Second largest Cement market. Dominated by private players. Higher share of large plants. Large concentration in South and West

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Edwin Jacobs
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3 Second largest Cement market With nearly 300 million tonne of cement production capacity, India is the second largest cement producer in the world Dominated by private players Of the total capacity, 98 per cent lies with the private sector and the rest with public sector Higher share of large plants 185 large cement plants together account for 97 per cent of the total installed capacity, while 365 small plants account for the rest Large concentration in South and West Of the total 185 large cement plants in India, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu Source: Planning Commission, Aranca Research

4 FY12 Production capacity: 247 million tonnes Growing Robust demand demand Robust infrastructure growth during 12 th Five Year Plan to drive growth Demand is expected to be boosted by growth in real estate sector Long-term potential Oligopoly market, where large players have partial pricing control Low threat from substitutes FY20E Production capacity: 407 million tonnes Increasing investments Robust investments are being made by the existing players to expand their capacity Increasing presence of Tier II cement players Use of alternate fuels to lower production costs and emissions Advantage India Attractive opportunities The engineering sector is delicensed; The 100 per North-East, cent FDI is which allowed is witnessing in the a sector construction boom, offers attractive investment opportunities Due to policy support, there was Large cumulative planned FDI of investments USD14.0 billion in into infrastructure the sector over and April housing 2000 February is likely to boost 2012, making demand up for 8.6 cement per cent in of the total coming FDI into the years country as well in that period Source: Edelweiss Notes: FY20E Estimated market size for 2020

5 Cement Industry (FY13) Large Cement Plants Mini And White Cement Plants Cement plants: 185 Installed capacity: mtpa Cement production: mtpa* Cement plants: 365 Installed capacity: 11.1 mtpa Cement production: 6.0 mtpa* Source: Cement Manufacturers Association (CMA),Planning Commission, Aranca Research Note: mtpa - Million Tonnes Per Annum, * FY12 data

6 China India USA Brazil Russia Iran Turkey Egypt Vietnam Indonesia China India Iran USA Brazil Turkey Japan Russia Vietnam Indonesia India is the 2 nd largest cement producer as well as consumer in the world led by the enormous growth in the infrastructure and construction sector for the last two decades Top Cement Consumers in 2011 (million tonnes) Top Cement Producer in 2011 (million tonnes) 2,048 2, Source: International Cement Review, Aranca Research

7 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E FY17E Cement production increased at a CAGR of 9.7 per cent to 272 million tonnes over FY06 13 Production of Cement (million tonnes) As per the 12 th Five Year Plan, production is expected to reach 407 million tonnes by FY CAGR:10.0% Source: Department of Industrial Policy and Promotion, Working group for 12 th Five Year Plan, Aranca Research Notes: E - Estimate, CAGR - Compound Annual Growth Rate

8 Domestic cement consumption is expected to reach 265 million tonnes in FY13 from 222 million tonnes in FY11 Domestic Cement Consumption (million tonnes) The consumption is further expected to increase at a CAGR of 10.2 per cent during FY11-17 and reach 398 million tonnes CAGR:10.2% FY11 FY12 FY13E FY14E FY15E FY16E FY17E Source: Working group for 12 th Five Year Plan, Aranca Research Notes: E Estimate, CAGR - Compound Annual Growth Rate

9 Cement production capacity reached 350 million tonnes in FY13 from 323 million tonnes in FY11 Cement Production Capacity (million tonnes) Production capacity is expected to increase at a CAGR of 6.8 per cent during FY11-17 and reach 479 million tonnes CAGR:6.8% FY11 FY12 FY13E FY14E FY15E FY16E FY17E Source: Working group for 12 th Five Year Plan, Aranca Research Notes: E - Estimate, CAGR - Compound Annual Growth Rate

10 Cement capacity utilisation rate is expected to touch around 78 per cent in FY13 from 71 per cent in FY11 Cement capacity (million tonnes) and utilisation rate (%) The utilisation rate is expected to further reach 85 per cent by FY % 85% 80% 75% 70% 65% 150 FY11 FY12 FY13E FY14E FY15E FY16E FY17E 60% Capacity -LHS Production-LHS Utilisation rate (%) Source: Working group for 12 th Five Year Plan, Aranca Research Notes: E - Estimate, CAGR - Compound Annual Growth Rate

11 Currently, India has 185 large cement plants spread across all states 2 Andhra Pradesh is the leading state with 37 large cement plants, followed by Rajasthan and Tamil Nadu having 21 and 19 plants, respectively Source: Working group for 12 th Five Year Plan, Aranca Research

12 Installed capacity (2011) Key markets South mtpa Tamil Nadu, Andhra Pradesh and Karnataka North 66.4 mtpa Rajasthan, Punjab, Haryana and the NCR Cement Industry East 43.5 mtpa West Bengal, Chhattisgarh, Orissa and Jharkhand West 44.1 mtpa West Bengal, Chhattisgarh, Orissa and Jharkhand Central 37.3 mtpa Uttar Pradesh, Madhya Pradesh Source: Department of Industrial Policy and Promotion, Aranca Research Note: mtpa - Million Tonnes Per Annum

13 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 Shares in Total Capacity in Northern Region (2011) Shares in Total Capacity in Eastern Region (2011) 7.2% 14.2% 0.8% 4.5% 6.0% 0.8% 66.5% Rajasthan Himachal Pradesh Punjab Uttarakhand Haryana Jammu & Kashmir Delhi 32.6% 16.8% 0.5% 2.3% 7.5% 19.5% 20.8% Assam Meghalaya Bihar Jharkhand Orissa West Bengal Chhattisgard Source: International Cement Review, Aranca Research

14 Andhra Pradesh has the highest installed capacity in South India (53.5 per cent share of total installed capacity) Madhya Pradesh leads the Central region in installed capacity, while Gujarat leads the West Shares in total capacity in Southern region (2011) 0.5% Shares in total capacity in Central region (2011) Shares in total capacity in Western region (2011) 18.0% 34.4% 45.0% 53.5% 55.0% 28.0% 65.6% Andhra Pradesh Karnataka Tamil Nadu Kerala Uttar Pradesh Madhya Pradesh Gujarat Maharashtra Source: International Cement Review, Aranca Research

15 Total demand for cement is expected to grow at a CAGR of 10.2 per cent to million tonnes during FY08-13 Cement demand from the Eastern and Central regions during FY08-13 is expected to grow at a CAGR of 13.5 per cent and 12.1 per cent, respectively. All India (million tonnes) Central (million tonnes) East (million tonnes) CAGR: 10.2% CAGR: 12.1% CAGR: 13.5% FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F Source: International Cement Review, Aranca Research

16 Cement demand from Western, Northern and Southern regions is expected to grow at a CAGR of 8.8, 8.7 and 5.6 per cent, respectively, during FY08-13 South (million tonnes) North (million tonnes) West (million tonnes) CAGR: 5.6% CAGR: 8.7% CAGR: 8.8% FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F Source: International Cement Review, Aranca Research

17 UltraTech Cement, a major player in India, accounted for 15.0 per cent of the total market share in terms of installed capacity in 2011 It is a leading player in the Southern and Eastern regions, accounting for 50.6 and 52.1 per cent of total market share, respectively, in terms of installed capacity in 2011 All India South East 66.1% 10.0% 7.5% 15.0% 1.4% 50.6% 10.2% 5.9% 9.9% 8.3% 52.1% 14.2% 6.2% 12.1% 7.1% 9.8% 8.0% 5.5% Ambuja Cement Ultratech Cement Others ACC Jaypee Cement India Cement Ultratech Cement Dalmia Cement Others Madras Cement Chettinad Cement ACC Lafarge India Ultratech Ambuja Cement ACC OCL India Ltd Others Source: International Cement Review, Aranca Research

18 Jaypee Cement led the Central region in terms of installed capacity, with 33.5 per cent of the market share; the Western region was dominated by UltraTech cement with 29.0 per cent of market share in 2011 Ambuja Cements accounted for 28.9 per cent of the total market share in terms of installed capacity in the Northern region in 2011 North Central West 2.5% 5.5% 7.3% 28.9% 33.5% 29.0% 11.1% 42.1% 47.6% 13.8% 14.2% 16.6% 12.1% 12.3% 12.5% 10.9% Ambuja Cement Others J K Cement Jaypee Cement Shree Cement Ultratech Cement ACC Birla Cement Jaypee Cement ACC Ultratech Cement Others Ultratech Cement Ambuja Cement Jaypee Cement Others Source: International Cement Review, Aranca Research

19 Increasing presence of small and mid-size cement players Cost reduction through the use of alternate fuels ** 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 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 Notes: ** The Success Stories section includes cases of successful employment of alternate fuels in cement production to reduce production costs

20 ACC Holcim, a Switzerland-based major cement company has plans for capacity expansion in India through its subsidiary ACC cement The construction of the company s new plant at Jamul, Chhattisgarh is under process. This plant will increase ACC s capacity to 35 million tonnes per annum (mtpa) from 30 mtpa in a phased manner by 2015 Ambuja Cements Ambuja Cements is targeting an investment of USD370.4 million for capacity expansion in Rajasthan and Northern India The proposed project in Rajasthan is expected to add 5 million tonnes (MT) to Ambuja Cements existing production capacity Dalmia Cement Dalmia Cement is planning an investment of USD333.3 million to ramp up its manufacturing capacity to 21 mtpa from the existing 17 mtpa over the next two years. Dalmia has plans to set up a 2.5 million tonne (MT) greenfield unit at Belgaum in Karnataka. It also plans to scale up its two plants in North-East India for a total value of USD239 million and USD9.2 million, respectively Source: Aranca Research

21 Heidelberg Cement Heidelberg Cement, a Germany-based cement manufacturer has commissioned Phase-I of its Jhansi grinding unit The company has undertaken an investment worth USD million for expanding its capacity to 2.7 million tonnes (MT) Heidelberg aims to ramp up the operational capacity to 6 MT at its Damoh plant in Madhya Pradesh Vicat Group Vicat Group, a France-based company plans to sell 4.5 MT of cement in India in FY 2013 The company has recently commissioned a joint venture cement plant Vicat Sagar Cement at Chattrasal, Karnataka, for a total value of USD333.3 million Vicat Sagar will have a 2.8 MT of capacity in the first phase Amrit Cement Amrit Cement India Ltd (ACIL) has announced the launch of Amrit Cement in the North- Eastern market. The company plans to achieve a production level of 5 million tonnes per annum by through capacity expansion in North-Eastern Bihar and Nepal Source: Aranca Research

22 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 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 Neutral Market Attractiveness Low Cement, practically, has no substitutes Positive Positive Low Substantial market concentration among large players ensures low bargaining power of buyers Source : Aranca Research

23 Housing Growth The Housing segment accounts for a major portion of the total domestic demand for cement in India Real estate market is expected to grow at a CAGR of 17.2 per cent over to USD126 billion 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 respectively Infrastructure 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 12 th Five Year Plan ( ), compared with USD514 billion under the 11 th Five Year Plan ( ) 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 Commercial Real Estate Growth 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) Source: McKinsey Quarterly Report, Aranca Research

24 Demand for cement is highly correlated with cyclical activities like construction and development Major cement demand drivers (FY12) Housing sector accounts for 64 per cent of the total cement demand Real estate market is expected to grow at a CAGR of 17.2 per cent during to USD126 billion 13% 6% Housing sector Infrastructure The rapidly increasing real estate industry in India is expected to push the demand for cement 17% 64% Commercial & Institutional Residential real estate demand is driven by rising population and growing urbanisation Industrial Rising income levels are leading to higher demand for luxury projects Source: Aranca Research Demand for affordable housing is growing in order to meet the demand from lower income groups Commercial real estate demand will be driven by growth in IT/ITeS sector and organised retail

25 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E FY17E Investment in infrastructure is the main growth driver for the cement industry The Planning Commission estimates total infrastructure spending to be about of 10 per cent of the GDP during the 12 th Five-Year Plan ( ), up from 7.6 per cent during the previous five-year plan ( ) India s investment in infrastructure is estimated to double to about USD1 trillion during the 12 th plan ( ) compared to the previous plan Infrastructure Spending As % Of GDP Infrastructure Spending in % during 11 th And 12 th Five-year Plan 12th Five year plan 11th Five year plan 7.6% 10.0% 12 th Plan FY12 FY11 FY10 8.4% 7.9% 7.5% th Plan FY09 7.2% FY08 6.4% 10th Five year plan 5.2% Source: Working group for 12 th Five Year Plan Notes: Additional capacity creation estimates are based on increase in base lines, roads, housing and fiscal support

26 North South East 82% 84% 88% 67% 68% 73% 81% 87% 91% FY11F FY12F FY13F FY11F FY12F FY13F FY11F FY12F FY13F West Central All India 79% 77% 80% 90% 85% 87% 78% 77% 82% FY11F FY12F FY13F FY11F FY12F FY13F FY11F FY12F FY13F Source: CMA, Kotak Institutional Equities, Aranca Research Note: F- Forecast

27 Total capacity of 336 million tonnes is estimated to have been generated in FY12 Capacity creation as per the 12 th Five Year Plan (million tonnes) The strong momentum in capacity addition is not surprising given the sharp growth in construction, infrastructure and real estate in Indian economy Hence, the 12 th Five Year Plan is estimated to have an additional capacity requirement of million tonnes by FY FY12 FY13E FY14E FY15E FY16E FY17E Source: Working group for 12 th Five Year Plan Notes: Additional capacity creation estimates are based on increase in base lines, roads, housing and fiscal support, E - Estimates

28 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

29 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 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 Revenue and Profit after Tax (PAT) in USD billion 1.1 CAGR: 23.5% FY07 FY08 FY09 FY10 FY11 FY12 FY13 Source: Company Website ( Aranca Research Notes: RMC Ready-Mix Concrete

30 Ambuja Cements Ltd (ACL) is one of the leading cement manufacturing companies in India. Revenue (USD billion) The company, initially called Gujarat Ambuja Cements Ltd, was founded by Narotam Sekhsaria in 1983 Ambuja Cements is the second largest cement manufacturer in India, with nearly 10 per cent of the market share of total installed capacity It is the market leader in Northern India with 29 per cent of the total installed capacity 1.4 CAGR: 5.2% MILESTONES 2010 Started cement plant at Nalagarh, Himachal Pradesh and Dadri, Uttar Pradesh with a capacity of 1.5 million tonnes 2011 Acquired 85 per cent stake in Nepal-based Dang Cement 2012 Expansion of Sankrail Grinding Unit, thereby increasing the capacity from 1.5 mtpa to 2.4 mtpa FY07 FY08 FY09 FY10 FY11 FY12 Source: Company Website, Aranca Research Note: mtpa Million Tonnes Per Annum

31 NE India: Cement demand NE India: Cement supply The North Eastern (NE) region has consistently been in cement deficit for several years At present, cement demand in the NE is about 5.2 mtpa 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 Estimated Demand Available Supply Source: Industry Sources, Aranca Research Note: mtpa - Million Tonnes Per Annum

The Government has approved a package of fiscal incentives and other concessions for the North Eastern Region, namely the North East Industrial and Investment Policy, 2007, effective from 1 April,

32 The Government has approved a package of fiscal incentives and other concessions for the North Eastern Region, namely the North East Industrial and Investment Policy, 2007, effective from 1 April, 2007 The major policy and fiscal initiatives are expected to catalyse infrastructure and industrial development in the region, spurring the demand for cement NE States Projected GDP Growth at Constant Prices NE States Projected Per Capita Income Growth 10.0% 13.7% 16.4% 8.6% 12.4% 15.2% XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan

33 Cement Manufacturers' Association CMA Tower, A-2E, Sector 24 NOIDA Uttar Pradesh, India Phone: , , Fax: Website:

34 Indian Concrete Institute Ocean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai Phone: Fax: Website: National Council for Cement and Building Materials 34 th Milestone, Delhi-Mathura Road, Ballabgarh Haryana, India Phone: /52/53/54/55/56; Fax : ; nccbm@vsnl.com; info@ncbindia.com

35 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 Wherever applicable, numbers have been rounded off to the nearest whole number

36 Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year) Year INR equivalent of one USD Year INR equivalent of one USD Average for the year

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37 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 IBEF s 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.

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