The Indian cement industry is the second largest market globally with a total production capacity of 480 million tonnes per annum as of FY19. Cement demand is driven by housing, infrastructure development, and commercial and industrial construction. Key factors for the industry include rising per capita consumption, government initiatives for infrastructure and housing, and potential for cost reductions from lower fuel prices. Overall, cement production is expected to grow steadily at 5-7% through FY20-22 with continued government spending supporting demand.

1. Steel Industry IndiaIndian Cement Industry Outlook

2. Industry Facts
 The Indian cement industry is the second largest market after China (~2.3 billion metric tonnes as of FY19). It
had a total cement production capacity of about 480 million tonnes per annum (MTPA) as of FY19. Cement is a
cyclical commodity with a high correlation with GDP.
 India has a lot of potential for development in the infrastructure and construction sector and the cement
sector is expected to largely benefit from it. Some of the recent major initiatives such as development of 98
smart cities is expected to provide a major boost to the sector.
 Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can
prove to be uneconomical. Hence handling this bulky material takes a lot of effort. It occupies a lot of space
and carries a lot of weight. Higher the distance a cement bag travels, higher is the freight and handling cost
involved and lower is the profit a manufacturer makes.
 The per capita consumption of cement in India still remains substantially low at less than 200 kg when
compared with the world average which stands at about 500 kg. In case of China, consumption is over 1,000
kg per head. This underlines the tremendous scope for growth in the Indian cement industry in the long term.

3. Working process of Cement Industry
 Cement is basically is made by heating limestone(natural
reserve or extracted from mines) with small quantities of
other materials to 1450°C (from coal) in a kiln. The
resultant hard material is called ‘Clinker’. It is crushed
with a small amount of gypsum into a powdery form
which gives the final product ‘OPC Cement’. Limestone
can be substituted with Flyash or Slag, which still provide
the strength but to a lesser extent. The threshold limit of
mixing Flyash is maximum 33%. Fly-ash is a by-product of
Thermal Power Production and slag is a by-product of
Steel making process.
 For big infra projects, limestone component of upto 95%
is required, but for the daily homebuilding use, the lower
component limestone works fine enough.
 Thus, there are various varieties of Cement depending on
the composition of materials, namely OPC (Ordinary
Portland Cement), PPC (Portland Pozzolana Cement) and
PSC (Portland Slag Cement (PSC).

4. South
33%
North
21%
Central
13%
East
19%
West
14%
Regional Installed Capacity Mix
 Cumulative installed capacity grew by ~46% in 7 years
(FY12-FY19). Capacity addition during 2012-19 has been at a
moderate 5.6% CAGR. During this period, the total installed
capacity grew from ~328 MTPA in FY12 to ~480 MTPA in
FY19. The capacity utilization rate has stabilized at ~70% in
FY19 after having clocked a low of ~65% in FY16 & FY17.
 Rajasthan, Karnataka, MP, Tamil Nadu, Andhra Pradesh and
Telangana are among the leading states in terms of installed
capacity.
 Telangana, Andhra Pradesh, Odisha, Rajasthan, West
Bengal and Uttar Pradesh are among the key states expected
to witness the next-phase of tentative capacity addition of
around ~120 MTPA over the next decade.
Installed Capacity Trend of Cement Industry in India

5. Production
 Cement production grew by 13.3% to 337.3 million tonne (MMT) in FY19 compared with 6.3% growth in
FY18. This has been the fastest growth in cement production recorded in one single year over the last
decade. Production grew at a CAGR of 5.6% from 230 MT in FY12 to 337.3 MT in FY19.
 The industry did witness de-growth in production in FY17 on the back of demonetization followed by
implementation of RERA. But post second-half of FY18. The industry has turned-around with steady demand
from affordable and rural housing and Government’s infrastructure push.
328 363 376 402 415
426
455
480
229.5 246.6 255.8 270.9 283.5 280
297.7
337.3
70.0%
67.9% 68.0%
67.4% 68.3%
65.7%
65.4%
70.3%
62.0%
63.0%
64.0%
65.0%
66.0%
67.0%
68.0%
69.0%
70.0%
71.0%
0
200
400
600
2012 2013 2014 2015 2016 2017 2018 2019
Installed Capacity Production Capacity Utilization

6. Demand Drivers
 The broad demand driving segments of cement within
construction are as follows:
A. Housing
B. Public Infrastructure: Government thrust on development
of urban infrastructure, roads and highways, ports etc. and
enhanced spending on construction and completion of some
key projects during 2018-19 was a major growth driver for
cement sector. Projects under various Government initiatives
like Sagarmala (Port-Led development), Bharatmala (Highway
Development), PM Gram Sadak Yojana witnessed robust
activity between 2015-19.
C. Commercial & Industrial Development: Activity in the
commercial real estate segment though has been strong on
the back of demand for good quality office spaces in major
metro cities especially where office spaces have been
witnessing healthy investments and absorption rates backed
by steady rental yield growth.
Housing
65%
Infrastructure
25%
Commercial
and Industrial
10%
Demand Segment

7. Cost Drivers
Power (Electricity & fuel) and freight costs accounts for
~52% of the total cost of production. The standard power
requirement to produce one ton of cement varies
between 80-110 units.
 Coal is used as a fuel in the process of manufacturing &
imported coal is used as feedstock for producing
clinker.
 Petcoke (derivative of crude oil) is used as feedstock as
well as fuel in the industry. It is a more preferred over
coal for its higher calorific value. Its supply & prices are
closely linked with the global crude oil refining activity.
 Selling and distribution: Transportation of raw material
and finished goods is done by roadways and railways.
 Key raw material: Clinker prices have remained range-
bound in the past 7 years. Producers with captive
mines are unlikely to witness major shocks in terms of
clinker prices.

8. Pricing Scenario
 During 2012-13, cement prices had risen as a result of
increase in the cost of production. There was a rise in
logistics cost due to an increase in rail freight and diesel
price which was transmitted to buyers.
 Growth in prices declined in 2013-14 on account of low
demand conditions seen by drop in government spending
and an increase in the interest rates.
 In 2014-15, the prices rose on account of a supply crunch
due to the closing of major plants in HP and Rajasthan.
 In 2015-16, Demand remained low due to delay in
government spending and a muted demand from housing.
 Starting second half of FY17, retail demand started gaining
traction. Housing plans and Government-led spending on
infrastructure supported the demand.
 The prices remained stable during FY18 as the demand
was primarily from institutional buyers and retail sales
were stable.

9. Cement Company Analysis
We will be conducting an industry analysis on five listed companies. These companies are:
1. Ultratech Cement
2. Shree Cement
3. Ambuja Cement
4. ACC Ltd
5. Ramco Cement
The analysis of these companies is going to be based on the following parameters. They are as follows:
1. Net Margins
2. Debt/Equity
3. EBITDA/Tonnes
4. EV/Tonnes

10. 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2014-15 2015-16 2016-17 2017-18 2018-19
Ultratech Cement Shree Cement Ambuja Cement ACC Cement Ramco Cement
Cement Company Analysis
Net Margins

11. -
0.2
0.4
0.6
0.8
1.0
1.2
2014-15 2015-16 2016-17 2017-18 2018-19
Ultratech Cement Shree Cement Ambuja Cement ACC Cement Ramco Cement
Cement Company Analysis
Debt/Equity Ratio
* Ambuja and ACC ltd have Zero Debt/Equity ratio.

12. Cement Company Analysis
Ramco Cement
ACC Cement
Ambuja Cement
Shree Cement
Ultratech Cement
952.37
721.15
776.92
1,120.73
703.36
EBITDA/Tonne (FY19)
18,196.01
9,053.96
13,733.37
27,942.77
13,921.27
EV/Tonne (FY19)

13. Current Scenario of the Industry
 All-India cement prices were up ~4% YoY while industry volumes declined ~3% YoY in 2QFY20 due to heavy
rains and tight liquidity conditions. Companies expect demand to improve in 2HFY20.
 Realizations for companies were up 5% YoY but declined 4% QoQ across India, with the decline being more
prominent for companies based in south/east (down 9-11% QoQ) than north/central (down 1-3% QoQ).
 The cement industry was not able to benefit from the sharp decline in fuel costs in 2QFY20 due to the high-
cost inventory lying with companies and nearly 45-60 days’ time lag between ordering and receiving
consignments.
 Aggregate costs were nearly flat YoY (+2% QoQ) in 2QFY20, despite a sharp decline in energy costs
(imported petcoke/coal prices down 30%/40% YoY).
 Reported average power & fuel cost per ton declined only 4% YoY (flat QoQ).
 We expect demand growth in the second half will be much better at ~8-10% led by gradual pick up in
government’s fund release for institutional projects post higher payout from RBI.
 Cement companies will also benefit from falling global commodity prices. Power and fuel cost is expected to
reduce by 3-5% this fiscal with softening in pet coke and coal prices.

14. Conclusion
 We expect cement production to remain steady with total output expected to grow by 5-7% during FY20-22.
 Increased government spending, rising per capita incomes and incentives to housing especially in the
affordable segment (both rural and urban) should lead to steady growth rates from FY20 onwards.
 Roads, Urban Infrastructure and Commercial realty too would continue to be key demand drivers.
 Cement demand is closely linked to the overall economic growth. If the rate of growth of consumption remains
low at 5-6%, the existing capacity would be sufficient to meet the demand for the next few years.
 The government has also given a push through the budget for construction of cement concrete roads, highways
through its unique Bharatmala Project, construction of rural roads under the PMGSY, “Housing for All” by 2022,
Smart City program, metro rail networks in several cities, bullet trains, etc which augur well in the medium
term.
 From a long-term point of view, overall pick-up observed in the infrastructure spending by the Government and
downward trend in the interest rates is expected to revive the demand across sectors. Government thrust on
affordable housing for realizing its vision of “Housing for All” by 2022 and Smart City program should also help
in demand growth. Therefore, the outlook for the cement sector looks better.

15. Disclaimer
Prepared By:
Research Analyst: Piyush Yadav
Email ID: piyushyadav@adroitfinancial.com
Phone Number: 0120-4550300*270/388
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