cement industry consumes about 10mn tons of coal annually. Since coalfields like BCCL supply a poor quality of coal, NCL and CCL the industry has to blend high-grade coal with it. The Indian coal has a low calorific value (3,500-4,000 kcal/kg) with ash content as high as 25-30% compared to imported coal of high calorific value (7,000-8,000 kcal/kg) with low ash content 6-7%. Lignite is also used as a fuel by blending it with coal. However this process is not very common. Electricity: Cement industry consumes about 5.5bn units of electricity annually while one ton of cement approximately requires 120-130 units of electricity. Power tariffs vary according to the location of the plant and on the production process. The state governments supply this input and hence plants in different states shall have different power tariffs. Another major hindrance to the industry is severe power cuts. Most of the cement producing states like 27

AP, MP, experience power cuts to the tune of 25-30% every year causing substantial production loss. Limestone: This constitutes the largest bulk in terms of input to cement. For producing one ton of cement, approximately 1.6 ton of limestone is required. Therefore, the cement plant location is determined by the location of limestone mines. The major cash outflow takes place in way of royalty payment to the central government and cess on royalties levied by the state government. The total limestone deposit in the country is estimated to be 90 billion tons. AP has the largest share -- 34%, Karnataka 13%, Gujarat 13%, M.P 8%, and Rajasthan 6.5%. The plants near the limestone deposit pay less transportation cost than others. Transportation: Cement is mostly packed in paper bags now. It is then transported either by rail or road. Road transportation beyond 200 kms is not economical therefore about 55% cement is being moved by the railways. There is also the problem of inadequate availability of wagons especially on western railways and southeastern railways. Under this scenario, manufacturers are looking for sea routes, this being not only cheap but also reducing the losses in transit. Today, 70% of the cement movement worldwide is by sea compared to 1% in India. However, the scenario is changing with most of the big players like L&T, ACC and Grasim having set up their bulk terminals. Incentives in States: Most state governments, in order to attract investments in their respective states, offer fiscal incentives in the form of sales tax exemptions/deferrals. In 28

some states, this applies only to intrastate sales, like Madhya Pradesh and Rajasthan. States like Haryana offer a freeze on power tariff for 5 years, while Gujarat offers exemption from electric duty. Opening up the FDI channel: The impact of government policies on cement demand has been steadily decreasing with the sector being gradually deregulated. At present, 100 per cent foreign direct investment (FDI) is permitted in the cement industry. Lafarge was the first foreign company to enter the Indian market in 1999. The French Declining Role of Public Sector: Historically, cement has been one of the most important areas of operations for the Indian private sector. Unlike much of heavy industry and utilities, cement was not deemed to be the exclusive preserve of the State sector in the post-independence development strategy. Cement was also the industry of choice of many corporate diversifying away from the troubled traditional areas of jute and textiles. Over the years, the share of the public sector in cement production has declined. While the private sector (large companies) accounts for around 95% of the total installed capacity, the share of public sector companies has declined from a level of 11% in FY1996 to around 4.4% in FY2006. The share in production of the public sector companies is even lower at 1.2% in FY2006 as compared to 6.5% in FY1996.

29

Export of cement from India The Indian cement industry exported around 6 mt of cement during FY2006, accounting for around 4% of the total production. There has been a significant year on year variation in the export trend, implying that Companies rely on cement exports to balance out the domestic demand supply situation. As seen from above there is excess production, so the difference in supply and demand is met by exporting. The export of Indian cement has increased over the years, giving a boost to the Indian cement industry. The demand for cement in the foreign countries is a derived demand, for it depends on industrial activity, real estate, and construction activity. Since growth is taking place all over the world in these sectors, Indian export of cement is also increasing. The cement industry in India has around 300 mini cement plants and 130 large cement plants. The total production capacity of these plants is around 167.36 million tons. The India cement industry is technologically very advanced, as a result of which the quality of Indian cement is now considered the second best in the world. This has given a major boost to the Indian export of cement. The production of cement in India is not only able to meet the domestic demand, but large amounts are also exported. A fair amount of clinker and cement by-products are also exported by India. As the quality of Indian cement is very good, its demand in the international market is always high.

30

The graph shows that the production of cement in India is at 2nd place after China, this higher production is a good reason for exporting cement . In 2001-2002, 3.38 million tons of cement was exported from India. That figure stood at 3.47 million tons in 2002-03, and 3.36 million tons in 200304. In 2001-2002, 1.76 million tons of clinker was exported from India. In

31

2002- 2003 clinker exports amounted to 3.45 million tons, and in 20032004 the figure stood at 5.64 million tons. This shows that the export of Indian cement has been increasing at a steady pace over the years.

The major companies exporting Indian cement are: •

Gujarat Ambuja

•

Ultra Tech Cement

•

L&T Limited

Export of Indian cement has registered growth a fair amount of growth, giving a boost to the Indian economy. India has an immense potential to tap cement markets of countries in the Middle East and South East Asia due to its strengths of locational advantage, large-scale limestone and coal deposits, Adequate cement capacity and world-class cement production with the latest technology. India has an estimated total of 90 billion tonnes of limestone deposit in the country.

32

Indian technology advantage The manufacturing process of cement consists of the mixing, drying and grinding of limestone, clay and silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be cooled in an air cooling system to form clinker, which is the Semi-finished form. This clinker is cooled by air and subsequently ground with gypsum to form cement. The dry and semi-dry processes are more fuel-efficient. The wet process requires 0.28 tonne of coal and 110 kWh of power to manufacture one tonne of cement, whereas the dry process requires only 0.18 tonnes of coal and 100 kWh of power. Coal and power costs account for 35 per cent of the total cement production costs. With 95 per cent of the total capacity based on the modern dry process technology, the Indian cement industry has become more cost efficient.

33

Top companies in the cement industry match quite well with world standards in terms of energy (thermal energy Kcal/kg of clinker - India 665 against 690 of Japan) and pollution norms (SPM of 40 in India against 20 in Japan).

34

PORTER’S 5-FORCE MODEL FOR CEMENT INDUSTRY

Threat of New Entrants: The high capital costs acts as a major entry barrier for the entry of new players. The high freight costs make it difficult to import cement. Cement being a high volume low value commodity results in high freight costs, which makes cement imports economically unfeasible. Domestic Cement industry is highly insulated from global cement markets. With GoI intervention, making cement duty free, cement is being imported from neighboring countries. However, due to logistics issues and lack of port

35

handling capabilities, imports of cement will remain negligible and do not pose a threat to domestic industry.

Bargaining power of Suppliers: The major inputs are coal and power. The Prices of both coal and power are determined by the government. To mitigate the high costs of power the cement players have set up captive power plants.

Competitive rivalry between existing players: Previously the rivalry was strong among the players, as the industry was not consolidated. During the last few years the industry has become more consolidated with the Top 3 players having a combined market share of 49 percent in 2005-06 as

compared to 32

percent in 1999-2000.

Bargaining power of Buyers: Retail sales constitute about 80 percent of the total sales and the rest is institutional sales. The retail buyers don’t have any bargaining power while the institutional buyers get a discount of 5 to 10 percent as they buy cement in bulk.

Threat of Substitutes: There are no good substitutes for cement.

36

SWOT ANALYSIS Strengths: Double digit growth rate •

Cement demand has grown in tandem with strong economic growth; derived from:

-Growth in housing sector (over 30%) key demand driver; -Infrastructure projects like ports, airports, power projects, dam & irrigation projects -National Highway Development Programme -Bharat Nirman Yojana for rural infrastructure -Rise in industrial projects -Export potential also demand driver •

Capacity utilization over 90%

Weakness: Low value commodity •

Cement Industry is highly fragmented

•

Industry is also highly regionalized

•

Low – value commodity makes transportation over long distances uneconomical

Opportunities: Demand–supply gap •

Substantially lower per capita cement consumption as compared to developing countries (1/3 rd of world average) Per capita cement consumption in India is 82 kgs against a global average of 255 kgs and Asian average of 200 kgs.

37

•

Additional capacity of 20 million tons per annum will be required to match the demand

•

Limited green field capacity addition in pipeline for next two years, leading to favorable demand – supply scenario

Threats: Rising input costs

•

Government intervention to adjust cement prices

•

Possibility of over bunching of capacities in the long term as some of the players have already announced new capacities

•

Transportation cost is scaling high; bottleneck due to loading restrictions 38

•

Coal prices climbing up; industry players say current shortage of coal in the country is estimated to be over 10 million tonnes

PRICES The regional variation in the Indian market has resulted in the cement prices across regions witnessing movement within a band, with no appreciable increase in any region. Differences in regional demand supply situation have translated into price differences across regions. Prices are lower in Southern regions where there is normally a supply surplus. However, prices are higher in Eastern and Western regions where shortages exist. The surplus position had resulted in significant pressure on price realizations in recent years. .The cyclical trough in the late-1990s had a severe impact on the industry financials. However, cement prices have firmed up during the last few years due to improvement in demand-supply position and increasing consolidation in the industry. The Wholesale Price Index (WPI) for cement increased 3.9% during FY2005, as compared with a growth of 1.2% during FY2004. The WPI for March 2006 was 11% higher than the WPI for March 2005.

39

Margins Cement prices have firmed up during the last few years due to improvement in demand-supply position and increasing consolidation in the industry. The trend in gross sales realization is similar for the cement companies in our sample (comprising pure cement companies accounting for around twothirds of industry production and sales). The operating profits and margins for cement companies are most sensitive to cement sales realizations. During FY2004-05, riding on high average sales realizations, the cement companies posted increased operating profits and margins. This reversed the decline in operating profits and margins during FY2002-03. This was mainly because of excess capacity and the consequent low price realizations. While sales volume of the sample companies improved 7%, operating income (OI) increased 24.2% to Rs. 183.45 billion

40

RETURNS: The key driver of profitability is cement prices, which fluctuate depending on outlook on demand-supply gaps. The fluctuating fortunes of the Indian cement industry are very typical of a commodity industry. The companies make bumper returns during the boom years (FY1994-96, and FY2003-06) while the performance goes down drastically during the lean years (FY19972001). The returns have improved significantly since FY2003 because of higher capacity utilizations, operational efficiency and cost control measures supplemented with higher sales realizations.

the Indian cement industry has undergone vital changes through technological changes in the pursuit of cost efficiency and drive for consolidations. Most of the companies are making profits.

41

42

INTRODUCTION

ULTRA TECH CEMENT

43

UltraTech is the second largest cement manufacturer in India. It is the part of Aditya Birla group and is subsidiary of Grasim. It has a capacity of 17 million tonnes. The company is the largest exporter of cement and clinker from India. UltraTech has a presence in the west, south, north and east. The western and southern regions are its major markets. The company exports both clinker and cement. The company exports are moving towards cement from clinker owing to the higher realization in the cement. In 2005-06 the company exported 1.52 million tonnes of cement. With UltraTech Cement, the Aditya Birla Group has established itself as not only the most respected domestic player but also among the global leaders in cement. Now a look at Aditya Birla group’s cement capacity: Currently, the Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest in Asia and Ultra Tech and Grasim together, make it the largest cement producer in India. The group mainly has two cement units – Grasim and Ultra tech. UltraTech Cement Limited, a Grasim subsidiary has an annual capacity of 17 million tonnes. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzolana Cement. It has five integrated plants. This also includes the integrated plant and two grinding units of the erstwhile Narmada Cement Company Limited, a subsidiary, which has been amalgamated with the company in May 2006.

44

Grasim, on the other hand, manufactures grey and white cement. In grey cement, the company has the capacity to manufacture 14.20 mtpa. This includes Grasim’s capacity of 2.06 mtpa, Vikram Cement 4.2 mtpa, Aditya Cement 1.5 mtpa, Rajashree Cement 4.2 mtpa, the acquired and merged Dharni Cement 1.16 mtpa and the acquired Digvijay Cement 1.08 mtpa. Grasim and Ultra Tech together have a cement capacity of 31.20 mtpa. And when the B K Birla cement companies also come into the fold, the Aditya Birla group would have a cement capacity of 37.86 mtpa, making it clearly the largest cement maker of India. The Aditya Birla Group bought over the cement business of L&T for around Rs. 2,200 crore. L&T allowed its name to be used for about a year. Then from 19th November 2003,the name was changed to ultra tech cemco.This name also didn’t last for long and finally the ultra tech cemco was changed to Ultra Tech cement. These stages of evolution of ultra tech cement are listed below: 2001 :: Grasim acquires 10 per cent stake in L&T. Subsequently increases stake to 15.3 per cent by October 2002 :: Durgapur grinding unit

2002

45

The Grasim Board approves an open offer for purchase of up to 20 per :: cent of the equity shares of Larsen & Toubro Ltd (L&T), in accordance with the provisions and guidelines issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997. :: Grasim increases its stake in L&T to 14.15 per cent :: Arakkonam grinding unit

2003 :: The board of Larsen & Toubro Ltd (L&T) decides to demerge its cement business into a separate cement company (CemCo). Grasim decides to acquire an 8.5 per cent equity stake from L&T and then make an open offer for 30 per cent of the equity of CemCo, to acquire management control of the company.

2004 :: Completion of the implementation process to demerge the cement business of L&T and completion of open offer by Grasim, with the latter acquiring controlling stake in the newly formed company UltraTech

2006 Narmada Cement Company Limited amalgamated with UltraTech pursuant to a Scheme of Amalgamation being approved by the Board for

46

Industrial & Financial Reconstruction (BIFR) in terms of the provision of Sick Industrial Companies Act (Special Provisions)

ULTRA TECH PRODUCTION UNITS: Ultra Tech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P) Ltd.UltraTech has five integrated plants, five grinding units and three terminals — two in India and one in Sri Lanka. These include an integrated plant and two grinding units of the erstwhile Narmada Cement Company Limited, a subsidiary, which has been amalgamated with the company in May 2006.The details of its different production units is shown on the next page.

Details of units: PLANT/UNIT

KILN CAPACITY(tpd)

47

CAPACITIES(million tpa)

A. Composite integrated Plants. 1. AndraPradesh Cement Works.

8000

2.3

2. Awarpur Cement works

9500

3.3

3. Gujrat cement works

15000

5.3

4. Hirmi cement works

8050

1.6

5. Narmada cement works

4350

0.4

B.Grinding Units 6. Arakkonam cements works

1.2

7. Jharsuguda cements works

0.8

8. Narmada cement (Ratnagri) Works

0.4

9. Narmada cement(Magdala) Works

0.7

10.West-Bengal cement works

1.0

TOTAL

17.0

THE ULTRA TECH ADVANTAGE

48

UltraTech Cement Ltd is one of the largest premium quality cement producer in India. UltraTech Cement is manufactured in the state of the art dry process plant at Tadipatri (Andhra Pradesh) and grinding unit at Arakkonam (Tamil Nadu). Advanced instrumentation systems, computerized process control and online quality control through X-ray ensure consistently high quality product at UltraTech Cement plant. The quality of UltraTech Cement has been globally accepted and is India's largest exporter of clinker and cement. UltraTech Cement due to its consistently superior quality has become the first choice amongst discerning users and construction professionals. Raw Material : Careful selection and scientific proportioning of raw material with the use of latest technology enables manufacturing of high quality cement. Rigorous hourly tests are conducted on raw material. Laboratories at all plants are equipped with sophisticated facilities. World Class process Technology ensures Quality and Consistency : Quality Assurance is an integral part of Ultra Tech’s manufacturing philosophy. The quality attributes are consistently ensured through rigorous application of advanced technology. Key features include: •

Use of good quality limestone and careful selection of other raw material

•

Computerized mining operation and homogenization of crushed limestone

•

Perfect proportioning of raw materials by QCX ( Quality Control through X-ray )

•

Online process control through CCR ( Computerized Control Room )

49

•

High-quality clinkerisation and close-circuit grinding for optimum particle size distribution

UltraTech Cement plants have been accredited with ISO 9001, 14001, 18001 Certifications by DNV of Netherlands Distinct Features: •

Higher Compressive strength

•

Optimal fineness

•

Balanced physical and chemical properties

•

Optimal setting time

•

Consistency in quality

•

Low-level of Chloride

•

High-soundness

Advantages: •

Higher workability

•

Lower consumption

•

Enhanced durability

•

Quicker construction

•

Overall economy

Customer Care and Guidance: UltraTech Cement offers customers a range of "product plus" services. A full- fledged Technical Services Network has been set up exclusively for 50

technical advice and guidance in usage of cement UltraTech Cement is marketed nationwide through large network of stockist's, sales officers and representatives. Cement dumps have also been established at strategic locations to facilitate faster delivery of cement.

Value Added Services : •

Mobile concrete lab services ( Concrete cube testing facilities )

•

Training Programmes for masons, site supervisors on good construction practices

•

Field visits by qualified civil engineers

•

Educating individual house builders on various aspects of building material and construction

•

Non-destructive testing of concrete

•

Any other customer specific services

Applications : 1.

All Kinds of constructions including precast and prestressed concrete, masonry works

2.

Slip form constructions

3.

Rehabilitation and retrofitting works

4.

Cement based products such as pipes, tiles, blocks, poles,etc.

5.

Roads, runways, bridges and flyovers

6.

Water retaining structures

AWARDS FOR ULTRA TECH

51

Export awards

Worldwide, clients have consistently endorsed Ultra Tech’s highest quality standards. The list of export awards it has won is testimony to Ultra Tech’s uncompromising standards on product quality. Ultra Tech has been on the roll call of top exporters of the Chemicals & Allied Products Export Promotion Council (Capexil), year after year. Ultratech won the Capexil Certificate of Export Recognition - Top Exporter - Cement, Clinker, Asbestos and Cement Products for the years 2000, 2002 and 2003. Other awards that have come its way have included: Year Award Capexil Certificate of Export Recognition - Highest Export in Non-mineral 2001 and 1999 Sector Capexil Certificate of Outstanding Export Performance - Chemicals & Allied 1999 Products (for Portland cement) Capexil Certificate of Export Recognition - Top Exporter- Cement, Asbestos, 1998 Cement Products 1998 Certificate of Outstanding Export Performance, Gujarat state Capexil Certificate of Export Recognition - Certificate of Merit for Export 1997 Achievement in Cement and Clinker

National awards won by Awarpur Cement Works Year Award Indo-German Greentech Environment Excellence Awards by the Greentech 2000-2001 Foundation, New Delhi 1999-2000 Business / Trade Award Jamanalal Bajaj Uchit Vyavahar Purashkar 1999 ISO 14001 Certification By M/S Det Norske Veritas in November ISO 9001 Certification By M/S Der Norske Veritas 1996 FIMI National Social Awareness Awards 1995-96 FIMI National Social Awareness Awards Indira Priyadarshini Vrikshmitra (IPVM) National Award By Ministry of 1995 Environment & Forests, Goverment of India Special Gold Award By The Council of Industry & Trade Development for 1994-95 Quality Delhi Commendation Certificate - Rajiv Gandhi National Quality Award By 1994 Bureau of Indian Standards

Awards won by Gujarat Cement Works:

52

Year 2004 2002-2003 2002 2001-2002 2001

Award Bhartiya Udyog Ratan Award presented to Sh. KYP Kulkarni By Indian Economic Development & Research Association (IEDRA), New Delhi Greentech Gold Safety Award By Greentech Foundation, New Delhi Gujarat State Safety Award By Gujarat Safety Council (GSC), Vadodara Greentech Environment Excellence Award By Greentech Foundation, New Delhi Awards for Excellence in "Industrial Relations" By Federation of Gujarat Industries (FGI), Vadodara

Awards won by Andhra Pradesh Cement Works: Year Award 2004-2005 State and Zonal level I prize for overall performance in Mines safety 2003-2004 Energy efficient unit award from CII Energy Conservation Award from PCRA Excellence Award in Water Conservation & Pollution Control by APPCB 2002-2003 Gold medal for Six Sigma Project on Optimisation of Compressed air energy at HIMER National Conference FIMI environment award for mines Award for six sigma project on reduction in specific fuel consumption at NIQR Energy efficient unit award from CII 2001-2002 Best rural development effort award from FAPCCI Appreciation award from NSC for achieving OHSAS-18001 Awards won by Hirmi Cement Works: Year Award 2001-2002 Environment Energy Foundation award for water conservation. Fuller Energy award for reduction in specific power consumption (KWH/T) per 2001-2002 tonne of cement

ULTRA TECH CEMENT EXPORTS

UltraTech Cement recently bagged an award for being the highest exporter of the year from CAPEXIL for the eighth time in a row for its sterling performance. A leading cement exporter, its plants have also received

53

various awards for environment protection, social awareness, safety and management of better industrial relations. The company has been credited with boosting its exports of cement and clinker last year by 25 per cent to 4 million tonnes from 2.8 million tonnes in 2005-2006. stringent quality control and testing in the best laboratories ensure that cement and clinker produced from its plants conform to and surpass international standards. The laboratory is equipped to test cement as per ASTM, British and Euro standards. All the plants are ISO 9001 certified for the latest production process and 14001 certified for environmental management. The cement plant in Gujarat has an additional OHSAS 18001 certification as well for occupation hazards and safety parameters. The company has a captive jetty at the Gujarat plant. The jetty length of 337 meters and width of 23 meters is capable of handling ships of 45,000 DWT with 11 meters draft. Loading of cement and clinker onto the ship is carried out by a ship loader, which is fed by a four km long conveyor belt that connects the plant to the jetty. UltraTech Cement is the first and only Indian cement company to obtain an EC certification for this plant. The accreditation, given by Bureau Veritas, is a pre-requisite to supply cement to EC member countries. UltraTech is one of the few Asian cement companies to receive this recognition. The export markets span countries around the Indian Ocean, Africa, Europe and the Middle East. The Hirmi Cement Works in Chattisgarh and the Jharsuguda Cement Works in Orissa make them ideal locations for export of cement and clinker to Nepal and Bangladesh. With captive railway sidings to facilitate loading of railway rakes and a high-tech production facility for cement and clinker, UltraTech Cement has found wide acceptance in these neighboring countries

54

OBJECTIVE OF THE STUDY Primary objective: To study the distribution channel of Ultra Tech cement along with other brands, in Sonepat and Kurukshetra distt. Of Haryana.

Secondary objectives:

55

1.

To find out the market share of Ultra Tech cement.

2.

To find out the major competitors of Ultra Tech cement in a particular area.

3.

To find out the problems faced by the Ultra Tech dealers/retailers and try to minimize these problems.

4.

To help the ultra tech dealers/retailers to increase their sales.

5.

To find out the possible newer methods for advertisement and methods for increasing sales of Ultra Tech cement.

RESEARCH DESIGN (a) General Methodology: The methodology adopted for this project was completely base on primary information. The locale of the study was distt. Sonepat and kurukshetra of Haryana.The first stage included gathering information about the general cement market of the two cities. That was, to find out which are

56

major players, what is general distribution pattern, what type of incentive schemes the different brands are using. The second stage comprised determining the objective of the study and drafting the questionnaire. The questionnaire was designed keeping in mind the objective of the study. It was designed with due guidance of the company guide. It was assured that the questionnaire didn’t exceed more than 10 questions. Keeping in mind the education level of the respondents who were mainly dealers/retailers, the questionnaire was kept simple and precise.

b) Data Sources: The research called for gathering primary data only. Hence, primary sources were considered for the collection of data. *Primary source The primary data is gathered for specific purpose and is collected by the researcher himself. It includes direct communication and feedback from the customers. For the purpose of collecting information from customers a structured questionnaire was formulated and is contacted directly. c) Research Approach: The research conducted was exploratory in nature and the goal was to gather preliminary data to shed light on the real nature of problems and to suggest possible solutions. For the purpose of this project, we went for a questionnaire- based survey of customers. A pilot test of this questionnaire was done for the preparation of final questionnaire. It involved, applying the draft questionnaire to a sample of 5 people. This was done to ascertain

57

which questions are ambiguous, wrongly worded or in any way objectionable. (d)Research Instrument: 1. Personally administered questionnaire 2. Structured interview 3. Unstructured interview For the purpose of this project, a questionnaire was designed to collect data that consisted of close ended questions & open ended questions. A survey technique is being used to collect the data. During the project a survey of customers using personal interview was done at random locations in sonepat and kurukshetra and a predetermined structured questionnaire was administered to them. The areas covered were as following: 1.Sonepat: (a) Kundali (b) Bahalgarh (c) Kharkhoda (d) Guhana (e) Gannaur 2. Kurukshetra: (a) Pehowa (b) Ismailabad (c) Ladwa (d) Pipli (e) Shahabad

58

e)Sampling Plan: * Sampling Unit

The study was restricted to sonepat and kurukshetra only. Keeping in mind the objective of the study we sampled dealers and retailers of each and every brand. We try to explore out as many shops as could be possible. *Sample Size

The sample size taken for the purpose of study was around 150 respondents from the two distt.All the respondents were chosen randomly. *Sampling Procedure

We try to find out almost all of the cement dealers and retailers in the market.

*Contact Method

I personally visited most of the customers after seeking prior appointment. Few shopkeepers due to their busy schedule or loyalty for their brand refused to respond at all.

59

f) Analytical tools: The data, which was collected, was summarized and tabulated on MS-excel for further analysis. The analysis performed was mainly comparative analysis using statistical analytical tools. The tools that have been used are as follows:  Bar Chart  Pie Chart  Line Graph

DATA ANALYSIS & FINDINGS •

Market share graph 6% for distt.Sonepat: 9%

26%

ultra tech Acc J.k.

8%

J.P. BINANI

9%

4%

Ambuja Shree Ultra

12% 11%

60

15%

Tuff Cemento Bangur

The graph clearly shows that the Ultra Tech Cement has largest market share in Sonepat, followed by J.K. cement and J.P. Cement.The main reason behind this excess market share goes to the higher number of dealers of Ultra Tech cement than other brands.J.K. Cement on the other hand is having a good market share due to a nicely balanced supply chain of dealers along with many retailers. All the other brands like Sri Ram and Bangur are struggling to find market in Sonepat.

• Market Share Graph for kurukshetra:

1%3% 3%

ultra tech

20%

12%

Acc J.k. J.P.

9%

BINANI Ambuja

6%

25%

Shree Ultra Tuff Cemento

21%

61

Bangur

The graph shows that the Ultra Tech is lagging behind ACC cement in kurukshetra.although it has a good 20% share. The credit for ACC success goes to the no. of dealers it has in kurukshetra.Its no. of dealers is almost double than the Ultra Tech dealers plus retailers. The possibility behind Ultra Tech success lies at the chances of getting some more retailers.

•

Satisfaction level of Dealers/Retailers:

62

70

highly satisfied

60 50 40 30

satisfied

20 average

10 0

not satisfied highly satisfied

satisfied

average

not satisfied

highly dissatisfied highly dissatisfied

the graph clearly shows that most of the dealers are well satisfied with the services provided to them by the brand they deal in. The services include timely supply of cement, regular visits by the company officials, different type of incentive schemes meant for the dealers etc.The other side of the fact can be that-being loyal to their respective cement brands, the dealers didn’t want to give a poor image of the company.i.e.they were not satisfied with the company but responded positively.

•

Want to Shift to Other Brand?

63

90

NO

80 70 60 50 40 30 20

MAY BE YES

10 0

NO

YES

MAY BE

The graph shows that about 84% of the dealers and retailers don’t want to shift to any cement brand other than the one in which they are currently dealing. But the last portion of the graph i.e. MAY BE part is of crucial importance for Ultra Tech.This portion shows the dealers who may shift to a new brand if it proves beneficial for them. So if Ultra Tech assures them some better services and mainly the better incentives then these can be the new suppliers for it

•

The major competitor for Ultra Tech in Sonepat is J.K. Cement.The reason behind this is the presence of more no. of retailers for J.K. Cement.The two brands under J.K. i.e. J.K. SUPER & J.K. LUXMI are both well established here.J.K. Provides the benefit of low cost 64

and quality to the customers as compared to higher price of Ultra Tech cement. • The competitor for Ultra Tech in Kurukshetra is ACC cement. It seems that ACC has given more importance to Kurukshetra.It has just 4 dealers in Sonepat but in Kurukshetra it has about 12 dealers. •

The total cement consumption in Sonepat is much higher than that in Kurukshetra.The reasons behind this are construction of a no. of malls, presence of major real estate players like ANSAL, DLF etc and other Govt.projects in Sonepat.So Ultra Tech need to concentrate more in Sonepat.

•

Ultra Tech cement lags behind other brands only at the price point. It costs nearly 4-5 rupees higher than the other cements. This is the main reason for some lower sales. On the other hand, customers are very sure about the thing that Ultra Tech cement provides much better quality.

•

Ultra Tech should try to increase the number of ‘MOBILE CONCRETE HELP’ vans. These vans are the feature that no other brand is offering. These are very popular among the local customers. So Ultra Tech should introduce some more of these vans.

LIMITATIONS OF THE STUDY 1. The major problem of the survey was that most of the respondents

being very loyal to their brands didn’t give exact answers .like they 65

didn’t talk much about what problems they are facing, what are the different marketing schemes of the brand in which they deal etc. 2. Once we got the questionnaire filled, we need to restart the

conversation in a very generalized way and talk about the local market conditions. Like who is the main dealer, which cement is mostly sold in that area etc.so this survey demands a good piece of time while talking to the respondent. Also Sonepat & Kurukshetra are both big Distts. With a number of small towns and villages. So to complete the survey within 2 months time seems to be a bit difficult.

3. Some of the respondents may have told their average monthly sale

more than the actual. Because all of them think that the monthly sale attached with the market image of their shop. 4. Many of the dealers/retailers refused to answer any question atall.So

the actual figures can be somewhat different from the one that we have found out . 5. Being new to the Distts of Sonepat & Kurukshetra, it is quite possible

that I was unable to explore some of the dealers/retailers.

RECOMMENDATIONS

66

Based upon the time spent by me in the market, usefull suggestions of the dealers & retailers and the findings from the survey, following recommendations can be suggested for increasing sales and effectiveness of Ultra Tech Cement: •

What matters for most of the cement buyers is the price of the cement and then the quality. While visiting market for cement purchase, they don’t care about which brand they are going to buy. They simply know that X is ongoing price of the cement, if any brand costs higher than X, they will not buy that brand. Ultra Tech Cement usually costs 4-5 Rs. Higher than the other counterparts. So the buyers, to much extant not interested in buying Ultra Tech cement. This extra price is the main reason behind lower sales.therefore, Ultra Tech need to take some serious steps to reduce the selling price somehow.

•

The second thing is that a good percentage of buyers is still unaware of the fact that Ultra Tech cement is the changed name of Birla cement.Birla cement had a very good image and it is still very popular among the customers. But people are not so much sure about Ultra Tech cement. so Ultra Tech need to take some steps to make people familiar with the’ Birla cement and Ultra Tech’ relation. Because this will bring the old Birla loyal customers to Ultra Tech cement.

•

The number of retailers and sub dealers for Ultra Tech cement is very less as compared to the main competitors ACC, J.K. etc.So Ultra Tech need to be oriented in this direction. They need to increase the no. of retailers as much as possible. Although Ultra Tech has taken a right 67

step with the ‘retailer registration scheme’ to increase the no. of retailers. but this scheme needs some improvements. For ex-margin for the retailers can be increased, we can assure them some gifts also. While working, I saw that the main condition for this new scheme was that the retailer will not sell any other brand of cement. Most of the retailers refused the scheme due to this particular reason. So Ultra Tech needs to give them some relaxation in this case. •

Many of the Ultra Tech dealers used to shop other type of building materials along with cement, in the same shop. This should not be permitted by Ultra Tech.Because selling of these building materials is more profitable than cement, so the cement selling becomes less important for these dealers. They don’t give proper attention to the company officials and also to the various schemes of increasing sales. This in turn brings reduced sales to the company

•

Ultra Tech Cement has market image of a modern cement with very good quality. It should try to encash this image. Its mainly the younger section of people who care about quality first and then the price. So Ultra Tech needs to give proper attention to the youngsters. May be, they are not the cement buyers at present but future possibility lies with them.

• Ultra Tech also should have a check on the upcoming threat of imported cement from Pakistan. The import of cement from Pakistan has just started and very quickly it has become successful in the 68

southern markets. The main reason behind this success is the lower price. The Pak cement brands like Lucky, Mapple Leaf and Elephant costs 10-15 Rs. Lesser than the local Indian brands. Ultra Tech which is already facing charges of higher price needs to be prepared for this. •

Some of the Ultra Tech dealers complained that they are losing the customers loyal to their shops, due to the high price of the cement provided by them. So at some point, the dealers are not satisfied with the company. This need to be taken seriously by Ultra Tech.Some more incentive schemes should be introduced for the dealers and also the frequency of visits from company officials need to be increased.

POSSIBLE ADVERTISEMENT METHODS

69

All of the cement brands use the similar methods of advertising likepainting walls, use banners, giving free gifts to the dealers and masons etc.There are still many possible methods of advertisement and creating brand awareness, which are untouched. Some of these methods are as below: •

Local cable T.V. can be used for advertising as well as to give details about the major dealer/dealers in the city. Details like address, contact no. of the dealer, different schemes, current market price etc can be shown.

•

Local F.M. stations of sonepat and Karnal are also reaching a good part of listeners. So these can also be used for the same purpose.

•

Banners, paintings are used mainly on the tractor trolleys, dealer’s shop and on walls only. We can think about using banners on rickshaws and autos also.

•

Different type of incentive schemes, free gifts are mainly for dealers and sometimes for the masons. As a change, we can also try to attract the customers directly. For ex-discount coupons, small free gifts, scratch cards etc can be made available for the customers.

•

A number of meetings are organized by all the cement companies with the local masons. Most of the masons are very less educated. They attend many meetings. So it may become difficult for them to recognize a particular cement brand. What we can do in this case is to 70

take help of Handvertising i.e. we need to put the Ultra Tech logo on the hands of these masons. So that next time they saw this logo, they found themselves a bit familiar with the company. •

The ‘masons meet’ are organized by the company regularly. This needs some improvements. We need to decrease the frequency of these meets. What we can do is that organize a big meet with a no. of people, higher company officials, entertainment, and snacks for all. The presence of company officials in the meeting is not alone sufficient. We need to call some big personalities from that city only. The people like these masons are more impressed by the presence of Govt.officials.

71

• Ultra Tech has two major competitors- J.K. CEMENT and ACC CEMENT. • Ultra Tech is well established in the markets as far as quality is concerned. • Introduction of new attractive incentive schemes can bring new dealers & retailers for Ultra Tech cement. • Price is the major factor that matters for a customer while purchasing cement • Market share increases with the increase in no. of dealers.

ANNEXURE 1 QUESTIONNAIRE

72

SOLICITATION Dear Sir/Madam, We are conducting a survey on behalf of ultra tech cement as a part of my ‘summer training project.’ I would be extremely benefited if you answer the following questions.I assure you that the information provided by you will be used for my project work only.

NAME: _ _ _ _ _ _ _ _ ADDRESS & CONTACT NO. : _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _________________ WHICH CEMENT YOU DEAL IN: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ YOU ARE A: >DEALER >RETAILER >SUB DEALER YOUR AVERAGE MONTHLY SALE (IN BAGS): _ _ _ _ _ _ _ _ _ _ _ HOW MUCH ARE YOU SATISFIED WITH THE SERVICES PROVIDED TO YOU BY THE BRAND YOU DEAL IN: >HIGHLY SATISFIED >SATISFIED >AVERAGE >DISSATISFIED >HIGHLY DISSATISFIED WHAT TYPE OF PROBLEMS ARE YOU FACING WITH YOUR CURRENT BRAND(IF ANY): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 73

_ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _

WHAT ARE THE REASONS FOR SELLING THIS PARTICULAR BRAND: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ________________________________________ ________________________ _________________

DO YOU WANT TO SHIFT TO ANY OTHER BRAND: >YES >NO >MAY BE USEFUL COMMENTS: _________________________ _________________________________________ _________________________________________

THANKS A LOT

KAPIL KUMAR

ANNEXURE 2

74

75

76

BIBLIOGRAPHY

77

► www.cemnet.com ► www.pca.com ► www.ceicdata.com ► WWW.ULTRATECH.COM

78