Group 7, Section C

Cement Industry

Industry Rating: As the industry is set for a growth trajectory on the back of recovery in real estate
demand, government infrastructure spending, commercial construction, industrial investment and overall
GDP growth, a positive rating is suggested for the industry.

Past Performance: The Indian cement industry has witnessed a phenomenal capacity addition to the
tune of about 80 mn tonnes in the last three financial years. As a result, industry’s capacity utilization
rate which showed a rising trend up to FY07 has dropped to a level of 83% in FY09. In last five years
Indian Cement Industry has shown a tremendous growth rate of about 9% (compounded).

Medium Term Outlook: Due to regional excess capacity, higher competition increased input prices of
coal, fuel and freight, utilization, realizations and margin will be lower in medium term for cement
industry players. However, the industry is likely to maintain its growth momentum and continue
growing at around 8% to 9% in the medium to long term.

Long-Term Outlook: The expected growth rate of GDP of around 8-9% in the next decade should
ensure that cement industry demand continues to grow at around 1.2 times that. Long-term profitability
of cement industries will depend on shift from imported coal to pet coke, higher capacity utilizations,
higher operational efficiencies, pan-India presence of major players and higher per capita cement
consumption (currently one of the lowest in the world).

Key-Risk
• Regional distribution of capacity misaligned with regional demand
• Key input risks of imported coal prices, freight rates and government levies
• Lack of sustained growth of real estate, infrastructure and government spending

Recent Developments and Trends: The overall capacity utilisation levels are expected to decline to
around 75% in 2010-11 from around 95% in 2007-08. 42% of new announced capacity is in south
region, while cement demand growth has been highest in the eastern region, thus creating regional
imbalances.

Main Locations in India for the Industry: In north, Rajasthan & Haryana are major demand areas,
where CAGR was 10.7% and 14% compared to national average of 9.3%. Commonwealth games and
Delhi Metro have been the main demand driver projects. In east region, WB, Bihar and Orissa are the
largest cement consuming States and accounted for 76% of the total regional consumption in 2008-09.
Maharashtra in the west and AP & TN in the south are major consumers of cement.

Top five and bottom five companies (On Basis of: High Sales + High Net Profit Margin)
Ambuja ACC Ultratech Shree India Andhra Barak Gujarat Saurashtra Kalyanpur
Cements Ltd. Cements Cements Cements Cements Valley Sidhee Cements Cements
TOL/TNW 0.295 0.62 0.94 1.832 0.961 2.707 0.542 3.312 19.187 -2.197
Borrowings/
Assets
0.025 0.086 0.373 0.553 0.354 0 0.052 0.158 0.13 0
CR 0.506 0.362 0.084 0.706 0.074 0.13 0.38 0.05 0.1 0.09
Avg. Interest
Rates(%)
13.54 18.46 5.86 5.16 5.64 2.05 9.91 2.38 17.49 0.97
Financial
Charges(Cr)
0.04 0 6.29 2.73 7.52 0 0.04 0 0 0.32

Focus for the bank: Bank should focus on companies having lower financial risk, pan India presence
and are among the top 5 in the industry and should keep a close watch on the coal prices and the
performance of infrastructure industry and real estate.

Abhinay | Aravind | Axat | Bhuvan | Biswadip | Gaurabh | Hariharan | Rohit