SECTOR REPORT:

INTRODUCTION:
With its fast growing economy and bustling infrastructure activity in the last few years,
the cement sector in India has been growing steadily with
second largest producer of quality
important place in the national economy because of its strong linkages to other sectors
such as construction, coal, power and transportation. It is also one of the major
contributors to the exchequer by way of
The industry has also been helped by various initiatives taken by the
India for various infrastructure projects, road
addition of about 30 million tonnes in 2011, t
currently stands at about 290 million
INDIAN CEMENT INDUSTRY
Although the industry has been rising on the back of strong real estate and construction
activity in the country, the cement industry has seen much more
the increase in demand, lead
year. A lower utilization rate coupled with increase in cost of raw materials and
increasing logistics costs are likely to keep overall prices
pressure. Power and fuel costs
the total costs, pressure on costs will continue to mount mainly on account of increases
in the cost of domestic coal and owing to the volatility in
The cement demand can be divided into
accounts for 67% of cement demand, Infrastructure
11% and industrial - 9%. Residential cement demand in the ye
driven mainly by increasing population and urbanization
demand will be driven by an increase in industrial, retail and office segments.
The industry is currently going through a phase of oversupply
around 115 million tonnes in the last 3 years. Sudden burst in capacity expansion

SECTOR REPORT: CEMENT
With its fast growing economy and bustling infrastructure activity in the last few years,
the cement sector in India has been growing steadily with the country becoming
second largest producer of quality cement in the world. The industry occupies an
important place in the national economy because of its strong linkages to other sectors
such as construction, coal, power and transportation. It is also one of the major
contributors to the exchequer by way of direct and indirect taxes.
The industry has also been helped by various initiatives taken by the
various infrastructure projects, road network and housing activities.
addition of about 30 million tonnes in 2011, the total installed capacity of the industry
290 million tones.
INDUSTRY:
Although the industry has been rising on the back of strong real estate and construction
activity in the country, the cement industry has seen much more capac
ding to capacity utilization falling below 80%
. A lower utilization rate coupled with increase in cost of raw materials and
increasing logistics costs are likely to keep overall prices as well as the margins under
pressure. Power and fuel costs(mostly coal) being some of the major components of
ressure on costs will continue to mount mainly on account of increases
in the cost of domestic coal and owing to the volatility in costs of imported coal.
cement demand can be divided into four key segments namely: Housing, which
accounts for 67% of cement demand, Infrastructure - 13%, Commercial Construction
9%. Residential cement demand in the years to c
driven mainly by increasing population and urbanization whereas the commercial
demand will be driven by an increase in industrial, retail and office segments.
The industry is currently going through a phase of oversupply
around 115 million tonnes in the last 3 years. Sudden burst in capacity expansion

With its fast growing economy and bustling infrastructure activity in the last few years,
the country becoming the
The industry occupies an
important place in the national economy because of its strong linkages to other sectors
such as construction, coal, power and transportation. It is also one of the major
The industry has also been helped by various initiatives taken by the Government of
network and housing activities. With an
stalled capacity of the industry
Although the industry has been rising on the back of strong real estate and construction
capacity addition than
to capacity utilization falling below 80% in the last
. A lower utilization rate coupled with increase in cost of raw materials and
ell as the margins under
being some of the major components of
ressure on costs will continue to mount mainly on account of increases
costs of imported coal.
four key segments namely: Housing, which
13%, Commercial Construction -
ars to come will be
whereas the commercial
demand will be driven by an increase in industrial, retail and office segments.
due to addition of
around 115 million tonnes in the last 3 years. Sudden burst in capacity expansion



coupled with low demand growth
resulted in drop in prices and margins coming under pressure.
KEY GROWTH FACTORS
Increase in per capita income, nucleus family, urbanization rate, change in population
growth, and Government stimulus to various rural a
GOOD COMPANIES:
(Price information as on 07-03
The leaders Current
Price:
PE:
Ultratech
Cement
1422.60 16.91
ACC(Dec
FY)
1304.25 18.48
Ambuja
cemets(Dec
FY)
159.90 19.97

Good
valuations
Current
Price:
PE:
Hyderabad
Industries
327.55 4.60



coupled with low demand growth has led to fierce competition for market share which
and margins coming under pressure.
GROWTH FACTORS:
Increase in per capita income, nucleus family, urbanization rate, change in population
growth, and Government stimulus to various rural and affordable housing schemes
03-12)
PB: Avg. EPS
Growth(3
year-%):
PEG(Mar
2011):
MCap
16.91 3.19 -10.93 -
18.48 3.40 6.82 2.35
19.97 3.05 -4.31 -
PB: Avg. EPS
Growth(3
year-%):
PEG(Mar
2011):
MCap
4.60 0.73 91.02 .06

led to fierce competition for market share which

Increase in per capita income, nucleus family, urbanization rate, change in population
nd affordable housing schemes
MCap(Cr):
38,988
24,487
24,543
MCap(Cr):
244


Other
good
names
Current
Price:
PE:
Madras
cement
138.50 9.41
Shree
cement
2780 44.34

PORTERS FIVE FORCES
Threat of new competition:
reasons. Firstly, entry barriers are very high due to large investments and strong
brand name required. Secondly, the industry is already reeling from over supply.
Threat of substitutes: It is
construction activity and has been used in more or less the same formula since
decades.
Bargaining power of customers:
number of options in the market but there is little product differentiation either in
terms of quality, or in terms of price.
Bargaining power of suppliers:
for manufacturing cement are limestone and power and fuel costs on the other front.
Availability of captive mines and power plants can give an edge to the companies by
ensuring constant and cheap availability of raw materials.
Existing competition: The
players dominating different segments of the overall market.
going through a phase of excess supply and
play an important role.
FUTURE OUTLOOK:
PB: Avg. EPS
Growth(3
year-%):
PEG(Mar
2011):
MCap
9.41 1.65 -18 -
44.34 4.53 23.32 1.48
FIVE FORCES ANALYSIS:
Threat of new competition: This is moderate to low at this point due to two
reasons. Firstly, entry barriers are very high due to large investments and strong
brand name required. Secondly, the industry is already reeling from over supply.
It is low since cement is an essential requirement in
construction activity and has been used in more or less the same formula since
power of customers: This is moderate to low. Although there are large
number of options in the market but there is little product differentiation either in
terms of quality, or in terms of price.
Bargaining power of suppliers: This is moderate to high. The major raw materials
for manufacturing cement are limestone and power and fuel costs on the other front.
Availability of captive mines and power plants can give an edge to the companies by
ensuring constant and cheap availability of raw materials.
The cement industry is very competitive with different
players dominating different segments of the overall market. The industry is already
going through a phase of excess supply and brand strength and distribution network

MCap(Cr):
3,296
9,684
to low at this point due to two
reasons. Firstly, entry barriers are very high due to large investments and strong
brand name required. Secondly, the industry is already reeling from over supply.
cement is an essential requirement in
construction activity and has been used in more or less the same formula since
to low. Although there are large
number of options in the market but there is little product differentiation either in
The major raw materials
for manufacturing cement are limestone and power and fuel costs on the other front.
Availability of captive mines and power plants can give an edge to the companies by
cement industry is very competitive with different
The industry is already
brand strength and distribution network


The cement industry is expected to grow at CAGR of 10% for the next five years. The
sector is receiving good incentives from the government with
receiving an impetus in the form of improved funds and tax related incentives offered
to attract investors for tapping the inf
tax free bonds, formation of infrastructure debt funds and formulating a comprehensive
policy for developing public private partnership projects (PPPs) are some of the steps
that will provide required stimulus for growth of the related cement industry.
However, the industry faces many challenges going further.
reasonable rates as the coal
quarters. This, coupled with limited production of fuel in the country, is expected to
result in higher input costs for a fuel intensive industry like cement.
also becoming intensely competitive with the foray of new entrants and some of the
existing players adopting inorganic growth strategies.
are also needed in infrastructure and real estate sectors
investment into these areas.
budget, including introduction of excise duty on Coal & Fly A
materials for the manufacturers,
Another factor that is a bottleneck for the industry is the absence of
and distribution infrastructure. The government needs
highways, expand the rail networks
ensure cost efficient as well as safe movement of materials between cement plants,
customers, and suppliers.
In the short term though, the demand
recent capacity additions is likely to widen further. Effective supply is expected to
increase by approximately 30 million tonnes in the coming year, while demand may
increase by around 20 million
remain relatively low for next few quarters, leading to
pressures on various firms.
The cement industry is expected to grow at CAGR of 10% for the next five years. The
sector is receiving good incentives from the government with infrastructure sector
an impetus in the form of improved funds and tax related incentives offered
to attract investors for tapping the infrastructure opportunities in India. Introduction of
tax free bonds, formation of infrastructure debt funds and formulating a comprehensive
policy for developing public private partnership projects (PPPs) are some of the steps
e required stimulus for growth of the related cement industry.
However, the industry faces many challenges going further. Availability of fuel at
prices are expected to rise sharply in the coming few
. This, coupled with limited production of fuel in the country, is expected to
result in higher input costs for a fuel intensive industry like cement.
becoming intensely competitive with the foray of new entrants and some of the
existing players adopting inorganic growth strategies. Further Government initiatives
in infrastructure and real estate sectors and to attract more private
For example, the rollback of stimulus packag
including introduction of excise duty on Coal & Fly Ash, which are
for the manufacturers, had a substantial negative impact on
her factor that is a bottleneck for the industry is the absence of
and distribution infrastructure. The government needs to build more
the rail networks, improve port facilities etc. This
ensure cost efficient as well as safe movement of materials between cement plants,
the demand-supply imbalance as a result of the significant
recent capacity additions is likely to widen further. Effective supply is expected to
increase by approximately 30 million tonnes in the coming year, while demand may
increase by around 20 million tonnes. Industry capacity utilization
elatively low for next few quarters, leading to temporary pricing

The cement industry is expected to grow at CAGR of 10% for the next five years. The
infrastructure sector
an impetus in the form of improved funds and tax related incentives offered
India. Introduction of
tax free bonds, formation of infrastructure debt funds and formulating a comprehensive
policy for developing public private partnership projects (PPPs) are some of the steps
e required stimulus for growth of the related cement industry.
Availability of fuel at
in the coming few
. This, coupled with limited production of fuel in the country, is expected to
result in higher input costs for a fuel intensive industry like cement. The industry is
becoming intensely competitive with the foray of new entrants and some of the
Government initiatives
attract more private
, the rollback of stimulus package in 2011
sh, which are major raw
substantial negative impact on the Industry.
her factor that is a bottleneck for the industry is the absence of adequate logistics
to build more public roads and
This will be vital to
ensure cost efficient as well as safe movement of materials between cement plants,
supply imbalance as a result of the significant
recent capacity additions is likely to widen further. Effective supply is expected to
increase by approximately 30 million tonnes in the coming year, while demand may
utilization will consequently
temporary pricing and margin