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1 Cement AUGUST 1

2 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 2

Cement AUGUST Advantage India Strong demand Robust infrastructure growth during 12 th Five year plan to drive growth Initiatives taken by GOI to promote cement exports will further boost

4 mtpa Structural drivers Increasing presence of Tier II cement players Use of alternate fuels to lower production costs and emissions Opportunities Under-supplied North East region, which is

3 Cement AUGUST Advantage India Strong demand Robust infrastructure growth during 12 th Five year plan to drive growth Initiatives taken by GOI to promote cement exports will further boost demand Long-term potential Oligopoly market, where large players have partial pricing control Low threat from substitutes FY20F Market size: 550 mtpa Advantage India FY12 Market size: mtpa Structural drivers Increasing presence of Tier II cement players Use of alternate fuels to lower production costs and emissions Opportunities Under-supplied North East region, which is experiencing robust growth in demand for cement, offers attractive investment opportunities Source: Edelweiss Notes: 2013F Forecasted market size for 2013, mtpa million tonnes per annum ADVANTAGE INDIA 3

4 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 4

5 Overview of the Indian cement industry Cement industry (FY11) Large cement plants Cement plants: 183 Installed capacity: mtpa Cement production: mtpa Mini and white cement plants Cement plants: 360 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), Aranca Research Note: mtpa: million tonnes per annum Data are for FY11 MARKET OVERVIEW AND TRENDS 5

6 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 shortterm disruptions, it grows largely in tandem with economic growth Trend in GDP and growth in cement demand Per capita cement consumption in 2009 (kg) India US Asia (ex-china) Japan World EU China Source: Indiabulls, Aranca Research Source: Ambit Capital, Aranca Research Note: GDP- Gross Domestic Product MARKET OVERVIEW AND TRENDS 6

7 Cement production in India has been growing at a fast pace Production of cement (MT) The Indian cement industry is the second largest producer in the world comprising of 183 large cement plants and 360 mini cement plants The production of cement increased at a CAGR of 10.0 per cent over FY Production is expected to reach 247 MT in FY12 as per the 11 th Five Year Plan FY07 FY08 FY09 FY10 FY11 FY12E Source: Department of Industrial Policy and Promotion, Aranca Research Notes: MT Million Tonnes, E - estimate OPPORTUNITIES 7

The industry is split into five geographic segments Installed capacity (2011) Key markets North 66.4 mtpa Rajasthan, Punjab, Haryana and the NCR South 126.

8 The industry is split into five geographic segments Installed capacity (2011) Key markets North 66.4 mtpa Rajasthan, Punjab, Haryana and the NCR South mtpa Tamil Nadu, Andhra Pradesh and Karnataka Cement industry East 43.5 mtpa West Bengal, Chhattisgarh, Orissa and Jharkhand West 44.1 mtpa Maharashtra and Gujarat Central 37.3 mtpa Uttar Pradesh, Madhya Pradesh Source: Department of Industrial Policy and Promotion, Aranca Research Note: mtpa: million tonnes per annum MARKET OVERVIEW AND TRENDS 8

9 Geographic distribution of installed capacity in India... (1/2) 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% 0.8% 4.5% 6.0% Rajasthan Himachal Pradesh Punjab Uttarakhand Haryana 32.6% 0.5% 7.5% 2.3% 19.5% Assam Meghalaya Bihar Jharkhand Orissa 66.5% Jammu & Kashmir West Bengal Delhi 16.8% 20.8% Chhattisgard Note: mtpa: million tonnes per annum Source: Department of Industrial Policy and Promotion, Aranca Research MARKET OVERVIEW AND TRENDS 9

10 Geographic distribution of installed capacity in India... (2/2) 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 Shares in total capacity in southern region 0.5% (2011) Shares in total capacity in central region (2011) (2011) Shares in total capacity in western region 18.0% 34.4% 28.0% 53.5% 65.6% 45.0% 55.0% Andhra Pradesh Tamil Nadu Karnataka Kerala Uttar Pradesh Madhya Pradesh Gujarat Maharashtra Note: mtpa: million tonnes per annum Source: Department of Industrial Policy and Promotion, Aranca Research MARKET OVERVIEW AND TRENDS 10

11 The eastern and central regions have high demand growth North CAGR 9% Region-wise domestic consumption of cement (mtpa) South 48.6 CAGR 7% East CAGR 14% FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F West Central All India CAGR 9% 49.8 CAGR % CAGR 10% FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F FY08 FY09 FY10 FY11F FY12F FY13F Source: CMA, Edelweiss, Aranca Research; Note: mtpa: million tonnes per annum MARKET OVERVIEW AND TRENDS 11

12 Market concentration is high across regions (1/2) North Market share by installed capacity (2011) South 11% 14% 7% 6% 2% Ambuja Cement 29% 17% 14% Shree Cement Others Ultratech Cement J K Cement ACC Jaypee Cement Birla Cement East 50.6% 10.2% 5.9% 9.9% 8.3% 7.1% 8.0% India Cement Madras Cement Ultratech Cement Chettinad Cement Dalmia Cement ACC Others 14.2% Lafarge India 6.2% ACC 52.1% 12.1% Ultratech OCL India Ltd 9.8% 5.5% Ambuja Cement Others Source: Department of Industrial Policy and Promotion, Aranca Research MARKET OVERVIEW AND TRENDS 12

13 Market concentration is high across regions (2/2) West Market share by installed capacity (2011) Central 47.6% 12.5% 29.0% 10.9% Ultratech Cement Jaypee Cement Ambuja Cement Others All - India 42.1% 12.1% 12.3% 33.5% Jaypee Cement Ultratech Cement ACC Others 66.1% 10.0% 7.5% 15.0% 1.4% Ambuja Cement ACC Ultratech Cement Jaypee Cement Others Source: Department of Industrial Policy and Promotion, Aranca Research MARKET OVERVIEW AND TRENDS 13

14 Notable trends in the cement industry Increasing presence of small and midsize 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 Notes: ** The Success Stories section includes cases of successful employment of alternate fuels in cement production to reduce production costs Source: Department of Industrial Policy and Promotion, Aranca Research MARKET OVERVIEW AND TRENDS 14

15 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 15

16 Conducive industry forces support longterm attractiveness 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 Positive Market attractiveness Neutral 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 Postive Low Cement, practically, has no substitutes Low Substantial market concentration among large players ensures low bargaining power of buyers Source: Aranca Research GROWTH DRIVERS 16

17 Strong demand drivers in the near term Housing growth Infrastructure growth Commercial real estate growth 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 semiurban areas through large infrastructure and housing development projects 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 ( 17), compared with USD514 billion under the 11th 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 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: Cushman & Wakefield, Aranca Research GROWTH DRIVERS 17

18 expected to boost capacity utilisation and profitability Region-wise forecasted capacity utilisation levels of cement players (%) 82 North South 81 East FY11F FY12F FY13F FY11F FY12F FY13F FY11F FY12F FY13F West Central All India FY11F FY12F FY13F FY11F FY12F FY13F FY11F FY12F FY13F Source: CMA, Kotak Institutional Equities, Aranca Research GROWTH DRIVERS 18

19 Expected movement in additional capacity requirement 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 12 th Five Year Plan estimates additional capacity requirement to touch MT by FY17 Additional capacity creation as per the 12 th Five Year Plan FY12 FY13 FY14 FY15 FY16 FY17 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 19

20 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 20

21 Cases of successful use of alternate fuels in cement production 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 SUCCESS STORIES: INNOVATIVE SOLUTIONS 21

22 UltraTech Cement: A compelling growth story 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 Revenue and Profit after Tax (PAT) in USD billion Source: Company website ( Department of Industrial Policy and Promotion, Aranca Research Notes: RMC Ready-mix concrete FY07 FY08 FY09 FY10 FY11 FY12 Revenue PAT 0.5 SUCCESS STORIES: TATA STEEL, JSW STEEL 22

23 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 23

24 North East India: A land of opportunities for cement firms NE India: Cement demand NE India: Cement supply 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 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 OPPORTUNITIES 24

25 North East India: Demand drivers for cement NE states projected GDP growth at constant prices 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, % 13.7% 16.4% The major policy and fiscal initiatives are expected to catalyze infrastructure and industrial development in the region, spurring the demand for cement XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan Source: North East Vision 2020 document, Aranca Research NE states projected per capita income growth 15.2% 12.4% 8.6% XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan OPPORTUNITIES 25

26 Contents Advantage India Market overview and trends Growth drivers Success stories: Innovative solutions Opportunities Useful information 26

27 Industry associations Cement Manufacturers' Association CMA Tower, A-2E, Sector 24 NOIDA Uttar Pradesh, India Phone: , , Fax: Website: USEFUL INFORMATION 27

28 Bodies promoting industry development Indian Concrete Institute Ocean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai Phone: Fax: Website: National Council for Cement and Building Materials 34th Milestone, Delhi-Mathura Road, Ballabgarh Haryana, India Phone: /52/53/54/55/56; Fax : ; nccbm@vsnl.com; info@ncbindia.com Website: USEFUL INFORMATION 28

29 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 29

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30 Disclaimer 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. DISCLAIMER 30

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

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