Market performance and channel satisfaction of Shree Cement

Submitted by Ravi Tiwari Roll No. Jkps/pgdm/2011/17

External Guide
Mr. Aakash Garg Marketing Analytics Shree Cement . Hansh Bhawan Delhi

Internal Guide
Prof Bhawna Shyal Senior Lecturer JKPS Gurgaon

(Logo of Institute)

An Internship report submitted in partial fulfillment of requirements for

Post Graduate Diploma in Management

July 2012

JK Padampat Singhania Institute of Management & Technology, Gurgaon

INDIAN CEMENT INDUSTRY

The cement industry is one of the main beneficiaries 4of the infrastructure boom. With robust demand and adequate supply, the industry has bright future. The Indian Cement Industry with total capacity of 250 million ton(2010) is the second largest after China. Cement consumption in India has increased by over 22% in 2009-10 from 2007- 08.Among the states, Maharashtra has the highest share in consumption at 12.18%,followed by Uttar Pradesh, In production terms, Andhra Pradesh is leading with 14.72% of total production followed by Rajasthan. Cement industry has contributed around 8% to the economic development of India. Cement industry has a long way to go as Indian economy is poised to grow because of being on verge of development. The company continues to emphasize on reduction of costs through enhanced productivity, reduction in energy costs and logistics expenses. As per the Working Group report on Cement Industry for the formulation of the 11th Plan, the cement demand is likely to grow at 11.5 per cent per annum during the 11th Plan and cement production and capacity by the end of the 11th Plan are estimated to be 269 million tones and 298 million tones, respectively, with capacity utilization of 90 per cent. According to latest research report Indian Cement Industry Forecast to 2012, produced by RNCOS, cement production in India has grown at a brisk pace during the last few years. Despite recession, Indian cement industry performed incredibly well amid recent boom in the infrastructure and housing markets. In view of the upcoming massive infrastructure projects, manufacturers are aggressively increasing their production capacities and the study foresees a 10.5 per cent CAGR growth in cement production during FY 2010-FY 2014. According to a press release, the push in cement demand during the last fiscal was attributed to revival of infrastructure and real estate projects, especially in rural areas.

New Investments
Cement and gypsum products have received cumulative foreign direct investment (FDI) of US$ 2,315.58 million between April 2000 and January 2011, according to the Department of Industrial Policy and Promotion (DIPP).

BK Birla Group outfit, Kesoram Industries, is setting up a 2,000-tonne a day packaging unit in Medak district of Andhra Pradesh at a cost of Rs 8 crore (US$ 1.76 million), according to a filing by the company to the stock exchanges. The proposed unit would cater to the packing needs of its cement manufacturing unit at Sedam in Karnataka.

Madras Cements Ltd is planning to invest US$ 178.4 million to increase the manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by April 2011.

My Home Industries Limited (MHI), a 50:50 joint venture (JV) between the Hyderabadbased My Home Group and Ireland's building material major CRH Plc, plans to scale up its cement production capacity from the existing 5 million tonne per annum (mtpa) to 15 mtpa by 2016. The company would undertake this capacity expansion at a cost of US$ 1 billion.

To cater to the growing demands, Everest Industries is planning to set up a new manufacturing facility in East India. The company is looking at acquiring about 22 acres for the facility that will start with the production of roofing materials and other products will be rolled out in a phased manner. Besides, the company is likely to consider setting up a new factory for the fibre cement boards as it is at present utilising almost 100 per cent of its 90,000 tonne of installed capacity across different plants.

Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand. Holcim is present in the country through ACC and Ambuja Cements and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India. The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement.

THE GOVERNMENT INITIATIVES Increased infrastructure spending has been a key focus area. Finance Minister Pranab Mujherjee has proposed to earmark US$ 47 billion for infrastructure development during fiscal 2011-12.

The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy.

CEMENT CONSUMPTION IN THE WORLD:

Source : Independent Economic survey report (January 2011)

ABOUT CEMENT Cement is a mixture of limestone, Clay, Silica and Gypsum. It is a fine powder which when mixed with water sets to a hard mass as a result of hydration of the constituent compounds. It is the most commonly used construction material.

Cement is manufactured by burning a mixture of limestone and Clay at high temperatures in a kiln, and then finely grinding the resulting clinker along with Gypsum. The end product thus obtained is called Ordinary Portland Cement (OPC).

VARITIES OF CEMENT

There are different varieties of cement based on different compositions according to specific end uses, namely Ordinary Portland Cement, Portland Pozzolona Cement, Portland Blast Furnace Slag Cement, White Cement and Specialized Cement. The basic difference lies in the percentage of clinker used. 1) Ordinary Portland cement (OPC): OPC, popularly known as grey cement, has 95% clinker and 5% of Gypsum and other materials. It accounts for 70% of the total consumption. White cement is a variation of OPC and is used for decorative purposes like rendering of walls, flooring etc. It contains a very low proportion of iron oxide.

2. Portland Pozzolona Cement (PPC):

Portland clinker is ground with Gypsum and Pozzolanic materials which, though they do not have cementing properties in themselves, combine chemically with Portland cement in the presence of water to form extra strong cementing material which resists wet cracking, thermal cracking and has a high degree of cohesion and workability in concrete. PPC has 80% clinker, 15% pozolona and 5% gypsum and accounts for 18% of the total cement consumption. It is cheaply manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. It has a lower heat of hydration, which helps in preventing cracks where large volumes are being cast.

3. Portland Blast Furnace Slag Cement (PBFSC):

PBFSC consists of 45% clinker, 50% blast furnace slag and 5% Gypsum and accounts for 10% of the total cement consumed. It has a heat of hydration even lower than PPC and is generally used in construction of dams and similar massive constructions. Grinding slag for cement replacement takes only 25 per cent of the energy needed to manufacture Portland cement. Using slag cement to replace a portion of Portland cement in a concrete mixture is a useful method to make concrete better and more consistent. Portland blast-furnace slag cement has a lighter colour, better concrete workability, easier finish ability, higher compressive and flexural strength, lower permeability, improved resistance to aggressive chemicals and more consistent plastic and hardened consistency.

WHITE CEMENT: White Portland cement has essentially the same properties as gray cement, except for color, which is a very important quality control issue in the industry. It is manufactured using fuel oil (instead of coal) and with iron oxide content below 0.4% to ensure whiteness. Special cooling technique is used. It is used to enhance aesthetic value, in tiles and for flooring. White cement is much more expensive than grey cement.

SPECIALIZED CEMENT: Oil Well Cement: is made from clinker with special additives to prevent any porosity. Rapid Hardening Portland cement: It is similar to OPC, except that it is ground much finer, so that on casting, the compressible strength increases rapidly. Water Proof Cement: OPC, with small portion of calcium stearate or non-saponifibale oil to impart waterproofing properties.

CEMENT INDUSTRY SWOT ANALYSIS The followings are the strengths and the weaknesses of the Indian Cement Industry:-

STRENGTHS The cement industry has many strengths to be considered. Cement is, literally, the building block of the construction industry. Almost every building constructed relies on cement for its foundation.

WEAKNESS

The cement industry is not without its drawbacks. The cement industry relies on Construction jobs to create a profit. But the cement industry heavily relies on weather. About two-thirds of cement production takes place between May and October. Cement producers often use the winter months to produce and stockpile cement, to meet demand.

Another weakness is the cost of transport; the cost of transporting cement is high and this keeps cement from being profitable over long distances. In other words, shipping cement costs more than the profit from selling it.

OPPURTUNITIES

The cement industries has opportunities as well. One such opportunity is the cement industry's efficiency. The cement industry has recently streamlined its production efforts, using dry manufacturing instead of wet, which is heavier and more time-consuming. The cement industry has also invested about $6 billion in expansion efforts to meet unmet cement needs. Projections show that by 2012, the cement industry will have 25 percent more production capabilities.

THREATS

The nature of the economy have uncovered a number of threats to the cement industry. The cement industry greatly relies on construction. The current economy has less number of construction jobs, which in turn hurts the cement industry.

PEST ANALYSIS ON CEMENT INDUSTRY

POLITICAL

The price of cement is primarily controlled by the coal rates, power tariffs, railway tariffs, freight, royalty and cess on limestone. Interestingly, government controls all of these prices. Government is also one of the biggest consumers of the cement in the country. Most state governments, in order to attract investments in their respective states, offer fiscal incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on power tariff for 5 years, while Gujarat offers exemption from electric duty. (India Infoline Ltd.)

ECONOMIC

Currently, the industry is on the boom, with a lot of government infrastructure and housing projects under construction. In spite of seeing a fall during 2008-09, the export segment of the industry is expected to grow again on account of various infrastructure projects that are being taken up all over the world and numerous outstanding cement plants coming up in near future in the country

SOCIAL

Usually, the cement industry in India consists of both the organized sector and the unorganized sector. Organized sector comprises of the well-known cement manufacturing companies while the main players of the unorganized sector are the regional and local cement-producing units in various states across the state. Indian consumers prefer buying branded cement like ULTRATECH, JAYPEE CEMENT, LAFARGE CEMENT etc. It has been seen in the past, as well, that mini cement plants with low brand value and image are not able to survive against the cement giants. With a population of more than 100 billion people, it is expected that cement industry will create another 25 lakhs jobs in the next 4-5 years.

TECHNOLOGY

From mining to production the entire process depends on technology. The Government of India plans to study and possibly acquire new technologies from the cement industry of Japan. The government is discussing technology transfer in the field of energy conservation and environment protection to help improve efficiency of the Indian cement industry.Cement industry has made tremendous strides in technological up-gradation and assimilation of latest technology. At present 93% of the total capacity in the industry is based on modern and environment-friendly dry process technology.

Introduction

Being among the top ten cement producers in the country Shree Cement Limited (SCL) enjoys a market share of about 16 per cent in Northern region of India. Over the years, Shree Cement has built an identity as one of the worlds most efficient cement manufacturers. First of all, its production has been consistently in excess of its rated capacity. Secondly companys per tons energy consumption is one of the lowest in the world. And also it has a unique distinction of operating both its cement as well as captive power plant on alternative fuel. The BG Bangur family is the principal promoter of Shree Cement. Mr. H. M. Bangur is the Managing Director while Mr. M. K. Singhi is the current executive director of Shree Cement. It is located at Beawar, in Ajmer district 185 Kms. from Jaipur off the Delhi-Ahmedabad highway.

Productivity
Shree Cement supplemented its attractively low capital investment per tonne with one of the lowest manufacturing costs in the Indian cement industry. Timely execution of Unit-III along with better price realization and cost optimization measures made the year a hallmark for the Company:-

The turnover of the Company has more than doubled during the year. The operating profit margin of the Company at 44.84% is highest in the Indian cement industry. The proportion of blended cement in the total production has increased to 76% in the current year against 54% in the previous year. Company started use of wet fly ash for producing blended cement which is economical and environment friendly. The capacity utilization level of the Company further improved during the year from 114% to 116% with Unit-III recording 99% in its very first full year of operation. This compares well with the all India average of 94%. Continued thrust on improving energy consumption levels has brought down power and fuel consumption as under:

Although Power consumption for the year indicates marginal increase during the year, the unit-wise consumption has gone down from last year. The

Reduction in energy consumption with increasing production base has significantly contributed to cost efficiency of the Company.

Dynamic and efficient logistic management practices have enabled Company to contain increase in freight cost in spite of rising diesel prices and loading restrictions on trucks. Company has made optimal use of its in-house railway sidings facility with appropriate route plan to limit freight cost. The Company's marketing strategy of maintaining multiple brands competing with each other with a view to garner increased market share has yield good returns. As a result,

Company has retained market leadership status in Rajasthan and Delhi.

Jung Rodhak brand has further strengthened its presence in its segment in the North India market.

Bangur Cement launched last year in the premium quality segment, has been well received in the market and has been improving its market share. Its marketing strategy of appointment of Business associates and Business partners has enabled the Company to keep its debtors levels at zero and minimizing the Working Capital requirement.

Company has introduced another premium quality brand Tuff Cemento 3556. The new brand has started attracting customers attention and is getting good response.

The proportion of trade sale to total sale increased during the year from 66% to 74% showing higher customer recall and satisfaction. The Company continued with its highest credit rating of PR1+ for its short-term debt and AA for its long-term debt enabling containment of its cost of funds despite large borrowing requirements for its capital expenditure programme The interest cost has been kept at a low level in the rising interest rate environment through optimal utilization of funds and judicious mix of rupee and fully hedged foreign currency borrowings. Timely execution of projects is a hallmark of the Company. The 1.5 MTPA capacity expansion with captive power plant of 18 x 3 MW completed in Feb 08 has been achieved well within the targets both time and budget.

During the year Company has undertaken implementation of an Enterprise Resource Planning (ERP) Project with Oracle E-Business Suite to manage its expanding business operations. ERP Project shall help it in improving its business matrices by process optimization, improving logistics and integration across disciplines. The project is expected to be operational in FY 2008-09.

Review literatureShree Cement, a leading player in the northern region, has aggressively expanded its capacity over the past three years, at a time when demand for cement in this region has been rising. Cement dispatches in the northern region grew 13.4% year-on-year during the year ended March 2010, as per various estimates, one of the highest growth rates in the various regions of the country. The company has rapidly expanded its captive power generation capacity over the past few years to minimise the impact of the cyclical nature of the cement industry.

Shree Cement: Sluggish demand, rising input costs hurt margins

Shree Cement's result for the December 2010 quarter again highlights the difficult conditions for the sector due to sluggish demand and rising costs of key inputs like power and freight on a per-tonne basis. Its operating profit margin declined by 1,850 basis points year-onyear to 20.3% in the third quarter. The net sales of the company, a leading player in the northern region, also fell 9.9% to Rs 780.4 crore. Its net profit also declined by almost four-fifth compared with a year earlier to Rs 27.5 crore in the quarter.

Shree Cement net down 55%, sales up 4%

kolkata: shree cement registered a 55 per cent decline in net profit to rs 1.9 crore in the three months ended march 31, '02, over rs 4.3 crore in the corresponding period last year. net sales at rs 143.6 crore in the period under review registered a 4.4 per cent growth over rs 137.5 crore in the corresponding period last year. other income stood at rs 15.4 lakh in the quarter under review compared to rs 16.7 lakh in the corresponding period last year. speaking to newspersons soon after the board meeting, hm bangur, chairman and md, shree cement, said: "the company's net profit has declined because of non-cash extraordinary charge of revaluation depreciation of rs 7 crore for the period under review.

Shree Cement reports 272.42 % rise in net profit

KOLKATA: Shree Cement on Thursday reported a 272.42 % rise in net profit at Rs 104.13 crore for the third-quarter (Q3) ended December 31, 2006, compared to a Rs 27.96 crore net in the earlier corresponding period. The higher Q3 net profit follows a 152.64 % growth in Shree Cement's October-December quarter net sales revenue at Rs 364.54 crore (Rs 144.29 crore). Elaborating on the results, company officials attributed the strong Q3 financial to good market conditions, better branding and regular cost-containment initiatives undertaken by the company.

Shree Cement reworks strategy; more thrust on Punjab, Rajasthan

KOLKATA: Buoyed by the rising fortunes of the cement industry in north India, Sree Cement, one of the key players in the northern region has reworked its marketing strategy to gain bigger marketshare. The company is banking on a unique brand positioning of its cement in two important

markets of north India, namely Punjab and Rajasthan to improve both its topline as well as bottomline in the current year. In Punjab, the company has relaunched its Shree Ultra brand which does not contain fly ash. This appears to be a winning strategy there since all other major players manufacture pozzuluna portland cement (PPC)

Buy ABB, Shree Cements, Aventis Pharma and Cipla: Sudarshan Sukhani
ET Now spoke to Sudarshan Sukhani, Technical Trends, on his stock ideas for today. What are your stock ideas for today? The markets are coming in consolidation. The first of them is ABB. ABB rallied, after the rally it was in a small consolidation on the back of capital goods gains everywhere. ABB is ripe for another up move. The 2nd is Shree Cement. Shree Cement has seen a very decent rally. It is now in a narrow range. Again narrow range trades will breakout on the upside.

Shree Cement would be able to leverage on rise in demand: Rajesh Jain

In an interview with ET Now, Rajesh Jain, Market Strategist, gave his views on cement space, and said that the demand for cement given all the demand drivers will surprise in the positive side. Excerpts: And the promoters will stay basically you are saying? No, what I am trying to say is coming to the first part of your question, the promoters have a track record of creating good businesses, which have always found buyers at fairly good valuations.

Prabhudas maintains outperformer on Shree Cement, target Rs 676

MUMBAI : Prabhudas Lilladher has maintained outperformer call on Shree Cement for target price to Rs 676. At the current market price of Rs 606, the stock trades at EV/EBITDA of 2.5 times and 2.4 times FY09E and FY10E respectively while on EV/Tonne basis, it trades at $54 and $41 times FY09E and FY10E capacity respectively. Prabhudas believes that the valuations are extremely attractive relative to identical capacity play. In addition to that, quality management and strong balance sheet provide further upside to the valuations.

Shree Cement one of the most efficient players: Rajesh Jain

Rajesh Jain, Market Strategist spoke to ET Now on his views on stocks and market. If you had to take a pick at three stories that you have been taking a look at on the midcap part of it doesn't matter which sector what would they be and if you can just walk us through the structure of fundamentals that you have looked into that perhaps the market may not have seen? I don't know whether there is any space or any information that the market has a blind spot right now so I cannot claim that what I am saying may not have been seen by the market but some of the themes that we are applying are very strong underlying volume growth and should you see some signals are a bad monsoon or any other negative factor like a surge in benchmark interest rate then the sector should not really get hit very badly because of that.

THE RESEARCH OBJECTIVES ARE :

1. To find out the brand performance of Shree Cement in the market. 2. To find out the problems of dealers in business with this brand/Company 3. To find out the scope of expansion of business by providing more new dealership.

5.2

ADOPTED RESEARCH METHODOLOGY AS FOLLOWS:

Sample size Sampling unit Sampling Procedure Research design Data collection method Date source Research instrument Type of questionnaire Type of questions Area covered

Dealers -70 Delhi Judgment sampling Exploratory Survey Primary data Questionnaire Structured Likert Scale Dealers in Delhi