Cement & Construction

industry profile
A primer on the Indian
cement industry
 Highly fragmented (low entry
barriers)
 Cyclical industry
 Highly capital & energy intensive
 Heavily taxed sector
 High bulk (volume) low value
product
 Heavy dependence on 3 sectors
viz. coal, power and transport
Indian cement industry
– Major players in 2006
ACC

Ultratech

Gujarat Ambuja

Grasim Industries
12.6
34.8 9.7
Century Textiles and
Industries
Birla Corp Ltd
10.6
3.2
10.3 India Cements
4.5 5.9 3.6 4.7
Jaiprakash Industries
(Jaypee)
Lafarge

Others
Market consolidation
 Flurry of consolidation in the last
couple of years. Notable ones include:
o Gujarat Ambuja picking up 14% in ACC
o Grasim acquiring cement business of
L & T forming Ultratech
o Holcim taking minority stake in GACL
and 67% stake in ACC
o Heidelberg Cement acquiring 50% in
Indorama Cement
Financial performance
 Returns dependent on vibrancy of
the economy as a whole
 High returns during boom times
(1994-96 and 2004-06) and low
returns during lean periods (1997-
01)
 Returns dependent on sales
realisation and capacity utilisation
Financial performance
– Cost structure
 The 2 major costs in cement
industry are
(i) Energy costs
(ii) Freight costs
 Over the years, the share of
energy costs have gone up
marginally while that of freight
costs has declined
 Other costs more or less stable
Financial performance
- Margins
 Industry margins very sensitive to
sales realisations
 On the whole (except 2003 due to
low sales realisations), margins
firming up due to consolidation,
capacity utilisation and higher
sales figure
Margins over the years
(Source: ICRA)
Recent performance
(2005-06)
 Lower interest costs
 Higher infrastructure spending
 Higher sales reported
 Increase in fuel prices offset by
higher prices
 All these translated into higher
profits for cement companies
Recent performance
(..continued; Source:
ICRA)
World cement
production
 World cement production is about
2.27 billion metric tonnes
(Source:
www.researchinchina.com)
 China (40+ % of world
production)
 India
 USA
Global bigwigs in
cement
 La Farge, France
 Holcim, Switzerland
 Cemex, Mexico
 Italcementi, Italy
 Heidelberg Cement, Germany
What is in store for
2007?
 GDP growth expected to fuel the boom
 Increased spending on roads and
housing expected
 “Bharat Nirman” and concomitant
rural development also can push up
the figures
 On the whole infrastructure spending
expected to drive growth in cement
and construction activities
 8% growth rate in 2007 and 2008
A primer on India’s
construction industry
 Worth USD 50 billion p.a. and accounts
for 6% of India’s GDP
 Industry status granted only recently
 100% foreign investment permitted
since last year
 USD 4 billion per annum set to flow
into this sector
 Employs 40 million people
 Unorganised & low-skilled workforce
Construction industry –
Drivers of growth
 Booming Indian economy
 Growing housing and commercial
space (like malls, multiplexes)
requirements
 Govt. thrust on infrastructure, GQ
project, infrastructure outlay etc.
 Airport modernisation projects
Indian construction
industry - Players
 Companies like L & T, GMR
Infrastructure, HCC, Gammon
which undertake huge projects.
 Companies like IVRCL, Nagarjuna,
DLF, Omaxe dealing in flyovers,
pipelines, apartments and
housing/office spaces
 Other smaller companies
Performance figures (all
2005-06 figures in mn
INR – Source: Edelweiss
capital)
Compan M Cap Sales PAT
y
L&T 345,826 164,852 8,884
Gammon 46,552 15,983 1,067
HCC 47,521 19,082 861
IVRCL 31,873 17,112 840
Nagarjun 39,339 18,174 852
a
Punj 53,789 17,900 137
Lloyd
Indian construction
industry – (Source:
Edelweiss)
 Aggregate order book for 2006-07
at Rs. 50,000 cr.
 Y-o-Y revenue growth at 48%
 Y-o-Y earnings growth at 62%
Construction industry
growth – Global trends
 Overheated housing market starts
cooling off in the USA
 Fall in sales coupled with higher
mortgage rates make the going
tough.
 Europe’s housing market cooling
off after the steep rise in 2005
 China and India remain the
primary drivers.
Global outlook for
cement & construction
industry
 Annual cement demand to grow
4.7%
 Construction boom in China
(Olympics) & India (housing,
infrastructure) to drive projects
till 2010
 Half the world’s concrete
production and a third of the steel
production goes into China for her
construction projects.
Global outlook for
cement & construction
industry
 Reasonable growth in
construction sector in Brazil,
Argentina, Mexico and the Middle
East
 All in all, a great decade ahead
for the cement and construction
industry fuelled by massive Govt.
spending and private
infrastructure investments
References:
 www.edelcap.com
 www.pinsentmasons.com
 www.icra.in
 www.hinduonnet.com
 Survey of Indian industry, 2006
published by “The Hindu”
Thank You!