Cement 130109064113 Phpapp02

Cement
AUGUST
2012
For updated information, please visit www.ibef.org
Cement
AUGUST
2012
Contents
Advantage India Market overview and trends
Growth drivers
Success stories: Innovative solutions Opportunities
Useful information
Cement
Advantage India
AUGUST
2012
FY20F
Strong demand
Long-term potential
Market size: 550 mtpa
Robust infrastructure growth during 12th Five year plan to drive growth Initiatives taken by GOI to promote cement exports will further boost demand
Oligopoly market, where large players have partial pricing control Low threat from substitutes
Advantage India Structural drivers
Opportunities
Increasing presence of Tier II cement players Use of alternate fuels to lower production costs and emissions
Under-supplied North East region, which is experiencing robust growth in demand for cement, offers attractive investment opportunities
FY12
Market size:
Source: Edelweiss Notes: 2013F Forecasted market size for 2013, mtpamillion tonnes per annum
ADVANTAGE INDIA
223.4 mtpa
Cement
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2012
Contents
Growth drivers
Useful information
Cement
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2012
Overview of the Indian cement industry

Cement industry (FY11)
Large cement plants

Mini and white cement plants
Cement plants: 183 Installed capacity: 234.3 mtpa Cement production: 168.3 mtpa
Cement plants: 360

Installed capacity: 11.1 mtpa Cement production: 6.0 mtpa
Key statistics

India is the worlds second largest cement producer after China Total turnover of the Indian cement industry is estimated at USD25 billion in FY11 Major players contributed about 97 per cent to the installed capacity during FY11
Source: Cement Manufacturers Association (CMA), Aranca Research
Note: mtpa: million tonnes per annum Data are for FY11
MARKET OVERVIEW AND TRENDS
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Key industry dynamics
Although India is one of the largest cement markets in the world, per capita consumption of cement is just around 156 kg, which is low in comparison to the global average consumption of about 356 kg Demand for cement in India is cyclical; barring shortterm disruptions, it grows largely in tandem with economic growth
Trend in GDP and growth in cement demand
Per capita cement consumption in 2009 (kg)

India US Asia (ex-China)
Japan
World EU China 0 200 400 600 800 1000 1200 1400
Source: Indiabulls, Aranca Research
Source: Ambit Capital, Aranca Research

Note: GDP- Gross Domestic Product
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Cement production in India has been growing at a fast pace

Production of cement (MT)
The Indian cement industry is the second largest producer in the world comprising of 183 large cement plants and 360 mini cement plants
300 250 207 200 156 150 100 50 0 FY07 FY08 FY09 FY10 FY11 FY12E 168 182 247 228
The production of cement increased at a CAGR of 10.0 per cent over FY07-1 1
Production is expected to reach 247 MT in FY12 as per the 1 1th Five Year Plan
Source: Department of Industrial Policy and Promotion, Aranca Research

Notes: MT Million Tonnes, E - estimate
OPPORTUNITIES
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2012
The industry is split into five geographic segments

Installed capacity (2011) North
66.4 mtpa
Key markets
Rajasthan, Punjab, Haryana and the NCR
South
126.9 mtpa
Tamil Nadu, Andhra Pradesh and Karnataka
Cement industry
East
43.5 mtpa
West Bengal, Chhattisgarh, Orissa and Jharkhand
West
44.1 mtpa
Maharashtra and Gujarat
Central
37.3 mtpa
Uttar Pradesh, Madhya Pradesh

Note: mtpa: million tonnes per annum
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Geographic distribution of installed capacity in India ... (1/2)
Rajasthan has the highest installed capacity in north India, accounting for a 66.5 per cent share in capacity in the region in 201 1 Chhattisgarh leads the eastern region with a share of 32.6 per cent of total installed capacity in the region in 201 1
Shares in total capacity in northern region (2011)

0.8% 0.8% 4.5% 6.0% 7.2% 14.2% 66.5% Rajasthan Himachal Pradesh Punjab Uttarakhand Haryana Jammu & Kashmir Delhi
Shares in total capacity in eastern region (2011)

0.5% 2.3% 7.5% 32.6% 19.5% Assam Meghalaya Bihar Jharkhand Orissa West Bengal 16.8% 20.8% Chhattisgard
Note: mtpa: million tonnes per annum Source: Department of Industrial Policy and Promotion, Aranca Research
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Geographic distribution of installed capacity in India ... (2/2)
Andhra Pradesh has the highest installed capacity in the southern region (53.5 per cent share of total installed capacity) Madhya Pradesh leads the central region in installed capacity while Gujarat leads the pack in west India
Shares in total capacity in southern region

(2011) 18.0% 0.5%
Shares in total capacity in central region

(2011)
Shares in total capacity in western region

(2011)
34.4% 45.0% 53.5% 28.0% 65.6% 55.0%
Andhra Pradesh
Tamil Nadu
Karnataka
Kerala
Uttar Pradesh
Madhya Pradesh
Gujarat
Maharashtra
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The eastern and central regions have high demand growth

Region-wise domestic consumption of cement (mtpa)
North
CAGR 9%
33.6 35.1 38.3 40.8 45.6 53.8
South
CAGR 7%
55.5 56.4 51.0 48.6
East
68.9 62.1
CAGR 14%
28.0 33.0 37.3 41.7
46.6
24.7
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY08
FY09
FY10
FY11F
FY12F
FY13F
West
CAGR 9%
32.7 34.5 38.8 41.4 49.8
Central
CAGR 12%
23.8 26.2 30.8 34.3
All India
CAGR 10%
38.2 42.0 163.4 177.5 196.4 210.2 265.9 236.3
45.4
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY08
FY09
FY10
FY11F
FY12F
FY13F
FY08
FY09
FY10
FY11F
FY12F
FY13F
Source: CMA, Edelweiss, Aranca Research;

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Market concentration is high across regions (1/2)

Market share by installed capacity (2011)
North
Ambuja Cement Shree Cement 29% Others Ultratech Cement J K Cement 14% 17% 14% ACC Jaypee Cement Birla Cement 50.6% 8.3% 7.1% 10.2% 5.9% 9.9% India Cement Madras Cement Ultratech Cement
South
6% 2% 7% 11%
Chettinad Cement
Dalmia Cement ACC Others
East
8.0%
14.2% 6.2% 52.1% 12.1% 9.8% 5.5%
Lafarge India
ACC
Ultratech OCL India Ltd Ambuja Cement Others
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Market concentration is high across regions (2/2)

Market share by installed capacity (2011)
West Central
29.0% 47.6%
33.5% Ultratech Cement Jaypee Cement Ambuja Cement 42.1%
Jaypee Cement Ultratech Cement ACC Others
10.9% 12.5%
Others
12.3%
All - India
10.0% 7.5%
12.1%
Ambuja Cement ACC
15.0% 66.1% 1.4%
Ultratech Cement Jaypee Cement Others
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Notable trends in the cement industry

Increasing presence of small and midsize cement players
Presence of small and mid-size cement players across regions is increasing, which helps to diminish market concentration of industry leaders Small and mid-size players have been constantly increasing their installed capacity to cater to increasing cement demand
Cost reduction through the use of alternate fuels **
Major cement manufacturers in India are increasingly using alternate fuels, especially bioenergy, to fire their kilns This is not only helping to reduce production costs of cement companies, but is also proving effective in reducing emissions
Increasing sale of blended cement
The proportionate sales of blended varieties of cementPortland Pozzolana Cement (PPC) and Portland Blast Furnace Slag Cement (PBFC)has risen over the years During 2011, blended cement accounted for 75 per cent of total cement production in the country
Notes: ** The Success Stories section includes cases of successful employment of alternate fuels in cement production to reduce production costs Source: Department of Industrial Policy and Promotion, Aranca Research
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Contents
Growth drivers
Useful information
15
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Conducive industry forces support longterm attractiveness
High Huge capital investments required present substantial barriers to entry and achieving economies of scale
Low The Indian cement market is oligopolistic in nature, characterised by tacit collusion, where large players partially control supply for better price discipline
Positive
Positive
Market attractiveness
Neutral
Moderate Cement players have to depend on the railways for carriage outward and local coal companies for fuel, although diversification of freight options and fuel sources is diminishing the suppliers power
Positive
Postive
Low Cement, practically, has no substitutes
Low Substantial market concentration among large players ensures low bargaining power of buyers
Source: Aranca Research
GROWTH DRIVERS
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Strong demand drivers in the near term

Housing growth
The Housing segment accounts for a
Infrastructure growth
The government is strongly focused on
Commercial real estate growth

The demand for Commercial Real
major portion of the total domestic demand for cement in India

Between 2010 and 2014, demand for
infrastructure development to boost economic growth

It plans to increase investment in
housing units is estimated to be 4.3 million, leading to a higher demand for cement for homebuilding
Growing urbanisation, an increasing
infrastructure to USD1 trillion in the 12th Five Year Plan (201217), compared with USD514 billion under the 11th Five Year Plan (200712)
Infrastructure projects such as
Estate segments, comprising retail space, office space and hotels, as well as civic facilities including hospitals, multiplexes and schools, has been rising due to the growth in economy
The demand for office space in India is
number of households and higher employment are primarily driving the demand for housing
Initiatives by the government are
being driven by the increasing number of multinational companies and the growth of the services sector
Strong growth in tourism, including
expected to provide an impetus to construction activity in rural and semiurban areas through large infrastructure and housing development projects
Dedicated Freight Corridors as well as new and upgraded airports and ports are expected to further drive construction activity
The government intends to expand the
both business and leisure travel, has boosted the construction of hotels in the country
Estimated demand by real estate
capacity of the railways and the facilities for handling and storage to ease the transportation of cement and reduce transportation costs
segment between 2010 and 2014: Office (240 million sq ft), Retail (55 million sq ft), Hospitality (78 million room nights)
Source: Cushman & Wakefield, Aranca Research
GROWTH DRIVERS
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expected to boost capacity utilisation and profitability

Region-wise forecasted capacity utilisation levels of cement players (%)
North
88 82 84 73 67 68 81
South
East
91 87
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
West
90
Central
85 87
All India
82 78 77
79
77
80
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
FY11F
FY12F
FY13F
Source: CMA, Kotak Institutional Equities, Aranca Research
GROWTH DRIVERS
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Expected movement in additional capacity requirement
Installed capacity increased at a CAGR of 13.6 per cent over FY06-1 1 while production witnessed an increase of 9.1 per cent during this period
Additional capacity creation as per the 12th Five Year Plan

45 40 38.7 35.5 30.2 25.3
Total capacity of 331 MT is estimated to have been created in FY12
35 30 25 20 15 10 5 0 FY12 FY13 FY14 12.9
The strong momentum in capacity addition is not surprising given the sharp growth in construction, infrastructure and real estate in the Indian economy It is hence not surprising that the 12th Five Year Plan estimates additional capacity requirement to touch 139.7 MT by FY17
13.4
FY15
FY16
FY17
Source: CMA, Kotak Institutional Equities, Aranca Research Notes: Additional capacity creation estimates are based on increase in base lines, roads, housing and fiscal support
GROWTH DRIVERS
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Contents
Growth drivers
Useful information
20
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2012
Cases of successful use of alternate fuels in cement production

Company/Plant Strategy Benefits
Madras Cement's Alathiyur plant
Use bioenergy through burning of coffee husk and cashew nut shells
Annual cost savings of USD1.7 million
India Cements Ltd's Dalavoi plant
Use Low Sulphur Heavy Stock (LSHS) sludge as alternate fuel
Annual savings of USD6500 approx.
UltraTech's Gujarat Cement Works
Use tyre chips and rubber dust as alternate fuel
Reduction of about 30,000 tonnes of carbon emissions annually
Lafarge's Arasmeta plant
Substitute 10% of coal used in kilns with rice husk
Higher energy savings and lower carbon emissions
Source: CMA, Aranca Research
SUCCESS STORIES: INNOVATIVE SOLUTIONS
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UltraTech Cement: A compelling growth story
UltraTech Cement
UltraTech is India's largest exporter of cement clinker spanning export markets in countries across the Indian Ocean, Africa, Europe and the Middle East. UltraTech and its subsidiaries have a presence in five countries through 11 integrated plants, one white cement plant, one clinkerisation plant, 15 grinding units, two rail and three coastal terminals, and 101 RMC plants. It has an annual capacity of 52 MT Projects: Mumbai Metro, Bangalore Metro Rail, Kolkata Metro Rail, Monorail, Coastal Gujarat Power, Elevated Express Highway, PimpalGaon-Nashik-Gonde Road, BandraWorli Sea Link
4.5
Revenue and Profit after Tax (PAT) in USD billion
4.0
3.0
2.9
1.5
1.0 0.2
1.2 0.2 FY08
1.4
1.5 0.5
0.2 FY09 Revenue
0.2 FY10 PAT
0.4 FY11
0.0 FY07 FY12
Milestones

2004 Acquisition of L&Ts Cement Business: UltraTech Cement Ltd 2006 Narmada Cement Company Limited amalgamated with UltraTech 2010 Samruddhi Cement Limited amalgamated with UltraTech Cement Limited
Source: Company website (www.grasim.com), Department of Industrial

Policy and Promotion , Aranca Research Notes: RMC Ready-mix concrete
SUCCESS STORIES: TATA STEEL, JSW STEEL
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Contents
Growth drivers
Useful information
23
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North East India: A land of opportunities for cement firms

NE India: Cement demand
The North East (NE) region has consistently been a cement deficit region over several years At present, cement demand in the NE is about 5.2 mtpa
NE India: Cement supply

Cement manufactured locally is inadequate to meet the local demand for cement The deficit is met through cement purchased from other parts of India High transportation costs cause the landed costs of cement to increase considerably
NE India: Cement demand-supply gap
Deficit of 2.2 mtpa
5.2
3.0
Estimated demand
Available supply
Source: Industry sources, Aranca Research

Note: mtpa: Million tonnes per annum
OPPORTUNITIES
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North East India: Demand drivers for cement
NE states projected GDP growth at constant prices

16.4%
The Government has approved a package of fiscal incentives and other concessions for the North East Region, namely the North East Industrial and Investment Policy, 2007, effective from 1 April, 2007 The major policy and fiscal initiatives are expected to catalyze infrastructure and industrial development in the region, spurring the demand for cement
Source: North East Vision 2020 document, Aranca Research
13.7% 10.0%
XI 5-yr Plan
XII 5-yr Plan
XIII 5-yr Plan
NE states projected per capita income growth

15.2% 12.4%
8.6%
XI 5-yr Plan
XII 5-yr Plan
XIII 5-yr Plan

OPPORTUNITIES
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Contents
Growth drivers
Useful information
26
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Industry associations
Cement Manufacturers' Association CMA Tower, A-2E, Sector 24 NOIDA 201 301 Uttar Pradesh, India Phone: 91-120-241 1955, 241 1957, 241 1958 Fax: 91-120-241 1956 E-mail: cmand@vsnl.com Website: www.cmaindia.org/index.html
USEFUL INFORMATION
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Bodies promoting industry development
Indian Concrete Institute Ocean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai 600 020 Phone: 91-44-24912602 Fax: 91-44-24455148 E-mail: ici3@vsnl.in, ici4@airtelmail.in, vj6314@gmail.com Website: www.indianconcreteinstitute.org National Council for Cement and Building Materials 34th Milestone, Delhi-Mathura Road, Ballabgarh 121 004 Haryana, India Phone: 91-129-2242051/52/53/54/55/56; 4192222 Fax : 91-129-2242100; 2246175 E-mail: nccbm@vsnl.com; info@ncbindia.com Website: www.ncbindia.com
USEFUL INFORMATION
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Glossary
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CMA: Cement Manufacturers' Association GDP: Gross Domestic Product GoI: Government of India INR: Indian Rupee MTPA: Million tonnes per annum NE India: North East India FY: Indian financial year (April to March)
So FY10 implies April 2009 to March 2010
USD: US Dollar
Conversion rate used: USD1= INR48
Wherever applicable, numbers have been rounded off to the nearest whole number
USEFUL INFORMATION
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Disclaimer
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2012
India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this
presentation to ensure that the information is accurate to the best of Aranca and IBEFs knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
DISCLAIMER
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Cement

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

Market size: 550 mtpa

Advantage India Structural drivers

For updated information, please visit www.ibef.org

Overview of the Indian cement industry

Large cement plants

Mini and white cement plants

Cement plants: 360

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Key industry dynamics

Per capita cement consumption in 2009 (kg)

Source: Indiabulls, Aranca Research

Source: Ambit Capital, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Cement production in India has been growing at a fast pace

Source: Department of Industrial Policy and Promotion, Aranca Research

For updated information, please visit www.ibef.org

The industry is split into five geographic segments

Tamil Nadu, Andhra Pradesh and Karnataka

West Bengal, Chhattisgarh, Orissa and Jharkhand

Maharashtra and Gujarat

Uttar Pradesh, Madhya Pradesh

Source: Department of Industrial Policy and Promotion, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Geographic distribution of installed capacity in India ... (1/2)

Shares in total capacity in northern region (2011)

Shares in total capacity in eastern region (2011)

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Geographic distribution of installed capacity in India ... (2/2)

Shares in total capacity in southern region

Shares in total capacity in central region

Shares in total capacity in western region

34.4% 45.0% 53.5% 28.0% 65.6% 55.0%

Note: mtpa: million tonnes per annum

Source: Department of Industrial Policy and Promotion, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

The eastern and central regions have high demand growth

Source: CMA, Edelweiss, Aranca Research;

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market concentration is high across regions (1/2)

14.2% 6.2% 52.1% 12.1% 9.8% 5.5%

Source: Department of Industrial Policy and Promotion, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market concentration is high across regions (2/2)

33.5% Ultratech Cement Jaypee Cement Ambuja Cement 42.1%

Jaypee Cement Ultratech Cement ACC Others

Ambuja Cement ACC

15.0% 66.1% 1.4%

Ultratech Cement Jaypee Cement Others

Source: Department of Industrial Policy and Promotion, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Notable trends in the cement industry

Increasing presence of small and midsize cement players