cement: industry report ,march 2013

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Cement

For updated information, please visit www.ibef.org

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Contents Advantage India

Market overview and trends

Growth drivers

Success stories: Innovative solutions

Opportunities

Useful information


CementMARCH

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Cement

For updated information, please visit www.ibef.org ADVANTAGE INDIA

Advantage India

OpportunitiesStructural drivers

Strong demand Long-term potential

Advantage

India

• 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

• Increasing presence of Tier II cement players

• Use of alternate fuels to lower production costs and emissions

• The North East, which is witnessing a construction boom, offers attractive investment opportunities

• Large planned investments in infrastructure and housing is likely to boost demand for cement in the coming years as well

Market

size: 550

mtpa

FY20F

Market

size: 223.4

mtpa

FY12

Source: Edelweiss Notes: 2013F - Forecasted market size for

2013, MTPA - Million Tonnes Per Annum

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Growth drivers


Opportunities

Useful information


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Cement

For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS

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: 365

• Installed capacity: 11.1 mtpa

• Cement production: 6.0 mtpa

Key statistics

• India is the world’s 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),Planning Commission, Aranca ResearchNote: MTPA - Million Tonnes Per Annum,

Data are for FY11

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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 short-term disruptions, it grows largely in tandem with economic growth

Per capita cement consumption in 2009 (kg)

China

EU

World

Japan

Asia (ex-China)

US

India

0 200 400 600 800 1000 1200 1400

Source: Indiabulls, Aranca Research

Trend in GDP and growth in cement demand

Source: Ambit Capital, Aranca Research

Note: GDP - Gross Domestic Product MARKET OVERVIEW AND TRENDS

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Source: Department of Industrial Policy and Promotion,

Aranca Research Notes: MT - Million Tonnes,

E - estimate

→ The Indian cement industry is the second largest producer in the world comprising of 183 large cement plants and 365 mini cement plants

→ The production of cement increased at a CAGR of

10.0 per cent over FY07-11

→ Production is expected to reach 247 MT in FY12 as per the 11th Five Year Plan

Production of cement (MT)

MARKET OVERVIEW AND TRENDS

FY07 FY08 FY09 FY10 FY11 FY12E0

50

100

150

200

250

300

156168 182

207228

247

Cement production in India has been growing at a fast pace

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Installed capacity (2011) Key markets

Cement industry

North

South

East

West

66.4 mtpa

126.9 mtpa

43.5 mtpa

44.1 mtpa

Central 37.3 mtpa

Rajasthan, Punjab, Haryana and the NCR

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 ResearchNote: MTPA - Million Tonnes Per Annum

The industry is split into five geographic segments

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Shares in total capacity in northern region (2011)


66.5%

14.2%

7.2%

6.0%4.5%

0.8% 0.8%

Rajasthan

Himachal Pradesh

Punjab

Uttarakhand

Haryana

Jammu & Kashmir

Delhi

0.5%

7.5%2.3%

19.5%

20.8%16.8%

32.6%

Assam

Meghalaya

Bihar

Jharkhand

Orissa

West Bengal

Chhattisgard

Shares in total capacity in eastern region (2011)

→ Rajasthan has the highest installed capacity in north India, accounting for a 66.5 per cent share in capacity in the region in 2011

→ Chhattisgarh leads the eastern region with a share of 32.6 per cent of total installed capacity in the region in 2011

Source: Department of Industrial Policy and Promotion, Aranca ResearchNote: MTPA - Million Tonnes Per Annum

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

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Shares in total capacity in southern region


→ 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

53.5%

28.0%

18.0%

0.5%

Andhra Pradesh Tamil NaduKarnataka Kerala

Shares in total capacity in central region

34.4%

65.6%

Uttar Pradesh Madhya Pradesh

55.0%

45.0%

Gujarat Maharashtra

Shares in total capacity in western region

Source: Department of Industrial Policy and Promotion, Aranca Research

Note: MTPA - Million Tonnes Per Annum

(2011) (2011) (2011)

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

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The eastern and central regions have high demand growth

Region-wise domestic consumption of cement (mtpa)

FY08 FY09 FY10 FY11F FY12F FY13F

33.6 35.1 38.3 40.845.6

51.0

North


48.653.8 55.5 56.4

62.168.9

South


24.7 28.033.0

37.341.7

46.6

East


32.7 34.538.8 41.4

45.449.8

West


23.8 26.230.8

34.338.2

42.0

Central


163.4 177.5196.4 210.2

236.3265.9

All India

CAGR9%

CAGR7% CAGR

14%

CAGR9% CAGR

12%

CAGR10%

Source: CMA, Edelweiss, Aranca Research; Note: MTPA - Million Tonnes Per Annum


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Market concentration is high across regions … (1/2)

Market share by installed capacity (2011)



North

East

14.2%

6.2%

12.1%

9.8%

5.5%

52.1%

Lafarge IndiaACCUltratechOCL India LtdAmbuja CementOthers

South

29%

17%

14%

14%

11%

7%6% 2%

Ambuja CementShree CementOthersUltratech CementJ K CementACCJaypee CementBirla Cement

10.2%

5.9%

9.9%

8.3%

7.1%

8.0%

50.6%

India CementMadras CementUltratech CementChettinad CementDalmia CementACCOthers

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Market concentration is high across regions … (2/2)

Market share by installed capacity (2011)


West Central

All - India


29.0%

10.9%

12.5%

47.6%

Ultratech Cement

Jaypee Cement

Ambuja Cement

Others

33.5%

12.3%12.1%

42.1% Jaypee CementUltratech CementACCOthers

10.0%

7.5%

15.0%

1.4%66.1%

Ambuja CementACC Ultratech CementJaypee CementOthers

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Notable trends in the cement industry

Increasing presence of

small and mid-size 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 cement - Portland 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

Source: Department of Industrial Policy and Promotion, Aranca ResearchNotes: ** - The Success Stories section includes cases of successful employment

of alternate fuels in cement production to reduce production costs


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Growth drivers


Opportunities

Useful information


CementMARCH

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Cement

For updated information, please visit www.ibef.org GROWTH DRIVERS

Conducive industry forces support long-term attractiveness

Market

attractiveness

Positive

Neutral

Postive

Positive

Positive

• High - Huge capital investments required present substantial barriers to entry and achieving economies of scale

• 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

• Low - Substantial market concentration among large players ensures low bargaining power of buyers

• Low - Cement, practically, has no substitutes

• Low - The Indian cement market is oligopolistic in nature, characterised by tacit collusion, where large players partially control supply for better price discipline

Source: Aranca Research

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Source: Cushman & Wakefield, Aranca Research

GROWTH DRIVERS

• The Housing segment accounts for a major portion of the total domestic demand for cement in India

• Between 2010 and 2014, demand for housing units is estimated to be 4.3 million, leading to a higher demand for cement for homebuilding

• Growing urbanisation, an increasing number of households and higher employment are primarily driving the demand for housing

• Initiatives by the government are expected to provide an impetus to construction activity in rural and semi-urban areas through large infrastructure and housing development projects

Housing growth Infrastructure growth Commercial real estate growth

• The government is strongly focused on infrastructure development to boost economic growth

• It plans to increase investment in infrastructure to USD1 trillion in the 12th Five Year Plan (2012-17), compared with USD514 billion under the 11th Five Year Plan (2007-12)

• Infrastructure projects such as 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 capacity of the railways and the facilities for handling and storage to ease the transportation of cement and reduce transportation costs

• The demand for Commercial Real 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 being driven by the increasing number of multinational companies and the growth of the services sector

• Strong growth in tourism, including both business and leisure travel, has boosted the construction of hotels in the country

• Estimated demand by real estate segment between 2010 and 2014: Office (240 million sq ft), Retail (55 million sq ft), Hospitality (78 million room nights)

Strong demand drivers in the near term …

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… expected to boost capacity utilisation and profitability

Region-wise forecasted capacity utilisation levels of cement players (%)

FY11F FY12F FY13F

82 8488

North

FY11F FY12F FY13F

67 6873

South

FY11F FY12F FY13F

81

8791

East

FY11F FY12F FY13F

79 7780

West

FY11F FY12F FY13F

9085 87

Central

FY11F FY12F FY13F

78 7782

All India

Source: CMA, Kotak Institutional Equities, Aranca Research

GROWTH DRIVERS

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Additional capacity creation as per the 12th Five Year Plan

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

FY12 FY13 FY14 FY15 FY16 FY17

12.9 13.4

25.3

30.2

35.538.7

→ Installed capacity increased at a CAGR of 13.6 per cent over FY06-11 while production witnessed an increase of 9.1 per cent during this period

→ Total capacity of 331 MT is estimated to have been created in FY12

→ 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

Expected movement in additional capacity requirement

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Growth drivers


Opportunities

Useful information


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For updated information, please visit www.ibef.org SUCCESS STORIES: INNOVATIVE SOLUTIONS

Cases of successful use of alternate fuels in cement production

Madras Cement's Alathiyur plant

India Cements Ltd's Dalavoi plant

UltraTech's Gujarat Cement Works

Lafarge's Arasmeta plant

Strategy

Use bioenergy through burning of

coffee husk and cashew nut shells

Use Low Sulphur Heavy Stock (LSHS) sludge as alternate

fuel

Use tyre chips and rubber dust as alternate fuel

Substitute 10% of coal used in kilns

with rice husk

Benefits

Annual cost savings of USD1.7 million

Annual savings of USD6500 approx.

Reduction of about 30,000 tonnes of carbon emissions annually

Higher energy savings and lower carbon emissions

Company/Plant

Source: CMA, Aranca Research

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Source: Company website (www.grasim.com), Department of Industrial Policy and Promotion,

Aranca ResearchNotes: H1FY13 - Data mentioned is for first six

month of FY13, RMC - Ready-Mix Concrete

Revenue and Profit after Tax (PAT) in USD billion

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, Bandra-Worli Sea Link

• Milestones

• 2004 - Acquisition of L&T’s Cement Business: UltraTech Cement Ltd.

• 2006 - Narmada Cement Company Limited amalgamated with UltraTech

• 2010 - Samruddhi Cement Limited amalgamated with UltraTech Cement Limited

• 2012 - Acquisition of Adhunik Cement’s Meghalaya plant

Cement

FY07 FY08 FY09 FY10 FY11 FY12 H1FY130.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1.0 1.21.4 1.5

2.9

4.0

2.0

0.16 0.21 0.23 0.200.35 0.50 0.28

Revenue PAT

UltraTech Cement: A compelling growth story

SUCCESS STORIES: INNOVATIVE SOLUTIONS

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Growth drivers


Opportunities

Useful information


CementMARCH

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Cement

For updated information, please visit www.ibef.org OPPORTUNITIES

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

Estimated demand Available supply

5.2

3.0

Chart Title

Deficit of 2.2 mtpa

Source: Industry sources, Aranca Research

Note: MTPA - Million Tonnes Per Annum

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Source: North East Vision 2020 document, Aranca Research

→ 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

NE states projected GDP growth at constant prices

XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan

10.0%

13.7%

16.4%

NE states projected per capita income growth

XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan

8.6%

12.4%

15.2%

OPPORTUNITIES

North East India: Demand drivers for cement

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Growth drivers


Opportunities

Useful information


CementMARCH

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Cement

For updated information, please visit www.ibef.org USEFUL INFORMATION

Industry associations

Cement Manufacturers' AssociationCMA Tower, A - 2E, Sector 24 NOIDA - 201 301Uttar Pradesh, IndiaPhone: 91-120-2411955, 2411957, 2411958Fax: 91-120-2411956E-mail: [email protected]: www.cmaindia.org/index.html

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Bodies promoting industry development

Indian Concrete InstituteOcean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai - 600 020Phone: 91-44-24912602 Fax: 91-44-24455148E-mail: [email protected], [email protected], [email protected]: www.indianconcreteinstitute.org

National Council for Cement and Building Materials34th Milestone, Delhi-Mathura Road, Ballabgarh - 121 004 Haryana, IndiaPhone: 91-129-2242051/52/53/54/55/56; 4192222Fax: 91-129-2242100; 2246175E-mail: [email protected]; [email protected]: www.ncbindia.com

USEFUL INFORMATION

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Glossary

→ 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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cement: industry report ,march 2013

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