1. THE EQUICOM
Outlook On
India’s Cement Industries

2. CONTENT
Introduction
Key Points
Prospects
Sector Growth
Economic Growth with Cement Sector
Comparison
Conclusion

3. INTRODUCTION
The Indian cement industry is the second largest market after China.
Indian cement production capacity is expected to rise to 349.6Mt in the current fiscal
year (FY13) from 336.1Mt reached in the last fiscal. It had a total capacity of about
300 million tonnes (MT) as of financial year ended 2010-11, The figure is expected to
double to reach almost 550 million tonnes by 2020, as per estimates by the Cement
Manufacturers Association (CMA). As of 2011, there were 137 large and 365 mini
cement plants in India. Consolidation has taken place with the top three players alone
controlling almost 35% of the capacity. However, the balance capacity still remains quite
fragmented.
In India, cement demand emanates from four key segments — housing,
accounting for 67%; infrastructure for 13%; commercial construction for 11%; and
industrial sector for 9%. The cement industry has evolved in the form of clusters across
the country due to the location of limestone reserves in certain states. Presently, there
are seven clusters, namely the Satna cluster in Madhya Pradesh; Chandrapur in north
Andhra Pradesh and Maharashtra; Gulbarga in north Karnataka and east Andhra
Pradesh; Chanderia in south Rajasthan, Jawad and Neemuch in Madhya Pradesh;
Bilaspur in Chattisgarh; Yerraguntla in south Andhra Pradesh and Nalgonda in central
Andhra Pradesh.
Despite the fact that the Indian cement industry has grown at a commendable
rate in the last decade, registering a growth of nearly 9% to 10%, the per capita
consumption still remains substantially poor when compared with the world average.
While China registered the highest per capita cement consumption in 2010 of about
1,380 kg, India stood much lower at 230 kg. This underlines the tremendous scope for
growth in the Indian cement industry in the long term.
Cement, being a bulk commodity, is a freight intensive industry and transporting
it over long distances can prove to be uneconomical. This has resulted in cement being
largely a regional play with the industry divided into five main regions viz. north, south,
west, east and the central region. With capacity addition taking place at a faster rate as
compared to demand, prices have remained southbound, especially in the last one
year. Nevertheless, considering the government’s thrust on infrastructure, long term
demand remains intact.
Given the high potential for growth, quite a few foreign transnational companies
have displayed their interest in the Indian markets. Already, while companies like
Lafarge, Heidelberg and Italicementi have made a couple of acquisitions, Holcim has
increased its stake in domestic companies Ambuja Cements and ACC to gain full
control. Considering the long term growth story, fair valuations, fragmented structure of
the industry and low gearing, another wave of consolidation would not come as a
surprise.

4. Key Points
The demand-supply situation is high skewed with the latter being
SUPPLY
significantly higher.
Housing sector acts as the principal growth driver for cement.
However, recently industrial and infrastructure sectors have also
DEMAND
emerged as demand drivers.
High capital costs and long gestation periods.
BARRIERS TO Access to limestone reserves (key input) also acts as a
ENTRY significant entry barrier.
Licensing of coal and limestone reserves, supply of power from
BARGAINING the state grid etc are all controlled by a single entity, which is the
POWER OF government. However, nowadays producers are relying more on
SUPPLIERS captive power, but the shortage of coal and volatile fuel prices
remain a concern.
Cement is a commodity business and sales volumes mostly
BARGAINING depend upon the distribution reach of the company.
POWER OF However, things are changing and few brands have started
CUSTOMERS commanding a premium on account of better quality perception.
Intense competition with players expanding reach and achieving
COMPETITION
pan India presence.
PROSPECTS
The growth of the Indian economy has slowed down in recent times on account
of the rising inflation, high interest rates, high prices of commodities and fuels.
The growth prospects of the cement industry are closely linked to the growth of the
overall economy and the real estate and construction sector in particular.
The importance of the housing sector in cement demand can be gauged from the fact
that it consumes almost 60-70% of the country’s cement. If the slowdown in real estate
persists for an extended period, it would impact the growth in consumption of cement.
In such a case, the small and medium-sized cement players would be the worst hit.
Despite the overcapacity situation weighing on the cement industry, several
major capacity additions are expected in the next few years. Hence, the supply
overhang is likely to persist for at least 2-3 years. This will keep a constant pressure on
cement realizations. On the demand front, the cement industry is likely to maintain its
growth momentum and continue growing at around 8% to 9% in the medium to long

5. term. Government initiatives in the infrastructure sector and the housing sector are likely
to be the main growth drivers.
In the Union Budget 2011-12, the government restructured the excise duty on
cement in a way that would effectively increase the tax incidence on the cement
industry. However, certain initiatives chalked out to benefit the user industries would in
turn boost demand for cement. Custom duties on key inputs such as pet coke and
gypsum were also reduced which would provide some marginal relief against the rising
costs of inputs.
SECTOR GROWTH
Growth in Cement Demand (All Over India)
IN MILLION TONES 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2010- APR-
03 04 05 06 07 08 09 11 NOV
11
DOMESTIC 99 108 114 123 136 149 164 178 100
CONSUMPTION
YEAR-ON-YEAR 9.7 8.7 5.8 8.1 10.1 9.9 10.1 8.4 12.5
GROWTH %
Financial year 2011-12
During financial year 2011-12 (FY12), the cement industry added nearly 28 MT over
and above the 60 MT added in the previous year taking the total capacity to nearly 300
MT. However, cement demand during the year grew at a paltry rate of 5.3%, the lowest
since 2003-04. A significant slowdown was witnessed following the first quarter of FY11
mainly on account of the several hikes in key lending rates by the Reserve Bank of India
aimed at curbing the inflationary pressures. The credit crunch resulting from the
monetary tightening impacted real estate, infrastructure and other construction projects.
Prolonged monsoons and logistical constraints further dampened the construction work.
As a result, average industry capacity utilization fell as low as 70%. The impact was
even worse in the southern region, which witnessed the highest capacity additions.

6. The low cement demand severely affected
average industry realizations (average price
per bag of cement). Additional capacities
coming on stream further intensified the
oversupply situation. On the cost front, rising
input and fuel costs severely hurt the margins
of cement players. Export markets also
remained sluggish due to the slowdown in the
global economy, and particularly the sagging
construction activity in the Gulf region.
Fig: Regional Distribution of Cement
Industries
Growth in Cement Consumption in Major States of India (CAGR between2007-
2011)
GROWTH (%)
18
16
14
12
10
8
6
GROWTH (%)
4
2
0
ANDHRA HARYANA ORISSA GUJRAT M.P DELHI U.P PUNJAB
PRADESH

7. ECONOMIC GROWTH WITH CEMENT SECTORS
The Role of Cement Industry in India GDP is significant in the economic
development of the country. The cement industry in India is one of the oldest sectors in
India. The industry is driven by the immense growth in the housing sector, the
infrastructure development, and construction of transportation systems. An increased
outflow in infrastructure sector, by the government as well as private builders, has
raised a significant demand of cement in India. It is the key raw material in construction
industry. Also, it has highly influenced those bigger companies to participate in the
growing sector. At least 125 plants set up by the big companies in India with about 300
other small scale cement manufacturers, to fulfill the growing demand of cement.
Being one of the vital industries, the cement industry contributes to the nation’s
socioeconomic development. The sum total utilization of cement in a year indicates the
country’s economic growth.
The demand of cement in year 2012-2013 is expected to increase by 50 million
tons despite of the recession and decline in demand of housing sector.
Against India’s GDP growth of 7%, the experts have estimated the cement sector to
grow by 9 to 10 % in the current financial year. Major Indian cement manufacturers and
exporters have all made huge investments in the last few months to increase their
production capability. This heralds an optimistic outlook for cement industry.
The housing sector in India accounts for 50 % of the cement’s demand.
And the demand is expected to continue. With the constant effort made by cement
manufacturers and exporters, India has become the second largest cement producer in
the world. Madras Cement Ltd., Associated Cement Company Ltd (ACC), Ambuja
Cements Ltd, Grasim Industries Ltd, and J.K Cement Ltd. are among few renowned
names of the major Indian cement companies.
In India, the Department of Industrial Policy and Promotion (DIPP), under
the Ministry of Commerce and Industry, is the nodal agency for the development of
cement industries, that is, it is involved in monitoring their performance at regular
intervals and suggesting suitable policy incentives, as per the requirement.
The Department is responsible for formulation and implementation of promotional and
developmental measures for growth of entire industrial sector in general and of some
selected industries like cement, light engineering, leather, rubber, light machine tools,
etc. in particular. It is involved in framing and administering overall industrial policy and
foreign direct investment (FDI) policy as well as promoting FDI inflow into the country.
It plays an active role in investment promotion through dissemination of information on
investment climate and opportunities in India as well as by advising prospective
investors about various policies and procedures.

8. COMPARISONS
Growth Comparison among India Cement, JK Cement and Prism Cement for FY
2011-12
INDIAN CEMENT J K CEMENT PRISM CEMENT
KEY FACTOR 2012 2011 2012 2011 2012 2011
(Mar) FY (Mar) FY (Mar) FY (Mar) FY (Mar) FY (Mar) FY
NET WORTH 4067.20 4089.76 1529.01 1399.05 1210.60 1250.64
TOTAL DEBT 2268.59 2456.07 1079.35 1319.15 1038.95 1169.84
TOTAL LIABILITIES 6336.21 6545.83 2608.36 2718.20 2187.52 2377.67
TOTAL ASSETS 6336.20 6545.83 2608.36 2718.18 2187.52 2377.67
BOOK VALUE 132.42 115.23 184.32 163.92 22.82 24.00
TOTAL INCOME 4215.90 3550.01 2588.45 2400.16 4528.96 3415.68
TOTAL EXPENDITURE 3296.88 3074.38 2,032.66 2,111.24 4257.27 3065.99
EPS (RS.) 9.54 2.22 25.36 9.16 -0.60 1.90
EQUITY DIVIDEND (%) 20.00 15.00 50.00 20.00 5.00 10.00
CURRENT RATIO 0.95 1.28 1.03 1.17 0.77 0.93
QUICK RATIO 1.35 1.69 0.81 0.88 0.54 0.63
DEBT EQUITY RATIO 0.56 0.69 0.84 1.15 0.90 0.97
LONG TERM DEBT EQUITY RATIO 0.37 0.53 0.77 1.10 0.81 0.90
RETURN ON LONGTERM FUND (%) 12.06 3.75 19.27 7.43 6.60 10.33
EARNING RETENTION RATIO 7.93 -38.05 80.42 58.40 --- 40.56
MARKET SHARES
INDIA CEMENT 7.23%
J K CEMENT 2.97%
ACC 18.03%
AMBUJA CEMENT 11.88%

9. TECHNICAL VIEW
JK CEMENT
OUTLOOK
Trend: - Bullish
Resistance: - 285,305
Support: - 191,176
Strategy: - Buy on Dips

10. INDIA CEMENT
OUTLOOK
Trend: - Consolidate
Resistance: - 105,120
Support: - 82, 71
Strategy: - Sell on High

11. PRISM CEMENT
OUTLOOK
Trend: - Consolidate
Resistance: - 61, 65
Support: - 43, 39
Strategy: - Buy on Dips

12. Results from our study:-
CEMENTS FUNDAMENTAL VIEW TECHNICAL VIEW
JK cement BUY Buy on dips
India cement BUY Sell on high
Prism cement SELL Buy on dips
As per our research Investors should buy JK Cement for long term view because
fundamental view and technical view both are bullish for long term scenario in
JK Cement among these three cements stocks.
CONCLUSION
On the back of the analysis of this report, there is a suspicion of a functioning
cement cartel in the zonal markets in India except for the central zone market.
The suspicion is well placed since most of the conditions for cartel formation are
strongly satisfied in the cement markets in India. With the findings of the data analyzed
in the report, there is a strong suspicion of the presence of price control and market
sharing in the zonal markets, especially in an industry like cement industry with high
amount of crossholding of shares between some of the companies.
The suspicion of price control is evident from 2007-08 onwards till the period Mar-2011,
and that of market sharing is fuelled by the near constant market shares of individual
companies over the last six years.
On the all India level, suspicion hovers above Ultratech Cement Ltd., ACC Ltd.,
India Cement Ltd, Shree Cement Ltd., and Madras Cements Ltd. While in the north
zone, strong suspicion hovers over ACC Ltd., Shree Cement Ltd., Grasim Industries
Ltd. and JK Lakshmi Cement Ltd., whereas in the west zone, Ultratech Cement Ltd. and
Sanghi Industries Ltd should be under the scanner of the Commission.
In the east zone, OCL India Ltd., Ambuja Cement Ltd. and ACC Ltd. show signs of
collusion. The south zone provided the highest amount of suspicion with as many as
seven players controlling production. The players are India Cements Ltd., Madras
Cements Ltd., Ultratech Cement Ltd., Kesoram Industries Ltd., Dalmia Bharat Sugar
Inds. Ltd., Chettinad Cement Corpn. Ltd and Penna Cement Inds. Ltd.
Despite the fact that the Indian cement industry has grown at a commendable
rate in the last decade, registering a growth of nearly 9% to 10%, the per capita
consumption still remains substantially poor when compared with the world average.
While China registered the highest per capita cement consumption in 2010 of about
1,380 kg, India stood much lower at 230 kg. This underlines the tremendous scope for
growth in the Indian cement industry in the long term.