Cement industry

Second largest Cementmarket

Dominated by privateplayers

Higher share of largeplants

Large concentration inSouth and West

• With nearly 300 million tonne of cement production capacity, India is the second largestcement producer in the world

• Of the total capacity, 98 per cent lies with the private sector and the rest with public sector

• 185 large cement plants together account for 97 per cent of the total installed capacity,while 365 small plants account for the rest

• Of the total 185 large cement plants in India, 77 are located in the states of AndhraPradesh, Rajasthan and Tamil Nadu

Source: Planning Commission, Aranca Research

FY12•

Productioncapacity:

247 milliontonnes •

Growing demandRobust demandRobust infrastructure growth •

during 12th Five Year Plan to drivegrowth

•Demand is expected to be

boosted by growth in real estatesector

AdvantageIndia

Increasing investments

Long-term potential FY20E

Oligopoly market, where largeplayers have partial pricing control Production

capacity:Low threat from substitutes 407 million

tonnes

Attractive opportunities• Robust investments are being

made by the existing players toexpand their capacity

• Increasing presence of Tier IIcement players

• Use of alternate fuels to lowerproduction costs and emissions

• The engineering sector is delicensed;• The North-East, which is witnessing

a construction boom, offersattractive investment opportunities

• Due to policy support, there was• Large planned investments inn into

infrastructure and housing is likelytoboost demand for cement in thetalcoming years as wellthat period

Source: EdelweissNotes: FY20E - Estimated market size for 2020

Cement Industry(FY13)

Large Cement Plants

• Cement plants: 185

• Installed capacity: 339.5 mtpa

• Cement production: 168.3 mtpa*

Mini And White Cement Plants

• Cement plants: 365

• Installed capacity: 11.1 mtpa

• Cement production: 6.0 mtpa*

Source: Cement Manufacturers’ Association (CMA),Planning Commission, Aranca ResearchNote: mtpa - Million Tonnes Per Annum, * FY12 data

India is the 2nd largest cement producer as well as consumer in the world led by the enormous growth in the infrastructureand construction sector for the last two decades

Top Cement Consumers in 2011 (million Top Cement Producer in 2011 (milliontonnes) tonnes)

2,0482,058

22972 65 58 56 56 50 49 48 222 66 66 64 63 56 56 52 49

Source: International Cement Review, Aranca Research

Cement production increased at a CAGR of 9.7 per cent to272 million tonnes over FY06-13

As per the 12th Five Year Plan, production is expected toreach 407 million tonnes by FY17

Production of Cement (million tonnes)

407368

CAGR:10.0% 332

2

72

300

229247

207182

142 156 168

Source: Department of Industrial Policy and Promotion,Working group for 12th Five Year Plan, Aranca Research

Notes: E - Estimate, CAGR - Compound Annual Growth Rate

Domestic cement consumption is expected to reach 265million tonnes in FY13 from 222 million tonnes in FY11

The consumption is further expected to increase at a CAGRof10.2 per cent during FY11-17 and reach 398 milliontonnes

Domestic Cement Consumption (million tonnes)

398CAGR:10.2%

324 359

265 293222 242

FY11 FY12 FY13E FY14E FY15E FY16E FY17E

Source: Working group for 12th Five Year Plan, Aranca ResearchNotes: E - Estimate, CAGR - Compound Annual Growth Rate

Cement production capacity reached 350 million tonnes inFY13 from 323 million tonnes in FY11

Production capacity is expected to increase at a CAGR of6.8 per cent during FY11-17 and reach 479 million tonnes

Cement Production Capacity (million tonnes)

479

441

CAGR:6.8% 405

373

350336

323

FY11 FY12 FY13E FY14E FY15E FY16E FY17E


Cement capacity utilisation rate is expected to touch around78 per cent in FY13 from 71 per cent in FY11

The utilisation rate is expected to further reach 85 per centby FY17

500

450

400

350

300

250

200

150

Cement capacity (million tonnes) and utilisationrate (%)

90%

85%

80%

75%

70%

65%

60%FY11 FY12 FY13E FY14E FY15E FY16E FY17E

Capacity -LHS Production-LHS Utilisation rate (%)


Currently, India has 185 large cement plants spread acrossall states

Andhra Pradesh is the leading state with 37 large cementplants, followed by Rajasthan and Tamil Nadu having 21 3

and 19 plants, respectively3

21

12

10

11

2

2

5

3

1

11

11

105

37

19

1

48

1

5

Source: Working group for 12th Five Year Plan, Aranca Research

CementIndustry

Installed capacity (2011)

South 126.9 mtpa

North 66.4 mtpa

East 43.5 mtpa

West 44.1 mtpa

Central 37.3 mtpa

Key markets

Tamil Nadu, AndhraPradesh and Karnataka

Rajasthan, Punjab,Haryana and the NCR

West Bengal,Chhattisgarh, Orissa and

Jharkhand

West Bengal,Chhattisgarh, Orissa and

Jharkhand

Uttar Pradesh, MadhyaPradesh

Source: Department of Industrial Policy and Promotion, Aranca ResearchNote: mtpa - Million Tonnes Per Annum

Rajasthan has the highest installed capacity in North India, accounting for a 66.5 per cent share in capacity in the region in2011

Chhattisgarh leads the Eastern region with a share of 32.6 per cent of total installed capacity in the region in 2011

Shares in Total Capacity in NorthernRegion (2011)

0.8% 0.8%

4.5% Rajasthan6.0%

Shares in Total Capacity in Eastern Region(2011)

0.5%2.3%

7.5% Assam

Meghalaya

7.2%

14.2%

66.5%

Himachal Pradesh 32.6%

19.5%Punjab

Uttarakhand

Haryana

Jammu & Kashmir 16.8% 20.8%

Delhi

Bihar

Jharkhand

Orissa

West Bengal

Chhattisgard


Andhra Pradesh has the highest installed capacity in South India (53.5 per cent share of total installed capacity)

Madhya Pradesh leads the Central region in installed capacity, while Gujarat leads the West

Shares in total capacityin Southern region (2011)

0.5%

18.0%

53.5%

28.0%

Andhra Pradesh Tamil Nadu

Karnataka Kerala

Shares in total capacityin Central region (2011)

34.4%

65.6%

Uttar Pradesh Madhya Pradesh

Shares in total capacityin Western region (2011)

45.0%

55.0%

Gujarat Maharashtra


Total demand for cement is expected to grow at a CAGR of 10.2 per cent to 265.9 million tonnes during FY08-13

Cement demand from the Eastern and Central regions during FY08-13 is expected to grow at a CAGR of 13.5 per centand 12.1 per cent, respectively.

All India (million tonnes)

265.9

CAGR: 10.2% 236.3

210.2

196.4

177.5163.4

FY08 FY09 FY10 FY11F FY12F FY13F

Central (million tonnes)

42.0

38.2

CAGR: 12.1%

34.3

30.8

26.2

23.8


East (million tonnes)

46.6

41.7CAGR: 13.5%

37.3

33.0

28.0

24.7



Cement demand from Western, Northern and Southern regions is expected to grow at a CAGR of 8.8, 8.7 and 5.6 percent, respectively, during FY08-13

South (million tonnes)

63.9

62.1CAGR: 5.6%

56.4

North (million tonnes)

48.6

CAGR: 8.7%

40.8

West (million tonnes)

51.049.8

CAGR: 8.8% 45.4

41.4

53.8

48.6

FY08 FY09

55.5

FY10 FY11F FY12F FY13F

38.3

35.1

33.6


38.8

34.532.7



UltraTech Cement, a major player in India, accounted for 15.0 per cent of the total market share in terms of installedcapacity in 2011

It is a leading player in the Southern and Eastern regions, accounting for 50.6 and 52.1 per cent of total market share,respectively, in terms of installed capacity in 2011

All India

10.0%

7.5%

15.0%

66.1% 1.4%

Ambuja Cement ACC

Ultratech Cement Jaypee Cement

Others

South

10.2%

5.9%

9.9%

50.6%

8.3%

7.1%

8.0%

India Cement Madras CementUltratech Cement Chettinad Cement

Dalmia Cement ACCOthers

East

14.2%

6.2%

52.1% 12.1%

9.8%

5.5%

Lafarge India ACCUltratech OCL India Ltd

Ambuja Cement Others


Jaypee Cement led the Central region in terms of installed capacity, with 33.5 per cent of the market share; the Westernregion was dominated by UltraTech cement with 29.0 per cent of market share in 2011

Ambuja Cements accounted for 28.9 per cent of the total market share in terms of installed capacity in the Northern regionin 2011

North

2.5%5.5%

7.3%28.9%

11.1%

13.8%16.6%

14.2%

Ambuja Cement Shree CementOthers Ultratech Cement

J K Cement ACCJaypee Cement Birla Cement

Central

33.5%

42.1%

12.3%12.1%

Jaypee Cement Ultratech Cement

ACC Others

West

29.0%

47.6%

10.9%

12.5%

Ultratech Cement Jaypee Cement

Ambuja Cement Others


• Presence of small and mid-size cement players across regions is increasing, which helpsIncreasing presence of

small and mid-sizecement players

Cost reduction throughthe use of alternate

fuels **

Increasing sale ofblended cement

to diminish market concentration of industry leaders

• Small and mid-size players have been constantly increasing their installed capacity tocater to increasing cement demand

• Major cement manufacturers in India are increasingly using alternate fuels, especiallybioenergy, to fire their kilns

• This is not only helping to reduce production costs of cement companies, but is alsoproving effective in reducing emissions

• The proportionate sales of blended varieties of cement—Portland Pozzolana Cement(PPC) and Portland Blast Furnace Slag Cement (PBFC)—has risen over the years

• During 2011, blended cement accounted for 75 per cent of total cement production in thecountry

Notes: ** The Success Stories section includes cases of successful employmentof alternate fuels in cement production to reduce production costs

• Holcim, a Switzerland-based major cement company has plans for capacity expansion inIndia through its subsidiary ACC cement

ACC

Ambuja Cements

Dalmia Cement

• The construction of the company’s new plant at Jamul, Chhattisgarh is under process.This plant will increase ACC’s capacity to 35 million tonnes per annum (mtpa) from 30

mtpa in a phased manner by 2015

• Ambuja Cements is targeting an investment of USD370.4 million for capacity expansion inRajasthan and Northern India

• The proposed project in Rajasthan is expected to add 5 million tonnes (MT) to AmbujaCements’ existing production capacity

• Dalmia Cement is planning an investment of USD333.3 million to ramp up itsmanufacturing capacity to 21 mtpa from the existing 17 mtpa over the next two years.• Dalmia has plans to set up a 2.5 million tonne (MT) greenfield unit at Belgaum in

Karnataka. It also plans to scale up its two plants in North-East India for a total value ofUSD239 million and USD9.2 million, respectively

Source: Aranca Research

• Heidelberg Cement, a Germany-based cement manufacturer has commissioned Phase-Iof its Jhansi grinding unit

Heidelberg Cement

Vicat Group

Amrit Cement

• The company has undertaken an investment worth USD 259.4 million for expanding itscapacity to 2.7 million tonnes (MT)

• Heidelberg aims to ramp up the operational capacity to 6 MT at its Damoh plant in MadhyaPradesh

• Vicat Group, a France-based company plans to sell 4.5 MT of cement in India in FY 2013• The company has recently commissioned a joint venture cement plant Vicat Sagar

Cement at Chattrasal, Karnataka, for a total value of USD333.3 million• Vicat Sagar will have a 2.8 MT of capacity in the first phase

• Amrit Cement India Ltd (ACIL) has announced the launch of Amrit Cement in the North-Eastern market.

• The company plans to achieve a production level of 5 million tonnes per annum by 2015-16 through capacity expansion in North-Eastern Bihar and Nepal


• High - Huge capital investments requiredpresent substantial barriers to entry andachieving economies of scale

• Low - The Indian cement marketis oligopolistic in nature,characterised by tacit collusion,where large players partiallycontrol supply for better pricediscipline

• Low - Cement, practically,has no substitutes

Positive

Positive Neutral

Market

Attractiveness

Positive Positive

• Moderate - Cement players haveto depend on the railways forcarriage outward and local coalcompanies for fuel, althoughdiversification of freight optionsand fuel sources is diminishingthe suppliers’ power

• Low - Substantial market

concentration among largeplayers ensures low bargainingpower of buyers

Source : Aranca Research

Housing Growth

• The Housing segment accounts fora major portion of the total domestic

demand for cement in India

• Real estate market is expected togrow at a CAGR of 17.2 per centover 2011-15 to USD126 billion

• Growing urbanisation, an increasing

number of households and higheremployment are primarily driving thedemand for housing

• Initiatives by the government areexpected to provide an impetus to

construction activity in rural andsemi-urban areas through largeinfrastructure and housingdevelopment projects respectively

Infrastructure Growth

• The government is strongly focusedon infrastructure development to

boost economic growth

• It plans to increase investment ininfrastructure to USD1 trillion in the12th Five Year Plan (2012-17),compared with USD514 billionunder the11th Five Year Plan(2007-12)

• Infrastructure projects such asDedicated Freight Corridors as wellas new and upgraded airports andports are expected to further driveconstruction activity

• The government intends to expandthe capacity of the railways and thefacilities for handling and storage to

ease the transportation of cementand reduce transportation costs

Commercial Real EstateGrowth

• The government is strongly focusedon infrastructure development to

boost economic growth

• It plans to increase investment ininfrastructure to USD1 trillion in the12th Five Year Plan (2012-17),compared with USD514 billionunder the11th Five Year Plan(2007-12)

• Infrastructure projects such asDedicated Freight Corridors as wellas new and upgraded airports andports are expected to further driveconstruction activity

• The government intends to expandthe capacity of the railways and thefacilities for handling and storage to

ease the transportation of cementand reduce transportation costs

Source : McKinsey Quarterly Report, Aranca Research

Demand for cement is highly correlated with cyclicalactivities like construction and development

Housing sector accounts for 64 per cent of the total cementdemand

Real estate market is expected to grow at a CAGR of 17.2per cent during 2011-15 to USD126 billion

The rapidly increasing real estate industry in India isexpected to push the demand for cement

Residential real estate demand is driven by risingpopulation and growing urbanisation

Rising income levels are leading to higher demandfor luxury projects

Demand for affordable housing is growing in order tomeet the demand from lower income groups

Commercial real estate demand will be driven by growth inIT/ITeS sector and organised retail

Major cement demand drivers (FY12)

6%

Housing sector

13% Infrastructure

17%64% Commercial &Institutional

Industrial


Investment in infrastructure is the main growth driver for the cement industryThe Planning Commission estimates total infrastructure spending to be about of 10 per cent of the GDP during the 12th

Five-Year Plan (2012-17), up from 7.6 per cent during the previous five-year plan (2007-12)India’s investment in infrastructure is estimated to double to about USD1 trillion during the 12th plan (2012-17) comparedto the previous plan

Infrastructure Spending As % Of GDP

12th Five year plan

11th Five year plan 7.6%

FY12 8.4%

FY11 7.9%

Infrastructure Spending in % during 11th

And 12th Five-year Plan

12th Plan 264.410.0%233.5

206.0

181.2157.4

11th Plan

101.6 101.9FY10

FY09

FY08

10th Five year plan

75.7 89.57.5% 69.4

7.2%

6.4%

5.2%

Source: Working group for 12th Five Year PlanNotes: Additional capacity creation estimates are based on increase in base lines, roads, housing and fiscal support

North

88%82% 84%

FY11F FY12F FY13F

West

79% 77% 80%

FY11F FY12F FY13F

South

73%67% 68%

FY11F FY12F FY13F

Central

90% 87%

85%

FY11F FY12F FY13F

East

91%87%

81%

FY11F FY12F FY13F

All India

82%78% 77%

FY11F FY12F FY13F

Source: CMA, Kotak Institutional Equities, Aranca ResearchNote: F- Forecast

Total capacity of 336 million tonnes is estimated to havebeen generated in FY12

The strong momentum in capacity addition is not surprisinggiven the sharp growth in construction, infrastructure andreal estate in Indian economy

Hence, the 12th Five Year Plan is estimated to have anadditional capacity requirement of 156.0 million tonnes byFY17

Capacity creation as per the 12th Five Year Plan(million tonnes)

38.7

35.531.9

23.6

12.813.5

FY12 FY13E FY14E FY15E FY16E FY17E

Source: Working group for 12th Five Year PlanNotes: Additional capacity creation estimates are based onincrease in base lines, roads, housing and fiscal support,E - Estimates

Company/Plant

Madras Cement'sAlathiyur plant

India Cements Ltd'sDalavoi plant

UltraTech's GujaratCement Works

Lafarge's Arasmetaplant

Strategy

Use bioenergy throughburning of coffee huskand cashew nut shells

Use Low Sulphur HeavyStock (LSHS) sludge as

alternate fuel

Use tyre chips andrubber dust as alternate

fuel

Substitute 10% of coalused in kilns with rice

husk

Benefits

Annual cost savings of USD1.7 million

Annual savings of USD6500 approx

Reduction of about 30,000 tonnes ofcarbon emissions annually

Higher energy savings and lowercarbon emissions

Source: CMA, Aranca Research

UltraTech is India's largest exporter of cement clinkerspanning export markets in countries across the IndianOcean, Africa, Europe and the Middle East

UltraTech and its subsidiaries have a presence in fivecountries through 11 integrated plants, one white cementplant, one clinkerisation plant, 15 grinding units, two rail andthree coastal terminals, and 101 RMC plants

It has an annual capacity of 52 MTProjects: Mumbai Metro, Bangalore Metro Rail, Kolkata

Revenue and Profit after Tax (PAT) in USD billion

CAGR: 23.5% 4.0 3.9

3.0

1.5Metro Rail, Monorail, Coastal Gujarat Power

MILESTONES

1.4 1.41.1

0.2 0.3 0.20.3 0.5 0.5

0.2

• 2004 - Acquisition of L&T’s Cement Business: UltraTechCement Ltd

• 2006 - Narmada Cement Company Limited amalgamatedwith UltraTech

• 2010 - Samruddhi Cement Limited amalgamated withUltraTech Cement Limited

• 2012 - Acquisition of Adhunik Cement’s Meghalaya plant

FY07 FY08 FY09 FY10 FY11 FY12 FY13

Source: Company Website (www.grasim.com, Aranca ResearchNotes: RMC - Ready-Mix Concrete

Ambuja Cements Ltd (ACL) is one of the leading cementmanufacturing companies in India.

The company, initially called Gujarat Ambuja Cements Ltd,was founded by Narotam Sekhsaria in 1983

Ambuja Cements is the second largest cementmanufacturer in India, with nearly 10 per cent of the marketshare of total installed capacity

Revenue (USD billion)

1.8

CAGR: 5.2%

1.6

1.5

1.8

1.41.4

It is the market leader in Northern India with 29 per cent ofthe total installed capacity

MILESTONES• 2010 - Started cement plant at Nalagarh, Himachal

Pradesh and Dadri, Uttar Pradesh with a capacityof 1.5 million tonnes

• 2011 - Acquired 85 per cent stake in Nepal-based DangCement

• 2012 - Expansion of Sankrail Grinding Unit, therebyincreasing the capacity from 1.5 mtpa to 2.4 mtpa

FY07 FY08 FY09 FY10 FY11 FY12

Source: Company Website, Aranca ResearchNote: mtpa - Million Tonnes Per Annum

NE India: Cement demand

• The North Eastern (NE) region hasconsistently been in cement deficit for

several years

• At present, cement demand in the NE isabout 5.2 mtpa

NE India: Cement supply

• Cement manufactured locally is inadequateto meet the local demand for cement

• The deficit is met through cementpurchased from other parts of India

• High transportation costs cause the landedcosts of cement to increase considerably

NE India: Cement demand-supply gap

Deficit of 2.2 mtpa

5.2

3.0

Estimated Demand Available Supply

Source: Industry Sources, Aranca ResearchNote: mtpa - Million Tonnes Per Annum

The Government has approved a package of fiscal incentives and other concessions for the North Eastern Region, namelythe North East Industrial and Investment Policy, 2007, effective from 1 April, 2007

The major policy and fiscal initiatives are expected to catalyse infrastructure and industrial development in the region,spurring the demand for cement

NE States Projected GDP Growth atConstant Prices

16.4%

13.7%

10.0%

XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan

NE States Projected Per Capita IncomeGrowth

15.2%

12.4%

8.6%

XI 5-yr Plan XII 5-yr Plan XIII 5-yr Plan

Cement Manufacturers' AssociationCMA Tower, A-2E, Sector 24 NOIDA - 201 301Uttar Pradesh, India

Phone: 91-120-2411955, 2411957, 2411958Fax: 91-120-2411956

E-mail: [email protected]

Website: www.cmaindia.org/index.html

Indian Concrete InstituteOcean Crest 79, Third Main Road, Gandhi Nagar, Adyar, Chennai - 600 020Phone: 91-44-24912602

Fax: 91-44-24455148E-mail: [email protected], [email protected], [email protected]

Website: www.indianconcreteinstitute.org

National Council for Cement and Building Materials34th Milestone, Delhi-Mathura Road, Ballabgarh - 121 004 Haryana, India

Phone: 91-129-2242051/52/53/54/55/56; 4192222Fax : 91-129-2242100; 2246175

E-mail: [email protected]; [email protected]

CMA: Cement Manufacturers' Association

GDP: Gross Domestic Product

GoI: Government of India

INR: Indian Rupee

MTPA: Million tonnes per annum

NE India: North-East India

FY: Indian financial year (April to March)

So FY10 implies April 2009 to

March 2010

USD: US DollarWherever applicable, numbers have been rounded off to the nearest whole number

Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year)

Year INR equivalent of one USD Year INR equivalent of one USD

2004-05 44.95 2005 45.55

2005-06 44.28 2006 44.34

2006-07 45.28 2007 39.45

2007-08 40.24 2008 49.21

2008-09 45.91 2009 46.76

2009-10 47.41 2010 45.32

2010-11 45.57 2011 45.64

2011-12 47.94 2012 54.69

2012-13 54.31 2013 54.45

Average for the year

India Brand Equity Foundation (“IBEF”) engaged Aranca to prepare this presentation and the same has been prepared

by Aranca in consultation with IBEF.

All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The

same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium

by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in

any manner communicated to any third party except with the written approval of IBEF.

This presentation is for information purposes only. While due care has been taken during the compilation of this

presentation to ensure that the information is accurate to the best of Aranca and IBEF’s knowledge and belief, the

content is not to be construed in any manner whatsoever as a substitute for professional advice.

Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in

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