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ANALYSIS OF CEMENT INDUSTRY

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ANALYSIS OF CEMENT
INDUSTRY
MOHIT ALMAL(BO8016)
ATUL SABOO(B08005)

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Table of Contents
Industry Concentration: India and Infrastructure ............................................................................... 3
Concentration Ratio....................................................................................................................... 3
Herfindahl Index ................................................................................................................................ 4
Formula ......................................................................................................................................... 4
Cement Industry: an Overview .......................................................................................................... 6
WORLD CEMENT PRODUCTION ..................................................................................................... 6
Environmental Analysis: Michael Porter Model.................................................................................. 8
Industry Key points ............................................................................................................................ 9
The Major Players............................................................................................................................ 10
MARKET SHARE OF PLAYERS IN THE CEMENT INDUSTRY .............................................................. 10
CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS ............................................................. 11
Concentration Ratio ........................................................................................................................ 12
Herfindahl Index .............................................................................................................................. 13
Interpretation of H index and Concentration ratio ........................................................................... 14
Supply Position ................................................................................................................................ 15
Demand position ............................................................................................................................. 16
Sectoral demand for cement ....................................................................................................... 16
Demand Drivers ........................................................................................................................... 16
Demand over the years................................................................................................................ 19
Forecast in Demand ..................................................................................................................... 19
Various demand forecasts ........................................................................................................... 20
Demand Supply overview ................................................................................................................ 21
Latest Trends: Activities Witnessed in the Industry .......................................................................... 22
Global Players.................................................................................................................................. 22
Mergers and Acquisitions (M&As)................................................................................................ 22
Government Initiatives ................................................................................................................ 23
Technological Advancements....................................................................................................... 23
Current Scenario.......................................................................................................................... 23
Export ............................................................................................................................................. 25
Capacity and production of some major players in the Industry ....................................................... 26
ANNEXURE 1A ................................................................................................................................. 29
ANNEXURE 1B ................................................................................................................................. 31
Bibliography .................................................................................................................................... 33

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Industry Concentration: India and Infrastructure


The concentration of firms in an industry is of interest to economists, business strategists, and
government agencies. Here, we discuss two commonly-used methods of measuring industry
concentration: the Concentration Ratio and the Herfindahl-Hirschman Index.

Concentration Ratio
In Economics the concentration ratio of an industry is used as an indicator of the relative size of
firms in relation to the industry as a whole. This may also assist in determining the market form of
the industry. One commonly used concentration ratio is the four-firm concentration ratio, which
consists of the market share, as a percentage, of the four largest firms in the industry. In general, the
N-firm concentration ratio is the percentage of market output generated by the N largest firms in
the industry.

The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of
firm size.

Some examples of the four-firm concentration ratio include:[citation needed]

 Traditional agriculture: Less than 5%


 Sheet metal: 9%
 Asphalt paving: 15%
 Typesetting: 16%
 Publishing: 23%
 Soap and detergents: 63%
 Men's slacks: 75%
 Aircraft: 79%
 Greeting cards: 84%
 Cigarettes: 99%

Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they
are:

 Perfect competition, with a very low concentration ratio,


 Monopolistic competition, below 40% for the four-firm measurement,
 Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers)
 Monopoly, with a near-100% four-firm measurement.

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Herfindahl Index

The Herfindahl index, also known as Herfindahl-Hirschman Index or HHI, is a measure of the size of
firms in relationship to the industry and an indicator of the amount of competition among them. It is
an economic concept but widely applied in competition law and antitrust. It is defined as the sum of
the squares of the market shares of each individual firm. As such, it can range from 0 to 1 moving
from a very large amount of very small firms to a single monopolistic producer. Decreases in the
Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas
increases imply the opposite.

Formula

In a market with two firms that each have 50 percent market share, the Herfindahl index equals
0.5^2 + 0.5^2 where si is the market share of firm i in the market, and n is the number of firms.

The Herfindahl Index (H) ranges from 1 / N to one, where N is the number of firms in the market.
Equivalently, the index can range up to 10,000, if percents are used as whole numbers, as in 75
instead of 0.75. The maximum in this case is 1002 = 10,000.

There is also a normalized Herfindahl index. Whereas the Herfindahl index ranges from 1/N to one,
the normalized Herfindahl index ranges from 0 to 1. It is computed as:

where again, N is the number of firms in the market, and H is the usual Herfindahl Index, as above.

A small index indicates a competitive industry with no dominant players. If all firms have an equal
share the reciprocal of the index shows the number of firms in the industry. When firms have
unequal shares, the reciprocal of the index indicates the "equivalent" number of firms in the
industry. Using case 2, we find that the market structure is equivalent to having 1.55521 firms of the
same size.

 An H index below 0.1 (or 1,000) indicates an un-concentrated index


 An H index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration
 An H index above 0.18 (above 1,800) indicates high concentration

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Cement Industry: an Overview


The cement industry continues to play a pivotal in the revival of the Indian economy over the years.
The industry has moved from a regulated environment to a deregulate scenario. The liberalization
policy adopted by the government in the 1990’s led to huge investments in the sector by private
players. However, the performance of the industry and prices of cement continue to be monitored
on a regular basis. The constraints faced by the industry are reviewed in the Infrastructure
Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of
Secretary (Coordination). Its performance is also reviewed by the Cabinet Committee on
Infrastructure.

The total production capacity of the Indian cement industry has gone up to 190 million tonne for the
fiscal ended March 31, 2008 as compared to 167 mt during the previous fiscal, a growth of 13% to
14%. For the first time, the industry has seen an addition of over 22 mt in a single year during 2007-
08, said industry sources here.

WORLD CEMENT PRODUCTION

World Cement Production


1,400

1,200

1,000

800
2006
2007
600

400

200

0
China India United Japan Spain Korea Russia Italy Mexico Brazil
States

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Almost every other player in the industry has either put up a new plant or have expanded capacity,
ranging between a minimum of two lakh tonne and a maximum of three million tonne spread across
all producing states in all four regions, said the sources.

Some of the major players who have added capacity include Ambuja Cement, Lafarge, Ultratech,
India Cements, Madras Cement, Shree Cement, Grasim, Jaypee. Kesoram, Century Textiles among
others. These additions were based on the increasing demand and supply gap and the industry
hopes to do a better year in the current fiscal too, the sources said.

Except a few one million tonne plus capacity addition in big cities, most of the additions
were small in size and were between two lakh tonne and eight lakh tonne in capacity.
Interestingly, these capacities addition taken place in small pockets of all four regions, the
sources pointed out. The industry move to have wider presence, though in small quantity, is
to cash in on emerging developmental activities while ensuring continued supply over a
period of time, the sources pointed out.

Meanwhile, led by western region, the industry continued to maintain its 10% growth rate
in despatches during the year. With the near total capacity utilisation, the total despatches
were higher at 170 mt as against 155 mt during the previous year. Western region reported
a growth of 15% in consumption, followed by northern region (12%) and southern region
(10%). Among the states, Haryana reported 24% growth in consumption, followed by Delhi
(17%), Gujarat (15%), Andhra Pradesh (15%), Maharashtra (14%) and Tamil Nadu (13%).

According to the sources, despite there have been imports in pockets of region, the demand
and supply gap continue to be there in the current fiscal too and the prices will remain firm.

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Environmental Analysis: Michael Porter Model

Threat of substitute Limited


Bitumen in roads and engineering plastic in
buidling offer some element of competition.

Threat of new entrants Interfirm Rivalary-Intense


limited Bargaining powers of
Large number of players capacity in buyers limited
High capital investment the short-term is expected to be
requirements, distribution surplus, marginal product Rising share of retail
network and oversupplied differenciation, high storage cost purchase and declining
markets deter entrants. and high exit barriers in terms of share of bulk purchasers
Technology easily available heavy capital investment.

Bargaining power of suppliers very high


Monopolistic control of external cost element
(coal, power, transport) result in high bargaining
power of the goverment

Figure: Michael Porter’s Analysis

Porter's five forces are named after Michael Porter. Strategic analysis of these 5 forces can tell you a
lot about a company/sector. A Porter's five forces analysis can complement other techniques, like a
SWOT analysis. A SWOT analysis focuses on the company/sector, while a Porter's five forces analysis
looks at the external factors impacting on a company/sector. These forces listed by Michael Porter,
impact the profitability of an Industry. This figure portrays the factors affecting the cement industry
and their analysis.

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Industry Key points

 The Indian cement industry with a total capacity of about 190 m tonnes in FY07 is
the second largest market after China. Although consolidation has taken place in
the Indian cement industry with the top five players controlling almost 50% of the
capacity, the balance capacity still remains pretty fragmented.

 Despite the fact that Indian cement industry has clocked a production of more than
100 m tonnes for the last five consecutive years, the per capita consumption of
around 130 kgs compares poorly with the world average of over 260 kgs and more
than 450 kgs in China. This, more than anything underlines the tremendous scope
for growth in the Indian cement industry in the long term.

 Cement, being a bulk commodity, is a freight intensive industry and transporting


cement over long distances can prove to be uneconomical. This has resulted in
cement being largely a regional play with the industry divided into five main
regions viz. north, south, west, east and the central region. While the southern
region is excess in capacity owing to abundant availability of limestone, the
western and northern region are the most lucrative markets on account of higher
income levels.

 There are high barriers to entry because of high capital costs and gestation period.
Bargaining power of suppliers is high. Bargaining power of consumers is low
because of rising share of retail purchase

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The Major Players

With an installed capacity of about 190 million tons at the end of March 2008, the cement industry
has witnessed some major consolidation in capacity. The larger players in the industry control
almost 50% of the capacity and revenues for the sector in India. The key players in the country
include Associated Cement Companies (ACC), Ultratech Cements, Grasim Industries, Gujarat Ambuja
Cement and India Cements Limited. The market share of the major cement players, in terms of
revenue and production can be seen with the help of the Graph below.

The cement industry has witnessed substantial reorganization of capacity in the last couple of years.
Some examples of them are Gujarat Ambuja taking stake in ACC, Gujarat Ambuja taking over DLF
cement and Modi Cements. India Cements taking over Raasi Cement etc. in the domestic markets.
Some international majors have also shown sizeable interest in the Indian cement sector with
Holcim, Lafarge , Italcementi and Heifelberg paving their way in India through some M&A activities.
On March 2008, ACC was the largest player in the industry with an installed capacity of 22.4 million
tons and controlling over 13% of the total capacity. Ultratech occupied the second spot with an
installed capacity of 18.2 million ton. While the third and the fourth slot went to Gujarat Ambuja and
Grasim respectively. The other leading players in the industry include Jaypee group, Lafarge, India
Cements, Madras Cement, Birla Corp and Century textile.

MARKET SHARE OF PLAYERS IN THE


CEMENT INDUSTRY

Market Share

Others ACC Ltd


28% 17%
Grasim Industries
Ltd
15%
Madras cement
5%

India cement
9% Ultratech Ambuja Cements
Cement Ltd. Ltd.
12% 14%

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CAPACITY DISTRIBUTION BETWEEN DIFFERENT PLAYERS

Capacity Distribution
Grasim
ACC Ltd Industries Ltd
13% 8%
Others
Ambuja Cements
48%
Ltd.
10%

Ultratech Cement
Ltd.
Madras cement India cement 11%
4% 6%

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Concentration Ratio

Top 5 firms 2006 2007 2008


ACC Ltd. 9.11% 6.42% 8.90%
Ambuja Cements Ltd. 4.62% 5.23% 9.69%
Grasim Industries Ltd. 14.41% 13.21% 13.25%
Larsen & Toubro Ltd. 26.84% 25.96% 24.80%
Ultratech Cement Ltd. 6.13% 6.54% 7.56%

Concentration ratio 61.11% 57.36% 64.20%


Calculation is shown in annexure 1A

A competitive market is one with a sufficiently large number of firms competing with one another
that prices are kept at levels that reflect social costs. Since market power usually leads to high prices
and/or low quality, and often stifles future innovations, it hurts consumers and should be restricted.
There are numerous ways to obtain market power.

If there are only a few firms in a market, concentration is high, and each firm will have some market
power to charge a high price. When the market is highly concentrated, it is easier for firms to
coordinate their pricing behavior and charge a premium from the customers. Market power may
also exist even with many small firms in the market, when there is a dominant firm.

Here, the concentration is very high among the top 4-5 major players which mean that these few
players hold industry’s demand and supply. Any change in the market share of leading players would
lead to a change in the concentration ratio and thus the market structure of the industry.

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Herfindahl Index

Herfindahl Index
2006 2007 2008
0.1135 0.1066 0.101
Calculation is shown in annexure 1B

The Herfindahl Index of the cement industry shows a figure of 0.101 for the year 06-07 which is
more than 0.1 showing a moderate concentration in the industry which means the market is moving
towards oligopoly.

The main reason for such a kind of structure is Cement being a perishable product cannot be
transported from one place to far off places due to which there is a limited geographical scope. One
player captures a certain region and thus the players do not compete with one another.

The index is very near to 0.1 and thus adapts some features of perfect competition as well. In
cement industry, prices are governed by the government and thus the players act as a price taker
and not price maker.

For the last three years the Herfindahl index has been decreasing which means that the industry is
moving towards perfect competition. The players of the cement industry are prices takers as the
government fixes the price. Moreover, competition has also increased as many small players have
entered the industry and local competition has increased in the past few years.

Thus, cement industry has an oligopoly existing in the industry but also have some attributes of
perfect competition.

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Interpretation of H index and Concentration ratio

Fragmented Cement Consolidated cement


Industry in 1995 industry in 2008
Top 5 Others
Groups 28%
26%
Top 5
Others Groups
74% 72%

The concentration ratio of top 5 players is 64%.The H- INDEX is 0.101 which shows presence of large
number of players. The structure of the industry is fragmented, although, the concentration at the
top is increasing.

Thus we see that the top players control almost 65% of the industry, but the balance remains very
fragmented. Due to large number of players in the industry and very little brand differentiation to
speak of, the competition is intense with players resorting to expanding reach and achieving pan
India presence.

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Supply Position
The installed capacity of the sector over the seven years period, from 2000 to 2008, has grown at
5.3% coumpounded anually. While the production grew at 7.4% per annum. The production in the
sector grew at a much higher rate than the capacity in the preceding years. Looking ahead the
production of the industry could see about 85% capacity utilization due to additional capacity being
built. It is estimated that by FY 2010-2011 the total capacity for the sector would be close to 250
million tonne.

CEMENT PRODUCTION
300

250
Capacity Installed

200
Cement Production
150
Capacity Utilisation
100
2 per. Mov. Avg. (Capacity
Utilisation)
50

The increasing trend in cement consumptions from FY03 had led to an increase in the capacity
utilization of the cement sector. The capacity utilization has moved from 76% in FY02 to 95 % in
FY07. But going forward when all capacity addition has taken place and the plants are commissioned
one could see a huge surplus being built. This could lower the realization margins of the companies
and increase cost pressures. This would also contribute to the change in demand supply scenario,
where the supply would be in excess of the total demand for the commodity.

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Demand position
Sectoral demand for cement
Demand for cement is linked to the economic activity in any country. Broadly, it can be categorized
into demand for housing construction (homes, offices etc.) and infrastructure creation (ports, roads,
power plants etc). The real driver of cement demand is creation of infrastructure, hence cement
demand in emerging economies is much higher than developed countries where the demand has
reached a plateau. In India too, the demand for cement will be affected by spending on
infrastructure (including housing)

Fuelling demand- The following factors have increased demand for cement over the years:

 Growth in housing sector (over 30%)-is a key demand driver as it accounts for 60% of demand

 Infrastructure projects like ports, airports, power projects, dam & irrigation projects. The
proportion of cement consumed by infrastructure projects is expected to increase from
current 15% to 25-30%. About 10 million tonnes of cement demand will result from Kalpasar
project planned for water deployment for Saurashtra

 National Highway Development Programme- This consists of golden quadrilateral and


North-South and East-West corridor projects. Budget support on NHDP increased to 99.45
billion dollars.

 Bharat Nirman Yojana for rural infrastructure- Outlay on bharat nirman to the tune of 186.96
billion.

 Rise in industrial projects

 Capex plans by corporates – Greenfield and brownfield expansions.

 Export potential

 Capital spending continues to be strong

 Uptrend in industrial cycle – Avg. IIP growth at 10.2% being strongest in the past 11 years

 Retails- Malls and Multiplexes

Demand Drivers

The demand for cement has shown patterns that can be directly linked to the growth in the
economy. With the growth in GDP, the consumption and demand for cement have gone up
sustantially. Usually, the demand for cement grows at about 3%-4% above the growth rate of GDP.

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The demand drivers for the cement industry are:

Economic Growth: The consumption and demand for cement is a sign of a countries progress and
economic development. Almost every country in the world, commited to industrialization and sound
economic development, generates an ever increasing demand for cement.
Cement counsumption growth is highly correleated to the GDP growth it serves as the leading
indicator. More industrial activity and greater purchasing power means more formation and
construction activities and thus, more counsumption of cement. The graph alongside shows the
percentage growth of the two in the last couple of years.

Industrial Activity: Cement counsumption also shows high degree of correlation to the industrial
activities in the economy. With the amplify in industrial output, more and more capacity expansion

GDP VS CEMENT takes place that requires


GROTH IN CEMENT PRODUCTION GDP GROWTH building new plants,
18 10 setting up of factories etc.
16 9
G
in the process, boosting
%
P 14 8 D
R P
the demand for cement.
C 12 7
O
H Graph below shows
D G
A
U
10 6
N R
C 8 5 O
percent growth in the IIP
G
T W
E index and the cement
I 6 4 T
O H
I 4 3
N counsumption in the last
N
2 2 couple of years.
0 1
1999-2000 2001-2002 2003-2004 2005-2006 2007-2008e*
-2 0 Infrastructure: Demand
for cement is linked to
the economic activity in any country. Broadly, it can be categorized into demand for housing
construction (homes, offices etc.) and infrastructure creation (ports, roads, power plants etc). The
real driver of cement demand is creation of infrastructure; hence cement demand in emerging
economies is much higher than developed countries, where the demand has reached a plateau. In
India too, the demand for cement will be affected by spending on infrastructure (including housing).

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Housing Sector:
CEMENT VS IIP
The housing
CEMENT PRODUCTION GROWTH IIP GROWTH
16 12
sector is the
C 14 %
primary % O
10
12
C U g
counsumer of H N 10 8 r
A S o
cement in India. N U
8 w
6
G M 6 t
It accounts for E P h
T 4 4
almost 60% of the I I I
N O
2 I
total cement 2
N 0 P

production in the -2 2000 2001 2002 2003 2004 2005 2006 2007 0
country. The
favorable housing
finance environment is expected to fulfill the vast housing requirements, both in rural and urban
areas. The demand for the housing industry is projected to grow rapidly over the next few years,
thereby, inducing a higher demand for cement.
Infrastructure: The increase in infrastructure projects by the government, coupled with the
construction of the Golden Quadrilateral and the North-South and East-West corridor projects, have
led to an increase in consumption of cement. This increase is expected to continue in the future. The
other big consumers for cement recently have been the SEZ projects that have mushroomed all over
the country. There are a total of 144 SEZ’s, which occupy a total area of 250,000 acres, thereby,
pushing the demand for
cement by approximately
10-12MT every year
DEMAND FOR CEMENT

OTHERS
20%

INFRASTRUC
TURE HOUSING
20% 60%

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Demand over the years

 India's cement consumption increased 10.1% during FY2007 to 148.3 mt. By comparison,
consumption 8.1% during FY2005, and 5.8% during FY2004. On a decadal basis, India's
cement consumption has increased at a 10-year CAGR of 8.2% during FY1996-06.

Year Consumption (mt)
1999 77.4
2000 87.6
2001 90.3
2002 99
2003 107.6
2004 113.9
2005 123.1
2006 135.6

 Thus there has been continuous increase in demand.

Forecast in Demand
LOOSE MIX
Low growth demand scenario projected by working group on cement industry
Year Domestic Production Capacity needed**
demand required
2007-08 166.60 176.60 196.22 (198.66)
(168.79) (178.79)
2008-09 182.66 192.66 214.07 (219.46)
(187.51) (197.51)
2009-10 200.33 210.33 233.70 (242.65)
(208.38) (218.38)
2010-11 219.76 230.26 255.84 (269.07)
(231.66) (242.16)
2011-12 241.13 252.13 280.15 (298.46)
(257.61) (268.61)
Figures in million t ** Capacity90%
Figures in brackets are of high growth demand scenario

CMA in its latest report has said that the industry added 30.34 million tonnes of additional capacities
during the last financial year instead of 22.24 million tonnes as estimated earlier. This made the
industry meet the target set by the report of the working group on cement industry for the eleventh
five year plan (2007-12) from the Ministry of Commerce and Industry.

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However, in a changing economic scenario with GDP growth rate being seen at 7.5 or below,
industry experts said that cement firms will be in trouble with excess of capacities and relatively
lesser demand.

A city-based analyst, who did not wish to be named, said that in the following year (FY10) the
capacity utilization may further dip to 78 per cent. "No company will produce cement only to dump
it in a less demanding market. Out of the announced capacities in the next two years, we expect
around 55-60 million tonnes to come on stream," he added.

Moreover, on the exports front too, West Asia — the prime export market for the domestic cement
industry — will turn into a surplus region by FY10.

This will further reduce scope for cement export and firms will have to divert the export material to
the domestic market.

Since, cement industry's growth rate is more or less linked with GDP of the country, cement
companies and industry analysts said that growth rate of the industry will be below 10 per cent. This
will put the estimates of the working group at stake as it gave priority to the high growth demand
scenario of 11.5 per cent for the cement industry assuming GDP at 9 per cent.

"The June quarter this year saw demand growth of less than 6 per cent, however, in the long-term
perspective we see an average growth of 8-9 per cent," added Bangur. This suggests that the
industry's growth will now be in line with the low growth demand scenario where the report of the
working group puts GDP at 8 per cent and subsequently the cement demand at 10 per cent.

However, industry experts said that scenario could be worse than this as they expect a lower GDP
growth. They ruled out the possibility of industry coming back on track even till 2010-2011.

"With real estate sector getting slowing down and housing loans becoming costlier, cement sector
will not remain insulated with such factors. I expect the industry will grow at a rate less than 10 per
cent," said Pawan Burde, senior research analyst, Angel Broking.

The report of the working group on cement industry (which has three demand scenarios — low,
average and high), had stated, "In view of the government's latest reviewed pragmatic approach
giving thrust and focus in sustaining 9 per cent GDP growth during the eleventh five year plan, the
high growth scenario may be adopted for 2007-12 where the growth of cement sector would be 11.5
per cent."

Various demand forecasts


Demand forecast for 2008-09

Region % of all India market Demand forecast ( In million


tonnes)
North 20 36
East 17 31
Central 15 27
West 18 34
South 30 55
Total 100 183

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Demand Supply overview


We have seen that supply in cement industry has continuously increased. The cement industry has
been in a surplus position since a long time. This has resulted in increased exports over the last few
years.

Year Exports ( in MT)


2001 3.2
2002 3.4
2003 3.5
2004 3.4
2005 4.1
2006 6.0

Although there exists a surplus of cement in the country, the surplus has declined from 0.42 mt in
FY2005 to 0.23 mt during FY2006, mainly because of higher growth in consumption. While the Indian
cement industry is in a surplus position since a long time, the surplus position is gradually declining.
Considering an expected production and consumption growth of 10% during FY2007, the demand
supply position of the Indian cement industry is expected to improve. Infact from the forecasted
demand, it is forecasted that demand will outstrip supply. This is the dynamics of a developing
country. Cement demand rises with the progress in economic development, reaches a peak level,
and then starts declining once all the developmental projects are in place and the country has
achieved a very high level of economic growth. Thus one India becomes a developed country,
demand for cement will decline. As of now, we see that supply is greater than demand. The rising
demand will gradually reduce demand supply mismatch. There is no need of new players; infact
cement industry has travelled the path from fragmentation to consolidation

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Latest Trends: Activities Witnessed in the Industry

Global Players

Rapid urbanization and the booming infrastructure have lead to an increase in construction and
development across India, attracting even the global players. The recent years have witnessed a
surge of foreign direct investment in the cement sector. International players like France's Lafarge,
Holcim from Switzerland, Italy's Italcementi and Germany's Heidelberg Cements hold more than a
quarter pie of the total capacity.

 Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and
enjoys a market share of about 23-25 per cent. It will further invest about US$ 2.49 billion in
the next five years to set up plants and raise capacity by 25 mt in the country. Holcim has a
global sale worth about US$ 20 billion, where India contributes US$ 2–2.5 billion.

 Italcementi Group, the fifth largest producer of cement in the world acquired full stake in
the K.K. Birla promoted Zuari Industries' cement, to strengthen its presence in India lining up
US$ 300 million investment to increase the capacity of Zuari Industries from 1.7 mtpa to
about 6-7 mtpa. Moreover, it plans to invest US$ 174 million over the next two years in
various greenfield and acquisition projects.

 The French cement major, Lafarge, acquired the cement plants of Raymond and Tisco with
an installed capacity of 6 mtpa. It plans to double its capacity to 12 mt over the next five
years by adopting the greenfield expansion route.

 Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group
controlled Indo-Rama Cement. It aims at a 50 per cent controlling stake in Indo-Rama's
grinding plant of 0.75 mtpa at Raigad in Maharashtra. Heidelberg is also taking over Mysore
Cement of S K Birla group at a consideration of US$ 93 million.

Mergers and Acquisitions (M&As)

A growing and robust economy was noteworthy in terms of the total number of mergers and
acquisitions (M&A) in India 2007, with the cement sector contributing to 7 per cent to the total deal
value. Increased activity in infrastructure and a booming real estate market have seen foreign firms
vying to acquire a share of the pie.

 Holcim strengthened its position in India by increasing its holding in Ambuja Cement form 22
per cent to 56 per cent through various open market transactions with an open offer for a
total investment of US$ 1.8 billion. Moreover it also increased its stake in ACC Cement with
US $ 486 million, being the single largest acquirer in the cement sector.
 Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund and
Emerging Market Fund have together bought around 7.5 per cent in India’s third-largest
cement firm India Cements (ICL) for US$ 148.19 million.

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ANALYSIS OF CEMENT INDUSTRY

 Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim Industries’ 53.63 per
cent stake in Shree Digvijay Cement.

Some of the other major mergers and acquisitions in the recent past include CRH acquiring My
Home Industries for US$ 462 million, Lafarge buying L&T Concrete’s ready-mix concrete (RMC)
business for US$ 349 million and Heidelberg consolidating its business with Mysore Cement and
Indorama, and Italcementi acquiring 100 per cent stake in Zuari Cement and 95 per cent stake in
Shree Vishnu among others.

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban
development, will continue being the main drivers of growth for the Indian cement industry.
Moreover, the Union Budget for 2008-09 has sought measures to increase availability and reduce
prices.

 Increased infrastructure spending has been a key focus area over the last five years
indicating good times ahead for cement manufacturers.
 The government has increased budgetary allocation for roads under NHDP. This coupled
with government's initiatives on the infrastructure and housing sector fronts would continue
to remain the key drivers.
 Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and
proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of
them.
 Other budget measures such as cut in import duty from 12.5 per cent to nil, removal of 16
per cent countervailing duty, 4 per cent additional customs duty on portland cement and
differential excise duty are all intended to cut costs and boost availability.

To summarise in the words of an industry analyst, 'The allocation of US$ 3.23 billion for the National
Highway Development Project will keep the demand for cement alive.'

Technological Advancements

Modernization and technology up-gradation is a continuous process for any growing industry and is
equally true for the cement industry. At present, the quality of cement and building materials
produced in India meets international standards and benchmarks and can compete in international
markets. The productivity parameters are now nearing the theoretical bests and alternate means.
Substantial technological improvements have been brought about and today, the industry can
legitimately be proud of its state-of-the-art technology and processes incorporated in most of its
cement plants. This technology up gradation is resulting in increased capacity, reduction in cost of
production of cement.

Current Scenario

The Indian cement industry is the second largest producer of quality cement, which meets global
standards. The cement industry comprises 130 large cement plants and more than 300 mini cement
plants.The industry's capacity at the end of the year reached 188.97 million tonnes which was
166.73 million tonnes at the end of the year 2006-07. Cement production during April to March
2007-08 was 168.31 million tonnes as compared to 155.66 million tonnes during the same period for
the year 2006-07.Despatches were 167.67 million tonnes during April to March 2007-08 whereas

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ANALYSIS OF CEMENT INDUSTRY

155.26 during the same period.During April-March 2007-08, cement export was 3.65 million tonnes
as compared to 5.89 during the same period.

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ANALYSIS OF CEMENT INDUSTRY

Export

The export of Indian cement has increased over the years, giving a boost to the Indian cement
industry.

The demand for cement in the foreign countries is a derived demand, for it depends on industrial
activity, real estate, and construction activity. Since growth is taking place all over the world in these
sectors, Indian export of cement is also increasing.

The cement industry in India has around 300 mini cement plants and 130 large cement plants. The
total production capacity of these plants is around 167.36 million tons. The India cement industry is
technologically very advanced, as a result of which the quality of Indian cement is now considered
the second best in the world. This has given a major boost to the Indian export of cement. The
production of cement in India is not only able to meet the domestic demand, but large amounts are
also exported. A fair amount of clinker and cement by-products are also exported by India. As the
quality of Indian cement is very good, its demand in the international market is always high.

In 2001-2002, 3.38 million tons of cement was exported from India. That figure stood at 3.47 million
tons in 2002-03, and 3.36 million tons in 2003-04. In 2001-2002, 1.76 million tons of clinker was
exported from India. In 2002- 2003 clinker exports amounted to 3.45 million tons, and in 2003- 2004
the figure stood at 5.64 million tons. This shows that the export of Indian cement has been
increasing at a steady pace over the years. Export of India cement has been mostly to the West Asian
countries.

The major companies exporting Indian cement are:

 Gujarat Ambuja
 Ultra Tech Cement
 L&T Limited
 Aditya Cement

Export of Indian cement has registered growth a fair amount of growth, giving a boost to the Indian
economy. That it continues to rise, more efforts must be made by the cement industry in India and
the government of India.

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ANALYSIS OF CEMENT INDUSTRY

Capacity and production of some major players in the Industry


Large Plants
Companies (Members) (Nos.) 52
Cement Plants (Nos.) 132
Installed Capacity (Mn. t.) 166.73
Cement Production (Mn. t.) 2007-08 190.66
Plants with Capacity of Million tonnes and above (Nos.) 76
Manpower Employed (Nos.) Approx. 1,35,000

Mini & White Cement Plants


Cement Plants (Nos.) Approx. 365
Installed Capacity (Mn. t.) 11.10 (P)
Cement Production (Mn. t.) 2007-08 6.00 (P)

India Cements Ltd


Location Capacity/Unit Production Quantity/Unit
In 000's Tonnes
Chilamakur (Cuddapah,AP) 1321.5 1312
Sankaridurg(Salem,TN) 616.7 610.01
Talaiyuth (Tamil Nadu, TN) 1585.8 1801.68
Tandur (Rangareddi, AP) 1145.3 1147.98
Trichy (Tiruchchirappalli, TN) 1409.6 1271.65
Wadapally (Nalgonda, AP) 2626.94 2511
Yeraguntla (Cuddapah, AP) 528.6 580.15

ACC Ltd
Location Capacity/Unit Production Quantity/Unit
In 000's Tonnes
Bargarh (Sambalpur, ORI) 896.36 796.84
Chaibasa (Pashchimi Singhbhum, JHA) 896.36 796.84
Chanda (Chandrapur, MAH) 1120.45 996.05
Gagal I (Bilaspur (HP), HP) 2240.9 1992.1
Gagal II (Bilaspur (HP), HP) 2689.08 2390.52
Jamul (Durg, CTG) 1792.72 1593.68
Kymore (Jabalpur, MP) 2016.81 1792.89
Lakheri (Bundi, RAJ) 672.27 597.63
Madukkarai (Coimbatore, TN) 1120.45 996.05
Puruliya (Puruliya, WB) 672.27 597.63

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ANALYSIS OF CEMENT INDUSTRY

Sindri (Dhanbad, JHA) 672.27 597.63


Tikaria (Sultanpur, UP) 2240.9 1992.1
Wadi (Gulbarga, KAR) 2464.99 2191.31
Wadi-New (Gulbarga, KAR) 2913.17 2589.73

Ambuja
Location Capacity/Unit Production Quantity/Unit
In 000's Tonnes
Ambujanagar (Amreli, GUJ) 5180 4721.1
Bhatapara (Raipur, CTG) 1110 1011.66
Bhatinda (Bathinda, PUN) 740 674.44
Darlaghat (Solan, HP) 1480 1348.89
Farakka (Murshidabad, WB) 185 168.61
Maratha (Chandrapur, MAH) 3515 3203.61
Rabriyawas (Pali, RAJ) 2035 1854.72
Roorkee (Hardwar, UTR) 185 168.61
Ropar (Rupnagar, PUN) 3145 2866.38
Sankrail (Haora, WB) 1295 1180.28

Ultra Tech
Location Capacity/Unit Production Quantity/Unit
In 000's Tonnes
Arakkonam (Cuddalore, TN) 1175.19 973.02
Chandrapur (Chandrapur, MAH) 4086.59 3383.56
Durgapur (Barddhaman, WB) 1280.08 1059.86
Hirmi (Raipur, CTG) 2047.71 1695.44
Jafrabad (Amreli, GUJ) 464.48 384.57
Jharsuguda (Sambalpur, ORI) 1063.44 880.49
Magdalla (Surat, GUJ) 663.27 549.17
Pipavav (Amreli, GUJ) 4379.41 3626.01
Ratnagiri (Ratnagiri, MAH) 451.83 374.1
Tadpatri (Anantapur, AP) 2588 2142.78

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Madras Cements
Location Capacity/Unit Production Quantity/Unit
In 000's Tonnes
Alathiyur (Tiruchchirappalli, TN) 3995 2922.55
Jayanthipuram (Krishna, AP) 1917.6 1402.82
Mathodu (Chitradurga, KAR) 399.5 292.25
Ramasamyraja Nagar (Virudhunagar, 1677.9 1227.47
TN)

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ANALYSIS OF CEMENT INDUSTRY

ANNEXURE 1A
Company Name Sales (Rs. Crore) Market Share
2006 2007 2008 2006 2007 2008
A C C Ltd. 4548.92 3723.2 6457.4 9.11% 6.42% 8.90%
Ambuja Cement Eastern Ltd. 423.61 472.24 799 0.85% 0.81% 1.10%
[Merged]
Ambuja Cement Rajasthan Ltd. 302.48 284.67 310.91 0.61% 0.49% 0.43%
[Merged]
Ambuja Cements Ltd. 2306.7 3029.71 7032.4 4.62% 5.23% 9.69%
Andhra Cements Ltd. 152.84 193.1 137.95 0.31% 0.33% 0.19%
Anjani Portland Cement Ltd. 48.28 51.58 89.05 0.10% 0.09% 0.12%
Bagalkot Udyog Ltd. 27.87 21.84 4.98 0.06% 0.04% 0.01%
Barak Valley Cements Ltd. 49.03 52.77 69.89 0.10% 0.09% 0.10%
Bargarh Cement Ltd. [Merged] 192.78 182.84 196.76 0.39% 0.32% 0.27%
Binani Cement Ltd. 530.17 585.85 784.76 1.06% 1.01% 1.08%
Birla Corporation Ltd. 1399.44 1498.09 1863.47 2.80% 2.58% 2.57%
Cement Corpn. Of India Ltd. 122.52 133 179.57 0.25% 0.23% 0.25%
Cement Manufacturing Co. Ltd. 14.03 166.4 0.00% 0.02% 0.23%
Century Textiles & Inds. Ltd. 2850.82 3033.38 3584.81 5.71% 5.23% 4.94%
Chettinad Cement Corpn. Ltd. 542.39 626.22 888.27 1.09% 1.08% 1.22%
Chirawa Cements Ltd. 0.12 0.31 18.45 0.00% 0.00% 0.03%
Ckoramaandel Cements Ltd. 27.2 29.11 32.25 0.05% 0.05% 0.04%
Cochin Cements Ltd. 32.07 36.17 19.61 0.06% 0.06% 0.03%
D C M Shriram Consolidated Ltd. 1905.35 2476.32 2872.16 3.82% 4.27% 3.96%
Dalmia Cement (Bharat) Ltd. 520.99 652.46 1118.99 1.04% 1.13% 1.54%
Damodhar Cement & Slag Ltd. 99.71 125.46 143.76 0.20% 0.22% 0.20%
[Merged]
Deccan Cements Ltd. 175.35 202.22 262.03 0.35% 0.35% 0.36%
Dhar Cement Ltd. 23.21 32.61 23.67 0.05% 0.06% 0.03%
Dharani Cements Ltd. [Merged] 15.97 16.64 16.22 0.03% 0.03% 0.02%
Grasim Industries Ltd. 7194.96 7655.52 9613.34 14.41% 13.21% 13.25%
Gujarat Sidhee Cement Ltd. 200 314.6 438.36 0.40% 0.54% 0.60%
India Cements Ltd. 1385.4 1829.44 2610.75 2.78% 3.16% 3.60%
Indorama Cement Ltd. 122.55 140.61 126.47 0.25% 0.24% 0.17%
J K Cement Ltd. 423.44 1108.68 1529.67 0.85% 1.91% 2.11%
J K Lakshmi Cement Ltd. 594.65 701.51 973.29 1.19% 1.21% 1.34%
J K Synthetics Ltd. 573.07 6.03 5.67 1.15% 0.01% 0.01%
Jaiprakash Associates Ltd. 2990.59 3432.49 3801.16 5.99% 5.92% 5.24%
Jaiprakash Industries Ltd. [Merged] 1316.13 1708.69 1558.32 2.64% 2.95% 2.15%
K C P Ltd. 171.8 175.48 307.68 0.34% 0.30% 0.42%
Kakatiya Cement Sugar & Inds. Ltd. 161.99 139.42 154.68 0.32% 0.24% 0.21%
Kalyanpur Cements Ltd. 104.12 105.64 165.97 0.21% 0.18% 0.23%
Keerthi Industries Ltd. 49.69 50.18 82.08 0.10% 0.09% 0.11%
Kesoram Industries Ltd. 1729 1897.77 2538.66 3.46% 3.27% 3.50%

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ANALYSIS OF CEMENT INDUSTRY

Lanco Industries Ltd. 315.87 333.48 404.01 0.63% 0.58% 0.56%


Larsen & Toubro Ltd. 13399.02 15043.68 17999.5 26.84% 25.96% 24.80%
Madras Cements Ltd. 888.55 1193.36 1812.68 1.78% 2.06% 2.50%
Mahendra Cements Ltd. 7.98 5.91 4.1 0.02% 0.01% 0.01%
Mangalam Cement Ltd. 366.02 497.8 261.27 0.73% 0.86% 0.36%
My Home Inds. Ltd. 209.7 351.22 502.5 0.42% 0.61% 0.69%
Mysore Cements Ltd. 502.52 517.47 482.7 1.01% 0.89% 0.67%
N C L Industries Ltd. 92.24 139.15 195.73 0.18% 0.24% 0.27%
Narmada Cement Co. Ltd. [Merged] 188.91 205.06 277.66 0.38% 0.35% 0.38%
Necem Cements Ltd. 7.54 7.42 6.35 0.02% 0.01% 0.01%
O C L India Ltd. 573.26 701.66 930.28 1.15% 1.21% 1.28%
Orient Paper & Inds. Ltd. 881.67 1031.72 1290.08 1.77% 1.78% 1.78%
P R Cements Ltd. 7.13 3.17 4.58 0.01% 0.01% 0.01%
Panyam Cements & Mineral Inds. 45.3 13.66 121.92 0.09% 0.02% 0.17%
Ltd.
Prism Cement Ltd. 531.02 679.22 885.04 1.06% 1.17% 1.22%
Rain Industries Ltd. 296.37 380.65 564.41 0.59% 0.66% 0.78%
Sagar Cements Ltd. 112.04 153.77 247.14 0.22% 0.27% 0.34%
Sainik Finance & Inds. Ltd. 7.26 7.85 10.57 0.01% 0.01% 0.01%
Sanghi Industries Ltd. 428.33 636 859.53 0.86% 1.10% 1.18%
Saurashtra Cement Ltd. 224.13 279.49 449.83 0.45% 0.48% 0.62%
Shiva Cement Ltd. 19.85 18.23 27.18 0.04% 0.03% 0.04%
Shree Cement Ltd. 723.03 824.13 1613.14 1.45% 1.42% 2.22%
Shree Digvijay Cement Co. Ltd. 107.29 249.97 289.74 0.21% 0.43% 0.40%
Sri Vishnu Cement Ltd. 165.21 243.59 242.2 0.33% 0.42% 0.33%
Srichakra Cements Ltd. 64.25 30.09 59.78 0.13% 0.05% 0.08%
Suraj Products Ltd. 12.54 28.64 25.35 0.03% 0.05% 0.03%
Tamil Nadu Cements Corpn. Ltd. 166.88 201.32 218.82 0.33% 0.35% 0.30%
Tata Chemicals Ltd. 3097.91 3638.23 4107.08 6.21% 6.28% 5.66%
Travancore Cements Ltd. 27.89 24.02 19.3 0.06% 0.04% 0.03%
Ultratech Cement Ltd. 3062.52 3789.22 5485.63 6.13% 6.54% 7.56%
Visaka Cement Industry Ltd. 180.74 230.12 293.85 0.36% 0.40% 0.40%

Total 49923.54 57956.26 72578.27 100.00% 100.00% 100.00%

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ANALYSIS OF CEMENT INDUSTRY

ANNEXURE 1B
Company Name Si Square Top 5 firms
2006 2007 2008 2006 2007 2008
A C C Ltd. 0.008302 0.004127 0.007916 9.11% 6.42% 8.90%
Ambuja Cement Eastern Ltd. 7.20E-05 6.64E-05 0.000121
[Merged]
Ambuja Cement Rajasthan Ltd. 3.67E-05 2.41E-05 1.84E-05
[Merged]
Ambuja Cements Ltd. 0.002135 0.002733 0.009388 4.62% 5.23% 9.69%
Andhra Cements Ltd. 9.37E-06 1.11E-05 3.61E-06
Anjani Portland Cement Ltd. 9.35E-07 7.92E-07 1.51E-06
Bagalkot Udyog Ltd. 3.12E-07 1.42E-07 4.71E-09
Barak Valley Cements Ltd. 9.65E-07 8.29E-07 9.27E-07
Bargarh Cement Ltd. [Merged] 1.49E-05 9.95E-06 7.35E-06
Binani Cement Ltd. 0.000113 0.000102 0.000117
Birla Corporation Ltd. 0.000786 0.000668 0.000659
Cement Corpn. Of India Ltd. 6.02E-06 5.27E-06 6.12E-06
Cement Manufacturing Co. Ltd. 0 5.86E-08 5.26E-06
Century Textiles & Inds. Ltd. 0.003261 0.002739 0.00244
Chettinad Cement Corpn. Ltd. 0.000118 0.000117 0.00015
Chirawa Cements Ltd. 5.78E-12 2.86E-11 6.46E-08
Ckoramaandel Cements Ltd. 2.97E-07 2.52E-07 1.97E-07
Cochin Cements Ltd. 4.13E-07 3.89E-07 7.30E-08
D C M Shriram Consolidated Ltd. 0.001457 0.001826 0.001566
Dalmia Cement (Bharat) Ltd. 0.000109 0.000127 0.000238
Damodhar Cement & Slag Ltd. 3.99E-06 4.69E-06 3.92E-06
[Merged]
Deccan Cements Ltd. 1.23E-05 1.22E-05 1.30E-05
Dhar Cement Ltd. 2.16E-07 3.17E-07 1.06E-07
Dharani Cements Ltd. [Merged] 1.02E-07 8.24E-08 4.99E-08
Grasim Industries Ltd. 0.02077 0.017448 0.017544 14.41% 13.21% 13.25%
Gujarat Sidhee Cement Ltd. 1.60E-05 2.95E-05 3.65E-05
India Cements Ltd. 0.00077 0.000996 0.001294
Indorama Cement Ltd. 6.03E-06 5.89E-06 3.04E-06
J K Cement Ltd. 7.19E-05 0.000366 0.000444
J K Lakshmi Cement Ltd. 0.000142 0.000147 0.00018
J K Synthetics Ltd. 0.000132 1.08E-08 6.10E-09
Jaiprakash Associates Ltd. 0.003588 0.003508 0.002743
Jaiprakash Industries Ltd. [Merged] 0.000695 0.000869 0.000461
K C P Ltd. 1.18E-05 9.17E-06 1.80E-05
Kakatiya Cement Sugar & Inds. Ltd. 1.05E-05 5.79E-06 4.54E-06
Kalyanpur Cements Ltd. 4.35E-06 3.32E-06 5.23E-06
Keerthi Industries Ltd. 9.91E-07 7.50E-07 1.28E-06
Kesoram Industries Ltd. 0.001199 0.001072 0.001223

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ANALYSIS OF CEMENT INDUSTRY

Lanco Industries Ltd. 4.00E-05 3.31E-05 3.10E-05


Larsen & Toubro Ltd. 0.072034 0.067376 0.061505 26.84% 25.96% 24.80%
Madras Cements Ltd. 0.000317 0.000424 0.000624
Mahendra Cements Ltd. 2.56E-08 1.04E-08 3.19E-09
Mangalam Cement Ltd. 5.38E-05 7.38E-05 1.30E-05
My Home Inds. Ltd. 1.76E-05 3.67E-05 4.79E-05
Mysore Cements Ltd. 0.000101 7.97E-05 4.42E-05
N C L Industries Ltd. 3.41E-06 5.76E-06 7.27E-06
Narmada Cement Co. Ltd. [Merged] 1.43E-05 1.25E-05 1.46E-05
Necem Cements Ltd. 2.28E-08 1.64E-08 7.65E-09
O C L India Ltd. 0.000132 0.000147 0.000164
Orient Paper & Inds. Ltd. 0.000312 0.000317 0.000316
P R Cements Ltd. 2.04E-08 2.99E-09 3.98E-09
Panyam Cements & Mineral Inds. 8.23E-07 5.56E-08 2.82E-06
Ltd.
Prism Cement Ltd. 0.000113 0.000137 0.000149
Rain Industries Ltd. 3.52E-05 4.31E-05 6.05E-05
Sagar Cements Ltd. 5.04E-06 7.04E-06 1.16E-05
Sainik Finance & Inds. Ltd. 2.11E-08 1.83E-08 2.12E-08
Sanghi Industries Ltd. 7.36E-05 0.00012 0.00014
Saurashtra Cement Ltd. 2.02E-05 2.33E-05 3.84E-05
Shiva Cement Ltd. 1.58E-07 9.89E-08 1.40E-07
Shree Cement Ltd. 0.00021 0.000202 0.000494
Shree Digvijay Cement Co. Ltd. 4.62E-06 1.86E-05 1.59E-05
Sri Vishnu Cement Ltd. 1.10E-05 1.77E-05 1.11E-05
Srichakra Cements Ltd. 1.66E-06 2.70E-07 6.78E-07
Suraj Products Ltd. 6.31E-08 2.44E-07 1.22E-07
Tamil Nadu Cements Corpn. Ltd. 1.12E-05 1.21E-05 9.09E-06
Tata Chemicals Ltd. 0.003851 0.003941 0.003202
Travancore Cements Ltd. 3.12E-07 1.72E-07 7.07E-08
Ultratech Cement Ltd. 0.003763 0.004275 0.005713 6.13% 6.54% 7.56%
Visaka Cement Industry Ltd. 1.31E-05 1.58E-05 1.64E-05
Herfindahl Index Concentration Ratio
Total 0.113519 0.106606 0.101 0.473855 0.457042 0.456038

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Bibliography

www.economictimes.com

www.icra.in

www.businessworld.com

www.cso.com

www.indiabusiness.nic.in

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