Introduction

Cement is an important input for the construction industry for building houses, commercial complexes, and for infrastructure development. Cement industry accounts for the second largest share (the largest being cigarettes) of the total excise collection by the Government. India is the second largest producer and consumer of cement in the world, after China. In 2002-03, in India, the total capacity of large cement players (over 50 cement players) was at around 139 million tonnes. (Large cement units accounted for over 95 per cent of total cement capacity). The cement consumption was around 107 million tonnes. Around 95 per cent of the total cement production is consumed domestically and the balance is exported. The important end-use sectors for cement include the housing segment (accounts for around 52 per cent of total demand), infrastructure projects and industrial projects excluding roads(around 14%) repairs and maintenance segment(around 18%) and government demand(around 15%). And demand from roads (around 1%). cement demand break up

18%

15% 1%

52% 14%

Cement is a key infrastructure industry. It has been decontrolled from price and distribution on 1st March, 1989 and delicensed on 25th July, 1991. However, the performance of the industry and prices of cement are monitored regularly.

Cement sector has been a beneficiary of Governments increased focus on infrastructure and housing. Cement has been witnessing a strong growth in the last two years, due to a combination of the National Highway Development Project (NHDP) and the housing boom (driven by a low interest rate regime). The Governments infrastructure related initiatives (announced during the 2001-02 to 2003-04 period) will continue to boost cement demand.Over the next 5-6 years, the NHDP and the new project (road component alone) are expected to account for 4-5 million tonnes of cement demand every year. This could result in double-digit growth in the cement sector over the next five years. Capacity and Production The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum. The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. registering a growth rate of 8.84%. year 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 production(ton) 11,70,10,000 11,13,40,000 10,23,60,000 9,33,70,000 9,39,90,000 8,17,39,090 7,64,68,470 %change 5.1 8.8 9.6 (0.7) 15.0 6.9 9.7 Dispatches(ton) 11,67,40,000 11,10,70,000 10,23,80,000 9,33,00,000 9,38,40,000 8,14,06,430 7,64,26,526 %change 5.1 8.5 9.7 (0.6) 15.3 6.5 9.6 Actual cement production in 2002-03 was 111.35 million tonnes as against a production of 102.36 million tonnes in 2001-02,

Keeping in view the trend of growth of the industry in previous years, a production target of 126 million tonnes has been fixed for the year 2003-04. achieved a growth rate of 4.86 per cent during this period. During the period April-June 2003, a production (provisional) was 31.30 million tonnes. The industry has

Regionwise Cement Production - (ton)

Month Northern Region Eastern Region Southern Region Western Region Central Region Mar-04 23,65,310 Feb-04 22,29,690 Jan-04 22,11,880 Dec'03 20,76,340 17,71,580 16,00,350 15,05,840 13,72,400 35,72,540 29,87,750 29,57,040 30,22,700 18,51,220 19,67,200 20,61,840 21,00,540 17,23,000 15,41,760 14,87,800 14,85,660

Regionwise Cement Dispatches - (ton)

Month Northern Region Eastern Region Southern Region Western Region Central Region Mar-04 23,83,030 Feb-04 22,54,710 Jan-04 21,66,210 Dec'03 21,39,730 18,01,610 16,14,450 15,29,850 13,57,140 35,92,460 29,25,270 30,48,000 29,23,270 18,30,810 19,82,770 20,14,450 21,25,350 16,94,540 15,20,450 14,45,860 14,01,240

Source:CMA Buoyed by a strong surge in demand, especially in the northern and western regions on the eve of the elections, the cement sector is finally set for big-ticket growth, according to experts.

Exports Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02 and 2003-04 was 5.14 million tonnes and 6.92 million tonnes respectively. Export during April-May, 2003 was 1.35 million tonnes. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd.

Cement exports(mn tons) month Apr-Mar04 Apr-Mar03 %yoy

April May June July August September October November December January February March Total Source:CMA

0.30 0.27 0.26 0.27 0.25 0.25 0.26 0.36 0.30 0.24 0.30 0.30 3.36

0.30 0.33 0.24 0.20 0.21 0.28 0.26 0.21 0.36 0.37 0.35 0.36 3.47

(18.2) 8.3 35.0 19.0 (10.7) 71.4 (16.7) (35.1) (14.3) (16.7) (3.2)

Technological change Cement industry has made tremendous strides in technological up gradation and assimilation of latest technology. At present ninety three per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only seven per cent of the capacity is based on old wet and semi-sdry process technology.

There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. One project for co-generation of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil 4

Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Specifications. Production of these varieties of cement conform to the BIS

Demand and supply scenario

Demand for cement is a derived demand as it is directly related to the demand for construction. Demand for construction comprises of both Public Sector and Private Sector. Irrigation, Power, Defense, Railways, Public Works Department etc are the major sources in the Public Sector Demand. Construction of residential houses, office buildings, hospitals, institutions and industry etc are the major sources in the Private Sector Demand. Narrow supply-demand gap, and absence of fresh greenfield capacity, cement capacity utilization is expected to reach 95% in FY05. As far as supply is concerned, no major capacity additions are coming up in the next two years.

cement demand
160 140 120 100 80 60 40 20 0
FY 19 99 FY 20 00 FY 20 01 FY 20 F Y 02 20 03 F FY 20 04 F FY 20 05 F FY 20 06 F

mn tonnes

Series1

source:fortune India july 15 2003

cement demand growth

20 15 10 % 5 0 -5 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 Series1

source:fortune India july 15 2003

Demand Supply (Mn Tonnes) FY03 All-india capacity 132.0 FY04 135.6 7.4 128.2 113.8 117.4 3.6 92% 5.5% FY05P 140.7 7.4 133.3 122.6 126.4 3.8 95% 8.2%

less Capacities with low operating rates 7.4 Net Functional Capacities All-india consumption All-india production Domestic Surplus/(Deficit) Cement Capacity Utilisation All India consumption growth Source : CMA, UTI Sec. estimates 124.6 107.3 111.4 4.1 89% 8.7%

Monthly dispatches trend

Source: CMA

Demand drivers An increase in demand is expected and there may even be a shortage situation in the medium term. No new large capacity is expected to come up in the next 3 years. Any new project planned now would have a gestation period of at least 3 years. Housing sector, which contributes 55% of cement demand is set to grow at 50%p.a for the next 4 years. This sector has witnessed unparalleled growth during the last few years due to declining interest cost, steady real estate prices and fiscal incentives provided for tax purpose. In future this sector is expected to contribute to 70% of total cement demand. Demand growth led by the infrastructure spending will fuel demand by an additional 10mn tons in next 4 year. The Golden Quadilateral will consume 4mn tons and north, east , west, south (NEWS) corridor will consume around 6mn tons.

Demand estimation from infrastructure projects Golden quadrilateral Total road length(km) Concrete per km(mn tons) Cement per km of roads(tons) Total cement requirement(mn tons) Source:industry Industrial demand contributes 14%for the cement demand. With likely GDP growth of 6-6.5%the industrial sector is set to grow at 5-7%. This will augment demand for cement from industry side. 5846 7500 2625 4 NEWS corridor 7300 7500 2625 6

Thus on account of these growth drivers, the demand/supply is expected to grow at 8%-9% over the medium to long term. Also strong order book position will push up the demand for cement. The current order book position of the companies IVRCL, NCC, HCC is 2-3 times in FY04. IVRCL, NCC, HCC have shown a huge spurge in their order books positions over the last year. The order book position of IVRCL, at the end of FY04 is expected to be 14.9bn and is expected to be close to Rs 30bn by the end of FY05. The order book of HCC has increased from Rs.33.5 bn at the end of FY03 to 39.8bn on march 31 2004. similarly, NCC has an order position of 8

about Rs 15bn, against an expected turnover of about Rs 6bn in FY04P. while the order book position of Gammom construction is 4500 crores. The companies are constantly pitching for contracts and are expecting more orders by the end of the year. The April-June quarter witnesses the strongest demand for cement, and the pace gathers further momentum from mid-May. Cement Consumption regionwise Feb03 North 2.72 West 2.50 East 1.35 South 2.42 All India 8.99 Feb04 3.17 2.82 1.50 2.51 10.01 %yoy 16.4 13.2 11.5 3.8 11.4

Source: CMA

South India is the largest cement-consuming region with 27.4% share in consumption. The region also ranks no.1 in terms of installed capacity. Eastern regions consumption share ahs grown from 13% in FY01 TO 17.8% in FY03. the region has been witnessing surge in consumption since last few years. Western regions consumption grew by 7%yoy basis in the first quarter, however production grew by 13%. The state ranks 2nd in terms of installed capacity. North region witnessed a 2% yoy growth in production while consumption grew by 5% in the first quarter. Consumption trend in the region has been steady over the years.

Price scenario

Following the price increase, cement prices in Andhra Pradesh have risen to Rs 140-145 per bag, it is higher at around Rs 160 in Tamil Nadu and Kerala. In pockets of Mahrashtra, cement prices have increased to around Rs 140-145 per bag. Current national average prices are pegged at Rs 152 per bag, which is higher by 78% year-on-year. Cement prices have continued its up trend post the elections. Prices in the southern part of the country have moved up by 6% and in the western part of the country by 3% over the last one month. Analysts are confident that the cement sector is poised to be the primary beneficiary of a sustained upturn in the Indian economy. Industry analysts expect cement to catch up with other commodity sectors such as steel, which have been witnessing sharper growth in volumes. The sector should grow by 12-15% in April 04, against a modest 5.5% growth in despatches for the whole of the last fiscal, they say. .

Major cement companies

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ACC Andhra Cement Birla Corporation Cement Corporation Century Textiles Chettinad Cement Grasim Cement Gujarat Ambuja Cement India Cement Jaypee Cement Ltd J.K.Group Lafarge India Ltd Kesoram L&T Madras Cement Mangalam Cement Mehta Group Mysore Cement Orient Cement Shree Cement Tamil Nadu Cement Zuari Dalmia Cement Company OCL India Ltd

Major players and relative share

11

Company ACC Gujarat Ambuja Grasim Ind L&T India Cement Century Textiles Jaypee Birla Corp Lafarge Madras cement Zuari Chettinad cement Saurashtra cement Andhra cement OCL Others Total

capacity 16.1 12.5 14.1 17.0 8.8 4.7 4.6 4.8 5.0 5.5 3.4 1.8 2.1 1.7 3.9 34.1 140.0

% share in total 11.5 8.9 10.1 12.1 6.3 3.4 3.3 3.4 3.4 3.9 2.4 1.3 1.5 1.2 2.8 24.4 100.0

12

Location of major players

COMPANY WISE REGIONAL MARKET SHARE, %, H1FY03

Company North East Central West South All India Cu mul ativ e 13.00 23.90 34.70 43.70 49.50

ACC Grasim L&T GACL ICL

14.80 15.70 0.70 18.90 ---

14.60 7.20 13.70 7.80 0.10

16.10 9.60 2.60 2.50 ---

10.60 14.10 25.20 17.30 1.50

10.70 8.40 10.90 1.10 19.00

13.00 10.90 10.80 9.00 5.80

13

Analysis of major cement companies

ACC
Company Profile The genesis of the company dates back to 1936, when ten cement companies, belonging to four industrial houses - Tata, Khatau, Dinshaw and Killick Nixon were amalgamated to form one single entity - ACC. The company is the second largest cement companies with 15mn ton cement capacity. ACC operates out of the most dispersed manufacturing bases and has the largest distribution network in India - 13 cement factories, 11 regional marketing offices, 16 area offices, 9000 dealers and 160 warehouses. The Tatas, which had a long association with ACC, sold their 14.4 per cent stake to Gujarat Ambuja Cement Limited (GACL) in 1999-2000. Currently, GACL`s subsidiary Ambuja Cement India Limited is one of the largest shareholders in the company. The core markets of the company are West Bengal and Bihar in east, Tamil Nadu, Kerala and Karnataka in the south, Maharashtra in the west and Himachal Pradesh, Madhya Pradesh and Uttar Paradesh in the north. The company markets cement under the brand names - ACC Samrat, ACC Super and ACC Suraksha. It also markets different types of cements - Ordinary Portland, Fly ash cement, Slag cement to cater to the diverse needs of the users. ACC is steadily divesting its non-core assets. Of the total investments of Rs 1.8 bn, about 50 per cent is in the areas of tyres, float glass, casting, asbestos sheets etc, which are unrelated to its main businesses. During the last one year, it sold its interests in the float glass business, and shut down the loss making synthetic ferric oxide plant. Production and dispatches Production Dispatches 2003-04(ton) 1,53,94,230 1,53,94,230 2003-02(ton) 1,38,89,600 1,38,81,270 %change 10.8 10.9

ACC PRODUCTS ACC manufactures the following types of cement, in addition to which, it provides Bulk Cement and Ready Mix Concrete. Ordinary Portland Cements ACC Cement (OPC 43 Grade)* 14

ACC SAMRAT (53 Grade OPC)* Composite Cements ACC SURAKSHA (A Composite Cement)* ACC SUPER (Slag-based Blended Cement)* *National Brands Special Cements Sulphate Resisting Portland Cement (SRPC) Oil Well Cement (OWC) Low Alkali Cement Cement business statistics

Balance Sheet As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total Liabilities Equity Share Capital Reserves Total Debt

31-Mar-04 Rs cr 3782.16 2375.23 96.46 326.67 378.01 182.37 543.43 3902.17 Rs cr 177.40 1140.49 1417.26

31-Mar-03 Rs cr 3629.40 2368.18 86.92 127.76 345.39 182.09 363.40 3473.74 Rs cr 171.13 853.07 1496.20

15

Creditors and Acceptances Other current liab/prov. Balance Sheet Total

506.23 660.79 3902.17

404.89 548.45 3473.74

Profit and loss account

Value(Rs.crores)
Description ) Apr - Mar 04 %change Apr Mar03 3,378.79 15.08 -501.38 20.43 2,877.40 14.15 111.10 35.49 2,988.51 14.94 -2,584.90 12.23 403.61 32.29 -103.91 -10.59 299.70 47.15 -164.56 7.47 135.14 95.47 -14.29 275.23 0.00 120.85 72.31 -16.96 -52.83 103.89 92.74 171.14 3.97 905.60 29.84 170,929,944.00 3.67

Gross sales Excise duty Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Provision &contigencies Profit after Tax Extraordinary items Net Profit Equity Capital Reserves Nos. of Shares - Non Promoters Percentage of Shares Non Promoters

3,888.30 -603.83 3,284.47 150.53 3,435.00 -2,901.08 533.92 -92.91 441.01 -176.85 264.16 -53.62 -2.30 208.24 -8.00 200.24 177.94 1,175.79 177,195,530.00 100.00

100.00

0.00

Ratios As on Operating Profit Margin Net Profit Margin March 31,2004 13.75% 5.14% March 31,2003 11.94% 3.07 %

16

EPS Total Debt/Equity Book value per share Annual result highlight

11.68 1.006 74

6.08 1.46 60

Net sales increased by 14.15% from Rs 2,877.41cr in March 2003 to Rs. 3,284.47cr in March 2004 Net profit increased by 92.74% from Rs. 103.89cr in March 2003 to Rs. 200.240cr in March 2004 . Net profit margin increased by 67.42% from 3.07% in March 2003 to 5.14%in March 2004. Operating profit margin increased by 15.15% from 11.94%in March 2003 to 13.75% in March 2004. Other income has also increased by 35.49% from Rs.111.10cr in March 2003 to Rs. 150.53 cr in March 2004

Sale of cement including traded cement for the year 2003-04 increased by 9% to 15.25 million tonnes as compared to 13.95 million tonnes in the previous year. Total income for the year 2003-04 was higher at Rs.3435.00 crore as compared to Rs.2970.81 crore registering an increase of 16% over the corresponding previous period. Higher volumes, better realisation and improved operating efficiency resulted inhigher profit of 32% amounting to Rs.533.92 crore before interest, depreciation, exceptional items and tax for 2003-04 but including dividend income and gain on foreign exchange. The profit for the corresponding previous period was Rs.403.61 crore including non-recurring income. Interest cost (net) was lower by 10.6% as compared to previous year due to improved financial and working capital management. Depreciation was higher at Rs.176.85 crore as compared to Rs.164.56 crore in the previous year mainly on account of commissioning of Captive Power Plants at Tikaria, Madukkarai & augmentation of Tikaria grinding capacity in Q-4 of 2002-03 and other ongoing projects. The profits after tax for the year 2003-04 increased by 93% to Rs.200.24 crore as compared to Rs.103.89 crore for the previous year. Production of Cement for the year was higher at 14.65 million tonnes as compared to 13.42 million tonnes in the previous year, registering an increase of 9%. Sale of cement during the year including subsidiaries and other traded cement aggregated to 15.25 million tonnes as compared to 13.95 million tonnes in the previous year

17

The cement industry recorded growth rate of 5.5% for 2003-04 compared to 8.5% in the previous year. However, the Company has posted a higher growth as compared to the industry despite poor availability of wagons and trucks for transport of cement, clinker and coal in the second half of the year. The general economic outlook for the country is expected to be good in the current year. The cement industry is expected to see higher growth in the year due to increased emphasis on infrastructure development. With no new capacity addition in the pipeline, the demand - supply gap should narrow down and result in stable and remunerative cement prices. The Management shall continue to pursue improvement in capacity utilisation, operating efficiencies and cost competitiveness.

18

GUJARAT AMBUJA CEMENTS LIMITED(GACL) Company Profile Gujarat Ambuja Cements Ltd (GACL) is India`s third largest cement player in terms of capacity, with an installed capacity of 12.5 million tonnes. It has recently been on an acquisition spree, buying Modi Cements (now Ambuja Cement EasternACEL), DLF Cements (Ambuja Cement Rajasthan-ACRL) and taking a strategic 14.6% stake in ACC. ACC stake and ACEL Cements` unit have been vested with a separate company, Ambuja Cements India (ACIL). ACRL unit is with GACL. GACL holds 60% stake in ACIL while the balance 40% is held by FIIs. GACL holds 42% in ACRL while ACIL holds 11.3% in ACC and 93% in ACEL. Currently, the total capacity of Ambuja Group is 8.5mtpa shared by GACL (5.5mtpa), ACRL (1.5mpta) and ACEL (1.5mpta). GACL has increased its captive power capacity. It pioneered the use of sea route for bulk transportation of cement. GACL has improved its cash position by selling businesses like Hometrust Housing Finance and a 26% stake in GRUH Finance, and by placement of 40% of ACIL equity with FIIs. Cement business statistics

Production and dispatches Production Dispatches Balance Sheet As on Assets Gross Block Net Block Capital WIP 30-Jun-03 Rs cr 2951.78 1940.64 66.06 30-Jun-02 Rs cr 2849.82 2002.34 44.64 2003-04(ton) 1,22,70,000 1,26,00,000 2003-02(ton) 1,15,90,000 1,15,90,000 %change 6 6

19

Investments Inventory Receivables Other Current Assets Balance Sheet Total Liabilities Equity Share Capital Reserves Total Debt Creditors and Acceptances Other current liab/prov. Balance Sheet Total Quarter March
Description

1097.52 224.31 45.94 557.82 3932.29 Rs cr 155.30 1451.54 1751.28 135.89 438.28 3932.29

1101.11 208.37 39.01 448.81 3844.30 Rs cr 155.16 1457.87 1783.15 112.48 335.63 3844.30

01 Jan 2004 to - 31 Mar 2004)

652.02 -92.92 559.10 33.34 592.44 -376.83 215.61 -18.92 196.69 -41.16 155.53 -10.30 145.23 145.23 166.35 9.21

Value(Rs. Crores) %change 01 Jan 2003 to 31Mar 2003

546.75 -74.640 472.11 10.34 482.45 -337.66 144.79 -19.04 125.75 -43.19 82.56 -15.70 66.86 66.86 155.21 4.30
19.25 24.49 18.43 222.44

Gross Sales Excise Duty Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Net Profit Equity Capital EPS

22.80 11.60 48.91 -0.63 56.41 -4.70 88.38 -34.39 117.22 117.22 7.18 114.9

Ratio analysis 20

As on Operating profit margin% Net profit margin% EPS Book value per share

31-Mar-04 33.06 22.27

9.21 104.09

31-Mar-03 26.48 12.22

4.30

324.10

Annual result highlight

Net sales increased by 18.43% from Rs 472.10cr in March 2003 to Rs. 559.10cr in March 2004 Net profit increased by 117.00% from Rs. 66.86cr in March 2003 to Rs. 145.23 cr in March 2004 . Net profit margin increased by 82.24% from 12.22%in March 2003 to 22.27%in March 2004. Operating profit margin increased by 24.84% from 26.48%in March 2003 to 33.06% in March 2004. Other income has also increased by 222.44% from Rs. 10.34 cr in March 2003 to Rs. 33.34 cr in March 2004

Ambuja Cement dispatches registered a growth of 11% 13.24 million tonnes of cement during April-March04. Gujarat Ambuja Cements Ltd (GACL) along with Ambuja Cement Eastern Ltd and Ambuja Cement Rajasthan Ltd (Ambuja Group) has dispatched 13.24 million tonnes of cement during April-March04 against 11.88 million tonnes in the corresponding year in the same period, registering a growth of 11.4%. This is a remarkable growth considering the fact that the growth of the cement industry during the same period is likely to be about 5% as the total despatches are expected to be about 117 million tonnes for the fiscal year 2003-04. Clinker production by Ambuja Group for the year was 11.4 million tonnes against 10.5 million tonnes in the corresponding period, registering a growth of 9%. Dispatches for the month of March 04 were at 1.24 million tonnes as against 1.31 million tonnes for the corresponding period last year. The Production and Dispatches of Ambuja Group for the month of May 2004 are 1.23 and 1.23mn tones respectively as against 1.21 and 1.23mn tones in 2003. while production and dispatches for July-May04 are 12.27 and

21

12.26mn tones respectively as against 11.59 and 11.59mn tones in 2003.GACL is proposing to expand its marketing base, setting up a bulk cement sea terminal at Tuticorin in Tamilnadu. The project has been stalled till further notice from the courts.

22

Grasim
Company Profile Grasim Industries Ltd (GIL), the flagship of the Aditya Birla group (AV Birla group), was set up in 1947. The group is well diversified with major interests in viscose staple fibre (VSF), cement. Other businesses of the group includes textiles and sponge iron. Grasim is the third largest producer of grey cement in India (installed capacity of 11.33 million mtpa) and is also South Asia`s largest producer of white cement (installed capacity of 0.36 million mtpa). Grasim`s main interest is in L&T`s cement business as the later is the second largest cement producer (with a capacity of 16 mt) in the country after ACC. Grasim is poised to become the world's seventh largest cement producer, and the largest in a single location

Plant

Location

Rajashree Cement Malkhed and Hotgi grinding unit Vikram Cement Jawad and Bhatinda grinding unit Grasim Cement Raipur Aditya Cement Shambhupura Cement Division Reddipalayam South Total Shree Digvijay Sikka, Gujarat Cement Total (incl subsidiary)

Capacity (in million tonnes) 4.00 4.20 2.06 1.50 1.16 12.92 1.08 14.00

Capacities Division Grey cement Grasim Industries Shree Digvijay Cement Total Total White cement Capacity 12.92 million TPA 1.08 million TPA 14.00 million TPA 400,000 TPA

23

Cement business statistics

Production and dispatches Production Dispatches 2003-04(ton) 1,04,30,340 1,04,57,180 2003-02(ton) 68,21,340 47,80,570 %change 52.9 118.7

Balance Sheet As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total Liabilities Equity Share Capital Reserves Total Debt Creditors and

31-Mar-03 Rs cr 5479.85 3174.80 89.02 1398.11 539.95 429.65 969.09 6600.62 Rs cr 91.67 2879.37 2040.12 552.69

31-Mar-02 Rs cr 5268.37 3160.31 102.90 1415.26 548.89 497.85 556.52 6281.73 Rs cr 91.67 2615.21 1959.59 609.03

24

Acceptances Other current liab/prov. Balance Sheet Total 1036.77 6600.62 1006.23 6281.73

Prior Period Adjustments Provision for Tax After Tax Profit Equity Capital Reserves Profit and loss account
Description a) Apr - Mar 04

0.00 1280.00 2820.70 916.90 0.00

0.00 240.00 4.90 916.90 0.00

Value(Rs.crores)
u Apr Mar03 %change

Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Extraordinary items Net Profit Equity Capital Reserves EPS Nos. of Shares - Non Promoters Percentage of Shares Non Promoters

5,233.270 160.34 5,413.61 -3,938.30 1,475.31 -153.88 1,321.43 -273.06 1,048.37 -298.00 750.37 28.89 779.26 91.69 3,513.83 84.99 71,560,826.00 78.06

4,626.29 115.84 4,742.13 -3,600.46 1,141.67 -168.40 973.26 -254.14 719.12 -177.00 542.12 -174.54 367.58 91.69 2,879.35 40.09 72,954,440.00 79.58

13.12 38.42 14.16 9.38 29.22 -90.86 35.77 7.44 45.79 68.36 38.41 -116.55 112.00 0.00 22.04 112.00 -1.91 -1.91

Ratios
As on Operating profit margin(%) Net Profit Margin Book Value (Rs.) 31-Mar-03 28.20% 14.89% 393.23 31-Mar-02 24.68 % 7.94% 324.10

25

EPS

84.99

40.09

Annual result highlight Net sales increased by 13.12% from Rs 4626.29cr in March 2003 to Rs. 5233.27cr
in March 2004 Net profit increased by 112.00% from Rs. 3,67.58cr in March 2003 to Rs.7,79.26cr in March 2004 . Net profit margin increased by 87.53% from 7.94%in March 2003 to 14.89%in March 2004. Operating profit margin decreased by 14.26% from 24.68%in March 2003 to 28.20% in March 2004. Other income has also increased by 38.42% from Rs.1,15.84cr in March 2003 to Rs. 1,60.34cr in March 2004

Grasim Industries has made a proposal to L&T for the vertical de-merger of its cement business into a separate company, and making an open offer for the buying control over the new company at Rs 130 per share. Grasim has valued L&T`s cement business at Rs 130 per share and the remaining businesses at Rs 162.50 per share - thus valuing L&T at Rs 292.50 per share. Future Plans Grasim is planning to pick up Mangalam Cement. The company already owns the Kota plant, the only cement-making unit of Mangalam. However, talks are in initial stages and the move is yet to be finalised. The company is likely to be sold or it may hive off just the Kota unit. The decision will be based on the price and Grasim is yet to give its quotation.

26

Madras cement
Company profile Madras Cements (MCL), a flagship of the Ramco group, is a major player in south India and is one of the most efficient manufacturers of cement. It is a major player in the blended cement category and is very popular for its Ramco brands of cements like `Ramco super steel cement' and `Ramco super grade cement'. It also operates a ready mix concrete plant (RMC) near Chennai. Between 1980 and 1985, it undertook a modernisation programme and replaced its four cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill which ensured substantial reduction in energy and operation costs. In 1986, MCL implemented one more cement plant in Jayanthipuram, Andhra Pradesh.In 1990-91, the company expanded the capacity of its factory by 100000 tpa at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power generation by setting up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu, which was upgraded by adding eight wind turbines of 250 kW, thereby taking the generation capacity to 6 MW. In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The company, for the first time in India, commissioned a surface mine to modernise the mine operations at Ramasamyraja Nagar factory..During 1999-00, the company's slag grinding project at Jayanthipuram for manufacture of belnded cement was commissioned and also the capacity of the Alathiyur unit was expanded by 0.2 million TPA. The company's second unit at Alathiyur with a capacity of 15 lac tonnes at an estimated cost of Rs 300 crore was commissioned upto the clinkerisation in Jan.'01. The cement mill was commissioned in May '01. This unit has many world class features. The klin fitted with cross bar cooler is the first of its kind outside US. The vertical mill for cememnt grinding is the highest of its kind in Asia.The company took over the assets of Karnataka Minerals & Manufacturing Co, a mini cememnt plant situated at Mathod, Hosadurga Taluk, Chitradurga Dist. The second klin at R R Nagar was upgraded in May'01 with the installation of fixed inlet segment to the cooler, new calciner and modifying preheater cyclone, thereby increasing the capacity of the unit to 11 lac TPA of blended cement. Cement business statistics

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Production and dispatches Production Dispatches Balance Sheet As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total Liabilities Equity Share Capital Reserves Total Debt Creditors and Acceptances Other current liab/prov. Balance Sheet Total 2003-04(ton) 35,35,800 35,50,020 2003-02(ton) 34,33,050 34,24,160 %change 3.0 3.7

31-Mar-03 Rs cr 1445.53 980.80 3.64 56.72 69.95 56.51 108.51 1276.14 Rs cr 12.07 252.75 705.00 17.48 288.83 1276.14

31-Mar-02 Rs cr 1403.22 995.72 11.40 56.67 65.96 48.78 114.88 1293.43 Rs cr 12.07 250.03 736.09 26.28 268.94 1293.43

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Profit and loss account

Description e Apr -Mar 04

Value(Rs.crores)
% change Apr -Mar 03 626.14 4.22 630.360 -476.85 153.51 -66.17 87.34 -64.01 23.33 -10.37 12.96 12.96 12.08 257.42 107.00 695,784.00

Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Net Profit Equity Capital Reserves EPS Nos. of Shares Non Promoters Percentage of Shares - Non Promoters

694.60 5.21 699.81 -532.81 167.00 -49.60 117.40 -63.27 54.13 -20.73 33.40 33.40 12.08 280.58 28 695,784.00 58.00

10.93 23.46 11.02 11.74 8.79 -25.04 34.42 -1.16 132.02 99.90
157.72

157.72 0.00 9.00 -73.83 0.00 0.68

57.61

Ratios As on Operating profit margin(%) Net Profit Margin EPS Book Value (Rs.) 31-Mar-04 24.04% 4.8% 28 30.24 31-Mar-03 24.51% 2.06 % 107.00 2192.70

Annual result highlight Net sales increased by 10.93% from Rs 626.14cr in March 2003 to Rs. 694.60cr in
March 2004 Net profit increased by 157.72% from Rs. 12.96cr in March 2003 to Rs. 33.40cr in March 2004 .

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Net profit margin increased by 133% from 2.06 %in March 2003 to4.8%in March 2004. Operating profit margin decreased by 1.91% from 24.51%in March 2003 to 24.04% in March 2004. Other income has also increased by 23.46% from 4.22cr in March 2003 to 5.21cr in March 2004

India cements
Company profile The India Cements Ltd was established in 1946 and the first plant was setup at Sankarnagar in Tamilnadu in 1949 . Since then it has grown in stature to seven plants spread over Tamilnadu and Andhra Pradesh . The capacities as on March 2002 have increased multifold to 9 million tons per annum.The Company is the largest producer of cement in South India.Its plants are well spread with three in Tamilnadu and four in Andhra Pradesh which cater to all major markets in South India and Maharashtra.It is the market leader with a market share of 28% in the South. It aims to achieve a 35% market share in the near future. The Company has access to huge limestone resources and plans to expand capacity by debottlenecking and optimisation of existing plants as well as by acquisitions.The Company has a strong distribution network with over 10,000 stockists of whom 25% are dedicated.The has well established brands- Sankar Super Power, Coromandel Super Power and Raasi Super Power.Regional offices are in all southern states and Maharasthra offices/representative in every district. Cement business statistics

Production and dispatches Production 2003-04(ton) 63,60,140 2003-02(ton) 58,37,870 %change 8.9 30

Dispatches

62,22,960

57,98,080

7.3

India Cements Limited products

Ordinary Portland Cement (OPC-53, OPC-43, OPC-33) Portland Pozzolana cement (PPC) Sulphate Resistance Cement (SRC) Balance Sheet

As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total Liabilities Equity Share Capital Reserves Total Debt Creditors and Acceptances Other current liab/prov. Balance Sheet Total

31-Mar-03 Rs cr 1714.59 1133.74 210.83 31.52 128.75 124.68 1065.60 2695.14 Rs cr 138.58 237.95 1803.42 225.53 289.64 2695.14

31-Mar-02 Rs cr 1701.89 1202.12 223.49 33.25 194.23 238.63 988.65 2880.40 Rs cr 138.58 424.90 1818.09 174.83 323.97 2880.40

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Profit and loss account Description Gross Sales Excise duty Net Sales Other Income Total income Expenditure Operating Profit Interest Depreciation Profit before Tax Tax Proportionate profit/ (loss)of subsidiary companies Net Profit Equity Capital Reserves EPS Nos. of Shares - Non Promoters Percentage of Shares - Non Promoters April-mar04 1452.66 216.00 1236.66 4.28 1240.94 1123.11 117.83 161.85 81.84 (113.73) 16.80 0.36 (96.57) 138.59 17.78 (7.18) 77047114 55.21

Value (Rs.crores)

April-mar03 1205.63 175.35 1030.28 7.67 1037.95 991.48 46.47 285.47 81.76 (334.06) 114.06 0.31 (227.89) 138.59 55.27 (16.65) 76786114 55.03

% Change 20.49 23.18 20.03 -44.20 19.55 13.28 153.56 -43.30 0.10 -65.96 -85.27 16.13 -57.62 0.00 -56.88 0.34 0.32

Ratio analysis
As on Operating Profit Margin Net Profit Margin EPS Annual result highlight
Net sales increased by 20.03% from Rs 1030.28 cr in March 2003 to Rs.1236.66 cr in March 2004 Net profit increased by 57.62% from Rs. (227.89)cr in March 2003 to Rs. (96.57)cr in March 2004 . Net profit margin increased by 64.86% from (18.90)%in March 2003 to (6.64)% in March 2004.

Oct-dec03 8.11% (6.64)% (7.18)

Oct-dec02 3.85% (18.90)% (16.65)

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Operating profit margin increased by 111.64% from 3.85%in March 2003 to 8.11% in March 2004.

The India Cements Ltd. was able to prune down its pre tax losses due to partial recovery of cement prices during the earlier part of this year, coupled with all round cost cutting and the reduction in the interest costs consequent to the Corporate Debt Restructuring exercise. The pre tax loss for the 9 months ended 31st December 2003 was at Rs.85.27 crores (after considering an extra ordinary income of Rs.21.81 crores) against the loss of Rs.218.26 crores during the corresponding period of the previous year. This improved performance is despite the free fall in cement price from the month of July 2003 which reached its lowest level during the month of October 2003. The gross sales realisation per tn. of cement which was at Rs.2271/tn. in the first quarter came down to Rs.2022/tn. in the second quarter and steeply went down to Rs.1857/tn. during the month of October 2003. However, this free fall was arrested and the prices were resurrected to a reasonable level from mid November 2003 and the average sales realization for this quarter was at Rs.2097/tn. The company had to absorb the impact of the frequent increase in the diesel prices and also the enhancement in the Excise Duty by Rs.50/tn. which could not be passed on under the circumstances. However, the company continued its cost cutting measures through improvement of operating parameters and pruning of discretionary overheads which have contributed substantially towards the above performance. The sales and other income for the 9 months ended 31st December 2003 was at Rs.889.78 crores registering an increase of 14% over that of the corresponding period which was at Rs.781.96 crores. The profit before interest and depreciation was also significantly higher at Rs.84 crores (Rs.28.83 crores) and was even higher than the PBID for the whole year of Rs.45.71 crores. Interest charges were at Rs.118.27 crores (Rs.176.09 crores) and depreciation accounted for Rs.61.14 crores (Rs.61.24 crores). The amortization of deferred revenue expenditure was Rs.9.84 crores for the current period of 9 months (Rs.9.76 crores). In addition there was a charge of Rs.1.83 crores on account of VRS scheme on the profit & loss account as per AS 26 (Intangible assets) and considered as an extra ordinary expenses during the period under review. After considering an extra ordinary income of Rs.21.81 crores, the pre tax loss for the 9 months was lower at Rs.85.27 crores against Rs.218.26 crores in the corresponding period of the previous year. . Future Plans India Cements is planning to hive off its shipping division into a separate company in order to focus on cement. It has also proposed to merge Raasi Cements with itself once it has acquired the entire equity of the company. A possible sale of Raasi Ceramics and Telengana Paper Mills is in theoffing as they are loss-making ventures. Over the next couple of years, India Cements is to reduce its debt-equity ratio from the current 2:1 to 1:1. 33

ICL has appointed management consultants Coopers and Lybrand to suggest an appropriate swap ratio for the proposed merger of Raasi Cement with itself. The total cost of the acquisition is slated at Rs 3800 mn and will make ICL the second-largest cement company in the country. The company has brushed past speculations about ICL allowing a foreign major to pick up stake. However, ICL are keeping all options open in the case of acquired units like Sri Vishnu and Visaka cement. Sale of Sri Vishnu alone is expected to fetch about Rs 800 crore. India Cements Ltd (ICL) is planning to convert its wet process cement plant in Sankaridurg into a dry process plant. This is expected to increase plant capacity from 0.6 million tonnes per annum (MTPA) to 0.9 MTPA.

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Shree cement
Company Profile Incorporated in 1979, Calcutta based Shree Cements Limited (SCL) was promoted by the B.G.Bangur group.The company`s plant is located in Beawar, Rajasthan. The capacity has been increased from 0.7 MT to 2.6 MT, through an expansion plan undertaken during the two years ending March 1998. Shift to circa 2000, where it grows to around 3 million tonnes. Shree Cement continues to earn a major part on revenues through cement sales, while leasing & hire purchase account for a small amount. The company is considered one of the more power efficient units in the country with a power consumption of 79 units per tonne. The World Bank impressed with the company`s futuristic and environment-friendly programme involving the use of fuel, sanctioned a Rs 260 million loan at a concessional rate of interest. SCL has installed DG sets with aggregate capacity of 21.9 MW, which is nearly sufficient to meet its entire power requirement. The company has also pioneered the use of highsulphur coal in the cement industry, which has reduced costs. Shree Cement is commissioning a captive 36 MW thermal power project at a cost of Rs 120 crore at its 2.6 million tonne manufacturing facility in Rajasthan. It has placed an order with Thermax and the project is expected to be commissioned by December 2002. Shree Cement expects to save about Rs 30 crore a year from the installation of the plant and is hoping to recover its cost within four years. Shree Cement plans to set up a new unit in Rajasthan with a capacity of 2 million tonnes. The expansion will cost the company Rs 600 crore. The company will fund the project through internal accruals and a combination of debt and equity. The funding for the project has not been completed due to lack of environmental clearance. The funding plan has a very small portion of equity. Shree Cements Ltd has informed the National Stock Exchange that it has decided to change its accounting year to April-March and accordingly current accounting year will be for a period of nine months, that is, from July 1, 2001-March 31, 2002. Cement business statistics

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Production and dispatches Production Dispatches 2003-04(ton) 28,40,610 28,61,890 2003-02(ton) 24,19,290 27,27,150 %change 17.4 4.9

Products
Ordinary Portland Cement (OPC) Pozzolona Portland Cement (PPC).

Balance Sheet As on Assets Gross Block Net Block Capital WIP Investments Inventory Receivables Other Current Assets Balance Sheet Total 31-Mar-03 Rs cr 749.04 438.87 103.42 0.05 62.19 32.74 77.85 715.14 31-Mar-02 Rs cr 700.31 450.38 32.56 0.45 41.03 30.03 103.53 658.00

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Liabilities Equity Share Capital Reserves Total Debt Creditors and Acceptances Other current liab/prov. Balance Sheet Total Profit and loss account
:
Description )a)) Apr - Mar 04

Rs cr 34.83 187.56 359.71 31.65 101.38 715.14

Rs cr 34.83 165.76 309.87 37.54 109.97 658.00

value(Rs.crores)
ue Apr -Mar 04 % change

Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Extraordinary items Net Profit Equity Capital Reserves EPS Nos. of Shares Non Promoters Percentage of Shares - Non Promoters

473.22 2.85 476.08 -342.24 133.84 -38.68 95.15 -45.70 49.45 -8.67 40.77 -27.73 13.03 34.83 216.54 3.74 12,064,366.00 34.63

484.26 4.60 488.86 -382.26 106.59 -33.87 72.72 -32.50 40.22 -5.61 34.60 -27.90 6.70 34.83 187.56 3.29 12,364,562.00 35.49

-2.28 -38.05 -2.61 -10.47 25.56 14.22 30.84 40.61 22.95 54.55 17.82 -0.61 94.58 0.00 15.45 13.68 -2.43 -2.42

Ratio analysis
As on Operating profit margin Net profit margin EPS Mar 2003-04 18.30% 5.94% 2.91 Mar 2003-02 22.05% 6.72% 3.74 37

Book value(Rs)

72.17

57.58

Annual result highlight Net sales decreased by 2.28% from Rs 4,84.26cr in March 2003 to Rs. 4,73.22cr in
March 2004 Net profit increased by 94.58% from Rs. 6.70cr in March 2003 to Rs. 13.03cr in March 2004 this is mainly because expenditure has decreased by 10.47%. Net profit margin increased by 13.13% from 5.94%in March 2003 to 6.72% in March 2004. Operating profit margin increased by 20.49% from 18.30%in March 2003 to 22.05%in March 2004.

One of the key strengths of Shrees cost restructuring is reflected in its energy management track record. Energy costs have declined over a 5-year period. As a percentage of turnover, power and fuel costs have declined from 28.64 per cent in 1999-2000 to 20.50 per cent in 2002-03 On the cost reduction front, better control on administrative operations and the practice of lean operations here helped control costs. Administration expenses fell from 3.03 per cent to 2.16 per cent in 2002-03. Another major cost head is freight and marketing costs that fell from 21.46 per cent of sales in 2001-02 to 20.64 per cent in 2002-03. The fall was largely on account of lower freight costs. Even though freight costs fell, the marketing efficiencies rose this clearly reflects superior distribution and selling strategies. In a capital-intensive industry like cement, loans and consequently, interest costs hold the key. The company has been continuously focused on lowering its interest costs and improving its debt service efficiencies. Consequently, interest costs reduced from 8.23 per cent in 2001-02 of turnover to 5.82 per cent in 2002-03. .

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Company wise comparison

Dispatches of key players (mn ton)

Apr-Mar 04 ACC GACL L&T Birla Corp Shree Cement Madras Cement India Cement Total
Source: CMA

Apr-Mar 03 15.41 13.24 12.18 4.78 2.86 3.55 6.23 58.24 13.88 11.88 12.09 4.57 2.73 3.42 5.80 54.36

yoy(%) 10.9 11.5 0.8 4.8 5.2 3.8 7.4 7.1

Ratio analysis As on march 2004 ACC Share Capital(crores) Reserves Operating profit margin Net operating margin EPS Book value(Rs) PE Ratio Price/Book Value Dividend(%) Free Float Capital Debt/equity ratio As on march 2003 As on march 2002 177.94 1157.79 13.75% 5.14% 11.68 74 19.61 3.09 40 100.00 GACL(janmar04) 166.35 1565.18 33.06% 22.27% 16.42 104.09 15.65 2.55 74.45 Grasim 91.69 3513.83 28.20% 14.89% 84.99 393.23 10.82 2.34 140 78.06 Madras 12.08 280.58 24.04% 4.8% 28 30.24 22.67 20.99 50 58.00 ICL 138.59 Shree 34.837

17.78 216.545 8.11% 22.05% (6.64)% (7.18) 30.21 0.89 55.21

6.72%

3.74 72.17 39.57 2.05 30 34.63

1.56 1.68

1.10 1.11

0.69 0.72

2.66 2.81

3.23 4.79

1.03 0.92

Looking at the ratios we can say that Grasim has the highest EPS which indicates the earnings attributable to a share. This shows that the company has good

39

prospects. The higher the EPS the better it is for the company and the investors. Looking at the PE ratio we can say that shree cements has the highest value which indicates it is a growth company but it also indicates the risk characteristics of a company.ACC, GACL, Grasim have moderate PE ratio which is good and there are less riskier as far as investment in these companies is considered. As far as net operating margin is considered GACL has reported highest growth 22.27% followed by Grasim 14.89% while India cements is still recovering from losses. Looking at the debt equity ratio we can say that the companies are aggressively reducing their debt which is a positive sign for the growth of the companies

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Future outlook
The consumption of cement is determined by factors influencing the level of housing and industrial Construction, irrigation projects, and roads and lying of water supply and drainage pipes etc. These factors in turn are determined by the level and growth of GDP and its sectorial composition, capital formation, development expenditure, growth in population, level of urbanization etc. But the domestic demand for cement is mainly from the building activities and infrastructure development. The government paved the way for entry of private sector in road projects. It has amended the National Highway act to allow private toll collection and identified projects, bridges, expressways and big passes for private construction. The budget gave substantial incentives to private sector construction companies. Ongoing liberalization will lead to increase in industrial activities and infrastructural development. Also, tax benefits for housing sector is a major positive for the industry. In the light of these factors, it is hoped that Indian cement industry shall witness reasonable growth in near future. Demand for cement is expected to peak, as economic growth is taking place. Also the yoy increase in cement prices in FY05, the earnings are expected to remain high in FY05. As per the estimates, the combined earnings of ACC, Gujarat Ambuja and Grasim are expected to grow by 33% in FY05. As a result, valuations will continue to remain firm.

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Bibliography
Fortune India July 15,2003 www.indiainfoline.com www.karvy.com www.acclimited.com www.ciionline.com www.bseindia.com www.hdfcsec.com www.grasim.com www.gujaratambuja.com www.indiacementsltd.co.in www.shreecementltd.com www.capitalmarket.com www.moneypore.com

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