Cement and Construction

8/14/2019 Cement and Construction

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Cement & ConstructionCement & Construction

industry profileindustry profile


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A primer on the IndianA primer on the Indian

cement industrycement industry Highly fragmented (low entryHighly fragmented (low entry

barriers)barriers)

Cyclical industryCyclical industry

Highly capital & energy intensiveHighly capital & energy intensive

Heavily taxed sectorHeavily taxed sector

High bulk (volume) low valueHigh bulk (volume) low value

productproduct

Heavy dependence on 3 sectorsHeavy dependence on 3 sectorsviz. coal ower and trans ortviz. coal ower and trans ort


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Indian cement industryIndian cement industry

Major players in 2006 Major players in 2006

12.6

9.7

10.6

10.34.73.65.94.5

3.2

34.8

ACC

Ultratech

Gujarat Ambuja

Grasim Industries

Century Textiles and

Industries

Birla Corp Ltd

India Cements

Jaiprakash Industries

(Jaypee)

Lafarge

Others


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Market consolidationMarket consolidation

Flurry of consolidation in the lastFlurry of consolidation in the lastcouple of years. Notable ones include:couple of years. Notable ones include:

o

Gujarat Ambuja picking up 14% in ACCGujarat Ambuja picking up 14% in ACCo Grasim acquiring cement business ofGrasim acquiring cement business of

L & T forming UltratechL & T forming Ultratecho Holcim taking minority stake in GACLHolcim taking minority stake in GACL

and 67% stake in ACCand 67% stake in ACCo Heidelberg Cement acquiring 50% inHeidelberg Cement acquiring 50% in

Indorama CementIndorama Cement


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Financial performanceFinancial performance

Returns dependent on vibrancy ofReturns dependent on vibrancy of

the economy as a wholethe economy as a whole

High returns during boom timesHigh returns during boom times(1994-96 and 2004-06) and low(1994-96 and 2004-06) and low

returns during lean periods (1997-returns during lean periods (1997-

01)01) Returns dependent on salesReturns dependent on sales

realisation and capacity utilisationrealisation and capacity utilisation


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Cost structure Cost structureThe 2 major costs in cementThe 2 major costs in cement

industry areindustry are

(i) Energy costs(i) Energy costs(ii) Freight costs(ii) Freight costs

Over the years, the share ofOver the years, the share of

energy costs have gone upenergy costs have gone upmarginally while that of freightmarginally while that of freightcosts has declinedcosts has declined

Other costs more or less stableOther costs more or less stable


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- Margins- Margins Industry margins very sensitive toIndustry margins very sensitive to

sales realisationssales realisations

On the whole (except 2003 due toOn the whole (except 2003 due tolow sales realisations), marginslow sales realisations), margins

firming up due to consolidation,firming up due to consolidation,

capacity utilisation and highercapacity utilisation and highersales figuresales figure


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Margins over the yearsMargins over the years

(Source: ICRA)(Source: ICRA)


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Recent performanceRecent performance

(2005-06)(2005-06) Lower interest costsLower interest costs

Higher infrastructure spendingHigher infrastructure spending

Higher sales reportedHigher sales reported

Increase in fuel prices offset byIncrease in fuel prices offset by

higher priceshigher prices

All these translated into higherAll these translated into higher

profits for cement companiesprofits for cement companies


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Recent performanceRecent performance

(..continued; Source:(..continued; Source:

ICRA)ICRA)


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World cementWorld cement

productionproduction World cement production is aboutWorld cement production is about

2.27 billion metric tonnes2.27 billion metric tonnes

(Source:(Source:www.researchinchina.com)www.researchinchina.com)

China (40+ % of worldChina (40+ % of world

production)production) IndiaIndia

USAUSA


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Global bigwigs inGlobal bigwigs in

cementcement La Farge, FranceLa Farge, France

Holcim, SwitzerlandHolcim, Switzerland

Cemex, MexicoCemex, Mexico

Italcementi, ItalyItalcementi, Italy

Heidelberg Cement, GermanyHeidelberg Cement, Germany


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What is in store forWhat is in store for

2007?2007? GDP growth expected to fuel the boomGDP growth expected to fuel the boom Increased spending on roads andIncreased spending on roads and

housing expectedhousing expected Bharat Nirman and concomitantBharat Nirman and concomitant

rural development also can push uprural development also can push upthe figuresthe figures

On the whole infrastructure spendingOn the whole infrastructure spendingexpected to drive growth in cementexpected to drive growth in cementand construction activitiesand construction activities

8% growth rate in 2007 and 20088% growth rate in 2007 and 2008


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A primer on IndiasA primer on Indias

construction industryconstruction industry Worth USD 50 billion p.a. and accountsWorth USD 50 billion p.a. and accounts

for 6% of Indias GDPfor 6% of Indias GDP

Industry status granted only recentlyIndustry status granted only recently 100% foreign investment permitted100% foreign investment permitted

since last yearsince last year USD 4 billion per annum set to flowUSD 4 billion per annum set to flow

into this sectorinto this sector Employs 40 million peopleEmploys 40 million people Unorganised & low-skilled workforceUnorganised & low-skilled workforce


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Construction industry Construction industry

Drivers of growthDrivers of growth Booming Indian economyBooming Indian economy

Growing housing and commercialGrowing housing and commercial

space (like malls, multiplexes)space (like malls, multiplexes)requirementsrequirements

Govt. thrust on infrastructure, GQGovt. thrust on infrastructure, GQ

project, infrastructure outlay etc.project, infrastructure outlay etc. Airport modernisation projectsAirport modernisation projects


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Indian constructionIndian construction

industry - Playersindustry - Players Companies like L & T, GMRCompanies like L & T, GMR

Infrastructure, HCC, GammonInfrastructure, HCC, Gammon

which undertake huge projects.which undertake huge projects. Companies like IVRCL, Nagarjuna,Companies like IVRCL, Nagarjuna,

DLF, Omaxe dealing in flyovers,DLF, Omaxe dealing in flyovers,pipelines, apartments andpipelines, apartments andhousing/office spaceshousing/office spaces

Other smaller companiesOther smaller companies


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er ormance gures aer ormance gures a2005-06 figures in2005-06 figures in mnmn

INRINR

Source: Edelweiss Source: Edelweisscapital)capital)

13717,90053,789PunjLloyd

85218,17439,339Nagarjuna

84017,11231,873IVRCL

86119,08247,521HCC1,06715,98346,552Gammon

8,884164,852345,826L & T

PATSalesM CapCompany


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Indian constructionIndian construction

industry (Source:industry (Source:

Edelweiss)Edelweiss) Aggregate order book for 2006-07Aggregate order book for 2006-07

at Rs. 50,000 cr.at Rs. 50,000 cr.

Y-o-Y revenue growth at 48%Y-o-Y revenue growth at 48%Y-o-Y earnings growth at 62%Y-o-Y earnings growth at 62%


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Construction industryConstruction industry

growth Global trendsgrowth Global trends Overheated housing market startsOverheated housing market starts

cooling off in the USAcooling off in the USA

Fall in sales coupled with higherFall in sales coupled with highermortgage rates make the goingmortgage rates make the goingtough.tough.

Europes housing market coolingEuropes housing market coolingoff after the steep rise in 2005off after the steep rise in 2005 China and India remain theChina and India remain the

primary drivers.primary drivers.

l b l l k f


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Global outlook forGlobal outlook for

cement & constructioncement & construction

industryindustry Annual cement demand to growAnnual cement demand to grow

4.7%4.7%

Construction boom in ChinaConstruction boom in China(Olympics) & India (housing,(Olympics) & India (housing,infrastructure) to drive projectsinfrastructure) to drive projectstill 2010till 2010

Half the worlds concreteHalf the worlds concreteproduction and a third of the steelproduction and a third of the steelproduction goes into China for herproduction goes into China for her

construction projects.construction projects.

l b l l k f


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Global outlook forGlobal outlook for

cement & constructioncement & construction

industryindustry Reasonable growth inReasonable growth in

construction sector in Brazil,construction sector in Brazil,

Argentina, Mexico and the MiddleArgentina, Mexico and the MiddleEastEast

All in all, a great decade aheadAll in all, a great decade ahead

for the cement and constructionfor the cement and constructionindustry fuelled by massive Govt.industry fuelled by massive Govt.

spending and privatespending and private

infrastructure investmentsinfrastructure investments


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References:References:

www.edelcap.comwww.edelcap.com

www.pinsentmasons.comwww.pinsentmasons.com

www.icra.inwww.icra.in

www.hinduonnet.comwww.hinduonnet.com

Survey of Indian industry, 2006Survey of Indian industry, 2006published by The Hindupublished by The Hindu
http://www.edelcap.com/http://www.edelcap.com/http://www.pinsentmasons.com/http://www.pinsentmasons.com/http://www.icra.in/http://www.icra.in/http://www.hinduonnet.com/http://www.hinduonnet.com/http://www.hinduonnet.com/http://www.icra.in/http://www.pinsentmasons.com/http://www.edelcap.com/


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Thank You!Thank You!

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Cement and Construction