indian cement industry-ambuja

Indian cement industry-Ambuja

INDIAN CEMENT INDUSTRY-AN OVERVIEW WITH REFERECE TO AMBUJA CEMENT

The cement industry accounts for approximately 1.3% of GDP and

employs over 0.14 million people. It is a significant contributor to the

revenue collected by both the central and state governments through

excise and sales taxes. For example, central excise collections from

cement industry aggregated Rs. 45.23 billion in FY2005 and accounted

for 4.3% of total excise revenue collected by the government. Cement has

consistently figured among the top 5-7 commodities. It is a heavily taxed

commodity and the duties amount to around 30% of the selling price of

cement. India is the second largest producer of cement in the world.

In 2005, India produced 142 mt of cement, accounting for 6.4% of global

production of 2.22 billion tonnes. India is the second largest producer-

behind China (1,000 mt), but ahead of the US (99 mt) and Japan (66 mt).

India's cement industry-both installed capacity and actual production-has

grown significantly over the past three decades, with production

increasing at an average rate of 8.1% per year between 1981 and 2004-

05. In recent years, the cement sector has accounted for a declining share

of gross bank credit (GBC) of scheduled commercial banks (SCBs),

largely because of decline in credit during FY2004. With GBC of Rs.

61.12 billion in March 2005, the cement industry accounted for 1.67% of

industry GBC of SCBs in March 2005, as compared with 1.81% in

March 2000.

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Duties on Cement

Traditionally, cement has been a heavily taxed sector with both the

central and the state governments levying the taxes. The major taxes/

levies comprise central excise duty; sales tax levied by the respective

state governments; royalty and cess on limestone and coal; and, duties on

power tariff.

These duties account for around 30% of the sale price of cement or

around 70% of the ex-factory price (excluding local transport and dealer

margins).

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The excise duty rates on cement are on specific basis, as against ad

valorem rates on most products. These specific rates have risen manifold

from Rs. 65 per tonne in 1977 to the current level of Rs. 400 per tonne.

The excise revenue collection from the cement Industry has shown an

increasing trend over the years. The duties in India (relative to the selling

price of cement) are among the highest in the world.

DEMAND-SUPPLY POSITION

Robust Production Growth

India's cement production increased 11.2% during FY2006 to 141.81 mt.

By comparison, production increased 8.6% during FY2005, and 5.5%

during FY2004. Production has increased at a 3-year compound annual

growth rate (CAGR) of 8.4%. On a decadal basis, India's cement

production increased at an annual average of 8.2% during FY1996-2006,

as compared with 6.9% during FY1986-96.

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During FY2006, after the slack of the monsoon season, cement

production registered high growth since October 2005. High growth in

the cement sector reflected robust demand from the construction sector

and high exports.

As cement is a basic construction material with virtually no substitute, it

is used worldwide for all construction work. Thus, the growth in the

construction industry has a direct relation with the production and

consumption of cement.

GDP from the construction industry has grown at a high rate over the last

three years-12.1% during FY2006, 12.5% during FY2005, and 10.9%

during FY2004.

This has had a positive impact on cement consumption, which increased

10.1% during FY2006, as compared with 8.1% during FY2005.

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The increased growth in cement consumption since 2004 has had a

positive impact of the capacity utilization of cement producers. Capacity

utilisation increased from 76% in FY2002 to around 90% in FY2006.

Regional Production Patterns

The Indian cement industry is comprised of 129 large cement plants and

300 mini-cement plants, with installed capacities of 153.6 mtpa and 11.10

mtpa, respectively at end-FY2005. Since cement is a high bulk and low

value commodity, the growth of the cement industry has been around the

limestone deposits. Proximity to limestone deposits contributes

considerably to pushing down the costs of transportation of heavy

limestone. If units are located close to limestone resources, trucks can be

used to move limestone instead of railways. The proximity of coal

deposits constitutes another important factor in cement manufacturing.

Nearly 68% of the coal required by the cement industry during FY2005

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was transported by rail; the balance 32% was moved by road. There are at

present seven clusters-Satna (Madhya Pradesh), Chandrapur (North

Andhra Pradesh and Maharashtra), Gulbarga (North Karnataka and East

AP), Chanderia (South Rajasthan + Jawad & Neemuch in MP), Bilaspur

(Chattisgarh), Yerraguntla (South AP), and Nalgonda (Central AP)-with a

total capacity of 75.23 mtpa at end-March 2005, accounting for 48.4% of

the total installed capacity.

AP is the largest cement producing state with an installed capacity of

24.9 mt. Cement production during FY2006 was 19.9 mt. Other major

cement producing states include Rajasthan, Madhya Pradesh, and

Gujarat.

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In terms of regional concentration, the Southern region accounts for 32%

of installed capacity, followed by Western region. MP is traditionally

considered a part of the Western region although as much as 65% of

cement output from this state serves the Northern and Eastern regions.

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Major Players (Capacity-wise)

As discussed, ACC is the largest player with a capacity of 18.64 mtpa at

end-March 2006. UltraTech CemCo Ltd. now occupies the second slot

with a capacity of 17 mtpa (which includes 1.5 mtpa of subsidiary

Narmada Cement). The Gujarat Ambuja group has emerged as the third

largest player with a capacity of 14.86 mtpa. Grasim ranks fourth with a

capacity of 14.12 mtpa. Other leading players include India Cements,

Jaypee group, Century Textiles, Madras Cements, Lafarge, and Birla

Corp.

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Locational Issues

Cement being a high bulk and low value commodity, outward freight

accounts for close to one fifth of the total manufacturing cost. In addition,

for every tonne of cement produced, close to 1.7 tonnes of raw material

(including coal) is transported. In this scenario, the location of the cement

plant becomes crucial. While deciding on the plant location, there is a

trade-off between proximity to raw material sources and proximity to

markets. A split-location cement plant can be a good compromise

between the two options. The plant also has to address issues of logistics

(evacuation of cement by rail, road or waterways), power availability in

the region, and availability of materials (limestone, coal, slag, etc).

The bulk of the cement manufactured is consumed near urban centres. In

the manufacture of cement, for every 1 tonne of clinker, about 1.6-1.7

tonnes of limestone and coal need to be assembled. For OPC, another 50

kg of gypsum is required while grinding the clinker down.

For PPC, up to another 250 kg of pozzolonic material such as fly ash

requires to be assembled. Thus, there can be two broad locational

strategies, stemming from the principal objective, which is not merely to

minimise unit-manufacturing cost, but to minimise unit delivered

cost as well. The first strategy is to locate manufacturing facilities near

the consuming centres. In this case, outward freight is minimised and

marketing flexibility enhanced at the cost of higher raw material

assembly costs. The second strategy is to locate the plant close to the

mineral deposits, so as to minimise raw material assembly costs. Given

that 1.4-1.5 tonnes of limestone are required per tonne of clinker, locating

the plant along the limestone deposits is the logical corollary.

Occasionally, as in areas like Satna, Rewa, and Raipur, the coal pitheads

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are also quite close by. As long as retention prices were the norm,

outward freight was of no concern to cement companies. All the cement

plants thus naturally gravitated to one of the several large limestone

bearing areas in the country. With the introduction of partial, and later

full, decontrol, outward freight has become a critical issue in determining

a company's profitability. However, if the list of new plants which have

come up since 1982 as well as those under implementation today, is

examine, it may be observed that barring some, all companies continue to

opt for the limestone-deposit bias in locating new capacity. However, a

hybrid strategy exists. The clinker to cement ratio is virtually 1:1 for

OPC, with the addition of gypsum being only 5%. For PPC, with fly ash

addition, the clinker to cement ratio is 0.8:1. Split location plants thus

become a distinct possibility, with the clinker manufacture near limestone

deposits and grinding and bagging facilities near the consuming centres.

The advantages of this split location strategy derive from the ease of

transporting clinker in open-to-sky condition (rather than bagged cement

under protective cover), lower handling losses in transit and ease of

storage of clinker (as opposed to cement at the market centred grinding

mills).

This is especially true for PPC/PBFS, since fly ash/slag is available from

the thermal power stations/steel plants, which are located in, and around

the country's urban centres. Flyash disposal by power utilities has become

a contentious environmental issue. Similarly, steel producers face

problems in disposing slag. Therefore, utilisation of these materials in

this manner can improve the cement company's profitability while

benefiting the environment. By locating such grinding units close to the

markets, the distribution costs are reduced to a great extent. If the

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grinding unit is near a port with a steel mill or power plant near by, this

becomes an ideal situation for targeting the export markets. Such

possibilities exist near Mangalore, Vizag and Cochin, where the clinker

can also be moved economically by coastal shipping from plants located

in North-western India. However, this strategy will be limited somewhat

by the extent in which PPC is accepted in the market. Over the last

decade, the share of PPC/PBFS has increased significantly from 28.3% in

FY1995 to 55.6% in FY2005.

High Growth in Domestic Cement Consumption

India's cement consumption increased 10.1% during FY2006 to 135.56

mt. By comparison, consumption 8.1% during FY2005, and 5.8% during

FY2004. Production has increased at a 3-year compound annual growth

rate (CAGR) of 8%.

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On a decadal basis, India's cement consumption has increased at a 10-

year CAGR of 8.2% during FY1996- 06. Demand has largely been driven

by a shift in housing construction preferences to concrete and the rapidly

rising population. The healthy growth beginning in FY2005 is also due to

increased demand from National Highway Development Projects

(NHDP). In India, the percentage of pucca houses in urban areas

increased from 73% in 1991 to 75% in 2001, whereas the percentage of

semi-pucca and kutcha houses in the urban areas has declined. The

percentage of pucca houses in rural areas increased from 31% in 1991 to

35% in 2001. This implies that use of permanent building materials for

the construction of walls and roofs is becoming more popular in rural

areas also. Data from the 58th Round of Survey by National Sample

Survey Organisation (NSSO) indicates that the percentage of pucca

dwellings in urban areas increased from 74% in 1993 to around 77% in

2002-03. Over the same period, the percentage of pucca dwellings in

rural areas increased from 32% to 36%.

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Housing completions in urban areas in each decade has shown an

increasing trend from 11.55 million in 1971-81 to 19.53 million in 1991-

2001. Similarly, housing completions in rural areas has also increased

from 19.16 million to 25.61 million. Apart from increased preference for

pucca constructions, housing size has also increased in urban areas.

Overall, while the share of 1-room houses has declined from 45% in 1981

to 39% in 2001, the share of 3-or more rooms has increased from 27% to

32%.

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In India, cement consumption and sales follows a seasonal pattern

with lean sales during the monsoon season

(July-September) and higher sales during October-March

In terms of regional consumption, the Southern region accounted for 29%

of the total consumption of approximately 135.6 mt during FY2006,

followed by Northern and Western regions. Although, there has been an

year to year variation in the region-wise consumption growth rates, the

relative shares of each region has more or less remain stable across the

past few years.

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Regional disparity has been witnessed in the consumption growth.

During FY2006, the Southern region witnessed the strongest

consumption growth, driven by higher construction activities from both

Government and private sector projects. By comparison, while

consumption in Western region increased 5.4% during FY2006,

consumption in Central region increased only 0.8%.

The major consumption states for cement in India include Maharashtra

(16.8 mt in FY2006), UP (14.2 mt), Andhra Pradesh (11.5 mt), and Tamil

Nadu (11.1 mt). Over the last three years, consumption growth has

outpaced the national average in Andhra Pradesh, Haryana, Rajasthan,

and Karnataka.

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As cement is a low value, high bulk commodity, freight cost becomes a

significant factor in determining the landed cost of cement. This has

resulted in a very low volume of international trade in cement. World

cement trade has averaged just around 6-7% of the total production.

Although, world trade in cement is limited because of high freight costs,

there are countries, which either import a significant share of their total

consumption or export a major share of their total production. Countries,

which import a significant share of their consumption, appear to be

falling in the developing world category, where the public expenditure on

infrastructure projects is very high. The Middle East countries (although

not falling in the developing world category) have huge requirements of

cement because of construction work in projects in the oil sector. Also in

these countries, unfavourable conditions (for example, inadequate cement

limestone reserves) have discouraged cement capacity creation.

Countries, which export a large share of their domestic production,

appear to be having one thing in common. Countries with high export

thrust opt for bulk transportation for exporting cement.

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Demand-Supply Position

Overview

The cement industry has been in a surplus position since a long time.

This has resulted in increased exports over the last few years. Although

there exists a surplus of cement in the country, the surplus has declined

from 0.42 mt in FY2005 to 0.23 mt during FY2006, mainly because of

higher growth in consumption. This has resulted in capacity utilisation

increasing from 84% in FY2005 to 90% in FY2006. India's annual per

capita cement production of 0.13 tonnes in FY2006 is significantly below

the world average of 0.3 tonnes and China's production of 0.76 tonnes

during 2004. It has been observed that cement consumption increases

along with the rise in per capita income in developing countries.

Thereafter, once all the major developmental projects are in place and the

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country has a per capita income comparable with that of the developed

nations, the demand for cement stagnates/declines.

Accordingly, the per capita cement consumption also stagnates/declines.

Growth in population density is a minor (but steady) driver of demand

growth for cement in all countries. Cement consumption has a strong co-

relation with GDP growth. High GDP growth leads to high cement

consumption. The reverse is true when GDP growth declines. The cement

intensity of GDP (i.e. rate of growth of cement consumption relative to

GDP growth) is different for different countries. For a under-developed

country, the cement intensity of GDP is very low. It rises with the

progress in economic development, reaches a peak level, and then starts

declining once all the developmental projects are in place and the country

has achieved a very high level of economic growth. While the Indian

cement industry is in a surplus position since a long time, the surplus

position is gradually declining. While limited greenfield capacity is

envisaged in the near to medium term, it is very easy to increase capacity

through either brownfield projects or by resorting to manufacturing

blended cements. As per present expansion plans, an additional 6.6 mtpa

of capacity is expected to be operational in FY2007. Considering an

expected production and consumption growth of 10% during FY2007, the

demand supply position of the Indian cement industry is expected to

improve.

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MAINTENANCE AND STORES REQUIREMENTS

The two important items of stores and spares in the case of cement

manufacture are refractory material and grinding media. For grinding

media, high chrome grinding balls are normally used. In the case of

refractory materials, companies go in for two kinds of refractory bricks-

high alumina and high chrome. Typically, the life of the refractory

material is 6-8 months (with the indigenously made high-alumina bricks),

after which the kiln has to be stopped and the affected sections relined, a

process, which takes 3-4 days. Kiln relining is normally made to coincide

with the normal planned shutdown. Some companies are also

experimenting with imported high-chrome bricks, which provide for a

longer uninterrupted operational life of 18-24 months. In practice, this

can extend the availability of calendar hours and thereby enhance the

actual capacity of the plant.

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ENERGY AND TRANSPORT REQUIREMENTS

The cement industry is dependent on three major infrastructural sectors of

the economy: coal, power and transport. The inputs from these three

sectors account for roughly 50% of the cost of cement.

Both the availability and the cost of these inputs have a vital bearing on

the fortunes of the cement players. All these sectors are largely in the

State sector, and, historically cement companies have had virtually no

control on the cost or availability of these inputs. Hence, the industry

response has largely been in the form of achieving efficiency

gains and finding alternatives (captive power, use of waterways). One

additional external influencer of the cement industry performance is the

taxes and levies imposed by the Central and State Governments. These

together account for around 30% of the selling price of cement in the

Indian context.

Coal

Coal is an important input in cement manufacture and accounts for 15-

20% of the total cost. Coal serves a dual role in cement manufacture.

Firstly, the heat value in coal provides the thermal energy required for the

operation of the kiln. Secondly, the mineral content in coal (basically,

silica content) acts as a constituent in clinker. For every tonne of clinker,

around 200-220 kg of coal is consumed. Coal consumption by cement

plants has increased from 19 mt in FY2000 to around 33 mt in FY2005.

Cement accounts for around 4.5% of India's coal demand. Consumption

of coal for production of cement has not increased proportionately with

cement production because of the switch to the dry process, efficiency

improvements in cement kilns and the increased use of fly ash produced

in power plants and granulated slag produced in blast furnaces of steel

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plants in the production of cement. In India, overall coal distribution was

statutorily governed by the Colliery Control Order of 1945.

Subsequently, this order has been amended and the new Colliery Control

Order 2000 has been notified according to which the price and

distribution of all grades of coal have been deregulated with effect from

1.1.2000. To ensure smooth and co-ordinated supplies of coal to all

consumers, the Government and the coal companies have adopted a

system of linking of supply sources with consuming units and their

requirement. All consumers are broadly classified into two different

categories viz. core sector and non-core sector. Cement comes under the

core sector. Each consumer is given a linkage (allocation) of quantity on

an appropriate field. The linkages to cement plants and power utilities are

decided by the Standing Linkage Committee (SLC). Key members of the

SLC include representatives from the Ministry of Coal, the Ministry of

Railways, the Ministry of Power/Industry, the Planning Commission, the

coal companies and the Central Fuel Research Institute (CFRI). The

quantity, and the coalfields from where the coal is to be supplied to a

particular cement plant, is decided by the SLC even before the cement

plant is commissioned. The actual movement programme is, however,

drawn up by the SLC every quarter indicating the quantities to be moved,

the mode of transport and the coal Fields / Coal Company with which the

cement company is to be linked. To meet the requirement of Indian

consumers, there are seven grades of coal available from Indian

collieries. The classification is done based on the Useful Heat Value

content of coal, as mentioned below:

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Transportation

Outward freight on cement is an important element in the operating cost

of a cement plant. It accounts for around one third of the total variable

costs. Most of the cement plants in India are located in and around the

limestone clusters. These clusters are distant from the collieries and the

markets for cement. Cement has an average lead of around 535 km. Thus,

cement companies have to rely on extensive transportation for moving

coal from the coal pitheads to the cement plants and for despatching

cement from the plant to the markets. As both coal and cement are of low

value and bulky in nature, freight costs are considerably high for cement

plants. Cement companies use both road and rail transport to transport

cement and to receive coal. Rail dispatches amount for about 33% while

roads carry the balance 66%. The balance 1% is accounted by Sea

transporation. The share of road over rail has only gone up over the years.

For coal transportation, the dependence on rail network is still very high

and accounts for around 70% of coal movement.

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Although rail transportation is more economical for distances beyond

250-300 km, cement companies have started preferring road

transportation even for longer distances because of several reasons.

Rising railway traffic coupled with insufficient investments by the

railways for increased wagon supplies and the fact that the cement

industry is not an important customer of the Railways (cement cargo

accounts for just 7-8% of the total railway freight) have resulted in a

shortage of wagon supply to the cement industry. The railways had

launched the "Own Your Wagon" scheme-a scheme where companies

could buy wagons and lease it to the Railways and the Railways would in

turn operate these wagons and ensure their availability to the owner. But

the unfavourable terms and conditions of this scheme prevented its

successful commercialization.

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The Railways have also increased their tariff on a regular basis (often

higher than the increases in the road sector), making them uneconomical

vis-à-vis road tariffs even for longer distances.

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MAJOR PLAYERS

Domestic players

Associated Cement Companies Ltd (ACCL)

Associated Cement Companies Ltd manufactures ordinary portland

cement, composite cement and special cement and has begun offering its

marketing expertise and distribution facilities to other producers in

cement and related areas. It has twelve manufacturing plants located

throughout the country with exports to SAARC nations. The company

plans capital expenditure through expansion of existing units and/or

through acquisitions. Non-core assets are to be divested to release locked

up capital. It is also expected to actively pursue overseas project

engineering and consultancy services.

Birla Corp

Birla Corp's product portfolio includes acetylene gas, auto trim parts,

casting, cement, jute goods, yarn, calcium carbide etc. The cement

division has an installed capacity of 4.78 million metric tonnes and

produced 4.77 million metric tonnes of cement in 2003-04. The company

has two plants in Madhya Pradesh and Rajasthan and one each in West

Bengal and Uttar Pradesh and holds a market share of 4.1 per cent. It

manufactures Ordinary portland cement (OPC), portland pozzolana

cement, fly ash-based PPC, Low-alkali portland cement, portland slag

cement, low heat cement and sulphate resistant cement. Large quantities

of its cement are exported to Nepal and Bangladesh. Going forward,

the company is setting up its captive power plant to remain cost

competitive.

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Century Textiles and Industries Ltd (CTIL)

The product portfolio of CTIL includes textiles, rayon, cement, pulp &

paper, shipping, property & land development, builders and floriculture.

Cement is the largest division of CTIL and contributes to over 40 per cent

of the company's revenues. The company has an installed capacity of 4.7

million tonnes with a total cement production of 5.43 million tonnes in

2003-04. CTIL has four plants that manufacture cement, one in

Chhattisgarh, two in Madhya Pradesh and one in Maharashtra. Going

forward, the company has scripted a three-pronged strategy closing down

its shipping business, continuing with its chemicals and adhesive

division, and focusing on cement, rayon and paper as its long-term

business plan.

Grasim-UltraTech Cemco

Grasim's product profile includes viscose staple fibre (VSF), grey

cement, white cement, sponge iron, chemicals and textiles. With the

acquisition of UltraTech, L&T's cement division in early 2004, Grasim

has now become the world's seventh largest cement producer with a

combined capacity of 31 million tonnes. Grasim (with UltraTech) held a

market share of around 21 per cent in 2003-04. It has plants in Madhya

Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu and Gujarat

among others. The company plans to invest over US$ 9 million in the

next two years to augment capacity of its cement and fibre business. Its

also plans to focus on its international ventures, ramping up the capacity

of Alexandra Carbon Black in Egypt to 1,70,000 tonne per annum (from

1,20,000 tpa) and raising the capacity of the carbon black plant in China

from 12,000 tpa to 60,000 tpa.

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Ambuja Cements Ltd (ACL)

Ambuja Cements Ltd was set up in 1986 with the commencement of

commercial production at its 2 million tonne plant in Chandrapur,

Maharashtra. The group has clinker manufacturing facilities at Himachal

Pradesh, Gujarat, Maharashtra, Chhattisgarh, Punjab and Rajasthan. The

company has a market share of around 10 per cent, with a strong foothold

in the northern and western markets.

Its total sales aggregated US$ 526 million with a capacity of 12.6 million

tonnes in 2003-04. Ambuja is India's largest cement exporter and one of

the most

cost efficient firms. ACL has a 14.45 per cent stake in ACC, making it

the second largest cement group in the country, after Grasim-UltraTech

Cemco. The company has free cash flows that it is likely to use to grow

inorganically. The company is scouting for a capacity of around two

million tonne in the northern and western markets. It has also earmarked

around US$ 195-220 million for acquisitions

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India Cements

India Cements is the largest cement producer in southern India with a

total capacity of 8.81 million tonnes and plants in Andhra Pradesh and

Tamil Nadu. The company has a market share of 5.4 per cent with a total

cement production of 6.36 million tonnes in 2003-04. Its product

portfolio includes ordinary portland cement and blended cement. The

company has limited its business activity to cement, though it has a

marginal exposure to the shipping business. The company plans to reduce

its manpower significantly and exit non-core businesses to turnaround its

fortune. It also expects the export market to open up, with the Gulf

emerging as a major importer.

Jaiprakash Associates Limited

Jaiprakash Industries, now known as Jaiprakash Associates Limited

(JAL) is part of the Jaypee Group with businesses in civil engineering,

hospitality, cement, hydropower, design consultancy and IT. It has an

annual capacity of 4.6 million tonnes with plants located in Rewa & Bela

(Madhya Pradesh) and Sadva Khurd (Uttar Pradesh). The company has a

market share of 3.8 per cent with the cement division contributing US$

172 million to revenue in 2003-04. The company is upgrading its

capacity to 6.5 million tonnes through the modernising of the existing

units and the commissioning of a new grinding unit at Tanda (Uttar

Pradesh) with an investment of US$ 163 million. Jaiprakash Associates

has decided to concentrate on its core business of construction and

engineering and leave its cement plant to its subsidiary Jaypee Rewa

Cement Ltd. The company manufactures a wide range of world class

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cement of OPC grades 33,43,53, IRST-40 and special blends of

pozzolana cement.

JK Synthetics

JK Synthetics, a Singhania Group company, started manufacturing nylon

at Kota in 1962. Subsequently, it diversified into PSY/PFY, nylon tyre-

cord, cement (in 1975), acrylic and white cement (in 1984). The company

has a market share of 2.7 per cent. JK Synthetics Limited is restructuring

its business divisions into two

separate entities- JK Cements and JK Synthetics. After the restructuring,

it will be left with a cement plant at Nimbahera in Rajasthan, with a

capacity of 3.26 million metric tonnes and manufacturing white cement.

Madras Cements

Madras Cements Ltd is one of the oldest cement companies in the

southern region and is a part of the Ramco group. The company is

engaged in cement, clinker, dolomite, dry mortar mix, limestone, ready

mix cement (RMC) and units generated from windmills. The company

has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement

plant in Karnataka. It has a total capacity of 5.47 million tonnes annually

and holds a market share of 3.1 per cent. Madras Cements plans to

expand by putting up RMC plants. As Karnataka is a promising market,

the company is further expanding its capacity from the present 1.5

million tonnes to 3.4 million tonnes through an investment of US$ 9

million.

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Foreign players

Holcim

Holcim, earlier known as Holderbank, has a cement production capacity

of 141.9 million tonnes. It is a key player in aggregates, concrete and

construction related services. It has a strong market presence in over 70

countries and is a market leader in south America and in a number of

European and overseas markets.

Holcim entered India by means of a long-term strategic alliance with

Gujarat Ambuja Cements Ltd (GACL) now Ambuja Cement Limited

(ACL) . The alliance aims to strengthen their clinker and cement trading

activities in South Asia, the Middle East and the region adjoining the

Indian Ocean. Holcim also intends to use India as an additional base for

its IT operations, R&D projects as well as a procurement sourcing hub to

generate additional synergies and value for the group.

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Italcementi Group

The Italecementi group is one of the largest producers and distributors of

cement with 60 cement plants, 547 concrete batching units and 155

quarries spread across 19 countries in Europe, Asia, Africa and North

America. Italcementi is present in the Indian markets through a 50:50

joint venture company with

Zuari Cements. All initiatives in southern India are routed through the

joint venture company, while Italcementi is free to buy deals in its

individual capacity in northern India. The joint venture company has a

capacity of 3.4 million tonnes and a market share of 2.1 per cent.

Lafarge India

Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total

cement capacity of 5 million tonnes and a clinker capacity of 3 million

tonnes in the country. Lafarge commenced operations in 1999 and

currently has a market share of 3.4 per cent. It exports clinker and cement

to Bangladesh and Nepal.

It produces Portland slag cement, ordinary portland cement and portland

pozzolana cement. The Indian cement plants are located in Chhattisgarh

and

Rajasthan. Lafarge Cement has become the largest cement selling firm in

the Indian markets of West Bengal, Bihar, Jharkhand and Chhattisgarh.

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Consolidations in the industry

As discussed above, the cement industry is witnessing a number of

Mergers & Acquisitions (M&As). The extent of concentration in the

industry has increased over the years. This concentration is mainly

because of the focus of the larger and the more efficient units to

consolidate their operations by restructuring their business and taking

over relatively weaker units. The relatively smaller and weaker units are

finding it difficult to withstand the cyclical pressure of the cement

industry.

Some of the key benefits accruing to the acquiring companies from

these acquisition deals include:

economies of scale resulting from the larger size of operations

savings in the time and cost required to set up a new unit

access to new markets

access to special facilities / features of the acquired company

and

benefits of tax shelter.

Though mini-cement plants consume fewer units their power costs are

comparable to those of large cement plants. Further, reliance on SEB

power implies exposure to frequent power cuts. Primarily, the mini

cement plant was conceived to utilise isolated limestone deposits too

small to support a large cement plant. Strategically, the policy makers

may have viewed them as a counter weight against concentration, both in

terms of output and as a means of reducing the threshold entry barrier.

However, most of these plants are yet to make an upgradation from mini

to large cement plant. Even with the excise concession, these plants have

not made any significant inroads into the Indian cement market.

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One reason is that the quantity produced by these plants is extremely

insignificant to give any real price competition to large cement

companies. The realisations achieved by mini-cement plants are lower

compared to large cement plants due to the quality perceptions of the

established brands of large companies. Further, most of the mini cement

plants are to some measure dependent on clinker from the large cement

plants.

Their flexibility to be price setters is limited by their poor financial

health.

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MARKETSHARE OF COMPANIES

The relative market share of large players in the cement industry has

changed significantly over the years. Consolidation of capacities has seen

UltraTech, Grasim, India Cement and Gujarat Ambuja emerge as the

leading players apart from ACC, which has been the market leader during

all the years excepting FY2001. All the players have resorted to a

combination of greenfield capacities as well as takeover of existing

capacities for growth.

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FINANCIAL PERFORMANCE

Cost Structure

The cement industry is one of the most energy-intensive sector within the

Indian economy. Clinker production is the most energy intensive step,

accounting for nearly 75% of the energy used in cement production. In

India, an estimated 90-94% of the thermal energy requirement in cement

manufacturing is met by coal. The remaining is met by fuel oil and high-

speed diesel oil. For each kg. of clinker, the cement industry on an

average requires 800 K. Cal of coal for dry process and 1350 K. Cal. of

coal for wet process. Over the years, there has been deterioration in the

quality of coal. In particular, the ash content has increased implying

lower calorific values for coal, and improper and inefficient burning, etc.

Coal consumption thus increased resulting in higher fuel and

transportation costs. In order to reduce these problems, the cement

industry started implementing coal washeries which reduce the ash

content of the coal at the mine itself. Generally, the cement industry in

India on an average requires 90-105 units of power in the wet process,

and 100-110 units of power in the dry process to produce one tonne of

cement. The energy costs and cement freight costs are the two most

important elements in the cost structure of a cement company. While, the

share of energy costs has increased marginally, freight cost has

experienced a decline in its share of total operating costs. The share of

other costs (such as stores & spares, manufacturing overheads, and

administrative expenses) have declined. The share of costs on account of

material, repair and maintenance, employees and selling expenses have

more or less remained stable.

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The average energy costs for cement companies have increased from Rs.

482/tonne (of cement production) in FY1994 to Rs. 637/tonne in

FY1998. This represents a CAGR of 7.3%. The costs increased despite

successful efforts by the companies to reduce specific energy

consumption in cement manufacture. Since then, the average energy cost

per tonne have however declined from Rs. 590 in FY2000 to Rs. 568 in

FY2005. Cost control measures such as: increased reliance on imported

coal; greater stress on producing cement through captive power; and

focus on reducing power consumption have resulted in this development.

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Healthy demand growth during FY2007, and sustained price growth is

expected to have a positive impact on revenues, profits, and margins

during FY2007. However, the location of the plant and the trend in its

operating costs would be the other determinants of the actual

profitability.

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Ambuja Cements, Ltd. operates as a cement manufacturing company in India. The company's plants primarily cater to the domestic markets of Punjab, Haryana, Rajasthan, Delhi, Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttaranchal, Maharashtra, Andhra Pradesh, and Madhya Pradesh. The company’s major international market includes the Middle East. Partnership with Holcim The company has entered into a partnership with Holcim Limited of Switzerland through Ambuja Cement India Limited (ACIL) to increase its participation in the cement market of India. Holcim is a cement producer. Holcim and the Company, apart from participating in the cement market in India, targets to strengthen their presence in Middle East Asia, South Asia and the Indian Ocean markets. Bulk Cement Terminals The company has bulk cement terminals at Panvel, Surat and Muldwarka. The Company has a fleet of seven ships for carrying bulk cement from Muldwarka to the cement terminals at Panvel and Surat. Subsidiaries The company’s main subsidiaries include GACL Finance Limited; GGL Hotel and Resort Company Limited; Indo Nippon Special Cements Limited; Cement Ambuja International Limited; Ceylon Ambuja Cements (Private) Limited; and Midigama Cements (Private) Limited. Joint Ventures The company's joint ventures include Bengal Ambuja Housing Development Limited and Bengal Ambuja Metro Development Limited. History The company, formerly known as Gujarat Ambuja Cements, Ltd., was founded in 1986. It changed its name to Ambuja Cements, Ltd. in April 2007.

Ambuja Cements Limited is principally engaged in the manufacture and distribution of cement in India. The product portfolio of the company includes cement and clinker. The company markets its products in India and International markets. The operations of the company include 5 cement plants, 6 grinding stations and 4 bulk cement terminals. The company’s plants are located in Gujarat, Himachal Pradesh, Rajasthan, Chhattisgarh, and Maharashtra. The company has production capacity of 22 million tones of cement and produced 18.83 million tones of cement in 2009. The company is headquartered at Mumbai, Maharashtra in India.

Ambuja Cements Limited Key Recent Developments

Mar 28, 2010 Ambuja Cement opens new cement plant in Nalagarh, India

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This comprehensive SWOT profile of Ambuja Cements Limited provides you an in-depth strategic analysis of the company’s businesses and operations. The profile has been compiled by GlobalData to bring to you a clear and an unbiased view of the company’s key strengths and weaknesses and the potential opportunities and threats. The profile helps you formulate strategies that augment your business by enabling you to understand your partners, customers and competitors better.

The profile contains critical company information including, Business description - A detailed description of the company’s

operations and business divisions. Corporate strategy - Analyst’s summarization of the company’s

business strategy. SWOT Analysis - A detailed analysis of the company’s strengths,

weakness, opportunities and threats. Company history - Progression of key events associated with the

company. Major products and services - A list of major products, services

and brands of the company. Key competitors - A list of key competitors to the company. Key employees - A list of the key executives of the company. Executive biographies - A brief summary of the executives’

employment history. Key operational heads - A list of personnel heading key

departments/functions. Important locations and subsidiaries - A list and contact details of

key locations and subsidiaries of the company. Detailed financial ratios for the past five years - The latest financial

ratios derived from the annual financial statements published by the company with 5 years history.

Interim ratios for the last five interim periods - The latest financial ratios derived from the quarterly/semi-annual financial statements published by the company for 5 interims history.

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SWOT ANALYSIS

This comprehensive SWOT profile of Gujarat Ambuja Exports Ltd provides you an in-depth strategic analysis of the company’s businesses and operations. The profile has been compiled by GlobalData to bring to you a clear and an unbiased view of the company’s key strengths and weaknesses and the potential opportunities and threats. The profile helps you formulate strategies that augment your business by enabling you to understand your partners, customers and competitors better.

Gujarat Ambuja Exports Ltd (GAEL) is an India based company active in the global agro-processing sector. The company is engaged in the sales and export of agro based products such as cotton, deoiled cakes, edible oil, yarn and many others. In addition, the company is also engaged in cotton yarn, solvent extraction, and electric power generation segments. GAEL had made investment in seven wind turbines with total capacity of 6.95 Megawatt. GAEL has various subdivisions like solvent extraction, wheat milling, cotton yarn, bio-chemicals, cattle feed, vanaspati, vegetable oil refinery and oil mill. The company has various operating sites located throughout the country. Gujarat Ambuja Exports Ltd is headquartered in Ahmedabad, India.The company reported revenues of (Rupee) INR 16,249.80 million during the fiscal year ended March 2009, a decrease of 11.92% from 2008. The operating profit of the company was INR 455.50 million during the fiscal year 2009, a decrease of 58.48% from 2008. The net profit of the company was INR 242.50 million during the fiscal year 2009, a decrease of 66.06% from 2008.

This company report forms part of GlobalData’s ‘Profile on Demand’

service, covering over 50,000 of the world’s leading companies. Once

purchased, GlobalData’s highly qualified team of company analysts will

comprehensively research and author a full financial and strategic

analysis of Gujarat Ambuja Exports Ltd, including a detailed SWOT

analysis, and deliver this direct to you in pdf format within two business

days.

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Competitors of Ambuja

COMPANY SYMBOL

Ambuja Cements Ltd. AMBCEL

ACC Ltd. ACCLTD

Andhra Cements Ltd. ANDCEM

Barak Valley Cements Ltd. BARVAL

Binani Cement Ltd. BINCEM

Birla Corporation Ltd. BIRCOR

Burnpur Cement Ltd. BURCEM

Ambuja cement competitors

Companies Last Price Market Cap Sales Turnover Net Profit Total Assets (Rs. cr.)UltraTechCement 1,116.85 30,604.32 6,436.96 977.02 6,213.17Ambuja Cements 151.65 23,148.82 7,181.48 1,218.37 6,636.60ACC 1,089.60 20,477.94 8,190.90 1,606.73 6,583.14Samruddhi Cem 520.85 13,629.79 4,290.63 617.96 7,128.74Shree Cements 2,296.45 8,000.19 3,643.24 676.10 3,840.48India Cements 122.30 3,756.76 3,805.45 354.34 6,268.54Birla Corp 418.85 3,225.37 2,198.44 557.18 2,441.80Prism Cement 60.90 3,065.442, 856.03 251.05 1,971.07Madras Cements 127.00 3,022.21 2,813.80 353.68 4,124.67Chetinad Cem 535.00 2,043.70 1,366.07 96.63 1,622.59

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Ambuja Cements : Branding a Commodity

Corporate Brand : Ambuja CementsCompany : Ambuja Cements Ltd ( Holcim Group Company)Agency : Grey

Brand Analysis Count : 423

Ambuja Cements formerly Gujarat Ambuja is one of India's largest cement brands. The company came into existence in 1984. Ambuja Cements is a classic example of a successful commodity branding.Indian cement market is different from the rest of the world because the largest segment of buyers of cement in India is the individual home owners rather than the institutions. Although this scenario is witnessing a change due to the boom in the organized realty sector, individual home owners form a significant segment that no cement marketers can ignore.Although these individuals shell out the money to purchase cement, they are not the decision makers in the buying process.

The intermediaries like the contractors , masons etc take up the role of the influencer/decision makers in the purchase of this product. Since the consumers view this product as a commodity, the involvement of ordinary home owners in the purchase .

Ambuja Cements is one of the companies that realized the potential of brand as a differentiator. Even in the eighties, Ambuja cements started its activities for building the brand. Infact according to Superbrands report, Ambuja cements is the first cement brand to start advertising in television. Ambuja Cements also used the outdoors extensively to reinforce the brand image and enhance brand recall.Ambuja Cements also focused on influencing the other players in the business like the contractors/masons and engineers through camps and meets.

These initiatives helped Ambuja to charge a premium over other brands. With the competition hotting up from Grasim + Ultratech, Ambuja Cements could hold on to its share because of the brand equity it had created over these years.

While branding the cement commodity,Ambuja Cements concentrated on its core brand promise of " Strength ". All through its campaigns, the brand was very consistent on reinforcing its positioning as the " Strongest " cement . The brand was also very clever in selecting a unique logo.

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Commodities are boring products . But for smart marketers, this is also an opportunity to make a difference. Ambuja cements bought in lot of humor to this ( otherwise) boring product. Most of its campaigns are humorous which makes the consumers stick to the advertisements . The ad which I like most is the ad where the brothers ( Boman Irani) try to break the wall which they put up to separate their houses when they were fighting with each other.

These ads reinforce the core positioning of Ambuja as a strong cement. Strength is a very highly relevant attribute as far as customer is concerned.

While branding a commodity, the critical question is whether these ads can influence the consumers to change their commodity mindset towards this category. The answer is definitely affirmative. I have noticed many home owners directly procuring these products for their home construction because they don't trust the contractors. In these scenarios, high brand recall will give the edge for the brands.

Branding can change the perception of consumers towards commodity. The point is to create a compelling reason to do so.

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Some of the products of Ambuja

WATERPROOF CEMENT COATING

POZZOCRETE - A CEMENT REPLACEMENT PRODUCT

CEMENT CONCRETE BLOCKS-APPLICATION

SUPERGRIP PVC SOLVENT CEMENT

Cement Mosaic Tiles

Birla White Cement

Starlite a white cement based plaster

Interior Wall Finishes (CEMENT PRIMER OIL BASE)

Interior Wall Finishes (CEMENT PRIMER WATER BASE)

DECORATIVE WATERPROOF CEMENT COATING(Supremcem)

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Ambuja Cement: Wall-to-wall advertising

By Devina Joshi, agencyfaqs!, Mumbai, January 09, 2008 Section: News Category: Advertising ShareIn an ad for Ambuja Cement, Grey Worldwide has ensured that the strength of the cement rides on the strength of emotion

There’s something about walls and advertising. It’s ironic, really. On the one hand, you have telecom brand Airtel talking of breaking down walls (‘Deewarein Gir Jaati Hain’), while on the other, you have Ambuja Cement talking of unbreakable walls (‘Yeh Deewaar Nahin Tootegi’). Obviously, the context is vastly different in the two cases, but one can’t help but notice the strikingly opposite thoughts, executed along similar lines. The demolition talks in progressBoy, interruptedBulldozer failsThe stumped builderRejoicing children'Ambuja Cement. YehDeewaar nahin tootegi'

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A new television commercial (TVC) for Ambuja Cement, created by Grey Worldwide, revolves around the story of a wall that doesn’t break, seasoned with an emotional (almost humanitarian) twist.

The TVC opens on a shot of the caretaker of an orphanage introducing the children to a Mr Choksi. She tells them that Choksi is going to build a hotel on the site of the orphanage. At this point, a little boy says to Choksi, “Sir, par last time...,” but he is shushed by an older boy. The following morning, the heartless Choksi arrives with bulldozer in tow. At his signal, the bulldozer delivers a powerful blow on the building, but is unable to bring it down. The little boy tries to explain again, but is stopped midway again by the elder one. Choksi tries his best, but is not able to demolish the orphanage. As he wonders about the strength of the building, the little boy says, “Arre sir, last time bhi yeh deewar nahin tooti thi (Sir, even last time, this wall could not be broken down).” As a disappointed Choksi leaves with his men, the children and their caretaker start dancing in joy, and the voiceover concludes, “Ambuja Cement. Yeh Deewaar Nahin Tootegi.” (Submit your opinion on this ad.)

For the longest time ever, Ambuja has been harping on its ‘giant compressive strength’ proposition; the brand even created the visual of a ‘giant’ and then a broken hammer. Perhaps its most memorable ad was the one involving two estranged brothers trying to break down the wall that runs between their houses (Bhai Bhai, featuring Boman Irani, which was released six years ago). After that humorous attempt, came some ads which presented the brand in a sentimental vein (the Dadi ad), a move that Vivek Deshpande, Ambuja Cement’s vice-president for brand and promotions, agrees was rather disastrous, so much so that the Bhai Bhai ad was recalled. “Our new ad is a correction of this,” he says, adding that the brand will now strike a balance between emotion and humour.

The new film clearly explores a situation where a wall should not break for the right reasons. Priti Nair, national creative director, Grey Worldwide, says that the strength of the wall was juxtaposed with the strength of character of the orphanage caretaker and the children. “Cement is a low involving category,” says Nair. So, the children element and the often used Bollywood type plot (victory of good over evil) were added to make the ad more entertaining.

Nair and her team wanted to stay away from the stereotypical ‘milavat (adulteration)’ type ads for cement, or even those involving big buildings

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and pride of ownership. “We wanted to show the victory of the underdogs,” she explains.

The ad has been directed by Abhinay Deo of Ramesh Deo Productions, who says that the film had to strike a perfect pathos-humour balance. Interestingly, the initial idea was to show that the kids are also surprised when the wall doesn’t crack. “But we ruled that out,” Deo says, because the innocence of a small boy trying desperately to make the big, bad builder understand what his predecessors couldn’t do, would add to the fun element. “Another older child warning him to stay quiet in a rather knowing fashion builds the suspense,” he grins.

Motivation Perception Image Insight…. Question Bank1. How would you describe Hit as a person vs Raid vs Baygon? 2. Imagine 10 years from now, where would you see these people… (individually) 3. Can you describe their family members 4. Which animal would you associate with the following brands? 5. Which Car would you associate with eash of the above brands? 6. Which celebrity / sport person would you associate with each of the above brands? 7. Which kind of person do you think will use the above brands? Local prices Jan 2005 Jan 2004 June 2004Bombay 171 153 168Delhi 131 112 137Kolkatta 178 155 175Ahmedabad 134 132 146Jaipur 136 108 147Hyderabad 117 122 130Chennai 155 159 160

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Challenges Cement is energy intensive industry

Coal, Power & Oil constitute major costs

Increasing cost of fuel

Better realisation only in few markets

Strategy Presence in the growing markets of North & West

Retail Focus – Premium pricing

Largest Exporter of cement – 15% of Production

35% Cement transport by sea - Cheapest Mode

And ... Lowest Cost Cement Producer

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Gujarat Ambuja Cements Limited(Consolidated Income Statement)

Rs in mn 1H 2005 1H 2004 Growth(%)

Sales 14425 9764 48Operating Profit 4113 2262 82Interest 455 485 (6) Depreciation 1204 1002 20Profit Before Tax 2454 1219 101Profit After Tax 2038 844 141Minority Interest 112 58 93 Net Profit 1926 786 145 Net Operating 28 23 - Margin (%)

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A Comparative Analysis(Oct - Dec 2004)

Ultra Tech Grasim# ACC GACL Production - Clinker 3.20 3.02 2.90 3.10 - Cement 3.36 3.32 4.17 3.70 Sales - Qty (mn tonnes) 4.15* 3.33 4.18 3.70 - Value 6877 6885 9553 7353 Operating Profit 577 1087 1526 1986 Profit Before Tax (194) 504 741 1162Operating Margin(%) 8 16 16 27 O/P per tonne (Rs.) 139 329 365 537

Parameters CAGR (%)Capacity 20Sales 29 Net Profit 35Networth 30

Return to Shareholders 25 Wtd. Avg. EBIDTA Margin 33

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Directors Report Year End : Jun '03

The Directors present the Eleventh Annual Report together with the audited Statement of Accounts of the Company for the corporate financial year ended 30th June, 2003. During the financial year 2002-2003 the cement industry grew by 8.7%. This growth, notwithstanding, supply overhang continued to plague our home market Rajasthan leading to even poorer realisations than the previous year. Despite the lower realisations, the Company was able to reduce the current year's loss to Rs. 25.46 crores from Rs. 31.17 crores. This was possible due to untiring efforts made towards cost cutting in major areas. The accumulated loss of the Company at the end of the financial year i.e. 30' June 2003 stood at Rs. 339.40 crores. FINANCIAL RESULTS The highlights of the financial results for the corporate financial year ended 30th June, 2003 are as under: Current Year Previous Year (Rs. in Lacs) (Rs. in Lacs) Sales 31,090.91 28,467.02 Operating Profit before Interest, Depreciations Tax 4,020.87 4,077.29 Less: Interest & Financial charges 4,016.13 4,683.23 Gross Profit/(Loss) before Depreciations Tax 4.74 (605.94) Add: Depreciation 2,550.42 2,511.40 Loss before taxation 2,545.68 3,117,34 Provision for tax - - Loss after taxation 2,545.68 3,117.34 Add/(Less): Adjustment relating to prior period - - Net Loss 2,545.68 3,117.34

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Loss carried forward from previous period 31,394.25 28,276.91Accumulated Loss carried forward to next year 33,939.93 31,394.25

ECONOMY AND BUSINESS ENVIRONMENT While the cement industry grew by 8.7%, the Indian economy as a whole, registered growth of 4.3%. Growth would have been better if the agriculture sector was not adversely affected by the severe drought conditions which prevailed in large swathes of the country, resulting in negative growth of 3.2% in that sector. Growth in the cement industry was powered largely by infrastructure, housing and commercial construction. Growth picked up particularly smartly in the housing sector due to attractive interest rates on housing loans. As a result, all of a sudden, housing which , was out of reach of many households became much more affordable to own. Consolidation in the cement industry continued, albeit at a slow pace. Faster consolidation would have helped to ease the tremendous pressure on prices in the market place due to fragmented, irresponsible supplies, which led to a continued trend of declining prices. The Directors believe that the worst is behind us considering the good monsoon this year and the on-going thrust being given by the Government to the infrastructure and housing sectors. Present indicators point to economic growth of 6.5 - 6.8% in 2003-2004.

DIVIDEND No dividend is proposed in view of losses. REVIEW OF PERFORMANCE Plant Operations The Company produced 14.51 lac tonnes of cement (last year: 12.73 lac tonnes) and 13.53 lac tonnes of clinker (last year 13.44 lac tonnes),

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an increase of 14% and 1% respectively. Emphasis on quality assurance continued. Improvement in production was accompanied by significant improvements in energy consumption and, as a result, the cost of. production. Specific power consumption improved to 91 KWH/tonne from 100 KWH/tonne Of cement in the previous year. Simultaneously, specific fuel consumption improved to 721 kcals/kg clinker from 735 kcals/kg. clinker in the previous year. The thrust on saving in logistics cost has continued during the year, and despite a sharp increase in the price of HSD, economy in freight cost were achieved. Part of this saving was a result of a further shift towards more cost effective road transportation compared with the more expensive option of rail transportation. Power generation from the captive thermal power plant increased to 1,095 lac KWH from 895 lac KWH in 2001 -2002 representing growth of 22% and a PLF of 83%. Approximately 88% of the total electrical energy requirements were met from captive generation sources, compared with 80% last year. Power cost came down further by 3% despite higher production and input cost increases, especially USD.

Marketing Total sales of cement and clinker in the year 2002-2003 were 14.58 lac tonnes and 1.70 lac tonnes respectively compared to 12.67 lac tonnes and 1.55 lac tonnes in the previous year. Inspite of increase in sales by 14%, sales value increased by only 9% due to extremely depresses selling prices. The Company has substantially increased its share in the trade segment and developed a potential network of Dealers/Stockists. Reorientation of marketing strategy continues with a strong focus on the Company's natural markets. The Company's brand name Ambuja continued to gain wider preference due to its superior quality and the Company's fair practices with its dealers and stockists.

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Cost Impacts Raw Materials-There was a marginal increase of 5% in cost of raw materials in the year 2002-2003 compared to the previous year, mainly due to raw mix optimisation for improved cement quality and higher production of pozzolona portland cement by 18%. Coal - There was a saving of 8% in cost of coal due to lower consumption and more production of pozzolona portland cement. Power-Power requirements continued to be met largely from captive generation with only 12% of the total being sourced from the grid. The reduced dependence on grid power helped in reducing the total power cost by 3%. Logistics Management - Further savings of Rs. 237 lacs were achieved in freight and forwarding due to dynamic management of logistics. Interest- The Company saved a large amount in interest cost due to continuing restructuring of its debt by way of replacement of high cost funds by low cost funds. The overall interest burden of the Company was reduced by almost 14%over and above the 13%achieved last year.

PROPOSED AMALGAMATION OF THE COMPANY WITH GUJARAT AMBUJA CEMENTS LTD. The Company, through Operating Agency, ICICI Bank Ltd., submitted draft Rehabilitation Scheme to the Board for Industrial & Financial Reconstruction (BIFR) with the proposal of amalgamation of the Company with Gujarat Ambuja Cements Limited (GACL) for the approval of BIFR. As per the proposal, when approved by Hon'ble BIFR, the shareholders of the Company will get one equity share of Gujarat Ambuja Cements Limited in lieu of every fifty equity shares of the Company held as on the record date to be fixed for this purpose. BIFR's sanction to the scheme is awaited.

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SOME RISKS & CONCERNS Coal, power, Government levies and duties are major cost components in the cement industry and the same are under the control of the Government. Cement demand also depends heavily on the Government's policy on infrastructure and housing development. Therefore, any change in government policy may have significant impact on the industry. In the Union Budget 2003-2004, the excise duty on cement which was already very high has been further increased from Rs.350/- to Rs.400/- pertonne. This has put further strain on the Company's profitability. The proposal for implementation of Value Added Tax (VAT) when made effective will pose a challenge to trade and industry.

INTERNAL CONTROL SYSTEMS The Company is committed to maintain high standards of internal control systems. The Company has its Internal Audit Department headed by a senior Chartered Accountant which monitors internal controls, compliance with procedures and their adequacy from time to time. The department submits its report to the Audit Committee on quarterly basis or earlier if required by the Audit Committee. The Company believes that its Internal Control Systems are adequate keeping in view the nature and size of the Company's operations. This department is enlarging its scope and size to meet the fast changing business scenario and the Company's philosophy to strive for high standards of Corporate Governance.

HUMAN RESOURCES The Company maintained cordial relationship with its employees at all levels. In order to improve the ability and skills of its employees the Company organized in-house workshops and conferences covering wide-ranging subjects. Employees were also deputed to attend seminars externally to widen their exposure. These programmes have helped to motivate the employees and to integrate them with the core ethos of the organisation.

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ENVIRONMENT MANAGEMENT & COMMUNITY DEVELOPMENT Drought in Rajasthan was widespread. The Company continued with assistance to neighbouring villages by constructing anicuts and earthern dams to help in water preservation. Free grain and lentils were distributed to more than 270 individuals identified to be the hardest hit due to drought. Drinking watertankers were supplied to nearby villages and fodder for cattle was distributed in many parts of Pali district. In addition, Ambuja Cement Foundation (ACF) also widened their activities by: - Alleviating the drinking water problem due to drought conditions prevalent for four years by supplying drinking water through tankers, constructing Roof Rain Water Harvesting Structures & Waterstorage tanks, deepening existing wells, installing new hand pumps and maintaining existing hand pumps. - Conducting cattle camp for examination of animals, distributing water and fodder and bringing home to farmers the beneficial aspects of sustainable farming practices, plantation, horticulture, drip irrigation etc. - Conducting regular health check-up camps and distributing free medicines through the mobile dispensary. - Supplying furniture, notebooks, sports kits, uniforms and utensils (for mid-day meal programmes) and conducting training programmes for women.

DIRECTORS Shri Suresh Neotia and Shri A. C. Singhvi, Directors of the Company, retire by rotation and being eligible, offer themselves for reappointment. The Board recommends their re-appointment.

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AUDITORS M/s. A. F. Ferguson & Co., Auditors of the Company, will retire at the ensuing Annual General Meeting and are eligible for reappointment. M/s. A. F. Ferguson & Co. have confirmed that their appointment, if made, shall be within the limits under Section 224( 1 B) of the Companies Act, 1956. The Board of Directors recommend reappointment of the Auditors and fix their remuneration. M/s. P. M. Nanabhoy & Co., Cost Accountants, have been appointed Cost Auditor of the Company for the year 2003-2004.

CORPORATE GOVERNANCE The Company has complied with the Corporate Governance Code in accordance with the listing agreement with Stock Exchanges. A separate section on Corporate Governance, along with a certificate from the Auditors confirming compliance is annexed and forms part of the Directors' Report. PUBLIC DEPOSITS The Company has neither invited nor accepted any deposits from the public within the meaning of Section 58A of the Companies Act, 1956, during the year under review. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ANDFOREIGN EXCHANGE EARNINGS AND OUTGO Information with respect to Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo, required to be given pursuant to Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is set out in Annexure I and forms part of this Report.

EMPLOYEES As required by the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, the name and other particulars of the employee is set out in the Annexure 11 to the Directors' Report.

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DIRECTORS' RESPONSIBILITY STATEMENT As required u/s 217(2AA) of the Companies Act, 1956, the Directors hereby confirm that: i) In the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures; ii) Appropriate accounting policies have been selected and applied consistently and have made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as on 30*' June, 2003 and of the loss of the company for the year ended 30th June, 2003; iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv) The annual accounts have been prepared on a going concern basis. ACKNOWLEDGEMENTS The Directors express their gratitude to the Government of Rajasthan, Local Authorities, Financial Institutions, Bankers to the Company and various other agencies for the co-operation and guidance extended to the Company. The Directors also express their gratefulness to all of you, the shareholders for your support to the Company. The Directors also place on record their appreciation for the contribution made by employees at all levels. ANNEXURE I DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO AS REQUIRED UNDER COMPANIES (DISCLOSURE OF PARTICULARS IN THE BOARD OF DIRECTORS' REPORT) RULES, 1988.

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A. CONSERVATION OF ENERGY (a) Energy conservation measures taken : i) Further optimization of raw mill, coal mill and cement mills. ii) Installation of dip tubes in 3rd cyclone of both strings and modification of cyclone flap valves of one string. iii) Installation of refratherm bricks. iv) Optimization of clinker cooler fans & ESP retrofitting. v) Refurbishing of WHR system. vi) Partial replacement of bags in bag house by membrane bags. vii) Plant operation studies by FL Smidth, Denmark and ACC-RCD. viii) Transport of dry fly ash from STG to cement mill fly ash hopper. ix) Improved plant operation. (b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy: i) Further optimization of crusher,raw mill,coal mill & cement mills operation. ii) Installation of energy efficient blower for coal firing. iii) Installation of small size cooler ID fan & motor in parallel with the present fan. iv) Efficiency improvement of cooler RFT fans. v) VVVF drives for cooler seal air fan & bag house reverse air fan. vi) Up-gradation of cement mills ESP fan impeller. vii) Up-gradation of cement mills separator fan cone & impeller. viii) Further optimization of utilities.

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ix) Conducting energy audit to identify scope for improvement. x) Installation of modified flaps in cyclones of other PH string. xi) Efficiency improvement of various jet pulse filter systems. xii) Total investment on account of above is estimated at Rs.64 lacs. (c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods : Measures referred to in (a) above will result in saving of Rs. 234 lacs approximately per year and (b) above will also result in energy saving of Rs.86 lacs per year. (d) Total energy consumption and energy consumption per unit of production : Information given in the prescribed Form-A annexed. B. TECHNOLOGY ABSORPTION Efforts made in technology absorption are given in the prescribed Form-B annexed C. FOREIGN EXCHANGE EARNINGS AND OUTGO (a) Activities relating to exports; initiatives taken to increase exports; development of new export markets for products & services; and export plans: Export was not viable for the year ended June 30, 2003. (b) Total foreign exchange used and earned : For the For the Year ended Year ended June 30,2003 June 30,2002 (Rs. in lacs) (Rs. in lacs). Used 240.20 838.86 Earned Nil Nil

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Form for disclosure of particulars with respect to absorption.

A. RESEARCH AND DEVELOPMENT (R & D) 1 Specific areas in which R & D carried out by the Company: i) Optimization of raw-mix design. ii) Optimisation of particle size to improve raw mix burnability. iii) Optimisation of Kiln operation by microscopy. iv) Installation of XRD for mineralogical analysis of raw mix. 2 Benefits derived as a result of above R & D : i) Improved productivity, quality & power and fuel efficiencies. 3. Future plan of actions: i) Upgradation of XRD software. ii) To procure microscope to continue microscopic studies of raw materials and clinker. iii) Differential thermal analysis (DTA) and thermal gravimetry (TG) of kiln feed samples. 4. Expenditure on R & D : For the For the Year ended Year ended June 30,2003 June 30,2002 (Rs. in lacs) (Rs. in lacs) i) Capital Expenditure Nil Nil ii) Recurring Expenditure 69,91 7.75 iii) Total Expenditure 69.91 7.75 iv) Total R & D Expenditure as As a percentage of total turnover 0.225 0.027

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B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION 1. Efforts, in brief, made towards technology absorption, adaptation and innovation : The technology has been fully absorbed.Company had continuous interaction with the main plant supplier- FL Smidth & Co. A/S, Denmark and others to keep abreast with the latest technological advancements. Plant operation and maintenance personnel were imparted in-house training and deputed for external seminars/training courses. 2. Benefits derived as a result of above efforts : Power & fuel efficiencies,improved productivity and better operations and maintenance practices. 3. Information regarding technology imported during last five years : i) Technology imported: a) IKN technology (Germany) for clinker cooling. ii) Year of import a) 2000-01 iii) Has technology been fully absorbed: Yes. iv) If not fully absorbed, areas where this has not taken place, reasons therefor, and future plans of action: Not applicable

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Ambuja Gujarat, Rajasthan propose merger news

16 July 2002

Mumbai: The boards of directors of Gujarat Ambuja Cements Ltd (GACL) and Ambuja Cement Rajasthan Ltd (ACRL), formerly known as DLF Cement Ltd, have unanimously approved the merger of ACRL with GACL, subject to necessary approvals.

They have recommended an exchange ratio of 1 new share of GACL to be issued for every 50 shares of ACRL, which is based on the valuation report of M/s NM Raiji and Company.

The management control of ACRL was acquired by GACL in March 2000. ACRL has a 1.5 million-tonne cement plant along with a captive power plant of 21 mw located in Rajasthan.

It markets its cement under the brand name Ambuja Cement and enjoys a leadership position in the markets of Rajasthan, Haryana and Delhi. Since last two years, it has acquired a good market share in each of these markets.

Gujarat Ambuja whole-time director Anil Singhvi says in view of the strategic location of ACRLs cement plant, which fits well into GACLs market strategy of having leadership in the cement markets of north and west India, the proposed merger will not only benefit in terms of this marketing strategy but will also reduce lots of cost on selling and administrative overheads of both the companies. "With the proposed merger GACL will have a leadership position in all the markets from Maharashtra to Jammu and Kashmir."

The current share capital of ACRL is about Rs 261 crore, out of which Rs 128 crore (49 per cent) is owned by GACL. Based on the valuation ratio, GACL will issue 26,62,424 shares to the shareholders of ACRL. This will increase GACLs share capital from Rs 155.19 crore to Rs 157.85 crore, an increase of 1.7 per cent.

Upon merger, the cement capacity of GACL will go up to 10.5 million tones, and with its subsidiary ACEL the total capacity is 12.5 million tonnes. The proposed merger is subject to necessary approvals from

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shareholders, the Board of Industrial and Financial Reconstruction and any other approvals as may be necessary.

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CEMENT MAKING PROCESS

STEP 1: QUARRY

Basic Elements

For it’s raw materials, cement uses minerals containing the four essential

elements for it’s creation: calcium, silicon, aluminum, and iron.

Raw materials

Most plants rely on a nearby quarry for limestone. The most common

combination of ingredients is limestone(for calcium) coupled with much

smaller quantities of clay and sand( as sources of silica, aluminium, and

iron). Other raw materials, such as mill scale, shale, bauxite and fly ash,

are brought in from outside sources when necessary.

Crusher

Rock blasted from the quarry face is transported to the primary crusher,

where chair sized rocks are broken into pieces the size of baseballs. A

secondary crusher reduces them to the size of gravel. Some plants now

crush materials in a single stage.

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STEP 2: PROPORTIONING, BLENDING & GRINDING

Proportioning and Blending

The raw materials are now analyzed in the plant laboratory, blended in

the proper proportion, and then ground even finer.

Grinding

Plants grind the raw materials with heavy, wheel-type rollers that crush

the materials into powder against a rotating table. After grinding, the

material is now ready for the kiln or preheater, depending on plant type.

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STEP 3: PREHEATER TOWER

Tower

The preheater tower supports a series of vertical cyclone chambers

through which the raw materials pass on their way to the kiln.

Hot Gases

To save energy, modern cement plants preheat the materials before they

enter the kiln. Rising more than 200 feet, hot exit gases from the kiln heat

the raw materials as they swirl through the cyclones.

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STEP 4: KILN

Raw materials

Raw materials now enter the huge rotating furnace called a kiln. It’s the

heart of the cement making process – a horizontally sloped steel cylinder,

lined with firebrick, turning from about one to three revolutions per

minute. The kiln is the world’s largest piece of moving industrial

equipment.

Intense Heat

From the preheater, the raw material enters the kiln at the upper end. It

slides and tumbles down the kiln through progressively hotter zones

toward the flame. At the lower end of the kiln, fuels such as powdered

coal and natural gas feed a flame that reaches 3400 F (1870 C) – one-

third of the temperature of the sun’s surface. Here in the hottest parts of

the kiln, the raw materials reach about 2700 F (1480 C) and become

partially molten.

Clinker

This intense heat triggers chemical and physical changes. Expressed at its

simplest, the series of chemical reactions converts the calcium and silicon

oxides into calcium silicates, cement’s primary constituent. At the lower

end of the kiln, the raw materials emerge as a new substance: red hot

particles called clinker.

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STEP 5: CLINKERCOOLER & FINISH GRINDING

Cooler

The clinker tumbles onto a grate cooled by forced air. Once cooled the

clinker is ready to be ground into the gray powder known as Portland

cement.

Re-circulate

To save energy, heat recovered from this cooling process is recirculated

back to the kiln or preheater tower.

Ball-Mill

The clinker is ground in a ball mill – a horizontal steel tube filled with

steel balls. As the tube rotates, the steel balls tumble and crush the clinker

into a super-fine powder. It can now be considered Portland cement. The

cement is so fine it will easily pass through a sieve that is fine enough to

hold water. A small amount of gypsum is added during final grinding to

control the set.

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STEP 6: BAGGING & SHIPPING

Silos

From the grinding mills, the cement is conveyed to silos where it awaits

shipment.

Transportation

Most cement is shipped in bulk by trucks, rail, or barge.

Bagged

A small percentage of the cement is bagged for customers who need only

small amounts or for special uses such as mortar.

Most cement is shipped to ready-mixed concrete producers. There, it’s

combined with water, sand, and gravel to make concrete delivered in the

familiar trucks with revolving drums. Cement is also used for a wide

array of precast concrete products.

CEMENT – VARIETIES AND TECHNOLOGY

There are different varieties of cement based on different compositions

according to specific end uses, namely, Ordinary Portland Cement,

Portland Pozzolana Cement, White Cement, Portland Blast Furnace Slag

Cement and Specialised Cement. The basic difference lies in the

percentage of clinker used.

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• Ordinary Portland Cement (OPC):

OPC, popularly known as grey cement, has 95 per cent clinker and 5 per

cent gypsum and other materials. It accounts for 70 per cent of the total

consumption.

• Portland Pozzolana Cement (PPC):

PPC has 80 per cent clinker, 15 per cent pozolona and 5 per cent gypsum

and accounts for 18 per cent of the total cement consumption. It is

manufactured because it uses fly ash/burnt clay/coal waste as the main

ingredient.

• White Cement:

White cement is basically OPC - clinker using fuel oil (instead of coal)

with an iron oxide content below 0.4 per cent to ensure whiteness. A

special cooling technique is used in its production. It is used to enhance

aesthetic value in tiles and flooring. White cement is much more

expensive than grey cement.

• Portland Blast Furnace Slag Cement (PBFSC):

PBFSC consists of 45 per cent clinker, 50 per cent blast furnace slag and

5 per cent gypsum and accounts for 10 per cent of the total cement

consumed. It has a heat of hydration even lower than PPC and is

generally used in the construction of dams and similar massive

constructions.

• Specialised Cement:

Oil Well Cement is made from clinker with special additives to prevent

any porosity.

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• Rapid Hardening Portland Cement:

Rapid Hardening Portland Cement is similar to OPC, except that it is

ground much finer, so that on casting, the compressible strength increases

rapidly.

• Water Proof Cement:

Water Proof Cement is similar to OPC, with a small portion of calcium

stearate or non- saponifibale oil to impart waterproofing properties.

There are three types of processes to form cement - the wet, semi-dry

and dry processes. In the wet/semi-dry process, raw material is produced

by mixing limestone and water (called slurry) and blending it with soft

clay. In the dry process technology, crushed limestone and raw materials

are ground and mixed together without the addition of water. The dry and

semi-dry processes are more fuel-efficient. The wet process requires 0.28

tonnes of coal and 110 kWh of power to manufacture one tonne of

cement, whereas the dry process requires only 0.18 tonnes of coal and

100 kWh of power. Coal and power costs account for 35 per cent of the

total cement production costs. With 95 per cent of the total capacity

based on the modern dry process technology, the Indian cement industry

has become more cost efficient. Top companies in the cement industry

match quite well with world standards in terms of energy (thermal energy

Kcal/kg of clinker - India 665 against 690 of Japan) and pollution norms

(SPM of 40 in India against 20 in Japan).

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Scale of Operations

The cement industry has witnessed a significant change in the scale of

operations. In 1961, the largest kiln in operation had a capacity of 750

tpd. In 1970, of the total 119 kilns, 1 had over 1,000 tpd capacity, with 55

having under 400 tpd capacity. In 1980, 11 of the total 141 kilns were

over the 1000 tpd mark, with 1 kiln having a capacity larger than 3,000

tpd (roughly 1 mtpa). The 1990s saw still higher capacity 4500-5000 tpd

(or 1.5 mtpa) kilns. The recent practice for a large size plant is to have

6,500-7,000 tpd (or 2.5 mtpa) capacity. As of end-FY2006, there were 7

plants with a capacity exceeding 3 mtpa at a single location, and 71

plants with a capacity exceeding 1 mtpa at a single location. Plants with a

capacity exceeding 1 mtpa at a single

location had a cumulative installed capacity of 126.2 mtpa at end-

FY2006, accounting for 80.3% of total installed capacity.

The average kiln capacity of a dry process technology plant is around

2,880 tpd (0.9-1 mtpa). These large sizes contribute towards reduction in

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energy consumption, and provide the units with scale benefits. The

minimum economic size also appears to have risen because of the rise in

investment cost per tonne of cement. This investment cost has risen from

Rs. 650 per tonne in the late 1970s to around Rs. 3,500 today.

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CASE STUDY-1

Case study of ambujaAmbuja Cements : ERP MasonryConnecting 200 locations, training 2,500 end-users, and migrating data from 8 different legacy systems onto the ERPall in 14 months flatPriya Kekre

One of Indias largest cement manufacturing companies, Ambuja Cements has taken many IT initiatives to integrate the latest technologies into its operational systems, so as to reap business benefits at every level of the supply chain. The IT team at Ambuja has always been forthcoming in experimenting new technologies. For eg, in 2001 the cement company was one of the first to deploy Red Hat Linux at remote sites for critical business applications.

Trend-setterLast year, Ambuja Cements launched Connect India Plus, which has proved to be one of the most significant, large scale IT deployment within the company so far. As the companys manufacturing plants are located in remote areas where the scope of connectivity was minimal, the resources, namely hardware, software and people were located at plant sites. The overall integration of data was transferred and carried out in batches. During 2006, Ambuja decided to go for SAP as it is a standard system for all group companies.Within two years, Ambuja rolled out Connect India Plus that was conceived as an ERP implementation program for installing SAP with all its modules at 200 locations across India and 2,500 users with a single instance on a server in Mumbai. The project kicked off on June 1, 2007 and went live on August 1, 2008a period of just fourteen months.Bihag Lalaji, CIO, Ambuja CementDeployed Connect India Plusan SAP ERP implementation program across 200 locations to connect 2,500 usersThe enterprise wide ERP went live in a period of just 14 months and helped Ambuja easily align with other group company processes

One of the prime reasons for deploying this ERP was to have a uniform, standard, and ubiquitous system across the organization not only in India but abroad, so that Ambuja Cement could easily align with other group company processes, says Bihag Lalaji, CIO, Ambuja Cement. The project

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also promised a reduction in cost of operations and maintenance of the IT system. It would also enable Ambuja Cements to respond quickly to changes in the business environment.

ChallengesHowever, the IT team faced immense challenges while implementing this enterprise-wide ERP. Since the company had multiple plants, each with their own computer systems and processes, there was a need to create a single business blueprint across the organization. On the people front, there was a need to integrate individuals with diverse background to be able to work as a focused team.

Besides the core team consisting of 75 members, there were 150 people involved indirectly or directly for data migration, training, etc. All this required enormous amount of man-management skills. Infrastructure refreshes was another critical challenge as the IT team took on the task of setting up an adequate and reliable WAN using MPLS and VSATS, connecting 200 locations including factories, bulk cement terminals, grinding units, regional offices and warehouses.

Data migration was another major challenge since data had to be imported from eight different legacy systems. The standard master data codes had to be mapped with the legacy codes and data had to be updated at one go. We had a dedicated team and full support of business users from various locations, who worked relentlessly to achieve this mammoth task, says Lalaji.

After the successful implementation of SAP, the company has been exploring some cutting edge technologies to improve supply chain. It has implemented a sophisticated smart-card based vehicle tracking system to improve operational efficiency in terms of cycle-time monitoring and fleet management. This has helped the company determine the exact cycle for a vehicle carrying cement from the factory to a destination and carrying raw material as a return load back to the factory. The information is dispatched to customers via SMS.

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CASE STUDY-2

Salinity mitigation by Industry: A case study of Ambuja Cements Limited, Junagadh

This presentation describes the work of Ambuja Cements Limited, in managing salinity in groundwater, as part of its Corporate Social Responsibility initiative, in coastal Junagadh region of Gujarat.

Water harvesting and conservation work was taken up through building check dams, rooftop rainwater harvesting, building percolation and drinking water wells, deepening of ponds, micro-irrigation, cropping pattern interventions and more. As a result of the work, the groundwater level improved by over 30 feet, the river flows improved by 6 months, agricultural productivity and farmer incomes improved significantly and drinking water quality improved.

This work won the CII-GBC National Award (Beyond the Fence Category) for Excellence in Water Management in 2008.

LocationJunagadh, GJ, India Latitude: 21.515471, Longitude: 70.456444 Category: Ponds, Salinity Mitigation, Agriculture, Irrigation, Cement Industry, Check Dams, Corporate Social Responsibility (CSR), Drinking Water, Rainwater Harvesting, Recharge Wells, Rooftop Rainwater Harvesting, Salinity, Water for Industry, WellsAssociated People / Organizations: Ambuja Cements LimitedAuthor: Ambuja Cements LimitedSource: Confederation of Indian Industry (CII)Location / Time: Junagadh, India, Gujarat, 2008Difficulty Level: BeginnerAmbuja Cements : Branding a Commodity Corporate Brand : Ambuja CementsCompany : Ambuja Cements Ltd ( Holcim Group Company)Agency : GreyBrand Analysis Count : 423Ambuja Cements formerly Gujarat Ambuja is one of India's largest cement brands. The company came into existence in 1984. Ambuja Cements is a classic example of a successful commodity branding.Indian cement market is different from the rest of the world because the largest segment of buyers of cement in India is the individual home

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owners rather than the institutions. Although this scenario is witnessing a change due to the boom in the organized realty sector, individual home owners form a significant segment that no cement marketers can ignore.Although these individuals shell out the money to purchase cement, they are not the decision makers in the buying process.The intermediaries like the contractors , masons etc take up the role of the influencer/decision makers in the purchase of this product. Since the consumers view this product as a commodity, the involvement of ordinary home owners in the purchase .Ambuja Cements is one of the companies that realized the potential of brand as a differentiator. Even in the eighties, Ambuja cements started its activities for building the brand. Infact according to Superbrands report, Ambuja cements is the first cement brand to start advertising in television. Ambuja Cements also used the outdoors extensively to reinforce the brand image and enhance brand recall.Ambuja Cements also focused on influencing the other players in the business like the contractors/masons and engineers through camps and meets.

These initiatives helped Ambuja to charge a premium over other brands. With the competition hotting up from Grasim + Ultratech, Ambuja Cements could hold on to its share because of the brand equity it had created over these years.While branding the cement commodity,Ambuja Cements concentrated on its core brand promise of " Strength ". All through its campaigns, the brand was very consistent on reinforcing its positioning as the " Strongest " cement . The brand was also very clever in selecting a unique logo.Commodities are boring products . But for smart marketers, this is also an opportunity to make a difference. Ambuja cements bought in lot of humor to this ( otherwise) boring product. Most of its campaigns are humorous which makes the consumers stick to the advertisements . The ad which I like most is the ad where the brothers ( Boman Irani) try to break the wall which they put up to separate their houses when they were fighting with each otherSome other adsThese ads reinforce the core positioning of Ambuja as a strong cement. Strength is a very highly relevant attribute as far as customer is concerned.While branding a commodity, the critical question is whether these ads can influence the consumers to change their commodity mindset towards this category. The answer is definitely affirmative. I have noticed many home owners directly procuring these products for their home

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construction because they don't trust the contractors. In these scenarios, high brand recall will give the edge for the brands.Branding can change the perception of consumers towards commodity. The point is to create a compelling reason to do so.

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QUESTIONNAIRE

Q1. What is the present scenario of the Indian cement industry?Ans. At present in the industry, demand exceeds supply. Cement companies are finding it difficult to cope up with the huge demand for cement, hence the companies are going in for capacity expansion. Overall it is a good time for the companies.

Q2. Which of the sectors are contributing the most to the demand for cement?Ans. The housing sector and the Government have contributed the most to the demand for cement.

Q3. What types of cement does Ambuja Cement Limited (ACL) manufacture?Ans. There are mainly three types of cement namely 43 Grade, 53 Grade and Portland Pozzolana Cement (PPC). ACL is mainly into PPC.

Q4. Where are ACL’s cement plants located and what are their individual capacities? Does the company face any locational issues?Ans. Individual capacities: Maratha Plant (3mt), Khodinar Plant (4mt), Rajasthan (2 mt), Himachal Pradesh (2mt), Other Plant(1mt).As far as locational issues are concerned power is the most common problem faced by all cement companies. To solve this problem ACL generates its own power.

Q5. Which is your main market in the western region? How do you supply cement to the market? Is there any scope for its future growth in the next few years?Ans. In the western region, our main market is Mumbai. It is a vast market, the real estate boom as well as infrastructure development activities are the drivers of growth in Mumbai. Cement is supplied to Mumbai from our Khodinar Plant located near Veraval in Gujarat. From Khodinar cement is transported by our company’s ships to Ulva Reti Bunder near Panvel. Here we have our own packing unit. At Ulva Reti Bunder, cement is stored in silos. From here it is packed and sent to Mumbai.

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Q6. Do you export cement? If yes, to which countries?Ans. Yes, we export cement to countries like South Africa and UAE. However exports have slowed down in recent times since the domestic demand itself is huge.

Q7. What are the expansion plans?Ans. ACL plans to expand its Maratha plant by 1 mt and Khodinar plant by 1 mt.

Q8. Ambuja’s marketshare was 10.6% in 2006, compared to ACC’s 12.6%. How do you plan to become the No.1 player in the industry?Ans. In order to achieve the No.1 position, we are focusing on increasing brand awareness among dealers and customers. We are offering attractive schemes to dealers to motivate them to push our product in the market besides offering holiday packages abroad to dealers who achieve sales targets. In addition, the company also provides scholarships to children of deserving dealers.

Q9. Which is your preferred mode of transportation for cement? Why?Ans. For transportation of cement, ACL prefers ships since it is a cheap mode of transport. It reduces the overall cost to a great extent.

Q10. Cement is a low value, high bulk commodity, hence freight cost becomes a significant factor in determining the landed cost of cement. What steps has Ambuja taken to reduce freight cost?Ans. As mentioned earlier, we transport cement from Gujarat to Mumbai by ships, this greatly reduces the cost of cement. From Panvel to Mumbai the cement is transported by trucks. These trucks belong to a subsidiary of the company –GANESHA TRANSPORT, hence it is a win-win situation for the company.

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Q11. Where do you source your raw materials like limestone, gypsum etc. from?Ans. Limestone is found locally. Infact cement plants are setup near limestone deposits, so limestone is available easily. Gypsum and coal are imported. Coal is imported from Australia.

Q12. Cement industry is one of the most polluting industries, what steps has ACL taken to reduce pollution? Any special environmental initiatives?Ans. Ambuja uses state-of-the-art technology which keeps pollution to the minimum. We have planted trees around our cement plants to reduce pollution and increase the green cover. In fact, ACL received the Rajiv Gandhi Award for pollution-free plant.

Q13. Does your company utilize fly ash to manufacture blended cement? Does it have any advantages?Ans. Yes we utilize fly ash to manufacture blended cement. Fly ash is obtained from the power sector. It is unavoidable and poses a waste disposal problem, hence the Government has made it mandatory for cement companies to use flyash. Its advantages are the use of these wastes also enables cement companies to increase their profits.

Q14. Which process technology does ACL use? What are the advantages?Ans. ACL uses dry process technology. The dry process is more fuel-efficient. The wet process requires 0.28 tonnes of coal and 110 kWh of power to manufacture one tonne of cement, whereas the dry process requires only 0.18 tonnes of coal and 100 kWh of power.

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ConclusionI concluded that the cement industry in india is on great

boom and accounting a lot to Indian GDP. In india the cement was mostly demanded by housing sector The cement sector is expected to witness strong production and consumption growth of 10% during FY2007 in line with the economic growth because of the strong co-relation with GDP and the increased activity in the construction sector.

It is estimated that 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 Rs. 20,000 billion. Besides, demand from infrastructure projects and industrial/commercial ventures account for 20% each. Even as NHDP-I (comprising the Golden Quadrilateral or GQ and North-East-South-West or NESW) near completion (GQ by end-2006, and NESW by 2009), demand in the port and airport segments may pick up, keeping demand buoyant. Further, NHDP-III to NHDP-VII (2006-15) envisages construction of another 36,000 kms of roads at an estimated cost of Rs. 1,270 billion. Overall, from the demand perspective, the fundamentals look bright, and cement demand in the medium term is expected to grow by around 9%. The Planning Commission's Working Group on Cement Industry predicts cement production in India to grow at a rate of 10% during the Tenth Five-Year Plan (2002-2007). By comparison, the cement industry is expected to grow at around 8-10% during the 2003-07 period. Growth of 9% per annum from FY2006-10 would result in cement production increasing to around 196 mt in FY2010. By comparison, consumption could increase to 190 mt in FY2010. China, the world's largest producer of cement, has seen sustained cement production average annual growth of 10% since 1980, mostly due to the enormous infrastructure development that country has experienced over this period.

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Bibliography Religare Technova

WWW.GOOGLE.COM

WWW.YAHOO.COM

www.icra.in

www.ibef.org

www.cement.org

www.equitymaster.com

www.cseindia.org

Newspapers Referred

1. Economic Times

2. Times of India

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http://www.cseindia.org/

http://www.equitymaster.com/

http://www.cement.org/

http://www.ibef.org/

http://www.icra.in/

http://WWW.YAHOO.COM/

http://WWW.GOOGLE.COM/

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