cement industry analysis
DESCRIPTION
fundamental analysis of cement sectorTRANSCRIPT
FUNDAMENTAL ANALYSISFUNDAMENTAL ANALYSIS
FUNDAMENTAL ANALYSISFUNDAMENTAL ANALYSIS
ECONOMY ANALYSISECONOMY ANALYSIS
INDUSTRY ANALYSISINDUSTRY ANALYSIS
COMPANY ANALYSISCOMPANY ANALYSIS
COUNTRY ANALYSISCOUNTRY ANALYSIS
The Indian economy grew at 9.6 per cent in The Indian economy grew at 9.6 per cent in 2006-07 and 9 per cent in 2007-08, 2006-07 and 9 per cent in 2007-08, emerging as the second fastest growing emerging as the second fastest growing major economy in the world major economy in the world
Foreign Exchange Reserves
$247.76 309.72
FII 10.310.3 16.1
FDI 15.7 24.57
2006-07 2007-08
GDPGDP
GDP
3.84
8.527.45
9.42 9.69.03
0
2
4
6
8
10
12
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Year
Gro
wth
%
GDP
INVESTMENT IN FIXED INVESTMENT IN FIXED ASSETS % OF GDPASSETS % OF GDP
Investment (GDP %)
23.1 23.8
28.1 29.231.8
0
5
10
15
20
25
30
35
2004 2005 2006 2007 2008
INFLATIONINFLATION
% of change
4.3 3.8 3.8 4.45.5 5.4
12.64
0
2
4
6
8
10
12
14
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
year
infla
tion
rate
% of change
Industrial Production Industrial Production Industrial production growth rate
6.00%6.50%
7.40% 7.90% 7.50%
10.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2003 2004 2005 2006 2007 2008
YEAR
GRO
WTH
%
annual percentage increase in industrial production (includes manufacturing, mining, and construction).
POSITION OF INDIAPOSITION OF INDIA
Rank CountryGDP (purchasing power parity) (Billion
$)
1 United States 13,860
2 China 7,043
3 Japan 4,417
4 India 2,965
5 Germany 2,833
6 United Kingdom 2,147
7 Russia 2,076
8 France 2,067
9 Brazil 1,838
10 Italy 1,800
FUTURE OF INDIAN FUTURE OF INDIAN ECONOMYECONOMY
Over 300 million Indians are expected to have a Over 300 million Indians are expected to have a household income of over US$ 6,000 by 2015.household income of over US$ 6,000 by 2015.
India is among the world's youngest nations with India is among the world's youngest nations with a median age of 25 yearsa median age of 25 years
India has the second largest area of arable land India has the second largest area of arable land
in the world, making it one of the world's largest in the world, making it one of the world's largest food producers - over 200 million tonnes of food producers - over 200 million tonnes of foodgrains are produced annually.foodgrains are produced annually.
With the largest number of listed companies - With the largest number of listed companies -
10,000 across 23 stock exchanges, 10,000 across 23 stock exchanges,
FUTURE OF INDIAN FUTURE OF INDIAN ECONOMYECONOMY
India's healthy banking system with a India's healthy banking system with a network of 70,000 branches is among the network of 70,000 branches is among the largest in the world largest in the world
According to a study by the McKinsey According to a study by the McKinsey Global Institute (MGI), India's consumer Global Institute (MGI), India's consumer market will be the world's fifth largest market will be the world's fifth largest (from twelfth) in the world by 2025 (from twelfth) in the world by 2025
India's middle class will swell by over ten India's middle class will swell by over ten times from its current size of 50 million times from its current size of 50 million to 583 million people by 2025to 583 million people by 2025
The number of companies incorporated The number of companies incorporated
has increased at an annual average of has increased at an annual average of 55,000 companies in the last two years 55,000 companies in the last two years
INDUSTRY ANALYSISINDUSTRY ANALYSIS
CEMENT INDUSTRYCEMENT INDUSTRY
CEMENT INDUSTRYCEMENT INDUSTRY India is the world’s second largest India is the world’s second largest
producer of cement after China producer of cement after China with industry capacity of over 200 with industry capacity of over 200 million tonnes (MT) million tonnes (MT)
Total installed capacity was Total installed capacity was 204.29 MT as on August 31, 2008204.29 MT as on August 31, 2008
Total despatches has been 100.17 Total despatches has been 100.17 MT during April–October 2008–09 MT during April–October 2008–09
100.96 MT during April–October 100.96 MT during April–October 2008–09. 2008–09.
CEMENT INDUSTRY CEMENT INDUSTRY ANALYSISANALYSIS
India’s cement consumption India’s cement consumption grew 9.6% yoy.grew 9.6% yoy.
South market witnessed South market witnessed strong demand supporting strong demand supporting firm pricing (up 4.7% yoy) in firm pricing (up 4.7% yoy) in the region.the region.
The key concern dip in The key concern dip in construction and construction and infrastructure activities in infrastructure activities in the country.the country.
CEMENT INDUSTRY CEMENT INDUSTRY ANALYSISANALYSIS
Rebound in consumption growth; Rebound in consumption growth; Central and South region Central and South region outperform.outperform.
RegionRegion GrowthGrowth%%
IndiaIndia
SouthSouth
WestWest
CentralCentral
NorthNorth
EastEast
9.69.6
16.316.3
9.89.8
14.314.3
3.73.7
2.12.1
CEMENT INDUSTRY CEMENT INDUSTRY ANALYSISANALYSIS
Contradictory pricing trend Contradictory pricing trend emerge; realizations remained emerge; realizations remained robust in Southrobust in South
Capacity utilization improves MoM Capacity utilization improves MoM but remains lower yoybut remains lower yoy
Key performers were players who Key performers were players who have recently added capacitieshave recently added capacities
Coal prices cool from peak; freight Coal prices cool from peak; freight index fell to the lowest levels since index fell to the lowest levels since 2002.2002.
Consumption Growth & Consumption Growth & Capacity AdditionCapacity Addition
Consumption in Million Tonnes and Consumption in Million Tonnes and Capacity addition in Million Tonnes p aCapacity addition in Million Tonnes p a
RegionRegion ConsumptionConsumption Capacity Capacity AdditionAdditionSep 08Sep 08 Sep 07Sep 07 Aug Aug
0808
SouthSouth 4.434.43 3.83.8 4.494.49 27.627.6
NorthNorth 2.852.85 2.752.75 2.412.41 15.015.0
WestWest 2.42.4 2.352.35 2.42.4 11.311.3
EastEast 1.911.91 1.741.74 1.861.86 7.57.5
Mergers and Mergers and AcquistionsAcquistions
The cement sector contributing to 7 per The cement sector contributing to 7 per cent to the total deal valuecent to the total deal value
Holcim strengthened its position in India Holcim strengthened its position in India by increasing its holding in Ambuja by increasing its holding in Ambuja Cement from 22 per cent to 56 per cent. Cement from 22 per cent to 56 per cent.
Leading foreign funds have together Leading foreign funds have together bought around 7.5 per cent in India’s bought around 7.5 per cent in India’s third-largest cement firm, India Cements third-largest cement firm, India Cements (ICL), for US$ 124.91 million(ICL), for US$ 124.91 million
Cimpor, the Portugese cement maker, Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim paid US$ 68.10 million for Grasim Industries’ 53.63 per cent stake in Shree Industries’ 53.63 per cent stake in Shree Digvijay CementDigvijay Cement
Cement IndustryCement Industry
Entry barriers:Entry barriers:
Economies of scaleEconomies of scale Capital requirementCapital requirement Avg gestation period of 2-3 yearsAvg gestation period of 2-3 years Access to distribution channelsAccess to distribution channels Threat of new entrants: lowThreat of new entrants: low
Bargaining power of suppliersBargaining power of suppliers: High: High Large and few sellersLarge and few sellers No substitutesNo substitutes Sellers’ product important input for buyerSellers’ product important input for buyer
Cement IndustryCement Industry
Bargaining power of buyers: low/mediumBargaining power of buyers: low/medium Standard productStandard product No substituteNo substitute
Intensity of competition: MediumIntensity of competition: Medium Equally balanced competitorsEqually balanced competitors Average industry growthAverage industry growth High fixed costsHigh fixed costs Lack of switching costLack of switching cost Capacity augmentation in large incrementsCapacity augmentation in large increments High exit barriersHigh exit barriers
Substitutes: NoneSubstitutes: None
SWOTSWOT
STRENGTHSSTRENGTHS Second largest in the world in Second largest in the world in
terms of capacityterms of capacity Low cost of productionLow cost of production
SWOTSWOT
WEAKNESSWEAKNESS
Effect of global recession on Effect of global recession on Real Estate and Infrastructure.Real Estate and Infrastructure.
Demand-Supply gap, OvercapacityDemand-Supply gap, Overcapacity Increasing Cost of ProductionIncreasing Cost of Production High Interest ratesHigh Interest rates
SWOTSWOT
OPPORTUNITIESOPPORTUNITIES Strong growth of economy in Strong growth of economy in
the long run.the long run. Increase in infrastructure Increase in infrastructure
projectsprojects Growing middle classGrowing middle class Technological ChangesTechnological Changes Increase in govt spending.Increase in govt spending.
SWOTSWOT
THREATSTHREATS
Imports from Pakistan Imports from Pakistan affecting markets in Northern affecting markets in Northern India.India.
Excess over capacity can hurt Excess over capacity can hurt margins as well as pricesmargins as well as prices..
CHALLENGESCHALLENGES
Cement industry currently Cement industry currently has one of the highest has one of the highest inventory levels in recent inventory levels in recent times.times.
Growth rates have slowed.Growth rates have slowed. Capacity additions putting Capacity additions putting
pressure on prices.pressure on prices. As a result the cement As a result the cement
companies are looking for companies are looking for cutting productioncutting production
COMPANY COMPANY ANALYSISANALYSIS
Cement House 121, Maharishi Karve Road
Mumbai - 400 020India
Tel: 91-22-66654321Fax: 91-22-66317440
Corporate officeCorporate office
Established in 1936, ACC has been a pioneer Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete and trend-setter in cement and concrete technology. technology.
ACC's operations are spread throughout the ACC's operations are spread throughout the country with 14 modern cement factories, more country with 14 modern cement factories, more than 30 Ready mix concrete plants, 20 sales than 30 Ready mix concrete plants, 20 sales offices, and several zonal offices. offices, and several zonal offices.
It has a workforce of about 10,000 persons and It has a workforce of about 10,000 persons and a countrywide distribution network of over a countrywide distribution network of over 9,000 dealers.9,000 dealers.
It is the only cement company that figures in It is the only cement company that figures in
the list of Consumer SuperBrands of Indiathe list of Consumer SuperBrands of India Ten existing cement companies came together Ten existing cement companies came together
under one umbrella in a historic merge under one umbrella in a historic merge
OverviewOverview
F. E. Dinshaw – the founder of ACCF. E. Dinshaw – the founder of ACC
ACC's First Board Meeting in 1936 at The Esplanade
BOARD OF DIRECTORS BOARD OF DIRECTORS
Mr N. S. SekhsariaMr N. S. SekhsariaChairman Chairman
Mr Paul HugentoblerMr Paul Hugentobler Deputy Chairman Deputy Chairman
Mr Sumit BanerjeeMr Sumit BanerjeeManaging Director Managing Director
Mr S M PaliaMr S M PaliaMr Naresh ChandraMr Naresh Chandra
Mr Markus AkermannMr Markus AkermannMr M L Narula Mr M L Narula
Mr D K MehrotraMr D K MehrotraMr R A ShahMr R A Shah
Dr Nirmalya KumarDr Nirmalya KumarMr Shailesh Haribhakti Mr Shailesh Haribhakti
Ms Shikha Sharma Ms Shikha Sharma
Units Units CapacityCapacity (MTPA) (MTPA)
Bargarh Bargarh 0.960.96
ChaibasaChaibasa 0.870.87
Chanda Chanda 1.001.00
DamodharDamodhar 0.530.53
Gagal Gagal 4.404.40
Jamul Jamul 1.581.58
Kymore Kymore 2.202.20
Lakheri Lakheri 1.501.50
Madukkarai Madukkarai 0.96 0.96
Sindri Sindri 0.910.91
Wadi Wadi 2.592.59
New Wadi Plant New Wadi Plant 2.602.60
Tikaria Tikaria 2.312.31
TotalTotal 22.4122.41
Plant wise capacity Plant wise capacity
SubsidiariesSubsidiaries
Bulk Cement Corporation Bulk Cement Corporation (India) Ltd. (BCCI)(India) Ltd. (BCCI)
ACC Concrete Limited ACC Concrete Limited Lucky Minmat Lucky Minmat
Products & ServicesProducts & Services
Ordinary Portland CementsOrdinary Portland Cements OPC 43 GradeOPC 43 Grade OPC 53 GradeOPC 53 Grade Blended Cements Blended Cements Fly-ash based Portland Pozzolana Fly-ash based Portland Pozzolana
CementCement Portland Slag CementPortland Slag Cement Ready Mix ConcreteReady Mix Concrete Consultancy ServicesConsultancy Services
Financial analysisFinancial analysis
Balance sheetBalance sheet Profit & loss AccountProfit & loss Account Fund flow statementFund flow statement
20072007 2006 2006 2005 (9M)2005 (9M) 2004-052004-05 2003-042003-04
Gross RevenueGross Revenue 79,771 79,771 65,860 65,860 38,15138,151 46,40546,405 40,38840,388
Profit After TaxProfit After Tax 14,386 14,386 12,31812,318 5,4425,442 3,7843,784 2,0022,002
DividendDividend 4,389 4,389 3,2203,220 1,6861,686 1,430 1,430 800800
Net WorthNet Worth 41,52741,527 31,42031,420 21,30021,300 15,77015,770 13,18413,184
Capital Capital Employed Employed 49,533 49,533 43,78743,787 36,07036,070 33,82033,820 30,10930,109
BorrowingsBorrowings 4,6914,691 9,1609,160 11,76211,762 15,093 15,093 13,27213,272
Debt-Equity Debt-Equity RatioRatio 0.110.11 0.290.29 0.550.55 0.960.96 1.071.07
Book Value per Book Value per Share (Rs)Share (Rs) 221.33221.33 167.77167.77 115.00115.00 88.0088.00 74.4174.41
Earning per Earning per ShareShare 76.7576.75 66.0266.02 30.0230.02 21.2321.23 11.6811.68
Dividend per Dividend per ShareShare 20.0020.00 15.0015.00 8.008.00 7.007.00 4.004.00
Employees Employees (Number)(Number) 10,03210,032 9,2319,231 9,1709,170 8,9958,995 9,1159,115
Shareholders Shareholders (Number)(Number) 1,27,4761,27,476 1,10,4551,10,455 97,21997,219 1,05,1651,05,165 1,20,8031,20,803
Financial highlightAll figures in Rs. Million or as indicated
Gross RevenueGross Revenue
YearYearGross Revenue(in Gross Revenue(in
Rs. million)Rs. million)
2001-022001-02 3333833338
2002-032002-03 3465434654
2003-042003-04 4038840388
2004-052004-05 4640546405
2005 (9M)2005 (9M) 3815138151
20062006 6594765947
20072007 7977179771
EBITDAEBITDAYearYear EBITDA(in Rs. EBITDA(in Rs.
million)million)
2001-022001-02 49234923
2002-032002-03 40364036
2003-042003-04 53395339
2004-052004-05 72007200
2005 2005 (9M)(9M)
63376337
20062006 1756117561
20072007 2046220462
PATPAT
YearYear PATPAT(in Rs. million)(in Rs. million)
2001-022001-02 13041304
2002-032002-03 10391039
2003-042003-04 20022002
2004-052004-05 37843784
2005 (9M)2005 (9M) 54425442
20062006 1231812318
20072007 1438614386
DividendsDividends
YearYear Dividends Dividends (%)(%)
2001-022001-02 3030
2002-032002-03 2525
2003-042003-04 4040
2004-052004-05 7070
2005 (9M)2005 (9M) 8080
20062006 150150
20072007 200200
Net Worth & Return on Net Worth & Return on the Net Worththe Net Worth
YearYear Net WorthNet Worth(in Rs. million)(in Rs. million) Return on Net WorthReturn on Net Worth (%) (%)
2001-022001-02 94599459 1414
2002-032002-03 1024210242 1010
2003-042003-04 1318413184 1515
2004-052004-05 1577015770 2424
2005(9M)2005(9M) 2130021300 3333
20062006 3142031420 3939
20072007 4153041530 3535
Book Value Per ShareBook Value Per Share
YearYearBook Value Per ShareBook Value Per Share(in (in
Rs.)Rs.)
2001-022001-02 5555
2002-032002-03 6060
2003-042003-04 7474
2004-052004-05 8888
2005 2005 (9M)(9M)
115115
20062006 168168
20072007 221221
EQUITY SHAREEQUITY SHARE
Company's Company's Financial Financial yearyear
20072007 20062006 20052005 2004-052004-05 2003-042003-04
Earnings Per Earnings Per ShareShare Rs.Rs. 76.75 #76.75 # 66.02#66.02# 30.02#30.02# 21.23#21.23# 11.68#11.68#
Earning-price Earning-price RatioRatio 13.7413.74 16.4416.44 17.7417.74 17.2517.25 21.6221.62
YieldYield %% 1.901.90 1.381.38 1.501.50 1.911.91 1.581.58
Debt - EquityDebt - EquityRatioRatio 0.110.11 0.290.29 0.550.55 0.960.96 1.091.09
Current RatioCurrent Ratio 1.071.07 1.261.26 1.161.16 1.251.25 1.221.22
a) Higha) High Rs.Rs. 1,3151,315 1,1921,192 569569 385385 283283
b) Lowb) Low Rs.Rs. 680680 501501 318318 218218 127127
Key Ratios Key Ratios RatioRatio 20072007 20082008
Liquidity RatiosLiquidity Ratios
Current ratioCurrent ratio 1.581.58 1.871.87
Quick ratioQuick ratio 1.051.05 1.261.26
Leverage ratioLeverage ratio
Debt-equity ratioDebt-equity ratio 0.110.11 0.290.29
Total debt-equity Total debt-equity
0.680.68 1.001.00
Proprietary ratioProprietary ratio 0.600.60 0.530.53
Interest coverage Interest coverage ratioratio
70.7270.72 27.0327.03
Cont..Cont..
RatioRatio 20072007 20082008
Profitability ratiosProfitability ratios
Return on Return on assetsassets
20.520.5 20.8520.85
Return on Return on capital capital employedemployed
3.413.41 3.213.21
Return on Return on equityequity
0.390.39 0.340.34
EPSEPS 76.75 Rs76.75 Rs 66.02 Rs66.02 Rs
Dividend pay Dividend pay out ratioout ratio
26.31%26.31% 22.72%22.72%
shareholdingIndian Bodies Corporate
Foreign Bodies Corporate
Mutual Funds/ UTI
Financial Institutions/ Banks
Central Government/ State Government(s)
Foreign Institutional Investors
Bodies Corporate
Individuals -
i. Individual shareholders holding nominalshare capital upto Rs. 1 lakh.
ii. Individual shareholders
i.Shares held by Pakistani Citizens vestedw ith the Custodian of Enemy Property
iii. Foreign Bodies
iv. NRI/OCBs
v. Clearing Members/Clearing House
vi. Trusts
Shares held by Custodians and againstw hich Depository Receipts have beenissued
Shareholding PatternShareholding Pattern
Expected Dividend (TA)Expected Dividend (TA)
YEAR (X) DIVIDEND (y) x xy
2003-04 4 -2 -8
2004-05 7 -1 -7
2005 (9 M) 8 0 0
2006 15 1 15
2007 20 2 40
54 40
Time series analysisTime series analysis
A=10.8A=10.8 B=3B=3
Y=a+bXY=a+bX 2008= 10.8+3(2008-2005)2008= 10.8+3(2008-2005)
= 19.8= 19.8 2009=10.8+3(2009-2005)2009=10.8+3(2009-2005)
= 22.8= 22.8
Intrinsic valueIntrinsic value
For 2008; ROR =7.5%For 2008; ROR =7.5%
So= Div/(1+Ke)So= Div/(1+Ke)tt+MV/(1+Ke)+MV/(1+Ke)nn
= 19.8/(1.075)= 19.8/(1.075)11+ 403/(1.075)+ 403/(1.075)11
= 374.9= 374.9
Here, So<MV so Sale Is Good for investorHere, So<MV so Sale Is Good for investor
20092009
So will be 387.03So will be 387.03
AS,So<MV seller should sell at current AS,So<MV seller should sell at current levelslevels
BIBLIOGRAPYBIBLIOGRAPY
www.indexmundi/Indiawww.indexmundi/India%20Investment%20(gross%20Investment%20(gross%20fixed)%20-%20Economy.html%20fixed)%20-%20Economy.html
www.indiainfoline.comwww.indiainfoline.com www.business-standard.comwww.business-standard.com www.bseindia.comwww.bseindia.com www.moneycontrol.comwww.moneycontrol.com www.rediff/money.com/www.rediff/money.com/
myportfolio/acc/results.htmlmyportfolio/acc/results.html
BIBLIOGRAPYBIBLIOGRAPY
Portfolio Management by S.KevinPortfolio Management by S.Kevin Security Analysis and portfolio Security Analysis and portfolio
mgmt : Fischer Jordanmgmt : Fischer Jordan Capital market nov 2 editionCapital market nov 2 edition Business standard Nov 26Business standard Nov 26