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Unformatted text preview: Cement & Construction industry profile A primer on the Indian cement industry Highly fragmented (low entry barriers) Cyclical industry Highly capital & energy intensive Heavily taxed sector High bulk (volume) low value product Heavy dependence on 3 sectors viz. coal, power and transport Indian cement industry – Major players in 2006
ACC Ultratech Gujarat Ambuja 12.6 34.8 9.7 Grasim Industries Century Textiles and Industries Birla Corp Ltd India Cements Jaiprakash Industries (Jaypee) Lafarge 3.2 4.5 5.9 3.6 4.7 10.6 10.3 Others Market consolidation
Flurry of consolidation in the last couple of years. Notable ones include: o Gujarat Ambuja picking up 14% in ACC o Grasim acquiring cement business of L & T forming Ultratech o Holcim taking minority stake in GACL and 67% stake in ACC o Heidelberg Cement acquiring 50% in Indorama Cement Financial performance Returns dependent on vibrancy of the economy as a whole High returns during boom times (1994 96 and 200406) and low returns during lean periods (199701) Returns dependent on sales realisation and capacity utilisation Financial performance – Cost structure
The 2 major costs in cement industry are (i) Energy costs (ii) Freight costs Over the years, the share of energy costs have gone up marginally while that of freight costs has declined Other costs more or less stable Financial performance Margins Industry margins very sensitive to sales realisations On the whole (except 2003 due to low sales realisations), margins firming up due to consolidation, capacity utilisation and higher sales figure Margins over the years (Source: ICRA) Recent performance (2005 06) Lower interest costs Higher infrastructure spending Higher sales reported Increase in fuel prices offset by higher prices All these translated into higher profits for cement companies Recent performance (..continued; Source: ICRA) World cement production World cement production is about 2.27 billion metric tonnes (Source: www.researchinchina.com) China (40+ % of world production) India USA Global bigwigs in cement La Farge, France Holcim, Switzerland Cemex, Mexico Italcementi, Italy Heidelberg Cement, Germany What is in store for 2007? GDP growth expected to fuel the boom Increased spending on roads and housing expected “Bharat Nirman” and concomitant rural development also can push up the figures On the whole infrastructure spending expected to drive growth in cement and construction activities 8% growth rate in 2007 and 2008 A primer on India’s construction industry Worth USD 50 billion p.a. and accounts for 6% of India’s GDP Industry status granted only recently 100% foreign investment permitted since last year USD 4 billion per annum set to flow into this sector Employs 40 million people Unorganised & lowskilled workforce Construction industry – Drivers of growth Booming Indian economy Growing housing and commercial space (like malls, multiplexes) requirements Govt. thrust on infrastructure, GQ project, infrastructure outlay etc. Airport modernisation projects Indian construction industry Players Companies like L & T, GMR Infrastructure, HCC, Gammon which undertake huge projects. Companies like IVRCL, Nagarjuna, DLF, Omaxe dealing in flyovers, pipelines, apartments and housing/office spaces Other smaller companies Performance figures (all 2005 06 figures in mn INR – Source: Edelweiss capital)
Company L & T Gammon HCC IVRCL Nagarjuna Punj Lloyd M Cap 345,826 46,552 47,521 31,873 39,339 53,789 Sales 164,852 15,983 19,082 17,112 18,174 17,900 PAT 8,884 1,067 861 840 852 137 Indian construction industry – (Source: Edelweiss) Aggregate order book for 200607 at Rs. 50,000 cr. YoY revenue growth at 48% YoY earnings growth at 62% Construction industry growth – Global trends Overheated housing market starts cooling off in the USA Fall in sales coupled with higher mortgage rates make the going tough. Europe’s housing market cooling off after the steep rise in 2005 China and India remain the primary drivers. Global outlook for cement & construction industry Annual cement demand to grow 4.7% Construction boom in China (Olympics) & India (housing, infrastructure) to drive projects till 2010 Half the world’s concrete production and a third of the steel production goes into China for her construction projects. Global outlook for cement & construction industry Reasonable growth in construction sector in Brazil, Argentina, Mexico and the Middle East All in all, a great decade ahead for the cement and construction industry fuelled by massive Govt. spending and private infrastructure investments References: www.edelcap.com www.pinsentmasons.com www.icra.in www.hinduonnet.com Survey of Indian industry, 2006 published by “The Hindu” Thank You! ...
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