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Key Takeaways
Core essence: Long-term growth drivers intact to drive 9-10% volume CAGR, as ~70%
of cement demand is driven by individual demand for real estate development.
Industry insights
Long-term cement demand is likely to grow at a CAGR of 9-10% despite short-term
aberrations, as key demand drivers are intact. Infrastructure activity should pick up,
resulting in 15% CAGR in cement consumption by the infrastructure segment.
While current demand is ~230mt, current capacity is ~300mt. ACC is not overtly
concerned about excess capacities, as the industry would require ~25mt incremental
production to meet demand growth. Against demand CAGR of ~9%, it expects
capacity CAGR of ~7% over CY09-15.
No significant increase in RMC share (~7% penetration currently) is likely over the
next 5-10 years, but the share of bulk cement sales is likely to increase vis-à-vis
bagged cement sales.
ACC expects cost pressure to persist, impacted by decline in linkage coal and volatile
domestic coal prices. However, cement price increases should cover cost inflation,
as the industry would need to earn reasonable EBITDA/ton to support new capacities.
Company vision and strategy
Gathering limestone mines for future capacity addition: ACC has been
acquiring limestone mines on continuous basis for greenfield capacity addition. It
has ~5mt of capacity addition at drawing board stage, which it is likely to finalize
over the next six months.
Securing energy security: ACC has four coal blocks in JVs, with two blocks
where it has complete operational control. These two coal blocks have reserves of
~200mt. It expects supply from one of these coal blocks to start from 2HCY12.
While it may not result in savings, as it would be paying 'facilitation fee' of INR2,600/
ton (for B & C grade coal), it would ensure stable quality and quantity of coal supply.
Overall, it plans to have 20-25% of coal requirement from captive coal blocks.
Increased usage of alternate fuels: ACC continues to focus on usage of alternate
fuels to dilute of impact of energy cost inflation. In CY10, it saved INR470m from
usage of alternate fuels. It expects savings to increase from USD1/ton of coal usage
to USD3/ton over the medium term.
Key triggers/milestones/challenges
Logistics: Logistics issues could constrain demand growth, as moving material to
the market and meeting demand would be a challenge. ACC is relatively better
placed due to better rail-road mix of 55:45.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Core essence: Long-term growth drivers intact to drive 9-10% volume CAGR, as ~70%
of cement demand is driven by individual demand for real estate development.
Industry insights
Long-term cement demand is likely to grow at a CAGR of 9-10% despite short-term
aberrations, as key demand drivers are intact. Infrastructure activity should pick up,
resulting in 15% CAGR in cement consumption by the infrastructure segment.
While current demand is ~230mt, current capacity is ~300mt. ACC is not overtly
concerned about excess capacities, as the industry would require ~25mt incremental
production to meet demand growth. Against demand CAGR of ~9%, it expects
capacity CAGR of ~7% over CY09-15.
No significant increase in RMC share (~7% penetration currently) is likely over the
next 5-10 years, but the share of bulk cement sales is likely to increase vis-à-vis
bagged cement sales.
ACC expects cost pressure to persist, impacted by decline in linkage coal and volatile
domestic coal prices. However, cement price increases should cover cost inflation,
as the industry would need to earn reasonable EBITDA/ton to support new capacities.
Company vision and strategy
Gathering limestone mines for future capacity addition: ACC has been
acquiring limestone mines on continuous basis for greenfield capacity addition. It
has ~5mt of capacity addition at drawing board stage, which it is likely to finalize
over the next six months.
Securing energy security: ACC has four coal blocks in JVs, with two blocks
where it has complete operational control. These two coal blocks have reserves of
~200mt. It expects supply from one of these coal blocks to start from 2HCY12.
While it may not result in savings, as it would be paying 'facilitation fee' of INR2,600/
ton (for B & C grade coal), it would ensure stable quality and quantity of coal supply.
Overall, it plans to have 20-25% of coal requirement from captive coal blocks.
Increased usage of alternate fuels: ACC continues to focus on usage of alternate
fuels to dilute of impact of energy cost inflation. In CY10, it saved INR470m from
usage of alternate fuels. It expects savings to increase from USD1/ton of coal usage
to USD3/ton over the medium term.
Key triggers/milestones/challenges
Logistics: Logistics issues could constrain demand growth, as moving material to
the market and meeting demand would be a challenge. ACC is relatively better
placed due to better rail-road mix of 55:45.
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