INDIA

August 2008

Lime & Clay

Cement industry monthly

Kamlesh Bagmar
KamlesBagmar@PLIndia.com
+91-22-6632 2237
 Monthly Update
August 27, 2008

Lime & Clay

„ Consumption grew at 8.5%: All-India cement consumption grew by 8.5%
Region-wise cement prices
to 14.3m tonnes in the month of July 2008, despite weakness in the
North South West
Central East northern and central region. Southern and western region retained their
255 leadership position with 12% growth, while consumption grew by 9% in
250
245 the eastern region. Demand remained sluggish in the northern and
240
Rs/50kg bag

235 central region with growth of 4.7% and 0.8%, respectively.

230
225 „ Utilisation rate fell to 91%: Given the slow ramp-up of the capacities
220
215 added in previous month and weakness in the northern region, capacity
210
205 utilisation (adjusted for split grinding units) declined to 91%. Southern
Mar'07

May'07

Jan'08

Mar'08

May'08
July'07

Sep'07

Nov'07

July'08

region topped the list with capacity utilisation of 95%, despite of slow
ramp-up of new capacities added in last month. The worst hit regions
Source: CMA
were central and the northern region, primarily due to weak demand.
„ Prices remained stable: All-India average cement prices remained stable
Monthly capacity utilisation
at Rs235/50kg bag level. Given the strong demand outlook, prices in the
110 FY08 FY09 southern and eastern region would remain firm over the next three
months with upward bias. On the other hand, prices in the northern and
105
central region would continue to remain under pressure due to weak
demand and new capacity additions.
100
„ Persistent reduction in coal receipts: Led by reduction in linkages and
95 increased demand from the power sector, overall coal shipments to the
cement sector for the month declined by 24%. The shortfall in the
90
supplies is made up through expensive E-auction and imported coal
Feb
Aug

Oct
Jun

Dec
Apr

procurements, leading to sharp rise in power & fuel costs. This trend is
Source: CMA expected to continue, given the strong demand from priority sectors.
„ Maintain Underweight on the sector: Seeing the massive capacity
addition across the regions and hardening coal prices, we maintain our
Underweight outlook on the sector. Among our coverage stock in the
sector, we prefer Shree cement with Outperform recommendation,
considering its attractive valuations.

Valuation matrix of cement stocks under coverage

Company CMP Target Revenue (Rs m) EBITDA (Rs m) P/E (x) EV/EBITDA (x)
(Rs) Price
FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E
(Rs)
ACC 559 527 77,069 81,994 17,740 15,711 9.2 11.1 5.5 6.5
Ambuja cement 80 73 62,245 63,842 19,236 16,875 10.2 12.6 5.7 5.7
Grasim 1,947 2,096 182,810 197,817 44,788 44,109 7.2 7.4 4.9 5.0
India cement 140 117 36,522 40,410 11,566 10,286 7.2 8.9 4.2 4.9
Shree cement 584 700 25,463 25,378 8,185 7,423 4.4 5.1 2.5 2.4
Ultratech 595 642 65,006 71,764 18,319 18,815 7.2 7.2 4.8 4.4
Source: PL Research
 Lime & Clay

Sector Aggregate
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Aggregate performance (m tonnes)
Cement production 14.64 13.41 14.65 9.2 (0.1) 59.21 55.47 6.7
Capacity utilisation (%) 91.3 95.9 91.4 93.5 101.2
Clinker production 11.11 10.51 11.14 5.7 (0.3) 44.84 41.95 6.9
Total Cement despatches 14.49 13.40 14.77 8.1 (1.9) 58.84 55.17 6.7
All-India cement consumption 14.28 13.16 14.64 8.5 (2.5) 58.27 53.85 8.2
Clinker sale (Domestic) 0.29 0.22 0.33 28.7 (12.0) 1.45 0.86 68.5

Exports (m tonnes)
Cement 0.22 0.26 0.14 (17.9) 56.8 0.55 1.32 (58.6)
Clinker 0.04 0.03 0.26 46.3 (83.8) 0.50 0.66 (23.6)

Domestic coal supplied to the sector

Coal receipts (m tonnes) 0.97 1.27 1.03 (23.6) (5.8) 3.94 4.73 (16.7)
Coal loading (FW/Day) 509 1,123 614 (54.7) (17.1)

Region-wise average cement prices (Rs/50kg Bag)

North 237 227 236 4.5 0.4 236 226 4.5
South 247 240 247 2.8 - 248 233 6.3
West 234 231 233 1.3 0.3 234 229 2.2
Central 215 220 214 (2.6) 0.1 214 216 (0.9)
East 239 226 237 5.4 0.9 237 227 4.7
All-India average 235 229 235 2.6 0.3 235 227 3.7

Performance of Top players (Despatches in m tonnes)

ACC 1.69 1.62 1.76 4.6 (4.1) 6.94 6.82 1.9
Grasim 1.33 1.31 1.33 1.2 (0.3) 5.29 5.38 (1.7)
Ambuja cement 1.38 1.39 1.47 (1.2) (6.3) 5.84 5.78 1.0
Ultratech cement 1.12 1.08 1.24 3.7 (10.0) 5.06 4.94 2.4
India cement 0.86 0.81 0.83 5.8 4.2 3.23 3.10 4.2
Shree cement 0.58 0.44 0.61 30.8 (4.4) 2.36 1.85 27.7

Closing stock (m tonnes)

Cement 1.31 1.02 1.19 28.4 10.1
Clinker 5.88 4.34 5.60 35.5 5.0
% of Clinker production 52.9 41.3 50.3

„ Incessant decline in linkage coal receipts would pose big worry for the sector in an environment of pressure on
cement prices and softening demand in various regions.

August 27, 2008 3

 Lime & Clay

North
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Region performance (m tonnes)
Cement production 3.28 2.88 3.20 13.7 2.5 12.76 11.57 10.3
Capacity utilisation (%) 92.3 99.0 90.1 89.9 105.8
Clinker production 2.55 2.04 2.34 25.0 9.1 9.87 8.20 20.4
Total Cement despatches 3.20 2.88 3.24 11.2 (1.1) 12.61 11.54 9.2
Net Interstate cement movement 0.46 0.27 0.44 74.4 4.7 1.65 1.01 62.6
Outflow/(Inflow)
Region's consumption 2.73 2.61 2.79 4.7 (2.0) 10.96 10.53 4.1
Clinker sale 0.15 0.00 0.13 - 11.6 0.54 0.00 -
% of clinker production 5.8 0.0 5.7 5.5 0.0

State-wise consumption (m tonnes)

Rajasthan 0.94 0.80 0.93 16.6 0.6 3.55 3.34 6.3
Delhi 0.36 0.26 0.36 41.7 (0.4) 1.39 0.95 46.7
Haryana 0.59 0.53 0.58 11.8 2.2 2.25 2.06 9.3
Punjab 0.43 0.55 0.45 (20.5) (4.6) 1.84 2.16 (14.5)
Himachal pradesh 0.14 0.16 0.15 (15.3) (4.6) 0.59 0.68 (13.1)
Uttrakhand 0.17 0.19 0.19 (9.4) (10.8) 0.80 0.79 2.1
Jammu & Kashmir 0.07 0.10 0.11 (25.1) (32.4) 0.40 0.42 (5.7)
Chandigarh 0.03 0.03 0.03 (1.7) 30.8 0.14 0.14 (0.8)

Retail cement prices in the major cities (Rs/50kg bag)

Delhi 233 232 233 0.3 - 234 230 1.6
Jaipur 214 209 214 2.4 - 215 208 3.0
Rohtak 224 221 223 1.1 0.2 223 219 1.8
Ludhiana 237 228 235 4.2 1.0 236 228 3.6
Simla 237 205 237 15.6 0.2 236 204 15.6

Closing stock (m tonnes)

Cement 0.32 0.19 0.24 65.7 31.6
Clinker 1.48 1.05 1.43 41.4 3.8
% of Clinker production 58.0 51.3 61.0

Variety wise cement production Apr- Apr- Shift

mix (%) Jun'08 Jun'07 (bps)
OPC 21.26 16.12 514.0
PPC 78.59 83.64 (505.0)
Others 0.15 0.24 (9.0)

„ Poor regional demand led to sharp rise in sale of clinker and cement to other regions. Prices remain stable
despite unprecedented rise in pet coke and domestic coal prices. Rise in OPC’ share indicate weakening in
demand from trade segment leading to surge in bargaining power of non-bulk buyers, consumers of OPC.

August 27, 2008 4

 Lime & Clay

South
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Region performance (m tonnes)
Cement production 5.09 4.55 4.97 11.9 2.4 19.87 17.88 11.1
Capacity utilisation (%) 95.1 99.4 92.8 96.2 99.6
Clinker production 4.07 3.80 3.95 7.1 2.8 16.01 14.73 8.7
Total Cement despatches 5.09 4.56 5.10 11.6 (0.1) 19.94 17.89 11.5
Net Interstate cement movement 0.40 0.38 0.48 7.4 (16.2) 1.78 1.68 5.6
Outflow/(Inflow)
Region's consumption 4.69 4.19 4.61 12.0 1.6 18.16 16.20 12.1

State-wise consumption (m tonnes)

Andhra pradesh 1.52 1.26 1.52 20.6 (0.4) 5.94 4.80 23.8
Tamilnadu 1.43 1.38 1.32 3.4 7.9 5.31 4.93 7.7
Karnataka 1.02 0.97 1.05 4.5 (3.2) 4.06 3.87 4.9
Kerala 0.64 0.48 0.63 33.7 2.0 2.53 2.26 11.9
Others 0.08 0.09 0.09 (11.0) (1.6) 0.33 0.35 (4.1)

Retail cement prices in the major cities (Rs/50kg bag)

Chennai 250 239 248 4.7 1.0 250 229 9.1
Bangalore 260 245 258 6.1 1.0 260 235 10.6
Hyderabad 223 226 223 (1.7) - 223 220 1.7
Trivandrum 260 245 258 6.1 1.0 259 239 8.0

Closing stock (m tonnes)

Cement 0.27 0.26 0.27 5.7 0.2
Clinker 1.43 1.04 1.43 37.7 (0.4)
% of Clinker production 35.1 27.3 36.3

Variety wise cement production Apr- Apr- Shift

mix(%) Jun'08 Jun'07 (bps)
OPC 29.75 33.17 (342.0)
PPC 63.82 59.27 455.0
PBFS 6.43 7.56 (113.0)

„ Robust consumption growth in AP and Kerala on the back of delayed monsoon and increased government-led
infrastructure activity, fueled the region’s overall cement consumption to grow by 12%.Prices remain firm in all
the states except AP where realizations and net of freight carries more importance.

August 27, 2008 5

 Lime & Clay

East
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Region performance (m tonnes)
Cement production 2.06 1.93 2.03 6.7 1.5 8.51 8.20 3.8
Capacity utilisation (%) 88.6 88.1 87.3 91.7 95.0
Clinker production 1.24 1.14 1.28 8.8 (2.4) 4.80 4.60 4.4
Total Cement despatches 2.04 1.85 2.04 10.0 (0.1) 8.45 8.08 4.6
Net Interstate cement movement (0.19) (0.13) (0.21) 45.9 (9.2) (1.02) (0.57) 80.7
Outflow/(Inflow)
Region's consumption 2.23 2.04 2.25 9.3 (1.1) 9.47 8.81 7.5

State-wise consumption (m tonnes)

West Bengal 0.62 0.56 0.55 12.4 14.1 2.51 2.56 (1.7)
Bihar 0.44 0.40 0.46 9.3 (5.5) 1.83 1.61 13.8
Chattisgarh 0.32 0.27 0.39 18.5 (17.2) 1.42 1.31 8.9
Orissa 0.39 0.39 0.40 0.3 (1.7) 1.73 1.62 6.5
Jharkhand 0.25 0.24 0.26 5.7 (3.8) 1.03 0.98 5.0
Others (Assam & Meghalaya) 0.20 0.18 0.19 10.9 3.9 0.95 0.73 29.2

Retail cement prices in the major cities (Rs/50kg bag)

Kolkatta 229 219 228 4.8 0.5 229 220 4.2
Patna 234 220 232 6.1 0.9 233 220 5.8
Bhubneshwar 233 215 231 8.4 0.6 230 214 7.6
Gauwhati 255 254 257 0.5 (0.5) 258 254 1.4

Closing stock (m tonnes)

Cement 0.20 0.19 0.18 5.3 10.2
Clinker 0.84 0.61 0.80 37.4 5.0
% of Clinker production 67.8 53.7 63.0

Variety wise cement production Apr- Apr- Shift

mix(%) Jun'08 Jun'07 (bps)
OPC 4.18 5.27 (109.0)
PPC 55.63 54.04 159.0
PBFS 40.19 40.69 (50.0)

„ Cement demand regained momentum in the region, led by improvement in demand in West Bengal and
Chattisgarh. Average cement price in the region rose by 5.4% during the month, highest among all the regions.

August 27, 2008 6

 Lime & Clay

West
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Region performance (m tonnes)
Cement production 2.22 2.05 2.30 8.3 (3.5) 9.43 9.55 (1.3)
Capacity utilisation (%) 84.1 85.6 87.2 89.4 99.7
Clinker production 1.73 1.92 2.01 (10.2) (14.2) 7.75 7.83 (1.0)
Total Cement despatches 2.19 2.07 2.32 5.9 (5.2) 9.39 9.48 (0.9)
Net Interstate cement movement (0.64) (0.50) (0.65) 28.7 (1.0) (2.53) (2.17) 16.3
Outflow/(Inflow)
Region's consumption 2.64 2.36 2.86 12.1 (7.7) 11.44 10.50 9.0

State-wise consumption (m tonnes)

Maharashtra 1.70 1.54 1.84 10.2 (7.5) 7.43 6.66 11.7
Gujarat 0.94 0.81 1.03 15.6 (8.1) 4.00 3.84 4.3

Exports (m tonnes)
Cement 0.20 0.25 0.11 (19.5) 86.7 0.47 1.19 (60.7)
Clinker 0.02 - 0.20 - (88.7) 0.38 0.50 (23.7)

Retail cement prices in the major cities (Rs/50kg bag)

Mumbai 263 268 263 (1.9) - 264 262 0.8
Pune 268 270 263 (0.6) 2.2 268 267 0.3
Nagpur 227 217 227 4.6 - 227 214 6.4
Ahmedabad 221 217 221 1.8 - 221 217 2.1
Surat 223 217 223 2.8 - 223 217 3.0

Closing stock (m tonnes)

Cement 0.30 0.18 0.27 73.5 11.3
Clinker 1.49 1.15 1.35 29.5 9.9
% of Clinker production 86.1 59.7 67.2

Variety wise cement production Apr- Apr- Shift

mix(%) Jun'08 Jun'07 (bps)
OPC 39.32 45.91 (659.0)
PPC 58.60 51.59 701.0
PBFS 2.08 2.50 (42.0)

„ Total despatches grew by 5.9% despite strong consumption growth in the region, due to sharp rise in
despatches from other regions, primarily the northern region. Producers exploited the benefit of rising demand
by increasing the share of blended cement’s production.

August 27, 2008 7

 Lime & Clay

Central
July'08 July'07 June'08 YoY (%) MoM (%) Apr- Apr- YoY (%)
July'08 July'07
Region performance (m tonnes)
Cement production 2.00 2.03 2.15 (1.6) (7.2) 8.64 8.28 4.3
Capacity utilisation (%) 92.1 104.4 99.3 99.5 107.1
Clinker production 1.52 1.53 1.56 (0.4) (2.6) 6.41 6.32 1.5
Total Cement despatches 1.97 1.98 2.09 (0.4) (5.8) 8.44 8.09 4.3
Net Interstate cement movement (0.03) (0.01) (0.06) 238.5 (50.4) 0.12 0.16 (21.9)
Outflow/(Inflow)
Region's consumption 1.98 1.97 2.12 0.8 (6.4) 8.24 7.82 5.5

State-wise consumption (m tonnes)

Uttar Pradesh 1.29 1.37 1.46 (5.2) (11.1) 5.53 5.33 3.8
Madhya Pradesh 0.69 0.60 0.66 14.5 4.0 2.71 2.49 8.9

Retail cement prices in the major cities (Rs/50kg bag)

Lucknow 211 218 208 (3.2) 1.5 209 212 (1.4)
Meerut 228 229 228 (0.7) - 227 227 0.1
Bareilly 219 222 220 (1.0) (0.1) 219 221 (0.8)

Closing stock (m tonnes)

Cement 0.22 0.15 0.23 43.5 (1.6)
Clinker 0.64 0.43 0.58 48.7 10.3
% of Clinker production 42.0 28.1 37.1

Variety wise cement production Apr- Apr- Shift

mix(%) Jun'08 Jun'07 (bps)
OPC 12.95 12.56 39.0
PPC 86.71 86.86 (15.0)
Others 0.34 0.58 (24.0)

„ Surging despatches from northern region and softening in regional demand despatches from the central region
remained flat. Average prices in this region declined by 2.6% YoY, the only region to face this trend in the
prices.

August 27, 2008 8

 Lime & Clay

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India.
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

PL’s Recommendation Nomenclature

BUY : > 15% Outperformance to BSE Sensex Outperformer (OP) : 5 to 15% Outperformance to Sensex
Market Performer (MP) : -5 to 5% of Sensex Movement Underperformer (UP) : -5 to -15% of Underperformace to Sensex
Sell : <-15% Relative to Sensex

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August 27, 2008 9