PART I COMMERCIAL ACUMEN

[A] Summary
1. A particular region Y in India has been identified for setting up a 5 Million Ton Per Annum
(MTPA) capacity cement (PPC) manufacturing plant. Two locations A and B, are available
within the region Y for setting up the plant.
2. Based on the information provided in subsequent sections, please help the management take
appropriate decision as to which location should be selected for setting up the plant. Kindly
prepare a presentation for the same. The presentation MUST be backed by an Excel based
financial model.
[B] Key information
1. Cement Manufacturing Process in Brief
a. Initially Clinker is formed by crushing and heating Limestone along with certain other
materials (called Correctives).
b. Clinker is small granular particle which, after grinding, forms Ordinary Portland Cement
(OPC).
c. The OPC is then mixed with fly ash and other materials (together called Additives) in
certain proportion to formPortland Pozzolana Cement (PPC).
d. A split model is popularly adopted in cement industry where Clinkerisation plant is set
up near the Limestone mines and clinker from this unit is transported to satellite
Grinding Units (located closer to the cement markets) where the Clinker is ground to
form OPC/PPC. In most of the cases there is potential market near the Limestone mines
as well. Thus, a part of the clinker is ground at the Grinding Unit (GU) placed adjacent
to the Clinkerization unit. Such unit at the Limestone mines is referred as Integrated
Unit (IU). Configuration of IU and GU for location A and B is given as follows
i. GU for IUs in both cases - A and B is located at same place, same distance.
ii. The 5 MTPA PPC shall be produced as follows - i) 1.5 MTPA at IU and ii) 3.5
MTPA at GU
e. Fly Ash proportion in PPC 35%
f. Clinker proportion in PPC - 65%
g. Fuel requirement
i. Heat requirement for producing one Kg of Clinker 750 Kcal
ii. Fuels used - Coal, Petcoke, Lignite
iii. Fuels to be used for Location A Coal 50% , Petcoke 50%
iv. Fuels to be used for Location B Coal 25% , Petcoke 25%, Lignite 50%
v. Calorific values of these fuels Coal 6000 Kcal/Kg, Petcoke 7000 Kcal/Kg,
Lignite 3000 Kcal/Kg
vi. Landed cost of fuel (Rs./MT)

Lignite Coal Petcoke
Location A 2644 6304 5800
Location B 2644 6476 6000

h. Sourcing Fly Ash
i. Landed cost of fly ash (Rs. / MT) -
Location A Rs.884 / MT; Location B 892; Grinding Unit (GU) Rs. 634/MT
i. Clinker Transportation cost
i. Location A to GU Rs. 641/MT
ii. Location B to GU Rs. 905/MT
j. Cost of distributing per metric ton (MT) of PPC
i. From Location A Rs. 473/MT; from Location B Rs. 662/MT; from GU
Rs.405/MT
2. CAPEX
a. Land for Plant, Railways and Limestone Mines
Details of land required for the Limestone* mines and setting up the cement plant are
mentioned below. At each location, some part of the land is privately owned while rest
is the State Governments land. The Government land can be readily acquired while
acquisition of the private land takes ~2 years additional.
Mines Plant
Location
Price
(Rs.
Cr/Ha)
Area
(Ha)
Area
(Ha)
A
Govt. 0.074 280 48
Pvt. 0.49 420 72
B
Govt. 0.074 320 96
Pvt. 0.247 80 24

b. Railway Land
Rs.Cr/Ha
Area
(Ha)
A
Govt. 0.074 64
Pvt. 0.49 96
B
Govt. 0.049 0
Pvt. 0.247 0
c. Railway development cost
At location A 40 KM of railway line is to be developed, while at location B no such
infrastructure is required to be developed. Per KM development cost of Railway is Rs. 3
Cr.
d. Time for execution of the project (IU and GU) (including acquisition of land) in case A is 4
years and in case B is 2 years. Assume equal CAPEX every year during the above
mentioned project execution period.
e. No other CAPEX than that mentioned herein will be required.
f. Assume plant life of 35 years with zero terminal value.
3. Revenue
a. Annual EBITDA from location B is expected to be same at Rs. 150 Cr / Yr.
b. Assuming same volume at same rate can be sold in both cases A and B.
4. Other key assumptions
a. WACC 15%
b. No annual escalation in cost / revenue
c. No taxes / other statutory charges
d. Assume zero debt and hence no repayment
Instructions
1. Kindly advice one financial parameter which can be used to select one of the two options A
and B.
2. Advise the management, based on the above parameter, as to which option should be selected.
3. As evident from various key assumptions, a very simplistic model is required to be developed to
evaluate the projects at a very approximate level. Make appropriate assumptions wherever
required while mentioning the same on a separate page.
4. Kindly seek clarifications, if any, latest by tomorrow morning 900 hrs.
5. The final solution is to be submitted by 0600 hrs of Mar 01, 2014.
PART II LOGISTICS PLANNING
1. Key information
a. Usually an IU is attached to multiple GUs which are more closer to the cement
markets.
b. With this additional information and that provided in Part I, kindly answer following
questions.
2. Please list down following
a. Different inbound and outbound material movements
b. Consider that an IU is attached to 4 GUs. Every IU and GU is attached to X numbers of
markets. While basic logistic cost between any pair of points will remain the same, the
price in various micro markets may fluctuate. If you were to develop a dynamic model
for setting preference for a micro market from logistics cost and revenue potential
perspective, which all parameters would you consider for the model. Kindly provide
exhaustive list of elements while duly considering all commercial and non commercial
aspects. Please note that you are not required to build a model.
c. Please provide details of any innovative freight optimization concept you are aware of.
It should be relevant for cement industry.