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ravish naresh

The Associated Cement Companies Limited (ACC) is India's largest cement manufacturing company (by market share#item)^[1][2], with revenue exceeding INR 70 billion and cement production of 19.92 million tonnes in 2007.^[3]The Group's principal activities are to manufacture ordinary portland cement, fly ash-and-slag-based cement.

Key drivers of the cement demand are real estate, infrastructure and industrial expansion sectors.^[4] Faced with a slowdown in the urban centers, leading cement firms are increasing their focus in rural markets. Rural India accounts for about one-third of the cement sales in the country.^[5] This is further complemented by farm-loan waiver of INR 60,000 ^[6] crore to farmers, the scheme envisages complete waiver of all loans of marginal and small farmers that were due as on December 31, 2007, and remained unpaid until February 29, 2008, which is luring companies like ACC to strengthen their presence in rural India.

The cement industry in India has added a whopping 46 MT capacity in just a little over three years, taking the total installed capacity to 206.96 MT as on December 31, 2008.^[7]Cement is one of the highly taxed commodities in our country. Infact, the highest taxed essential infrastructure input in India. Taxes and levies account for nearly 60% of the ex-factory cost and nearly 20% of the current selling price.^[8]

Business Overview

ACC`s operations are spread throughout the country with 14 modern cement factories, 19 ready mix concrete plants, 19 sales units, 54 area offices, and 194 warehouses. This is backed by a countrywide network of over 9,000 dealers.

Business and Financial Metrics

The country had an installed capacity of 198.30 million tonnes at the beginning of financial year in 2008. Taking into account capacity additions and new projects, the cement capacity has now gone up to 206.46 million tonnes by the end of 2008.^[10] ACC reported a market share of 12.2 % in 2007 down from 12.3% in 2006.^[11]

The net realization has increased in 2007-08 despite no significant cost increases in spite of concerns on imported coal prices. Realization has increased mainly due to fixed excise duties above retail price of Rs190/bag were replaced by ad valorem duties,^[12] hence bringing down excise duties by Rs3-7/bag. The company improved its operational efficiency by reporting more than 17 percent growth in operating profit in 06-07 period. ^[13] The company’s profitability has improved owing to improved price realizations and higher margins in cement business.

The company has well diversified geographical presence across the country. Also the proposition contained in Budget 06-07^[14] focusing on the infrastructure and cement sector growth in India would give an impetus to the company’s growth. Factors like dominant position in the lucrative RMC (ready mix concrete) segment,^[15] improved cost structure due to superior technology at Chaibasa plant^[16], higher availability of captive power and merger of some of its subsidiaries would facilitate the earnings growth of the company in future. Exports, a key factor in its growth, were banned in 2008 by Government of India, to curb inflation, but were eventually lifted at the year end.^[17]

Business Segments

The Group operates in two major segments: Cement and Ready Mix Concrete.

Cement Cement section, largest contributor towards net sales, includes sale of bagged as well as bulk cement. ACC produces three types of cement, Ordinary Portland Cement ,Portland Slag Cement, Portland Pozzolana Cement. This segment contributed 95.51% of ACC's revenue in 2007.

Bulk Cement: Bulk Cement, an alternative to bagged cement, which is of particular advantage to large consumers of cement.

ReadyMixConcrete ACC set up India's first commercial Ready Mix Concrete (RMX) plant in Mumbai in 1994. From January 2008 this business has been reorganized as a separate wholly owned subsidiary company called ACC Concrete Limited. It has 30 modern plants in major cities across India.^[18] AC====heading h3====C's RMX revenue in 2007 was INR 3670 million, up by 22% over the previous year.

Shareholding Pattern

The house of Tata was intimately associated with the heritage and history of ACC, right from its formation in 1936 upto 2000. Between the years 1999 and 2000, the Tata group sold all 14.45 per cent of its shareholding in ACC in three stages to subsidiary companies of Gujarat Ambuja Cements Ltd (GACL), who are now the largest single shareholder in ACC. A new association was forged between ACC and the Holcim group of Switzerland in 2005. ^[20]

In January 2005, Holcim announced its plans to enter into a long-term strategic alliance with the Ambuja Group by acquiring a majority stake in Ambuja Cements India Ltd. (ACIL), which at the time held 13.8 per cent of the total equity shares in ACC. Holcim simultaneously announced its bid to make an open offer to ACC shareholders, through Holdcem Cement Pvt Limited and ACIL, to acquire a majority shareholding in ACC. An open offer was made by Holdcem Cement Pvt. Limited along with Ambuja Cements India Ltd. (ACIL), following which the shareholding of ACIL increased to 34.69 per cent of the Equity share capital of ACC. Consequently, ACIL has filed declarations indicating their shareholding and declaring itself as a Promoter of ACC. ^[21]

Market Share

ACC's market share has been dropping over the years. Currently it stands at 12.2% pan-India. ACC is market leader only in Karnataka & Punjab.^[22]

Trends and Forces

Technological Changes

Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry in India. Presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. ^[23]There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. One project for co-generation of power utilising waste heat in an Indian Cement plant is being implemented with Japanese assistance under the Green Aid Plan.^[24] The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially.

Pricing

The location of cement plants depends is highly dependent upon their proximity to limestone deposits The lesser the distance , lower the freight costs. . Andhra Pradesh has the largest limestone deposits in India accounting for almost 32% of the total reserves.^[26]

Lower Impact of rising fuel prices

Approximately, 90% of ACC’s coal requirements are sourced domestically. Imported coal is primarily used at its 1mnte plant in Tamil Nadu. However, Coal India (CIL) has raised coal prices by an average of 10-15% in December ’07. Further, of the total domestic coal consumed, 20-25% has to be sourced from open markets (due to shortage of domestic coal), where prices are ~25-30% higher than domestic rates.^[27] This exposes the company to significant variations in the coal cost depending on the share of coal purchased from open markets. 70% of ACC’s power requirements are met captively. This share has risen post commissioning of a 25MW captive power plant (CPP) at Lakheri, Rajasthan along with capacity augmentation in 2007. Another 30MW CPP in Orissa and the Bargarh expansion is under progress.^[28] However, high transportation cost is affecting the competitiveness of the cement industry. Freight accounts for 17% of the production cost. ^[29]

Market Outlook

With a booming economy and a strong focus and demand for Infrastructure the Indian cement industry is all set to scale new heights. ACC, with a capacity of 19.9 million tonnes and increasing it to 27.5 ^[30]million tonnes has posted healthy growth of 25 percent in sales for March 07. But with the global economic meltdown in 2008^[31] leaving its effects on the Indian economy^[32], there is dearth of capital in the market, because of which activity in housing and construction has considerably gone down. Also, most of the infrastructure projects have been shelved or delayed.^[33] The housing sector, which accounts for around 55-60% of total demand, is likely to continue to be the leading force. The requirement of new dwelling units over a period of 25 years (1996-97 to 2020-21) will be around 140 million units requiring an investment of approximately INR 20,000 billion. Demand from infrastructure projects and industrial/commercial ventures account for 20% each. ^[34]

Competition

The structure of the industry is fragmented, although, the concentration at the top is increasing with around 54 companies operating with around 129 plants. The large players account for 93.3% of total capacity.^[35] Other large players in the cement industry in India are--

Ambuja Cements, the company with largest market cap. and cement output, it manufactures and markets cement and clinker for both domestic and export markets. Currently (2007) Holcim holds about 45% of shares in Ambuja Cements Limited.^[36]

UltraTechCement, a Grasim subsidary, it has an annual capacity of 18.2 million tonnes. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. It also manufactures ready mix concrete (RMC).^[37]

Madras Cements, Another major player based in South India.

Birla Cements, part of a large conglomerate, Birla Corp. ^[38].

An interesting fact to be noted here, Holcim has a controlling stake in Ambuja Cements, and Holcim also has bought controlling stake into ACC through Ambuja Cements. So the two largest cements players (by market capitalization) in the indian market are actually controlled by a single entity, Holcim.

Financial Comparison of the competitors:

1. ↑ http://www.moneycontrol.com/stocks/company_info/competition.php?sc_did=ACC06
2. ↑ http://www.financialexpress.com/news/Top-four-cement-cos-market-share-dips/415855/
3. ↑ http://www.acclimited.com/newsite/finance.asp
4. ↑ http://www.reuters.com/article/pressRelease/idUS116839+05-Jun-2008+BW20080605
5. ↑ http://www.business-standard.com/india/news/cement-firms-shift-focus-to-villages/20/09/344849/
6. ↑ http://indiabudget.nic.in/ub2008-09/ubmain.htm
7. ↑ http://www.ibef.org/industry/cement.aspx
8. ↑ http://www.equitymaster.com/detail.asp?date=11/21/2008&story=3
9. ↑ http://www.acclimited.com/newsite/finance.asp
10. ↑ http://www.mjunction.in/market_news/metals/andhra_to_account_for_40_cemen.php
11. ↑ http://www.acclimited.com/newsite/pdf/report_25_jul_2008/Economic%20Performance.pdf
12. ↑ http://www.thehindubusinessline.com/2007/05/04/stories/2007050405351000.htm
13. ↑ http://www.acclimited.com/newsite/finance.asp
14. ↑ http://indiabudget.nic.in/ub2006-07/ubmain.htm
15. ↑ http://www.financialexpress.com/news/rmc-readymix-acquires-fletcher-pioneer-india/75531/
16. ↑ http://www.financialexpress.com/news/acc-to-raise-100-million-to-fund-idcol-expand-chaibasa/99371/
17. ↑ http://www.thaindian.com/newsportal/business/india-lifts-ban-on-cement-exports_100133782.html
18. ↑ http://www.acclimited.com/newsite/cement_services_rmc_en.asp
19. ↑ http://www.acclimited.com/newsite/finance.asp#sp
20. ↑ http://www.moneycontrol.com/stocks/company_info/company_history.php?sc_did=ACC06
21. ↑ http://www.moneycontrol.com/stocks/company_info/company_history.php?sc_did=ACC06
22. ↑ http://www.karvy.com/compresearch/ACC.pdf
23. ↑ http://www.ibef.org/industry/cement.aspx
24. ↑ http://www.projectsmonitor.com/detailnews.asp?newsid=3747
25. ↑ http://www.acclimited.com/newsite/finance.asp#kpi
26. ↑ http://en.wikipedia.org/wiki/Stones_of_India#Limestone_deposits_in_Andhra_Pradesh.2C_India
27. ↑ http://www.scribd.com/doc/4950824/Indian-Cement-Sector
28. ↑ http://www.acclimited.com/newsite/nation_it_infrastructure_news.asp?yr=2007
29. ↑ http://www.scribd.com/doc/2180424/Cement-Industry-in-India
30. ↑ http://www.rediff.com/money/2007/may/14acc.htm
31. ↑ http://www.globalissues.org/article/768/global-financial-crisis
32. ↑ http://www.rediff.com/money/2008/sep/19spec.htm
33. ↑ http://economictimes.indiatimes.com/High_rates_delays_infra_projects_CII/rssarticleshow/4029336.cms
34. ↑ http://nmcc-vikas.gov.in/Sector/Pages/Cement.aspx
35. ↑ http://nmcc-vikas.gov.in/Sector/Pages/Cement.aspx
36. ↑ http://www.gujaratambuja.com/finance_shareholding_final.html
37. ↑ http://www.ultratechcement.com/about_us/index.htm
38. ↑ http://www.birlacorporation.com/cementprod.html
39. ↑ http://www.moneycontrol.com/stocks/company_info/competition.php?sc_did=ACC06