1.

INTRODUCTION
The Indian cement industry is second largest in the world after China and has grown at a
CAGR of 8% in the last decade. The sector has evolved significantly in the last two decades,
going through all the phases of a typical cyclical industry. After having gone through a period
of over-supply and the phase of massive capacity additions (latter half of the previous
decade), the industry is currently in a consolidation phase, with capacity additions coming up
to cater to the increasing demand. Demand has been driven by a booming housing sector and
increased activity in infrastructure development such as state and national highways. While
the demand is growing at a robust pace of 8% to 10% annually, the paucity of major capacity
additions is putting upward pressure on the cement prices.
The Indian cement industry with a total capacity of 251.2 million tonnes (including mini
plants) in March 2016 has emerged as the second largest market after China, surpassing
developed nations like the USA and Japan. Per capita consumption has increased from 28 kg
in 1980-81 to 120 kg in 2015-16. In relative terms, Indias average consumption is still low
and the process of catching up with international averages will drive future growth.
Infrastructure spending (particularly on roads, ports and airports), a spurt in housing
construction and expansion in corporate production facilities is likely to spur growth in this
area. South-East Asia and the Middle East are potential export markets. Low cost technology
and extensive restructuring have made some of the Indian cement companies the most
efficient across global majors. Despite some consolidation, the industry remains somewhat
fragmented and merger and acquisition possibilities are strong. Investment norms including
guidelines for foreign direct investment (FDI) are investor-friendly. All these factors present
a strong case for investing in the Indian market.
The growth prospect of cement industry is tremendous as the demand is picking up due to
government initiatives as well as increase in the construction work. The government
initiatives has provided the required boost for the industry to think of expansion and
increasing their capacity to not only fulfill domestic demand but also for exporting cement.
The outlook for the cement industry is looking positive. Also, the use of alternate fuels has
increased the brand image of the cement companies and also helped them in reducing their
dependence on coal for energy production.
Also, the competition in industry is intensifying which is good for buyers, as they can hope to
benefit from the competitive strategies of the players in the cement industry. Moreover,
consolidation of large player in cement industry has provided some amount of stability in the
supply of cement as well as it has brought some order in the industry.

1
 2. RESEARCH METHODOLOGY

2.1 Objective
The following are the main objective of the study:
To analyze the Indian economy.
To analyze the current trend and future aspects of cement industry in India
To analyze the financial market & the share movements in order to study the
prospects of investing in a particular stock or sector
2.2 Research Design
The first step is to conduct the analysis through EIC model. The next step is to understand
what EIC model all about and what are the steps to achieve it. For which the first step is
going through various internet sites and reading about the EIC model and usefulness off the
whole process. Then, the next analysis is of sector selection. I have chosen Cement Sector as
it comes under the Infrastructure Industry which is very vital for the growth of the Economy.
After doing a thorough research on the cement sector in India, the company I chosen was
Ambuja Cement Limited, as cost is the important factor for the cement industry, and the
strategy which any company can adopt is cost leadership and Ambuja Cement Limited is the
Cost Leader in the cement sector. The next step leads is to know the economic conditions
which will have a bearing on the cement sector. Then the following characteristics will be
studied:- Capacity Utilization, Regional Updates, Evaluating the Cement Industry through
Porters Model, Indian Cement Industry-The current Scenario, etc. The next step is to know
the history about the company along with the growth prospects that possess for the future.
The next process is analysis on the company and conclusion of the project with comments on
the future investment in the company.

2
 3. THE STATE OF THE INDIAN ECONOMY

3.1 Performance during 201516 and 201617

The global economy continues to face subdued growth owing to low commodity prices
and low inflation rates, stagnant growth in advanced economies, and geopolitical and
political uncertainties. The International Monetary Fund (IMF) projects global economic
growth to be 3.1 per cent in 2016, with expectations to recover to 3.4 per cent in 2017.
Against the dismal global conditions, the Indian economys expansion has been
noteworthy. Despite an expected decline in the growth rate owing to slowdown in
manufacturing, decline in budgetary capital expenditure and demonetisation, India is
expected to continue as the fastest growing large economy.
The Indian economy is projected to grow at 7.1 per cent as against 7.6 per cent in FY16.
estimates might be lowered as they were forecasted using data till October 2016

Table 1. Growth rate of GDP and its components

Particulars
201516 201617
(Growth rate at constant prices)
Government final consumption 2.2 23.8

Private final consumption 7.4 6.5

3.9 (0.2)
Gross fixed capital formation

Exports of goods and services (5.2) 2.2

Imports of goods and services (2.8) (3.8)

GVA 7.2 7.0

GDP 7.6 7.1

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3.2 GDP performance in 201617 from the demand side (comprising consumption,
investment and net exports)
In FY17, the governments final consumption expenditure emerged as the major driver of
GDP growth with an increase of over 23 per cent as against 2.2 per cent in FY16
The Gross Fixed Capital Formation (GFCF) to GDP at constant prices, an indicator of
investments across the country, declined by 0.2 per cent in FY17, continuing the
downward trend since 2011.
In FY16, exports of goods and services witnessed a growth of 2.2 per cent (Advanced
Estimates) as against a y-o-y decline of 5.2 per cent in FY15, owing to partial recovery in
commodity prices. The imports witnessed a y-o-y decline of 3.8 per cent due to lower
gold and other bullion imports.

3.3 Inflation and monetary policy

Indias Wholesale Price Index (WPI) based inflation witnessed a reversal from -5.1 per
cent in August 2015 to 3.4 per cent in December 2016 due to rising crude oil prices in the
international market towards the end of 2016.
The Consumer Price Index (CPI) based inflation witnessed a steep decline since July
2016, owing to lower prices of pulses as a result of a bountiful kharif crop production.
The CPI based inflation averaged 4.9 per cent during April-December 2016.

3.4 GDP outlook for 201718

The countrys economic growth is facing challenges such as subdued manufacturing,
lower exports of services, and lower capital expenditure
However, during FY18, cheap borrowing costs and fading impact of demonetisation
could increase the private consumption and thereby drive economic growth
The implementation of Goods and Services Tax (GST) is expected to improve tax
compliance and governance, and might provide an impetus to the investments and growth
in the country
Due to favourable indicators such as moderate levels of inflation, reduced Current Account
Deficit (CAD), fiscal consolidation and transitory impact of demonetization, the country is
currently characterized as a stable macroeconomic situation, the Government expects Indias
GDP to expand at a growth rate between 6.757.5 per cent during 2017-18.

4
3.5 Public finance
The fiscal policy for 2016-17 reiterated the Governments commitment to cut down the
fiscal deficit to 3.5 per cent of GDP and further contribute towards fiscal consolidation.
With demonetization impacting the economy and additional burden being put on the
revenue expenditure due to the implementation of the Seventh Pay Commission, the
Indian fiscal experience is likely to be underwhelming.

Table 2. Non-debt receipts of the Union Government (April - November 2016)

Growth
Realisation rate, as per cent of %
Particulars Budget Estimates (BE) 201516 201617
201516 201617
Gross tax revenue 53 57.2 20.8 21.5

Tax (net to Centre) 50.5 58.9 12.5 33.6

Non tax revenue 78.1 54.2 34.9 1.0

Non-debt capital
25.8 48.5 180.3 57.1
receipts

Total non-debt
53.9 57.4 20 25.8
receipts

Non-debt receipts grew at 25.8 per cent during April-November 2016, exceeding the
budgeted growth rate for the full year of 16.4 per cent. This could be attributed to the
increased union excise duties and service tax due to additional resource mobilization.
To meet the fiscal deficit target, the Government is expected to achieve 11.9 per cent
increase in the gross tax revenue and make efforts in non-tax revenue and non-debt
receipts.

5
 During April-November 2016, the Gross Tax Revenue (GTR) realisations as a ratio of the
budget estimates stood at 57.2 per cent as against 53 per cent in 2015
During April-November 2016, the devolution to states and Union Territories (UT) also
kept pace with the tax collections. Fifty-eight per cent of the total budget estimates were
transferred, registering a slight decline as compared to the previous year.

3.6 Monetary management and financial intermediation

The Indian Government amended the Reserve Bank of India Act during 201617,
according to which the Government in consultation with the Reserve Bank would set the
inflation target every five years. As per the revised Monetary Policy Framework, the
Government fixed the inflation target to 4 per cent with a tolerance level of +/- 2 per cent
for the period 5 August 2016 to 31 March 2021.
To manage the liquidity situation, the RBI provided durable liquidity through
buying/selling Government securities and mopped surplus liquidity through variable
reverse repo rate post the withdrawal of specified bank notes. The Government also
increased the limit on securities under market stabilisation scheme from INR30,000 crore
to INR6 lakh crore.
Overall Non food credit growth was largely due to bank credit lending to agriculture and
allied activities and personal loan segments during the current financial year. Credit
growth to industrial sector remained below 1 per cent. Non food credit outstanding grew at
below 10 per cent for the major part of the year.
The performance of public sector banks followed a similar trend as seen in 201516 and
continued to be subdued during 201617. Profit after tax contracted in the H1 201617
due to loan write-offs, decline in net interest income and growth in risk provisions.
To strengthen the corporate bond market, RBI took a number of measures during 201617
Commercial banks were allowed to issue rupee-denominated bonds overseas for their
capital requirements
Brokers registered with SEBI and authorized in corporate bond market were permitted
to undertake repo/reverse repo contracts in corporate debt securities
Banks were allowed to increase the partial credit enhancement on corporate bonds
from 20 per cent to 50 per cent
Primary dealers were allowed to act as market makers for Government bonds, which
made Government securities more accessible to retail investors

6
 Entities exposed to exchange rate risks were allowed to take hedge transactions up to a
limit of USD30 million at any given time
The Indian market recorded a moderate growth with the Sensex up by 1.95 per cent for the
calendar year 2016 when compared to the losses recorded in 2015. Factors such as the
Brexit, the U.S. Presidential elections and policy announcements by RBI had a sizeable
impact on market sentiments.
Net Foreign Portfolio Investment turned negative in 2016 since the meltdown of 2008,
indicating that there was an outflow from the Indian market.

Table 3. Net FPI/FII investment in India in 2010-16 (INR crore)

Segment 2010 2011 2012 2013 2014 2015 2016

Equity 133,266 (2,714.3) 128,360 113,136 97,054 17,808 20,568

Debt 46,408 42,067 34,988 (50,849) 159,156 45,857 (43,647)

Total 179,674 39,352.9 163,348 62,286 256,213 63,663 (23,079)

3.7 External sector

Due to a decline in global crude oil prices, imports declined by 7.4 per cent in 201617 in
value (till January 2017). The Current Account Deficit (CAD) of India narrowed to 0.3
per cent of GDP during April-September 2016. The trend of negative export growth
reversed a bit with exports registering a growth of 0.7 per cent during 201617 (till
January 2017).
Petroleum, Oil and Lubricants (POL) imports declined by 10.8 per cent in 201617 (till
January 2017) whereas non-POL imports declined by 2 per cent.

7
 Table 4. Export performance of some important sectors (Growth)

201617
Sectors Growth indication
(Apr-Nov 2016)
Ores and minerals 35.3

Marine products 20.6

Gems and jewellery 11.6 Positive growth

Electronic goods 3.0

Engineering goods 0.9

Chemicals and related

(0.5)
products
Agriculture and allied
(3.0)
products
Negative growth
Leather (4.8)

Indias trade deficit declined by 23.5 per cent in AprilDecember 2016 over the
corresponding period in the previous year. The decline was mainly due to a contraction in
imports. The country witnessed a decline in imports from Europe, Africa, America and
Asia during April November 2016.

8
3.8 Sector-wise performance of GDP

Agriculture and food management

The Agriculture and Allied sector witnessed an improved rate of growth in FY17.
According to the first advance estimates by the Central Statistical Organisation (CSO),
the sector is expected to grow at 4.1 per cent in FY17. This is largely on account of a
normal monsoon throughout the country for the current fiscal, as against sub-par
monsoon during in FY15 and FY16.
As per the first advance estimates released by the Ministry of Agriculture and Farmers
Welfare, the production of kharif crops during FY17 is estimated at 135 million tonnes,
compared with 124.1 million tonnes in FY16.
As of 14 October 2016, total area sown for all kharif crops combined witnessed an
increase of 3.5 per cent, from 1,039.7 lakh hectares in FY16 to 1,075.7 lakh hectares in
FY17. Arhar registered the maximum percentage increase in acreage during the kharif
season in 2016-17 compared to 2015-16.
The coverage area for rabi crops for FY17 stood at 616.2 lakh hectares, as on 13 January
2017, which is 5.9 per cent higher compared to the corresponding weeks data in FY16.
Area under irrigation witnessed significant regional and crop-wise variations, incumbent
upon volume of rainfall throughout the year
India received 97 per cent of its Long Period Average (LPA) rainfall during the south
west monsoon season between JuneSeptember 2016. Rainfall received during the
period stood at 862 mm as against the LPA of 887.5 mm. Among the 36
meteorological sub-divisions, four received excess rainfall, 23 received normal
rainfall, while the remaining nine divisions witnessed deficient rain.
A committee was formed under the Chairmanship of Chief Economic Adviser, Dr.
Arvind Subramanian towards incentivising production of pulses through Minimum
Support Price (MSP) and other related policies.
Minimum Selling Price was raised significantly during FY17 for several pulses in an
attempt to incentivise farmers for greater production.
The stock of food grains (wheat and rice) as on 1 December 2016 stood at 43.5 million
tonnes compared to 50.5 million tonnes as on 1 December 2015.
In an attempt to improve the flow of credit in the agriculture sector, the credit target for
FY17 has been fixed at INR9 lakh crore as compared to the previous fiscal target of
INR8.5 lakh crore.

9
 As against the target, the achievement for FY17 (up to September 2016), was 84 per cent
of the target, higher than the corresponding figure of 59 per cent up to September 2015,
for credit flow to the agriculture sector.

Industrial, corporate and infrastructure performance

The industrial sector, which constitutes mining, manufacturing, electricity and
construction is projected to decline from a 7.4 per cent growth rate registered in FY16
to 5.2 per cent in FY17, according to the first advance estimated released by the CSO.
The Index of Industrial Production (IIP) registered a growth of 0.4 per cent during
April-November 2016. This modest rate of growth could be attributed to a
moderation in the mining and manufacturing segment.

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 Table 5. IIP-based growth rates of broad sectors/use-based classification (in per cent)

Sectors 201516 (Apr-Nov) 201617 (Apr-Nov)

Mining 2.1 0.3

Manufacturing 3.9 (0.3)

Electricity 4.6 5.0

Capital goods
4.7 (18.9)

Consumer goods
4.1 1.8

Basic goods
3.9 4.1

Intermediate goods
2.0 3.4

Durables
11.8 6.9

Non-durables
(1.8)
(0.5)

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 In the context of use-based classification, capital goods witnessed a sharp decline
while basic and intermediate goods registered modest growth in FY17.
Eight core industries, comprising coal, crude oil, steel, cement, natural gas, electricity,
fertilizers and refinery products registered a combined growth of 4.9 per cent during
April-November of FY17, compared to 2.5 per cent growth during the same period in
FY16.
Production volume in categories comprising steel, refinery products, cement and
electricity registered a significant rise, while production of natural gas and crude oil
declined during April-November 2016.
In the power sector, thermal energy production registered a growth of 6.9 per cent while
nuclear and hydro power generation marginally contracted during H1 FY17.
The corporate sector in India registered a sales growth of 1.9 per cent during Q2 FY17,
compared to 0.1 per cent in Q2 FY16.
Growth in operating profits in the corporate sector declined to 5.5 per cent during Q2
FY17 from 9.6 per cent in the previous quarter.
Net profits registered a growth of 16.0 per cent in Q2 FY17 compared to a growth figure
of 11.2 per cent in Q1 FY17.
Norms of foreign investment in sectors such as defense, infrastructure, railway,
construction, etc. were liberalized during the year, which led to a significant increase in
the inflow of foreign investment in the country. Total FDI equity inflows stood at
USD21.7 billion during H1 FY17, compared to USD16.6 billion during H1 FY16, a
growth of 30.7 per cent y-o-y.
Initiatives such as Make in India, Invest India, Start Up India and e-biz Mission Mode
Project under the National e-Governance Plan are expected to further improve the ease of
doing business and provide a boost to manufacturing in the country.
Other measures aimed at improving the ease of doing business include the provision for
an online application for industrial license, easing of permission application norms,
limiting the number of documents required for conducting trading activities and setting up
of an Investor Facilitation Cell under Invest India to guide, assist and handhold investors
during the entire life-cycle of the business.

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3.9 Services sector
Advance estimates of growth for 201617: According to the advance estimates for
201617, the services sector is expected to grow at 8.8 per cent in 2016-17 in line with
the growth in 2015-16 at 8.9 per cent. The slight slowdown is attributed to a deceleration
in growth of trade, hotels, transport and storage from 9 per cent in 201516 to 6 per cent
in 201617. This deceleration would be offset by an anticipated high growth of public
administration and defence, from 6.6 per cent in 2015-16 to 12.8 per cent in 2016-17.

Table 6. Growth rate of GVA in Indias services sector (GVA at basic prices)
National GVA in per cent (per cent growth y-o-y)

Particulars
2014152 2015163 2016174

Trade, hotels, transport

9.8 9 6
and storage

Financial services, real

estate and professional 10.6 10.3 9
services

Public administration
10.7 6.6 12.8
and defence

Total services
10.3 8.9 8.8

GVA at basic prices 7.1 7.2 7.0

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 Services trade
Exports:
Services exports grew from USD51.9 billion in 2005 to USD155.3 billion in 2015;
around USD0.5 billion lower compared with 2014 levels. With a 2015 share of 3.3
per cent in global services exports (3.1 per cent in 2014), the Indian commercial
services export increased, despite a 0.2 per cent negative growth in 2015 (5 per
cent growth in 2014). Indias share increased due to a relatively greater decline in
world services exports by 6.1 per cent in 2015.
As the global output and trade went through a slowdown, the Indian services sector
witnessed a parallel decline of 2.4 per cent in 2015-16. Software services, which
had a share of 48.1 per cent in services exports, grew by 1.4 per cent in 2015-16
and 0.1 per cent in H1 of 2016-17.
Software services and financial services export saw a decline in the first half of
2016, resulting in a net services surplus decline in the same period.

Imports: A relatively higher growth rate in import of services was observed in 2016 as
compared to 2015.
Tourism services: With 8.2 million Foreign Tourist Arrivals (FTAs) in 2015, the
tourism sector experienced a growth of 4.5 per cent in terms of FTAs. This resulted in
USD21.1 billion Foreign Exchange Earnings (FEEs), a growth of in 4.1 per cent over
2014. With 8.9 million FTAs at a growth rate of 10.7 per cent, the total FEE were at
USD23.1 billion, a growth of 9.8 per cent in 2016 (January to December) over 2015.
FDI in services: The service sector, along with other sectors such as construction
development, computer software and hardware, continued to be the sectors attracting
the highest FDI equity inflows. Led by a substantial growth in defence, public
administration and other services, the service sector remained a dominant contributor
to the overall growth of the economy in 2016 as well.
Merchandise trade and shipping services: An indicator of both merchandise trade
and shipping services, the Baltic Dry Index (BDI) declined to 910 on 13 January
2017, despite showing continuous improvement till 18 November 2016.
Nikkei/Markit services: A Purchasing Managers Index (PMI) for India,
Nikkei/Markit Services fell from 54.5 in October 2016 to 46.7 in November 2016. A
minor increase to 46.8 was observed in December 2016.

14
3.10 Impact of demonetization
The Economic Survey 2016-17 has highlighted the impact of the demonetization exercise
carried out by the Government in November 2016 on the health of the economy. The
assessment determined that the maximum negative impact of the exercise has been felt on the
informal and cash-intensive sectors. However these costs are expected to be transitory in
nature.
At the same time, demonetization has the potential to generate long-term benefits in terms of
reduced corruption, greater digitalization of the economy, increased flows of financial
savings, and greater formalization of the economy, all of which could eventually lead to
higher GDP growth, better tax compliance and greater tax revenues. Lower interest rates and
inflation are further expected to provide a cushion to the common man towards easing the
impact of demonetization.
A number of follow-up actions suggested in the Economic Survey could help minimize the
costs and maximize the benefits of demonetization. These include: fast, demand-driven,
demonetization; more tax reforms, including bringing land and real estate into the GST,
reduction in tax rates as well as stamp duties. These actions are expected to assist in
boosting growth in 2017-18, following a temporary decline in 2016-17.
In an attempt to drive the move towards a more transparent and compliant economy, the
Government has announced several measures which are expected to encourage the use of
digital means of payment, while reducing dependency on cash. Some of these measures
include:
- The National Payments Corporation of India (NPCI) successfully launching the
Unified Payments Interface (UPI) platform
- Waiver of transaction charges on debit cards
- Launch of the Bharat Interface for Money (BHIM) application to make online
transactions easier

15
 4. INDUSTRY ANALYSIS
4.1 Cement Industry Overview
Cement production in India commenced in 1914. Severe competition from imported cement,
coupled with various governmental price and distribution controls, resulted in the slow
growth of the Indian cement industry in the earlier years. In the subsequent 69 years, 30 MnT
of cement capacity was added. This situation was reversed in the 1980s when the industry
was partially decontrolled. This resulted in substantial increase in the capacity and production
of cement. Nearly 30 MnT of capacity was added during the 11 years from 1980 to 1990,
thereby adding more capacity during one decade than had been added during the previous
seven decades. Encouraged by the creation of substantial new capacity and the lowering of
prices, the GoI freed the industry from price and distribution controls on March 1, 1989 and
delicensed it on July 25,1991, leading to a spurt in cement production capacities. During the
period from 1991 to 2005, approximately 93 MnT of fresh capacity of cement was added.
Since the 1980s, cement capacity has steadily outpaced its demand, and India has grown to
become the second largest cement producer in the world, India is also estimated to have
approximately 90 billion tonnes of limestone reserves, the main raw material used in the
manufacture of cement. As in 2016, the Indian cement industry comprised over 54 cement
producers, operating 130 large cement plants with an average installed capacity of 160 MnT.
However the per capita consumption of 136 kgs of the country compares poorly with the
world average of 260 Kg.
The Indian cement industry has made significant progress upgrading and assimilating the
latest technology. At present, 95% of the total capacity in the industry is based on modern,
environment-friendly and energy efficient dry process technology, with only 5% of the
capacity based on old wet and semi-dry process. Cement is one of the core industries that
plays a vital role in the growth and development of a nation. Indian Cement industry is very
large and only second to China in the world in terms of installed capacity, production and
consumption. It has grown at a very fast pace in past two decades or so, mainly due to growth
in domestic infrastructure & construction sector, it has more than quadrupled its production
from almost 50 Million Tonnes (MT) per year in 1992 to 282.5 MT in year 2016 at CAGR
20.22%.

16
 Top 5 Cement Producer' 2015
2350
2500

2000

1500

1000

500 270
83.4 77 72
0
China India USA Turkey Brazil

Figure 1.Top 5 Cement Producer (Source: USGC Minerals)

12

10

8
GDP Growth Rate
6
Production Growth
4 rate

0
FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15

Figure 2. GDP v/s Cement Production Growth Rate (Source: World Bank)

Growth in GDP is considered to be highly correlated with domestic production &

consumption of cement. However, in past 8 years cement production data has shown some
opposite & volatile moves. In longer term, they might be highly correlated and if we were to
believe that we can expect stronger growth in Cement Industry as GDP growth rate forecasts
have been revised upwards recently to 7.6%.

17
4.2 Sector Outlook
The housing sector is the main driver of demand for cement manufacturing, as over 67% of
the production is directed to housing construction. Another 13% are used in the commercial
construction and 11% in infrastructure projects, with approximately 9% of the cement used in
industrial construction.

Housing
9% Construction
11% Commercial
Construction
13% Infrastructure
67%
Industrial
Construction

Figure 3. Use of Cement

Demand for Cement has also shown signs of recovery in Q1 and is further expected to gain
momentum due to the following factors:
As per Union Budget 2016-17, there has been a boost for affordable housing & also as
per previous year budget govt. is promoting housing for all.
Increased spending in Infrastructure & Industrial segment with total spending in
Infrastructure sector to be around 2.21 lakh crores of which 97000 crores in Road
sector.
Rural road development, National Highways, State Highways development, approx.
construction of 10000 km road in a year.
With decreasing interest rates and various tax benefits demand in housing sector is
likely to see an uptrend.
Initiatives by the government are expected to provide an impetus to construction
activity in rural and semi-urban areas through large infrastructure and housing
development projects.
Implementation of projects like make in India, 100 smart cites, smart villages, etc. to
give boost to domestic consumption.
Planned expenditure of 27,280 crores towards Pradhan Mantri Awas Yojna & smart
cities.

18
 No Income Tax on profit for small house builders.
No Service Tax on construction of affordable houses.
No Excise duty on Ready Mix Concrete manufactured at site.
Development in Metro, Railways, Port & Airports is likely to boost cement demand.
Increase in time period for construction of house from 3 years to 5 years for interest
exemption.
Indias per capita consumption of cement is around 190kg as of 2015 far lower than
the world average of 350kg per capita, suggesting good potential for expansion.
Increased focus on concrete roads.

Ready Mix Concrete Simple Recipe with many variables

The simple recipe of balanced mix of cement, aggregates & water. The quality of cement and
aggregates, the mixing proportions are some of the influencers in preparation of the concrete.
The Ready Mix Concrete business is still in its nascent stage in India. Some of the major
cement players have ventured into this business. Cement companies are in a better position to
leverage the market as cement is under their kitty. This would also lead to higher operating
margins for them.
This niche market provides an opportunity for cement companies to tap upon and increase the
profit margins.

North-East Growth Story

Under Special Accelerated Road Development Program, Rs.35,000 crore is proposed
to be invested to develop Trans Arunachal highway and for connecting all district
headquarters by two Lane highway.
10 smart cities to be developed in North-East.
Develop 20 Ports in Brahmaputra and Barak with township, industrial area, rail and
road connectivity
Huge trade potential between North-East & ASEAN countries.

4.3 How much does it cost?

Cement sector is considered to be highly capital intensive sector. The development of the
sector and especially its profitability is dependent on the investment costs(land, quality
standards, regulations) and operating costs like cost of coal, electricity, fly ash, lime,
gypsum, etc.

19
Overall cost varies from company to company, it depends on location of the plant, type of
material produced, proximity of reserves and mine allocation rights & mix of road & rail
transport used. Companies are currently enjoying low input costs and have increased their
focus on lowering operational cost.
A. Energy Cost
Coal - Around .25 ton of coal is required for production of 1 ton of cement. Coal
forms about 20% of the total operating cost. However, companies are now shifting to
petcoke . Consumption of petcoke is up from 26% in FY12 to around 70% in FY16,
which has contributed to decreasing operating costs. Coal mine is now allocated
through e-auctions & price of domestic coal has increased, this has led to import of
coal by companies. Use of petcoke & import of international coal has led to decrease
in operating cost of cement manufacturers.
Power - Availability of stable and continuous power supply is of critical importance
to the cement industry. Power consumption is around 90-120 KWH. Major players
generally rely on captive power units to attain sustainable low cost of power over long
term.
B. Raw material Cost
Limestone
It is the main raw material required for production of cement. About 1.5 tonnes of
limestone is used in the manufacture of 1 ton of cement. Cement grade limestone is
located only in certain areas in the country leading to establishment of cement plants
in clusters.
The govt. has hiked loyalty on limestone to Rs. 80/ton.
Gypsum
Around .04-.05 ton of gypsum is used in production of 1 ton of cement, depending on
type of cement being produced. Companies generally rely on imported gypsum from
countries like Oman, Thailand, etc. industry also relies on by-products of gypsum,
such as phosphor-gypsum & fluoro-gypsum.
Flyash
It is available in abundance and generally procured from nearby power plant. It does
not generally cost much but the major cost associated with fly ash is its transportation
cost. It varies from company to company.

20
 C. Freight & Forwarding Cost Industry is highly dependent on rail & road for its
freight needs. For every 1 ton of cement to be produced, company need to incur cost
of getting in 1.5 ton of limestone, .05 ton of gypsum, flyash and approx. 0.25 ton of
coal/petcoke. Apart from this company need to incur outward transport for cement.
Each company uses different mix of road & rail transport to meet its freight needs.
With lower crude prices in recent years, dependency on road transport has increased
and if the lower crude prices are here to stay this could benefit the industry by
reducing the cost of freight. For every 1% reduction in diesel cost 0.4% of road
transport cost decreases. This effect has mainly been offset by increase in rail freight
rate hike.
D. Employee Cost India is at par with the latest technology, therefore employee cost is
likely to go up unless we add to new cost cutting measures or constantly upgrade
technology.

Price
Cement currently is available at a price range of 250-300 for 50 kg bag, clearly up from lows.
Recently price has been hiked by producers, which is positive for the industry. However,
price volatility continues in cement prices as it continues to remain under pressure amidst the
weak demand scenario coupled with aggressive volume push. Prices have improved in North,
remain stable in south and are weak in East & West. Further reduction in demand gap would
send cement prices in northern trajectory.

4.4 Capacity & Production

Installation capacity in India has grown steadily at CAGR of 4.2 % from FY11 to FY16 &
is expected to grow at a higher rate, mainly led by increased estimates of domestic demand. It
is also expected to reach 480 MTPA as per 12th five year plan.

21
 Installed Capacity
600

500 480
390 405
400 366
336.1 349.6
323
300

200

100

0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E

Figure 4. Installed Capacity (Source: Ministry of External Affairs, ACC Cements)

Indian Cement industry has more than 70 companies with more than 200 plants in
India.
45% capacity under control of top 5 players.
Regional play due to high freight costs

Region wise Installed Capacity & Production

160 147
141
140

120 112.8

100
80.85
80 Installed capacity
64
60 54.4 54 Production
37.8
40

20

0
North East South West

Figure 5. Regionwise capacity and productionSource: Ultratech Cement Investor Presentation

North: Housing sector shows signs of revival and growth is expected in infrastructure sector
mainly led by increase in govt. spending.

22
East: Growth from infrastructure spending in both rural & urban areas.
West: Marginal increase in demand due to infrastructuture segment & concretization of
roads.
South: Growth hit by housing sector, infrastructure segment is expected to drive growth.

4.5 Trends & Forecasts

Domestic Consumption of Cement has grown at a CAGR of 13.8% in past 5 years & if the
same trend continues, it is expected to reach 325 MTPA by 2017 & as per 12th five year plan
it is expected to reach around 400 MTPA.
Installed capacity is expected to reach 550 MTPA by FY20 if it continues growing at the
historical CAGR. Demand has grown at CAGR of 12% from FY11 to FY16 and is expected
to reach 420 MTPA by FY20, which is in line with the expectations.

600

500

400

300 Installed Capacity

Demand
200

100

0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Figure 6. Demand & Capacity (Source: Ministry of external affairs, CMA India)

Production output has been at par with increase in installation capacity & has grown at a
CAGR of 5.1% from FY11 to FY15. Production output for FY16 stands at 282.5 MTPA.
Considering various factors like infrastructure spending by government & revised GDP
figures, we can expect both production & consumption to grow at more than respective
CAGR figures.

23
 300

250

200

150 Domestic Consumption

Cement Production
100

50

0
FY11 FY12 FY13 FY14 FY15

Figure 7. Consumption and Production (Source: CMA India, IBEF)

4.6 Capacity Utilisation

Average capacity utilization has been at 69% in last 5 years, the reason of decline is mainly
due to less than anticipated growth in past 2 years due to weakened domestic growth, coal
block issues and weak monsoon.
There is a demand-supply gap due to over capacity of plants, however, this mismatch is
expected to reduce in the coming years as growth picks up. Higher government spending on
infrastructure and housing will be key growth drivers.

Capacity Utilisation
71.00%

69.89%
69.31%
68.58%

66.87%

FY11 FY12 FY13 FY14 FY15

Figure 8. Capacity Utilization

24
Utilization rates are expected to improve from current rate of around 71% to 85 % (all India
basis), on account of increased spending by govt. and increase in demand.
Capacity & Expansion by Major players
A. Ultratech Cement
Total Capacity - 66.25 MTPA
Capacity utilization 84%
Largest exporter of cement clinker, catering European, African & Middle East
markets.
It has presence in 5 countries
Proposed acquisition of Jaypee Cement by June 2017
B. ACC Cement
Capacity utilization 85%
ACC is subsidiary of Holcim
Jamul clinkering project (2.79 MioT) scheduled to be commissioned in Q216
Cement grinding unit at Jamul (1.1 MioT) & Sindri(1.35 MioT) expected be
commissioned in Q216/Q316
C. JK Cement
Grey Cement Capacity 10.5 MTPA
White Cement Capacity 1.2 MTPA
International presence in UAE
D. Ambuja Cement
Targeting 580 Million USD capacity expansion in Rajahsthan, MP & UP.
Capacity 28.5 MTP
E. Holcim
Announced acquisition of Lafarge
Holcim & Lafarge combined are now largest cement players in the world.
Combined capacity of holcim & Lafarge is 67 MTPA in India.

4.7 Globally Competitive Industry

India mainly consumes all of its cements and exports & imports are almost negligible
in terms of its annual production. Quality of Cement produced in India is at par with
the world. India supplies cement to around 35 countries in the world.

25
 Net Exports stands at 5.03 Million Tonnes Per Annum (MTPA) for financial year
ending 2016 & net import stands at 1.34 MTPA. Material wise data has been given in
table below:

IMPORTS EXPORTS
IMPORTS FY'16 FY'15 FY'16 FY'15
Cement Clinkers 0.24 0.05 2.64 3.97
Grey Cement 1.09 1.02 2.36 2.24
White Cement 0.01 0.01 0.03 0.07
Other 0 0 0 0
TOTAL 1.34 1.08 5.03 6.29
Table 7. Imports and Exports Data (Source : Ministry of Commerce & Indsutry)

4.8 OPPORTUNITIES AND THREATS

Opportunities
The much needed boost for the rural economy has been partly addressed by the Union
Budget 2016-17 having increased the outlay for rural development. The forecast of above
normal rains during the monsoon season further raised the expectations for increase in
cement demand across urban and rural areas. The anticipated increase in the pay and
pensions through implementation of the 7th Pay Commission recommendations and OROP
(One Rank One Pension) would be positive factors aiding housing demand. Rejuvenation of
the first 20 cities under the Governments Smart Cities program would open new
construction opportunities. The Housing for All initiative of the Government and the
transition from bituminous tar roads to cement concrete roads also hold significant
promise for the sector. Drop in crude oil prices has resulted in marked reduction in fuel cost
for the industry. The prices are envisaged to remain stable or may marginally increase in the
coming quarters. The Companys active measures towards achieving optimal fuel mix and
the rail-road mix for the dispatches will help it in containing operating costs.

Threats
The industrys underutilized capacities coupled with moderate demand growth may step up
the competitive forces, thereby eroding margins. Any sharp reversal in commodity prices

26
(pet coke and diesel) may adversely impact the margins. Rural demand for cement being
highly dependent on the agricultural production, vagaries in rainfall could have adverse
impact.
Outlook
After recording tepid growth during calendar year 2015, cement demand has been firming up
in 2016. The double digit growth in cement volumes recorded in January-March
quarter of 2016 is a welcome sign. The cement demand is expected to grow in the range of
6-7% during FY17. The factors that are likely to act as catalysts include Governments
continued thrust on execution of various infrastructure projects, affordable housing and
urban rejuvenation under the smart city program. Sustained economic growth momentum
will also trigger private investments in commercial real estate and industrial construction.
Further softening of the interest rates will help boost retail demand for housing. Revival of
the rural economy on the back of a favorable monsoon forecast and various government
measures will help push the rural demand. With the pace of capacity additions slowing
down, capacity utilization is likely to improve for the industry. This supported by sustained
demand growth may lead to an uptrend in the sector over the coming quarters.

Risks and Concerns

Risk management through the adopted framework is a vital function of the management. The
management continuously monitors and reviews the business environment and keeps an eye
on the adequacy and effectiveness of the risk management framework and its procedures.
The framework includes systematic risk identification and defines suitable action plans to
mitigate the same. Having focused on managing the internal risks, the Company is able to
reduce, to an extent, the impact of external risks such as a general downturn in the economy,
new regulations, government policies and interest rates.

27
 5. COMPANY ANALYSIS: HEIDELBERG CEMENT

5.1 INTRODUCTION
Heidelberg Cement India, earlier known as Mysore Cements a cement manufacturing
company, was incorporated in 1948. It is promoted by Heidelberg Cement Group Company.
In 2009 the name of the Mysore Cements Ltd was changed from Mysore Cements Ltd to
Heidelberg Cement India Ltd.
Heidelberg Cement, with its core products being cement, ready mixed concrete, aggregates
and related activities, is one of the leading producers of building materials worldwide, and it
employs around 46,000 people in more than 50 Countries.
In 1962, the company set up its first one lac ton per annum dry process cement plant with an
investment of Rs.220 lacs at Tumkur in Karnataka. Later the company doubled its
production to two lac tpa with investment of Rs.170 lacs. In 1968, the company again
doubled its capacity to 4 lac tpa with investment of Rs.390 lacs.
A decade later it increased capacity of Ammasandra to 6 Lac tpa with an investment of
another Rs.230 lacs. In 1983, the company set up a 5 lac tpa green field cement plant with an
investment of Rs.2,950 lacs.
Today it has manufacturing facilities located at Ammasandra (Karnataka), Damoh (M.P.)
and Jhansi (U.P) and has total production capacity of 5.9 million tonnes per annum.
The company manufactures Portland slag cement and Portland pozzolana cement. The
company markets its products under the brand name Mycem

5.2 THE YEAR IN RETROSPECT

In 2015-16, the Indian economy showed stability despite the continued down slide and
negative sentiment around the globe. GDP grew at 7.6% in 2015-16 compared to 7.3% in
2014-15 backed by the improved performance of both the manufacturing and service sectors.
The agricultural sector remained adversely affected in 2015-16 as well due to scanty rainfall,
which impacted the rural demand. 2015-16 witnessed a further decline in the global crude
prices which helped in reducing current account deficit and checking inflation thus enabling
RBI to cut interest rates. Although the economy showed moderate signs of revival, the
recovery in cement demand remained muted due to sluggishness in the infrastructure, real
estate and rural home builders segment. Over the last few years, the cement industry has
been facing excess supply which has adversely impacted prices. At the end of March 2016,
the overall installed cement manufacturing capacity stood close to 405 million tonnes.

28
However, total cement production during 2015-16 was about 282.5 million tonnes compared
to 270 million tonnes in the corresponding period, a growth of 4.6%.

5.3 FINANCIAL HIGHLIGHTS / REVIEW OF OPERATIONS

The Company produced 4.43 million tonnes (MT) of cement during the year ended March
2016 compared to 5.24 MT in the fifteen months period ended March 2015, an increase of
5.7% on an annualized basis. Cement sales for the year were 4.44 million tonnes compared
to 5.28 million tonnes in the fifteen months ended 31st March 2015, an increase of 5.1% by
volume on an annualized basis. Gross sales in 2015-16 were Rs. 19,228.8 million compared
to Rs. 23,713.8 million in the fifteen months ended 31st March 2015. The Profit Before Tax
(PBT) from operations in the year 2015-16 was Rs. 503.7 million compared to Rs.594.8
million (excluding exceptional item) in the fifteen months ended 31st March 2015. On the
operations front, riding on the back of weak energyprices, the Company was able to keep its
fuel costs significantly under control. Advantage of low pet coke prices was taken by
maximizing pet coke consumption. Packing costs were low due to fall in polypropylene
granule prices. Additionally, the Company managed to lower cost by about 7% by
conducting reverse auctioning of bags. The Mines and Minerals (Development and
Regulation) Amendment Act, 2015 became effective from 12th January
2015. During the year 2015-16, the provisions of the said Act relating to contribution to
District Mineral Foundation and National Mineral Exploration Trust were also notified.
Accordingly the Company has provided for the same in its books of accounts. Factors like
drought in many districts of central India post two successive monsoon failures, sand mining
restrictions and labour shortage adversely impacted cement demand during 2015-16. Despite
all odds faced by the cement industry and intense competition, the Company successfully
increased its market share in Central India which led to a 5.11% increase in its sales volume
over the previous year (on an annualized basis). Consistent good quality of cement has
enabled the Company to meet expectations of its discerning customers and sustain a good
brand recall for mycem. The bond with the channel partners and customers was further
strengthened through the innovative concept of CADS (Channel Authorization Digital
Signage) an electronic digital display at the dealers shops. Our aim to keep strengthening
customer relationship remains hinged on product quality, reliability, transparency and
fairness.

29
TRANSFER TO DEBENTURE REDEMPTION RESERVE
The Company had issued Non-Convertible Debentures aggregating to ` 3700 million
carrying interest of 10.4% per annum on 16th December 2013. It is proposed to transfer, an
amount of ` 134.1 million (previous year ` 173.4 million) out of the profits for the financial
year ended 31st March 2016 to the Debenture Redemption Reserve (DRR) to meet the
obligations towards the redemption of debentures commencing from 16th December 2019.
During the year the credit rating in respect of the aforesaid debentures has been upgraded to
Ind AA (with stable outlook) from IND AA- by India Ratings and Research Pvt. Ltd., a
credit rating agency.

DIVIDEND
With the objective of long term value creation for the shareholders, the Company had
invested around ` 16 billion in capacity additions at its existing locations in Central India.
This was financed through a mix of internal accruals and debt. Since the repayment of
External Commercial Borrowings has commenced from January 2016, the Directors have
decided to conserve the financial resources and therefore do not recommend payment of
dividend at this juncture.

STEPS TOWARDS COST REDUCTION

The Company is continuously evaluating its internal and external environment and taking all
possible steps to control costs so that it is able to improve its competitiveness and
profitability. A few notable steps taken in this direction were as under:

A step towards clean energy: The Company took a major decision to setup an ecoefficient
Waste Heat Recovery based Power Generation Plant at its clinkerisation unit at Narsingarh,
District Damoh (M.P.). The proposed plant envisages production of approximately 12 MW
of power for captive consumption from the waste heat generated from all three clinkerisation
lines at Narsingarh. It will substitute grid power thus reducing power cost per ton of clinker.
the project is likely to be operational by end of 2016.
Energy Costs: To stem the burgeoning fuel costs, the Company has successfully altered its
fuel mix and increased usage of petcoke as it delivers a lower cost per Giga Joules (GJ)
compared to coal. The management's efforts to reduce specific power consumption have also
started yielding results.

30
Operational Efficiencies: The Company has installed wagon tipplers, extended its railway
sidings and modified the packing plant at its Central India locations, resulting in the
reduction of turnaround time for trucks and faster loading of wagons thereby increasing
operational efficiencies.
Various other measures were taken on the production front to improve the operating
parameters in order to minimize the impact arising out of increasing input costs. Judicious
sourcing and inventory management helped in keeping costs under control while astute
financial management resulted in reduction of interest costs.

REPAYMENT OF EXTERNAL COMMERCIAL BORROWINGS

The Company had borrowed USD 125 million in nine tranches from January 2011 to
October 2012 by way of External Commercial Borrowings (ECB) for the purpose of
financing its Damoh-Jhansi expansion project. Each tranche of ECB is repayable after a
period of five years from the date of its draw down. The entire amount of ECB is hedged
against exchange rate fluctuations through cross currency swap agreements. During the last
quarter of financial year 2015-16 first three tranches of ECB aggregating to USD 60 million
became due for repayment and the same were duly repaid. The Company is gearing up to
repay the remaining tranches.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company has well-structured and effective internal controls which are periodically
reviewed and strengthened. The objective of the internal control system is to keep a check
and ensure protection of the Companys resources, accuracy in financial reporting and due
compliance with applicable statutes. The internal auditors appointed by the Board of
Directors, on the recommendation of the Audit Committee, assess and confirm the adequacy
and effectiveness of the internal control systems. The statutory auditors have also audited the
internal financial controls over financial reporting and have opined that the same were
adequate and operating effectively. All material audit observations and follow-up actions
thereon are reported to the Audit Committee, which also reviews the adequacy and
effectiveness of the internal control systems. Improved internal controls and focus on cost
reduction have helped the Company to stay competitive.

31
5.4 BALANCE SHEET OF THE COMPANY

in Rs. Crores

as at 31st Dec as at 31st March

FY' 12 FY' 13 FY'14 FY' 15 FY' 16
Equity and liabilities
Shareholders funds
Share capital 226.6 226.6 226.6 226.6 226.6
Reserves and surplus 589.0 620.0 606.7 644.9 669.0
815.6 846.6 833.4 871.6 895.6
Non-current liabilities
Long-term borrowings 776.9 985.8 1292.6 924.9 686.1
Deferred tax liabilities (net) 33.1 37.8 5.0 65.2 74.9
Other long-term liabilities 3.7 5.0 4.7 2.9 3.0
Long-term provisions 10.9 13.8 15.1 20.8 19.2
824.6 1042.4 1317.4 1013.8 783.2
Current liabilities
Short-term borrowings 0.0 45.0 64.2 0.0 70.0
Trade payables 140.7 148.6 190.1 191.0 186.0
Other current liabilities 273.4 245.6 202.3 552.5 506.9
Short-term provisions 101.3 126.9 151.3 190.8 207.5
515.4 566.1 607.9 934.4 970.4
TOTAL 2155.6 2455.1 2758.6 2819.7 2649.2
Assets
Non-current assets
Fixed assets
Tangible assets 345.0 372.2 1786.2 1788.8 1959.6
Intangible assets 2.6 1.9 1.2 5.0 0.0
Capital work-in-progress 1054.4 1517.1 167.0 127.4 0.0
Long-term loans and advances 58.0 10.0 30.2 54.7 64.9
Other non-current assets 59.5 83.9 199.4 103.4 27.5
1519.6 1985.0 2183.9 2079.2 2051.9
Current assets
Inventories 110.7 165.0 198.9 191.0 178.2
Trade receivables 24.3 21.6 30.6 19.1 25.8
Cash and bank balances 310.7 73.2 114.1 146.3 7.8
Short-term loans and advances 189.7 210.1 230.6 296.7 302.7
Other current assets 0.7 0.3 0.5 87.4 82.8
636.0 470.2 574.7 740.5 597.2
TOTAL 2155.6 2455.1 2758.6 2819.7 2649.2

Table 8: Balance Sheet of Heidelberg

32
5.5 INCOME STATEMENT

i n Rs . Crores
FY' 12 FY' 13 FY' 14 FY' 15 FY' 16
Continuing operations
Income
Revenue from operations (gross) 1,131.9 1,276.6 1,404.9 2,371.4 1,895.7
Less: excise duty (144.0) (172.7) (196.0) (327.10) (267.7)
a s % of Gros s Revenue -12.7% -13.5% -14.0% -13.8% -14.1%
Revenue from operations (net) 988.0 1,104.0 1,208.9 2,044.3 1,628.1
Other income 11.8 10.5 7.3 13.8 27.2
Total revenue (I) 999.8 1,114.4 1,216.2 2,058.1 1,655.3
Revenue Growth % 11.46% 9.13% 69.22% -19.57%
Expenses
Cost of raw material consumed 271.0 313.3 282.3 443.8 342.8
(a s a % of Revenue) 27.4% 28.4% 23.3% 21.7% 21.1%
(Increase)/ decrease in inventories of
finished goods and work-in-progress 3.1 (25.7) (30.5) (27.7) (9.3)
Employee benefits expense 78.2 92.4 96.7 133.7 105.6
(a s a % of Revenue) 7.8% 8.3% 7.9% 6.5% 6.4%
Other expenses 569.9 646.8 758.5 1,172.3 1,072.6
(a s a % of Revenue) 57.0% 58.0% 62.4% 57.0% 64.8%
Total (II) 922.5 1,027.1 1,107.2 1,722.4 1,511.9
Earnings before interest, tax, depreciation
and amortization (EBITDA) (I) - (II) 77.3 87.3 109.0 335.7 143.4

EBITDA Ma rgi n 7.7% 7.8% 9.0% 16.3% 8.7%

EBITDA Growth 13.02% 24.86% 207.94% -57.28%

Depreciation and amortization expense 33.0 32.8 90.1 138.6 94.0
% of gros s fi xed a s s et 9.5% 8.8% 5.0% 7.7% 4.8%
(a s a % of Revenue) 3.3% 2.9% 7.4% 6.7% 5.7%
Less: recoupment from revaluation reserve (1.6) (1.3) (1.0) (1.0) 0.0
Net depreciation and amortization expense 31.4 31.5 89.1 137.5 0.0
EBIT 45.9 55.8 19.9 198.2 143.4
EBIT Ma rgi n 4.6% 5.0% 1.6% 9.6% 8.7%
EBIT Growth 21.7% -64.3% 893.5% -27.6%
Finance costs 3.9 10.5 105.6 138.9 108.8
a s a % of a vg debt 0.5% 0.3% 2.3% 3.1% 3.4%
Profit/(loss) before tax & exceptional item 42.0 45.3 (85.7) 59.2 34.6
Add: Exceptional Items 0.0 0.0 0.0 60.3 15.5
(a s a % of Revenue) 2.9% 0.9%
Profit/(loss) before tax 42.0 45.3 (85.7) 119.5 50.1
Tax expenses
Current tax 11.3 13.5 9.7 9.1 0.0
Less: MAT credit entitlement (1.1) (3.4) (9.7) (9.1) 0.0
Net current tax liability 10.2 10.1 0.0 0.0 0.0
Current tax/MAT related to earlier years 0.0 0.0 (7.1) 0.0 0.0
Deferred tax charge 3.0 4.7 (32.8) 60.3 0.0
Total tax expense 13.2 14.8 (39.9) 60.3 11.7
(a s a % of Revenue) 1.3% 1.3% -3.3% 2.9% 0.7%
Profit/(loss) for the period from continuing
operations (A) 28.8 30.5 (45.8) 59.3 38.4

Table 9: Income Statement

33
5.6 RATIO ANALYSIS

LIQUIDITY RATIOS

Year FY12 FY13 FY14 FY15 FY16

Current Ratio 1.23 0.83 0.95 0.79 0.62
Quick Ratio 1.02 0.54 0.62 0.59 0.43
Absolute Liquid Ratio 0.97 0.50 0.57 0.47 0.32

Table 10: Liquidity ratios

Current Ratio
It is the ratio that measures whether a firm has enough resources to pay its debts over the
next 12 months. It compares a firm's current assets to its current liabilities. Ideally it should
be 2:1. The current ratio of 1 or above is healthy for the company. It shows the companys
strength to pay back its short term liabilities. The figures of Heidelberg do not give a good
indication 2013 onwards. It is below 1, which means the company is weak in paying back
short term debt. It means that the companys strength to pay back short term liabilities is not
constant

Quick Ratio
The Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near
cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets
include those current assets that presumably can be quickly converted to cash at close to
their book values. Ideally it should be 0.5.
The quick ratio of Heidelberg is highly fluctuating in the recent time which should be a
matter of concern for the company. 2012 had a strong ratio whereas its getting weaker from
2014 onwards. It has been able to maintain its ratio. The companys dependency on
inventory as short term asset is high. The inventory rose drastically in the three years as well
as the current liabilities which led to decrease in quick ratio.

Absolute Liquid Ratio

The absolute liquidity ratio relates cash, bank and marketable securities to the current
liabilities. Since absolute liquidity ratio lays down very strict and exacting standard of
liquidity, therefore, acceptable norm of this ratio is 50 percent. The ratios of Heidelberg are

34
good for FY12, FY13 and FY14 but its decreasing. It means absolute liquid assets are
sufficient for satisfactory liquid position of a business. Its weaker in 2016. In that case, the
company has to improve cash liquidity by changing the policy of credit sales and
advance payments.

LEVERAGE RATIOS

Year FY12 FY13 FY14 FY15 FY16

Debt-Equity Ratio 1.01 1.23 1.58 1.16 0.87
Debt-Asset Ratio 0.36 0.42 0.49 0.33 0.29
Proprietary Ratio 0.38 0.34 0.30 0.31 0.34

Table 11: Leverage ratios

Debt-Equity Ratio
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets closely related to
leveraging, the ratio is also known as Risk, Gearing or Leverage. The table shows that
Heidelberg is largely dependent on the use of long term debts and less dependence on the
use of equity capital. The ratio is less in 2016 which shows that it is reducing its dependency
on debts.
Debt-Asset Ratio
The debt to total assets ratio is an indicator of financial leverage. It tells about the percentage
of total assets that were financed by creditors, liabilities, debt. The debt-asset ratio of
Heidelberg is fluctuating. It increased from 2012 to 2014 which shows more leverage and
more risk. It is showing a downward trend from 2015 onwards.

PRIFITABILITY RATIO
Year FY12 FY13 FY14 FY15 FY16
EBITDA Margin 7.73% 7.83% 8.96% 16.31% 8.66%
Net Profit Margin 2.88% 2.73% -3.76% 2.88% 2.32%
Return on Capital
Employed 2.70% 2.88% 0.88% 10.46% 2.94%
Return on Asset 1.34% 1.24% -1.66% 2.10% 1.45%
Return on Equity 3.53% 3.60% -5.49% 6.80% 4.28%
Table 12: Profitability ratios

35
Net Profit Margin
Net profit margin provides clues to the company's pricing policies, cost structure and
production efficiency. Different strategies and product mix cause the net profit margin to
vary among different companies. Net profit margin is an indicator of how efficient a
company is and how well it controls its costs. The higher the margin is, the more effective
the company is in converting revenue into actual profit.
The net profit margin is constant for Heidelberg except for the year 2014 as there was loss in
that year. It is less in 2016 as there was a decrease in revenue by 20%.

Return on Asset
The return on assets (ROA) ratio illustrates how well management is employing the
company's total assets to make a profit. The higher the return, the more efficient
management is in utilizing its asset base. The ROA has reduced from 2012 to 2014 as the
total assets of the company were increasing and there was increased purchase of tangible
assets in this period. It is highest in 2015 as the net income increased by 3% for this year.

Return on Equity
The return on equity ratio (ROE) measures how much the shareholders earned for their
investment in the company. The higher the ratio percentage, the more efficient management
is in utilizing its equity base and the better return is to investors. The ratio is decreasing from
2012 to 2014 as the company was more dependent on debts during this period and thus less
equity. It increased in 2015 due to increase in net income by 3%.

EARNINGS PER SHARE

Figure 10: EPS

36
It can be seen that the EPS is increasing from 2012 to 2013 as there was increase in income.
There was a loss in 2014. Due to rise in the net income, it rose again and then decreased in
2016.

P/E Ratio

P/E Ratio
60.0
50.0
40.0
30.0
20.0
P/E Ratio
10.0
0.0
(10.0) FY' 13 FY' 14 FY' 15 FY' 16
(20.0)
(30.0)

Figure 11: P/E Ratio

The price to earnings ratio of Heidelberg is increasing from 2015 to 2016 due to the decrease
in earnings per share from 2015 to 2016. It is negative in 2014 due to negative EPS.

ACTIVITY RATIOS
Year FY12 FY13 FY14 FY15 FY16
Inventory Turnover Ratio 2.48 X 2.09 X 1.38 X 2.13 X 1.81 X
Inventory Holding Period 145 173 260 169 199
Working Capital Turnover
Ratio 8.29 (11.62) (36.67) (10.62) (4.44)
Current Asset Turnover
Ratio 1.57 2.37 2.12 2.78 2.77
Fixed Asset Turnover
Ratio 2.88 2.98 0.68 1.15 0.84

Table 13: Activity ratios

Inventory turnover is a measure of how efficiently a company can control its merchandise,
so it is important to have a high turn. The inventory turnover ratio has decreased from 2012
to 2016. This shows that company is overspending by buying too much inventory and wastes
resources by storing non-salable inventory.

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The working capital turnover indicates a company's effectiveness in using its working
capital. The negative ratio is showing that the company has negative working capital.
The current asset turnover ratio measures how efficiently a firm uses its current assets to
generate sales, so a higher ratio is always more favorable. As the current asset of the
company is on the higher side due to increasing inventory, the ratio is increasing y-o-y.

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 6. PROSPECTS

The industry is likely to maintain its growth momentum and continue growing at around 8%
to 10% in the medium to long term. Government initiatives in the infrastructure sector and
the housing sector are likely to be the main drivers of growth for the industry.

With no major capacities coming on stream in the near term, the demand supply equilibrium
is expected to continue and this will help prices to remain firm. However, capacity additions
announced till date will add approximately 125 MT to the existing capacity. I believe this will
start imposing downward pressure on cement prices in the country. This sector will
drastically change with stand-alone bags giving way to ready mix concrete (RMC). The form
of this RMC will be tailor made concrete customized to suit various infrastructure needs.
Ready mix concrete is still a relatively nascent market in India. However, it is slowly but
steadily gaining ground and will be the most sought after product in this sector. The greatest
advantage of RMC is that it is economical, stronger, and environment friendly. Moreover, no
large storage of cement bags is required and hence there will be no wastage.

Further, the possibility of interest rates heading north and the consequent impact on housing
demand remains to be seen. While infrastructure spending has been a boon, there was a
strong cushion from the steady growth of the housing sector. The importance of the housing
sector in cement demand can be gauged from the fact that it consumes almost 75%-80% of
the countrys cement. If this support wanes, it would impact the growth in consumption of
cement, leading to demand supply mismatch. Also, the hike in prices of coal and petroleum
products could impact cement companies margins.

A large number of foreign players are also expected to enter the cement sector, owing to the
profit margins and steady demand. In future, domestic cement companies could go for global
listings either through the FCCB route or the GDR route. With help from the government in
terms of friendlier laws, lower taxation, and increased infrastructure spending, the sector will
grow and take Indias economy forward along with it. Moreover, so far, they have been
proved to be futile and in the future too, we believe that it is the market dynamics that will
determine these variables.

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 7. CONCLUSION

By studying the fundamentals it can be concluded that the further outlook of cement industry
is very positive.

Though Heidelberg has reported weak quarterly numbers for the first quarter of 2015-16net
profit fell to Rs 3.35 crore, from Rs 11.85 crore last year, a fall of 72% year on year (y-o-y),
analysts are getting bullish on the counter. This is because of improvements in the company
at the operational level. For instance, its capacity utilization increased to 87% in the current
quarter compared to 76% last year. Heidelberg also reported the highest ever quarterly sales
volume of 1.1 8 million tonne, up 14.1% y-o-y. However, realizations fell 6.3% due to
pricing pressures prevailing in the central India region. Since the cost per tonne of cement
remained flat, the company's earnings before interest, taxes, depreciation, and amortization
also fell 26% y-o-y.

Heidelberg India's parent, Heidelberg AG, is the world's third-largest cement manufacturer,
with consolidated revenue of 13 billion in 2014. The India business is likely to benefit from
its German promoter's rich experience. Heidelberg India is also looking to ramp up capacity
in the country through the inorganic route. Reportedly, it is bidding aggressively to acquire
Lafarge India's cement units that are coming up for sale in Eastern India.

Due to the contraction in its net profit in the recent past, the counter may look expensive in
terms of PE, but it is one of the cheapest stocks in terms of PB. Though the near-term
slowdown in demand could put pressure on revenue in coming quarters, sales and margins
are expected to improve from the second half of 2015-16.

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 8. REFERENCES

Financial Result https://www.mycemco.com/investor-relations/financial-results

Introduction of the Company https://www.mycemco.com/about-us

Cement Industry in India http://www.ibef.org/industry/cement-india.aspx

Indian Cement Industry Outlook in 2020

http://www.businesswire.com/news/home/20160809006129/en/Indian-Cement-Industry-

Outlook-2020---Research

Global Cement Industry outlook http://www.technavio.com/report/global-metals-and-

minerals-cement-industry-outlook-market

Indian Cement Sector

http://www.icra.in/AllTypesOfReports.aspx?ReportCategory=Cement

Indian Economy Overview http://www.ibef.org/economy/indian-economy-overview

Mid Year Economic Analysis http://finmin.nic.in/reports/MYR201516English.pdf

India Economic Outlook http://www.focus-economics.com/countries/india

Share Price https://www.mycemco.com/nsebse-share-price-tracker

Heidelberg Cement http://economictimes.indiatimes.com/markets/stocks/news/heidelberg-

cement-a-good-long-term-buy/articleshow/48215591.cms

The Cement Industry at a Turning Point

http://www.mckinsey.com/industries/chemicals/our-insights/the-cement-industry-at-a-

turning-point-a-path-toward-value-creation

Economic Survey http://economictimes.indiatimes.com/economicsurvey2016

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