Indian cement industry report


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Indian cement industry report

  1. 1. EXECUTIVE SUMMARY<br />In the race to become the most economic superpower, China has generally outperformed India, and with exception of telecom & IT, India has had trouble slaying the Chinese dragon. But now we can add another sector to the Indian success story, i.e., Cement. In last ten years, this sector has recorded a CAGR of 8%, against the world cement industry average of 3.5% and China’s cement industry growth rate of 7.2%. Today this industry not only outshines that of developed countries such as US and Japan but also has become the second largest cement producer in the world after China.<br />The cement industry has continued its growth trajectory over the past ten years. Domestic cement demand growth has surpassed the economic growth rate for the past three years. Cement demand in the country grows at roughly 1.5 times the GDP growth rate. The industry had a turnover of around US$ 7.8 billion in 2003-04 and according to CRISIL is expected to grow at a CAGR of around 7 per cent in the next five years. <br />The key drivers for cement demand are real estate sector, infrastructure and industry expansion projects. Among these real estate sector is the key driver of cement demand. The demand for cement is closely related to the growth in the construction sector. Consequently, cement demand has been posting a healthy growth rate of around 8 per cent since 1997-98, propelled by the increased thrust on infrastructure development, and the higher demand from the housing sector and industrial projects. <br />Cement is 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 characterized by its own demand-supply dynamics. Over the past few years the cost of cement production has grown at a CAGR of 8.4%.<br />With increase in infrastructure development activity with projects such as state and national highways, and global demand has led Indian cement industry to increase their production capacity. This inturn has attracted the top cement companies in the world to enter the Indian market and take the advantage of growth in demand.<br />The cement sector continues to emphasize on cost cutting through enhanced productivity, reduction in energy costs and logistic expenses.<br />The government has considered spending more than US $500 billion on infrastructure in the 11th five year plan. Apart from this railways, urban infrastructure, ports, airports, IT sector, organized retailing, malls and multiplexes will be the main sectors driving the demand of cement in the country. So we can see that cement industry is moving towards both challenges and opportunities poised by the presence of domestic and global players in the Indian market. This trend is likely to continue in the coming years.<br />1.1 SECTOR ANALYSIS<br />Indian Economy grew by 5.4 per cent in 2001-02, which is considered to be one of the highest growth rates in the world for the year. This growth is supported by a growth rate of 5.7 per cent in agriculture and allied sectors, 3.3 percent in industry and 6.5 per cent in services. <br />Overall agricultural output is estimated to increase by nearly 7 per cent in 2001-02. Food grains production is expected to rise to 209 million tons compared with 196 million tons in 2000-01. Prospects of agricultural production in 2001-02 are considered to be bright as a result of normal monsoon and relatively favorable distribution of rainfall over time and regions. <br />While the Indian industry sector grew by 3.3 per cent, with in industry sector segments like construction showed a lower growth in 2000-01, there was marked improvement in the growth rates of manufacturing (from 4.2 per cent in 1999-00 to 6.7 per cent in 2000-01) and mining and quarrying (from 2 per cent to 3.3 per cent during the same period). The growth rate of electricity, gas and water supply remained almost invariant at around 6.2 per cent for both 1999-2000 and 2000-01. During 1993-94 to 1999-2000 the service sector had achieved consistently high growth rates in the range of 7.1 per cent to 10.5 per cent. But for the first time in 2000-01, the growth rate of the service sector declined to 4.8 per cent due to poor performance by financial sector, trade hotels and restaurants, and community and social services.<br />Agriculture The agriculture sector, for so long the mainstay of the Indian Economy, now accounts for only about 20 per cent of GDP, yet employs over 50 per cent of the population. For some years after independence, India depended on foreign aid to meet its food needs, but in the last 35 years, food production has risen steadily, mainly due to the increase in irrigated areas and widespread use of high-yield seeds, fertilizers, and pesticides. The Country has large grain stockpiles (around 45 million tons) and is a net exporter of food grains. <br />Cash crops, especially tea and coffee, are the major export earners. India is the world's largest producer of tea, with annual production of around 470 million tons, of which 200 million tons is exported. India also holds around 30 per cent of the world spice market, with exports around 120,000 tons per year. <br />With a view to strengthening the sector, building infrastructure for handling, transportation, and storage of food grains has been granted " infrastructure status" and will be eligible for a tax holiday. Further, processors of food and vegetables are exempt from excise duty. <br />Manufacturing Sector <br />After a decade of reforms, the manufacturing sector is now gearing up to meet challenges for the new millennium. Investment in Indian companies reached record levels by 1994 and many multinationals decided to set up shop in India to take advantage of the improved financial climate. In an effort to provide a further boost to the industrial manufacturing sector, Foreign Direct Investment (FDI) has been permitted through the automatic route for almost all the industries with certain restrictions. Structural reforms have been undertaken in the excise duty regime with a view to introduce a single rate and simplify the procedures and rules. Indian subsidiaries of multinationals have been permitted to pay royalty to the parent company for license of international brands, etc. Over the period 1992-93 to 1999-2000, the manufacturing sector has recorded an average annual growth rate of 6.3 per cent and in 2001-02; it recorded a growth of 2.8 per cent. <br />Companies in the manufacturing sector have consolidated around their area of core competence by tying up with foreign companies to acquire new technologies, management expertise, and access to foreign markets. The cost benefits associated with manufacturing in India, has positioned India as a preferred destination for manufacturing and sourcing for global markets. <br />Financial Sector<br />An extensive financial and banking sector supports the rapidly expanding Indian Economy. India boasts of a wide and sophisticated banking network. The sector also has a number of national and state level financial institutions. These include foreign and institutional investors, investment funds, equipment leasing companies, venture capital funds, etc. Further, the Country has a well-established stock market, comprising 23 stock exchanges, with over 9,000 listed companies. Total market capitalization, on the two dominant stock exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), stood at Rs. 6,926 billion and Rs. 7,604 billion respectively, at the end of December 2000. The Indian capital markets are rapidly moving towards a market that is modern in terms of infrastructure as well as international best practices such as derivative trading with stock index futures, addition to the list of compulsory Demat trading and rolling settlement in certain specified shares, commencement of internet based trading, etc. <br />The last year witnessed several Indian companies, mobilizing resources by tapping the world market through the ADR/GDR route. So as to improve the liquidity in the ADR/GDR market and to give opportunity to Indian shareholders to divest their shareholding in the ADR/GDR market abroad, measures such as two-way fungibility in ADR/GDR issues of Indian companies has been introduced and sponsorship of ADR/ GDR offerings against existing shareholding. In addition to the above, 26 per cent foreign equity has been allowed in the insurance sector and investment and divestment by venture capital funds and companies registered with SEBI has been simplified. <br />FII inflows were USD 2.34 billion (January 2001 to June 2001) compared to USD 1.5 billion for 2000, showing an upward trend despite depressed stock market indices. Net cumulative FII inflows crossed USD 14 billion (June 2001). <br />Services Sector<br />The main thrust to industrial growth has come from the services sector. Services contribute to 41 per cent of the GDP. Rapidly, the quality and complexity of the type of services being marketed is on the rise to match worldwide standards. Whether it is financial services, software services or accounting services, this sector is highly professional and provides a major impetus to the Economy . Interestingly, this sector is populated with a range of players who cater to a niche market. <br />India is fast becoming a major force in the Information Technology sector. According to the National Association of Software and Service Companies (NASSCOM), over 185 Fortune 500 companies use Indian software services. The world's software giants such as Microsoft, Hughes and Computer Associates who have made substantial investments in India are increasingly tapping this potential. A number of multi-nationals have leveraged the relative cost advantage and highly skilled manpower base available in India, and have established shared services and call centers in India to cater to their worldwide needs. <br />The software industry was one of the fastest growing sectors in the last decade with a compound annual growth rate exceeding 50 per cent. Software service exports increased from US$ 4.02 billion in 1999-2000 to US$ 6.3 billion in 2000-01, thereby registering a growth of 57 per cent. India's success in the software sector can be largely attributed to the industry's ability to cultivate superior knowledge through intensive R&D efforts and the expertise in applying the knowledge in commercially viable technologies. <br />1.2 Contribution of Manufacturing Sector towards the Indian Economy<br />An estimated 100.9 million people were employed in 41.8 million establishments in India, growing at 2.78 percent and 4.69 percent, respectively from 1998-2005, shows the official Economic Census for 2005. Non-farm sector continued to be the principal source of employment, employing 90 million people, compared to 10.9 million in agriculture sector, said the census released here Thursday.<br />“Retail and manufacturing establishments continue to be the key employment providers in India,” said S.K. Nath, director general of the Central Statistical Organisation (CSO), which compiled the census.<br />“It is a significant pointer that India has a great deal of potential for growth in these two sectors,” he said.<br />Manufacturing sector employed 25.5 million people or 25.25 percent of the total workforce, followed by 25.1 million or 24.91 percent, respectively for retail trade sector, showed the survey.<br />This was the fifth in the series of the economic censuses conducted by CSO, an agency under the ministry of statistics and programme implementation. The first census of its kind was launched in 1977.<br />“This census gives us a complete picture of India’s economic situation. We must interpret the data intelligently. There has been a rapid growth in small-scale industries,” said Statistics and Programme Implementation Secretary Pranob Sen.<br />Following are some of the key census findings: <br /><ul><li>100.90 million People employed in 41.83 establishments in India.
  2. 2. 41.83 million Establishments, 25.54 million in rural and 16.29 million in urban areas, operated in 2005.
  3. 3. 39.61 million Establishments under private ownership.
  4. 4. 26.96 million Units were own establishments, without hired workers.
  5. 5. 35.75 million Non-agricultural establishments engaged 89.99 million workers, while agriculture sector’s 6.08 million units had 10.91 million workers.
  6. 6. Employment growth rate at 2.78 percent between 1998 and 2005.
  7. 7. Males accounted for 78.3 million of the workforce; women accounted for 20.2 million, children 2.4 million.
  8. 8. Manufacturing sector was the largest employer (25.5 million people); the retail sector came next (25.1 million people); farming was third (9.2 million people).
  9. 9. 95 percent establishments had 1-5 workers; 3.42 percent had 6-9 workers; only 1.51 percent employed 10 or more workers.</li></ul>2.1 Industry Background<br />Pre Independence<br />The first endeavor to manufacture cement dates back to 1889 when a Calcutta based company endeavored to manufacture cement from Argillaceous (kankar).<br />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.<br />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.<br />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.<br />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.<br />Post Independence<br />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.<br />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.<br />Period of Restriction (1969-1982)<br />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.<br />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.<br />In 1979 the government introduced a three tier price system. Prices were different for cement produced in low, medium and high cost plants. <br />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.<br />Partial Control (1982-1989)<br />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 affected. The remaining 33.40% was allowed to be sold in the open market.<br />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.<br />Post Liberalization<br />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.<br />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.<br />Cement is one of the core industries which plays a vital role in the growth and expansion of a nation. It is basically a mixture of compounds, consisting mainly of silicates and aluminates of calcium, formed out of calcium oxide, silica, aluminium oxide and iron oxide. The demand for cement depends primarily on the pace of activities in the business, financial, real estate and infrastructure sectors of the economy. Cement is considered preferred building material and is used worldwide for all construction works such as housing and industrial construction, as well as for creation of infrastructures like ports, roads, power plants, etc. Indian cement industry is globally competitive because the industry has witnessed healthy trends such as cost control and continuous technology upgradation.<br />2.2 Current Scenario<br />The Indian cement industry is the second largest producer of quality cement. Indian Cement Industry is engaged in the production of several varieties of cement such as Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement, etc. They are produced strictly as per the Bureau of Indian Standards (BIS) specifications and their quality is comparable with the best in the world.<br />The Indian cement industry is the second largest in the world. It comprises of 140 large and more than 365 mini cement plants. The industry's capacity at the beginning of the year 2009-10 was 217.80 million tonnes. During 2008-09, total cement consumption in India stood at 178 million tonnes while exports of cement and clinker amounted to around 3 million tonnes. The industry occupies an important place in the national economy because of its strong linkages to other sectors such as construction, transportation, coal and power. The cement industry is also one of the major contributors to the exchequer by way of indirect taxes.<br />Cement production during April to January 2009-10 was 130.67 million tonnes as compared to 115.52 million tonnes during the same period for the year 2008-09. Despatches were estimated at 129.97 million tonnes during April to January 2009-10 whereas during the same period for the year 2008-09, it stood at 115.07 million tonnes.<br />Over the last few years, the Indian cement industry witnessed strong growth, with demand reporting a compounded annual growth rate (CAGR) of 9.3% and capacity addition a CAGR of 5.6% between 2004-05 and 2008-09. The main factors prompting this growth in demand include the real estate boom during 2004-08, increased investments in infrastructure by both the private sector and Government, and higher Governmental spending under various social programmes. With demand growth being buoyant and capacity addition limited, the industry posted capacity utilisation levels of around 93% during the last five years. Improved prices in conjunction with volume growth led to the domestic cement industry reporting robust growth in turnover and profitability during the period 2005-09.<br />2.3 Consumption Growth during 2008-09<br />Even during the economic slowdown in 2008-09, growth in cement demand remained at a healthy 8.4%. In the current fiscal (2009-10) cement consumption has shot up, reporting, on an average, 12.5% growth in consumption during the first eight months with the growth being aided by strong infrastructure spending, especially from the govt sector. The trends in all-India consumption and the growth in consumption in the major cement-consuming States over the last five years are presented in below table:<br />Growth in Cement Demand<br />Figures in Million Tonnes2008-09Apr-Nov 09Domestic Consumption178100Year-on-Year Growth (%)8.412.5<br />Source: Cement Manufacturers Association (CMA), ICRA Research<br />TABLE 2.1<br />2.4 Key Drivers of Cement Industry<br />Buoyant real estate market<br />Increase in infrastructure spending<br />Various governmental programmes like National Rural Employment Guarantee<br />Low-cost housing in urban and rural areas under schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Indira Aawas Yojana<br />2.5 Globalization of Indian Cement Industry<br />The Globalization of Indian Cement Industry has helped the industry to restructure itself to cope up with the alterations in the 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 emergence during the British Raj in India. Though the majority of the players in the Indian cement industry were private sector organizations, the industry was highly regulated. <br />With the rapid growth rate of the Indian economy after the 1990s, the infrastructural developments within the country has been tremendous. The increase in the construction activities has led to the increase in the demand for updated quality building materials and other allied products. Cement being one of the major elements in the construction work, there is a growth in the cement industry in India. The consumption of cement has increased in India by nearly 7.5%. With the globalization of Indian cement industry many foreign cement manufacturers are engaging themselves in agreements and deals with their India counter parts to have a share of the growth. <br />Globalization of Indian Cement Industry includes several foreign companies engaging in mergers and acquisitions of Indian cement companies, like <br />Heidelberg Cement - Indorama Cement Ltd. Heidelberg Cement Company entered into an agreement for a 50% joint venture with the Indorama Cement Ltd., situated in Mumbai, originally possessed by the Indorama S P Lohia Group. Heidelberg Cement Company is the leading German cement manufacturing company. The Heidelberg Cement was set up in 1873 and has a long and prosperous history. Being one of the best in the world the Heidelberg Cement Company has its bases in different countries. The Heidelberg Cement Company has two manufacturing units in India. A grinding plant in Mumbai and a cement terminal near Mumbai harbor. A clinker plant is coming up in the state on Gujarat <br />Holcim Cement - Gujarat Ambuja Cements (GACL) Holcim Cement signed an agreement of 14.8% take over with the Gujarat Ambuja Cements (GACL). With new products, skilled personnel, superb management, and a outstanding market strategy gives this tie up good edge over the other competitors. Holcim Cement Company is among the leading cement manufacturing and supplying companies in the world. It is one of the major employers in the world; having a work force of 90,000.The Holcim Cement Company has units in excess of 70 countries all over the world. <br />Italcementi cement - Zuari Cement Limited Italcementi Cement Company with the help of the Ciments Français, a subsidiary for its global activities, has acquired shares of the famous Indian cement manufacturer - Zuari Cement Limited. The acquisition was of 50% shareholding and the deal was of about 100 million Euros. Italcementi Cement is the 5th largest cement manufacturing company in the world. The production capacity of the Italcementi cement company is about 70 million tons in a year. With the construction boom in India the company looks for a stable future. In 2001 the Italcementi cement entered the Indian market scenario. It took over the plant of the Zuari Cement Limited in Andhra Pradesh in southern India. The joint venture earned revenues of around 100 million Euros and an operating profit of 4 million Euros. <br /><ul><li>Lafarge India is the subsidiary of the Lafarge Cement Company of France. It was established in 1999 in India with the acquisition of the Tisco and the Raymond cement plants. Lafarge Cement presently has three cement manufacturing units in India. One of them is in Jharkhand which is used for the purpose of grinding and the other two are in Chhattisgarh used for manufacturing. The Lafarge Cement Company was set up in the year 1833 by Leon Pavin. Lafarge Cement Company situated in France is the leading cement producing company in the world. It has plans for increasing the cement production through technological innovations and maximization of the capacity of the plant. It has a large network of distributors in the eastern part of India. The Lafarge Cement Company is presently producing nearly 5.5 million tons of cement for the Indian cement market.</li></ul>2.6 STRUCTURE OF THE INDIAN CEMENT INDUSTRY<br /><ul><li>It is a fragmented industry. There are 56 cement companies in India, operating 124 large and 300 mini plants, where majority of the production of cement (94%) in the country is by large plants.
  10. 10. One of the other defining features of the Indian cement industry is that the location of limestone reserves in select states has resulted in it’s evolving in the form of clusters.
  11. 11. Since cement is a high bulk and low value commodity, competition is also localized because the cost of transportation of cement to distant markets often results in the product being uncompetitive in those markets.
  12. 12. Another distinguishing characteristic comes from it being cyclical in nature as the market and consumption is closely linked to the economic and climatic cycles. In India, cement production is normally at its peak in the month of March while it is at its lowest in the month of August and September. The cyclical nature of this industry has meant that only large players are able to withstand the downturn in demand due to their economies of scale, operational efficiencies, centrally controlled distribution systems and geographical diversification.</li></ul>3.1 OBJECTIVES OF THE STUDY<br />To analyze the evolution of cement industry.<br />To compare the global market with Indian cement industry.<br />To estimate the level and analyze the trends in market concentration in the cement industry.<br />To assess the profitability, liquidity and other financial ratios of the firms when compared to the industry.<br />To find out the efficiency and economic size of cement manufacturing firms.<br />3.2 METHODOLOGY OF THE STUDY<br />No field work in collection of primary data for the study and the study is going to be descriptive and analytical.<br />Secondary information is obtained by the medium of internet, journals, articles and magazines.<br /><ul><li>The five companies have been chosen based on market share, production capacity and net profits for the previous years.</li></ul>3.3 SOURCES OF DATA<br />Only secondary data was collected from the internet, company websites, magazines and various articles. Capitaline databases have been the main source of information for company analysis.<br />3.4 LIMITATIONS OF THE STUDY:<br /><ul><li>The study is limited to the top five cement companies in India.
  13. 13. Only three years’ data is used for comparing the performance of these companies.
  14. 14. The financial ratios used for analysis of performance of each company are limited.</li></ul>4.1 SWOT ANALYSIS<br />a) Strengths:<br /> Second largest in the world in terms of capacity: In India there are approximately 124 large and 300 mini plants with installed capacity of 200 million tonnes.<br /> Low cost of production: due to the easy availability of raw materials and cheap labour.<br />b) Weakness:<br />Effect of global recession on real estate: The real estate prices are stabilizing and facing steady slowdown especially in metros. There are approximately one hundred thousand completed flats without occupancy in Bangalore. There has been drastic reduction in property prices due to reduced demand and increased supply.<br />Demand-Supply gap, overcapacity: The capacity additions distort the demand-supply equilibrium in the industry thereby affecting profitability.<br />Increasing cost of production due to increase in coal prices.<br />High Interest rates on housing: The re-pricing of the interest rates in the last four years from 7% to 12% has resulted in the slowdown in residential property market.<br />c) Opportunities:<br />Strong growth of economy in the long run: Indian economy has been one of the stars of global economics in the recent years, growing 9.2% in 2007 and 9.6% in 2006. However, India is facing tough economic times in 2008.<br />Increase in infrastructure projects: Infrastructure accounts for 35% of cement consumption in India. And with increase in government focus on infrastructure spending, such as roads, highways and airports, the cement demand is likely to grow in future.<br />Growing middle class: There has been increase in the purchasing power of emerging middle-class with rise in salaries and wages, which results in rising demand for better quality of life that further necessitates infrastructure development and hence increases the demand for cement.<br />Technological changes: The Cement industry has made tremendous strides in technological up gradation and assimilation of latest technology. At present ninety three per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only seven per cent of the capacity is based on old wet and semi-dry process technology. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially and hence reduce the cost of production.<br />d) Threats:<br />Imports from Pakistan affecting markets in Northern India: In 2007, 130000 tonnes in 2008, 173000 Metric tones of cement was exported to India. This was done to keep the price of cement under check.<br />Excess overcapacity can hurt margins, as well as prices.<br />4.2 PORTER’S FIVE FORCES<br />4.3 CONCENTRATION RATIO:<br />4.3.1Herfindahl-Hirschman Index (HHI)<br />The H index is a far more precise tool for measuring concentration. Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust and also technology management. It is obtained by squaring the market-share of each of the players, and then adding up those squares<br />The formula for this index is:<br />Where,<br /> H = Herfindahl Index.<br />si = Contribution of each individual firm to Industry sales.<br /> n = Number of firms<br />Here %S stands for the percentages of the market owned by each of the larger companies, so that %S1 is the percentage owned by the largest company, %S2 by the second, and so on. n stands for the total number of firms you are counting.<br />It can range from 0 to 10,000, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite.<br />A HHI index below 0.01 (or 100) indicates a highly competitive index.<br />A HHI index below 0.1 (or 1,000) indicates an unconcentrated index.<br />A HHI index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration.<br />A HHI index above 0.18 (above 1,800) indicates high concentration<br />MAJOR PLAYERS IN THE NORTH:<br />TOTAL SALES for the year 2009 = Rs. 33589.02 Cr<br />Name of the CompanyNet Sales in Cr. (2009)Percentage (%)ACC7,942.6623.64659642Ambuja Cem.7,040.7020.96131414Birla Corpn.1,790.195.329688095J K Cements1,664.424.955250257JK Lakshmi Cem.1,223.903.643750249Shree Cement2,716.468.08734521UltraTech Cem.6,385.5019.0106767<br />TABLE 4.1<br />GRAPH 4.2<br />HHI = 0.149173<br />HHI indicates moderate concentration that implies the size of the firm in relationship to the overall cement industry in North is medium.<br />MAJOR PLAYERS IN SOUTH:<br />TOTAL SALES for the year 2009 = Rs. 11266.01 Cr<br />Name of thecompanyNet Sales inCr.(2009)Percentage (%)Andhra Cements369.363.278534281Chettinad Cement1,137.6710.09825129Dalmia Cement1,758.6815.61049564India Cements3,358.3429.8094889Madras Cement2,530.9022.46491881Rain Commodities1,111.019.861610277zuari Cements438.723.894191466<br />TABLE 4.2<br />lefttopGRAPH 4.2<br />HHI = 0.186167<br />HHI indicates moderate concentration that implies the size of the firm in relationship to the overall cement industry in South is medium.<br />4.4 Life Cycle Analysis<br />Cement is a typical cyclical industry, characterized by the boom-and bust syndrome. A huge potential market and rapid growth in the early stages lead to a surge in interest and a flurry of research. The projected growth rates point to a lucrative market. The buoyant markets and huge profits raked in by players tempt more players into the market. Capacities increase in excess of demand and a glut in capacity is created. Competition increases, prices fall and margins come under pressure. Capacity addition comes to a halt; weaker players shut shop or sell off to larger ones. Demand catches up and the cycle is repeated all over again. Perhaps, of all the cyclical industries, the Indian cement industry exhibits this boom-and-bust cycle most visibly. Buoyed by booming economy with amplified demand for enhanced infrastructure housing & commercial space, we believe the cement industry is showing the boom, at present.<br />COMPOSITION OF CEMENT<br />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.<br />DIFFERENT TYPES OF CEMENT<br />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.<br /><ul><li>Ordinary Portland Cement (OPC):</li></ul>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.<br /><ul><li>Portland Pozolona Cement (PPC):</li></ul>PPC has 80% clinker, 15% pozolona and 5% gypsum and accounts for 18% of the total cement consumption. Pozolona has siliceous and aluminous materials that do not possess cementing properties but develop these properties in the presence of water. 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.<br /><ul><li>Portland Blast Furnace Slag Cement (PBFSC):</li></ul>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.<br /><ul><li>White Cement:</li></ul>Basically, it is OPC: clinker 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.<br /><ul><li>Specialized Cement:</li></ul>Oil Well Cement: is made from clinker with special additives to prevent any porosity. <br />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.<br />Water Proof Cement: OPC, with small portion of calcium stearate or non-saponifibale oil to impart waterproofing properties.<br />4.5 Manufacturing Processes<br />There are two general processes for producing clinker and cement in India: a dry process and a wet process. In general, the dry process is much more energy efficient than the wet process, and the semiwet somewhat more energy efficient than the semi-dry process. The semi-dry process has never played an important role in Indian cement production and accounts for less than 0.2% of total production.<br />Over the last decade, increased preference is being given to the energy efficient dry process technology so as to obtain a cost advantage in a competitive market. Moreover, since the initiation of the decontrol process, many manufactures have switched over from the wet technology to the dry technology by making suitable modifications in their plants. Due to new, even more efficient technologies, the wet process is expected to be completely phased out in the near future. In 1960, around 94% of the cement plants in India used wet process kilns. These kilns have been phased out over the past 46 years and at present, 96.3% of the kilns are dry process, 3% are wet, and only 1% are semidry process. Dry process kilns are typically larger, with capacities in India ranging from 300- 8,000 tonnes per day or tpd (average of 2,880 tpd). While capacities in semi-dry kilns range from 600-1,200 tpd (average 521tpd), capacities in wet process kilns range from 200-750 tpd (average 425 tpd).<br />FIG 4.3<br />DRY PROCESS<br />In dry process production, limestone is crushed to a uniform and usable size, blended with certain additives (such as iron ore and bauxite) and discharged on to a vertical roller mill where the raw materials are ground to fine powder. An electrostatic precipitator dedusts the raw mill gases and collects the raw meal for a series of further stages of blending. The homogenized raw meal thus extracted is pumped to the top of a preheater by air lift pumps. In the preheaters the material is heated to 750°C. Subsequently, the raw meal undergoes a process of alcinations in a precalcinator (in which the carbonates present are reduced fed to the kiln. The remaining alcinations and clinkerization reactions are completed in the kiln where the temperature is raised to 1,450-1,500°C. The clinker formed is cooled and conveyed to the clinker silo from where it is extracted and transported to the cement mills for producing cement. For producing OPC, clinker and gypsum are used and for producing PPC, clinker, gypsum and fly ash are used.<br />WET PROCESS<br />The wet process differs mainly in the preparation of raw meal where water is added to raw materials to produce slurry. The chemical composition is corrected and the slurry is then pumped to the kiln where evaporation of moisture, preheating, calcinations and sintering reaction takes place. The clinker is cooled and transported, as in the case of other plants, with suitable conveyors to cement mills for grinding. The wet process is more energy intensive, and thus becomes expensive when power and energy prices are high.<br />GRAPH 4.4<br />4.6 GOVERNMENT POLICIES<br />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:<br /><ul><li>Price and Distribution Controls (1940-1981)</li></ul>During the Second World War, cement was declared as an essential commodity under the Defence 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.<br /><ul><li>Partial Decontrol (1982-1988)</li></ul>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%.<br /><ul><li>Total Decontrol (1989)</li></ul>In the year 1989, total decontrol of the cement industry was announced. By decontrolling the cement industry, the government relaxed the forces of 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.<br />GOVERNMENT CONTROLS<br />The prices that primarily control the price of cement are coal, power tariffs, railway, freight, royalty and cess on limestone. Interestingly, government controls all of these prices.<br />TAX STRUCTURE<br />The Indian Cement industry is one of the highest taxed one. At the price level of Rs. 200 per bag, total tax burden, as a percentage of ex-factory realization works out to 45%. The cement industry has been continuously representing to the Government for more rational tax regime. The Central Government in its budget presented on 28th February 2007, for the first time, announced a dual excise duty structure for cement industry. Excise duty was increased to Rs. 600 per MT on cement with Retail Sale Price (RSP) exceeding Rs. 190. per bag and Rs. 350 per MT for cement with RSP of Rs.190 per bag and below as against specific excise duty of Rs. 400 per MT so far. This dual structure not only enhanced taxation burden further on the industry but also complicated its effective implementation. Government, however, having realized difficulty of the industry and the consequent burden to the consumer, has subsequently revised the structure w.e.f. 31st May 2007. It has now levied an advalorem duty of 12% on cement with. RSP exceeding Rs. 190 per bag while retaining specific duty of Rs. 350 per MT on cement sold Rs. 190 per bag and below.<br />4.7 Industry Structure and Nature of competition<br />INSTALLED CAPACITY<br />India is the world’s second largest cement producing country after China. The industry is characterized by a high degree of fragmentation that has created intense competitive pressure on price realizations. Spread across the length and breadth of the country, there are approximately 130 large cement plants owned by around 52 companies and 365 mini-cement plants with an installed capacity of around 172.08mtpa as on June 2007. Large cement plants accounted for 94% of the total installed capacity in India.<br />CAPACITY CLUSTERS<br />Cement and its raw materials namely coal and limestone, are all bulky items that make transportation difficult and uneconomical. Given this, cement plants are located close to both, sources of raw materials and markets. Most of limestone deposits in India are located in Madhya Pradesh, Rajasthan, Andhra Pradesh, Maharashtra and Gujarat, leading to concentration of cement units in these states. This has resulted in ‘clusters’. There are eight such clusters in the country and account for 81% of the cement capacity. There is a trade-off between proximity to markets and proximity to raw materials due to which some cement plants have been set up near big markets despite lack of raw materials.<br />GRAPH 4.5<br />GRAPH 4.6<br />4.8 COST ANALYSIS<br />The energy costs and cement freight costs are the two most important elements in the cost structure of a cement company. While, the share of energy costs has increased marginally, freight cost has experienced a decline in its share of total operating costs. The share of other costs (such as stores & spares, manufacturing overheads, and administrative expenses) has declined. The share of costs on account of material, repair and maintenance, employees and selling expenses have more or less remained stable.<br />GRAPH 4.7<br />Power & Fuel<br />The cement industry is one of the most energy-intensive sectors within the Indian economy. Clinker production is the most energy intensive step, accounting for nearly 75% of the energy used in cement production. In India, an estimated 90-94% of the thermal energy requirement in cement manufacturing is met by coal. The remaining is met by fuel oil and high-speed diesel oil. Despite recent increase in coal prices the industry has been able to control the expenditure on this account by investing in captive power plants – freeing themselves from the tariff hike by SEB and reducing the energy consumption required to produce a tonne of cement. However, Government is planning to phase out supplies of subsidized coal to cement, steel and paper industry. The proposed decision if implemented could result in cost escalation of almost 30-40%, as the prices of coal under auction system are 30-40% higher than the notified prices.<br />COAL<br />Coal is an important input in cement manufacture and accounts for 15-20% of the total cost. Coal serves a dual role in cement manufacture. Firstly, the heat value in coal provides the thermal energy required for the operation of the kiln. Secondly, the mineral content in coal (basically, silica content) acts as a constituent in clinker. Cement accounts for around 4.5% of India's coal demand.<br />Consumption of coal for production of cement has not increased proportionately with cement production because of the switch to the dry process; efficiency improvements in cement kilns and the increased use of fly ash produced in power plants and granulated slag produced in blast furnaces of steel plants in the production of cement. However, over the years, there has been deterioration in the quality of coal. In particular, the ash content has increased implying lower calorific values for coal, and improper and inefficient burning, etc. Therefore, coal consumption has started to increase, resulting in higher fuel and transportation costs. In order to reduce these problems, the cement industry started implementing coal washeries, which reduce the ash content of the coal at the mine itself. Cement companies are also resorting to importing coal, or using alternative fuel such as lignite or petcoke.<br />POWER<br />Cement is a power intensive industry requiring on an average 90-105 units of power in the wet process, and 100-110 units of power in the dry process to produce one tonne of cement produced. Significantly power accounts for 15-20% of the variable cost of cement manufacturing. Cement manufacturing consumes power mainly for three purposes: raw meal grinding, kiln rotation and clinker grinding. Each stage accounts for roughly one third of the total power consumption. A dry process plant typically has an average connected load of 15 MW. Based on the present installed capacity of 172 mtpa of cement, the total industry requirement is roughly 2520 MW. This is just around 2% of India's total current power generating capacity.<br />However, with the increase in the frequency of power cuts and rising power tariffs, many cement companies are meeting 60-100% of their power requirement through captive facilities. The captive power generation capacity of cement plants is presently estimated at around 1,800 MW. During FY2005, roughly 43% of the total domestic cement production was undertaken using captive power as against only 21% in FY1995. Thus, the share of cement production using captive power has only increased over the years.<br />Transportation<br />Outward freight on cement is an important element in the operating cost of a cement plant. It accounts for around one third of the total variable costs. Most of the cement plants in India are located in and around the limestone clusters. These clusters are distant from the collieries and the markets for cement. Cement has an average lead of around 535 km. Thus, cement companies have to rely on extensive transportation for moving coal from the coal pitheads to the cement plants and for dispatching cement from the plant to the markets. Both coal and cement are of low value and bulky in nature, freight costs are considerably high for cement plants. Cement companies use both road and rail transport to transport cement and to receive coal. Although rail transportation is more economical for distances beyond 250-300 km, cement companies have started preferring road transportation even for longer distances because of insufficient wagon supply to the cement industry. Presently, Rail dispatches amount for about 33% while roads carry the balance 66%. The balance 1% is accounted by Sea transportation. The share of road over rail has only gone up over the years. For coal transportation, the dependence on rail network is still very high and accounts for around 70% of coal movement.<br />Over the past 12-15 months freight cost on cement has jumped more than 20%. This was largely because of the Supreme Court ruling that banned overloading of cement trucks. Further increasing diesel haven’t helped the cause. This has induced many cement companies to shift a portion of their cargo to rail. However, with Indian Railways facing shortage of wagons, we do expect that it will gradually increase freight charges, which in turn could push up the freight cost again.<br />Raw Materials<br />Cement is usually used in mortar or concrete. It is mixed with inert material (called aggregate), like sand and coarse rock. Portland cement consists of compounds of lime mixed with oxides like silica, alumina and iron oxide. There are three major raw materials for cement.<br /><ul><li>LIMESTONE</li></ul>Limestone is the main raw material and is the source of calcium carbonate. Calcium carbonate is burnt to obtain calcium oxide (CaO). Limestone is the most abundant source of CaO. Cement is the biggest limestone user in India accounting for over 75-80% of limestone produced in India. The composition of limestone used by the various sectors varies. For cement, the CaO content of limestone should be a minimum of 44%. Typically, 1.4-1.5 tonnes of limestone are required per tonne of clinker. Thus, for a 1 million tone cement plant, assured availability of cement grade limestone reserves of the order of 50-60 mt in the close vicinity is important.<br />As on 31 March 2006, the country's estimated gross reserves of cement grade limestone stand at 97430 mn.t. Out of total limestone reserves, over 45% of the inventory of cement grade limestone is in the Southern region, followed by the Northern region with 21.84%, the Western region with 12.34% and the Eastern region with 15.82% and rest 3.64% with central region. Andhra Pradesh has the privilege of possessing about 31% of the country's total proved equilanet reserves of limestone. <br />GRAPH 4.8<br /><ul><li>GYPSUM</li></ul>Gypsum is used as a retarding agent. Ground clinker, on contact with water, tends to set instantaneously because of the very fast reaction between tri-calcium alluminate and water. In the presence of gypsum, the desired setting time can be achieved. Gypsum is added to the extent of 5% during the clinker grinding stage. Gypsum is naturally available in abundance in Rajasthan, Gujarat and Tamilnadu.<br /><ul><li>GRANULATED BLAST FURNACE SLAG (GBFS)</li></ul>The other raw materials that are also used in the manufacture of cement are blast furnace slag (a waste product obtained from iron-smelting furnaces) and flyash (leftover ash from a thermal power station). Limestone contains about 52% of lime and about 80% of this lime is lost during ignition of the raw materials. Similarly, Clay contributes about 57% silica of which about 25% is lost during ignition.<br />GBFS is obtained by granulation of slag obtained as a by-product during the manufacture of steel. It is a complex calcium aluminum silicate and has latent hydraulic properties. That is why it is used in the manufacture of Portland blast furnace slag cement.<br />4.9 TECHNOLOGICAL ANALYSIS<br />Modernization and technology up-gradation is a continuous process for any growing industry and is equally true for the cement industry. The Indian cement industry today is by and large comparable to the best in the world in respect of quality standards, fuel & power consumption, environmental norms, use of latest technology and capacity. The productivity parameters are now nearing the theoretical bests and alternate means, like alternate fuels and raw materials have to be found to ensure further improvement in productivity and reduce production costs. <br />Cement industry being energy intensive, the energy conservation and alternate cheaper, renewable and environmentally friendly sources of energy have assumed greater importance for improving productivity. The major challenges confronting the industry today are raging insecurity in indigenous fuel availability, perennial constraints like higher ash content, erratic variations in quality of indigenous coal and inconsistent power supply with unpredicted power cuts. Keeping these challenges in view, the efforts by the industry towards energy conservation and finding alternate cheaper, renewable and environmentally friendly sources of energy are given utmost importance. <br />Review of Technological Status <br />Process Profile <br />The Cement Industry today comprises mostly of Dry Suspension Preheater and Dry-Precalciner plants and a few old wet process and semi-dry process plants. Till late 70’s the Cement Industry had a major share of production through the inefficient wet process technology. The scenario changed to more efficient large size dry process technology since early eighties. In the year 1950, there were, only 33 kilns out of which 32 were based on wet process and only one based on semi-dry process. Today, there are 162 kilns in operation out of which 128 are based on dry process, 26 on wet process and 8 on semi-dry process.<br />Kiln Capacity and Size <br />The economic unit capacity for cement plants in India till early sixties was about 300 TPD. In mid sixties this was standardized at around 600 TPD for both wet and dry process plants. About a decade later, i.e. from mid seventies, the new plants installed were of 1200 TPD capacity. The advent of precalciner technology in mid eighties provided an opportunity to the industry to modernize and increase the capacity of existing dry process plants, to convert plants from wet to dry process as well as to set up large capacity plants incorporating the latest technological advancements. This led to installation of single line kilns of 3000 TPD (1 MTPA) capacity and more. The present trend indicates the preference of still larger kilns of about 6000 TPD capacity and above. Already there are nine kilns of 8000 tpd capacity in operation and three kilns of capacity 10000 – 12000 TPD are under installation. The green-field plants being installed now are based on most advanced and the best available technology. <br />Average annual installed capacity per plant in India is about 1.2 MTPA as against more than 2.1 MTPA in Japan. This is due to blend of small and large plants coming up at various stages and still operating in India as against smaller plants having been decommissioned in Japan. <br />Present Status of Technology <br />A comparison of the status of the modernization in equipment and also the technologies absorbed or implemented by the Indian cement industry along with status of Global Technology is as under:<br /> Low Technology Plants Modern Plants Global Technology Mining & Material Handling Conventional Computer aided Computer aided Crushing Two stage Single stage In-pit crushing & conveying Conveying of Limestone Dumpers/Ropeway/ Tippers Belt conveyors Pipe conveyors, Belt conveyors Grinding Ball Mills with / without conventional classifier VRM’s Roll Presses with dynamic classifier VRM’s, Roll Presses, Horo Mills with dynamic classifier Pyro Processing Wet Semi Dry Dry - 4 stage preheater - Conventional cooler - Single channel burner Dry - 5/6 stage preheater - High Efficiency Cooler - Multi Channel Burner Dry - 6 stage preheater - High Efficiency Cooler - Multi Channel Burner - Co-processing of WDF - Co-generation of power - Low NOx/SO2 emission technologies Blending & Storage Batch-Blending Silos Continuous Blending silos - Continuous Blending - Multi-Chamber Silos - Dome silos Packing & Despatch Bag - Bag - Bulk - Bulk - Palletizing & Shrink Wrapping Process Control Relay Logic / Hard Wired / PLC - DDC - Fuzzy Logic expert system - DDC - Neurofuzzy expert system Plant Size, TPD 300-1800 3000-6000 6000-12000 <br />TABLE 4.3<br />The directions in which the modernization activities are proceeding are as illustrated below: <br />Mining <br />For rational exploitation of the raw material source, a systematic mine plan is developed by cement plants. Computer-aided techniques for raw material deposit assessment to arrive at proper extraction sequence of mining blocks, keeping in view the blending operational requirements, are envisaged and put to use in number of units. <br />Crushing <br />Mobile crushers have come in use in some of the newer plants, keeping in view the split location of limestone deposits and long conveying distances. The mobile crushing plant is stationed at the mine itself and raw material is crushed at the recovery site. <br />Grinding <br />Vertical Roller Mills (VRM) has given the real breakthrough in the area of grinding. The VRM draws 20-30 % less electrical energy as compared to the corresponding ball mill system, apart from its ability to give much higher drying capacity. These mills can accept larger feed size and hence mostly be used with single stage crushing. VRMs are now being used in clinker and slag grinding and also as pre-grinder to existing grinding installations.<br />Another breakthrough that has come with the application of high pressure grinding rolls (HPGR) has been widely adopted in Indian cement industry. The HPGR is being used as pre-grinder for upgrading the existing ball mill systems. Such installations could achieve an increase in capacity upto 200% and savings in power consumption to the extent of 30 to 40% as compared to ball mills. <br />High efficiency separators are now widely used for better classification of product and help in increasing the mill capacity besides reducing the specific power consumption. The new classifier designs include two stage separation integrating primary and secondary separation. High efficiency separators are also used now with VRM’s for further improvement in their performance. <br />A new mill system called Horizontal roller mill has been developed which is capable of producing uniform raw meal and have advantages in processing raw materials containing higher percentage of quartz. <br />4.10 Fuel Requirements and Alternate Sources of Energy <br />Fuel <br />Coal continues to be the main fuel for the Indian cement industry and will remain so in the near future as well. The industry is mainly using coal from various coalfields in the country. It is also procuring coal through open market and direct imports. Lignite from deposits in Gujarat and Rajasthan is also being used by cement plants. Pet coke has also been successfully utilized by some cement plants, mainly in Gujarat, Rajasthan and MP, thereby substituting main fossil and conventional fuel coal upto 100% in some plants. In the recent past, waste derived fuels including hazardous combustible wastes have also been tried due to economic pressures in cement manufacturing process owing to tough competition in domestic and global markets as well as ecological reasons on account of waste disposal and co-processing in cement rotary kilns being most effective mode of waste treatment. <br />Use of Industrial Wastes <br /><ul><li>Cement plants in India utilized about 19% of flyash generated by power plants and 100% of granulated slag generated by steel plants (year 2005-06), as compared to almost 100% flyash and 84% of granulated slag in the Japanese cement industry.
  15. 15. Recycling of Industrial wastes in manufacture of cement is highest in Japan followed by India. </li></ul>Use of Alternate Fuels <br /><ul><li>Use of hazardous and refuse derived combustibles and Municipal Solid Waste (MSW) as fuel is common in countries like Canada, EU, Japan and Korea, but regulations do not yet permit in India.
  16. 16. CPCB is actively engaged in plant level trials in respect of wastes viz. used tyres, refinery sludge, paint sludge, Effluent Treatment Plant (ETP) sludge and Toluene Di-Isocyanite (TDI) tar waste from petroleum industries and in formulation of guidelines for use of these wastes as fuel by cement industry. </li></ul>Energy Management <br />The industry’s average consumption in 2005-06 was 725 kcal/kg clinker thermal energy and 82 kWh/t cement electrical energy. It is expected that the industry’s average thermal energy consumption by the end of Year 2011-12 will come down to about 710 kcal/kg clinker and the average electrical energy consumption will come down to 78 kWh/t cement. <br />The improvements in energy performance of cement plants in the recent past have been possible largely due to: <br /><ul><li>Retrofitting and adoption of energy efficient equipment
  17. 17. Better operational control and Optimization
  18. 18. Upgradation of process control and instrumentation facilities
  19. 19. Better monitoring and Management Information System </li></ul>4.11 DEMAND AND SUPPLY SCENARIO OF CEMENT INDUSTRY<br />Demand sources<br />Cement demand in the country emanates from three major sources viz. Housing Sector accounts for 60% of total cement demand, infrastructure projects 20% and industrial projects 20%.<br />GRAPH 4.9<br />DEMAND FROM RESIDENTIAL HOUSING SECTOR<br />Housing demand accounts for 60% of total cement demand and 90% of total real estate demand. Housing demand has supported the cement industry even in times of low infrastructure or industrial demand.<br />The growth in the residential real estate market in India has been largely driven by rising disposable incomes, a rapidly growing middle class, low interest rates, fiscal incentives on both interest and principal payments for housing loans and heightened customer expectations, as well as increased urbanisation and nuclearisation.<br />A large proportion of the demand for houses, especially in urban centres such as Mumbai, Bangalore, Delhi (Gurgaon, Noida) and Pune, is likely to come from high-rise residential buildings. Since this is a fairly new segment, the growth of the highrise segment will be faster as compared to the growth of the urban housing segment. The reasons for the construction of high rise apartment buildings are the lack of space in cities and proximity to offices and IT parks. <br /><ul><li>Growth Drivers
  20. 20. Favourable demography and higher disposable income
  21. 21. Nuclear families and urbanization</li></ul>DEMAND FROM INDUSTRIAL AND COMMERCIAL SECTOR<br />Commercial construction comprises construction of office space, hotels, hospitals, schools, stadiums etc. In India, most of the investment in this segment is driven by office space construction. Within office space construction activity, almost 70-75 per cent of the demand comes from IT/BPO/call centres. The other key demand drivers include banking and financial services, FMCG and telecom.<br />This dependency on IT/ITES is expected to continue due to India’s emergence as a preferred outsourcing destination, despite China and Russia also emerging as strong contenders. The industrial and commercial sector comprises of all the major industrial set ups, commercial offices, IT & ITES parks and organized retail formats. <br />The growth in the sector will translate into substantially higher demand for commercial space, adding to the overall investment in construction activities. CRIS INFAC, believes the growth in IT/ITES is likely to translate into construction investments of Rs 148 billion (118 million sq ft) by 2007-08 as compared with investments of Rs 74 billion (61 million sq ft) in the last 3 years. The investments are based on the manpower/workspace requirement in the sector.<br />Retail boom to result in construction investments of Rs 112 billion over the next 5 years CRIS INFAC, estimates that retail spending in India in fiscal 2005 was Rs. 9.9 trillion, of which organised retail accounted for Rs. 349 billion, or approximately 3.5%. The organised retail segment in India is expected to grow at a rate of 25% to 30% over the next five fiscal years. The growth of organised retail is expected to be driven by demographic factors, increasing disposable incomes, changes in shopping habits, the entry of international retailers into the market and the growing number of retail malls.<br />CRIS INFAC, believes the current spark in mall construction activity across India will result in around 105 million sq ft of mall space by 2010. This would translate into construction investment of Rs 112 billion over the next 5 years. <br />The increase in disposable incomes, demographic changes (such as the increasing number of working women, who spend more, the rising number of nuclear families and higher income levels within the urban population), the change in the perception of branded products, the growth in retail malls, the entry of international players and the availability of cheap finance will drive the growth in organized retail.<br />We expect cement consumption from this sector to register a CAGR of 9-10% driven by large-scale construction activities.<br />DEMAND FROM INFRASTRUCTURE SECTOR<br />The Indian economy is all set to grow at a pace of over 7% in the current fiscal. Increased emphasis on infrastructure development made it achievable. Infrastructure has been witnessing extraordinary growth across all sectors such as roads, railways, irrigation, power, water supply urban infrastructure, ports and airports. However, in order to achieve this kind of growth on a sustainable basis, a further impetus is required to be given to the Infrastructure development in the country. GOI, recognizing this fact has planned to spend around Rs. 13.2 trillion on infrastructure development for the next five year.<br />However, this figure has been revised upwards to Rs.19.2 trillion. Out of total proposed expenditure, a construction activity are expected to account for more than 50% of total investment and is expected to be the biggest beneficiary of the surge in infrastructure investment over the next five years. Planning commission projected that the total spending by the central government, state government, PSUs and through the Public-Private partnership (PPP) would be around Rs19.3 trillion ($470 billion) for the next 5 years as against Rs. 7.7 trillion spend during Xth Five Year Plan, a jump of over 150%.<br />This would imply a construction opportunity of over Rs.11.2 trillion for the next 5 years. In light of such huge expenditure on construction activities, the demand for cement from infrastructure sector is expected to grow at a CAGR of 24-25%.<br />Overall Demand<br />Driven by a strong residential housing demand, growing industrial and commercial activities and the continued momentum in infrastructure investment, the cement consumption is expected to witness a CAGR of more than 12% in line with the economic growth because of the strong co-relation with GDP and the increased activity in the construction sector. We further believe that due to huge expenditure by GOI on infrastructure the proportionate demand from infrastructure sector will move northwards and we expect the total share of cement demand from infrastructure to be close to 25% in 2010. However, proportionate demand from housing sector will move southwards and will come down to around 55% while remaining 20% will be from commercial sector.<br />DEMAND-SUPPLY MISMATCH<br />Though India is the second largest cement manufacturer, it is among the lowest cement consuming countries. In India per capita cement consumption is 122 kg, which is far below the world average of approximately 320 kg. Hence, the cement industry has been in a surplus position since a long time.<br />There exist regional surplus/shortages in the Indian cement industry. The oversupply is largely in the Southern and Northern regions. By contrast, there is a supply shortage in Eastern and Western regions. There is significant inter-regional movement of cement, which plays a crucial role in the regional demand-supply dynamics. Most of the cement movement across regions takes place from North to Central (3.35 mt), South to West (5.20 mt), Central to North (2.45 mt), and Central to East (2.51 mt).<br />GRAPH 4.10<br />4.12 RISK & CONCERNS<br /><ul><li>Rising input costs
  22. 22. POWER & FUEL
  23. 23. Prices and Quantity are regulated and are revised upwards regularly. Further, given the shortage of energy future de-regulation of coal sector could be a risk factor. Adding to this, electricity prices are also witnessing pressure.
  25. 25. Rising fuel cost resulting in higher road and rail transportation cost.
  26. 26. Lower than expected growth in demand</li></ul>Any lower than anticipated cement demand growth will result in overcapacity in the industry, thereby prices may head southwards. This will significantly affect earnings of cements manufacturers.<br /><ul><li>Large scale capacities addition in gulf countries</li></ul>India’s major cement exporting destination, Middle East, is adding huge cement capacities that are estimated to be around 70 mtpa. This will significantly affect India’s cement exports to gulf countries.<br /><ul><li>MRTPC alleges on 14 cement manufacturers</li></ul>India's trade practices regulator MRTPC had ordered a probe into the business practices of 14 leading cement manufacturers. The companies that are to be investigated include all the big guns like ACC, Ambuja Cement, India Cement, Ultra tech cement, Grasim and other smaller players like Sanghi Industries, Birla Corporation, Zuari Cement, Binani Industries, NCL Industries, Saurashtra Cement and JK Cement. The Director General of Investigation and Registration (DGIR) which is MRTPC's investigative wing submitted its preliminary report alleging that these manufacturers colluded to hike cement prices. The companies have time till October 25 2007 to reply to these charges.<br /><ul><li>Access to Finance</li></ul>Cement is a capital-intensive industry; Rs.3500/tonne is required for capacity addition. Cement industry has planned huge capex in the coming years, for which they will require huge capital. However, rising interest rates have created concern for the industry.<br />ACC LIMITED:<br />ACC Limited is India's foremost manufacturer of cement and concrete. ACC's operations are spread throughout the country with 16 modern cement factories, more than 40 Ready mix concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 10,000 persons and a countrywide distribution network of over 9,000 dealers.<br />Since inception in 1936, the company has been a trendsetter and important benchmark for the cement industry in many areas of cement and concrete technology. ACC has a unique track record of innovative research, product development and specialized consultancy services. The company's various manufacturing units are backed by a central technology support services centre - the only one of its kind in the Indian cement industry.<br />ACC has rich experience in mining, being the largest user of limestone. As the largest cement producer in India, it is one of the biggest customers of the domestic coal industry, of Indian Railways, and a considerable user of the country’s road transport network services for inward and outward movement of materials and products.<br />Among the first companies in India to include commitment to environmental protection as one of its corporate objectives, the company installed sophisticated pollution control equipment as far back as 1966, long before pollution control laws came into existence. Today each of its cement plants has state-of-the art pollution control equipment and devices. <br />ACC plants, mines and townships visibly demonstrate successful endeavours in quarry rehabilitation, water management techniques and ‘greening’ activities. The company actively promotes the use of alternative fuels and raw materials and offers total solutions for waste management including testing, suggestions for reuse, recycling and co-processing. <br />ACC has taken purposeful steps in knowledge building. We run two institutes that offer professional technical courses for engineering graduates and diploma holders which are relevant to manufacturing sectors such as cement. The main beneficiaries are youth from remote and backward areas of the country.<br />ACC has made significant contributions to the nation building process by way of quality products, services and sharing expertise. Its commitment to sustainable development, its high ethical standards in business dealings and its on-going efforts in community welfare programmes have won it acclaim as a responsible corporate citizen. ACC’s brand name is synonymous with cement and enjoys a high level of equity in the Indian market. It is the only cement company that figures in the list of Consumer SuperBrands of India.<br />CORPORATE GOVERNANCE<br />The importance of Corporate Governance has always been recognised in ACC. Much before Corporate Governance guidelines became applicable and mandatory for listed companies; ACC had systems in place for effective strategic planning and processes, risk management, human resources development and succession planning. The Audit Committee in ACC was constituted as far back as in 1986. The Shareholders-Investors Grievance Committee was formed way back in 1962 and the Compensation Committee was convened since 1993. The Company’s core values are based on integrity, respect for the law and strict compliance thereof, emphasis on product quality and a caring spirit. Corporate Governance therefore in ACC is a way of life. <br />ACC is a professionally managed Company with a majority of its Directors being Independent Directors. The Board of Directors has always consisted of persons who are professionals in their respective fields and with unquestionable integrity and reputation. The role, responsibility and accountability of the Board of Directors is clearly defined. Members of the Board have full freedom to express their views on matters placed before them for deliberation and consideration. <br />It is the continuous endeavour of the Board of Directors to achieve the highest standards of Corporate Governance through the adoption of a strategic planning process, succession planning for attracting, motivating and energizing human resources, identification of major risks and the way and means to manage such risks, an effective communication policy and integrity of Company’s internal control systems. The Board of Directors are also constantly looking at ways and means to ensure that the most effective use is made of the scarce resources at its disposal and that the management and employees have the freedom to take the Company forward within the framework of effective accountability.<br />The Annual Reports, press releases and other communication have always made full disclosures on various facets of importance to the stakeholders, particularly with regard to information relating to financial matters, company’s operations/performance, stock movements etc.<br />GUJARAT AMBUJA CEMENTS LTD.<br />Ambuja Cements Limited, formerly known as Gujarat Ambuja Limited is a major Cement producing company in India. The Group's principal activity is to manufacture and market cement and clinker for both domestic and export markets.<br />The Company also operates a hotel through its subsidiary GGL Hotel and Resort Company. It has shown innovation in utilizing measures like sea transport, captive power plants, and imported coal and availing of govt. sops and subsidies to constantly check the costs.<br />The company has entered into a strategic partnership with Holcim, the second largest cement manufacturer in the world. Holcim had, in January, bought a 14.8 per cent promoters` stake in the GACL for INR 21.4 billion.<br />The Joint Venture between the public sector Gujarat Industrial Investment Corporation (GIIC) and Narottam Sekhsaria & Associates was the reason for confinement of the company. The company was incorporated in the year 1981 as Ambuja Cements Pvt Ltd and it was rehabilitated into a public limited company on 19th March 1983 as Gujarat Ambuja Cements Ltd, cement production is the role of the company in nature and a cost efficient cement manufacturer in the country. It is a National Quality ISO 9002 certified company, the only cement company have this so. It's also the first to receive the same and also have ISO 14000 Certification for environmental systems. The total cement capacity of the company is 18.5 million tonnes (MT), having five cement plants at Ambuja Nagar Gujarat (5 MT), Darlaghat Himachal Pradesh (6 MT), Upperwahi Maharashtra (2.5 MT), Rabriyawas Rajasthan (2 MT) and in Chhaattisharh West Bengal (3 MT). It is also having three Bulk Cement Terminals at Surat with a storage capacity of 15,000 tonnes has bulk cement unloading facility, Panvel with a storage capacity of 17,500 tonnes has a bulk cement unloading facility and in Galle 120 kms from Colombo, Sri Lanka. It handles million tonnes of cement annually. The port terminal of the company Muldwarka Gujarat, all weather port, 8 kms from Ambuja Nagar plant, handles ships with 40,000 DWT. Is also equipped to export clinker and cement and import coal and furnace oil. A fleet of seven ships with a capacity of 20500 DWT ferry bulk cement to the packaging units.  <br />The company's cement plant was commissioned in 1985, had set up in technical collaboration with Krupp Polysius, Germany, Bakau Wolf and Fuller KCP. The 12.6 MW diesel-generating sets were commissioned during the year, which were imported in the year 1988-89. The company got necessary approvals for setting up another cement plant with 1 million tonne capacity per annum at Himachal Pradesh in the year 1991. The Company undertook bulk cement transportation, by sea, to the major markets of Mumbai, Surat and other deficit zones on the West Coast. Transportation was to be carried out by three specially designed ships during the year 1992. During the year 1994, the company's Muller location 1.5 million tonne cement project with clinkeriation facility at site in H.P and grinding facility both at Suli & Ropar in Punjab was bespoken. In 1997, Kodinar plant of the company was originated its commercial production with an enhanced capacity.  <br />Ambuja Cements had set up a $20 million clinker Grinding unit in Sri Lanka in the year 1998. In the year of 2000 cement giants Larsen & Tubro (L&T) and Gujarat Ambuja Cements entered a unique agreement to reduce transportation costs in dispatching bulk cement in Gujarat and also in the same year the company has entered into an annual contract with a Soinhalese firm, Mahaveli Marine Cement, to supply around 2.5 lakh tonnes of cement. The company has kick started its operations in Sri Lanka with help of a cement terminal in the port of Galle, in the south of the island country, which was started by the company. The commercial production of Maratha Cement Works plant of the company was started in the year 2002, a new 2-million tonne Greenfield cement plant at Chandrapur, Maharashtra has started its commercial production on June of the year and the merger of Ambuja Cement Rajasthan with the company was happened in the same year. Again in the year 2004, the company merged Ambuja Cement Rajasthan with itself.  <br />In the last decade the company has grown tenfold. The first company in India introduced the concept of bulk cement movement by the sea transport. The company's most distinctive attribute, however, is its approach to the business. Ambuja follows a unique homegrown philosophy for successful survival. Ambuja is the most profitable cement company in India, and one of the lowest cost producers of cement in the world.<br />The company's most distinctive attribute, however, is its approach to the business. Ambuja follows a unique homegrown philosophy of giving people the authority to set their own targets, and the freedom to achieve their goals. This simple vision has created an environment where there are no limits to excellence, no limits to efficiency, and has proved to be a powerful engine of growth for the company. <br />As a result, Ambuja is the most profitable cement company in India, and one of the lowest cost producer of cement in the world.<br />JK CEMENTS<br />J K Cement Limited (JK Cement) is one of the largest cement manufacturers in Northern India and also the second largest white cement manufacturer in India by production capacity. It is an affiliate of the J.K. Organization, which was founded by Lala Kamlapat Singhania in the year 1994. The Company produces 53-grade, 43-grade and 33-grade Ordinary Portland Cement (OPC) grey cement, Portland Pozzolana Cement ('PPC') under grey and white cement. JK Water proof is another product from JK Cements used for flooring, wall application and other specialized applications. The products are marketed under the brand names J.K. Cement and Sarvashaktiman for OPC products, J.K. Super for PPC products and J.K. White and Camel for white cement products.  <br />Jaykaycem Limited became a wholly owned subsidiary of the company in the year 2006 and acquired land to set up a Greenfield Grey Cement plant at Mudhol, Karnataka. In the year of 2006-07, the company had sanctioned enhancement in working capital Facility (both funded and non-funded) to Rs. 105 crores from Rs.65 crores. Started all the captive power projects i.e. 10MW turbine, 20MW Petcoke based Captive Power Plant & Waste Heat Recovery power plant. The Company had acquired from IDBI the assets of Nihon Nirmaan Ltd at Gotan during the year 2007, for Rs.42 crores and decided to utilize this facility to produce Grey cement.  <br /> From enhancing the domestic footprint, the company had taken steps to go beyond national boundaries. Entered into a Memorandum of Understanding (MoU) with Fujairah Municipality during November of the year 2007 in the United Arab Emirates, through the subsidiary J K Cement Works (Fujairah) FZC, to set up a 2.25 MTPA grey cement plant to service the steadily increasing demand in the GCC region. During the year 2007-08, the company formed a wholly owned subsidiary under the name and style of J.K.Cement (Fujairah) FZ to undertake the business of cement and investment in the state of UAE. This Company has formed another subsidiary company under the name and style of J.K.Cement Works (Fujairah) FZC under which it is proposed to set up a green field cement plant at Fujairah, UAE. The 10 MW of the Waste Heat Recovery Power Plant of the company was commissioned at Nimbahera in March of the year 2008. <br />Company Strengths<br />J K Cement enjoys certain vital advantages that have helped them in becoming one of the leading names in the field of cement manufacturing in India and abroad. First the company has proximity to huge reserves of premium quality limestone, as essential ingredient for cement manufacturing. Based on certain studies undertaken, it is estimated that the limestone reserves of the company are sufficient to support the planned production capacity for approximately 40 years. <br />Second the company has an extensive marketing network for grey and white cement both within and outside India. The company's distribution network for grey cement consist of more than 40 feeder depots, serviced by seven regional sales office located at Delhi, Haryana, Uttar Pradesh, Punjab, Gujarat, Madhya Pradesh and Rajasthan. J K cement's white cement distribution network comprises of 20 feeder depots and 13 regional offices. Besides, the company also has a total of more than 4000 retail stores, 22 sales promoters and four handling agents. <br />J K Cement Production Plants<br />The company has three major production plants located in the states of Rajasthan and Gujarat. The first plant of J K Cement was set up in Nimbahera, Rajasthan in the year 1975 with an initial capacity of 0.3 million ton per annum. With the incorporation of newer technology and modern equipment, the production capacity was enhanced to 2.8 million ton per annum. The Gotan unit located at Gujarat which manufacturers white cement started production commercially in 1984 with a production capacity of 0.05 million ton per annum. Currently the unit has a capacity utilization of around 75% and an operating profit of 30% consistently. The unit has ISO-9001:2000 QMS, ISO-14001:1998 EMS and OHSAS-18001:2005 recognition. <br />J K Cement Products<br />The major products of J K Cement are grey and white cement. The grey cement produced by the company Ordinary Portland cement or OPC and Portland Pozzolana Cement or PCC. The OPC range of products has three grades which are differentiated by their compressive strength, they consist of 43-grade, 53-grade and 33-grade OPC. The cement products are marketed and sold under the brand names of J.K. Cement and Sarvashaktiman for OPC products, J.K. Super for PPC products and J.K. White and Camel for white cement products. Some other products manufactured by the company consist of: <br />J K Wall Putty<br />Grey Cement<br />J K White Cement<br />J K Water Proof<br />J K Cement's manufacturing unit at Nimbahera was chosen by the World Bank and the Danish International Development Agency as one of the four training centers in India to serve as the Regional Training Center in North India. The operation of the training center gives the company access to state of art training aids, live working models, and technical expertise developed by well known national and international cement producers.<br />UltraTech Cement Limited<br />UltraTech Cement Limited, a Grasim subsidiary was incorporated in 24th August 2000 as L&T Cement Limited, has an annual capacity of 17 million tonnes. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzolana Cement. As part of the eighth biggest cement manufacturer in the world, UltraTech Cement has five integrated plants, five grinding units as well as three terminals of its own (one overseas, in Colombo, Sri Lanka). All the plants have ISO 9001 certification, and all but one have ISO 14001 certification, while two of the plants have already received OSHAS 18001 certification. The export market comprises of countries around the Indian Ocean, Africa, Europe and the Middle East. Export is a thrust area in the company's strategy for growth. <br />The Grasim acquired 10 per cent stake in L&T in the year of 2001. During the same year the Durgapur grinding unit was came to existence. The Company bagged Indo-German Greentech Environment Excellence Award from the Greentech Foundation, New Delhi during the period of 2000-2001. The value of stake increased to 15.3 per cent by October 2002. The Grasim Board approved an open offer for purchase of up to 20 per cent of the equity shares of Larsen & Toubro Ltd (L&T) during the year 2002, in accordance with the provisions and guidelines issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997. Again the Grasim increased its stake in L&T to 14.15 per cent in 2002 and the Arakkonam grinding unit was started.  <br />During the year 2003, the board of Larsen & Toubro Ltd (L&T) decided to demerger of its cement business into a separate cement company (CemCo). Grasim decided to acquire an 8.5 per cent equity stake from L&T and then made an open offer for 30 per cent of the equity of CemCo, to acquire management control of the company. The Company received State and Zonal level I prize for overall performance in Mines safety 2003-2004 Energy efficient unit award from CII. In 2004, L&T completed the implementation process to demerger of the cement business and the Grasim also completed open offer, with the latter acquiring controlling stake in the newly formed company UltraTech.  <br />Grasim acquired management control in July 2004 and the name of the company was changed to UltraTech Cement Limited with in 14th October 2004. The Company enhanced its capacity utilisation across its plants. Cement is an energy intensive industry with coal and power being the major cost contributors. Use of alternative fuels auctioned, while over Rs.600 crores has been committed for the installation of captive power plants throughout the year 2004-05. Narmada Cement Company Limited (NCCL) was amalgamated with the company in May of the year 2006. <br />With an eye on the growing Ready Mix Concrete business, the Company has commenced setting up Ready Mix Concrete plants in various places in the country during the year 2007. The Captive Power Plants being set up at your Company's Units in Andhra Pradesh, Chattisgarh and Gujarat, are on track. It may be to go on stream between FY08 and FY09.<br />UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTechCeylinco (P) Limited.<br />As part of the eighth biggest cement manufacturer in the world, UltraTech Cement has five integrated plants, five grinding units as well as three terminals of its own (one overseas, in Colombo, Sri Lanka). These facilities gradually came up over the years, as indicated below:2006<br />::Narmada Cement Company Limited amalgamated with UltraTech pursuant to a Scheme of Amalgamation being approved by the Board for Industrial & Financial Reconstruction (BIFR) in terms of the provision of Sick Industrial Companies Act (Special Provisions)<br />2004<br />::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<br />2003<br />::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.<br />INDIA CEMENTS<br />The India Cements Ltd was established in 1946 and the first plant was setup at Sankarnagar in Tamilnadu in 1949. Since then it has grown in stature to seven plants spread over Tamilnadu and Andhra Pradesh. The capacities as on March 2002 have increased multifold to 9 million tons per annum.<br />The Founders<br />Shri Sankaralinga Iyer was a pioneer of heavy industry in the South. Primarily a banker, he ventured into the field of industry with a rare devotion and confidence with the prime objective of developing major industries in the state. With his banking experience and interest in exploring the mineral potential of South India, he went ahead boldly with his scheme of building a cement plant in the vicinity of Thalaiyuthu, where extensive deposits of limestone were assuredly available. Shri Sankaralinga Iyer with his energy and drive gave the cement project a realistic form and content.<br />Company Highlights<br />The Company is the largest producer of cement in South India.<br />The Company's plants are well spread with three in Tamilnadu and four in Andhra Pradesh which cater to all major markets in South India and Maharashtra.<br />The Company is the market leader with a market share of 28% in the South. It aims to achieve a 35% market share in the near future. The Company has access to huge limestone resources and plans to expand capacity by de-bottlenecking and optimisation of existing plants as well as by acquisitions.<br />The Company has a strong distribution network with over 10,000 stockists of whom 25% are dedicated.<br />The Company has well established brands- Sankar Super Power, Coromandel Super Power and Raasi Super Power.<br />Regional offices in all southern states and Maharasthra offices/representative in every district.<br />6.1 ACC LIMITED:<br />RATIOSYear 2009 Year 2008 Year 2007 ROE (%)29.3626.0835.12ROACURRENT RATIO0.780.880.93DEBT-EQUITY RATIO0.100.090.17INTEREST COVERAGE RATIO22.9339.2024.28DEBTORS TURNOVER RATIO33.9627.4731.19INVENTORY TURNOVER RATIO11.1010.8011.58FIXED ASSETS TURNOVER RATIO1.381.461.53P/E RATIO10.687.8114.00<br />TABLE 6.1<br />ANALYSIS:<br />RETURN ON EQUITY RATIO <br />The ROE of the company decreased considerably from 2007 to 2008. This shows that company is unable to satisfy its shareholders by proper utilization of funds. The ratio increased in the financial year 2009. This means that the company was in a better position to satisfy its shareholders compared to the previous financial year 2008.<br />CURRENT RATIO<br />The current ratio in 2007 was 0.93 and it gradually decreased to 0.88 in 2008 and 0.78 in 2009. Since the ideal ratio is 2:1 so it signifies that the company is in a better position to pay the current debts with a margin of safety in current assets.<br />DEBT-EQUITY RATIO:<br />In 2007, the debt equity ratio was 0.16 and by 2008 it was 0.08 and by 2009 it is 0.10. So the debt equity ratio shows a decrease in the financial year 2008. This shows that the company’s debt is decreasing, thereby making the company unfavourable in the view of the lenders i.e. the amount of debt used effectively by the company is declining from 2007 to 2008. But in the FY 2009, we can see that this ratio has increased to 0.10.<br />INTEREST COVERAGE RATIO:<br />In 2007, the interest coverage ratio is 24.28 which increased to 39.20 in 2008. This means that the company’s debt burden got decreased to a great extent. But in 2009 it got decreased to 22.93. In the FY 2009, the company’s performance declined considerably and the company is not generating enough profit to pay the interest to the debts. Consequently, the financial position of the company is growing weak.<br />DEBTORS TURNOVER RATIO:<br />The debtor’s turnover ratio was 31.19 in 2007 and it decreased to 27.47 by the financial year 2008 and then it again increased to 33.96 in the FY 2009. As we know that the debtors turnover ratio explains the number of times the debtors turned over a period of a financial year. Thus, by looking at the ratio in the FY 2009 we can say that the efficiency of management of debtors of the firm is growing high in comparison to the previous years.<br />INVENTORY TURNOVER RATIO:<br />The inventory turnover ratio was 11.58 in 2007, 10.80 in 2008 and then a slight increase to 11.10 in 2009. The inventory turnover ratio measures the velocity of conversion of stock into sales. In the FY 2007, the firm was managing its inventories efficiently which was then reduced in the FY 2008. But again in FY 2009 the company is able to control its inventories.<br />FIXED ASSETS TURNOVER:<br />This ratio indicates the company’s ability to generate net sales revenue from fixed assets of the company, such as property, building and other equipments. The higher the ratio, the better it is for the company.<br />The above table indicates that the fixed assets turnover ratio of 1.53 in 2007 declined to 1.46 in the FY 2008 and consequently declined to 1.38 in the FY 2009 which shows the company’s inability to generate revenue from fixed assets in the consequent years of its operations. The company, thus, has to utilise its fixed assets in order to maintain efficiency in revenue generation. <br />PRICE/EARNINGS RATIO:<br />Higher the P/E ratio, the more the market is willing to pay for each rupee of annual earnings. Companies with high P/E ratios are more likely to be considered “risky” investments than those with low P/E ratios, since a high P/E ratio signifies high expectation. <br />From the above table, we know that the ratio has decreased considerably from the FY 2007 to the FY 2008. The reason for this decline was the economic downturn in the FY 2008. But in the FY 2009, the company recorded a rise in the ratio i.e. from 7.81 to 10.68 meaning that the company was in a better position as compared to the previous year.<br />AMBUJA CEMENTS LIMITED:<br />RATIOSYear 2009 Year 2008 Year 2007 ROE20.0422.7229.02ROA0.1567840.193870.316693CURRENT RATIO1.061.151.05DEBT-EQUITY RATIO0.040.060.15INTEREST COVERAGE RATIO67.1637.3326.14DEBTORS TURNOVER RATIO40.9838.2254.29AVERAGE COLLECTION PERIOD8.919.556.72INVENTORY TURNOVER RATIO9.529.3112.92INVENTORY TURNOVER PERIOD38.3439.2128.25FIXED ASSETS TURNOVER RATIO1.291.291.31P/E RATIO13.667.8813.32<br />TABLE 6.2<br />ANALYSIS:<br />RETURN ON EQUITY<br />Return on equity is net profits to equity share capital. The ratio is decreasing each year which shows the company is unable to increase profits in accordance to the increase in shareholders’ funds.<br />RETURN ON ASSETS<br />It is always said that higher the ratio the better it is. When looking at the previous three years ROA has been decreasing. The reason for this is that the operating profit has been decreasing continuously though there has been increase in the total assets for past three years.<br />CURRENT RATIO<br />The current ratio of company, though declining from the year 2008, but it is still able to sustain the ratio above 1, which shows company is able to pay its liabilities. If the ratio slips down below 1, then company may face problems to pay its liabilities. The liabilities of the company are increasing every year, so company should take measures to reduce liabilities.<br />DEBT-EQUITY RATIO<br />The debt equity ratio shows a positive trend for FY’07, FY’08 & FY’09. The ratio also below 1 for all the three years, which reflects company’s dependence on the debt finance, is very low. The main reason behind decrease in ratio is, increase in total shareholders’ funds. The majority of financing of the company is done by equity, and at the same time risk factor is also reducing because they don’t have to pay interest to the debenture holders.<br />INTEREST COVERAGE RATIO<br />Interest coverage ratio shows how much revenue is being earned in relation to its finance cost. Ambuja Cements were unable to decrease the coverage period but on the contrary coverage period increased every year, which is not a healthy sign for company’s growth.<br />DEBTORS TURNOVER RATIO<br />The debtors’ turnover ratio indicates the efficiency of the company to collect debts. The efficiency of the company decreased in FY’08 & it increased in FY’09. This shows the company’s efficiency was increasing but due to economic downturn in FY’08, company’s efficiency declined.<br />AVERAGE COLLECTION PERIOD<br />In 2009, the ratio has gone down which shows that the collection period has become more powerful and company is able to collect its money from debtors more efficiently when compared to the previou