Cement Industry

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Submitted to
Dr. Madhumita Chakraborty

Submitted by
Section C - Group 5
Prakash Prabu M (PGP28120)
Mohammed SaadSalmaan (PGP28121)
Aditi Agarwal (PGP28122)
Preksha Agarwal (PGP28134)
Sireesha Yakkali (PGP28135)
Aditi Bhura (PGP28148)
Nikhar Bhatia (PGP28167)

Table of Contents

1. Industry Analysis4
2.Cost Structure7
3.Accounting Policy8
3.1Fixed Assets & Depreciation Policy8
ACC Cements8
India Cements9
UltraTech Cement10
3.2Inventory Valuation Policy10
ACC Cement10
UltraTech Cement11
India Cement11
3.3Revenue Recognition11
ACC Cement11
India Cement11
UltraTech Cement12
4.Profitability Ratios12
4.1Net Profit Margin12
4.2Operating Profit Margin13
5.Return Ratios14
5.1Return on Equity14
5.2Return on Capital Employed16
6.Efficiency Ratio17
6.1Asset Turnover Ratio17
6.2Inventory Turnover Ratio18
6.3Debtors Turnover Ratio19
6.4Creditors Turnover Ratio20
7.Liquidity Ratios21
7.1Current Ratio21
7.2Quick Ratio22
8.Solvency Ratio24
8.1Debt to Equity Ratio24
8.2Interest Coverage Ratio25
9.Cash Conversion Cycle26
10.DuPont Analysis27
11.Cash Flow Statement Analysis28

1. Industry Analysis

The Indian cement industry is the 2nd largest market after China. It had a total capacity of about 300 m tons (MT) as of financial year ended 2010-11. Consolidation has taken place with the top three players alone controlling almost 35% of the capacity. However, the balance capacity still remains quite fragmented. Despite the fact that the Indian cement industry has grown at a commendable rate in the last decade, registering a growth of nearly 9% to 10%, the per capita consumption still remains substantially poor when compared with the world average. While China registered the highest per capita cement consumption in 2010 of about 1,380 kg, India stood much lower at 230 kg. This underlines the tremendous scope for growth in the Indian cement industry in the long term. Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions viz. north, south, west, east and the central region. With capacity addition taking place at a faster rate as compared to demand, prices have remained southbound, especially in the last one year. Nevertheless, considering the government’s thrust on infrastructure, long-term demand remains intact.  Given the high potential for growth, quite a few foreign transnational companies have displayed their interest in the Indian markets. Already, while companies like Lafarge, Heidelberg and Italicementi have made a couple of acquisitions; Holcim has increased its stake in domestic companies Ambuja Cements and ACC to gain full control. Considering the long-term growth story, fair valuations, fragmented structure of the industry and low gearing, another wave of consolidation would not come as a surprise. Supply

The demand-supply situation is highly skewed with the latter being significantly higher. Demand
Housing sector acts as the principal growth driver for cement. However, recently industrial and infrastructure sectors have also emerged as demand drivers. Barriers to entry
High capital costs and long gestation periods act as entry barriers in the cement industry. Access to limestone reserves (critical input) also acts as a significant entry barrier. Bargaining power of suppliers

Licensing of coal and limestone reserves, supply of power from the state grid etc. are all controlled by a single entity, which is the government. However, nowadays producers are relying more on captive power, but the shortage of coal and volatile fuel prices remain a concern.  Bargaining power of customers

Cement is a commodity...
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