“ANALYSIS OF THE INDIAN CEMENT INDUSTRY”

The key growth drivers for cement consumption are population growth
(increasing demand for housing, commercial building and infrastructure)
and economic growth (driving up the consumption of cement per capita)

According to the leading manufacturer of cement production equipment

in the world, F.L.Smidth, world cement consumption is set to rise on
average between 3.6% and 4.8% per year in the coming years. At the
same time, the Portland Cement Association (the US cement sector’s
trade body) is expecting world cement consumption to average more than
6% annually in the next two years, reaching 2.9 billion metric tons by
2008 (estimation Oct 2007). While much of this growth is set to come
from emerging growth markets in Central and Eastern Europe and Asia,
growth in mature markets also looks healthy.

The recent years have witnessed a surge of foreign direct investment in

the cement sector. International players like France's Lafarge, Holcim
from Switzerland, Italy's Italcementi and Germany’s Heidelberg Cements
together hold more than a quarter of the total capacity.

Holcim, one of the world's leading suppliers of cement, has 24 plants in

the country and
enjoys a market share of about 23–25 per cent. It will further invest
about US$ 2.49 billion
in the next five years to set up plants and raise capacity by 25 MT in the
country. Holcim

has a global sale worth about US$ 20 billion, where India contributes
US$ 2 billion–2.5
billion.
 Italcementi Group, which acquired full stake in the K K Birla promoted
Zuari Industries'
cement, for US$ 126.62 million in 2006 plans to invest US$ 174 million
over the next two
years in various greenfield and acquisition projects.
 The French cement major, Lafarge which acquired the cement plants of
Raymond and
Tisco with an installed capacity of 6 MTPA a few years back plans to
double its capacity to
12 MT over the next five years by adopting the greenfield expansion
route.
has a global sale worth about US$ 20 billion, where India contributes
US$ 2 billion–2.5
billion.
 Italcementi Group, which acquired full stake in the K K Birla promoted
Zuari Industries'
cement, for US$ 126.62 million in 2006 plans to invest US$ 174 million
over the next two
years in various greenfield and acquisition projects.
 The French cement major, Lafarge which acquired the cement plants of
Raymond and
Tisco with an installed capacity of 6 MTPA a few years back plans to
double its capacity to
12 MT over the next five years by adopting the greenfield expansion
route.
Mergers and Acquisitions (M&As)

A growing and robust economy was noteworthy in terms of the total

number of mergers and acquisitions (M&A) in India 2007, with the
cement sector contributing to 7 per cent to the total deal value. Increased
activity in infrastructure and a booming real estate market have seen
foreign firms vying to acquire a share of the pie.

Holcim strengthened its position in India by increasing its holding in

Ambuja Cement from 22 per cent to 56 per cent through various open
market transactions with an open offer for a total investment of US$ 1.8
billion. Moreover, it also increased its stake in ACC Cement with US$
486 million, being the single largest acquirer in the cement sector.

 Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset
Management Fund and Emerging Market Fund have together bought
around 7.5 per cent in India’s thirdlargest cement firm, India Cements
(ICL), for US$ 124.91 million.

 Cimpor, the Portugese cement maker, paid US$ 68.10 million for
Grasim Industries’ 53.63
per cent stake in Shree Digvijay Cement.
 German major Heidelberg Cement has merged Mysore Cement, in
which it owns around
54 per cent stake, Indorama, (where it acquired 100 per cent stake in
2008) and its 100 per
cent Indian subsidiary, Heidelberg Cement India.
Status of the Indian Cement Industry over the periods
Table 1.1 - Status of the Indian Cement Industry over the periods

SWOT ANALYSIS

a) Strengths:
 Second largest in the world in terms of capacity: In India there are
approximately 124 large and 300 mini plants with installed capacity of
200 million tonnes.

 Low cost of production: due to the easy availability of raw materials

and cheap labour.

b) Weakness:

 Effect of global recession on real estate: The real estate prices are
stabilizing and facing steady slowdown especially in metros. There are
approximately one hundred thousand completed flats without occupancy
in Bangalore. There has been drastic reduction in property prices due to
reduced demand and increased supply.

 Demand-Supply gap, overcapacity: The capacity additions distort the

demand-supply equilibrium in the industry thereby affecting profitability.

 Increasing cost of production due to increase in coal prices.

 High Interest rates on housing: The re-pricing of the interest rates in

the last four years from 7% to 12% has resulted in the slowdown in
residential property market.

c) Opportunities:

 Strong growth of economy in the long run: Indian economy has

been one of the stars of global economics in the recent years, growing
9.2% in 2007 and 9.6% in 2006. However, India is facing tough economic
times in 2008.

 Increase in infrastructure projects: Infrastructure accounts for 35%

of cement
consumption in India. And with increase in government focus on
infrastructure spending,
such as roads, highways and airports, the cement demand is likely to
grow in future.

 Growing middle class: There has been increase in the purchasing

power of emerging middle-class with rise in salaries and wages, which
results in rising demand for better quality of life that further necessitates
infrastructure development and hence increases the
demand for cement.
 Technological changes: The Cement industry has made tremendous
strides in technological up gradation and assimilation of latest
technology. At present ninety three per cent of the total capacity in the
industry is based on modern and environment-friendly dry process
technology and only seven per cent of the capacity is based on old wet
and semi-dry process technology. The induction of advanced technology
has helped the industry immensely to conserve energy and fuel and to
save materials substantially and hence reduce the cost of production.

d) Threats:

 Imports from Pakistan affecting markets in Northern India:

In 2007, 130000 tonnes in 2008, 173000 Metric tonnes of cement

was exported to India. This was done to keep the price of cement under
check.
 Excess overcapacity can hurt margins, as well as prices.

COMPANY PROFILE

ACC (ACC Limited) is India's foremost manufacturer of cement and

concrete. ACC's operations are spread throughout the country with 14
modern cement factories, more than 30 Ready mix concrete plants, 20
sales offices, and several zonal offices. It has a workforce of about 9,600
persons and a countrywide distribution network of over 9,000 dealers.
Since inception in 1936, the company has been a trendsetter and
important benchmark for the cement industry in many areas of cement
and concrete technology. ACC has a unique track record of innovative
research, product development and specialized consultancy services. The
company's various manufacturing units are backed by a central
technology support services centre - the only one of its kind in the Indian
cement industry. Among the first companies in India to include
commitment to environmental protection as one of its corporate
objectives, the company installed sophisticated pollution control
equipment as far back as 1966, long before pollution control laws came
into existence.
Today each of its cement plants has state-of-the art pollution control
equipment and
devices.

RAW MATERIAL REQUIRED

ACC has a countrywide spread of 14 modern cement plants. This large
network of
manufacturing units consumes a wide spectrum of inputs – about
60,000 different items
ranging from Coal, Gypsum, Slag, Packaging material (bags),
Refractories, Steel,
Grinding Media, Electrodes, Cables, Bearings, Conveyor Belts, Spares of
various
mechanical, electrical and instrumentation equipment, Mining
Equipment and their
spares and explosives. The main raw materials required are limestone
and coal.

SUPPLIERS OF RAW MATERIAL

Limestone
ACC has rich experience in mining, being the largest user of limestone. It
has access to
limestone mines from where it extracts limestone required for their
cement factories.
ACC acquired 100 per cent of the equity of Lucky Minmat Private
Limited. This
company holds limestone mines in the Sikar district of Rajasthan, and
helps supplement
limestone supply to its cement plants.
Coal
ACC Mineral Resources Limited has already entered into Joint Venture
arrangements for
prospecting, exploration and mining coal from the coal blocks in Madhya
Pradesh and
West Bengal. The company is also exploring other opportunities for
securing additional
coal and gypsum resources in India and abroad. As the largest cement
producer in India,
it is one of the biggest customers of the domestic coal industry.
For its other materials, ACC has a vendor base of more than 6000
suppliers spread across
the country. A team of professionals at Corporate, Regions and Plant
Level manages the
procurement function. The function is organized so as to derive
maximum value for the
company through economies of scale from central pooling and
procurement of some
inputs at the corporate level and thus meeting individual operational
requirements at
plant level.
They have implemented a SAP based Enterprise Resource Planning (ERP)
system for the
procurement function. Central procurement is divided into the following
major groups:
· Raw materials
· Energy, Fuels and Gases
· Maintenance spares
· Wearing parts, Consumable materials
· Administrative & office supplies
· Services
· Packing
The structure provides for procurement managers at regional level and
plants. There is a
separate projects head for procurement of capital equipment and
purchases.

PROCUREMENT MANUAL
The procurement manual describes the processes and sequential and
procedures to be
followed in procurement including vendor registration and appraisal,
indenting and
tendering. There are detailed guidelines for negotiation, order
acceptance, order
processing and execution and payment.

FACTORS AFFECTING VENDOR SELECTION

 Their vendors should be technically and financially sound.

 They should have the intrinsic capacity to serve the demand of

ACC on time.

 Preference is given to vendors with with ISO (Quality &

Environmental)
certification.

 They also consider factors such as environmental performance,

social
 responsibility initiatives and employment practices implemented by
the vendors.

 Care is taken to ascertain that vendors and contractors, who

operate within the
company’s premises, observe and conform to fair labour practices.
The engagement of children and adolescent labour is not
permitted.
 There is no specific policy for preferring local suppliers. In 2007 as
many as 70 per cent
 of their suppliers were regionally based and they supplied 30 per
cent of total purchase
 volume.

Any prospective vendor who wishes to do business with ACC

must sincerely fill the following vendor registration form.
SUPPLIER RELATIONSHIPS
ACC treats its vendors as business associates. All vendors are treated
with respect and dignity. Our vendor base includes reputed
manufacturers and trusted brand names, usually the leading 3-4
vendors of their particular industry segment who are technically and
financially sound and have the intrinsic capacity to supply material of
desired quality
and on time. ACC prefers vendors who demonstrate good corporate
citizenship and
promote sustainable development.
Adequate care is taken to ensure transparency in procurement
processes. Our
procurement policy has a clearly defined code of practice for
procurement conduct and
encourages fair and open competition in markets

markets.
FACTORS AFFECTING THE DEMAND OF RAW MATERIALS
Environmental Factors
 Monsoon: During the four months of monsoon, there is a slack in the
construction
activity and hence the demand for cement is less.
 During this season only that much cement which is demanded is
produced. Since
cement hardens when comes in contact with moisture it cannot be stored
in moist
conditions.
Economic Factors
 Freight charges on the inputs like coal, limestone diesel affect the
demand.
 If the government spending on infrastructure is high then the demand
for cement
is high, consecutively the demand for raw materials is also high.
 If there is an economic slow down and the real estate sector is hit
badly then the
demand for cement is low.

PRODUCTS OFFERED

Ordinary Portland Cements

ACC Cement is the most commonly used cement in all constructions

including plain and reinforced cement concrete, brick and stone
masonry, floors and plastering. It is also used in the finishing of all types
of buildings, bridges, culverts, roads, water retaining structures, etc.

What is more, it surpasses BIS Specifications (IS 8112-1989 for 43 grade

OPC) on compressive strength levels.

ACC Cement is marketed in specially designed 50 kg bags. 53 Grade

Cement :

This is an Ordinary Portland Cement which surpasses the requirements

of IS: 12269-53 Grade. It is produced from high quality clinker ground
with
high purity gypsum.

ACC 53 Grade OPC provides high strength and durability to structures

because of its optimum particle size distribution, superior crystalline
structure and balanced phase composition. It is available in specially
designed 50-kg bags.

Blended Cements
Fly-ash based Portland Pozzolana Cement :

This is a special blended cement, produced by inter-grinding higher

strength Ordinary Portland Cement clinker with high quality processed
fly ash - based on norms set by the company's R&D division. This
unique, value-added product has hydraulic binding properties not found
in ordinary cements.

It is available in specially designed 50-kg bags. Due to its inherent

characteristics, ACC Fly-ash based PPC makes very corrosion resistant
concrete that is superior to concrete made with OPC. It is more
impermeable to
oxygen, CO2, chlorides, etc. Leaching of alkalis is reduced and the
alkaline environment around steel is maintained.