Industry Analysis – Cement

Strategic Business & Risk Analysis

Group 1
Name Roll Number

Asha Mary Kuriakose EPGPKC06035

Cherry Rohit Koshy EPGPKC06038

Mark Mathew Tharakan EPGPKC06055

Sarathchandran J EPGPKC06072

Sebastian Jose EPGPKC06073

 INDIAN CEMENT INDUSTRY
ü 2nd Largest cement producer in the world – 8% of global installed capacity
ü Production Capacity
o 509 mtpa – March 2019
o 550 mtpa – end of 2020
o 98% private sector
o Top 20 companies – 70% production
ü Production – 337.45 mtpa – Dec 2019
o CAGR – 5.6% (FY12 – FY19)
o CAGR - 8% (FY17-21E ) driven by housing and infra
ü Export CAGR – 10.5%
ü FDI inflow – US$ 5.3 bn (April 2000 to June 2019)
ü Supply
o Demand – Supply - skewed highly towards supply
ü Demand Growth Drivers
o Principal
• Housing Sector – 65%
o Secondary
o Industrial – 20%
o Infrastructure – 15%
Demand & Supply Scenario

India: Supply, demand (in million tonnes) and capacity utilization (in %)
Installed Capacity
Porters 5 forces industry analysis
CONSUMER GROWTH
BARGAINING POWER PROSPECTS
HIGH BARRIERS TO
ü Commodity business ü Positive correlation to
ENTRY
ü Sales volume driven by economic growth
ü Capital Costs distribution reach ü Higher Govt Spending on
ü Gestation period ü Types of sales – Trade Infrastructure and housing
ü Access to limestone (Direct, Higher) and ü Per capita Income
reserves Non Trade (Direct) increase

SUPPLIER BARGAINING COMPETITION

POWER ü Intense
ü Licensing of coal, limestone ü Consolidation happening
and access to power – Single ü Foreign players
entity control – Govt
ü Importing Coal, limestone and
captive power alternatives
Cement Players in India
Key issues & Challenges
Constraints and bottlenecks in the industry.
ü Government Policies
ü Coal price variation and high cost
ü High cost of transport
ü Fleet utilization and route selection in-efficiency
ü Fuel cost impact
ü Cash discount & other discounts (Prompt payment discount)
ü Revenue leakage through price change
ü High plant maintenance
Industry Risk Assessment Summary

Risk Factor Risk Grade (1 to 6) Remark

Industry Risk 4 ↑ High Entry barrier is a positive

↑ Bargaining power of consumers are low
↑ Competition is high
↑ Growth prospects are high
↑ Export market can be tapped
● Economy and govt policies play a high role
↓ Bargaining power of supplier is high
↓ High input costs
↓ Cyclical demand
The India Cements Ltd.
Business, Financial, Management Risk Assessment
ICL – Market Position
ü Market share of 7 percent nationally and 10th largest cement producer in India in terms of asset value
ü Market share of 28 % in South India (largest cement in South India)
ü Market Cap of Rs. 2496.94 crore
ü 7 cement plants in TN, Telangana, AP, Rajasthan and Maharashtra.
ü Turnover of Rs 5627.4 Cr.
ü Installed capacity of 15.55 MTPA of cement
ü Diversified product portfolio
ü Distribution network of 10000 plus stockists of which 25% are dedicated.
ü Introduction of newer brand CSK with higher margins (Rs 40) and better performance.
ü Diversification into Sports industry (Chennai Super Kings), Sugar Industry, real estate etc.
 ICL – Product Segments
ü Product Segments
o Portland
o Blended
o Specialty
ü Brands
o Sankar Sakthi – Kerala , TN
• Shankar Super Power
o Raasi Gold – AP, Orissa
• Raasi Gold
• Raasi Concrete
o Coromandel King – AP, TN, Orissa
• Coromandel Super King
• Coromandel Super Power
• Coromandel Sleeper Cement
• Coromandel Oil Well Cement
• Coromandel SRPC
ICL – Strategic Advantages
ü Sales break up:
o Cement: Rs 5375.29 (96.92%)
o Ready mix concrete: Rs.86 (1.73%)
o Other operating revenue: Rs.17.34 (0.33%)
o Power generation: Rs.16.89 (0.32%)
o Traded goods: Rs.14.54 (0.23%)
o Construction work: Rs.9.97 (0.19%)
o Cement white: Rs.5.89 (0.11%)
o Thermal Power: Rs.1.48 (0.02%)
ü Company has reported a profit of only Rs 5.67 cr. in the last quarter ending Dec 2019.
ü Key strategies for growth
o Repositioning
o Market expansion - exports & specialty cements
o Cost leadership
ü Merged with Trinethra cement and Trishul cement in 2016-17. Capacity utilization is nearing 70 to 80 percent.
ü In Aug 2019, India Cements setup plant and leased mines in Madhya Pradesh to increase production capacity to 20
million tons i.e. a Rs.1400 crore expansion cost of which will be met through internal accrual and debt. This will
increase their reach to north Indian market.

ü Incorporation of latest technology

o The cost advantage is attributed with foreign technology collaborations.
o Latest technologies helps to improve the market position.
o VRM from ThyssenKrupp for effective grinding
o Reduced the overall power consumption by 2 units per ton.

ü The company used all the waste ashes generated from power factories used for manufacturing copper slag,
chemical gypsum etc.
ü For reduce operational cost,
o Use coals from their own mines in Indonesia
o Decrease manpower
o Instead of fuel using alternative ways.
Business Risk Assessment Summary

Risk Factor Risk Grade (1 to 6) Remark

Business Risk 3 ↑ Diversified Product Portfolio

↑ Introduction of new brands
↑ Entry to North India via Plant in Rajasthan
↑ New proposed plants in Madhya Pradesh, U.P
↓ Regional Player
↓ Operation Efficiency Low
↓ Cyclical Demand
↓ High Input Costs
↓ Promotor holding low – 28.21%
↓ Promoters have pledged 27.22% of their holding
ICL: Financial Indicators
2018-19 2017-18
Net Sales / Income from operations 5627.98 5340.72
Other Income 30.98 19.41
Total Income 5658.96 5360.13
Total Expenditure 4990.06 4647.91
Operating Profit 668.9 712.22
Operating Margin % 11.82% 13.29%
Interest & Finance Charges 324.17 340.17
Depreciation 251.31 255.94
Profit/(Loss) before Exceptional items 93.42 116.11
Exceptional items - -
Profit/(Loss) before Tax 93.42 116.11
Tax Expenditure/Deferred Tax/MAT 23.98 15.49
PAT 69.44 100.62
Other Comprehensive income/(Expenditure) net -5.3 6.29
Total Comprehensive income 64.14 106.91

We can find increase in revenue but the PAT is decreased considerably. This is because of the increase in the
operating expenses. Mainly due to the crude oil price and increase of coal in the market led the increase in
overall expenses.
ICL - YoY - Financial Indicators
India Cements 2015 2016 2017 2018 2019
Sales 5,057 4,879 5,158 5,267 5658

Operating Profit 763 873 888 715 626

OPM % 15% 18% 17% 14% 11%

PAT 29.45 129.95 173.35 100.62 69.44
Key Competitor Financial Indicators
UltraTech Cement Ambuja Cements
Parameters India Cements ACC Limited
Limited Limited
Operating
11.82% 22.21% 16.64% 17.23%
Margin
Net Margin 1.23% 7.60% 10.41% 13.55%
ROCE 4.62% 10.22% 16.06% 15.03%
ROA 0.23% 4.82% 15.07% 8.55%
ROE 0.38% 8.58% 15.28% 10.59%
EPS 2.54 126.81 73.34 10.56
Interest
1.39 3.76 24.79 23.81
Coverage Ratio
Debt/Eq. 0.59 0.7 0 0
Sales Growth % 9.56 11.62 5.78 4.08
 PAT Indicators

Revenue PAT PAT %

India Cements 5658.96 69.44 1.23%

UltraTech Cement Limited 29,358 2,231 7.60%

ACC Limited 14477 1507 10.41%

Ambuja Cements Limited 10977 1487 13.55%

 Power and Fuel
Raw Material Power and Fuel
Employee Cost Total Asset Total Revenue Cost as % to
Cost Cost
Revenue
India Cements 901.38 1238.88 397.1 10977.51 5658.96 21.89%
UltraTech Cement Limited 3978.36 5959.5 1706.24 54373 29,358 20.30%
ACC Limited 1982.52 2714.45 818.95 14888.85 14477 18.75%
Ambuja Cements Limited 909.33 2234.2 661.37 24617.19 10977 20.35%

Power and Fuel Cost as % to revenue

35000 22.50%

22.00%
30000
21.50%

25000 21.00%

20.50%
20000
20.00%

19.50%
15000
19.00%
10000 18.50%

18.00%
5000
17.50%

0 17.00%
India Cements UltraTech Cement Limited ACC Limited Ambuja Cements Limited

Power and Fuel Cost Total Revenue Power and Fuel Cost as % to Revenue
 Operating Efficiency

Operating
Operating Profit Revenue
Margin Operating margin – ICL vs Competitors
35000 25.00%

30000
India Cements 668.9 5658.96 11.82% 20.00%
25000

15.00%
20000

UltraTech Cement Limited 6,521 29,358 22.21% 15000

10.00%

10000
5.00%
5000
ACC Limited 2409.45 14477 16.64%
0 0.00%
India Cements UltraTech Cement Limited ACC Limited Ambuja Cements Limited

Operating Profit Revenue Operating Margin

Ambuja Cements Limited 1891.46 10977 17.23%
Financial Risk Assessment Summary

Risk Factor Risk Grade (1 to 6) Remark

Financial Risk 2 ↑ Investment in new technology will yield results

↓ PAT has reduced on a stand alone basis and is low
when compared to competition
↓ Revenue growth is very low
↓ OPM has reduced over the years
Management Risk Assessment Summary
• N Srinivas – Vice Chairman & MD
• 5 Decades of Industry Experience
• Increased turnover from Rs 1033 crores in 2002-03 to Rs 5658 crores in 2018-19
• Ex CFO UB Group
• Rupa Gurunath – Whole Time Director
• Rakesh Sing – CEO
• R Srinivasan – Executive President, Finance & Account
• Murugnantham – President, Operation

Risk Factor Risk Grade (1 to 6) Remark

Management Risk 3- ↑ Promoter Involvement High

↓ Family driven public company
↓ Very less public information on other key
management personal
Overall Risk
Risk Factor Risk Grade (1 to 6) Remark

Industry Risk 4 • Favorable Industry as per porters 5 forces analysis

• High input cost of raw materials

Business Risk 3 • Currently 4th considering the revenue

• With plans on expansion from the southern India to east of India with plant in Madhya
Pradesh
• Brand trusted among the conservative distributors along the southern states especially
Tamil Nadu and Kerala
Financial Risk 2 • The operating margin compared to the other competitors, its on the lower side of
11.82%
• Power and Fuel Cost as % to Revenue is on the higher side compared to other
companies (21.89)
• Decrease in PAT last year due to surcharge in fuel cost which affected the entire sector
• But the company has taken necessary steps to reduce its carbon footprint and said to
be maintaining the same level of inputs and is very hopeful in attaining at 30%+
increase in revenue

Management Risk 3- • Promoter Involvement High

• Family driven public company
• Very less public information on other key management personal

Overall Risk 3-
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