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CementAnnual ReviewSummary CRISIL Research expects cement consumption to increase at a CAGR of 8 per cent over the next 5 years. However, cement capacity additions of 115 million tonnes (translates of around 60 per cent of existing capacity) will lower operating rates. Adding to the woes of cement companies, large bunching up of capacities is expected in 2009-10 and 2010-11. We therefore expect cement prices to fall by as much as Rs 15-20 per bag over the next 2 years (2008-09 and 2009-10) as operating rates dip.

July 2008

ContentsPart A: Margins to be under pressure Executive summary Demand growth to sustain, albeit slower than the last 5 years Excess capacity will lead to a fall in prices Cement companies will lack pricing flexibility Part B: State of the industry Industry characteristics Products and technology Cement manufacturing process Region-wise scenario Player profile Part C: Industry statistics Demand supply State profile Raw material Tariffs Market share and financials Exports Cost A-1 A-3 A-13 A-23

B-1 B-13 B-21 B-29 B-37

C-1 C-29 C-45 C-57 C-59 C-67 C-71

This document has been prepared by Ruchira Mehta and Ajay D'souza (Head of Research). For any queries please get in touch with our client servicing desk. (clientservicing@crisil.com. Ph -022-66913561)

Industry Information Service Industry Information Service presents a detailed and comprehensive analysis of the current trends and the long-term performance outlook on 47 industries in India. It covers the evolution of an industry, the regulatory environment, cost structures and the extent of competition. It also provides the key success factors and an analysis of the global trends along with statistical information on capacities, production, imports-exports, domestic and international prices, and consumption patterns and player profiles. The parameters are updated on an annual and monthly basis.

About CRISIL Limited CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company. CRISIL offers domestic and international customers a unique combination of local insights and global perspectives, delivering independent information, opinions and solutions that help them make better informed business and investment decisions, improve the efficiency of markets and market participants, and help shape infrastructure policy and projects. Its integrated range of capabilities includes credit ratings and risk assessment; research on India's economy, industries and companies; global equity research; fund services; risk management and infrastructure advisory services. About CRISIL Research CRISIL Research is India's largest independent, integrated research house. We leverage our unique, integrated research platform and capabilities spanning the entire economy-industry-company spectrum to deliver superior perspectives and insights to over 600 domestic and global clients, through a range of subscription products and customised solutions.

Disclaimer CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is not liable for investment decisions which may be based on the views expressed in this Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISILs Ratings Division, which may, in its regular operations, obtain information of a confidential nature which is not available to CRISIL Research. No part of this Report may be published/reproduced in any form without CRISILs prior written approval.

OpinionSections

July 2008

Executive summary 1.0 Demand growth to sustain, albeit slower than the last 5 years - Cement consumption to register a CAGR of 8 per cent over the next 5 years - Housing sector to be the key demand driver - Infrastructure investments to continue to boost cement consumption - Commercial construction to continue, albeit at a slower pace - Industrial projects - Eastern region dependent on industrial projects - Southern region - growth momentum to continue - Net outbound movement to decline marginally - Western region - Central region - cement consumption to be sustained 2.0 Excess capacity will lead to a fall in prices - Capacities in excess of 100 million tonnes to be added over the next 5 years - AV Birla Group betting on northern markets - Blending to increase marginally - Blending calculation 3.0 Cement companies will lack pricing flexibility

A-1 A-3 A-3 A-4 A-5 A-6 A-6 A-7 A-8 A-9 A-9 A-10 A-13 A-13 A-15 A-21 A-22 A-23

Box1.0 Demand growth to sustain, albeit slower than the last 5 years 01 Demand forecasting methodology

A-3

Charts1.0 01 02 03 Demand growth to sustain, albeit slower than the last 5 years Region-wise key indicators Net outbound movement (domestic) in the northern region in 2007-08 Net outbound movement (domestic) in southern region in 2007-08

A-4 A-7 A-9Continued

CRISIL RESEARCH CEMENT ANNUAL REVIEW

A-i

continued

FiguresExecutive summary Demand-supply scenario in cement industry Operating Margins on downward trend

01 02

A-1 A-2

1.0 Demand growth to sustain, albeit slower than the last 5 years 01 Growth in cement consumption 02 Comparison of infrastructure investments - 2001-02 to 2006-07 and 2006-07 to 2011-12 03 Cement consumption and production North 04 Cement consumption and production East 05 Cement consumption and production South 06 Cement consumption and production West 07 Cement consumption and production Central 2.0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Excess capacity will lead to a fall in prices Incremental cement capacity and consumption Net cement capacity additions and clinker operating rates Clinker operating rates and cement prices Clinker utilisation rates under different scenarios -all-India Company-wise capacity share in northern region (2007-08) Company-wise capacity share in northern region (2012-13) North Clinker operating rates and cement prices North Net cement capacity additions East Clinker operating rates and cement prices East Net cement capacity additions Company-wise capacity share in eastern region (2007-08) Company-wise capacity share in eastern region (2012-13) South Clinker operating rates and cement prices South Net cement capacity additions Company-wise capacity share in southern region (2007-08) Company-wise capacity share in southern region (2012-13) West Clinker oprating rates and cement prices West Net cement capacity additions Company-wise capacity share in western region (2007-08) Company-wise capacity share in western region (2012-13) Central Clinker operating rates and cement prices Central Net cement capacity additions Company-wise capacity share in central region (2007-08) Company-wise capacity share in central region (2012-13) Product mix

A-3 A-5 A-6 A-8 A-8 A-10 A-11

A-13 A-14 A-14 A-15 A-16 A-16 A-16 A-16 A-17 A-17 A-17 A-17 A-18 A-18 A-19 A-19 A-19 A-19 A-20 A-20 A-20 A-20 A-21 A-21 A-21continued

A-ii

CRISIL RESEARCH CEMENT ANNUAL REVIEW

continued

Figures3.0 01 02 03 04 Cement companies will lack pricing flexibility Cement capacity and consumption Power cost v/s operating expenses Non-coking coal price movement Road freight v/s diesel prices

A-23 A-24 A-24 A-24

Tables1.0 Demand growth to sustain, albeit slower than the last 5 years 01 Housing demand forecast 2.0 Excess capacity will lead to a fall in prices 01 Blending calculation 3.0 Cement companies will lack pricing flexibility 01 Operating margins

A-4

A-22

A-25

CRISIL RESEARCH CEMENT ANNUAL REVIEW

A-iii

Executive summary

Cement consumption to increase at a CAGR of 8 per cent over the next 5 yearsCRISIL Research expects domestic cement consumption to register a CAGR of 8.0 per cent in the next 5 years. This is marginally lower than the 8.2 per cent CAGR recorded in the preceding 5 years. Growth in the northern and southern regions is expected to be higher than the all-India average. However, cement consumption in the western region, which rose by 8.1 per cent (CAGR) over the last 5 years, is expected to be sluggish in the subsequent corresponding period on the back of the expected slowdown in residential and commercial construction over the next 2-3 years.

Capacities in excess of 100 million tonnes to be added over the next 5 yearsCRISIL Research expects 115 million tonnes (additional clinker capacity of 90 million tonnes) of cement capacity to be added from 2008-09 to 2012-13, compared to 37 million tonnes (additional clinker capacity of 28 million tonnes) added in the previous 5 years. This new capacity translates to 55-65 per cent of the existing cement capacity in the country, the bulk of which are likely to get commissioned in 2009-10 and 2010-11. Most of the additions are expected to come up in the South.Figure 1: Demand-supply scenario in cement industry(mn tonnes) 375 300 225 150 75 0

2008-09P

2009-10P

2010-11P

2011-12P

Cement Capacity

Cement Consumption

P: Projected Note: Cement consumption includes large as well as mini cement plants. Source: CRISIL Research

Cement prices to take a beatingCement prices have been on an upward trajectory (CAGR of 11 per cent) over the last 5 years on the back of a steady increase in clinker operating rates. However, the large capac