analysis of cement sector as an investment avenue for india infoline securities by nutan kirad

7/22/2019 Analysis of Cement Sector as an Investment Avenue for India Infoline Securities by Nutan Kirad

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A PROJECT REPORT ON

ANALYSIS OF CEMENT SECTOR AS AN INVESTMENT AVENUE

FOR

INDIAINFOLINE SECURITIES LIMITED

BY

NUTAN KIRAD

PROJECT GUIDE

PROF: VAISHAMPAYAN

IN PARTIAL FULFILLEMENT OF THE REQUIREMENTS OF

THE TWO-YEAR FULL-TIME PGPM PROGRAMME OF

SMVIM

ST. MIRA VISHWAKARMA INSTITUTE OF MANAGEMENT.

PUNE- 411048.

A.Y.: 2006-2007


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Acknowledgement

It gives me great pleasure in presenting the Project Report that gives the details of

my project in ANALYSIS OF CEMENT SECTOR AS AN INVESTMENT

AVENUE. I thank the college guide Prof Mahesh Halale for his kind and consistent

guidance and help during the project work. It is impossible to list all the people who have

helped us during my project. I take this opportunity to express whole heart thanks to Mr.

NITIN SHRIVASTAVA BRANCH MANAGER of INDIAINFOLINE, KALAYANI

NAGAR BRANCH. I would like to thank Mr. PRADEEP RAMPAL who guided me

at every step in the execution of the project & their experience and valuable guidance

were very helpful. I would like to express our deep sense of gratitude towards all Staff

and workers and to all those who directly or indirectly helped us in successful completion

of project.


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Executive SummaryThis project is an attempt to understand the basics of stock market. A project

which will make me well versed with the market happenings ups & downs in the stock

market, daily analysis- fundamental & a little bit of technical.

The chapter on body methodology explains the steps that I took in understanding

the equity market. It mentions a step by step detail of how I went by in order to answer

my own doubts & the techniques that I used to go ahead.

The next chapter gives a brief description about the company where I did my

internship from, which is 5paisa.com which is a trading arm of IndiaInfoline Securities

Pvt Ltd.

The following chapter explains about the formation & company composition of

IndiaInfoline Securities Pvt Ltd.

The next chapter gives a detailed report of my summer internship done at the

company. It gives the jobs assigned to me at work, followed by the methods which I

undertook in going about my internship.

The conclusion gives the details about the learning that I have gained in the

company.


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INTRODUCTION

The following project is a study of the Indian Stock Market & an

investment opportunity in the cement sector in India.

The capital market (securities markets) is the market for securities, where

companies and the government can raise long-term funds. The capital market

includes the stock market and the bond market.

A stock market is a market for the trading of company stock, and derivatives of

same; both of these are securities listed on a stock exchange as well as those only

traded privately.

The objective of my internship is as follows:

Understanding the various activities in an E- Broking firm.

To get acquainted with all the workings of online trading.

To gain practical knowledge in share trading

To analyze the financial market & the share movements in order to study

the prospects of investing in a particular stock or sector.

The aim of the project is to understand the overall equity market, to get to

know the trading, clearing & settlement aspect of the equity market. As far as this

project is concerned, it will help us to understand the overall working of the

equity market & its importance to the economy of the India. A huge amount of

money flows & millions of shares exchange hands in a single market day. This

exchange of shares enables the flow of money in & out of a firm. The companywhose shares are listed & the government who plays a pivotal role through the

policies formed in the market, helps them to raise long term funds which can be

used for the benefit & the growth of the companies & also give back some part of

their profit to the investor in the form of dividends.


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Also through this project what I am trying to derive is the analysis of oil & gas

sector concluding with the opportunities of investing in the sector. The reason

why I have selected oil & gas sector is because of the huge investment

opportunities in thesector & also to understand this sector for my future growth

to pursue a career in this sector. For my internship I am working in5paisa.com

which is a trade name of IndiaInfoline Securities Pvt Ltd.


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CHAPTER 1

1.1 COMPANY PROFILE

INDIA INFOLINE SECURITIES PVT. LTD.

INTRODUCTION

India Info line Securities Pvt Ltd is a 100% subsidiary of India Info line Ltd,

which is engaged in the businesses of equities broking and portfolio management

services. It holds memberships of both the leading stock exchanges of India viz. the stock

exchange, Mumbai (BSE) and the national stock exchange (NSE). It offers broking

services in the cash and derivatives segments of the NSE as well as the cash segment of

the BSE.

We have seats on India's premier stock exchanges - The National Stock Exchange

(NSE) and The Stock Exchange, Mumbai (BSE) and offer online trading facilities.

Tapping and servicing retail customers is our key focus, and in a short span of time have

emerged as one of the leading players in the online trading space. We offer online trading

facilities under the 5paisa brand name.

5paisa is the trade name of India Info line Securities Private Limited (5paisa),

member of National Stock Exchange and The Stock Exchange, Mumbai. 5paisa is a

wholly owned subsidiary of India Info line Ltd, Indias leading and most popular finance

and investment portal. 5paisa has emerged as one of leading players in E-broking space

in India.5paisqa.com was launched for online trading in mid-2000. Stock market investors

in India have never had it so good low brokerage rates and some of the best research; it

was because of Internet technology and E-broking. This is a unique model, which

combines the rates of a discount brokerage and service of a boutique house. Besides high

quality investment advice from an experienced research team, the site offers real time


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stock quotes, market news and multiple tools for technical analysis. 5paisa.com has

implemented world-class security systems to prevent any possibility of misuse, fraud or

data pilferage. 5paisa.com has successfully emerged as one of the leading providers of E-

broking services in India.

The parent company, India Info line Ltd owns and manages the web properties

www.indiainfoline.com and www.5paisa.com. It also undertakes research, customized

and off-the-shelf. Launched on 11 May 1999, www.indiainfoline.com is Indias leading

and most comprehensive business and financial information website. The site provides

quality information and analysis - earlier restricted to a few people - to the common man,

absolutely free! The site has met with an overwhelming response and has been reviewed

as the most comprehensive financial content website in India by BBC World - Money

Watch, Business World, Business Line and others. The company also won the Golden

Mouse Award in India Internet World 2000 for the "Best Finance" site. In May 2001, our

website was included in the Top 200 Best of the Web list by Forbes Global under the

Asia Investing category. We were the only website from India to be featured in any

category. Since then it has been nominated twice tothis list. In its last review, Forbes

editors have said, "www.indiainfoline.com is a must read for the investors in South

Asia."

VISION

To be the premier provider of investment advisory and financial planning services

in India.

To be a leading investment intermediary for transactions through both online and

offline medium

Company profile

India Infoline Ltd (IIL) started in 1995 with providing Online Media and Content

Services. Mr. Nirmal Jain and Mr. Venkataram, the founder members of the

company sensed the growing opportunities in the market and increased the


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horizon for IIL from time to time.IIL with an aim to become 'One stop for all

financial needs' started with equity and commodity broking, distribution of

financial products and now with investment banking.

IIL has a huge branch network across 95 cities, which it leverages for customer

acquisitions, relationship building, retail advisory and distribution services.

IIL is in the expansion mode and plans to set up 350 branches by FY07E. It alsoplans to set up branches in cities like Dubai, Singapore and London to serve the

NRI's for PMS service. It has recently opened up a branch in Kuwait and expects

this branch to contribute to the equity broking business. IIL has just received

Investment banking license: with this they expect to enter the market with an

intention to target the SME sector. It also plans to launch a Venture capital fund

GEOGRAPHICAL PRESENCE

IIL has pan-India presence across 94 cities. It started off with major branches in

metros and now it is focusing on Tier II and III cities. In Q1-FY07 the company

opened 56 branches, taking the total number of branches to 233 as on June 2006

Almost 50% of the revenue comes from centers in Maharashtra and Delhi,

followed by other regions.


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SERVICES PROVIDED

India Infoline Securities Pvt. Ltd. act as Full Service Investment Solutions

Provider, providing you wide range of services like

Equity & Derivatives Trading on NSE and BSE

Online Trading

Portfolio Management Services

Depository Services

IPO Services


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Uniform Service Standards

The Strength of India Infoline Securities Pvt. Ltd. is in its Specialized &

Customized research Products addressing the investment philosophy of verities of

Investors and Traders in the secondary stock market.

India Infoline Securities Pvt. Ltd. offers online trading account through which a

customer can buy and sell shares in an instant from any part of the globe trough

website. It does not take into account any type of physical restriction of going to

the broker for carrying out a transaction or any type of settlement of payment. It

facilitates the customer a speedy and hassle free transaction. India Infoline

Securities Pvt. Ltd. Product consists of a 3-in-1 concept, which integrates:

Trading Account

Demat Account

Linking with the Bank Account.

Through its trading account customer can directly transfer his funds from his bank

account affiliated to India Infoline Securities Pvt. Ltd. to his trading account

without any paper work. He can buy and sell shares from the website and also

view the market prices of the shares he trades on the terminal.

India Infoline Securities Pvt. Ltd. allows trading on countries 2 main stock

exchanges NSE & BSE. To open an account a customer requires filling up a form

consisting some agreements, photocopy of pan card, a passport size photograph, a

residential proof, and a cheque of Rs.2000 which is drawn in favor of

IndiaInfoline Ltd.

CORPORATE STRUCTURE OF

INDIA INFOLINE LTD.


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Investment Highlights

Strong growth in Industry volumes and rising retail participation Average daily

volumes in the equity markets (cash and derivative combined) have increased by

72%from to Rs.167bn in FY 05 to Rs.288bn in FY 06.With the economy growing

at 7-8% a mounting per capita income and growing BPO culture, there is a newclass of young investors, which are moving towards the equity market.

IIL is majorly present in the retail segment. With the rising income levels, risk-

taking ability of people and the confidence in the India Inc, participation from the

retail crowd is increasing y-o-y. IIL isaggressively increasing its presence by

opening branches in different cities. In FY QI-07, they roll out 56 new branches


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and acquired 25000 new customers. And it expects them to have 350 and 430

branches by FY 08 respectively.

Investment Concern

High reliance on equity segment

In FY06, 67%of IILs earnings are derived from the equity broking business. Any

volatility in the market has direct impact on the earnings of the company. Sensing this

possibility IIL's diversified into other business segments like distribution of financial

products, commodity broking and recent entry into investment banking. These segments

will take time to drive the earnings of the company. There is an expectation that earnings

from equity broking to be 62%and 54%of the earnings by FY07E and FY08E

respectively.


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The Management

Mr. Nirmal Jain

Nirmal Jain is the founder and Chairman of India Infoline Ltd. He holds an MBA

degree from IIM Ahemdabad, and is a Chartered Accountant (All India Rank 2) and a

Cost Accountant. In 1995, he founded his own independent financial research company,

known as India Infoline Ltd.

Mr. R Venkataram

R Venkataram is the co-promoter and Executive Director of India Infoline Ltd.

He holds a B. Tech degree in Electronics and Electrical Communications Engineering

from IIT Kharagpur and an MBA degree from IIM Bangalore. He has varied experience

of more than 14 years in the financial services sector.

The Board of Directors

Apart from Nirmal Jain and R Venkataram, the Board of Directors of India

Infoline comprises:

Mr. Sat Pal Khattar

Mr. Sanjiv Ahuja

Mr. Nilesh Vikamsey

Mr. Kranti Sinha

ON-JOB-TRAINING


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INTRODUCTION

I have been done my summer internship in India Infoline Securities Private

Limited to perform various activities undertaken by an E broking firm (Depository

Participant).

OBJECTIVE

India Infoline Securities Pvt. Ltd. (5paisa.com) performs as intermediary between

stock exchange and clients. Various task related to e broking has been assigned to me.

The main objectives are as follows:

To understand various activities in E-Broking firm. (D P).

To get familiar with the working of online trading.

To gain practical knowledge in share trading.

To get an exposure

TASK ASSIGNED

Market observation

Customer acquisition.

Technical Issues

Administrative tasks

Customer follow-up

MARKET OBSERVATION:

It was the basic task assign during the SIP. While working with an e broking firm

it very essential to be aware about the current market issues like current market news,

Current market position, stock watch, global market condition, past trend of the market

etc.

It was also imperative to target particular stocks & track their daily movements.

By targeting & tracking individual stocks & scripts, it helped me understand the various


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factors that lead to stocks price movements. Also taking with clients during market hours

helped me to understand the investment psychology of the client.

CUSTOMER ACQUISITION:

To acquire new customers for the company it was the task given to me. 8 new

Demat accounts have been opened in this duration.

Strategy in acquiring new customers Reference by existing customers.

Lead by company guide

Tele calling (by lead data)

Cold callings

TECHNICAL TASKS:

Various technical tasks has been performed like, software down loading, to give

software demonstration to the clients, solving various problems of the clients regarding

software handling etc.

ADMINISTRATIVE TASK:

These were the secondary task given bellow, which has been performed during

the training period.

Completion of account opening form

Collection of requires documents form existing clients.

Margin funding form,

To transfer shares


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CUSTOMER FOLLOW-UP:

Follow-up has been given to newly acquire as well as existing clients for various

issues.

Trading for offline clients under the relationship managers guidance.

To give markets updates to newly acquire as well as existing clients in

market duration, etc.

ACHIEVEMENTS

Stock Market observation has been done during internship period.

8 new clients have been acquired

Companies trading software has been downloaded

Software demonstration has been given to newly acquire as well as

existing clients.

Various administrative activities have been performed.

Follow-up to the customer has been given,

Company generated brokerage from the newly acquired customer by me

during the internship period.

Offline customers orders have been taken in regular market schedule.

LIMITATIONS

It was hard to acquire knowledge about this field in such short span of

time

Share market is very vast & fast sector, it was very difficult to cope-up

with the environment in such short span of time.

This field is requiring with very deep fundamental & technical knowledge.

Acquiring new clients it was the tough task to perform

High risk involve while trading on behalf of the clients under the guidance

of RM.


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CONCLUSION

Learning Experience:

In my summer training, I knew about the stock market and its nitty-gritty.

And now I am confident about equity knowledge. Although nobody can claim complete

expertise but there is a sea change at least from our point of view. I have learnt what are

the various indices and their significance in market. I have learnt about various

fundamentals and technical aspects, which affect the stock prices in short run and long

run.

Selling Experience:

Apart from this our specific task is to sell the Demat accounts. During this venture

I came across many people who came from different walks of life. I learnt how to deal

with them, how to persuade them and guide them in trading.

Selling an online trading account requires special focus on targeting the

customers. Each and every person does not trade / invest in the stock market. Actually

what I had to do was to identify the prospect and then convince them.

As we met more and more people, we came to know more about how to talk to

them, how much time be given to each person we met. Even, by solving the customer

queries, our own understanding was enhanced.

While selling our product in the market, we also came to know more

about our competitors product like, icicidirect.com, India bulls and their strategy of

marketing and the consumers preference towards the competitors product.

After forms were filled clients after the procedures were given client Id. After

that, we were required to show the customer how to make a transaction and how to get

access to the terminal. Also, other queries, which the customer faced, had to be solved by

us. So, it was all a very good learning experience for us.

There were senior trainees always to solve the difficulties we faced in

approaching a customer, filling up the form, demonstrating the site, or solving their

queries.


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We faced some bad and resentful experiences like being sent out of

offices and waiting for hours for a customer and went to the customer again in case if a

signature is left in the form or in occurrence of any proof problems. This was again a

learning to increase our tolerance and be more careful while filling up the form.


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RESEARCH METHODOLOGY

My first task before starting the process was to understand how to conduct the

analysis. I was suggested by my coordinator Mr. PRADEEP RAMPAL AND THE

branch head Mr. NITIN SHRIVASTAVA to conduct the analysis through EIC model.

My next step was to understand what EIC model all about and what are the steps to

achieve it. For which my first step was going through various internet sites and reading

about the EIC model and usefulness off the whole process.

Once, I got to know about the basic of the EIC model my task was to select sector

on which I can conduct the analysis. I have chosen Cement Sector as it comes under theInfrastructure Industry which is very vital for the growth of the Economy. After doing the

a through research on the cement sector in India, the company I chosen was Ambuja

Cement Limited, as cost is the important factor for the cement industry, and the strategy

which any company can adopt is cost leadership and Ambuja Cement Limited is the Cost

Leader in the cement sector.

The next step leads me to know the economic conditions which will have a

bearing on the cement sector. Then I studied the Industry through the following

characteristics :- Capacity Utilization, Regional Updates, Evaluating the Cement Industry

through Porters Model, Indian Cement Industry-The current Scenario, etc. the next step

lead me to know the history about the company along with the growth prospects that

possess for the future.

Once this was done I went ahead and started my analysis on the company and

concluded the project with my say on the future investment in the company.


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Chapter 2

Introduction

Overview of the Financial Market

FINANCIAL MARKETS

A Financial Market can be defined as the market in which financial assets are

created or transferred. As against a real transaction that involves exchange of money for

real goods or services, a financial transaction involves creation or transfer of a financial

asset. Financial Assets or Financial Instruments represents a claim to the payment of a

sum of money sometime in the future and /or periodic payment in the form of interest or

dividend.

Money Market-

The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term

instrument. Funds are available in this market for periods ranging from a single day up to

a year. This market is dominated mostly by government, banks and financial institutions.

Capital Market

- The capital market is designed to finance the long-term investments. The transactions

taking place in this market will be for periods over a year.

Forex Market

The Forex market deals with the multicurrency requirements, which are met by the

exchange of currencies. Depending on the exchange rate that is applicable, the transfer offunds takes place in this market. This is one of the most developed and integrated market

across the globe.


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Credit Market-

Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-

term loans to corporate and individuals.

Overview of the Capital Market

Financial markets, financial assets, financial services and financial institutionsconstitute the financial system. Financial market provide channels for allocation ofsavings to investment, that is how the savings are canalized into investments thusgenerating further income, cash or assets. Financial market has two major componentsviz. money market and capital market. Money market refers to the market whereborrowers and lenders exchange short-term funds, to solve their liquidity needs. Moneymarket instruments have low default risk, maturities under one year and highmarketability (liquidity). Low default risk implies that generally the risk of non-paymentof money is low. Maturities under one year imply that all contracts are of maximum oneyear. Capital market is wider that securities market and embraces all form of lending andborrowing. It comprises of institutions and mechanisms through which medium to long

term funds are pooled and made available to business, government and individuals.Securities market refers to the markets for those financial instruments/claims/obligationsthat are commonly and readily transferable by sale. This implies that the title toownership is with the holder; whosoever holds the securities is deemed to be the owner ofthe securities, unless proved otherwise. These do not contain the name of the holder andhence are transferable by sale.

Securities market consists of primary market and secondary market.


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Primary market consists of channel for sale of new securities, while secondarymarket deals in the securities already issued.

Primary markets involve the following methods of issue. IPO Further issue of capital Rights issue Offers to public Bonus issue

Secondary market enables those who already hold securities to adjust their

investment in response to change in their assessment of risk and return, the

statement implies that those who already holds the securities may want to sell

them in case if those securities are not paying off, or if he needs to adjust his

liquidity or for any other reason. Secondary market refers to the stock exchanges,

a stock exchange provides mechanism to buy and sell the securities already issues

in primary market.

There are at present 23 stock exchanges in India

Participants in the securities market are

Issuers of securities

Investors in securities

Intermediaries- brokers, sub brokers, merchant bankers, underwriters etc.

Regulators

Capital market instruments can be categorized into 3 categories

1. Pure instruments

2. Hybrid instruments

3. Derivatives

There are basically 3 classes of instruments

1. Equity shares

2. Preference shares

3. Debentures/bonds

A pure instrument contains the basic characteristics of one class of instrument only

A hybrid instrument contains the basic characteristics of more than one class of

instrument.


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A derivative is in the form of futures and options. Derivative is a product whose value is

derived from the value of one or more basic variables, called underlying. The underlying

asset can be equity, index, foreign exchange (forex), commodity or any other asset.

Derivative products initially emerged as hedging devices against fluctuations in

commodity prices and commodity-linked derivatives remained the sole form of such

products for almost three hundred years. The financial derivatives came into spotlight in

post-1970 period due to growing instability in the financial markets. However, since their

emergence, these products have become very popular and by 1990s, they accounted for

about two thirds of total transactions in derivative products.

Stock Exchange:

The Securities Contract (Regulation) Act, 1956 [SCRA] defines Stock Exchange as any

body of individuals, whether incorporated or not, constituted for the purpose of assisting,

regulating or controlling the business of buying, selling or dealing in securities. Stock

exchange could be a regional stock exchange whose area of operation/jurisdiction is

specified at the time of its recognition or national exchanges, which are permitted to have

nationwide trading since inception. NSE was incorporated as a national stock exchange.

Trading

Participants in the stock market range from small individual stock investors to large

hedge fund traders, who can be based anywhere. Their orders usually end up with a

professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading

floor, by a method known as open outcry (eg:-New York Stock Exchange). This type of

auction is used in stock exchanges and commodity exchanges where traders may enter

"verbal" bids and offers simultaneously. The other type of exchange is a virtual kind,

composed of a network of computers where trades are made electronically via traders at

computer terminals (eg:-Nasdaq).


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Actual trades are based on an auction market paradigm where a potential buyer bids a

specific price for a stock and a potential seller asks a specific price for the stock. (Buying

or selling at market means you will accept any bid price or ask price for the stock.) When

the bid and ask prices match, a sale takes place on a first come first served basis if there

are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers

and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-

time trading information on the listed securities, facilitating price discovery.

Market participants:

Many years ago, worldwide, buyers and sellers were individual investors, such aswealthy businessmen, with long family histories (and emotional ties) to particular

corporations. Over time, markets have become more "institutionalized"; buyers and

sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds,

hedge funds, investor groups, and banks). The rise of the institutional investor has

brought with it some improvements in market operations. However, corporate

governance (at least in the West) has been greatly affected by the rise of institutional

'owners.'

The First Stock Market:

The Dutch started joint stock companies, which let shareholders invest in business

ventures and get a share of their profits - or losses. In 1602, the Dutch East India

Company issued the first shares on the Amsterdam Stock Exchange. It was the first

company to issue stocks and bonds. The Amsterdam Stock Exchange (or Amsterdam

Beurs) is also said to have been the first stock exchange to introduce continuous trade in

the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity,

merchant banking, unit trusts and other speculative instruments ". There are now stock

markets in virtually every developed and most developing economies, with the world's


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biggest markets being in the United States, Canada, China (Hong Kong), India, UK,

Germany, France and Japan.

Importance of stock market:Function and purpose

The stock market is one of the most important sources for companies to raise money.

This allows businesses to go public, or raise additional capital for expansion. The

liquidity that an exchange provides affords investors the ability to quickly and easily sell

securities. This is an attractive feature of investing in stocks, compared to other less

liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of thedynamics of economic activity, and can influence or be an indicator of social mood.

Rising share prices, for instance, tend to be associated with increased business investment

and vice versa. Share prices also affect the wealth of households and their consumption.

Therefore, central banks tend to keep an eye on the control and behavior of the stock

market and, in general, on the smooth operation of financial system functions. Financial

stability is the raison outlook of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect

and deliver the shares, and guarantee payment to the seller of a security. The smooth

functioning of all these activities facilitates economic growth in that lower costs and

enterprise risks promote the production of goods and services as well as employment. In

this way the financial system contributes to increased prosperity.

Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable

transformation. One feature of this development is disintermediation. A portion of the

funds involved in saving and financing flows directly to the financial markets instead of

being routed via banks' traditional lending and deposit operations. The general public's

heightened interest in investing in the stock market, either directly or through mutual


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funds, has been an important component of this process. Statistics show that in recent

decades shares have made up an increasingly large proportion of households' financial

assets in many countries. The major part of this adjustment in financial portfolios has

gone directly to shares.

Regulators of Stock Market:

The absence of conditions of perfect competition in the securities market makes

the role of the Regulator extremely important. The regulator ensures that the market

participants behave in a desired manner so that securities market continues to be a major

source of finance for corporate and government and the interest of investors are

protected.

The responsibility for regulating the securities market is shared by Department of

Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of

India (RBI) and Securities and Exchange Board ofIndia (SEBI).

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India

established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for

establishment of Securities and Exchange Board of India(SEBI) with statutory powers for

protecting the interests of investors in securities

a) promoting the development of the securities market and

b) Regulating the securities market. Its regulatory jurisdiction extends over corporate

in the issuance of capital and transfer of securities, in addition to all

intermediaries and persons associated with securities market.

SEBI has been obligated to perform the aforesaid functions by such measures as it thinks

fit. In particular, it has powers for:

Regulating the business in stock exchanges and any other securities

markets

Registering and regulating the working of stock brokers, subbrokers etc.

Promoting and regulating self-regulatory organizations

Prohibiting fraudulent and unfair trade practices


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Calling for information from, undertaking inspection, conducting inquiries

and audits of the stock exchanges, intermediaries, self regulatory

organizations, mutual funds and other persons associated with the

securities market.

IMPACT OF STOCK EXCHANGES IN INDIA:

Following are the changes due to the existence of Stock Exchange:

1. Mobilization of savings

The savings of the individuals are easily mobilized in various types of industries.

Therefore the amount of investments in the stock exchange increases.

2. Increase in rate of return on investment

The investors get more rate of return i.e. the market rate and not the normal bank

rate which is much lower.

3. Availability of funds for growth of industries.

The amount of funds required for the growth of the industries is easily available

whereas there was always shortage of capital.

4. Diversification of industries

Due to the availability of funds the industry becomes financially strong and has

scope or diversification due to which more strongly in the market.

5. Increase in employment

Growth and diversification of industries leads to increase in the amount of work

and thus increase job opportunities for the unemployed.

6. Increase in standard of living

The increased job opportunities and the availability of goods of higher quality has

increased the standard of living of people.

7. Increase in GDP

Increase in business in overall all industries has automatically lead to the rise in

GDP of the country and thus its prosperity.


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8. Decrease in Trade Deficit.

Due to growth in industries the country is becoming self-sufficient leading to

decrease in trade deficit.

Trading in India: -

The trading on stock exchange in India used to take place through open outcry

without use of information technology for immediate matching or recording of trades.

This was time consuming and inefficient. This imposed limits on trading volumes and

efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a

nationwide online fully automated screen based trading system (SBTS) where a member

can punch into the computer quantities of securities and the prices at which he likes to

transact and the transaction is executed as soon as it finds matching sale or buy order

from a counter party. SBTS electronically matches order on strict time/price priority and

hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved

operational efficiency. It allows faster incorporation of price sensitive information into

prevailing prices, thus increasing the information efficiency of markets. It enables market

participants, irrespective of their geographical locations, to trade with one another

simultaneously, improving the depth of liquidity market. It also provides a perfect audit

trail, which helps to resolve disputes by logging in the trade execution process in entirety.

Today India can boast that almost 100% trading take place through electronic order

matching. Technology was used to carry the trading platform from the trading hall of

stock exchanges to the premises of brokers. NSE carried the further platform further the

PCs at the residence of Clients through the Internet for Users in geographically vast

country like India.


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Conceptual framework

Trading Network

The trading network is depicted in the above figure shows NSE has main

computer, which is connected through very small Aperture Terminal installed at the

office. The main computer runs on falls tolerant STRATUS mainframe computer at the

exchange. Brokers have terminals installed at their premises, which are connected

through VASTs/ leased lines/ modems. Investors inform broker to place an order on

behalf of them. The broker enters the order through his PC, which runs under Windows

NT and sends signal to the satellite via VAST/ leased line/ modem. The signal directed to

mainframe computer at NSE The system also provides complete market information

online. The market screens at any point of time provide information on total order depth

in a security, the five best buys and sells available in the market, the quantity traded in

the day security, the high and the low, the last traded price, etc. investors can also know

the fate of the orders almost as soon as they placed with the trading members.


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AbstractThe Indian cement industry is second largest in the world after China and has

grown at a CAGR of 8% in the last decade. The sector has evolved significantly in the

last two decades, going through all the phases of a typical cyclical industry. After having

gone through a period of over-supply and the phase of massive capacity additions (latter

half of the previous decade), the industry is currently in a consolidation phase, with

capacity additions coming up to cater to the increasing demand. Demand has been driven

by a booming housing sector and increased activity in infrastructure development such as

state and national highways. While the demand is growing at a robust pace of 8% to 10%

annually, the paucity of major capacity additions is putting upward pressure on the

cement prices.

Introduction

The Indian cement industry with a total capacity of 151.2 million tonnes

(including mini plants) in March 2003 has emerged as the second largest market after

China, surpassing developed nations like the USA and Japan. Per capita consumption has

increased from 28 kg in 1980-81 to 110 kg in 2003-04. In relative terms, Indias average

consumption is still low and the process of catching up with international averages will

drive future growth. Infrastructure spending (particularly on roads, ports and airports), a

spurt in housing construction and expansion in corporate production facilities is likely to

spur growth in this area. South-East Asia and the Middle East are potential export

markets. Low cost technology and extensive restructuring have made some of the Indian

cement companies the most efficient across global majors. Despite some consolidation,

the industry remains somewhat fragmented and merger and acquisition possibilities are

strong. Investment norms including guidelines for foreign direct investment (FDI) are

investor-friendly. All these factors present a strong case for investing in the Indianmarket.

ECONOMIC ANALYSIS


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INDIAN ECONOMYIndia's economy is on the fulcrum of an ever increasing growth curve. With

positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange

reserves of over US$ 222 billion, a booming capital market with the popular "Sensex"

index topping the majestic 15,000 mark, the Government estimating FDI flow of US$

15.5 billion in this fiscal, and a more than 20 per cent surge in exports, it is easy to

understand why India is a leading destination for foreign investment.

The economy has grown at an impressive growth rate of 9.4 per centduring 2006-07 as against 9 per cent in 2005-06.

The growth rate has been spurred by the industrial and services sectors,which have logged a 10.9 and 11 per cent rise in 2006-07 respectively,against 9.6 per and 9.8 cent in 2005-06.

Some of the propellers of GDP growth for 2006-07 have been

manufacturing, which grew by 12.3 per cent (against 9.1 per cent in 2005-06), trade, hotels, transport and communications sector, which grew by 13per cent (against 10.4 per cent in 2005-06), and construction, which grewby 10.7 per cent.

Electricity, gas and water supply also grew by 7.4 per cent in 2006-07against 5.4 per cent in 2005-06.

There has been an exceptional growth rate in some specific industries, likecommercial vehicles at 17.9 per cent, telephone equipment sector by 43.5per cent, passenger growth in civil aviation by 32.2 per cent andinformation technology by 31 per cent (in revenue terms).

Overall balance of payments recorded a surplus of US$ 36.6 billion during

2006-07, as against US$ 15.1 billion in 2005-06.The India growth story continues apace in the current fiscal year with many

sectors showing a higher growth rate than the previous year. The overall industrial

growth was 11.7 per cent during April-May, 2006-07 as compared with 10.8 per cent in

April-May, 2005-06. The growth rate achieved by the manufacturing and electricity

sectors during April-May, 2007 was 12.7 per cent and 9.0 per cent respectively as

compared to 12.2 percent and 5.5 per cent during corresponding period last year. Core

infrastructure sectors achieved an average growth rate of 8.1 per cent during April-May,

2006-07, as compared with 7.2 per cent in April-May, 2005-06. The annual inflation rate

in terms of WPI was 4.27 per cent for the week ended June 30, 2007 as compared with

5.21 per cent a year ago. The cumulative value of merchandise exports for the period

April-May 2007 increased by an impressive rate of 20.37 per cent over the corresponding

period in last year to touch US$ 22.4 billion. Aggregate deposits of banks increased by


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22.8 per cent (US$ 134.2 billion) on July 6, 2007, as compared with 19.6 per cent (US$

96.5 billion) a year ago. During 2007-08 (up to July 13, 2007), FIIs registered net inflows

of US$ 8.4 billion as compared with outflows of US$ 2 billion in the corresponding

period of 2006-07. Reserve money expanded by 29.1 per cent (21.7 per cent adjusted for

the first round impact of the increase in the cash reserve ratio), as on July 20, 2007, as

compared with 17.2 per cent a year ago.

ISSUES AND PRIORITIES FOR INDIA

India has the highest number of billionaires in Asia and fourth highest in

the world. There are 36 billionaires in India, which makes it next only to

US, Russia and Germany.

India has emerged as the world's fastest growing wealth creator, thanks to

a buoyant stock market and higher earnings.

Forty-four per cent of the Top 100 Fortune 500 companies are present in

India.

The number of Indian millionaires rose by 20.5 per cent from 83,000 in

2005 to 1,00,015 in 2006 -- making India the world's second fastest

growing nation after Singapore.


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India has joined the elite club of 12 countries with a trillion dollar

economy, thanks to the continuing rally in rupee against the US dollar.

According to a study by the McKinsey Global Institute (MGI), Indias

consumer market will be the worlds fifth largest (from twelfth) in the

world by 2025.

Mumbai has been ranked tenth among the world's biggest centres of

commerce in terms of the financial flow volumes by a survey compiled by

MasterCard Worldwide.

India has emerged as one of the most attractive investment destinations in

the world with an annual return of 38.36 per cent, which is the second

highest in BRIC economies.

India ranks second in the Asia-Pacific region in terms of the value of

private equity deals (US$ 2,433 million) done in the first half of 2007.

India emerged as the fastest growing market in the data centre-structured

cabling market in the Asia Pacific region.

India has been ranked second in outbound mergers and acquisition (M&A)

deals during the first half of 2007 in the Asia-Pacific region, with

outbound deals totalling US$ 13.5 billion.

India Inc reported its highest net profit in the last three years in 2006-07

(1,700 companies that declared their results till June reported a 47 per cent

increase in net profit).

With its manufacturing and services sector on a searing growth path, Indias economy

may soon touch the coveted 10 per cent growth figure.

Gross Domestic Product of India

The advance estimates of gross domestic product (GDP) for 2006-07, released by

the Central Statistical Organization, places the growth of GDP at factor cost at constant

(1999-2000) prices in the current year at 9.2 per cent. While services maintained its

vigorous growth performance, there were distinct signs of sustained improvements on the


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industrial front. The overall macroeconomic fundamentals are robust, particularly with

tangible progress towards fiscal consolidation and a strong balance of payments position.

With an upsurge in investment, the outlook is distinctly upbeat. There was a strong

growth in Foreign Direct Investment (FDI) flows with three quarters of such flows in the

form of equity. The growth rate was 27.4 per cent in 2005-06, which was followed by

98.4 per cent in April-September 2006. At US$ 4.2 billion during the first six months of

this fiscal, FDI was almost twice its level in April-September, 2005. Capital flows into

India remained strong on an overall basis even after gross outflows under FDI with

domestic corporate entities seeking a global presence to harness scale, technology and

market access advantages through acquisitions overseas.

Agricultural growth is pegged at 2.7 per cent.Total food grains production in

2006-07 estimated at 209.2 metric tonnes (MT). Total water availability in reservoirs up

10 per cent to 120.2 billion cubic meters (BCM) at the end of monsoon 2006.Fishing,

aquaculture and allied activities made for 5.3 per cent of the agricultural gross domestic

product (GDP).

Production of wheat and other rabi crops brightened with welcome rain in

February 2007 -- sugarcane, cotton, and jute to set new records.

Impressive growth in industrial sector is propelled by the robust growth in the

manufacturing sector which continues unabated. Year-on-year industrial growth of 10.6

per cent in the first nine months of 2006-07 was the highest recorded since 1995-96;

growth of the manufacturing sector was in double digits. The Eleventh Plan (2007-12)

Trend in Growth Rate

-2

3

8

13

Percent

GDP Services Construction Agriculture


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target of 10 per cent annual industrial growth appears achievable.

Major key economic indicators

Domestic Investments

The prospect for domestic investment has never been so good. While the

growth of the economy at over 9 per cent along with increasing consumer

expenditure has made the domestic market a very attractive proposition,

the increasing integration of Indian economy has enlarged the market size

for domestic entrepreneurs. This is also reflected in the rising share of

India in the global trade. Accordingly, many firms are making large

investments in order to increase their production capacity and to reap

economies of scale.

Investments:

Some of the prominent investment plans made by Indian corporates:

Reliance Industries is lining up investments of over US$ 12 billion for

production of gas from its fields in the Krishna-Godavari basin and its

transport to consumers across the country. While US$ 5.2 billion will be

spent on bringing the gas to production, a larger chunk of US$ 7 billion

will be invested in building gas pipes to transport it to consuming

locations.

ACC will pump in around US$ 921.9 million in three years to push its

annual cement production capacity to 27.5 million tonne. This will be an

increase of over 38 per cent over the companys current capacity of 19.9

million tonne.

Kishore Biyani's Future Group plans to invest about US$ 960.9 million in

the next one year to expand its different retail chains as part of a strategy

to touch a topline of US$ 7.322 billion by 2010-11.

The Royal Indian Raj International Corporation has announced a tie-up

with Choice Hotels India to build 100-125 budget hotels in Delhi,


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Mumbai, Hyderabad, Bangalore, Goa and Pune by 2010. The company

plans to invest US$ 2-3 billion in this project, spread over the next three

years.

Gujarat State Petronet Ltd, a group company of the Gujarat State

Petroleum Corporation, plans to connect all 25 districts of the state with

2,200-kilometre high pressure gas pipeline laid down across the state.

The Tata group is planning to set up a plant to convert coal into diesel or

crude oil in partnership with South Africas Sasol. The proposed coal-to-

liquids (CTL) plant the first of its kind in India-was likely to result in

annual import substitution benefits of about US$ 25 billion for the

country.

Foreign Direct Investment

India continues to be the best place to start a business, says a global services

location index by AT Kearney. In another AT Kearney study, India has displaced the US

to become the second-most favored destination for foreign direct investment after China.

It has now been named as the top reformer in South Asia in the annual Doing Business

Report issued by the International Finance Corporation (IFC).

It is evident. India is in the reckoning. And the figures appear to be improving by

the day. While FDI equity flows were US$ 5.5 billion in 2005-06, it increased almost

three times to US$ 15.7 billion in 2006-07, representing a growth rate of 184 per cent.

With this, the cumulative FDI inflows in to the country since 1991 reached US$ 54.6

billion.

Further, the Government seeks to double the FDI inflow to US$ 30 billion this

fiscal in order to maintain a growth rate of 9 per cent per annum over the next five years.

According to the World Bank, India cornered a major portion of US$ 40.1 billion

net capital inflows to South Asia in 2006. In fact, India has overtaken the erstwhile East

Asian Tigers Thailand, Malaysia, Indonesia, the Philippines, Taiwan and South Korea

in terms of FDI flows. If one excluded Singapore and Hong Kong from the list they


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are not comparable as FDI in these countries is more into trading activities India

would be No. 2 destination for FDI in Asia.

The principal sources of FDI between 1991 and March 2007 have been Mauritius,

US, UK, The Netherlands, Japan, Germany and Singapore (in that order). The principal

sectors attracting FDI during this period have been electrical equipment, services,

telecommunications, transportation, fuels, chemicals and construction (in that order).

Growth In The World Production

The inflow of FDI in to the country continues to grow. In the first half of June, the

Government has approved 40 FDI proposals which together constitute US$ 132.72

million investment.

According to financial advisory firm PricewaterhouseCoopers, India, along with

China, will remain one of the top two targets for mergers and acquisitions in the region.


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Foreign Institutional Investors

Positive tidings about the Indian economy combined with a fast-growing market

have made India an attractive destination for foreign institutional investors (FIIs). The

number of foreign institutional investors (FIIs) registered with the Securities andExchange Board of India (Sebi) has now increased to 1,042 in June 2007. In the

beginning of calendar year 2006, the figure was 813. As many as 217 new FIIs opened

their offices in India during 2006. This is the highest number of registrations by FIIs in a

year till date. The previous highest was 209 in 2005. Till May 2007, FIIs had pumped in a

hefty US$ 6 billion in equities. Last year, during the same period, the FIIs' exposure to

Indian equities was 25 per cent lower at US$ 4.5 billion.

The gross FII investments in the country till June from the time they were allowed

to invest in the India equity markets stands at US$ 53.06 billion. FIIs have raised their

holding in 540 companies out of top 1,000 companies on the Bombay Stock Exchange

(BSE) during September-March (2006-07) period. Companies that have gained favour

with foreign investors are mostly from construction, banking and second-line IT

companies among others.

The Key Industry Check

Agriculture

Agriculture -- across the expanse of India -- is heralding the country's second

Green Revolution. Fourteen states, including Maharashtra, Punjab, Andhra Pradesh and

Rajasthan amended the Agricultural Produce Marketing Committee (APMC) Act this

year, along the lines of the Model APMC Act, '02, which allows farmers to sell their

produce directly to buyers offering them the best price. And, agriculture sectors such as

horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua

culture, cultivation of vegetables, mushroom under cultivated conditions and services

related to agro and allied sectors are open to 100 per cent foreign direct investment (FDI)

through the automatic route.


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Already it is one of the most important sectors of the economy contributing 18.5

per cent of national income, about 15 per cent of total exports and supporting two-thirds

of the work force. And with recent developments, it is going to play a more dynamic role

in the economy.

Service Industry

The service sector of Indian Economy has brought much success in the recent

years. It constitutes a larger share in the total Gross Domestic Product. The growth rate of

services sector in India is faster than any other sectors. It constitutes more than 50 percent

of the total GDP in the country.

The services sector in India has become a larger source of revenue for thecountry. The Government of India introduced service tax in the year 1994 and presently it

constitutes a major source of revenue for the Government. Collection of Services tax in

India has reached at Rs. 23,000 Crores in 2005-06 from Rs. 2072 Crores in 1999-00. For

the year 2006-07, the target is being fixed at Rs. 34,500 Crores.

From time to time Government is trying to bring more items under the service tax

net. The Government announced Taxation of Services Rules 2006 and Service Tax Rules

2006. The Government has also formed a committee for reviewing the services tax

circulars since 1994.

Growth in financial services (comprising banking, insurance, real estate and

business services) after dipping to 5.6 % in 2003-04 bounced back to 8.7 % in 2004-05

and 10.9 % in 2005-06. The momentum has been maintained with a growth of 11.1 % in

2006-07.

Thus it can be concluded India's economy is on the fulcrum of an ever-increasing

growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising

foreign exchange reserves of over US$ 222 billion, a booming capital market with the

popular "Sensex" index topping the majestic 15,000 mark, the Government estimating


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FDI flow of US$ 15.5 billion in this fiscal, and a more than 20 per cent surge in exports,

it is easy to understand why India is a leading destination for foreign investment.

Manufacturing

Manufacturers from across the world are setting up shop in India, which has --

according to McKinsey Research -- all the required skills in process, product, and capital

engineering, thanks to its long manufacturing history and higher-education system.

India's vast domestic market and relatively low-cost workers with advanced

technical skills will make it a manufacturing powerhouse within 5-10 years, according to

a study by Boston Consulting Group. Already, more and more multinationals are setting

up operations in India: ABB, Honeywell and Siemens in electrical and electronicproducts; Cummins, DaimlerChrysler, and Toyota in auto components and engineering;

and Degussa as well as Rohm and Hass in specialty chemicals. All these operate in skill-

intensive industries requiring advanced technical expertise -- areas in which India is

likely to become a primary sourcing and manufacturing base.

Manufacturing recorded an impressive growth rate of 12.5 per cent during the

year 2006-07. It also continued its growth rate in the new fiscal year 2007-08 by growing

at a rate of 15.1 per cent during April as compared to the corresponding period last year.

The top five growth industries in the manufacturing sector are cement, steel, pharma,

gems and jewellery and engineering, according to a study by Hyderabad-based Cygnus

Business Consulting and Research.

Infrastructure

India's infrastructure has been growing at an accelerating pace to support the

economic growth rate of over 9 per cent. The six core-infrastructure industries, which

account for a combined weight of 26.68 per cent in the index of industrial production

(IIP), registered a growth of 8.6 per cent in 2006-07 as against 6.2 per cent during 2005-

06.

Sector Weight (%) Apr-Mar 2005- Apr-Mar 2006-


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06 07

CrudePetroleum

4.17 -5.2 5.5

PetroleumRefineryProducts

2.00 2.1 12.3

Coal 3.22 6.6 6.0

Electricity 10.17 5.1 7.3

Cement 1.99 12.4 9.1

Finished steel(carbon)

5.13 11.2 10.9

Overall 26.68 6.2 8.6

Source: Concerned Ministries/Departments/Organization(s)

The combined spending on infrastructure by both the public and privates sectors

accounted for about 4.6 per cent of GDP. The growth has continued apace during the

current fiscal, with the six core-infrastructure industries growing at the rate of 6.9 per

cent during April-June, 2007.

According to the prime ministers committee on infrastructure (CoI), the

projected investment requirement for infrastructure development during the eleventh plan

period (2007-2012) is US$ 456 billion. Of the total projected investment, it is estimated

that power could get about 28 per cent of the fund flows while roads 20 per cent, railways

15 per cent, telecom 12 per cent, water supply and sanitation about 6 per cent and

irrigation 10 per cent

A substantial share of this investment is expected to come from private sector

both domestic and foreign. For this, the government has already enacted many proactivemeasures like opening up a number of infrastructure sectors to private players, permitting

fdi into various sectors, introducing model concession agreements, taking up new

projects like the National Highway Development Project, National Maritime

Development Programmer among others.


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With huge opportunities opening up in this segment, private investment has been

rising at a scorching pace. Already, telecommunications, transportation and fuels (power

+ oil refinery) have attracted a combined cumulative foreign direct investment of US$

11.45 billion over the period August 1991 to May 2007. In fact, these three account for

about 23.5 per cent of the total fdi in to the country.

Simultaneously many India dedicated infrastructure funds are coming up.

Presently about US$ 5 billion India-dedicated overseas funds have been lined up for

investment in ports, airports, energy and infrastructure services. This is in addition to the

US$ 5 billion fund each that 3i, Citigroup and Blackstone have floated in collaboration

with Indian Infrastructure Finance Company. Other important players include Atherstone

India Invest, AMP Capital, Macquarie Infrastructure Group, DLF-Laing Orourke amongothers.


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Budget 2007-08

Besides government initiatives, the budget for the fiscal year 2007-08 proposes

the following:

The Centre's budgetary allocation to JNNURM has increased from US$

1.13 billion in 2006-07 to US$ 1.23 billion in FY 2007-08.

Urban local bodies have been allowed to issue tax-free bonds through

State Pooled Finance entities formed to raise funds for the 'group of' urban

local bodies'.

Under Plan B of the Eleventh Plan a share has been allocated to urban

infrastructure and water resources from the additional resources of US$

1.73 billion that the Centre plans to generate through better tax

administration.

Allocation for the Rajiv Gandhi Drinking Water Mission has been

enhanced from US$ 1.15 billion in 2006-07 to US$ 1.44 billion in 2007-

08.

Provision for Total Sanitation Campaign has been increased from

US$178.17 million in 2006-07 to US$ 232.61 million in 2007-08.


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CHAPTER 2

INDUSTRIAL ANALYSIS

Cement production in India commenced in 1914. Severe competition from

imported cement, coupled with various governmental price and distribution controls,resulted in the slow growth of the Indian cement industry in the earlier years. In the

subsequent 65 years, 27 MnT of cement capacity was added. This situation was reversed

in the 1980s when the industry was partially decontrolled. This resulted in substantial

increase in the capacity and production of cement. Nearly 30 MnT of capacity was added

during the 11 years from 1980 to 1990, thereby adding more capacity during one decade

than had been added during the previous seven decades. Encouraged by the creation of

substantial new capacity and the lowering of prices, the GoI freed the industry from price

and distribution controls on March 1, 1989 and delicensed it on July 25,1991, leading to a

spurt in cement production capacities. During the period from 1991 to 2005,

approximately 93 MnT of fresh capacity of cement was added. Since the 1980s, cement

capacity has steadily outpaced its demand, and India has grown to become the second

largest cement producer in the world, India is also estimated to have approximately 90

billion tonnes of limestone reserves, the main raw material used in the manufacture of

cement. As on March 2006, the Indian cement industry comprised over 54 cement

producers, operating 130 large cement plants with an average installed capacity of 160

MnT. However the per capita consumption of 106 kgs of the country compares poorly

with the world average of 260 Kg. Source: CMA, March, 2006

The Indian cement industry has made significant progress upgrading and

assimilating the latest technology. At present, 95% of the total capacity in the industry is

based on modern, environment-friendly and energyefficient dry process technology, with

only 5% of the capacity based on old wet and semi-dry process


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CAPACITY UTILIZATION HIGHEST IN LAST 10

YEARS

In 2002, global cement production was reported at 1.7 billion tonnes, with China

accounting for nearly 37% of the total output of cement in the world. India was the

second largest producer with 6.7% of the total output of cement in the world, closely

followed by the United States at 5%. During 1998 to 2002, world cement production

grew at a CAGR of 3.8% with demand remaining subdued in most markets on account of

the various crises faced by different economies. However, during the same time, the

Indian cement industry recorded a CAGR in cement production of 5.5%, principally due

to improved economic conditions and increased construction activity. Despite this

comparatively high growth rate enjoyed by the Indian cement

industry, Indias per capita cement consumption of 106 kgs p.a was amongst the

lowest in the world, with other developing nations like Egypt and Thailand having per

capita consumption of cement in the region of 370 to 450 kgs p.a. respectively, in 2002.

One of the defining features of the Indian cement industry is its highly clustered

nature, as cement units are concentrated in close proximity to the limestone deposits.

87.64

93.05

79.2483.60

80.9280.6378.1985.07

85.10

77.00

79.56

0.00

20.00

40.00

60.00

80.00

100.00

120.00140.00

160.00

180.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

mn.tonnes

10.00

20.00

30.00

40.00

50.00

60.00

70.0080.00

90.00

100.00

Capacity Installed Cement Production Capacity Utilisation


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Competition is also localized because the cost of transportation of cement to distant

markets often results in the product being uncompetitive in those markets.

Hence, cement units tend to be located close to both limestone deposits, as well as

to the markets those units service. This is one of the key factors, which has resulted in the

Indian cement market being more regional and fragmented in nature. Market share of Top

five Players in 2005-06 is: Holcim group (21.2%), Grasim group (20%), India Cements

(5.6%), Century Textiles (4.0%), Jaiprakash Industries (3.9%) In 2006, the five largest

cement companies together controlled 44.7%. Indian Cement Capacity, Production,

Capacity Utilization Rate and Demand. During 1997-98 to 2005-06, the installed capacity

of cement in the industry increased at a CAGR of 6.8% to 160 MnT. During the same

period, while there was no significant change in capacity utilization, production growthmarginally outpaced capacity growth by growing at a CAGR of 7.6%. The table below

discusses

capacity, production and capacity utilization in the cement industry over the past

five years

Regional Update

SOUTHERN REGION

Cement consumption in Southern region has risen strongly by 22.7% in the Apr

2005 - Feb 2006 period. the period, cement consumption has grown by 38.6% in Andhra

Pradesh, 20.6% in Tamilnadu,

21.4% in Karnataka and 6.5% in Kerala. Average southern region cement prices

in the retail market in Apr 2005 - Feb 2006 period are up 3.2%-however prices have

remained flat in Andhra Pradesh and

some parts of Kerala and have risen in Tamilnadu and Karnataka.


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NORTHERN REGION

All states in the Northern region, barring UP and Delhi, have reported higher

cement consumption in the Apr 2005 - Feb 2006 period, with Uttaranchal (23.7%),

Haryana (14.6%), Rajasthan (19.8%) and Chandigarh (35.6%) leading the pack. On a y-o-y basis, in the Apr 2005 - Feb 2006 period, retail cement prices across the northern

region with sharp rise in Delhi and Himachal Pradesh markets.

EASTERN REGION

Except Assam and Meghalaya, all other parts of Eastern region witnessed robust

cement consumption in the Apr 2005 - Feb 2006 period. Cement consumption has grown

by 54% in Chattisgarh, 16.7% in Bihar, 13% in Jharkhand, 7.6% in Orissa and 6% in

West Bengal. Barring West Bengal-where prices have remained flatcement

prices too have risen by around 3% across the region.


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WESTERN REGION

Cement prices in the Western region have witnessed the sharpest rise in the Apr

2005 - Feb 2006 period, with Madhya Pradesh and Gujarat witnessing steep increase in

retail prices. Demand growth in the western region however has been modest at 2.8% in

the Apr 2005 - Feb 2006 period.


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INDIAS TOTAL CEMENT SALE

EVALUATING THE CEMENT INDUSTRY PORTERS

MODEL

The model of the Five Competitive Forces was developed by Michael E. Porter in

his book Competitive Strategy: Techniques for Analysing Industries and Competitors

in 1980. Since that time it has become an important tool for analysing an organizations

industry structure in strategic processes.

Porter's Five Forces Model is probably the most widely used tool in business

strategy. Porter has identified five competitive forces that shape every industry and every

market. These forces determine the intensity of competition and hence the profitability

and attractiveness of an industry. Porters model supports analysis of the driving forces in

an industry. Based on the information derived from the Five Forces Analysis,


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management can decide how to influence or to exploit particular characteristics of their

industry.

ENTRY BARRIER

Entry barriers are not too high in cement industry. The key barriers are: -

As cement industry is capital intensive, Capital is the biggest constraint,

which only big player will have access to.

Economies of scale are an important factor of the industry and this will

reduce the cost of cement which would favour the bigger players, like

Birla group or Gujarat Ambuja. Knowledge to this fact will discourage the

new entrant.

Price plays an important factor, as differentiation in cement industry is

low. Thus, Cost advantage is critical. Companies, which can have a

sustainable low cost position, will have a competitive advantage. The

major players in India do seem to have a similar cost position. Gujarat

Ambuja has been able to sustain a low cost position.

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

transporting cement over long distances can prove to be uneconomical

which acts as an important constrain to enter the cement industry.

High capital costs and long gestation periods is also an important factor

for an entry in cement industry.


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Not an easy access to limestone reserves (principal raw material for the

manufacture of cement) also acts as a significant entry barrier.

IMPACT OF ENTRY BARRIER OF CEMENT INDUSTRY ON AMBUJA

CEMENTS: -

This element is in favour of Ambuja cement - as the companies in

cement industry needs to be capital intensive so not every one can enter the

industry easily.

Secondly as brand does not play an important role in the industry but price

is a very important factor to sustain in the industry it favours Ambuja cement, as it

is the cost leader in the industry.

Thirdly as high capital cost, long gestation period and difficulty inaccessing to raw material like limestone reserve etc helps the company to avoid

intense competition.

BARGAINING POWER OF SUPPLIERS: -

The cement industry is dependent on three major infrastructural sectors of

the economy: coal, power and transport. The inputs from these three sectors

account for roughly 50% of the cost of cement. Both the availability and the cost

of these inputs have a vital bearing on the fortunes of the cement players. As theraw material required by cement industry are in control of the government, so

government pricing would have an impact. As government largely controls all

these sectors, thus cement companies have no control on the cost and the

availability of these inputs.

Suppliers have a low impact in cement industry. As this would be

common to all companies there would be the similar kind of impact on all the

companies in the cement industry.

IMPACT OF SUPPLIER OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -

Licensing of coal and limestone reserves, supply of power from the state

grid and availability of railways for transport are all controlled by a single

entity, which is the government. However, Ambuja cement is relying more

on captive power as power consists over 40% of the production cost of


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cement. The company improved efficiency of its kilns to get more output

for less power. Thereafter Ambuja Cements has set up a captive power

plant at a substantially lower cost than the national grid.

Shortage of coal and rising fuel prices remain a concern. Hence, the

industry response has largely been in the form of achieving efficiency

gains and finding alternatives. The shortage in domestic coal production

coupled with the poor quality has resulted in Ambuja cement resorting to

importing coal and going in for open market purchase of coal, and using

alternative fuel such as lignite or pet coke. The company sourced a

cheaper and higher quality coal from South Africa, and better furnace oil

from the Middle East. As a result, today, the company is in a position to

sell its excess power to the local state government.

BARGAINING POWER OF CUSTOMERS: -

Private housing sector is the major consumer of cement (65%) followed

by the government infrastructure sector.

Encouraging trend in demand due to pick-up in rural housing demand and

industrial revival

In recent times, industrial and infrastructure including SEZ, retail chains,

shopping malls and entertainment houses have also emerged as demand

drivers for cement.

India has significant potential to cater to the cement requirements of the

Middle East and the South East Asian nations

Consumers have a very high impact on bargaining power of cement. As cement is

essential product in the construction sector but non-differentiated products, the

consumers can easily switch of to another brand without a cost. So a company in cement

sector needs to be a cost efficient company to sustain its self in the industry.

IMPACT OF BUYERS OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -

As consumer have a more power on the industry, which is unfavorable for the

industry but have, a positive impact on the company as: -


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Gujarat Ambuja's strength lies in its ability to produce cement at a

significant discount to the industry so it as a competitive advantage of low

cost.

It also has an effective logistics system.

As a result Ambujas brand continues to enjoy a premium position, not only for

its consistently outstanding quality, but also for the excellent customer care and support

provided.

SUBSTITUTE PRODUCT: -

As cement is a basic construction material with practically no

substitute, it is used worldwide for all construction work.

IMPACT OF SUPPLIER OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -

As there is no near and direct substitute of cement, which would hamper the

profitability of the industry, this is a favourable force, which has added to the profitability

of Ambuja cement.

THE RIVALRY AMONG THE EXISTING PLAYERS: -

High rivalry in the industry as the industry is still fragmented. Top 6 players have

60% capacity. However local players can have an impact on pricing as cement as the

industry depends on local supply. Cement being bulky is generally not transported from

long distance

Due to large number of players in the industry and very little brand

differentiation, the competition is intense with players resorting to expanding reach and

achieving pan India presence.


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KEY PLAYERS IN THE INDUSTRY ARE:

Associated Cement Companies Ltd (ACC), Birla Corp, Century Textiles And

Industries Ltd (Ctil), Grasim-Ultratech Cemco, Gujarat Ambuja Cements Ltd (Gacl),

India Cements, Jaiprakash Associates Limited Jk Synthetics, Madras Cements, Holcim,

Lafarge India, Italcementi Group.

It can be said in short that low brand strength, high fragmentation, low cost

advantages (except in case of some players), the competitive intensity is high. Pricing is

poor and depends on demand scenario. If demand drops, the profitability suffers as the

players cut price to run plants at full capacity (due to high fixed costs).

IMPACT OF COMPETITORS IN CEMENT INDUSTRY ON AMBUJA

CEMENTS: -

As Ambuja is the most profitable cement company in India, and the lowest cost

producer of cement in the world. The Indian business group, Grasim, is amongst the top

ten companies in the world.

GRASIM-ULTRATECH CEMCO

With the acquisition of UltraTech, L&T's cement division in early 2004, Grasim

has now become the world's seventh largest cement producer with a combined capacity

of 31 million tonnes. It is also planning to enter into international ventures. This pose a

threat to Ambuja cement as this may hamper the market share of Ambuja cement and

also affect the exports of Ambuja as it is planning to enter international ventures.

BIRLA CORPORATION

As Large quantities of Birla Corp cement are exported to Nepal and Bangladesh.

Going forward, the company is setting up its captive power plant to remain cost

competitive, which indicates that the company will be capable of cost cutting, which will

definitely affect the prices and profitability of Ambuja cement.


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ITALCEMENTI GROUP

The Italecementi group is one of the largest producers and distributors of cement

with 60 cement plants spread across 19 countries in Europe, Asia, Africa and North

America. Italcementi is present in the Indian markets through a 50:50 joint venture

company with Zuari Cements. As Italecementi group is a international group it will

definitely impact and pose competition to Ambuja cement as they have a pan presence

which leads to economies of scale leading to cost advantage.

But it can be said that Ambuja Cements has set up a captive power plant at a

substantially lower cost than the national grid, secondly company sourced a cheaper and

higher quality coal from South Africa, and better furnace oil from the Middle East.

Thirdly Gujarat Ambuja has managed to partner Holcim Company as it has the followingbenefits:

-Economies of scale resulting from the larger size of operations

-Savings in the time and cost required to set up a new unit

-Access to new markets

-Access to special facilities / features of the acquired company

ENVIRONMENTAL SCANNING FOR AMBUJA CEMENT

The environment in which a organization exists could be broadly divided into two

parts: - the external environment and the internal environment .the process of strategic

formulation starts with, and critically depends on the appraisal of external and internal

environment of an organization .the process by which organization monitors their

rele

analysis of cement sector as an investment avenue for india infoline securities by nutan kirad

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