Industry Analysis

(Cement)

Gujarat Ambuja Cements Limited

The Associated Cement Companies Limited

S.Anandan
P.Kadhirvelu
Chintan Poudel
S.Vijay
K.T.Maniraj

Strategic Management
Introduction

 The first cement plant was commissioned in 1914 with a production

level of 1000 tons/ annum.
 India is the second largest cement producer in the world with a
production level of about 99 million tonnes
 India’s share is about 5% of world production ~ 2000 million tonnes
 The installed capacity is about 119 million tonnes and at an expected
10 % growth rate .
 India’s cement consumption per capita is at about 99-kg/ capita
Compared to the world average of about 267 kg/capita Whereas in
China it is 450 kg/capita ,Japan aboout 631 kg/capita while in France
it is 447 kg/capita.
 Out of 157 kilns, 117 are dry process based, 32 are based on wet
process and 8 on semi dry.

Strategic Management
Industry Overview
Grey Cement
The Indian cement Industry

 Comprises 54 cement producers

 129 operating cement plants
 153.6 MnTPA of an average installed capacity
 Latest technology process upgradation
 96% of total capacity – modern, environment friendly
and energy efficient dry process technology.
 4% - old wet and semi-dry process technology
 127.6 MnT of actual cement production
 Growth at 8.6%
 123.1 MnT of domestic cement consumption representing
an 8.1% increase
 It was only about 35% of global average

Strategic Management
Grey Cement Contd…

Strategic Management
Manufacturing Process

Strategic Management
White Cement

White cement currently sold in India has a whiteness of around 88% to 90%
From 2002 – 2005, it has grown at a rate of CAGR of 6%

Strategic Management
White Cement contd…

Manufacturing Process

 The production process is highly sensitive to small

variations in inputs as small difference in whiteness can
impair the usability of the product;
 Instead of coal, fuel oil or petcoke is used in kiln as coal
generates ash which affects the whiteness of product;
 Cooling of clinker is done by water as against air in grey
cement;
 White clay, feldspar and fluorspar are added as additives
to clinker

Strategic Management
Industry Characteristics

Grey cement

 Units concentrated in proximity to raw material .

sources or markets
 Energy-intensive
 Regional variations and volatility in prices and margins

White cement

 Concentrated Market
 National Market
 Import

Strategic Management
 Size and Growth

A modest growth of 5.5% year on year (yoy) for November 2005,

primarily due to the subdued demand growth in the southern
region, which witnessed heavy rains and floods in Tamil Nadu
and coastal Andhra Pradesh.

% yoy Apr-4-
(mn tonnes) Nov 2005 Nov 2004 Apr-5-Nov %yoy chg
chg Nov

Dispatches 11.0 10.4 5.5 89.4 81.8 9.4

Production 11.1 10.3 8.1 89.9 80.6 11.4

Strategic Management
 Current Scenario and Outlook

 Cement demand has risen strongly across the western and northern
markets in November, due to the recent flooding in Maharashtra and
parts of Gujarat.

 Retail housing segment boom and infrastructure projects such

as roads and bridges.

 Power and fuel along with freight charges constitute almost 55%
of the total costs

 The quarter prices of furnace oil, naphtha and other petroleum products
escalated leading to increase in power and fuel costs

 The outlook for India and the national economy is positive.

 India’s stature will continue to rise as a nation with qualities of
global leadership and excellence.

Strategic Management
 Current Scenario and Outlook contd…
Expected Demand

2005-06 2006-07

Base Domestic Demand 123 133

Growth - 8% 10 10

Expected Domestic Demand 133 143

Exports (Potential to be even

4 4
higher)

Expected Cement Demand 137 147

Strategic Management
Risks and Concerns

 Raw materials like limestone saw costs go up by 13%. While

gypsum costs went up by 7%.

 Imported coal was increased by as much as 50% and indigenous

coal cost has gone up by 23%

 Diesel prices went up by about 22% leading to an increase in

freight charges as well

 Power generation costs also increased by 20% due to an

increase in fuel costs.

 Availability of local coal is posing a major challenge leads to increase in

inflation and thus having a negative impact on the business environment

 Failure of monsoon or floods affects agriculture, which has an adverse

effect on the demand for cement.

Strategic Management
Market Players

•ACC •L & T
•Andhra Cement •Madras Cement
•Birla Corporartion •Mangalam Cement
•Cement Corporation •Mehta Group
•Century Textiles •Mysore Cement
•Chettinad Cement •Orient Cement
•Grasim Cement •Prism Cement
•Gujarat Ambuja Cement •Shree Cement
•India Cement •Tamil Nadu Cement
•Jaypee Cement Ltd •Zuari
•J.K.Group •Dalmia Cement Company
•Lafarge India Ltd •OCL India Ltd
•Kesoram

Strategic Management
Recent Trends

 Slowdown in the creation of fresh capacity

 Increasing demand from housing and infrastructure.
 The upswing in the stock prices is likely to continue on
the back of better earnings expectations in the second
quarter due to healthy demand for cement.
 Maharashtra and Gujarat portray higher topline growth
due to improved realization making them fundamentally
stronger

Strategic Management
Best Practices

 Climate Change Management

 Responsible Use of Fuels and Raw Materials

 Employee Health and Safety

 Emission Reduction

 Local impacts on land and communities

 Effective Communications

Strategic Management
Environmental factors

 Changes in weather patterns that affect consumer demand for cement;

 Changes in competitors’ pricing and other competitive strategies;
 General economic and political changes in laws and regulations that
apply to the Indian cement industry, import duties, excise duties or
environmental regulations;
 The ability to successfully implement strategy, growth and expansion
plans and technological changes.
 The market prices for cement.
 Governmental and business conditions globally and in India.
 Changes in interest rates, and in exchange rates.
 The level of construction activity in India.
 Changes in cement demand and prices
 Changes in raw material and energy prices

Strategic Management
Environmental analysis
Sustainable Development Triangle

GOVERNANCE ECONOMIC GROWTH COMMUNICATION

KPI’s Innovation
Communication
Public Policy strategy
Instruments
CO2
Land use &
Bio-diversity
Industry ecology

Socio-economic
development
Environ.,health,Safety
performance

Environmental Balance
Social Responsibility

Strategic Management
Regulation and Policies
 Licensing Policy
 FDI in Cement Sector
 Ownership restrictions of FIIs
 Cement Control (Amendment) Order, 1989
 Cement Cess Rules, 1993
 Cement (Quality Control) Order, 2003
 The Indian Boilers Act, 1923 and the Indian Boiler Regulations, 1950;
 Explosives Act, 1884;
 Gas Cylinder Rules, 1981;
 Environment Protection Act, 1986, and Rules, 1986;
 Water (Prevention and Control of Pollution) Act, 1974, and Rules, 1975;
 Water (Prevention and Control of Pollution) Cess Act ,1977, and Rules, 1978;
 Air (Prevention and Control of Pollution) Act, 1981, and Rules, 1982;
 Hazardous Waste (Management and Handling) Rules, 1989;
 Fiscal Laws and Regulations including the I.T. Act, Central Excise Act, 1944, the Customs Tariff Act, 1975;
 The Central Sales Tax Act, 1956;
 Petroleum Act, 1934;
 Rajasthan Petroleum Products (Licensing and Control) Order, 1990;
 Solvent, Raffinate and Slop (Acquisition, Sale, Storage and Prevention of Use in Automobiles) Order, 2000;
 Standards of Weights and Measures Act, 1956; and
 Electricity (Supply) Act, 1948.

Strategic Management
Competitive Advantage

 Second Largest producer of Cement in the world market

 Proximity and access to large reserves of high quality limestone
 Quality of products and strong brand name
 Experience and technical know-how
 Indian brands have more competitiveness in global market than
major global players like Holcim.
 Good support from economy and government

Strategic Management
 Industry Strategies

 Developing less expensive and a reliable captive source of power:

 Increase production capacity utilization to cater ever increasing
global demand
 Acquiring more market place.
 Rapid modernization and adoption of cost effective energy efficient
and environment friendly technologies will be the prime mover for the
viability of the industry in the global canvas.
 The industry should increasingly look for other cheaper fuel options
like sludge from paper plants, sugar cane trash, bagasse, jute dust,
textile dust, biogas refinery waste like pet coke etc

Strategic Management
Global Competitiveness

 Mining
 Manufacture
 Grinding and Blended Cement
 Packing
 Logistics
 Sales and Marketing
 Research and Development
 Ready Mixed Concrete
 Finance
 Sourcing
 Quality Control
 Consolidation

Strategic Management
Average Cost Breakup

Strategic Management
Pros and Cons of Cement business

Strategic Management
Future developments

 Through adoption of modern technology and equipment, input

substitution, output modification, organizational changes as well as other
process specific measures India is trying to increase output at the same
time as to improve efficiency, conserve energy and control pollution.

 Process conversion presents a notable example of energy conservation

in the Indian cement history.

 These power generation systems are based on cogeneration and/or

waste heat recovery and lead to substantial savings in terms of energy
use and costs.

GDP GDP
Year GDP (total) Average
Industry construction
2006 139.5 148.7 150.8 146.3

2011 186.9 204.2 210.4 200.5

Strategic Management
 GUJARAT AMBUJA CEMENTS LIMITED

Business Model

Huge owned Infrastructure

Presence in the growing markets of North & West
Premium Brand - only selling in Retail Markets.
Largest Exporter of cement – 15% of Production
35% Cement transport by sea - Cheapest Mode
Low Cost Cement Producer

Growth Plans
Plan to increase capacity by 3 to 4 mn. tonnes
in next 2 - 3 years by way of acquisition, up gradation
& brown field expansion.
Growth to be funded from free cash flows

Strategic Management
Internal analysis

 PRODUCTION
 MARKETING
 EXPORTS

 COSTS
Raw Materials
Coal
Power
Freight
 STRATEGIC PARTNERSHIP
 HUMAN RESOURCES

Strategic Management
 ASSOCIATED CEMENT COMPANIES LIMITED

Internal analysis

 Research and development

 Human Resources
 Management
 Strategic alliances
 Strengths and opportunities
 Information technology
 Value Added Taxes

Strategic Management
 TECHNOLOGY ABSORPTION
Research & Development (R&D)
1. Specific areas in which R&D carried out by the company
1)Beneficiation of raw materials and fuels
2)Enhanced absorption of blending materials
3)Development of new and high performance concretes,
mortars and grouts
4) Development of particle separation technologies
2. Benefits derived as result of above R&D
Marginal quality raw materials and fuels could be used
Absorption of blending materials enhanced
High performance concretes, mortars and grouts developed
3. Future plan of action
I. Research for even better processes of beneficiation for raw
materials and fuels.
II. Focus on development of products aimed at enhancing use
of cement in various applications.
4. Expenditure on R&D

Strategic Management
 Industry Estimates for Q3FY06

Sales OPM Net Profits EPS P/E

Annualiz
Q3FY06E %Growth Q3FY06E Q3FY05 Net Q3FY06E %Growth (x)
ed

Company (Rs mn) (yoy) (%) (%) Change (Rs mn) (yoy)

Grasim 16,601 6.4 22.0 25.0 (3.0) 2,102 (3.2) 91.7 16.0

ACC 11,030 15.5 14.0 13.0 1.0 1,001 88.5 21.7 25.6

Ultratech 7,407 7.7 13.0 7.7 5.3 7 - 0.2 -

Gujarat
7,088 14.9 26.0 21.9 4.1 1,048 17.0 4.7 18.7
Ambuja

Strategic Management
CONCLUSION

Keeping the objective in mind, this work identifies some of the

industry’s current best practices which are at par with the
international standards. Then, this work proceeded by
identifying the key issues and concerns, and environmental
factors. In addition to the above the External environmental
analysis is done using “Substantial Development Triangle”
approach. Further the work carried out competitive analysis
through production, marketing, human resource functions
includes, infrastructure and Information technology.

Strategic Management
BIBLIOGRAPHY

Reports
World Business Council for Sustainable Development (WBCSD)
report on cement industry.
GACL Annual Report FY03 – FY05
ACC Annual Report FY03 – FY05

Reference Journals

Corporate results, Dec ’05 – Feb. ’06 , Volume 2 No: 1

Survey of Indian Industries: 2003 – 2005 versions
Sharekhan Valueline Dec ‘05

Reference Website
 http://www.wbcsdcement.org
 http://www.sharekhan.com
 http://www.indiainfoline.com
 http://www.crisinfac.com
 http://www.cii.com

Strategic Management
Thank
You