Speech by Mr Ram Vilas Paswan, Hon'ble Minister for Steel Shri Rajeev Chandrasekhar, Hon'ble Member of Parliament &

President FICCI, Shri R.S. Pandey, Secretary (Steel), Shri Govindrajan, Member Secretary NMCC, Shri S. K. Roongta, Chairman, SAIL, Shri Muthuraman, CMD-Tata Steel, Shri Amit Mitra, Secretary General, FICCI and other dignitaries, guests and participants. I am indeed happy to be present on the occasion of `National Steel Conference' organized by FICCI. The Conference has come at a very right moment when the Indian steel sector is in limelight due to various recent developments, including rise in steel prices. Recently, Indian steel sector has received a lot of attentions on account of rising steel prices in the domestic market, since February 2008. The prices rose as much as 40-50% between January and May 2008, when Government had to step in for inflation management in the steel sector. But, I am happy to note that the Indian major steel producers have kept up with their assurance given to Prime Minister on 5th May and have maintained their prices until now. I hope the major steel producers will continue to support the Government in its effort in managing the ongoing inflationary trend in the country. Until the Government stepped in, Indian steel prices used to be determined by the International Price, based on the landed cost of import. A sudden demand of steel in the international market combined with the sharp rise in crude oil prices caused Indian steel prices to skyrocket. When the situation became a matter of concern Government had to resort to fiscal measures by way of imposition of export duty on certain steel products. Government also took certain other measures in last week of April, such as reduction of import duty to NIL on all non-alloy steel products and certain key raw materials such as zinc, ferro-alloys and metcoke as well as reduction of CVED to NIL on TMT Rods and Bars. At the same time my Ministry had a series of meetings with major steel producers, secondary steel producers and various steel consumers discussing out the issues and problems. All this has led to dramatic effect in making steel prices stable in the domestic market. The difference between the landed cost of import and domestic prices now stands at Rs 13,000 to Rs 15,000 per tonne of steel. Had my Government not taken the right steps in time, the domestic steel price would have been higher by at least Rs 10,000 per tonne, over the current prices. I again express my sincere thanks to the Indian steel industry and hope they would continue to support the efforts of Government in future. I and the Secretary (Steel) will also continue to listening to your problems and take appropriate actions in helping the industry in solving their various problems. I have also noted with concern that, certain dealers and traders have sold the flat steel products at higher than market price, taking advantage of the high demand in the retail market. We will take up very severely with such market manipulations. We have already directed the PSU steel companies to keep a strict watch on such malpractices. I request the other producers to keep a similar watch on their retail and distribution network. A transparent price information combined with frequent publication in Press and TV media will go on a long way in eliminating the market manipulations by a handful of traders. Any abrupt increase in price is always an indicator of the need for increase in supply. Although our steel demand has been rising steadily in 11-13% range, the production has only grown by 5.6% during 200708. There are a large number of projects currently in the pipeline including the major ones such as expansion plan of SAIL, RINL, Tata, Essar, JSW and JSPL. A number of greenfield projects are also at different stages of progress including the large foreign investment projects such as Posco and ArcellorMittal. I have been told that, the brownfield projects are progressing well whereas some of the greenfield projects are lagging behind their schedules by 1-2 years period. My Ministry is closely monitoring the major steel investment projects for which an Inter-Ministerial Group (IMG) has been functioning under the Chairmanship of Secretary (Steel) since last year. The progress of public sector steel units are also being closely monitored at my level as well as at the level of Secretary. By the year 2012, it is estimated that India would have a steel production capacity of 124 million tonnes from the current level of 59 million tonnes. Taking into account the investments in pipeline Indian steel production capacity would be nearly 243 million tonnes by the year 2020. This will take India from the current 5th largest steel producer to 3rd largest by 2015 and 2nd largest by 2020, next only to China. However, such a massive investment in the steel sector will involve a number of issues to be sorted out. Steel is a highly capital intensive industry which depends upon allocation of raw material resources, land, water, environmental & forest clearances as well as development of huge infrastructure. A part of the issues have to be looked into by the State Governments concerned. When I had last reviewed the position in March 2008, I had found that in some of the States even the Rehabilitation & Settlement (R&R) Policy was not formed. Land Acquisition and forest clearances are the two major bottlenecks being faced by most of the greenfield steel projects. There is also the issue of delay in iron ore mining lease to major steel producers. Even, SAIL facing problems in iron ore mining lease renewal. RINL is yet to get any iron ore

mining lease, after achieving nearly 3 million tonne capacity. I hope the Conference will deliberate on these key issues affecting investment and suggest a way regarding how Investors and the Governments, both Central and State can expedite the steel investment in the country. India is endowed with significant iron ore reserves, estimated at 25-25 Billion tonne. However, the proven economically mineable reserve is only 7.2 billion tonne, of which the high reserve grade is only 1.3 billion tonne. Considering we will be producing more than 200 million tones of steel in another 10 years, there is an urgent need for conservation of our scarce natural resources. More than that, there is also a need for effective utilization of low-grade iron ore and fines, through suitable benefication technologies. Our future sustenance and self-sufficiency would depend upon this issue of adaptation of technology for utilization of fines and low-grade ores, including magnetite. The Conference must address upon this important issue. National Steel Policy aimed at a steel sector, which is not only productive but achieves global benchmark in terms of efficiency. The world is now concerned about energy efficiency and Carbon Dioxide control measures. The steel-making involves various processes that result in extensive consumption of natural resources and energy. Unfortunately, our domestic benchmarks are far below the world standards. My Ministry has already formulated a technology mission in helping the Indian steel industry achieve the global standards of energy and environmental efficiencies. I hope the industry to take full participation in this national mission. Steel industry and the associated mining activities are usually located in relatively underdeveloped regions of the country, dominated by underprivileged and tribal population. The industry has a responsibility for looking after the needs of the local population and act as a facilitator for social development. Corporate Social Responsibility (CSR) assumes a significant role in this area. My Ministry has already taken a leading role in implementing CSR activities. All profitable PSUs have made commitments to the cause of CSR and have earmarked at least 2% of their distributable surplus for CSR activities. The total budget allocation for CSR in respect of all PSUs for 2007-08 is around 230 crore with major contribution from SAIL at 100 crore, RINL at 34 crore and NMDC at 89 crore. The CSR activity is focusing on environment, family welfare, education, health, cultural development as well as building social infrastructure, water supply and sanitation activities. The PSUs also did commendable job in taking active part during devastating flood in some parts of U.P. and Bihar during last year. We have also asked the main producers to adopt villages around their plant locations as a part of the CSR activities. Use of steel has been emphasized in items such as storage beans, bullock carts, school building, panchayat offices, water tanks and waiting sheds. Around 155 buildings have been short listed by SAIL (79), RINL(5), MOIL (5) and NMDC (66) for adoption as model steel villages. SAIL has already completed the work of 13 model steel villages in 2007-08. I request all major private sector steel producers to take similar steps in CSR activities in a big way including development of model steel villages. I understand that the National Conference will be addressed by eminent persons from the industry as well as representatives from some of the State Government. I request the participants delegates to really focus upon the key issues affecting the growth and development of Indian steel industry into a world leader in achieving long term sustainability and strength. I wish the Conference all success. Thank you.

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Steel Industry: Key Growth Drivers

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Riding on a booming economy and escalating demand, the domestic steel consumption has grown manifold in the last few years. The Indian steel industry has registered an average growth rate of more than 10%

CAGR in output in the last five years. During the same period, steel consumption has also moved in perfect lockstep and has maintained a growth rate of 10%. In this article, let us have a look at the key growth drivers of the domestic steel industry and the rate at which the sector is expected to grow over the long-term. According to World Steel Dynamics, (WSD) the Indian steel industry has entered into massive growth in steel demand as well as steel making capacities. The key growth drivers for the steel industry and the brief description of each driver are laid out below. Construction: The construction industry has been witnessing a growth rate of 12%-14% in recent times. Steel construction is now identified with speed and since India is in need of speedy project implementation, steel is the best alternative for fast track construction. With economy surging ahead and expected increase in income levels of population, it is believed that demand for steel from this sector will continue to grow at current rates if not improve Automobile: The domestic automobile industry has also grown at more than double-digit rates in the past five years. The Indian automobile sector is the second fastest growing market after China and has emerged as a prime demand driver for alloy steel. Automobile sector which is experiencing growth and competition is likely to be one of the major drivers for steel consumption in the coming years and most likely, its contribution in the overall demand pie is likely to improve from the current levels. Auto components Industry: During the last five years, auto components market has grown at 19% CAGR, led by both robust domestic demand as well as exports. India is fast emerging as hub for auto components. International companies such as General Motors, Ford, Daimler Chrysler, Toyota and Volkswagen are outsourcing auto parts from India as it has cost advantage with regard to forgings and castings. Also, the growing domestic automobile industry, which relies on steel industry for its parts manufacturing, will enhance the demand for steel in India. Infrastructure: Infrastructure sector comprises of roads, railways, airports and power. The 11th Five-year plan has lined up huge investments in all the above related sectors of infrastructure. The sector wise anticipated investment are $200bn in power, $80bn in railways, $48bn in roads, $13bn in ports and $9bn in airports. Because of surge in the above activities, the demand for long products of steel will be increasing in years ahead. Consumer Durables: The consumer durables sector has also been witnessing robust growth. It has grown at an average of 10% per annum and is expected to grow at double-digit rates for coming years. The share of white goods and utensils is predominant in India. The domestic

appliances market which includes spin driers of washing machine, almirahs, thermo ware, water filters, dishwashers, microwave ovens, catering equipments, cutlery, furniture etc have opened new opportunities for steel consumption, thus ensuring a steadily growing trend of steel off take. Oil & Gas Industry: Oil & gas sector is the major consumer of steel tubes and pipes. The pipe consumption in oil & gas sector is expected to grow at a rate of 25% CAGR as this sector is set to witness massive capital investment. Apart from laying cross-country pipelines, exploration and production activities are also experiencing strong growth in both international as well as domestic markets. Thus, in view of the robust growth expected in all the above mentioned sectors, there is no reason to believe that demand will slowdown in the coming future. Infact, if one were to go by government projections, then the demand is likely to increase at a CAGR of 11% until 2020. What gives us further conviction is the low per capita consumption of steel in India, which at 40 kgs currently is way below the world average of 150 kgs. Thus, the next few years are likely to be very good for the Indian steel manufacturers as far as demand is concerned. In the next article, we will focus on supply/production

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Tata Steels latest annual report: A peek

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Tata Steel, worlds sixth largest and Asia's first private sector steel maker recently came out with its FY08 annual report. In this article, let us go through some of the important information therein. Chairmans message: The global steel industry has faced pressure on the margins, arising from cost increases in raw materials. The price levels of iron ore and coking coal, which have risen by 85% and 300% respectively, would dictate the prices of steel for next 2 to 3 years. However, the market absorbed the major part of this price rise through increase in steel prices. The full impact of cost increases on steel producers and higher prices of steel on user industries would be felt in the current year and might also cause a slow down in economic activity and consumer demand. Tata Steels Indian operations are currently self sufficient for its current requirement of iron ore. However, the company has sought mining leases to support its greenfield projects in Orissa,

Jharkand, Chattisgarh. The company would also need to invest or enter into contracts with mining companies to secure the availability of iron ore and coking coal for the Corus operations. The integration of Corus with Tata Steel is completed. This would bring substantial improvements in operating efficiencies and reduction in costs. The measures such as securing dedicated sources of raw materials (iron ore and coking coal) would enhance the operating margins of Corus. India is a net importer of steel and can support a domestic steel capacity expansion to 100 mtpa with domestic consumption of about 90% of the output in coming years. However, this would be only possible if the capacity expansion would be based on maximizing the use of domestic iron ore and coking coal, which could help the country to insulate from runaway price spiral and currency fluctuations that impact investment in infrastructure and industrial capacity. Management Discussion & Analysis: The global steel production saw a growth of 7.5% and stood at 1.3 bn tonnes in 2007. The demand for steel remained strong and global finished steel consumption reached 1.2 bn tonnes backed by BRIC nations, which registered a growth rate of 13%. The European Union consumption grew by 5% while the output grew by only 2%, taking the imports to higher levels in 2007. The production of saleable steel at Tata Steels Indian operations showed a nominal growth of 1.6% in FY08 mainly on account of shutdowns related to 1.8 m tonnes capacity expansion project. The company plans to raise the production capacity of Jamshedpur plant to 10 m tonnes by 2010. It has also planned 6 m tonnes greenfield project in Orissa by 2011. It is currently self sufficient for its iron ore requirement and 60% self sufficient for coking coal requirement, balance is sourced through imports. The steel production at Corus was 20 m tonnes in FY08. It has four main divisions, strips products, long products, distribution & building systems and primary aluminium. Steel division accounted 96% of the total turnover in FY08. It completely sources its raw materials requirement from outside. The standalone raw material security of Tata Steel is 80% but together with Corus, the combined security of group stand at 22%. With a view to ensure greater raw material security so as to maintain cost competitive position and to de-risk supplies, the company had entered into three joint venture agreement with respect to coal, iron ore and limestone with large resource base. Outlook: The demand for steel would continue to grow, as it would be anchor material for construction,

infrastructure, automobiles and consumer durable sectors. BRIC nations would continue to consume greater levels of steel in coming years. As per IISI estimates, the global consumption of steel will grow at a CAGR of 4% upto 2016, while on other hand steel consumption in India is expected to grow at 9% in 2008 and 12% in 2009. India is expected to become second largest consumer of steel in world by 2015. Tata Steel group which is second largest geographically diversified and sixth largest steel producer having operation in 24 countries and presence over 50 countries would be able to continue to grow in coming years.

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Cement
Last Updated: April-June 2008

For India, the world's second largest producer of cement, the recent boom in infrastructure and the housing market has only boosted its cement industry. Add to that an increasing global demand and a flurry of activity in infrastructure projects highways roads, bridges, ports and houses has sparked off a spate of mergers and acquisitions in the sector. Furthermore, the countrys finance minister, P. Chidambaram, has stated that India would double spending on infrastructure over the next five years to sustain its record economic growth and modernise its infrastructure. Cement companies are fast developing plants to provide for a rapidly expanding economy. The cement industry is therefore poised to add 111 million tonnes (mt) of annual capacity by the end of 2009-10 (FY 2010), riding on the back of approximately 141 outstanding cement projects. According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase to 186 mt per annum (mtpa) by the end of FY 2008, and 219 mtpa by end of FY 2009, and further up to 241 mtpa by FY 2010-end. As a result, India's cement industry will record an annual growth at 10 per cent in the coming years with higher domestic demand resulting in increased capacity utilisation. Domestic Players While the Cement Corporation of India, a Central public sector undertaking, comprises 10 units; the various State governments own 10 large cement plants. Among the leading domestic players in terms of cement manufacturing are: Ambuja Cement, Aditya Birla Group (which owns UltraTech Cement), ACC Ltd., Binani Cement, India Cements and J K Cement. They are not only the foremost producers of cement but also enjoy a high level of equity in the market. Industrial production The cement industry is enhancing its production levels as new homes and offices are being built, and in keeping with the economys annual growth rate. According to the Cement Manufacturers Association, the overall cement production rose by 8.11 per cent during 2007-08 to 168.29 million tonnes (mt) as against 155.66 mt in 2006-07. In fact, the 16.37 mt produced by the domestic cement industry in March 2008 has been the highest ever by the industry in a single month.

Cement production of ACC increased 5.58 per cent to 1.89 mt in March against 1.79 mt in the same period last year. Dispatches rose 4.91 per cent to 1.92 mt (1.83 mt) Ambuja Cements, another Holcim group company, reported 23 per cent rise in production to 1.77 mt (1.43 mt) in March, while dispatches were up 16 per cent to 1.72 mt (1.47 mt). The Aditya Birla groups production went up 4.8 per cent during 2007-08 to 30.6 mt (29.24 mt), while dispatches increased 4.5 per cent to 30.55 mt (29.2 mt). India Cements recorded a 46 per cent growth in sales and posted a 99 per cent growth profit in the nine months ending December 2007.

The growth in cement production has continued on the back of robust demand levels in 200809. According to the Cement Manufacturers Association of India, cement production grew by 15.02 mt in April 2008, registering a growth of 7.13 per cent as compared to 14.02 mt in April 2007. Installed capacity With almost every player in the industry going for capacity addition, ranging from 0.2 mt to 3 mt, the year 2007-08 saw a record addition of 22 mt. Consequently, the total production capacity of the Indian cement industry has increased to 190 mt at the end of 2007-08, against 167 mt at the end of 2006-07, a growth rate of 13-14 per cent. Further, with a capacity addition of 0.45 mt by Vasvadatta Cement in April 2008, the installed capacity of the cement industry (large plants) has increased to 196.22 mt as on April 30, 2008. Simultaneously, with almost total capacity utilization levels in the industry, cement dispatches continued to maintain its 10 per cent growth rate. Total despatches grew to 170 mt during 2007-08, as against 155 mt in 2006-07. Region-wise, western region grew fastest with a growth rate of 15 per cent, followed by northern region (12 per cent) and southern region (10 percent). The continuous increase in the infrastructure projects along with the rise in construction activity has ensured rising demand levels for the cement industry. Consequently, cement despatches (including exports) have increased by 6.05 per cent to 14.72 mt in April 2008 against 13.88 mt in April 2007. Global Players Rapid urbanisation and the booming infrastructure have lead to an increase in construction and development across India, attracting even the global players. 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 hold more than a quarter pie 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$ 22.5 billion. Italcementi Group, the fifth largest producer of cement in the world acquired full stake in the K.K. Birla promoted Zuari Industries' cement, to strengthen its presence in India lining up US$ 300 million investment to increase the capacity of Zuari Industries from 1.7 mtpa to about 6-7 mtpa. Moreover, it plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects. The French cement major, Lafarge, acquired the cement plants of Raymond and Tisco with an installed capacity of 6 mtpa. It plans to double its capacity to 12 mt over the next five years by adopting the greenfield expansion route. Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group controlled IndoRama Cement. It aims at a 50 per cent controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in Maharashtra. Heidelberg is also taking over Mysore Cement of S K Birla group at a consideration of US$ 93 million.

Mergers and Acquistions (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 form 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 Indias third-largest cement firm India Cements (ICL) for US$ 148.19 million. Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim Industries 53.63 per cent stake in Shree Digvijay Cement.

Some of the other major mergers and acquisitions in the recent past include CRH acquiring My Home Industries for US$ 462 million, Lafarge buying L&T Concretes ready-mix concrete (RMC) business for US$ 349 million and Heidelberg consolidating its business with Mysore Cement and Indorama, and Italcementi acquiring 100 per cent stake in Zuari Cement and 95 per cent stake in Shree Vishnu among others. Government Initiatives Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, will continue being the main drivers of growth for the Indian cement industry. Moreover, the Union Budget for 2008-09 has sought measures to increase availability and reduce prices.

Increased infrastructure spending has been a key focus area over the last five years indicating good times ahead for cement manufacturers. The government has increased budgetary allocation for roads under NHDP. This coupled with government's initiatives on the infrastructure and housing sector fronts would continue to remain the key drivers. Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them. Other budget measures such as cut in import duty from 12.5 per cent to nil, removal of 16 per cent countervailing duty, 4 per cent additional customs duty on portland cement and differential excise duty are all intended to cut costs and boost availability.

To summarise in the words of an industry analyst, 'The allocation of US$ 3.23 billion for the National Highway Development Project will keep the demand for cement alive.'

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In the race to become the next economic superpower, China has generally outperformed India, and with the exception of Telecom and IT, India has had trouble slaying the Chinese dragon. But now we can add another sector to the Indian success story: cement. In last ten years, this sector has recorded a compound annual growth rate (CAGR) of eight percent, against the world cement industry average of 3.5 % and Chinas cement industry growth rate of 7.2%. Twenty years ago, the Indian cement industry was outmoded and inefficient. Today the industry not only outshines that of developed countries such as US and Japan but also has become the second largest cement producer in the world after China (source: Indian Brand Equity Foundation, March 2006). Businessmen in developing countries will tell you that infrastructure is a key to growth, and the cement industry is a key to both infrastructure development and the construction industry. In India, government support for infrastructure development has opened tremendous opportunities for the cement industry. A booming housing sector, global demand and increased activity in infrastructure development for such projects as state and national highways has led the Indian cement industry to ramp up production capacity. This, in turn, has attracted the top cement companies in the world, such as Lafarge and Holcim, and sparked a spate of mergers and acquisitions to take advantage of growth in demand. Holcim entered the Indian cement market in January 2006 and within six months became the number one player in terms of capacity - 34.2 million tonnes per annum (MTPA) - surpassing the AV Birla group, which has a total production capacity of 31.2 MTPA. With demand surpassing supply, the price of cement has climbed from Rs. 130-135 for a 50 kg bag to Rs. 210-215, a rise of more than 50 percent. As the price of cement has risen, construction companies have sought the intervention of the Commerce Ministry, which persuaded the leading manufacturers to cut the price of cement by five percent. While the Indian cement market would seem to be thriving, there is currently in the India cement industry a strong smell of cartelization. Cartelization is when the dominant companies in an industry

join together to control prices and limit competition. In the case of the Indian market, manufacturers rather than competing with each other may be agreeing to artificially limit the supply of cement so that prices remain high. Cement manufacturers win but sectors like infrastructure and construction lose. Last year, major Indian cement companies witnessed a 32 per cent surge in their sales volume and, across the board, companies reported higher production, higher sales and lower production costs. All of this occurred while prices climbed. As a result, some of the larger Indian cement companies posted net earning increases that ranged from 109 to 1,550 percent. When markets are not sufficiently regulated, large companies may be tempted to collude to lock in profits and market share. For example, in May 2006 the Competition Council of Romania slapped a combined fine of 27 million euros on Frances Lafarge, Switzerlands Holcim and Germanys Carpatcement for being involved in a cement cartel in the Romanian market. These three companies, which account for 98% of Romanian cement capacity, aligned market shares among the three by exchanging pricing information. All of the companies involved condemned but did not legally challenge the decision. This was not the first time that these companies have been caught engaging in anticompetitive practices. These three companies were also fined $40 million by the Italian Competition Authority for fixing market prices and illegally exchanging information. With Holcim and Lafarge now the biggest companies in the Indian market, both the government and domestic industries that use concrete should push for stricter regulation of the marketplace. The next decade is a critical one for India in terms of infrastructure, with the national highway project being just one example of a huge infrastructure initiative. However, as cement prices have increased, the cost of the highway project has soared and development has slowed in the last 15-18 months. A similar fate may await projects to harness water resources as dams are also concrete intensive infrastructure. Despite the growth of the Indian cement industry, Indias per capita production of 115 kilograms per year lags the world average of over 250 kgs and Chinas production of more than 450 kgs per person. Clearly there remains room for tremendous growth in the industry in India. But if India is to reach its potential, the free hand of the market must be left unfettered. For this to happen, the Indian government must make sure that foreign companies that have a history of price fixing and market collusion receive appropriate regulation. If market shares get fixed, India will be the loser and the gap between India and China will only grow in the race to become the next economic superpower.

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IInnddiiaann CCeemeenntt IInndduussttrryy Indian Cement Industry on growth trajectory. . .

The Cement industry has continued its growth trajectory over the past seven years. Domestic cement demand growth has surpassed the economic growth rate of the country for the past couple of years. Over the past five years (FY03-07), cement demand has grown at a CAGR of 8.37% higher than the CAGR of supply at 4.84%. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country. The key drivers for cement demand are real estate sector, infrastructure projects and industrial expansion projects. Among these, real estate sector is the key driver and accounted for almost 55% of cement demand in FY 07. During the period FY 03 07, capacity additions in the country (30.6 mn tonnes) were at a slower rate compared to demand growth leading to higher average capacity utilization rates from 81.3% in FY 03 to 93.8% in FY 07. This exerted pressure on average prices which have increased from Rs. 156 per bag in FY 03 to Rs. 216 per bag in FY 07. In December 2007, prices stood at Rs. 245 - Rs. 250 per bag. Low capacity addition coupled with higher utilization rate also led to increase in proportion of blended cements in product mix. Blended cement accounted for 68% of product mix in FY 07 as compared to 49% in

FY 03. Cement is a bulky commodity and cannot be easily transported over long distances making it a regional market place, with the nation being divided into five regions. Each region is characterised by its own demand-supply dynamics. The Southern region dominated the cement consumption at 44.5 mn tonnes in FY 07, accounting for about 30% of total domestic cement consumption. During FY 03-07, Southern region has witnessed highest CAGR of cement demand at 10.4% followed by Northern and Eastern regions at 8.9% and 9%, respectively. Over the past five years, cost of cement production has grown at a CAGR of 8.4%. The producers have been able to pass on the hike in cost to consumers on the back of increased demand. Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonne in FY 07, at a CAGR of 13.6%, which has resulted in higher profit margins of the industry. To reduce the cost of production, the industry is increasing its focus on captive power generation. Proportion of cement production through captive power route has increased over the years. Also, cement movement by rail has increased over the years. 1 Market share of top five players in the industry has increased from 42% in FY 02 to 56% in FY 07. In FY 07, Holcim group maintained its leadership position with market share of 22.6% followed by Aditya Vikram Birla group at 19.4%. Domestic Cement industry is highly insulated from global cement markets. Exports have been constant at about 6% of total cement demand for past few years. With GoI intervention, making cement duty free, cement is being imported from neighboring countries. However, due to logistics issues and lack of port handling capabilities, imports of cement will remain negligible and do not pose a threat to domestic industry. Cement demand is expected to remain buoyant driven by boost in construction sector in the country. As per estimates, investments of USD 25 bn would be required in urban housing, USD 450 bn would be required in infrastructure related projects and industrial expansion projects would witness investments of USD 88 over the next five years. CARE Research estimates domestic cement demand to grow at a CAGR of approximately 10% for the next 5 years. The current tight demand - supply situation is expected to extend upto end of calendar year 2008 owing to delays in capacity expansion programmes by various companies. CARE Research expects prices to remain firm till the end of CY2008 due to tight demand - supply situation and increase in input costs. Thereafter, as new capacities come in, we may witness a softening in prices in some regions. For in-depth analysis and CARE's view on the future of this sector, please refer to the exhaustive Report on Indian Cement Industry, April 2008 by CARE Research. You can contact us at careresearch@careratings.com
DISCLAIMER
This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. The opinion expressed in this report cannot be compared to the rating assigned to the company within this industry by the ratings division. The opinion expressed is also not a recommendation to buy, sell or hold an instrument. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research.

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India is fast emerging on the world map as a strong economy and a global power. The country is going through a phase of rapid development and growth. All the vital industries and sectors of the country are registering growth and thus, luring investors. And cement industry is one of them. To throw light on the Indian cement industry, RNCOS has launched its report ""Indian Cement Industry Forecast to 2012"" that gives an extensive research and in-depth analysis of the cement industry in India. This report helps clients to analyze the competitive dynamics and emerging opportunities critical to the success of the cement industry in India. Based on this analysis, the report gives a future forecast of the market that is intended as a rough guide to the direction in which the market is likely to move. Key Findings

Domestic demand for cement has been increasing at a fast pace in India and it has surpassed the economic growth rate of the country. Cement consumption in India is forecasted to grow by over 22% by 2009-10 from 2007-08. Among the states, Maharashtra has the highest share in consumption at 12.18%, followed by Uttar Pradesh. In production terms, Andhra Pradesh is leading with 14.72% of total production followed by Rajasthan. Housing sector is expected to remain the largest cement consumer in coming years.

Key Issues and Facts Analyzed

Where the Indian cement industry stands in global context? What are the factors that are fueling growth into the Indian cement industry? What opportunities exist for cement other related industries in India? How different states are performing in the industry? What are the issues faced by the industry? How the industry is likely to move in future?

Key Players Analyzed This section provides the overview and financial information on prominent players in the Indian cement sector, like Associated Cement Company Ltd. (ACC), Grasim Industries Ltd., Ambuja Cements Ltd., UltraTech Cement Ltd., J.K. Cement Limited, Madras Cements Ltd., and Jaypee Group. Research Methodology Used Information Sources Information has been sourced from books, newspapers, trade journals, and white papers, industry portals, government agencies, trade associations, industry news and developments, and through access to more than 3000 paid databases. Analysis Method Ratio analysis, historical trend analysis, linear regression analysis using software tools, judgmental forecasting, and cause and effect analysis have been used for analysis and processing of information. XXXXX

The Cement industry has continued its growth trajectory over the past seven years. Domestic cement demand growth has surpassed the economic growth rate of the country for the past couple of years. Over the past five years (FY03-07), cement demand has grown at a CAGR of 8.37% higher than the CAGR of supply at 4.84%. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country. The key drivers for cement demand are real estate sector, infrastructure projects and industrial expansion projects. Among these, real estate sector is the key driver and accounted for almost 55% of cement demand in FY 07. During the period FY 03 07, capacity additions in the country (30.6 mn tonnes) were at a slower rate compared to demand growth leading to higher average capacity utilization rates from 81.3% in FY 03 to 93.8% in FY 07. This exerted pressure on average prices which have increased from Rs. 156 per bag in FY 03 to Rs. 216 per bag in FY 07. In December 2007, prices stood at Rs. 245 - Rs. 250 per bag. Low capacity addition coupled with higher utilization rate also led to increase in proportion of blended cements in product mix. Blended cement accounted for 68% of product mix in FY 07 as compared to 49% in FY 03. Cement is a bulky commodity and cannot be easily transported over long distances making it a regional market place, with the nation being divided into five regions. Each region is characterised by its own demand-supply dynamics. The Southern region dominated the cement consumption at 44.5

mn tonnes in FY 07, accounting for about 30% of total domestic cement consumption. During FY 03-07, Southern region has witnessed highest CAGR of cement demand at 10.4% followed by Northern and Eastern regions at 8.9% and 9%, respectively. Over the past five years, cost of cement production has grown at a CAGR of 8.4%. The producers have been able to pass on the hike in cost to consumers on the back of increased demand. Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonne in FY 07, at a CAGR of 13.6%, which has resulted in higher profit margins of the industry. To reduce the cost of production, the industry is increasing its focus on captive power generation. Proportion of cement production through captive power route has increased over the years. Also, cement movement by rail has increased over the years. Market share of top five players in the industry has increased from 42% in FY 02 to 56% in FY 07. In FY 07, Holcim group maintained its leadership position with market share of 22.6% followed by Aditya Vikram Birla group at 19.4%. Domestic Cement industry is highly insulated from global cement markets. Exports have been constant at about 6% of total cement demand for past few years. With GoI intervention, making cement duty free, cement is being imported from neighboring countries. However, due to logistics issues and lack of port handling capabilities, imports of cement will remain negligible and do not pose a threat to domestic industry. Cement demand is expected to remain buoyant driven by boost in construction sector in the country. As per estimates, investments of USD 25 bn would be required in urban housing, USD 450 bn would be required in infrastructure related projects and industrial expansion projects would witness investments of USD 88 over the next five years. Estimates domestic cement demand to grow at a CAGR of approximately 10% for the next 5 years. The current tight demand - supply situation is expected to extend upto end of calendar year 2008 owing to delays in capacity expansion programmes by various companies. Expect s prices to remain firm till the end of CY2008 due to tight demand - supply situation and increase in input costs. Thereafter, as new capacities come in, we may witness a softening in prices in some regions. For in-depth analysis and view on the future of this sector, please refer to the exhaustive Report on Indian Cement Industry, April 2008. XXXXX

Cement Industry

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production

The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum.

The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. Actual cement production in 2002-03 was 116.35 million tonnes as against a production of 106.90 million tonnes in 2001-02, registering a Technological change growth rate of 8.84%. Major players in Continuous technological upgrading and assimilation of cement production are Ambuja cement, latest technology has been going on in the cement Aditya Cement, J K Cement and L & T industry. Presently 93 per cent of the total capacity in cement. the industry is based on modern and environmentfriendly dry process technology and only 7 per cent of Apart from meeting the entire domestic the capacity is based on old wet and semi-dry process demand, the industry is also exporting technology. There is tremendous scope for waste heat cement and clinker. The export of cement recovery in cement plants and thereby reduction in during 2001-02 and 2003-04 was 5.14 million emission level. One project for co-generation of power tonnes and 6.92 million tonnes respectively. utilizing waste heat in an Indian cement plant is being Export during April-May, 2003 was 1.35 implemented with Japanese assistance under Green Aid million tonnes. Major exporters were Gujarat Plan. The induction of advanced technology has helped Ambuja Cements Ltd. and L&T Ltd. the industry immensely to conserve energy and fuel and to save materials substantially. The Planning Commission for the formulation of X Five Year Plan India is also producing different varieties of cement like constituted a 'Working Group on Cement Ordinary Portland Cement (OPC), Portland Pozzolana Industry' for the development of cement Cement (PPC), Portland Blast Furnace Slag Cement industry. The Working Group has (PBFS), Oil Well Cement, Rapid Hardening Portland identified following thrust areas for Cement, Sulphate Resisting Portland Cement, White improving demand for cement; Cement etc. Production of these varieties of cement conform to the BIS Specifications. Also, some cement i. Further push to housing plants have set up dedicated jetties for promoting bulk transportation and export. development programmes; ii. Promotion of concrete Highways and roads; and iii. Use of ready-mix concrete in large infrastructure projects. Further, in order to improve global competitiveness of the Indian Cement Industry, the Department of Industrial Policy & Promotion commissioned a study on the global competitiveness of the Indian Industry through an organization of international repute, viz.

KPMG Consultancy Pvt. Ltd. The report submitted by the organization has made several recommendations for making the Indian Cement Industry more competitive in the international market. The Indian Cement recommendations are under consideration. Sector Cement industry has been decontrolled from price and distribution on 1st March 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance.