Thanks to the booming real estate sector and the infrastructure development taking place

in the country, the seventy year old indian cement industry got a much needed short in
the arm. The recent spurt in demand for cement in the housing and construction industry
in India has worked wonders for cement manufacturing companies as their capacity
utilization had crossed the 100% mark for the first time in January 2007.

To cash on to the opportunity, the industry is now ramping up its production capacity
and are attracting the top cement companies in the world through mergers and
acquisitions.

Cement Sector-Overview

India, world`s second largest producer of cement has 130 large cement plants and 365
mini-cement plants, with installed capacities of 165 million tonnes per annum (mtpa). Of
these, large cement plants account for over 94% of the total installed capacity.

During the year 2006-07, cement production grew at the rate of 9.1% over previous
year`s total production. Despite the growth of the indian cement industry, India`s per
capita production of 115 kilograms per year is way behind the world average of over 250
kilograms.

Increase in the infusion of capital by Foreign Direct Investments (FDI`s) has also been a
positive point for the cement sector.

Obstacles

The cement sector relies heavily on raw materials like gypsum, limestone etc. and
periodic increase in prices of that will affect the sector severely. So is the sector planning
an alternate raw material to reduce high production cost?.

Sanjeev Sood, Ambuja Cement explains that the use of alternate raw material like pet
coke is feasible only to the extent of 10-15%. So when the price of basic raw material
increases, price of cement is bound to increase even if the company uses alternate raw
material or not.

Commenting on the possible competition to be faced from Pakistani counterparts, which

were recently given permission by the Indian government to export cement to India,
Sanjeev stressed that there is nothing to fear for the Indian cement manufacturers. He
added that the Pakistani cement seem to be much cheaper than the Indian ones.
However, when the transportation cost and taxes are added then the price is roughly the
same as the Indian counterpart.

He further said that the Pakistani imports would be only around half a million ton and
that could be used to fill in the gap between demand and supply.
However, if one looks at the recent stock movements of heavyweight cement players,
one would find it surprising and disappointing that these players have not performed well
considering the fact that the demand exceeds supply in this sector.

As Amit Srivastav, analyst, Karvy Broking points out that from a long term view, the
picture is not that encouraging for the cement sector. According to Amit, presently the
cement manufacturers have the bargaining power as the demand for cement is more than
supply.

However, all major cement manufacturers who intend to increase their plant capacity
announced that the expanded production will be available from fiscal year 2009-10. At
that stage the supply may be more than demand, since majority of cement manufacturers
will have increased production. Since supply may be greater than demand, the prices of
cement may come down considerably and this would affect the bottom line of the cement
cos.