ANALYSIS-CEMENT SECTOR-INVESTMENT AVENUE-India Infoline Securities

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A PROJECT REPORT ON
ANALYSIS OF CEMENT SECTOR AS AN INVESTMENT AVENUE
FOR
INDIAINFOLINE SECURITIES LIMITED
BY
NUTAN KIRAD
PROJECT GUIDE
PROF: VAISHAMPAYAN
IN PARTIAL FULFILLEMENT OF THE REQUIREMENTS OF

THE TWO-YEAR FULL-TIME PGPM PROGRAMME OF
SMVIM
ST. MIRA VISHWAKARMA INSTITUTE OF MANAGEMENT.
PUNE- 411048.
A.Y.: 2006-2007
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Acknowledgement
It gives me great pleasure in presenting the Project Report that gives the details of
my project in ANALYSIS OF CEMENT SECTOR AS AN INVESTMENT
AVENUE. I thank the college guide Prof Mahesh Halale for his kind and consistent
guidance and help during the project work. It is impossible to list all the people who have
helped us during my project. I take this opportunity to express whole heart thanks to Mr.
NITIN SHRIVASTAVA BRANCH MANAGER of INDIAINFOLINE, KALAYANI
NAGAR BRANCH. I would like to thank Mr. PRADEEP RAMPAL who guided me
at every step in the execution of the project & their experience and valuable guidance
were very helpful. I would like to express our deep sense of gratitude towards all Staff
and workers and to all those who directly or indirectly helped us in successful completion
of project.
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Executive Summary
This project is an attempt to understand the basics of stock market. A project

which will make me well versed with the market happenings ups & downs in the stock
market, daily analysis- fundamental & a little bit of technical.
The chapter on body methodology explains the steps that I took in understanding
the equity market. It mentions a step by step detail of how I went by in order to answer
my own doubts & the techniques that I used to go ahead.
The next chapter gives a brief description about the company where I did my
internship from, which is 5paisa.com which is a trading arm of IndiaInfoline Securities
Pvt Ltd.
The following chapter explains about the formation & company composition of
IndiaInfoline Securities Pvt Ltd.
The next chapter gives a detailed report of my summer internship done at the
company. It gives the jobs assigned to me at work, followed by the methods which I
undertook in going about my internship.
The conclusion gives the details about the learning that I have gained in the
company.
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INTRODUCTION
The following project is a study of the Indian Stock Market & an

investment opportunity in the cement sector in India.
The capital market (securities markets) is the market for securities, where
companies and the government can raise long-term funds. The capital market
includes the stock market and the bond market.
A stock market is a market for the trading of company stock, and derivatives of
same; both of these are securities listed on a stock exchange as well as those only
traded privately.
The objective of my internship is as follows:

Understanding the various activities in an E- Broking firm.
To get acquainted with all the workings of online trading.
To gain practical knowledge in share trading
To analyze the financial market & the share movements in order to study
the prospects of investing in a particular stock or sector.
The aim of the project is to understand the overall equity market, to get to
know the trading, clearing & settlement aspect of the equity market. As far as this
project is concerned, it will help us to understand the overall working of the
equity market & its importance to the economy of the India. A huge amount of
money flows & millions of shares exchange hands in a single market day. This
exchange of shares enables the flow of money in & out of a firm. The company
whose shares are listed & the government who plays a pivotal role through the
policies formed in the market, helps them to raise long term funds which can be
used for the benefit & the growth of the companies & also give back some part of
their profit to the investor in the form of dividends.
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Also through this project what I am trying to derive is the analysis of oil & gas
sector concluding with the opportunities of investing in the sector. The reason
why I have selected oil & gas sector is because of the huge investment
opportunities in the sector & also to understand this sector for my future growth
to pursue a career in this sector. For my internship I am working in 5paisa.com
which is a trade name of IndiaInfoline Securities Pvt Ltd.
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CHAPTER 1
1.1 COMPANY PROFILE

INDIA INFOLINE SECURITIES PVT. LTD.
INTRODUCTION
India Info line Securities Pvt Ltd is a 100% subsidiary of India Info line Ltd,
which is engaged in the businesses of equities broking and portfolio management
services. It holds memberships of both the leading stock exchanges of India viz. the stock
exchange, Mumbai (BSE) and the national stock exchange (NSE). It offers broking
services in the cash and derivatives segments of the NSE as well as the cash segment of
the BSE.
We have seats on India's premier stock exchanges - The National Stock Exchange
(NSE) and The Stock Exchange, Mumbai (BSE) and offer online trading facilities.
Tapping and servicing retail customers is our key focus, and in a short span of time have
emerged as one of the leading players in the online trading space. We offer online trading
facilities under the 5paisa brand name.
5paisa is the trade name of India Info line Securities Private Limited (5paisa),
member of National Stock Exchange and The Stock Exchange, Mumbai. 5paisa is a
wholly owned subsidiary of India Info line Ltd, India’s leading and most popular finance
and investment portal. 5paisa has emerged as one of leading players in E-broking space
in India.
5paisqa.com was launched for online trading in mid-2000. Stock market investors
in India have never had it so good – low brokerage rates and some of the best research; it
was because of Internet technology and E-broking. This is a unique model, which
combines the rates of a discount brokerage and service of a boutique house. Besides high
quality investment advice from an experienced research team, the site offers real time
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stock quotes, market news and multiple tools for technical analysis. 5paisa.com has
implemented world-class security systems to prevent any possibility of misuse, fraud or
data pilferage. 5paisa.com has successfully emerged as one of the leading providers of E-
broking services in India.
The parent company, India Info line Ltd owns and manages the web properties
www.indiainfoline.com and www.5paisa.com. It also undertakes research, customized
and off-the-shelf. Launched on 11 May 1999, www.indiainfoline.com is India’s leading
and most comprehensive business and financial information website. The site provides
quality information and analysis - earlier restricted to a few people - to the common man,
absolutely free! The site has met with an overwhelming response and has been reviewed
as the most comprehensive financial content website in India by BBC World - Money
Watch, Business World, Business Line and others. The company also won the Golden
Mouse Award in India Internet World 2000 for the "Best Finance" site. In May 2001, our
website was included in the Top 200 Best of the Web list by Forbes Global under the
Asia Investing category. We were the only website from India to be featured in any
category. Since then it has been nominated twice to this list. In its last review, Forbes
editors have said, "www.indiainfoline.com is a must read for the investors in South
Asia."
VISION
• To be the premier provider of investment advisory and financial planning services

in India.
• To be a leading investment intermediary for transactions through both online and
offline medium
Company profile
• India Infoline Ltd (IIL) started in 1995 with providing Online Media and Content
• Services. Mr. Nirmal Jain and Mr. Venkataram, the founder members of the
company sensed the growing opportunities in the market and increased the
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horizon for IIL from time to time. IIL with an aim to become 'One stop for all
financial needs' started with equity and commodity broking, distribution of
financial products and now with investment banking.
• IIL has a huge branch network across 95 cities, which it leverages for customer
acquisitions, relationship building, retail advisory and distribution services.
• IIL is in the expansion mode and plans to set up 350 branches by FY07E. It also
plans to set up branches in cities like Dubai, Singapore and London to serve the
NRI's for PMS service. It has recently opened up a branch in Kuwait and expects
this branch to contribute to the equity broking business. IIL has just received
Investment banking license: with this they expect to enter the market with an
intention to target the SME sector. It also plans to launch a Venture capital fund
GEOGRAPHICAL PRESENCE
• IIL has pan-India presence across 94 cities. It started off with major branches in
metros and now it is focusing on Tier II and III cities. In Q1-FY07 the company
opened 56 branches, taking the total number of branches to 233 as on June 2006
Almost 50% of the revenue comes from centers in Maharashtra and Delhi,
followed by other regions.
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SERVICES PROVIDED
India Infoline Securities Pvt. Ltd. act as Full Service Investment Solutions
Provider, providing you wide range of services like
Equity & Derivatives Trading on NSE and BSE
Online Trading
Portfolio Management Services
Depository Services
IPO Services
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Uniform Service Standards

The Strength of India Infoline Securities Pvt. Ltd. is in its Specialized &
Customized research Products addressing the investment philosophy of verities of
Investors and Traders in the secondary stock market.
India Infoline Securities Pvt. Ltd. offers online trading account through which a
customer can buy and sell shares in an instant from any part of the globe trough
website. It does not take into account any type of physical restriction of going to
the broker for carrying out a transaction or any type of settlement of payment. It
facilitates the customer a speedy and hassle free transaction. India Infoline
Securities Pvt. Ltd. Product consists of a 3-in-1 concept, which integrates:
Trading Account
Demat Account
Linking with the Bank Account.
Through its trading account customer can directly transfer his funds from his bank
account affiliated to India Infoline Securities Pvt. Ltd. to his trading account
without any paper work. He can buy and sell shares from the website and also
view the market prices of the shares he trades on the terminal.
India Infoline Securities Pvt. Ltd. allows trading on countries 2 main stock
exchanges NSE & BSE. To open an account a customer requires filling up a form
consisting some agreements, photocopy of pan card, a passport size photograph, a
residential proof, and a cheque of Rs.2000 which is drawn in favor of
‘IndiaInfoline Ltd’.
CORPORATE STRUCTURE OF
INDIA INFOLINE LTD.
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Investment Highlights
Strong growth in Industry volumes and rising retail participation Average daily
volumes in the equity markets (cash and derivative combined) have increased by
72%from to Rs.167bn in FY 05 to Rs.288bn in FY 06.With the economy growing
at 7-8% a mounting per capita income and growing BPO culture, there is a new
class of young investors, which are moving towards the equity market.
IIL is majorly present in the retail segment. With the rising income levels, risk-
taking ability of people and the confidence in the India Inc, participation from the
retail crowd is increasing y-o-y. IIL is aggressively increasing its presence by
opening branches in different cities. In FY QI-07, they roll out 56 new branches
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and acquired 25000 new customers. And it expects them to have 350 and 430
branches by FY 08 respectively.
Investment Concern
High reliance on equity segment

In FY06, 67%of IILs earnings are derived from the equity broking business. Any
volatility in the market has direct impact on the earnings of the company. Sensing this
possibility IIL's diversified into other business segments like distribution of financial
products, commodity broking and recent entry into investment banking. These segments
will take time to drive the earnings of the company. There is an expectation that earnings
from equity broking to be 62%and 54%of the earnings by FY07E and FY08E
respectively.
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The Management
Mr. Nirmal Jain

Nirmal Jain is the founder and Chairman of India Infoline Ltd. He holds an MBA
degree from IIM Ahemdabad, and is a Chartered Accountant (All India Rank 2) and a
Cost Accountant. In 1995, he founded his own independent financial research company,
known as India Infoline Ltd.
Mr. R Venkataram
R Venkataram is the co-promoter and Executive Director of India Infoline Ltd.

He holds a B. Tech degree in Electronics and Electrical Communications Engineering
from IIT Kharagpur and an MBA degree from IIM Bangalore. He has varied experience
of more than 14 years in the financial services sector.
The Board of Directors
Apart from Nirmal Jain and R Venkataram, the Board of Directors of India
Infoline comprises:
Mr. Sat Pal Khattar
Mr. Sanjiv Ahuja
Mr. Nilesh Vikamsey
Mr. Kranti Sinha
ON-JOB-TRAINING
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INTRODUCTION
I have been done my summer internship in India Infoline Securities Private

Limited to perform various activities undertaken by an E broking firm (Depository
Participant).
OBJECTIVE
India Infoline Securities Pvt. Ltd. (5paisa.com) performs as intermediary between

stock exchange and clients. Various task related to e broking has been assigned to me.
The main objectives are as follows:

• To understand various activities in E-Broking firm. (D P).
• To get familiar with the working of online trading.
• To gain practical knowledge in share trading.
• To get an exposure
TASK ASSIGNED
• Market observation
• Customer acquisition.
• Technical Issues
• Administrative tasks
• Customer follow-up
MARKET OBSERVATION:
It was the basic task assign during the SIP. While working with an e broking firm
it very essential to be aware about the current market issues like current market news,
Current market position, stock watch, global market condition, past trend of the market
etc.
It was also imperative to target particular stocks & track their daily movements.
By targeting & tracking individual stocks & scripts, it helped me understand the various
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factors that lead to stocks price movements. Also taking with clients during market hours
helped me to understand the investment psychology of the client.
CUSTOMER ACQUISITION:
To acquire new customers for the company it was the task given to me. 8 new
Demat accounts have been opened in this duration.
Strategy in acquiring new customers

• Reference by existing customers.
• Lead by company guide
• Tele calling (by lead data)
• Cold callings
TECHNICAL TASKS :
Various technical tasks has been performed like, software down loading, to give
software demonstration to the clients, solving various problems of the clients regarding
software handling etc.
ADMINISTRATIVE TASK :
These were the secondary task given bellow, which has been performed during
the training period.
• Completion of account opening form
• Collection of requires documents form existing clients.
• Margin funding form,
• To transfer shares
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CUSTOMER FOLLOW-UP :
Follow-up has been given to newly acquire as well as existing clients for various
issues.
• Trading for offline clients under the relationship manager’s guidance.
• To give markets updates to newly acquire as well as existing clients in
market duration, etc.
ACHIEVEMENTS
• Stock Market observation has been done during internship period.
• 8 new clients have been acquired
• Companies trading software has been downloaded
• Software demonstration has been given to newly acquire as well as
existing clients.
• Various administrative activities have been performed.
• Follow-up to the customer has been given,
• Company generated brokerage from the newly acquired customer by me
during the internship period.
• Offline customer’s orders have been taken in regular market schedule.
LIMITATIONS
• It was hard to acquire knowledge about this field in such short span of
time
• Share market is very vast & fast sector, it was very difficult to cope-up
with the environment in such short span of time.
• This field is requiring with very deep fundamental & technical knowledge.
• Acquiring new clients it was the tough task to perform
• High risk involve while trading on behalf of the clients under the guidance
of RM.
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CONCLUSION
Learning Experience:
In my summer training, I knew about the stock market and its nitty-gritty.
And now I am confident about equity knowledge. Although nobody can claim complete
expertise but there is a sea change at least from our point of view. I have learnt what are
the various indices and their significance in market. I have learnt about various
fundamentals and technical aspects, which affect the stock prices in short run and long
run.
Selling Experience:
Apart from this our specific task is to sell the Demat accounts. During this venture
I came across many people who came from different walks of life. I learnt how to deal
with them, how to persuade them and guide them in trading.
Selling an online trading account requires special focus on targeting the
customers. Each and every person does not trade / invest in the stock market. Actually
what I had to do was to identify the prospect and then convince them.
As we met more and more people, we came to know more about how to talk to
them, how much time be given to each person we met. Even, by solving the customer
queries, our own understanding was enhanced.
While selling our product in the market, we also came to know more
about our competitor’s product like, icicidirect.com, India bulls and their strategy of
marketing and the consumer’s preference towards the competitor’s product.
After forms were filled clients after the procedures were given client Id. After
that, we were required to show the customer how to make a transaction and how to get
access to the terminal. Also, other queries, which the customer faced, had to be solved by
us. So, it was all a very good learning experience for us.
There were senior trainees always to solve the difficulties we faced in
approaching a customer, filling up the form, demonstrating the site, or solving their
queries.
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We faced some bad and resentful experiences like being sent out of
offices and waiting for hours for a customer and went to the customer again in case if a
signature is left in the form or in occurrence of any proof problems. This was again a
learning to increase our tolerance and be more careful while filling up the form.
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RESEARCH METHODOLOGY
My first task before starting the process was to understand how to conduct the
analysis. I was suggested by my coordinator Mr. PRADEEP RAMPAL AND THE
branch head Mr. NITIN SHRIVASTAVA to conduct the analysis through EIC model.
My next step was to understand what EIC model all about and what are the steps to
achieve it. For which my first step was going through various internet sites and reading
about the EIC model and usefulness off the whole process.
Once, I got to know about the basic of the EIC model my task was to select sector
on which I can conduct the analysis. I have chosen Cement Sector as it comes under the
Infrastructure Industry which is very vital for the growth of the Economy. After doing the
a through research on the cement sector in India, the company I chosen was Ambuja
Cement Limited, as cost is the important factor for the cement industry, and the strategy
which any company can adopt is cost leadership and Ambuja Cement Limited is the Cost
Leader in the cement sector.
The next step leads me to know the economic conditions which will have a
bearing on the cement sector. Then I studied the Industry through the following
characteristics :- Capacity Utilization, Regional Updates, Evaluating the Cement Industry
through Porter’s Model, Indian Cement Industry-The current Scenario, etc. the next step
lead me to know the history about the company along with the growth prospects that
possess for the future.
Once this was done I went ahead and started my analysis on the company and
concluded the project with my say on the future investment in the company.
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Chapter 2
Introduction
Overview of the Financial Market
FINANCIAL MARKETS
A Financial Market can be defined as the market in which financial assets are
created or transferred. As against a real transaction that involves exchange of money for
real goods or services, a financial transaction involves creation or transfer of a financial
asset. Financial Assets or Financial Instruments represents a claim to the payment of a
sum of money sometime in the future and /or periodic payment in the form of interest or
dividend.
Money Market-
The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term
instrument. Funds are available in this market for periods ranging from a single day up to
a year. This market is dominated mostly by government, banks and financial institutions.
Capital Market
- The capital market is designed to finance the long-term investments. The transactions
taking place in this market will be for periods over a year.
Forex Market –
The Forex market deals with the multicurrency requirements, which are met by the
exchange of currencies. Depending on the exchange rate that is applicable, the transfer of
funds takes place in this market. This is one of the most developed and integrated market
across the globe.
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Credit Market-
Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-
term loans to corporate and individuals.
Overview of the Capital Market

Financial markets, financial assets, financial services and financial institutions
constitute the financial system. Financial market provide channels for allocation of
savings to investment, that is how the savings are canalized into investments thus
generating further income, cash or assets. Financial market has two major components
viz. money market and capital market. Money market refers to the market where
borrowers and lenders exchange short-term funds, to solve their liquidity needs. Money
market instruments have low default risk, maturities under one year and high
marketability (liquidity). Low default risk implies that generally the risk of non-payment
of money is low. Maturities under one year imply that all contracts are of maximum one
year. Capital market is wider that securities market and embraces all form of lending and
borrowing. It comprises of institutions and mechanisms through which medium to long
term funds are pooled and made available to business, government and individuals.
Securities market refers to the markets for those financial instruments/claims/obligations
that are commonly and readily transferable by sale. This implies that the title to
ownership is with the holder; whosoever holds the securities is deemed to be the owner of
the securities, unless proved otherwise. These do not contain the name of the holder and
hence are transferable by sale.
Securities market consists of primary market and secondary market.
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Primary market consists of channel for sale of new securities, while secondary
market deals in the securities already issued.
Primary markets involve the following methods of issue.
IPO
Further issue of capital
Rights issue
Offers to public
Bonus issue
Secondary market enables those who already hold securities to adjust their
investment in response to change in their assessment of risk and return, the
statement implies that those who already holds the securities may want to sell
them in case if those securities are not paying off, or if he needs to adjust his
liquidity or for any other reason. Secondary market refers to the stock exchanges,
a stock exchange provides mechanism to buy and sell the securities already issues
in primary market.
There are at present 23 stock exchanges in India
Participants in the securities market are
Issuers of securities
Investors in securities
Intermediaries- brokers, sub brokers, merchant bankers, underwriters etc.
Regulators
Capital market instruments can be categorized into 3 categories

1. Pure instruments
2. Hybrid instruments
3. Derivatives
There are basically 3 classes of instruments
1. Equity shares
2. Preference shares
3. Debentures/bonds
A pure instrument contains the basic characteristics of one class of instrument only
A hybrid instrument contains the basic characteristics of more than one class of
instrument.
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A derivative is in the form of futures and options. Derivative is a product whose value is
derived from the value of one or more basic variables, called underlying. The underlying
asset can be equity, index, foreign exchange (forex), commodity or any other asset.
Derivative products initially emerged as hedging devices against fluctuations in
commodity prices and commodity-linked derivatives remained the sole form of such
products for almost three hundred years. The financial derivatives came into spotlight in
post-1970 period due to growing instability in the financial markets. However, since their
emergence, these products have become very popular and by 1990s, they accounted for
about two thirds of total transactions in derivative products.
Stock Exchange:
The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock Exchange’ as any
body of individuals, whether incorporated or not, constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in securities. Stock
exchange could be a regional stock exchange whose area of operation/jurisdiction is
specified at the time of its recognition or national exchanges, which are permitted to have
nationwide trading since inception. NSE was incorporated as a national stock exchange.
Trading
Participants in the stock market range from small individual stock investors to large
hedge fund traders, who can be based anywhere. Their orders usually end up with a
professional at a stock exchange, who executes the order.
Some exchanges are physical locations where transactions are carried out on a trading
floor, by a method known as open outcry (eg:-New York Stock Exchange). This type of
auction is used in stock exchanges and commodity exchanges where traders may enter
"verbal" bids and offers simultaneously. The other type of exchange is a virtual kind,
composed of a network of computers where trades are made electronically via traders at
computer terminals (eg:-Nasdaq).
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Actual trades are based on an auction market paradigm where a potential buyer bids a
specific price for a stock and a potential seller asks a specific price for the stock. (Buying
or selling at market means you will accept any bid price or ask price for the stock.) When
the bid and ask prices match, a sale takes place on a first come first served basis if there
are multiple bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers
and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-
time trading information on the listed securities, facilitating price discovery.
Market participants:
Many years ago, worldwide, buyers and sellers were individual investors, such as
wealthy businessmen, with long family histories (and emotional ties) to particular
corporations. Over time, markets have become more "institutionalized"; buyers and
sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds,
hedge funds, investor groups, and banks). The rise of the institutional investor has
brought with it some improvements in market operations. However, corporate
governance (at least in the West) has been greatly affected by the rise of institutional
'owners.'
The First Stock Market:
The Dutch started joint stock companies, which let shareholders invest in business
ventures and get a share of their profits - or losses. In 1602, the Dutch East India
Company issued the first shares on the Amsterdam Stock Exchange. It was the first
company to issue stocks and bonds. The Amsterdam Stock Exchange (or Amsterdam
Beurs) is also said to have been the first stock exchange to introduce continuous trade in
the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity,
merchant banking, unit trusts and other speculative instruments ". There are now stock
markets in virtually every developed and most developing economies, with the world's
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biggest markets being in the United States, Canada, China (Hong Kong), India, UK,
Germany, France and Japan.
Importance of stock market:

Function and purpose
The stock market is one of the most important sources for companies to raise money.
This allows businesses to go public, or raise additional capital for expansion. The
liquidity that an exchange provides affords investors the ability to quickly and easily sell
securities. This is an attractive feature of investing in stocks, compared to other less
liquid investments such as real estate.
History has shown that the price of shares and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood.
Rising share prices, for instance, tend to be associated with increased business investment
and vice versa. Share prices also affect the wealth of households and their consumption.
Therefore, central banks tend to keep an eye on the control and behavior of the stock
market and, in general, on the smooth operation of financial system functions. Financial
stability is the raison outlook of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning that they collect
and deliver the shares, and guarantee payment to the seller of a security. The smooth
functioning of all these activities facilitates economic growth in that lower costs and
enterprise risks promote the production of goods and services as well as employment. In
this way the financial system contributes to increased prosperity.
Relation of the stock market to the modern financial system
The financial system in most western countries has undergone a remarkable

transformation. One feature of this development is disintermediation. A portion of the
funds involved in saving and financing flows directly to the financial markets instead of
being routed via banks' traditional lending and deposit operations. The general public's
heightened interest in investing in the stock market, either directly or through mutual
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funds, has been an important component of this process. Statistics show that in recent
decades shares have made up an increasingly large proportion of households' financial
assets in many countries. The major part of this adjustment in financial portfolios has
gone directly to shares.
Regulators of Stock Market:
The absence of conditions of perfect competition in the securities market makes

the role of the Regulator extremely important. The regulator ensures that the market
participants behave in a desired manner so that securities market continues to be a major
source of finance for corporate and government and the interest of investors are
protected.
The responsibility for regulating the securities market is shared by Department of
Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of
India (RBI) and Securities and Exchange Board ofIndia (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for
establishment of Securities and Exchange Board of India(SEBI) with statutory powers for
protecting the interests of investors in securities
a) promoting the development of the securities market and
b) Regulating the securities market. Its regulatory jurisdiction extends over corporate
in the issuance of capital and transfer of securities, in addition to all
intermediaries and persons associated with securities market.
SEBI has been obligated to perform the aforesaid functions by such measures as it thinks
fit. In particular, it has powers for:
• Regulating the business in stock exchanges and any other securities
markets
• Registering and regulating the working of stock brokers, sub–brokers etc.
• Promoting and regulating self-regulatory organizations
• Prohibiting fraudulent and unfair trade practices
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• Calling for information from, undertaking inspection, conducting inquiries

and audits of the stock exchanges, intermediaries, self – regulatory
organizations, mutual funds and other persons associated with the
securities market.
IMPACT OF STOCK EXCHANGES IN INDIA:
Following are the changes due to the existence of Stock Exchange:
1. Mobilization of savings
The savings of the individuals are easily mobilized in various types of industries.
Therefore the amount of investments in the stock exchange increases.
2. Increase in rate of return on investment

The investors get more rate of return i.e. the market rate and not the normal bank
rate which is much lower.
3. Availability of funds for growth of industries.

The amount of funds required for the growth of the industries is easily available
whereas there was always shortage of capital.
4. Diversification of industries
Due to the availability of funds the industry becomes financially strong and has
scope or diversification due to which more strongly in the market.
5. Increase in employment
Growth and diversification of industries leads to increase in the amount of work
and thus increase job opportunities for the unemployed.
6. Increase in standard of living

The increased job opportunities and the availability of goods of higher quality has
increased the standard of living of people.
7. Increase in GDP
Increase in business in overall all industries has automatically lead to the rise in
GDP of the country and thus its prosperity.
27
8. Decrease in Trade Deficit.

Due to growth in industries the country is becoming self-sufficient leading to
decrease in trade deficit.
Trading in India: -
The trading on stock exchange in India used to take place through open outcry
without use of information technology for immediate matching or recording of trades.
This was time consuming and inefficient. This imposed limits on trading volumes and
efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a
nationwide online fully automated screen based trading system (SBTS) where a member
can punch into the computer quantities of securities and the prices at which he likes to
transact and the transaction is executed as soon as it finds matching sale or buy order
from a counter party. SBTS electronically matches order on strict time/price priority and
hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved
operational efficiency. It allows faster incorporation of price sensitive information into
prevailing prices, thus increasing the information efficiency of markets. It enables market
participants, irrespective of their geographical locations, to trade with one another
simultaneously, improving the depth of liquidity market. It also provides a perfect audit
trail, which helps to resolve disputes by logging in the trade execution process in entirety.
Today India can boast that almost 100% trading take place through electronic order
matching. Technology was used to carry the trading platform from the trading hall of
stock exchanges to the premises of brokers. NSE carried the further platform further the
PCs at the residence of Clients through the Internet for Users in geographically vast
country like India.
28
Conceptual framework
Trading Network
The trading network is depicted in the above figure shows NSE has main
computer, which is connected through very small Aperture Terminal installed at the
office. The main computer runs on falls tolerant STRATUS mainframe computer at the
exchange. Brokers have terminals installed at their premises, which are connected
through VASTs/ leased lines/ modems. Investors inform broker to place an order on
behalf of them. The broker enters the order through his PC, which runs under Windows
NT and sends signal to the satellite via VAST/ leased line/ modem. The signal directed to
mainframe computer at NSE The system also provides complete market information
online. The market screens at any point of time provide information on total order depth
in a security, the five best buys and sells available in the market, the quantity traded in
the day security, the high and the low, the last traded price, etc. investors can also know
the fate of the orders almost as soon as they placed with the trading members.
29
Abstract
The Indian cement industry is second largest in the world after China and has
grown at a CAGR of 8% in the last decade. The sector has evolved significantly in the
last two decades, going through all the phases of a typical cyclical industry. After having
gone through a period of over-supply and the phase of massive capacity additions (latter
half of the previous decade), the industry is currently in a consolidation phase, with
capacity additions coming up to cater to the increasing demand. Demand has been driven
by a booming housing sector and increased activity in infrastructure development such as
state and national highways. While the demand is growing at a robust pace of 8% to 10%
annually, the paucity of major capacity additions is putting upward pressure on the
cement prices.
Introduction
The Indian cement industry with a total capacity of 151.2 million tonnes
(including mini plants) in March 2003 has emerged as the second largest market after
China, surpassing developed nations like the USA and Japan. Per capita consumption has
increased from 28 kg in 1980-81 to 110 kg in 2003-04. In relative terms, India’s average
consumption is still low and the process of catching up with international averages will
drive future growth. Infrastructure spending (particularly on roads, ports and airports), a
spurt in housing construction and expansion in corporate production facilities is likely to
spur growth in this area. South-East Asia and the Middle East are potential export
markets. Low cost technology and extensive restructuring have made some of the Indian
cement companies the most efficient across global majors. Despite some consolidation,
the industry remains somewhat fragmented and merger and acquisition possibilities are
strong. Investment norms including guidelines for foreign direct investment (FDI) are
investor-friendly. All these factors present a strong case for investing in the Indian
market.
ECONOMIC ANALYSIS
30
INDIAN ECONOMY
India's economy is on the fulcrum of an ever increasing growth curve. With
positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange
reserves of over US$ 222 billion, a booming capital market with the popular "Sensex"
index topping the majestic 15,000 mark, the Government estimating FDI flow of US$
15.5 billion in this fiscal, and a more than 20 per cent surge in exports, it is easy to
understand why India is a leading destination for foreign investment.
• The economy has grown at an impressive growth rate of 9.4 per cent
during 2006-07 as against 9 per cent in 2005-06.
• The growth rate has been spurred by the industrial and services sectors,
which have logged a 10.9 and 11 per cent rise in 2006-07 respectively,
against 9.6 per and 9.8 cent in 2005-06.
• Some of the propellers of GDP growth for 2006-07 have been
manufacturing, which grew by 12.3 per cent (against 9.1 per cent in 2005-
06), trade, hotels, transport and communications sector, which grew by 13
per cent (against 10.4 per cent in 2005-06), and construction, which grew
by 10.7 per cent.
• Electricity, gas and water supply also grew by 7.4 per cent in 2006-07
against 5.4 per cent in 2005-06.
• There has been an exceptional growth rate in some specific industries, like
commercial vehicles at 17.9 per cent, telephone equipment sector by 43.5
per cent, passenger growth in civil aviation by 32.2 per cent and
information technology by 31 per cent (in revenue terms).
• Overall balance of payments recorded a surplus of US$ 36.6 billion during
2006-07, as against US$ 15.1 billion in 2005-06.
The India growth story continues apace in the current fiscal year with many
sectors showing a higher growth rate than the previous year. The overall industrial
growth was 11.7 per cent during April-May, 2006-07 as compared with 10.8 per cent in
April-May, 2005-06. The growth rate achieved by the manufacturing and electricity
sectors during April-May, 2007 was 12.7 per cent and 9.0 per cent respectively as
compared to 12.2 percent and 5.5 per cent during corresponding period last year. Core
infrastructure sectors achieved an average growth rate of 8.1 per cent during April-May,
2006-07, as compared with 7.2 per cent in April-May, 2005-06. The annual inflation rate
in terms of WPI was 4.27 per cent for the week ended June 30, 2007 as compared with
5.21 per cent a year ago. The cumulative value of merchandise exports for the period
April-May 2007 increased by an impressive rate of 20.37 per cent over the corresponding
period in last year to touch US$ 22.4 billion. Aggregate deposits of banks increased by
31
22.8 per cent (US$ 134.2 billion) on July 6, 2007, as compared with 19.6 per cent (US$
96.5 billion) a year ago. During 2007-08 (up to July 13, 2007), FIIs registered net inflows
of US$ 8.4 billion as compared with outflows of US$ 2 billion in the corresponding
period of 2006-07. Reserve money expanded by 29.1 per cent (21.7 per cent adjusted for
the first round impact of the increase in the cash reserve ratio), as on July 20, 2007, as
compared with 17.2 per cent a year ago.
ISSUES AND PRIORITIES FOR INDIA
• India has the highest number of billionaires in Asia and fourth highest in
the world. There are 36 billionaires in India, which makes it next only to
US, Russia and Germany.
• India has emerged as the world's fastest growing wealth creator, thanks to
a buoyant stock market and higher earnings.
• Forty-four per cent of the Top 100 Fortune 500 companies are present in
India.
• The number of Indian millionaires rose by 20.5 per cent from 83,000 in
2005 to 1,00,015 in 2006 -- making India the world's second fastest
growing nation after Singapore.
32
• India has joined the elite club of 12 countries with a trillion dollar
economy, thanks to the continuing rally in rupee against the US dollar.
• According to a study by the McKinsey Global Institute (MGI), India’s
consumer market will be the world’s fifth largest (from twelfth) in the
world by 2025.
• Mumbai has been ranked tenth among the world's biggest centres of
commerce in terms of the financial flow volumes by a survey compiled by
MasterCard Worldwide.
• India has emerged as one of the most attractive investment destinations in
the world with an annual return of 38.36 per cent, which is the second
highest in BRIC economies.
• India ranks second in the Asia-Pacific region in terms of the value of
private equity deals (US$ 2,433 million) done in the first half of 2007.
• India emerged as the fastest growing market in the data centre-structured
cabling market in the Asia Pacific region.
• India has been ranked second in outbound mergers and acquisition (M&A)
deals during the first half of 2007 in the Asia-Pacific region, with
outbound deals totalling US$ 13.5 billion.
• India Inc reported its highest net profit in the last three years in 2006-07
(1,700 companies that declared their results till June reported a 47 per cent
increase in net profit).
With its manufacturing and services sector on a searing growth path, India’s economy
may soon touch the coveted 10 per cent growth figure.
Gross Domestic Product of India
The advance estimates of gross domestic product (GDP) for 2006-07, released by
the Central Statistical Organization, places the growth of GDP at factor cost at constant
(1999-2000) prices in the current year at 9.2 per cent. While services maintained its
vigorous growth performance, there were distinct signs of sustained improvements on the
33
industrial front. The overall macroeconomic fundamentals are robust, particularly with
tangible progress towards fiscal consolidation and a strong balance of payments position.
With an upsurge in investment, the outlook is distinctly upbeat. There was a strong
growth in Foreign Direct Investment (FDI) flows with three quarters of such flows in the
form of equity. The growth rate was 27.4 per cent in 2005-06, which was followed by
98.4 per cent in April-September 2006. At US$ 4.2 billion during the first six months of
this fiscal, FDI was almost twice its level in April-September, 2005. Capital flows into
India remained strong on an overall basis even after gross outflows under FDI with
domestic corporate entities seeking a global presence to harness scale, technology and
market access advantages through acquisitions overseas.
Agricultural growth is pegged at 2.7 per cent.Total food grains production in
2006-07 estimated at 209.2 metric tonnes (MT). Total water availability in reservoirs up
10 per cent to 120.2 billion cubic meters (BCM) at the end of monsoon 2006.Fishing,
aquaculture and allied activities made for 5.3 per cent of the agricultural gross domestic
product (GDP).
Production of wheat and other rabi crops brightened with welcome rain in
February 2007 -- sugarcane, cotton, and jute to set new records.
Impressive growth in industrial sector is propelled by the robust growth in the
manufacturing sector which continues unabated. Year-on-year industrial growth of 10.6
per cent in the first nine months of 2006-07 was the highest recorded since 1995-96;
growth of the manufacturing sector was in double digits. The Eleventh Plan (2007-12)
Trend in Growth Rate
13
8
Percent
-2
34
GDP Services Construction Agriculture
target of 10 per cent annual industrial growth appears achievable.
Major key economic indicators
Domestic Investments
• The prospect for domestic investment has never been so good. While the
growth of the economy at over 9 per cent along with increasing consumer
expenditure has made the domestic market a very attractive proposition,
the increasing integration of Indian economy has enlarged the market size
for domestic entrepreneurs. This is also reflected in the rising share of
India in the global trade. Accordingly, many firms are making large
investments in order to increase their production capacity and to reap
economies of scale.
• Investments:
• Some of the prominent investment plans made by Indian corporates:
• Reliance Industries is lining up investments of over US$ 12 billion for
production of gas from its fields in the Krishna-Godavari basin and its
transport to consumers across the country. While US$ 5.2 billion will be
spent on bringing the gas to production, a larger chunk of US$ 7 billion
will be invested in building gas pipes to transport it to consuming
locations.
• ACC will pump in around US$ 921.9 million in three years to push its
annual cement production capacity to 27.5 million tonne. This will be an
increase of over 38 per cent over the company’s current capacity of 19.9
million tonne.
• Kishore Biyani's Future Group plans to invest about US$ 960.9 million in
the next one year to expand its different retail chains as part of a strategy
to touch a topline of US$ 7.322 billion by 2010-11.
• The Royal Indian Raj International Corporation has announced a tie-up
with Choice Hotels India to build 100-125 budget hotels in Delhi,
35
Mumbai, Hyderabad, Bangalore, Goa and Pune by 2010. The company

plans to invest US$ 2-3 billion in this project, spread over the next three
years.
• Gujarat State Petronet Ltd, a group company of the Gujarat State
Petroleum Corporation, plans to connect all 25 districts of the state with
2,200-kilometre high pressure gas pipeline laid down across the state.
• The Tata group is planning to set up a plant to convert coal into diesel or
crude oil in partnership with South Africa’s Sasol. The proposed coal-to-
liquids (CTL) plant— the first of its kind in India-was likely to result in
annual import substitution benefits of about US$ 25 billion for the
country.
Foreign Direct Investment
India continues to be the best place to start a business, says a global services
location index by AT Kearney. In another AT Kearney study, India has displaced the US
to become the second-most favored destination for foreign direct investment after China.
It has now been named as the top reformer in South Asia in the annual Doing Business
Report issued by the International Finance Corporation (IFC).
It is evident. India is in the reckoning. And the figures appear to be improving by

the day. While FDI equity flows were US$ 5.5 billion in 2005-06, it increased almost
three times to US$ 15.7 billion in 2006-07, representing a growth rate of 184 per cent.
With this, the cumulative FDI inflows in to the country since 1991 reached US$ 54.6
billion.
Further, the Government seeks to double the FDI inflow to US$ 30 billion this
fiscal in order to maintain a growth rate of 9 per cent per annum over the next five years.
According to the World Bank, India cornered a major portion of US$ 40.1 billion
net capital inflows to South Asia in 2006. In fact, India has overtaken the erstwhile East
Asian Tigers — Thailand, Malaysia, Indonesia, the Philippines, Taiwan and South Korea
— in terms of FDI flows. If one excluded Singapore and Hong Kong from the list — they
36
are not comparable as FDI in these countries is more into trading activities — India
would be No. 2 destination for FDI in Asia.
The principal sources of FDI between 1991 and March 2007 have been Mauritius,
US, UK, The Netherlands, Japan, Germany and Singapore (in that order). The principal
sectors attracting FDI during this period have been electrical equipment, services,
telecommunications, transportation, fuels, chemicals and construction (in that order).
Growth In The World Production
The inflow of FDI in to the country continues to grow. In the first half of June, the
Government has approved 40 FDI proposals which together constitute US$ 132.72
million investment.
According to financial advisory firm PricewaterhouseCoopers, India, along with

China, will remain one of the top two targets for mergers and acquisitions in the region.
37
Foreign Institutional Investors
Positive tidings about the Indian economy combined with a fast-growing market
have made India an attractive destination for foreign institutional investors (FIIs). The
number of foreign institutional investors (FIIs) registered with the Securities and
Exchange Board of India (Sebi) has now increased to 1,042 in June 2007. In the
beginning of calendar year 2006, the figure was 813. As many as 217 new FIIs opened
their offices in India during 2006. This is the highest number of registrations by FIIs in a
year till date. The previous highest was 209 in 2005. Till May 2007, FIIs had pumped in a
hefty US$ 6 billion in equities. Last year, during the same period, the FIIs' exposure to
Indian equities was 25 per cent lower at US$ 4.5 billion.
The gross FII investments in the country till June from the time they were allowed
to invest in the India equity markets stands at US$ 53.06 billion. FIIs have raised their
holding in 540 companies out of top 1,000 companies on the Bombay Stock Exchange
(BSE) during September-March (2006-07) period. Companies that have gained favour
with foreign investors are mostly from construction, banking and second-line IT
companies among others.
The Key Industry Check

Agriculture
Agriculture -- across the expanse of India -- is heralding the country's second

Green Revolution. Fourteen states, including Maharashtra, Punjab, Andhra Pradesh and
Rajasthan amended the Agricultural Produce Marketing Committee (APMC) Act this
year, along the lines of the Model APMC Act, '02, which allows farmers to sell their
produce directly to buyers offering them the best price. And, agriculture sectors such as
horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua
culture, cultivation of vegetables, mushroom under cultivated conditions and services
related to agro and allied sectors are open to 100 per cent foreign direct investment (FDI)
through the automatic route.
38
Already it is one of the most important sectors of the economy contributing 18.5
per cent of national income, about 15 per cent of total exports and supporting two-thirds
of the work force. And with recent developments, it is going to play a more dynamic role
in the economy.
Service Industry
The service sector of Indian Economy has brought much success in the recent
years. It constitutes a larger share in the total Gross Domestic Product. The growth rate of
services sector in India is faster than any other sectors. It constitutes more than 50 percent
of the total GDP in the country.
The services sector in India has become a larger source of revenue for the
country. The Government of India introduced service tax in the year 1994 and presently it
constitutes a major source of revenue for the Government. Collection of Services tax in
India has reached at Rs. 23,000 Crores in 2005-06 from Rs. 2072 Crores in 1999-00. For
the year 2006-07, the target is being fixed at Rs. 34,500 Crores.
From time to time Government is trying to bring more items under the service tax
net. The Government announced Taxation of Services Rules 2006 and Service Tax Rules
2006. The Government has also formed a committee for reviewing the services tax
circulars since 1994.
Growth in financial services (comprising banking, insurance, real estate and

business services) after dipping to 5.6 % in 2003-04 bounced back to 8.7 % in 2004-05
and 10.9 % in 2005-06. The momentum has been maintained with a growth of 11.1 % in
2006-07.
Thus it can be concluded India's economy is on the fulcrum of an ever-increasing

growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising
foreign exchange reserves of over US$ 222 billion, a booming capital market with the
popular "Sensex" index topping the majestic 15,000 mark, the Government estimating
39
FDI flow of US$ 15.5 billion in this fiscal, and a more than 20 per cent surge in exports,
it is easy to understand why India is a leading destination for foreign investment.
Manufacturing
Manufacturers from across the world are setting up shop in India, which has --
according to McKinsey Research -- all the required skills in process, product, and capital
engineering, thanks to its long manufacturing history and higher-education system.
India's vast domestic market and relatively low-cost workers with advanced
technical skills will make it a manufacturing powerhouse within 5-10 years, according to
a study by Boston Consulting Group. Already, more and more multinationals are setting
up operations in India: ABB, Honeywell and Siemens in electrical and electronic
products; Cummins, DaimlerChrysler, and Toyota in auto components and engineering;
and Degussa as well as Rohm and Hass in specialty chemicals. All these operate in skill-
intensive industries requiring advanced technical expertise -- areas in which India is
likely to become a primary sourcing and manufacturing base.
Manufacturing recorded an impressive growth rate of 12.5 per cent during the
year 2006-07. It also continued its growth rate in the new fiscal year 2007-08 by growing
at a rate of 15.1 per cent during April as compared to the corresponding period last year.
The top five growth industries in the manufacturing sector are cement, steel, pharma,
gems and jewellery and engineering, according to a study by Hyderabad-based Cygnus
Business Consulting and Research.
Infrastructure
India's infrastructure has been growing at an accelerating pace to support the

economic growth rate of over 9 per cent. The six core-infrastructure industries, which
account for a combined weight of 26.68 per cent in the index of industrial production
(IIP), registered a growth of 8.6 per cent in 2006-07 as against 6.2 per cent during 2005-
06.
Sector Weight (%) Apr-Mar 2005- Apr-Mar 2006-
40
06 07
Crude
4.17 -5.2 5.5
Petroleum
Petroleum
Refinery 2.00 2.1 12.3
Products
Coal 3.22 6.6 6.0
Electricity 10.17 5.1 7.3
Cement 1.99 12.4 9.1
Finished steel
5.13 11.2 10.9
(carbon)
Overall 26.68 6.2 8.6
Source: Concerned Ministries/Departments/Organization(s)
The combined spending on infrastructure by both the public and privates sectors
accounted for about 4.6 per cent of GDP. The growth has continued apace during the
current fiscal, with the six core-infrastructure industries growing at the rate of 6.9 per
cent during April-June, 2007.
According to the prime minister’s committee on infrastructure (CoI), the

projected investment requirement for infrastructure development during the eleventh plan
period (2007-2012) is US$ 456 billion. Of the total projected investment, it is estimated
that power could get about 28 per cent of the fund flows while roads 20 per cent, railways
15 per cent, telecom 12 per cent, water supply and sanitation about 6 per cent and
irrigation 10 per cent
A substantial share of this investment is expected to come from private sector—

both domestic and foreign. For this, the government has already enacted many proactive
measures like opening up a number of infrastructure sectors to private players, permitting
fdi into various sectors, introducing model concession agreements, taking up new
projects like the National Highway Development Project, National Maritime
Development Programmer among others.
41
With huge opportunities opening up in this segment, private investment has been
rising at a scorching pace. Already, telecommunications, transportation and fuels (power
+ oil refinery) have attracted a combined cumulative foreign direct investment of US$
11.45 billion over the period August 1991 to May 2007. In fact, these three account for
about 23.5 per cent of the total fdi in to the country.
Simultaneously many India dedicated infrastructure funds are coming up.

Presently about US$ 5 billion India-dedicated overseas funds have been lined up for
investment in ports, airports, energy and infrastructure services. This is in addition to the
US$ 5 billion fund each that 3i, Citigroup and Blackstone have floated in collaboration
with Indian Infrastructure Finance Company. Other important players include Atherstone
India Invest, AMP Capital, Macquarie Infrastructure Group, DLF-Laing O’rourke among
others.
42
Budget 2007-08
Besides government initiatives, the budget for the fiscal year 2007-08 proposes
the following:
• The Centre's budgetary allocation to JNNURM has increased from US$

1.13 billion in 2006-07 to US$ 1.23 billion in FY 2007-08.
• Urban local bodies have been allowed to issue tax-free bonds through
State Pooled Finance entities formed to raise funds for the 'group of' urban
local bodies'.
• Under Plan B of the Eleventh Plan a share has been allocated to urban
infrastructure and water resources from the additional resources of US$
1.73 billion that the Centre plans to generate through better tax
administration.
• Allocation for the Rajiv Gandhi Drinking Water Mission has been
enhanced from US$ 1.15 billion in 2006-07 to US$ 1.44 billion in 2007-
08.
• Provision for Total Sanitation Campaign has been increased from
US$178.17 million in 2006-07 to US$ 232.61 million in 2007-08.
43
CHAPTER 2
INDUSTRIAL ANALYSIS
Cement production in India commenced in 1914. Severe competition from
imported cement, coupled with various governmental price and distribution controls,
resulted in the slow growth of the Indian cement industry in the earlier years. In the
subsequent 65 years, 27 MnT of cement capacity was added. This situation was reversed
in the 1980s when the industry was partially decontrolled. This resulted in substantial
increase in the capacity and production of cement. Nearly 30 MnT of capacity was added
during the 11 years from 1980 to 1990, thereby adding more capacity during one decade
than had been added during the previous seven decades. Encouraged by the creation of
substantial new capacity and the lowering of prices, the GoI freed the industry from price
and distribution controls on March 1, 1989 and delicensed it on July 25,1991, leading to a
spurt in cement production capacities. During the period from 1991 to 2005,
approximately 93 MnT of fresh capacity of cement was added. Since the 1980s, cement
capacity has steadily outpaced its demand, and India has grown to become the second
largest cement producer in the world, India is also estimated to have approximately 90
billion tonnes of limestone reserves, the main raw material used in the manufacture of
cement. As on March 2006, the Indian cement industry comprised over 54 cement
producers, operating 130 large cement plants with an average installed capacity of 160
MnT. However the per capita consumption of 106 kgs of the country compares poorly
with the world average of 260 Kg. Source: CMA, March, 2006
The Indian cement industry has made significant progress upgrading and
assimilating the latest technology. At present, 95% of the total capacity in the industry is
based on modern, environment-friendly and energyefficient dry process technology, with
only 5% of the capacity based on old wet and semi-dry process
44
CAPACITY UTILIZATION – HIGHEST IN LAST 10
180.00 93.05 100.00

160.00 79.56
85.10 80.92 90.00
79.24 80.63 87.64
140.00 85.07 78.19 83.60 80.00
77.00
Percentage
mn. tonnes
120.00 70.00
100.00 60.00
80.00 50.00
60.00 40.00
40.00 30.00
20.00 20.00
0.00 10.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Capacity Installed Cement Production Capacity Utilisation
YEARS
In 2002, global cement production was reported at 1.7 billion tonnes, with China
accounting for nearly 37% of the total output of cement in the world. India was the
second largest producer with 6.7% of the total output of cement in the world, closely
followed by the United States at 5%. During 1998 to 2002, world cement production
grew at a CAGR of 3.8% with demand remaining subdued in most markets on account of
the various crises faced by different economies. However, during the same time, the
Indian cement industry recorded a CAGR in cement production of 5.5%, principally due
to improved economic conditions and increased construction activity. Despite this
comparatively high growth rate enjoyed by the Indian cement
industry, India’s per capita cement consumption of 106 kgs p.a was amongst the
lowest in the world, with other developing nations like Egypt and Thailand having per
capita consumption of cement in the region of 370 to 450 kgs p.a. respectively, in 2002.
One of the defining features of the Indian cement industry is its highly clustered
nature, as cement units are concentrated in close proximity to the limestone deposits.
45
Competition is also localized because the cost of transportation of cement to distant

markets often results in the product being uncompetitive in those markets.
Hence, cement units tend to be located close to both limestone deposits, as well as
to the markets those units service. This is one of the key factors, which has resulted in the
Indian cement market being more regional and fragmented in nature. Market share of Top
five Players in 2005-06 is: Holcim group (21.2%), Grasim group (20%), India Cements
(5.6%), Century Textiles (4.0%), Jaiprakash Industries (3.9%) In 2006, the five largest
cement companies together controlled 44.7%. Indian Cement Capacity, Production,
Capacity Utilization Rate and Demand. During 1997-98 to 2005-06, the installed capacity
of cement in the industry increased at a CAGR of 6.8% to 160 MnT. During the same
period, while there was no significant change in capacity utilization, production growth
marginally outpaced capacity growth by growing at a CAGR of 7.6%. The table below
discusses
capacity, production and capacity utilization in the cement industry over the past
five years
Regional Update
SOUTHERN REGION
Cement consumption in Southern region has risen strongly by 22.7% in the Apr
2005 - Feb 2006 period. the period, cement consumption has grown by 38.6% in Andhra
Pradesh, 20.6% in Tamilnadu,
21.4% in Karnataka and 6.5% in Kerala. Average southern region cement prices
in the retail market in Apr 2005 - Feb 2006 period are up 3.2%-however prices have
remained flat in Andhra Pradesh and
some parts of Kerala and have risen in Tamilnadu and Karnataka.
46
NORTHERN REGION
All states in the Northern region, barring UP and Delhi, have reported higher
cement consumption in the Apr 2005 - Feb 2006 period, with Uttaranchal (23.7%),
Haryana (14.6%), Rajasthan (19.8%) and Chandigarh (35.6%) leading the pack. On a y-
o-y basis, in the Apr 2005 - Feb 2006 period, retail cement prices across the northern
region with sharp rise in Delhi and Himachal Pradesh markets.
EASTERN REGION
Except Assam and Meghalaya, all other parts of Eastern region witnessed robust
cement consumption in the Apr 2005 - Feb 2006 period. Cement consumption has grown
by 54% in Chattisgarh, 16.7% in Bihar, 13% in Jharkhand, 7.6% in Orissa and 6% in
West Bengal. Barring West Bengal-where prices have remained flatcement
prices too have risen by around 3% across the region.
47
WESTERN REGION
Cement prices in the Western region have witnessed the sharpest rise in the Apr
2005 - Feb 2006 period, with Madhya Pradesh and Gujarat witnessing steep increase in
retail prices. Demand growth in the western region however has been modest at 2.8% in
the Apr 2005 - Feb 2006 period.
48
INDIA’S TOTAL CEMENT SALE
EVALUATING THE CEMENT INDUSTRY –PORTER’S

MODEL
The model of the Five Competitive Forces was developed by Michael E. Porter in
his book “Competitive Strategy: Techniques for Analysing Industries and Competitors”
in 1980. Since that time it has become an important tool for analysing an organizations
industry structure in strategic processes.
Porter's Five Forces Model is probably the most widely used tool in business
strategy. Porter has identified five competitive forces that shape every industry and every
market. These forces determine the intensity of competition and hence the profitability
and attractiveness of an industry. Porters model supports analysis of the driving forces in
an industry. Based on the information derived from the Five Forces Analysis,
49
management can decide how to influence or to exploit particular characteristics of their

industry.
ENTRY BARRIER –
• Entry barriers are not too high in cement industry. The key barriers are: -
• As cement industry is capital –intensive, Capital is the biggest constraint,
which only big player will have access to.
• Economies of scale are an important factor of the industry and this will
reduce the cost of cement which would favour the bigger players, like
Birla group or Gujarat Ambuja. Knowledge to this fact will discourage the
new entrant.
• Price plays an important factor, as differentiation in cement industry is
low. Thus, Cost advantage is critical. Companies, which can have a
sustainable low cost position, will have a competitive advantage. The
major players in India do seem to have a similar cost position. Gujarat
Ambuja has been able to sustain a low cost position.
• Cement, being a bulk commodity, is a freight intensive industry and
transporting cement over long distances can prove to be uneconomical
which acts as an important constrain to enter the cement industry.
• High capital costs and long gestation periods is also an important factor
for an entry in cement industry.
50
• Not an easy access to limestone reserves (principal raw material for the
manufacture of cement) also acts as a significant entry barrier.
IMPACT OF ENTRY BARRIER OF CEMENT INDUSTRY ON AMBUJA

CEMENTS: -
This element is in favour of Ambuja cement - as the companies in

cement industry needs to be capital intensive so not every one can enter the
industry easily.
Secondly as brand does not play an important role in the industry but price
is a very important factor to sustain in the industry it favours Ambuja cement, as it
is the cost –leader in the industry.
Thirdly as high capital cost, long gestation period and difficulty in
accessing to raw material like limestone reserve etc helps the company to avoid
intense competition.
BARGAINING POWER OF SUPPLIERS: -

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. As the
raw material required by cement industry are in control of the government, so
government pricing would have an impact. As government largely controls all
these sectors, thus cement companies have no control on the cost and the
availability of these inputs.
Suppliers have a low impact in cement industry. As this would be
common to all companies there would be the similar kind of impact on all the
companies in the cement industry.
IMPACT OF SUPPLIER OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -

• Licensing of coal and limestone reserves, supply of power from the state
grid and availability of railways for transport are all controlled by a single
entity, which is the government. However, Ambuja cement is relying more
on captive power as power consists over 40% of the production cost of
51
cement. The company improved efficiency of its kilns to get more output
for less power. Thereafter Ambuja Cements has set up a captive power
plant at a substantially lower cost than the national grid.
• Shortage of coal and rising fuel prices remain a concern. Hence, the
industry response has largely been in the form of achieving efficiency
gains and finding alternatives. The shortage in domestic coal production
coupled with the poor quality has resulted in Ambuja cement resorting to
importing coal and going in for open market purchase of coal, and using
alternative fuel such as lignite or pet coke. The company sourced a
cheaper and higher quality coal from South Africa, and better furnace oil
from the Middle East. As a result, today, the company is in a position to
sell its excess power to the local state government.
BARGAINING POWER OF CUSTOMERS: -

• Private housing sector is the major consumer of cement (65%) followed
by the government infrastructure sector.
• Encouraging trend in demand due to pick-up in rural housing demand and
industrial revival
• In recent times, industrial and infrastructure including SEZ, retail chains,
shopping malls and entertainment houses have also emerged as demand
drivers for cement.
• India has significant potential to cater to the cement requirements of the
Middle East and the South East Asian nations
Consumers have a very high impact on bargaining power of cement. As cement is
essential product in the construction sector but non-differentiated products, the
consumers can easily switch of to another brand without a cost. So a company in cement
sector needs to be a cost efficient company to sustain its self in the industry.
IMPACT OF BUYERS OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -
As consumer have a more power on the industry, which is unfavorable for the
industry but have, a positive impact on the company as: -
52
• Gujarat Ambuja's strength lies in its ability to produce cement at a

significant discount to the industry so it as a competitive advantage of low
cost.
• It also has an effective logistics system.
As a result Ambuja’s brand continues to enjoy a premium position, not only for
its consistently outstanding quality, but also for the excellent customer care and support
provided.
SUBSTITUTE PRODUCT: -
As cement is a basic construction material with practically no

substitute, it is used worldwide for all construction work.
IMPACT OF SUPPLIER OF CEMENT INDUSTRY ON AMBUJA CEMENTS: -
As there is no near and direct substitute of cement, which would hamper the
profitability of the industry, this is a favourable force, which has added to the profitability
of Ambuja cement.
THE RIVALRY AMONG THE EXISTING PLAYERS: -
High rivalry in the industry as the industry is still fragmented. Top 6 players have
60% capacity. However local players can have an impact on pricing as cement as the
industry depends on local supply. Cement being bulky is generally not transported from
long distance
Due to large number of players in the industry and very little brand
differentiation, the competition is intense with players resorting to expanding reach and
achieving pan India presence.
53
KEY PLAYERS IN THE INDUSTRY ARE:

Associated Cement Companies Ltd (ACC), Birla Corp, Century Textiles And
Industries Ltd (Ctil), Grasim-Ultratech Cemco, Gujarat Ambuja Cements Ltd (Gacl),
India Cements, Jaiprakash Associates Limited Jk Synthetics, Madras Cements, Holcim,
Lafarge India, Italcementi Group.
It can be said in short that low brand strength, high fragmentation, low cost
advantages (except in case of some players), the competitive intensity is high. Pricing is
poor and depends on demand scenario. If demand drops, the profitability suffers as the
players cut price to run plants at full capacity (due to high fixed costs).
IMPACT OF COMPETITORS IN CEMENT INDUSTRY ON AMBUJA

CEMENTS: -
As Ambuja is the most profitable cement company in India, and the lowest cost
producer of cement in the world. The Indian business group, Grasim, is amongst the top
ten companies in the world.
GRASIM-ULTRATECH CEMCO
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. It is also planning to enter into international ventures. This pose a
threat to Ambuja cement as this may hamper the market share of Ambuja cement and
also affect the exports of Ambuja as it is planning to enter international ventures.
BIRLA CORPORATION
As Large quantities of Birla Corp cement are exported to Nepal and Bangladesh.
Going forward, the company is setting up its captive power plant to remain cost
competitive, which indicates that the company will be capable of cost cutting, which will
definitely affect the prices and profitability of Ambuja cement.
54
ITALCEMENTI GROUP
The Italecementi group is one of the largest producers and distributors of cement
with 60 cement plants 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. As Italecementi group is a international group it will
definitely impact and pose competition to Ambuja cement as they have a pan presence
which leads to economies of scale leading to cost advantage.
But it can be said that Ambuja Cements has set up a captive power plant at a
substantially lower cost than the national grid, secondly company sourced a cheaper and
higher quality coal from South Africa, and better furnace oil from the Middle East.
Thirdly Gujarat Ambuja has managed to partner Holcim Company as it has the following
benefits:
-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
ENVIRONMENTAL SCANNING FOR AMBUJA CEMENT
The environment in which a organization exists could be broadly divided into two
parts: - the external environment and the internal environment .the process of strategic
formulation starts with, and critically depends on the appraisal of external and internal
environment of an organization .the process by which organization monitors their
relevant environment to identify opportunities and threats affecting their business is
known as environmental scanning.
There is wide range of methods and techniques available for
environmental scanning. One of such techniques, suggested by Glueck, is that of
preparing an environmental threat and opportunity profile (ETOP) for an organization.
In the table below ETOP is prepared for Ambuja cement.
55
ETOP
MARKET
Private housing sector is the major consumer of cement (65%) followed by the
government infrastructure sector.
Encouraging trend in demand due to pick-up in rural housing demand and
industrial revival
Housing sector acts as the principal growth driver for cement. However, in recent
times, industrial and infrastructure including SEZ, retail chains, shopping malls and
entertainment houses have also emerged as demand drivers for cement.
India has significant potential to cater to the cement requirements of the Middle
East and the South East Asian nations
TECHNOLOGY
In essence, cement is a simple business. Unlike other industries it does not suffer
rapid technological obsolescence or shifting consumer trends. Therefore, it constantly
attracts new investments. This results in surplus capacity.
Still technological up gradation in industry is in process which introduces
improve quality, reliability & speed of work.
SUPPLIERS
Nearly 55-60% of the inputs controlled by the government
Facing problems due to power shortage
Coal availability and quality affecting production
Licensing of coal and limestone reserves, supply of power from the state grid and
availability of railways for transport are all controlled by a single entity, which is the
government
ECONOMIC
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.
56
India is the second largest producer of cement in the world.

REGULATORY
The impact of government policies on cement demand has been steadily
decreasing with the sector being gradually deregulated. At present, 100 per cent foreign
direct investment (FDI) is permitted in the cement industry. Lafarge was the first foreign
company to enter the Indian market in 1999.
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).
Cement industry in India has been identified as one of the major air polluting
industries for which the Central Pollution Control Board evolved emission regulations
which are applicable for all sections of production in cement plant
POLITICAL
Designing new SEZ increase construction demand and the demand for
cement.The continuation of fiscal benefits for promoting housing, lower housing finance
rates, sustained growth in disbursements of housing finance etc will give a fillip to the
cement demand growth
SOCIO CULTURE
As the standard of living is increasing in the country there is demand for cement
industry.
INTERNATIONAL
As there is high potential growth, quite a few foreign transnational have been
eyeing the Indian markets and are planning to acquire domestic companies. Already,
while companies like Lafarge, Heidelberg and Italicementi have made a couple of
acquisitions, majors like Holcim managed to partner a domestic company, Gujarat
Ambuja, and acquire a stake in ACC. After acquiring stake in big companies,
transnational are now eyeing median capacity producers. However, it must be noted that
the transnationals will find the going tough since cement is a game of volumes and with
the median capacity of fragmented players being just about 1 m tonne, the transnationals
57
will have to acquire capacities piecemeal and this route is fraught with a lot of
uncertainties.
INDIAN CEMENT INDUSTRY – CURRENT SCENARIO

OVERCAPACITY BLUES
Since the stock market boom in 1994, there has been hectic activity in the cement
industry in terms of capacity addition. After the boom, when cement prices began to scale
new highs, investors rushed in to set up new capacities. In the period from 1993-94 to
1996-97, cement capacity increased by over 35%, with an annual addition of 8.3MT . The
annual compounded growth in capacity at 10.54% outpaced the consumption growth of
8.8%. This resulted in capacity being created far in excess of requirement, especially in
the northern region of India. The north was the worst affected as most of the cement
capacity addition took place in the limestone rich Madhya Pradesh. Gujarat and
Maharashtra also took the heat with large capacities being set up by Gujarat Ambuja and
Larsen and Toubro. Both these states suffered not only because of excess capacities
within the states, but more so due to the surpluses in neighboring states. The flow of
surplus cement from Madhya Pradesh and Rajasthan made matters worse in Maharashtra
and Gujarat, respectively.
Towards the end of the boom and bust cycle, cement prices fall taking down with
it the cement companies’ profitability. The profitability of cement companies suffered
and the scrip’s took a beating on the stock markets. But the good part is that the glut in
the industry and the resulting crunch in profitability deterred many entrepreneurs from
entering the sector. As it requires at least two years for a cement plant to commence
production from the time orders for plant and machinery are placed and another six
months to stabilize production, major capacity creation was restricted.
58
FINANCIAL YEAR '07
The Indian cement industry with a total capacity of about 165 m tonnes in FY07
is the second largest market after China. Although consolidation has taken place in the
Indian cement industry with the top five players controlling almost 50% of the capacity,
the balance capacity still remains pretty fragmented.
Despite the fact that Indian cement industry has clocked a production of more
than 100 m tonnes for the last five consecutive years, the per capita consumption of
around 130 kgs compares poorly with the world average of over 260 kgs and more than
450 kgs in China. This, more than anything underlines the tremendous scope for growth
in the Indian cement industry in the long term.
Cement, being a bulk commodity, is a freight intensive industry and transporting
cement over long distances can prove to be uneconomical. This has resulted in cement
being largely a regional play with the industry divided into five main regions viz. north,
south, west, east and the central region. While the southern region is excess in capacity
owing to abundant availability of limestone, the western and northern region are the most
lucrative markets on account of higher income levels.
Given the high potential for growth, quite a few foreign transnational have been
eyeing the Indian markets and are planning to acquire domestic companies. Already,
while companies like Lafarge, Heidelberg and Italicementi have made a couple of
acquisitions, majors like Holcim managed to partner a domestic company, Gujarat
Ambuja, and acquire a stake in ACC. After acquiring stake in big companies,
transnational are now eyeing median capacity producers. However, it must be noted that
the transnational will find the going tough since cement is a game of volumes and with
the median capacity of fragmented players being just about 1 m tonne, the transnational
will have to acquire capacities piecemeal and this route is fraught with a lot of
uncertainties.
59
COMPANY ANALYSIS
GUJARAT AMBUJA CEMENTS LIMITED
COMPANY PROFILE
Ambuja Cements was set up in 1986. In the last decade the company has grown
tenfold. The total cement capacity of the company is 16 million tonnes. Its plants are
some of the most efficient in the world. With environment protection measures that are
on par with the finest in the developed world. The company's most distinctive attribute,
however, is its approach to the business. Ambuja follows a unique homegrown
philosophy of giving people the authority to set their own targets, and the freedom to
achieve their goals. This simple vision has created an environment where there are no
limits to excellence, no limits to efficiency. And has proved to be a powerful engine of
growth for the company. As a result, Ambuja is the most profitable cement company in
India, and the lowest cost producer of cement in the world.
VISION
Ambuja cement’s vision statement:

“Energize, involve and enable communities to realize their potential.”
• Ambuja’s vision is very much inspiring.
• It vision statement is also original and unique and very competitive.
• The vision statement indicates long-term thinking.
• It also represents integrity; they are truly genuine and can be used for the benefits
of the people.
• Ambuja cement vision statement is change agent for it employees
Thus helping in creation of common identity and a shared sense of purpose.
MISSION
Ambuja cement’s mission statement:

'Let people set their own targets, give them freedom to achieve them and their
task becomes a personal mission: I CAN'
60
As seen the mission statement of Ambuja cement fulfils various characteristics of

ideal mission statements.
• It is a feasible and very clear and precise mission statement, which gives a source
of inspiration.
• It can also be seen that the mission statement is very distinctive then many other
mission statement
• Ambuja’s mission statement is also very motivating in the sense that it talks of
employees and giving them authority
• The mission statement also indicates how the objectives of the firms should be
accomplished.
• Thus Ambuja cements mission statement is focusing on the unique aim that
differentiates it from similar organization.
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THE COMPANY MANAGEMENT
The Board of Directors consists of 15 members with 5 Independent Directors, a

Managing Director, 4 Executive Directors and 5 Non-Executive Directors. Out of 5 Non-
Executive Directors, 3 Directors were appointed as nominees of Holcim.Mr. Suresh
Neotia continues to be the Non-Executive Chairman. Mr. N.S. Sekhsaria resigned from
the post of the Managing Director on 30th January, 2006 and was appointed as Non-
Executive Vice-Chairman on the same day. Mr. Ani lSinghvi the Whole-time Director
was appointed as the Managing Director on 30th January, 2006.
The Independent Directors on the Board are experienced, competent and highly
renowned persons from their respective fields. The Independent Directors take active part
at the Board and Committee Meetings which add value in the decision making process of
the Board of Directors.
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63
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MARKET PRICE DATA:
The high / low market price of the shares during the year 2005-2006 at the
Bombay Stock Exchange Ltd. and at National Stock Exchange of India Ltd. were as
under:-
200
150
100
50
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6
6
06
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NIFTY Sensex GACL

65
SHARE OF AMBUJA CEMENT IN THE TOTAL CEMENT SALE IN INDIA
SAP
Just as environmental appraisal is structured through as environmental threat and

opportunity profile; organization appraisal can also be structured by a technique proposed
by Glueck known as strategic advantage profile (SAP). In the table below an illustration
of SAP is drawn on Ambuja cements.
66
(Up arrows indicate favorable impact, down arrows indicate unfavorable impact,
while horizontal arrows indicate a neutral impact.)
FINANCE
• Sold 16.3 million tonnes of cement during the year, a growth of

11.6% over the calendar year 2005.
• Operating profit has jumped to Rs.1881 crores against Rs.952
crores in the previous year, an increase of 97%.
• Profit before tax has increased one and a half times to Rs.1616
crores, as against Rs.6 Crores.
• Unlike in the past, they are liable to pay full tax and because of
this, their tax burden has gone up.
MARKETING
• Gujarat Ambuja's strength lies in its ability to produce cement at a

significant discount to the industry so it as a competitive advantage of low cost.
• It also has an effective logistics system.
• As a result Ambuja’s brand continues to enjoy a premium position,
not only for its consistently outstanding quality, but also for the excellent
customer care and support provided.
OPERATION
• The company ranks high in utilizing assets efficiently and as a

result, operating margin is significantly higher than competition.
• Power consists over 40% of the production cost of cement. The
company improved efficiency of its kilns to get more output for less power.
Thereafter Ambuja Cements has set up a captive power plant at a substantially
lower cost than the national grid.
• The company sourced a cheaper and higher quality coal from
South Africa, and better furnace oil from the Middle East. As a result, today, the
company is in a position to sell its excess power to the local state government.
67
• As Gujarat Ambuja has managed to partner Holcim company it has

the following benefits:
• -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
PERSONNEL
• Ambuja follows a unique homegrown philosophy of giving people

the authority to set their own targets, and the freedom to achieve their goals. This
as created an environment where there are no limits to excellence, no limits to
efficiency. And has proved to be a powerful engine of growth for the company.
• Employees are regularly sent abroad to learn the best practices
adopted across the globe in the cement industry. This benefits the company and
the individual with enhanced skills and enriched experiences.
So, it can be said that the workforce of Ambuja cement
• -Highly satisfied and motivated
• -Efficient and effective personnel system
INFORMATION
• Computerized system install in company.

• The quarterly, half-yearly and yearly financial results of the
company are sent to the Stock Exchanges immediately after the Board approves
these. These are widely published in The Economic Times, The Financial Express
and Jaihind. These results are simultaneously posted on the website of the
company at http/www.gujaratambuja.com and on the Electronic Data Information
Filing and Retrieval (EDIFAR) website maintained by SEBI in association with
the National Informatics Center (NIC).
GENERAL MANAGEMENT
• The management is aggressive and visionary.
68
• It can also be observed that management is very effective due to

which it is the largest exporter of cement.
SWOT ANALYSIS: -
SWOT, which is the acronym for strengths, weakness, opportunities and threats,
is carried out for Ambuja cement.
Through such analysis, the strengths and weaknesses existing within the
organization can be matched with the opportunities and threats operating in the
environment so that an effective strategy can be formulated.
STRENGTHS:
• Most profitable cement company in India.

• Lowest cost producer of cement in the world.
• India's largest exporter of cement.
• The company sourced a cheaper and higher quality coal from South Africa, and
better furnace oil from the Middle East.
• Effective and well managed distribution channels
• Ambuja cement has been a partner with Holcim, which provides it with
advantages like economies of scale resulting from the larger size of operations,
savings in the time and cost required to set up a new unit and access to new
markets
WEAKNESS:
• Availability of coal: -The availability of coal is critical for their existing plants
and for new expansions. The demand for coal is higher than its supply. The
Ministry of Coal has responded to the shortage
• Transportation: - A judgment of the Supreme Court of India banned over-loading
of transport trucks. As a result, the availability of trucks to move he required
quantity has become a serious constraint
OPPORTUNITIES:
69
• Cement demand has grown in tandem with strong economic growth; derived
from:
• Growth in housing, retail chain and SEZ
• Infrastructure projects like ports, airports, power projects, dam & irrigation
projects
• National Highway Development Programme
• Bharat Nirman Yojana for rural infrastructure
• Rise in industrial projects
• Export potential
THREATS:
• Government intervention to adjust cement prices

• Coal prices climbing up; industry players say current shortage of coal in the
country is estimated to be over 10 million tonnes
• Cement Industry is highly fragmented
• Industry is also highly regionalized
It can been seen that AMBUJA CEMENT strengths outright it threat as it can been
seen that coal prices are rising and so the company sourced a cheaper and higher quality
coal from South Africa, and also has started it power plant so that it can keep it cost of
production under control as power accounts for 40%of cement input.
At the same time as judgment of the Supreme Court of India banned over-loading
of transport trucks. Ambuja cement was the company pioneered the use of ship
transportation to cut freight costs
Ambuja cement has been a partner with Holcim, which provides it with
advantages like economies of scale resulting from the larger size of operations,
savings in the time and cost required to set up a new unit and access to new markets
as 100% FDI is now allowed in cement sector this will help the company to
strengthen itself from foreign competitor in future.It can be said that Ambuja cement
is building on it strength to take the advantage of the opportunity in cement industry
70
because of high growth rate at the same time overcoming it weaknesses and threat by
taking proactive strategic decisions.
Relevance Of Porter’s Generic Strategy For Ambuja Cement:

Ambuja Cement as adopted Cost Leadership strategy:
Cost leadership strategy is best-suited strategy for Ambuja cement as: -
• Cement is undifferentiated product Ambuja cement with cost leadership strategy

would earn the highest profits in the event when the competing As this strategy is
usually associated with large-scale businesses offering "standard" products with
relatively little differentiation that are perfectly acceptable to the majority of
customers, so cost leadership is a perfect strategy.
• Secondly as brand does not play an important role in the industry but price is a
very important factor to sustain in the industry it favors Ambuja cement, as it is
the cost –leader in the industry.
• Thirdly as consumer have a more power on the industry, which is unfavorable for
the industry but have, a positive impact on the company as Ambuja's strength lies
in its ability to produce cement at a significant discount to the industry so it as a
competitive advantage of low cost.
AMBUJA CEMENT – THE COST LEADER
Ambuja Cement Ltd is widely considered to be the producer with the lowest costs
in the Indian cement industry. It has won various awards for management excellence,
quality, and environmental management. Quest for cost leadership had been driven by
various productivity improvements and cost cutting measures. The company's modern
plants, large kilns, high degree of automation, low power and fuel costs has helped it to
control costs in a way which was unmatched in industry. Ambuja cement had cut energy
costs by reducing the usage of coal through use of substitutes like crushed sugarcane. The
company operated most of its plants at above 100 per cent capacity utilizations. The
company's engineers have absorbed the best practices in mining and manufacturing
during visits to overseas plants in countries like Japan and Australia. The company
pioneered the use of ship transportation to cut freight costs and also established the
71
necessary infrastructure like ports, freight and handling terminals. Low-cost funds helped
Ambuja cement to cut the cost of capital.
Ambuja Cement Effort Towards Cost –Cutting Measures
FREIGHT
Cement, being a bulk commodity, is a freight intensive industry and transporting

cement over long distances can prove to be uneconomical. At the same time as judgment
of the Supreme Court of India banned over-loading of transport trucks. Ambuja cement is
the company pioneered the use of ship transportation to cut freight costs i.e. the use of
ship transportation to cut freight costs and also taken up by steps to streamline its
logistics. Ambuja cement was one of the first cement producers of the country to
introduce an Integrated Logistics System (ILS).
POWER
Ambuja cement is relying more on captive power as power consists over 40% of
the production cost of cement. The company improved efficiency of its kilns to get more
output for less power. Thereafter Ambuja Cements has set up a captive power plant at a
substantially lower cost than the national grid. As a result, today, the company is in a
position to sell its excess power to the local state government. This has lead to the lower
cost of production of cement for Ambuja cement.
COAL
Shortage of coal and rising fuel prices remain a concern. Hence, the company
response has largely been in the form of achieving efficiency gains and finding
alternatives. The shortage in domestic coal production coupled with the poor quality has
resulted in resorting to importing coal, or going in for open market purchase of coal, or
using alternative fuel such as lignite or pet coke.
72
Ambuja cement sourced a cheaper and higher quality coal from South
Africa, and better furnace oil from the Middle East. Also Ambuja cement had cut
energy costs by reducing the usage of coal through use of substitutes like crushed
sugarcane. Ambuja cement operated most of its plants at above 100% capacity
utilization.
TECHNOLOGICAL CHANGES
The company has undergone vital changes though technological up gradation in
the pursuit of cost efficiency and the drive for consolidation. Modernization at the plants
and the improvement of plant processes has helped reduce manpower requirements
leading to cost reduction in the production of cement.
MERGERS AND ACQUISITION :

Gujarat Ambuja seems to be emerging an aggressive amalgamator. Not only has
the Ambuja cement cut energy and freight costs aggressively, but it also has become
active in the Mergers & Acquisitions (M&A) arena. Aggressive amalgamators show an
uncanny ability to develop the right business model for a company.
Gujarat Ambuja has managed to partner Holcim Company as it has the following
benefits:
-Economies of scale resulting from the larger size of operations
-Savings in the time and cost required setting up a new unit
-Access to new markets
-Access to special facilities / features of the acquired company
This again leads to enrich Ambuja’s ability to enhance its position as a cost –
leader in cement industry.
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SUBSIDIARIES, ALLIANCES, & FINANCIALS
• Company has grown from 0.7 MT in 1986 capacity to 10.5 MT in 2001. After
commissioning plant in Maharashtra, company’s capacity will stand at 12.5 MT.
• The company’s first acquisition was Modi Cement (now Ambuja Cement Eastern
Ltd.) in FY 1998, which was a loss making company since inception. This
company has turned around in June 2001 recording a profit of Rs. 7 crore. It is
setting up 1 MT grinding unit near Kolkata to serve the potentially huge Kolkata
market. Company is also setting up additional CPP with capacity of 10 MW
taking the total to 18 MW, which is likely to reduce the power cost substantially
from Rs. 333/- per ton in FY 2001 to Rs. 287 per ton in FY 2002. The company
expects total direct cost to decrease from Rs. 831 per ton in 2001 to Rs. 765 in
2002.
• Company’s second acquisition was DLF Cement (now Ambuja Cement Rajasthan
Ltd.) in FY 2000. This company was loss making since inception due to
production of poor quality cement resulting in negative brand image, large sales
to institutional buyers through C&F mode and high interest cost. Post acquisition
the focus has changed on manufacturing only 53 grade cement (highest grade) to
leverage strong brand image of Ambuja Cement, on trade sales in Rajasthan,
Delhi and Haryana, appointment of dealers displacing C&F agents and debt
restructuring. Company has also taken other initiatives like increasing CPP to 21
MW, better logistics, reducing interest costs and use of pet coke as fuel. This
initiatives would result in reducing the direct cost from Rs. 880 per ton in FY
2001 to Rs. 820 per ton in FY 2002 without using pet coke / to Rs. 775-780 per
ton using pet coke in FY 2002.
• The company has entered into strategic alliance with ACC, which has so far been
good experience for both. There are lots of benefits accruing to both companies
like exploring synergies for better performance, from competing with each other
to co-operation, vendor development and R&D (R&D in cement is not about how
to produce cement but hoe to use cement).
• The company has funded its capex requirements for expanding capacity from 2.5
MT in 1993 to 12.5 MT thru debt and internal only except for equity dilution in
74
December 2000. This equity dilution was also thru compulsion. Company had
huge capex in last one year and gearing was almost 100 per cent in this year,
hence company had to go for equity dilution.
FINANCIAL YEAR '07

• During FY07 production and consumption increased by 9% and 10%
respectively. Further, it must be noted that owing to its location advantage, India
has significant potential to cater to the cement requirements of the Middle East
and the South East Asian nations.
• Although the demand grew by only 10%, average industry cement realizations
were higher by about 20% to 30% YoY on account of continued strong demand
for the commodity. In effect, we believe that FY07 was one of the best years for
the industry.
• With a view to make imports of cement competitive and moderate prices by
increasing availability of cement, the Government of India abolished customs
duty of 12.5%, countervailing duty (16%) and special additional customs duty
(4%). However, imports do not pose a big threat since prices of cement in India
are lower than those prevailing in the international markets. Moreover, the storage
facilities on the Indian ports are inadequate for large-scale imports. The
government has continued to provide a fillip to the infrastructure sector in the
budget. While the budget emphasized a great deal on the completion of various
irrigation projects, it raised the outlay for the national highway development
programmed.
75
PROSPECTS
The industry is likely to maintain its growth momentum and continue growing at
around 8% to 10% in the medium to long term. Government initiatives in the
infrastructure sector and the housing sector are likely to be the main drivers of growth for
the industry.
With no major capacities coming onstream in the near term, the demand supply
equilibrium is expected to continue and this will help prices to remain firm. However,
capacity additions announced till date will add approximately 75 MT to the existing
capacity, the bulk of which will come onstream from CY09 onwards. We believe this will
start imposing downward pressure on cement prices in the country.
Further, the possibility of interest rates heading north and the consequent impact on
housing demand remains to be seen. While infrastructure spending has been a boon, there
was a strong cushion from the steady growth of the construction sector (read housing).
The importance of the housing sector in cement demand can be gauged from the fact that
it consumes almost 75%-80% of the country’s cement. If this support wanes, it would
impact the growth in consumption of cement, leading to demand supply mismatch. Also,
the hike in prices of coal and petroleum products could impact cement companies
margins.
The budget measures such as cut in import duty from 12.5% to nil, removal of 16%
countervailing duty, 4% additional customs duty on portland cement and differential
excise duty are all aimed at reducing prices and increasing availability. Moreover, so far,
they have been proved to be futile and in the future too, we believe that it is the market
dynamics that will determine these variables.
76
RISKS & AREAS OF CONCERN
Looking ahead to identifying and respond tochanging conditions
COAL:
The availability of coal is critical for our existing plants and for new expansions. The
demand for coal is higher than its supply. The Ministry of Coal has responded to the
shortage by reducing linkages and forcing cement companies to source coal frame-
auctions at highly inflated rates – sometimes40% to 50% higher than the notified prices.
The Supreme Court intervened and issued an order banning this exploitative practice.
There are indications that even the old system of coal allocation through Standing
Linkage Committee is being done away with. The Ministry of Coal is working on a new
scheme for allocation of resources. Currently, the situation is tenuous. Not much progress
has been made on the allotment of coal blocks to cement companies. We will have to
respond in ways to ensure energy security in the coming years.
TRANSPORT:
A judgment of the Supreme Court of India banned over-loading of transport trucks. As a

result, the availability of trucks to move the required quantity has become a serious
constraint. Many companies have shifted up to 15% of their dispatches from road to rail
transport, putting pressure on availability of rakes. Apart from the transportation costs
going up, the availability of cement to consumers may be affected.
77
RATIO ANALYSIS
Mere statistics/data presented in the different financial statements do not reveal the true
picture of a financial position of a firm. Properly analyzed and interpreted financial
statements can provide valuable insights into a firm’s performance. To extract the
information from the financial statements, a number of tools are used to analyse such
statements. The most popular tool is the Ratio Analysis.
Year 2004 2005 2006

Ratios
Current Ratio 0.78 0.91 1.16
Inventory 6.17 6.96 5.18
Conversion
period
Average 6.77 5.54 7.03
collection
period
Creditors 55.58 43.51 59.35
deferral period
Earnings per 18.77 3.46 6.61
share
Dividend per 7.92 1.51 2.03
share
78
INTERPRETATION:-
CURRENT RATIO
CURRENT RATIO
50
PERCENTAGE
40
30 AMBUJA
20 CAMENT LIMITED
10
0
1 2 3
YEAR
The current ratio measures the ability of the firm to meet its current liabilities from the
current assets. Higher the current ratio, greater the short-term solvency (i.e. larger is the
amount of rupees available per rupee of liability). The current ratio of Gujarat ambhuja
cement has increased over the years& it is reaching its ideal of 2:1 which shows that the
liquidity position of Gujarat ambhuja cement is increasing & its ability to pay short –
term obligations is also increasing.
INVENTORY CONVERSION PERIOD
FG INVENTORY
50
PERCENTAGE
40
30 AMBUJA
20 CAMENT LIMITED
10
0
1 2 3
YEAR
79
The inventory turnover ratio tells the efficiency of inventory management. The inventory
conversion period should always be less because it indicates the time period in converting
finished goods into sales. In the year 2005, the conversion period of Gujarat ambhuja
cement has increased which shows its operating inefficiency. But in the year 2006 the
inventory conversion period has come down which shows its efficiency in turning its
finished goods into sales. It also shows that the fund blocked in inventory has decreased
which can be used for other profitable things.
AVERAGE COLLECTION PERIOD
RECEIVABLES
50
PERCENTAGE
40
30 AMBUJA
20 CAMENT LIMITED
10
0
1 2 3
YEAR
Average Collection Period represents the number of days’ worth credit sales that is
locked in debtors (accounts receivable).In the year 2005, the ratio has decreased which
shows the credit collection efficiency of Gujarat ambhuja cements in turning its debtors
outstanding money into cash. But in the year 2006 the Average Collection Period has
increased but is basically due to increase in credit sales of ambhuja cements ltd.
80
CREDITORS DEFERRAL PERIOD
CREDITORS
50
PERCENTAGE
40
30 AMBUJA
20 CAMENT LIMITED
10
0
1 2 3
YEAR
Creditor’s deferral period shows the credit period given by creditors till which we can
postpone making payment to creditors. In the year 2006, the ratio has decreased which is
due to increase in credit purchases .But in the year 2006, in spite of increase in credit
purchases the ratio has increased which is due to the fact that creditors confidence in
short – term liquidity of the firm has increased which may also be due to improvement in
liquidity ratio.
EARNINGS PER SHARE
EPS
50
40
30 AMBUJA
Rs
20 CAMENT LIMITED
10
0
1 2 3
YEAR
EPS measures the profit available to the equity shareholders per share, that is, the amount
that they can get on every share held. It is calculated by dividing the profits available to
the shareholders by number of outstanding shares. It indicates the value of equity in the
81
market. Since the EPS of Gujarat ambhuja cement has decreased drastically in the
year2005 which does not make it a favorable investment for existing as well as new
shareholders. But in the year 2006, the ratio has improved which shows the confidence of
the investors in the current & future earnings of Gujarat ambhuja cements ltd.
DIVIDEND PER SHARE
DPS
50
40
30 AMBUJA
Rs
20 CAMENT LIMITED
10
0
1 2 3
YEAR
Dividend per share ratio shows the proportion of EPS which is being declared as
dividends. The DPS has decreased drastically in the year2005 which is mainly due to
drastic decrease in EPS. In line with EPS the DPS of ambhuja cement ltd. has improved
which is mainly due to the fact that due to increased earnings the Gujarat ambhuja
cements has declared more dividend thus making it attractive for existing as well as
prospective shareholders.
82
CONCLUSION
Studying by the fundamentals it can be conclude that the further outlook of cement
industry is very positive.
As brand does not play an important role in the industry but price is a very
important factor to sustain in the industry it favors Ambuja cement, as it is the cost –
leader in the industry. The company focuses on strategy that makes the operations more
efficient and cutting costs wherever possible. It may result from scale efficiencies, tight
overhead control, and careful selection of customers, standardization and automation. As
a result the company ranks high in utilizing assets efficiently and as a result, operating
margin is significantly higher than competition.
Since the GDP of Indian economy is growing at 9.4% and the government is also taking
initiatives for improvement of infrastructure sector, the prospect for Ambhuja Cement
Ltd is positive for the purpose of investment.
83
RECOMMENDATIONS
• The financial structure of the company has always been very strong. There is
some sort of doubt with the investors that the company is highly indebted and
other financial worries. However, the company has always enjoyed good
margins, gearing is also not very high, never diluted stake at throw away prices
and everything has gone as planned.
• The company has no other alternative than to increase spending for construction.
In next 5 years cement consumption is going to double in India. Prime mover for
cement demand will be housing sector, construction sector and infrastructure
sector. As cement layers are becoming more matured, fragmentation is getting
reduced, which will result in stable cement prices.
• Current valuations given to domestic cement companies are very low as
compared to valuations given to international companies. Valuations are even
below replacement cost and that also for a product, which has no substitute. So, it
is recommended to accumulate the stocks of Ambuja Cement Limited at the
current price as currently its valuations are low and its fundamentally strong
company.
84
BIBLIOGRAPHY
• Financial Management by Prasanna Chandra

• www.indiainfoline.com
• www.geojit.com
• www.icicidirect.com
• www.moneycontrol.com
• www.nseindia.com
• www.bseindia.com
• www.ibef.org
• www.managementparadise.com
• www.moneypore.com
• www.buzzingstocks.com
• www.wikipedia.org
• www.petroleum.nic.in
• www.indiabudget.nic.in
• www.ongcindia.com
• www.hindustanpetroleum.com
• www.iocl.com
85

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ANALYSIS OF CEMENT SECTOR AS AN INVESTMENT AVENUE

IN PARTIAL FULFILLEMENT OF THE REQUIREMENTS OF

This project is an attempt to understand the basics of stock market. A project

The following project is a study of the Indian Stock Market & an

The objective of my internship is as follows:

1.1 COMPANY PROFILE

• To be the premier provider of investment advisory and financial planning services

Uniform Service Standards

High reliance on equity segment

Mr. Nirmal Jain

R Venkataram is the co-promoter and Executive Director of India Infoline Ltd.

The Board of Directors

I have been done my summer internship in India Infoline Securities Private

India Infoline Securities Pvt. Ltd. (5paisa.com) performs as intermediary between

The main objectives are as follows:

Strategy in acquiring new customers

Overview of the Capital Market

Capital market instruments can be categorized into 3 categories

The First Stock Market:

Importance of stock market:

Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable

Regulators of Stock Market:

The absence of conditions of perfect competition in the securities market makes

• Calling for information from, undertaking inspection, conducting inquiries

IMPACT OF STOCK EXCHANGES IN INDIA:

Following are the changes due to the existence of Stock Exchange:

2. Increase in rate of return on investment

3. Availability of funds for growth of industries.

6. Increase in standard of living

8. Decrease in Trade Deficit.

ISSUES AND PRIORITIES FOR INDIA

Gross Domestic Product of India

Trend in Growth Rate

target of 10 per cent annual industrial growth appears achievable.

Major key economic indicators

Mumbai, Hyderabad, Bangalore, Goa and Pune by 2010. The company

Foreign Direct Investment

It is evident. India is in the reckoning. And the figures appear to be improving by

Growth In The World Production

According to financial advisory firm PricewaterhouseCoopers, India, along with

Foreign Institutional Investors

The Key Industry Check

Agriculture -- across the expanse of India -- is heralding the country's second

Growth in financial services (comprising banking, insurance, real estate and

Thus it can be concluded India's economy is on the fulcrum of an ever-increasing

India's infrastructure has been growing at an accelerating pace to support the

Sector Weight (%) Apr-Mar 2005- Apr-Mar 2006-

According to the prime minister’s committee on infrastructure (CoI), the

A substantial share of this investment is expected to come from private sector—

Simultaneously many India dedicated infrastructure funds are coming up.

• The Centre's budgetary allocation to JNNURM has increased from US$

CAPACITY UTILIZATION – HIGHEST IN LAST 10

180.00 93.05 100.00

Capacity Installed Cement Production Capacity Utilisation

Competition is also localized because the cost of transportation of cement to distant

some parts of Kerala and have risen in Tamilnadu and Karnataka.

region with sharp rise in Delhi and Himachal Pradesh markets.

prices too have risen by around 3% across the region.

INDIA’S TOTAL CEMENT SALE

EVALUATING THE CEMENT INDUSTRY –PORTER’S

management can decide how to influence or to exploit particular characteristics of their