June 03, 2010

Mumbai

Cement prices and profitability to recover in 2011-12: CRISIL Research

Cement prices are expected to recover by 5-6 per cent in 2011-12 thanks to slowing capacity addition
and sustained demand growth. Consequently, industry operating margins will likely improve to about
26 per cent in 2011-12.

The improvement in cement prices in 2011-12 will follow an expected decline of 2-3 per cent in 2010-
11. Capacity additions continue to outpace demand growth, leading to an expected six-year low in
operating rates at 78 per cent, which will drive the dip in cement prices. After 2010-11, however, the
pace of capacity additions is expected to slow down: CRISIL Research expects about 35 million
tonnes of capacity to be commissioned in 2011-12, as against 50 million in 2010-11.

According to Mr. Ajay D’souza, Head, CRISIL Research, “The decline in cement prices will be
brief, and is unlikely to last beyond the end of 2010-11; this is unlike past dips that have usually
lasted for at least two years. A high level of consolidation in the industry, and fewer new entrants,
will aid faster recovery in cement prices.”

The increase in cement prices in 2011-12 will be supported by sustained demand growth, originating
from the rural markets and from the government’s continued infrastructure thrust. Driven by strong
demand-supply fundamentals, industry operating rates will bounce back to 82 per cent in 2011-12.

CRISIL Research expects higher prices to boost cement manufacturers’ operating margins by 200-300
basis points to 24-26 per cent in 2011-12. This will follow an expected decline of 500-600 basis points
to 22-24 per cent in 2010-11 due to lower prices and inability of players to pass on the increase in
costs (primarily higher coal prices and freight rates).

Media Contacts Analytical Contact

Mitu Samar Ajay D’souza
Head, Market Development & Communications Head, CRISIL Research
CRISIL Limited Tel: +91-22- 3342 3567
Tel: +91-22- 3342 1838 E-mail: adsouza@crisil.com
Mobile: +91- 98200 61934
Fax: +91-22- 3342 3001
E-mail: msamar@crisil.com
Tanuja Abhinandan
Market Development & Communications
CRISIL Limited
Phone: +91-22- 3342 1818
Mobile: +91- 98192 48980
Facsimile: +91-22- 3342 3001
Email: tabhinandan@crisil.com

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