Ankit Bansal| PGP28316|
Niraj Kumar| PGP28311|
Aditya Julka| PGP28331|
Chiranjib Saha| PGP28394|
Upasana Rustagi| PGP28301|
Rosemir Dodre | PGP27178|
Insights from Industry sales data
1. Modest Growth – Cement being a pro-cyclical industry suffered a slowdown in sales growth from year 2008 onwards due to the global economic recession. The effect was felt by all the major players of the Indian cement industry. 2. Fast price growth fast with lacklustre volume growth – While a slowdown in construction and realty sector has kept sales volume growth in check, rising input costs led many cement majors to increase end consumer price of cement.
3. Doubling of Production volume of Ultratech – At the end of 2009, Ultratech Cement merged with Samruddhi Cement Ltd, a wholly owned subsidiary of Grasim Industries Limited. Samruddhi was the biggest cement manufacturer of India at the time of merger. This merger enabled Ultratech to double its sales turnover and production capacity. The merger helped Ultratech establish a strong presence in North India. Cost structure
Insights from cost structure
1. Inflation and its impact – Uptil 2008, input costs constituted 35% to 40% of sales for the top players. Over the years, it has increased to as high as 45%. Since, cement is a bulk good, the cost of transporting it to various parts of the country also forms a major chunk of cost price. Not so surprisingly, selling and administrative expenses as a proportion of sales increased, especially in FY2011 due to rising fuel prices. 2. Increase in Employee compensation cost – After the merger, the proportion of employee compensation to sales revenue has increased marginally for Ultratech. However, at 5% it is still the lowest in the industry. 3. India cements Ltd is the cost leader in terms of raw material prices – Cost of raw materials as a proportion of sales is the lowest for India cements at around 15%. This is primarily due to its focus on Southern Indian market where it is able to source inputs at a low cost from nearby limestone queries thereby saving on inward freight cost. Profitability
Table: Profit Margins for Ultratech Cement over the years
Ultra tech| Mar '08| Mar '09| Mar '10| Mar '11| Mar '12| Gross profit| 54%| 49%| 52%| 46%| 49%|
Operating profit| 31%| 27%| 28%| 19%| 22%|
EBIT margin| 27%| 22%| 22%| 13%| 17%|
PBT margin| 27%| 21%| 22%| 13%| 17%|
1. Cement cartel – Operating margins as high 30% in 2008, are unduly high for a bulk commodity manufacturing business. Such high operating margins made Competition Commission of India investigate possibility of cartelization in cement Industry. Last year, CCI imposed a penalty of Rs 6,307 crores on 11 leading cement manufacturers for forming a cartel and colluding to charge higher prices from consumers. Out his Ultra-tech had to bear Rs 1175 crores. 2. Falling profitability – It is clear from the given tables, that the profitability of cement manufacturers has been hurt badly due to inflation. India Cements has been the worst hit with its Profit before tax margin falling to a paltry 8% by the end of FY2011-2012. 3. Ambuja leads in profitability – Ambuja Cements has been the industry leader in terms of operating profit and net profit over the years.
Table: Recent Profit Margin figures for top 4 players
Mar'12| Gross profit| Operating profit| EBIT margin| PBT margin| ACC| 44%| 17%| 12%| 14%|
Ultra| 49%| 22%| 17%| 17%|
Ambuja| 48%| 23%| 18%| 20%|
India| 49%| 20%| 14%| 8%|
1. Falling returns on investment – A sharp rise in the demand for infrastructure and housing coupled by an increase in projects launched by real estate developers during the years 2002-2007, stretched the utilization of production...