The Indian cement industry had witnessed an incredible growth journey in the past few years, led by the

growth in the real estate, infrastructure and industrial construction. The domestic cement demand growth had surpassed the economic growth rate in the period FY 06-10. However, in FY11, cement demand growth is expected to take a slight breather. During the first nine months of FY11, the cement demand growth has slowed down to about 6% on a yoy basis. The cement industry has registered a substantial drop in margins in FY 11 mainly due to input cost rise and lack of pricing power. Where the cement industry is headed from here? Is the surplus situation inevitable in the industry? Will the cement industry be able to hold the prices? Whether the cement industry will be able to cushion its margins from spiraling cost? Which sectors would continue to drive the demand of cement? Is the consolidation in the cement industry inevitable? The authors have attempted to address these queries using most pragmatic approach. This report on the Indian Cement industry contains comprehensive data and analysis of the sector apart from giving the authors outlook on the sector. With its established network of primary and secondary sources, the authors have captured exhaustive data on the various parameters to analyse the industry. The author has also forecasted the future demand of cement and regionwise demand supply scenario. Consolidation, an open opportunity Foreign players bargain hunting, domestic players staying away The Indian cement industry witnessed a buoyant cement demand growth in FY10 at 11.1% recording a multiplier of 1.4 times with the economic growth rate. Delayed monsoon, peaked construction activities related to commonwealth games and also the low base of the previous year led to the double digit growth in demand during the last fiscal. However, in FY11, cement demand growth has taken a slight breather. During the first nine months of FY 11, the cement demand grew at 6% on a yoy basis. Construction activities remained subdued during this fiscal on account of the prolonged monsoon, heavy winter, delay in execution of infrastructural projects due to environmental clearance hurdles etc. The capacity utilisation rate of the industry has shown a steep decline to a level of 75% in FY 11 as cement manufacturers have resorted to production cuts on the back of the slowdown in the cement offtake. Lower utilisation rate can also be attributed to the substantial capacity addition witnessed by the industry. In the first ten months of FY 11, the industry has witnessed a capacity addition of about 25.5 mn tonnes. On the regional front, the Southern region took the worst hit in FY 11. Due to notable capacity addition of about 8.4 mn tonnes and subdued demand, the operating rate of the Southern region declined to the level of about 66%. The Eastern region operated well above the industry average on account of the robust demand growth. During FY11, cement prices have remained under pressure owing to the slowdown in the cement offtake and an incremental growth in capacity over demand. In FY11, average cement prices witnessed a decline across regions barring the Eastern region. Considering first ten months of this fiscal, average cement prices have dropped by about 2% on a yoy basis to `251 per bag. Considering the first nine months performance of this fiscal, the cement industry has registered a

substantial drop in PBDIT margin to about 19% mainly due to input cost rise and lack of pricing power. During this period, the per tonne power & fuel cost and freight cost have increased by about 21% and 11% on a yoy basis, respectively. Going forward, cement companies will lack pricing power given the supply glut situation in the country. However, the cement industry is in a better position to operate at a lower utilisation rate and avoid substantial price cuts, thanks to the comfortable break-even cushion value (defined as the ratio of overall capacity utilisation rate of the industry to the utilisation rate at the break-even point in a particular year) at two times. The authors do not foresee a drop in average realisation of the industry in FY12. However, the per tonne freight cost and power & fuel cost is expected to increase at a CAGR of 8.3% and 12.6%, respectively during the period of FY10-12. As a result, PBDIT margin is expected to remain under pressure and drop to a level of 16% in FY12. The authors estimate that the cement demand is expected to grow at a CAGR of 9.8% in the period FY11-14. Going forward, cement demand will largely be driven by the increased focus of the government on the infrastructure development and promotion of low-cost affordable housing in the country. Demand for cement depends on industrial activity, real estate and construction activity. Indian cement industry has grown largely due to the rising demand from the housing sector, increased activity in infrastructure and construction recovery. Even in the tough conditions, Indian cement industry has been able to sustain its growth. Production and capacity of cement has been rising over the years. Number of plants in cement industry with more than one million tones capacity have also increased. However, the exports have been decreasing over the years. Cement industry has a large number of fragmented firms. The large firms are consolidating by acquiring smaller players ones. High debt levels have adversely impacted the profitability of several cement companies. Enterprise Values per tonne of some major domestic cement companies are quoting anywhere from 1 to 2 times the replacement cost. With the fall from peak valuations reached in FY 07-08, many acquisition opportunities are available in the domestic market. Many midsized cement players in the country, which are unable to compete because of rising input costs, constraints in passing on the incremental cost, subdued demand etc. would be eager to sell their assets. However, having seen the deals at extremely higher valuations, none of the cement makers, however small, are willing to sell below US $140-150 per tonne and are demanding a hefty premium over the replacement cost. Domestic cement companies are clearly unwilling to pay such a huge premium. However, foreign players, who are keen about strengthening their foothold in the Indian cement market would continue to hunt for lucrative deals.

Executive Summary Outlook - Overall projected Demand-Supply situation - Region-wise projected Demand-Supply situation - Cement demand drivers

- Capacity addition and operating rate - Cost structure and Margins - Valuation & Consolidation Section A Overview - Cement industry expected to miss the growth multiplier in FY11... - Growth in capacity over striping demand in past three years... - Cement price growth moderated in FY10 and remained under pressure in FY 11... - Status of top 10 players (capacity-wise) - Product mix still dominated by blended cements... Demand Supply Analysis - Overall Demand Supply scenario - Region-wise Demand Supply scenario - Detailed Regional Analysis - Inter-regional cement movement Cost Analysis - Power & Fuel cost - Freight cost - Raw Material (RM) cost Market Competition & Industry Averages - Industry Averages - Market Share of major players Company Profiles - Associated Cement Company Ltd. (ACC) - Ambuja Cements Ltd. - India Cements Ltd. - Shree Cement Ltd. - UltraTech Cement Ltd. Section B Cement Industry Basics - Types of Cement - Cement Manufacturing Process - Industry Characteristics Key Statistics Financial Performance Key Statistics Operational Performance Capacity Expansion Projects by Major Companies Raw material / Power & Fuel costs and consumption List of Figures & Graphs CARE Research's Outlook Planned investments under different infrastructure sub-segments Trend of capacity addition Projected Capacity Utilisation Trend Break-even Cushion Trend of International coal prices Trend of diesel prices Projected Power & fuel and Freight cost Trend of realisation

Trend of PBDIT margin Valuations of major cement companies as at the end of December 31, 2010 Section A Overview Growth trend of GDP and consumption (FY06-FY10) Trends of Capacity, Production and Capacity utilisation Region-wise yearly average cement price trend Region wise monthly price trend in FY11 Change in Product mix Trend of Conversion Ratio Demand Supply Analysis Trend of capacity addition Region-wise capacity utilisation rate Regional statistics FY 10 Regional scenario in FY 10 North - Overall scenario North - Position of top players at the end of FY 10 (based on capacity) Price trend in Delhi South - Overall Scenario South - Position of top players at the end of FY 10 (based on capacity) Price trend in Chennai West - Overall scenario West - Position of top players at the end of FY 10 (based on capacity) Price trend in Mumbai East - Overall scenario East - Position of top players at the end of FY 10 (based on capacity) Price trend in Kolkata Central - Overall scenario Central - Position of top players at the end of FY 10 (based on capacity) Cost Analysis Industry Cost Breakup Cost per unit - Industry Average Trend of bifurcation of captive power capacity of the industry Consumption and import of coal by cement industry Trend of cement dispatch mode mix Distribution of proven reserves of limestone Market Competition & Industry Averages Trend of industry averages Market Share of Major Players in FY 10 Overall market share of top five players Regional scenario Market share of top five players Section B Cement Industry Basics Types of Cement Cement Manufacturing Process List of Tables Outlook

Overall projected demand-supply situation Region-wise projected Demand-Supply situation Cost Structure List of major deals witnessed by the cement industry in the last decade Section A Overview Status of top ten players (capacity-wise) Capacity addition by small /medium players Demand Supply Analysis Cement demand statistics North Inter-regional cement movement South Inter-regional cement movement West Inter-regional cement movement East Inter-regional cement movement Central Inter-regional cement movement Overall Inter-regional cement movement Cost Analysis State-wise power tariff Cost comparison of grid and captive power Company-wise Captive Power capacity addition announced Trend of government linkage of coal Alternate fuel consumption Dispatch mix for cement companies Per tonne freight cost in FY 10 India's Limestone position Limestone cost Market Competition & Industry Averages Industry averages Change in market share of cement companies Section B Cement Industry Basics Per capita consumption Duty structure Key Statistics Financial Performance Net Sales Operating profit Net profit Operating profit margin APAT margin Interest coverage ratio Key Statistics Operational Performance Region-wise/state-wise production & capacity Region-wise/state-wise cement consumption State-wise surplus/deficit scenario Company-wise capacity Company-wise production Company-wise dispatch Total export scenario Company-wise exports

Region-wise product mix Company-wise product mix Overall product mix Company-wise dispatch mix Cement dispatch mode Average cement prices Changes in Duty structure Company-wise dispatch Capacity Expansion Projects by Major Companies Capacity Expansion projects Raw material / Power & Fuel costs and consumption Limestone cost Gypsum cost Fly Ash cost Limestone consumption Coal consumption Power consumption Power consumption pattern Cost per tonne of cement produced

1. Cement Industry 1.1 Introduction 1.2 Manufacturing Process for Cement 1.3 Global Cement Market Overview Production Volume Regional Breakdown 2. Cement Industry in India 2.1 Market Overview Demand Growth Production Volume Capacity Growth Export Volume 2.2 Key Statistics about Cement industry in India Debt Level CapEx Key Financials

3. Regional Analysis of Cement Industry Northern Region Western Region Southern Region Eastern Region Central Region 4. Market Dynamics 4.1 Major Trends 4.1.1 4.1.2 4.1.3 4.1.4 Monthly Price Movements of Cement Cement Output Growth Rate Trend in Blending Ratio Asset Turnover of the cement industry

4.2 Growth Drivers 4.2.1 Increase in Infrastructural spending 4.2.2 Annual Housing stock additions 4.2.3 Increase in Bank Loans to Construction and Infrastructure sectors 5. Key Issues 5.1 5.2 5.3 5.4 5.5 5.6 Cost of Raw Material and Substitutes Environmental Issues Tax on cement High Transportation Cost Labour issues Lack of supply chain

6. Cement Industry - Competitive Landscape Competitive Overview Financial Comparison Capacity Addition 7. Company Profile 7.1 ACC Company Overview Key Financials Business Strategies Acquisitions and Modernization Focus on Human Resources 7.2 Ambuja Cement Ltd

Company Overview Key Financials Business Strategies Focus on Excellence People-centric approach Learning Culture in Organization 7.3 UltraTech Cement Company Overview Key Financials Business Strategies Internal Control System Focus on Human Resources Research & Development Activities 7.4 India Cements Company Overview Key Financials Business Strategies Value Enhancing Adequacy of Internal Control System Maintaining Industrial Relations and R&D Key findings in the report include: - Supported by increased investments in infrastructure by both the private sector and the Government, India is projected to remain one of the largest cement producer and consumer in the world - Driven by the rapidly growing economy, expanding consumer market and supportive regulatory environment a number of cement manufacturers such as Associated Cement Companies, Ambuja cements and UltraTech Cement have embarked upon capacity expansion plans. For instance, Madras Cements Ltd is planning to invest US$ 178.4 million to increase the manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by April 2011 - With the increase in the demand of housing units which is projected to grow at an average annual growth rate (AAGR) of approximately 230 per cent between FY 2003-07 and FY 2008-12, India is all set to witness an exponential growth in its cement demand - The Indian cement industry is slowly moving on the path of consolidation. The leading companies are aggressively looking for merger and acquisition (M&A) opportunities in the key cement markets of the country. These M&As are not only providing access to the new prospect markets, but are also balancing the rivalry level in the market. For instance, India's state-run power utility NTPC is planning to set up a cement plant in a joint venture with National Aluminium Company