Equity
Research: Cement Sector/Industry
in India
Zankhan Chandarana
18021141028
MBA 2018-2020
1
Table of Contents
Sr no Topic Page Number
1 Executive Summary 4
2 Introduction to Broking Industry 5
3 Pestel Analysis of Broking Industry 8
4 Porter 5 Forces analysis of Broking Industry 9
5 About Nirmal Bang 12
6 Project Specific Analysis 13
7 Economy Industry Analysis: Cement Sector 14
8 Company Analysis: UltraTech Cement 23
2
ACKNOWLEDGEMENT
I would like to use this opportunity to thank everyone who has helped me throughout the
course of this MBA internship. I cherish the guidance, invaluable constructive criticism and
friendly advice given to me during these two months which have helped me complete this
internship successfully.
I express my deep sense of gratitude to Mr. Sunil Jain, Head of Equity Research at Nirmal Bang
Securities Private Limited for firstly in suggesting this project to me as well as his constant
support and guidance.
I am ever so grateful to Mr. Nandish Shah, my mentor and guide for the 2 months. Without
your help, guidance & patience I would have not been able to make this project as well as
transforming the internship into a successful learning process.
I would like to thank my faculty mentor, Dr.K.P.Venugopala Rao, without his timely inputs
regarding the expectations from the project, I would not have been able to form this project in
a successful manner and I would also like to thank him for every valuable suggestion he has
given for the betterment of the project.
An last but not the least, I want to extend a huge feeling of gratefulness and humility to all my
fellow workers at Nirmal Bang Securities Private Limited, especially Mrs. Archana Bhattacharjee
for all the love, acceptance, guidance and encouragement you bestowed on me during my 2
months here at Nirmal Bang. I will always cherish the support and help you have given me
without which this learning process would be incomplete.
Everyone mentioned has helped mould me into a better professional with insights and
suggestions that have helped me widen my horizons and have taught me so much. The skills
and experience that I have received in the last 2 months has been my biggest learning.
Thanking you,
Zankhan Rajen Chandarana
3
Executive Summary
The purpose of this report is to do equity research on Cement sector whereby opportunities of
investment yielding higher returns can be analysed. The industry is analysed on the basis of
various factors and indicators. Ratios were calculated and then the growth and value of the
stocks were estimated.
The basics of Technical analysis are understood, including various types of graphs, and the same
is used to relate to the stocks and price charts of the companies under consideration.
This report will help the investors to know about the current growth prospects of Indian
Economy in relation with Cement sector. A basic understanding of the factors affecting this
sector and their impact on the growth of the sector can be attained. As a result, investors can
take better investment decisions.
Nirmal Bang Securities Private Limited, one of the leading stock broking companies in India,
caters to retail and institutional clients by offering them a range of financial products and
services, including equities, derivatives, commodities, currency derivatives, mutual funds, IPOs,
insurance, depository services and PMS.
To conclude, we will look at the broking industry as whole as well and gain insights on the top
players of the cement sector and their performance over the years.
4
1. Introduction
1.1 India Stock Broking Industry
The brokerage industry is currently characterized by a large number of companies (private or
unorganized). In effect it is a fragmented industry with a large number of participants. The
industry thus has ‘monopolistic competition’, i.e. a large number of firms selling a slightly
differentiated product.
Indian stock broking industry is the oldest trading industry that has been around even before
the establishment of BSE in 1875. Despite passing through a number of changes in post
liberalization period, the industry has found its way towards sustainable growth. With the
purpose of gaining deeper understanding about the role of Indian stock broking industry, in the
country’s economy, let us have a look at the following data-:
• On the basis of geographical concentration, Western region has maximum of 52%,
around 24% are located in the North, 13% in South, and 10% in the East.
• 3% of firms started broking operations before 1950, 65% between 1950-1995, and 32%
post 1995.
• On the basis of terminals 40% are located in Mumbai, 12% in Delhi, 8% in Ahmadabad,
7% in Kolkata, 4% in Chennai, and 29% in other cities.
• From the study it was found that 36% of firms trade in cash, 27% in derivatives, and 20%
in cash, derivatives and commodities.
• In the cash market, 34% trade in NSE, 14% in BSE, 45% in both. Whereas in debt market,
31% trade in NSE, 26% trades in BSE, and 43% in both.
• Majority branches are located in North, i.e. 40%, 31% in West, 24% in South, and 5% in
East.
• In terms of sub-brokers, around 55% are located in South, 29% in West, 11% in North,
and 4% in East.
• Trading, IPOs and Mutual Funds are the top three products offered by 90% of firms
offering trading, 67% IPOs, and 53% offering Mutual Fund transaction.
• In terms of various areas of growth, 84% of firms have shown their interest in expanding
their institutional clients, 66% firms intend to increase FIIs, and 34% are interested in
setting up Joint Ventures in India and abroad.
In terms of IT penetration 62% firms have their own website, and 90% have email facility.
5
1.2 Phases of Indian Broking Industry
In 1991, Manmohan Singh, as Finance Minister in Narasimha Rao’s government, embarked on a
programme of liberalization prompted by an acute balance-of-payment crisis.
Indian Brokerage Industry-Pre 2000
• Post liberalization period.
• Business restricted to friends and relatives.
• Settlement T+15 days.
• Low trade volumes- No derivatives trading allowed.
• Lack of investment in technology- No front or back office software.
Indian Brokerage Industry 2000-2008
• Venture capital funding for brokerage businesses.
• Investment in technology- Front end and back end.
• National presence.
• Integrated risk management system.
• Significant increase in trade volumes- Derivatives trades play a major role.
• Margin funding for the retail clients.
6
Indian Brokerage Industry 2009 onwards
• Paradigm shift from transaction oriented to research/ portfolio based advisory.
• Focus on franchisee based business model.
• Dematerialized accounts access for international trade.
• Access to international stock exchange.
• Trading on hand held platform (mobile phones etc) allowed.
1.3 Demand & Supply Drivers
a. Demand Drivers
• Availability of information
• Access to alternatives
• Potential yield
• Risk Rating
• Liquidity
b. Supply Drivers
• Money supply
• Interest rates
• Inflation
• Economic conditions
• Government Regulations
1.4 Critical Success Factors
7
Seeing the overall brokerage as a single unit, the key success factors or the winning strategy of
Indian Brokerage Industry is a mixture of:
• People, Process, Technology
1.5 PESTEL analysis of Indian Brokerage Sector
PESTEL analysis stands for "Political, Economic, Social, Technological, Environmental and Legal
analysis" and describes a framework of macro-environmental factors used in the environmental
scanning component of strategic management. It is a part of the external analysis when
conducting a strategic analysis or doing market research, and gives an overview of the different
macro environmental factors that the company has to take into consideration. It is a useful
strategic tool for understanding market growth or decline, business position, potential and
direction for operations.
• Political factors are how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental
law, trade restrictions, tariffs, and political stability.
• Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and make
decisions. For example, interest rates affect a firm's cost of capital and therefore to
what extent a business grows and expands.
• Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social
factors affect the demand for a company's products and how that company operates.
• Technological factors include technological aspects such as R&D activity, automation,
technology incentives and the rate of technological change. They can determine barriers
to entry, minimum efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality and lead to innovation.
• Environmental factors include ecological and environmental aspects such as weather,
climate, and climate change, which may especially affect industries such as tourism,
farming, and insurance.
• Legal factors include discrimination law, consumer law, antitrust law, employment law,
and health and safety law. These factors can affect how a company operates, its costs,
and the demand for its products.
8
1.6 Porter Five Forces Analysis of Indian Stock Broking Industry
a. Competition in the Market
The industry is now in a fairly high growth phase. However, the brokerage industry is very
cyclical and is impacted by activity levels in the markets. During the downturns such as 2008-
2009 periods, the smaller players were squeezed out of the business. As a result, there is a
contrast consolidation happening in the industry.
b. Potential of New Entrants
A new entrant in addition to the above also needs a reasonable level of capital to fund the
working requirements of the business (finance to customers, deposits with exchanges, etc.).
The scale requirements are increasing constantly and as a result a new entrant will require
higher levels of investments in the future to enter the business. As pointed out, it is likely to see
many entrants in the industry. On the contrary, it is likely that the smaller players will exit by
selling out or closing.
c. Power of Suppliers
It is not very relevant in most segments except investment banking, where employees control
client relationships and hence have to be highly compensated.
d. Power of Consumers
This is important in the institutional brokerage business which involves high volume and low
brokerage charges. The extent of buyer power is very low to non-existent in all kinds of retail
segments.
e. Threat of Substitutes
The products offered by all firms in this industry are similar. Difference, if any, is negligible.
Investing rather saving in the bank rather than investing in a brokerage firm can be one option;
else this is not applicable for this industry.
9
1.7 Top players in the Indian Stock Market
The following table depicts the increase in the number of clients of the top 5 broking firms in
India.
10
1.8 Literature Review
1. Al Ries and Jack Trout, in his work said “differentiate or die”, too many less
differentiated products creates a kind of information overload, and in this clutter of too
much information, products which are not properly differentiated or advertised just end
up becoming a me too product. To avoid it every marketer needs to position his/ her
products in a way that makes a specific image in the minds of consumers.
(Source:
https://www.academia.edu/7740827/A_SUMMER_TRAINING_REPORT_ON_ANALYSIS_
OF_INDIAN_BROKING_INDUSTRY_AND_COMPETITIVE_POSITION_OF_MASTER_TRUST_L
TD._SUBMITTED_BY_RAJDEEP_SINGH)
2. Jack Miller, in his work published on June 03, 2010, talked about how investors make
investment decisions. He broke the process of decision making in pulling the buy or sell
trigger. According to him investors made the investment decisions in the ways like
simple screening, then lateral recommendation, followed by piggy bank investing.
(Source:
https://www.academia.edu/7740827/A_SUMMER_TRAINING_REPORT_ON_ANALYSIS_
OF_INDIAN_BROKING_INDUSTRY_AND_COMPETITIVE_POSITION_OF_MASTER_TRUST_L
TD._SUBMITTED_BY_RAJDEEP_SINGH)
3. According to U.S. Securities and Exchange Commissions’, one of the articles: investors
first evaluate their current financial roadmap, and then they evaluate their comfort zone
in taking on risk. Consider an appropriate mix of investments, create and maintain an
emergency fund, consider dollar averaging, consider rebalancing portfolio occasionally,
and in the process also try to avoid the circumstances that can lead to fraud.
(Source: https://www.sec.gov/investor/pubs/tenthingstoconsider.htm)
11
2. About Nirmal Bang Securities Private Limited
2.1 Basic Information
Nirmal Bang Securities Private Limited is a Private incorporated on 12 September 1997. It is
classified as Non-govt. company and is registered at Registrar of Companies, Mumbai. Its
authorized share capital is Rs. 285,000,000 and its paid up capital is Rs. 59,310,700.
Directors
Dilip Bang Mishrilal
Kishore Mishrilal Bang
Sunil Hanumanmal Jain
Sameer Kamdar Pranlal
Rakesh Premchand Bhandari
Office Address:
B-2 302,MARATHON INNOVA,GANPATRAO KADAM MARG PENINSULA CORPORATE PARK
LOWER PAREL WEST MUMBAI Mumbai City MH 400013 IN
Date of Incorporation: 12th September 1997
Company CIN: U99999MH1997PTC110659
Registration Number: 110659
2.2 Mission & Vision
Mission: “To work together with integrity and make our customers feel valued.”
Vision: “To create valuable relationships and provide the best financial services most
professionally.”
Core Value: “Respect our colleagues and the business itself.”
12
2.3 Products and Services Offered
Equities &
Derivatives
Trading
Depository
Forex Trading
Services
Products
&
Services
Margin
Commodities
Funding
Institutional
Broking
13
3. Project Specific Analysis
3.1 Objective of the Project
• To provide a general overview of the Cement sector in India
• To identify the growth and demand drivers of the particular sector
• To see the impact of the factors affecting the cement industry on the industry leader
Ultratech cement
• Conducting fundamental analysis of the top players in the cement sector and the impact
on company’s performance and financials due to the changes in certain factors
• Learning the basics of technical analysis and how to read certain types of charts and
graphs which will be described in the project later
3.2 Research Methodology
The data collected would be secondary wherein the information collected would be on the
cement sector through various websites, news articles, industry reports etc.
The annual report and annual results of the companies will be the primary source of data when
it comes to collecting data related to the performance of the company.
3.3 Schedule
The 8 week summer internship programme will be primarily focused towards the learning of
the cement industry. As my guide correctly put it to me, “ You should be able to answer any
question related to cement industry in the future.” The initial 4 weeks will be targeted towards
understanding of the cement industry. The various factors that will affect the prices of the
various raw materials, operating costs etc. April being the month in which most of the
companies will publish their performance for the FY 2019-2020, the second half of the
internship will be more focussed on understanding the annual reports of Ultratech cement and
the potential impact of these factors and the company performance on the share prices of the
company.
3.4 Limitations
The time limit of 8 weeks is a very limited timespan to conduct the research as the cement
industry is very dynamic. The chances of missing out key areas is high.
The secondary data used for the purpose of the research is not fully reliable.
Natural calamities can totally toss the estimates
14
3.5 My efforts to overcome the limitations
• Since the research is only being carried out for two months, to do justice to the
research, data was collected from various sources and several reports had been read
thoroughly.
• The data being secondary in nature was thoroughly verified again by reading several
reports from leading rating agencies, companies own annual reports etc.
3.6 Economy Industry Analysis
I. History of Cement Industry in India
a. Indian Cement Industry Pre Independence
The first endeavour to manufacture cement dates back to 1889 when a Calcutta based
company endeavoured to manufacture cement from Argillaceous (kankar).
But the first endeavour to manufacture cement in an organized way commenced in Madras.
South India Industries Limited began manufacture of Portland cement in 1904.But the effort
did not succeed and the company had to halt production.
Finally, it was in 1914 that the first licensed cement manufacturing unit was set up by India
Cement Company Ltd at Porbandar, Gujarat with an available capacity of 10,000 tons and
production of 1000 installed. The First World War gave the impetus to the cement industry still
in its initial stages. The following decade saw tremendous progress in terms of manufacturing
units, installed capacity and production. This phase is also referred to as the Nascent Stage of
Indian Cement Industry.
During the earlier years, production of cement exceeded the demand. Society had a biased
opinion against the cement manufactured in India, which further led to reduction in demand.
The government intervened by giving protection to the Industry and by encouraging
cooperation among the manufacturers. In 1927, the Concrete Association of India was formed
with twin goals of creating a positive awareness among the public of the utility of cement.
b. Indian Cement Industry Post Independence
The growth rate of cement was slow around the period after independence due to various
factors like low prices, slow growth in additional capacity and rising cost. The government
intervened several times to boost the industry, by increasing prices and providing financial
incentives. But it had little impact on the industry.
15
In 1956, the price and distribution control system was set up to ensure fair prices for both the
manufacturers and consumers across the country and to reduce regional imbalances and reach
self-sufficiency.
c. Period of Restriction (1969-1982)
The cement industry in India was severely restrained by the government during this period.
Government hold over the industry was through both direct and indirect means. Government
intervened directly by exercising authority over production, capacity and distribution of
cement and it intervened indirectly through price control.
In 1977 the government authorized higher prices for cement manufactured by new units or
through capacity increase in existing units. But still the growth rate was below par.
In 1979 the government introduced a three tier price system. Prices were different for cement
produced in low, medium and high cost plants.
However, the price control did not have the desired effect. Rise in input cost, reduced profit
margins meant the manufacturers could not allocate funds for increase in capacity.
d. Partial Control (1982-1989)
To give impetus to the cement industry, the Government of India introduced a quota system in
1982.A quota of 66.60% was imposed for sales to Government and small real estate developers.
For new units and sick units a lower quota at 50% was affected. The remaining 33.40% was
allowed to be sold in the open market.
These changes had a desired effect on the industry. Profitability of the manufacturers increased
substantially, but the rising input cost was a cause for concern.
e. Post Liberalisation
In 1989 the cement industry was given complete freedom, to gear it up to meet the challenges
of free market competition due to the impending policy of liberalization. In 1991 the industry
was de licensed.
This resulted in an accelerated growth for the industry and availability of state of the art
technology for modernization. Most of the major players invested heavily for capacity.
To maximize the opportunity available in the form of global markets, the industry laid greater
focus on exports. The role of the government has been extremely crucial in the growth of the
industry.
16
f. SWOT Analysis
Strength
• India is the second largest producer of cement in whole world and china is at first place.
• India is a developing country so production cost of cement is very less.
• Easy availability of labor for cement companies.
• Availability of high grade limestone mines in India.
Weakness
• Demand Supply Gap ( to be explained in the final report)
• Overcapacity
• GDP impact over cement companies
• Increased cost of production or coal
• High interest rate on housing sectors
Opportunities
• Strong growth of Indian economy
• Increased infrastructure growth
• Technological advancements in machines and equipment’s for production process of
cement in India.
• Rise in housing sector
• Foreign Direct Investment
Threat
• Overcapacity can decrease margins of cement price
• Power shortage may affect cement production
• Government rules to provide rebate for foreign companies
• Price of coal may be a threat in future
17
II. Industry Profile
a. The Indian Cement Industry typically consist of three major categories which are as
follows:
Indian Cement
Industry
Players Confined Standalone
Pan India Players
to a region Players
b. Market Size and Distribution
Cement production capacity stood at 502 million tonnes per year (mtpy) in 2018. Capacity
addition of 20 million tonnes per annum (MTPA) is expected in FY19- FY 21.
The top 20 cement companies account for almost 70 per cent of the total cement production of
the country. A total of 210 large cement plants account for a cumulative installed capacity of
over 410 million tonnes, with 350 small plants accounting for the rest. Of these 210 large
cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.
18
Source: IBEF.com
19
c. Trends and charts
i. Cement Consumption vs Production
d. Classification of cement
Bonding minerals with the help of its adhesive and cohesive properties firmly is known as
cement. It is adhesive in nature. It is used to bond bricks, stones, sand and other materials used
in building. It is known as hydraulic as with the use of water, it got more hard and strong. There
are different types of cement in markets. Every cement is used for its specific purpose in
building. India produces different types of cement which are defined below and consist of
different chemical proportion.
• Ordinary portland cement
• Portland pozzolana cement
• White cement
• Water proof cement
• Specialized cement
• Rapid hardening portland cement
• Portland blast furnace slag cement
• Ready Mix Concrete (RMC)
These classification of cement will be explained in detail in the final report.
20
e. Demand Drivers in Cement Industry
Cement consumption can be broadly classified into demand from three segments:
• Housing and real estate (63-65%)
• Infrastructure (22-25%)
• Commercial and Industrial development (10-12%)
f. Cost Drivers in Cement Industry
There are four major costs associated with the production of cement:
• Power & Fuel Costs
• Raw Material Cost
• Selling Expense
• Other expense
21
g. Cement Industry – Regional in Nature
Cement is a high-volume, low-value commodity. Transporting over long distances adds to the
cost, resulting in lower margins to the players. This makes cement a regional commodity where
lower distribution cost makes it remunerative to producers. Cement consumption varies region-
wise because the demand-supply balance, per capita income and level of industrial
development differ in each state and region.
22
4. Company Analysis
4.1 UltraTech Cement
a. About the Company
UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete (RMC)
and white cement in India. It is also one of the leading cement producers globally. UltraTech as
a brand embodies 'strength', 'reliability' and 'innovation'. Together, these attributes inspire
engineers to stretch the limits of their imagination to create homes, buildings and structures
that define the new India. The company has a consolidated capacity* of 102.75 Million Tonnes
Per Annum (MTPA) of grey cement. The company has 20 integrated plants, 1 clinkerisation
plant, 26 grinding units and 7 bulk terminals. Its operations span across India, UAE, Bahrain,
Bangladesh and Sri Lanka. It is also India's largest exporter of cement reaching out to meet the
demand in countries around the Indian Ocean and the Middle East. In the white cement
segment, UltraTech goes to market under the brand name of Birla White. It has a white cement
plant with a capacity of 0.56 MTPA and 2 WallCare putty plants with a combined capacity of 0.8
MTPA.
• Installed capacity of 96.5 Million Tonnes Per Annum (mtpa)
• 25 grinding units, 19 integrated plants, seven bulk terminals and one clinkerisation plant
• Total income of Rs 324.56 billion (US$ 5.04 billion) in FY18 and Rs 268.37 billion (US$
3.72 billion) in FY19 (between April-December 2018)
• The largest manufacturer of ready mix-concrete in India
b. Share Holding Pattern
Holder's Name No of Shares % Share Holding
Promoters 166670914 60.69%
Foreign Institutions 54935075 20%
General Public 14687769 5.35%
Others 13890870 5.06%
Financial Institutions 13122427 4.78%
NBanksMutualFunds 8275579 3.01%
Foreign Promoter 2744168 1%
GDR 202022 0.07%
Central Government 113896 0.04%
23
c. Price Chart of the past 5 Years
d. Company Product portfolio
Company product portfolio will be discussed in full detail in the final report.
24
e. Income Statement
25
f. EBITDA Analysis
26
References
1. https://www.nirmalbang.com/Upload/UltraTech%20Cement-
%204QFY19%20Result%20Update-%2025%20April%202019.pdf
2. www.ibef.org
3. Crisil Data Report – Cement Sector 2008
4. Annual Report 2018-2018 – Ultratech cement
5. Shodhhgana (literature reviews)
6. http://www.careratings.com/upload/NewsFiles/Studies/Cement%20%20Sector%20Upd
ate%20H1%20FY%202019.pdf
7. https://www.moneycontrol.com/financials/ultratechcement/ratiosVI/UTC01?classic=tru
e
8. https://www.edelresearch.com/showreportpdf-40284/CEMENT_-_SECTOR_UPDATE-
MAY-18-EDEL
27
