Description
Analysis of Grasim Industries
GRASIM INDUSTRIES LTD. (CEMENT BUISNESS)
PRESENTATION FLOW
? ? ? ? ? ? INTRODUCTION SWOT BCG MATRIX SPACE ANALYSIS RECOMMENDATION MODIFIED BCG
GRASIM IND. LTD.
CEMENT
VISCOSE STAPLE FIBRE
SPONGE IRON
TEXTILES
CHEMICALS
GRASIM(BIRLA WHITE)
ULTRATECH
Some facts…
? Aditya Birla Group commands a 21 per cent global market share in viscose staple fibre (VSF) ? Meets over 98 per cent of India's VSF requirements ? Poised to become India’s largest cement maker ? The Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest in Asia ? India’s largest merchant producer of sponge iron ? Second largest producer of caustic soda in India ? ISO 9002 and ISO 14001 certified ? Captive power generation in most of its units ? Makes 18 million metres of textiles a year
Strengths
Aditya Birla- second largest firm in India. AAA Ratings by CRISIL. Strong Management team Superior Technology. Lowest cost producer in the industry Strong Brand name. High attention from the top management. Strong cartel. Major market share controlled by top 4 players.
Weaknesses:
Uncertainty in demand and influenced by economic cycles. Low profit margins of the industry
SWOT
Threats:
Over capacity Low entry barriers for new entrants Lack of proprietary technology; everyone has access to the same technology Ceilings on price Head-on collision with ACC and Ambuja
Opportunities:
High potential for M&As Capacity expansion and increase in sales Diversified brands in various segments—Ultra tech in premium segment; Birla White Strong product portfolio for all needs Stable growth projections of the cement industry
BCG Analysis
Product
Market Share
Market share of closest competitor
Relative Mkt Market growth Share rate
Viscose Staple Fibre Cement Chemicals Sponge iron Grasim Textiles
98 20 11 8 2 23 50 25 60
1.5 0.869565217 0.22 0.32 0.033333333
1.7 10 12 15 13
BCG MATRIX
18
SPONGE IRON
16 14
TEXTILE
12
CEMENT
10
CHEMICAL
8 6
VSF
4 2 0 -0.5 -2 0 0.5 1 1.5 2
SPACE will enable us to formulate Vision 2015
Strategic Position & Action Evaluation SPACE Analysis – GRASIM IND.LTD.(cement)
Financial Strength
7
Conservative
Aggressive
-7
0
7
Competitive Advantage
Industry Strength
Defensive
Competitive
-7
Environmental Stability
ACC’s Competitive Advantage Industry Strength
1. Growth potential
•India -world’s second largest producer of cement after China with industry capacity of over 200 million tonnes (MT). •The installed capacity is expected to increase to 241 MTPA by FY 2010-end •Export potential in Middle East and South East Asia due to locational advantage. •Lower per-capita consumption with high growth. •Growth in Engg. and Construction: growth in order book 128 per cent in 1st Q,136 per cent in the 2nd Q and at 52 per cent in the third.
SPACE Analysis
Score
5
LINK
ACC’s Competitive Advantage Industry Strength
2. Profit potential
•The growth rate of cement demand over the past five years at 8.37% was higher than the rate of growth of supply at 4.84% as also the rate of growth of capacity addition during the same period . •Per capita consumption is expected to grow from 131 kg in 2006 to 193 kg in 2011. •Margins firming up due to consolidation, capacity utilisation and higher sales figure but ban on exports and cut on import duty can lead to overcapacity. •Over the past five years, cost of cement production has grown at a CAGR of 8.4%. Also, the producers have been able to pass on the hike in cost to consumers on the back of increased demand. But Now govt. has placed a cap on increasing prices which is affecting profit margins of producers. • Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonnes in FY 07, at a CAGR of 13.6%, which has been reflected in higher profit margins of the industry. • Muted growth in northern and western region in 3rd quarter’ 08- slow down in housing and infrastructure sector Score 4
SPACE Analysis –.
ACC’s Competitive Advantage Industry Strength
3. Financial stability
• Industry margins very sensitive to sales realisations and capacity utilisation •High returns during boom times (1994-96 and 200406) and low returns during lean periods (1997-01) • Lower volatility in operating margins • Lower operating leverage (17%) • Beneficial capital structure of cement Players 5 Score
SPACE Analysis
LINK
ACC’s Competitive Advantage Industry Strength
4. Capital Intensity
• Cement plants are capital intensive and require a capital investment of over Rs. 3,500 per tonne of cement, which translates into an investment of Rs. 3,500 million for a 1 mtpa plant. •Require Large scale Equipment to be economically competitive •Capital investment per worker is highest among all industries. •Fuel switching is costly in terms of capital cost •About 60 % of raw material cost is controlled by Government.
SPACE Analysis – Marico Ltd.
Score
4
Marico’s Strength Industry Competitive Advantage
SPACE Analysis
5. Ease of entry into the market •High capital investment •Raw material prices are regulated by the government •New Entry are mainly through Mergers and Acquisition •Technology Easily Available. •Need to spend a lot in setting up distribution network •Brands not so critical ,price plays important role •Cost advantage and economies of scale would favors bigger players •Heavy dependence on power, coal and transport •Moving cement by rail expensive by 7% from Dec 2008
Score 3
ACC’s Competitive Advantage Industry Strength
6. Resource Utilization • During the period FY 03 - 07, capacity additions in the country (30.6 mn tonnes) were at a slower rate compared to demand growth leading to higher average capacity utilization rates from 81.3% to 93.8% during the same period • But in 2008 it reduced again to 82% ,due to decrease in demand from Real Estate Sector which is responsible for 55% of demand. Score 5
SPACE Analysis
Average IS Score
4.33
Marico’s Strength Industry Competitive Advantage
Industry Strength Growth Potential Profit Potential Financial Stability 1 Low Low Low 7
SPACE Analysis – Marico Ltd.
Score 5 4 5
High High High
Capital Intensity
Ease of entry into market Productivity, Capacity Utilization
Low
Easy Low
High
Difficult High
4
3 5 4.33
Average IS Score
Marico’s Competitive Advantage Financial Strength
Industry Benchmark
1. Return on Investment Score 5
SPACE Analysis
ROCE (%)
60 50 40 30 20 10
0
2004-05 2005-06 GRASIM 2006-07 ULTRATECH 2007-08 ACC
LINK
Marico’s Competitive Advantage Financial Strength
2. Leverage
Score 6
SPACE Analysis
Leverage(debt/equity)
1.6 1.4 1.2 1
0.8
0.6 0.4 0.2 0
2004-05
2005-06
Grasim
2006-07
Ultratech ACC
2007-08
Marico’s Competitive Advantage Financial Strength
3. Liquidity (Current Ratio)
Score 3
SPACE Analysis.
Liquidity (Current Ratio)
1.2 1 0.8 0.6 0.4 0.2
0
2003-04 2004-05 Grasim 2005-06 Ultratech 2006-07 ACC 2007-08
Link
Marico’s Competitive Advantage Financial Strength
4. Capital Employed Score 5
SPACE Analysis
CAPITAL EMPLOYED(in Rs. Cr.)
12000 10000 8000 6000
4000
2000 0 2004-05 2005-06 GRASIM 2006-07 ULTRATECH 2007-08 ACC
Marico’s Competitive Advantage Financial Strength
5. Cash Flow Score 3
SPACE Analysis.
Cash flow from operating activities(in USD mn.)
600 500 400 300 200 100 0 2004-05 2005-06 GRASIM 2006-07 ACC 2007-08 ULTRATECH
Marico’s Competitive Advantage Financial Strength
6. Ease of Exit from Market
• High exit barrier in form of significant capital investment. Score 2
SPACE Analysis
7. Risk involved in the Business
• • • • • • Interest rate Project Management. Competitor Risk. Foreign Exchange Risk. Economic Risk. Commodity Price Fluctuation risk.
Score 3
Final FS Score
4.14
ACC’s Competitive Advantage Financial Strength
Financial Strength Return on Investment Leverage Liquidity (Current Ratio) Capital Required vs. Capital Available Cash Flow Ease of exit from market Risk involved in the business 1 Low Unbalanced Unbalanced High Low Difficult Much
SPACE Analysis – Marico Ltd.
7 High Balanced Solid Low High Easy Little
Score 5 3 5 5 3 2 3
Average FS Score
4.14
ACC’s Competitive Advantage Competitive Advantage
1. Market Share
•The cement industry is still fragmented in India with 45 % of the market still occupied by un-organized and marginal players. •Grasim along with its subsidiary Ultratech cement has a share of 20 %.
SPACE Analysis.
Score
5
Competitive Advantage
2. Product Quality •All the plants are located close to sizeable limestone mines and are fully automated to ensure consistent quality. • All units use state-of-the-art equipment and technology and are certified with ISO 9001 for quality systems and ISO 14001 for environment management systems. •Mobile concrete laboratory at 38 locations to ensure product quality . •Excellent product quality and customer care are the hallmark of AVB group. Score 6
SPACE Analysis
3. Distribution Strength •Distribution network is very widely spread out in the country with over 5,500 dealers and 30,000 retailers . •Strengthens its hold over distribution by entering in retailing (Birla Super Shoppes) •Mobile testing cement silos at Bangalore
Score 4
Competitive Advantage
SPACE Analysis
4. Customer Loyalty
•Brand name didn’t enjoy much preference in cement industry as it is mostly price based market . • Ultra tech cement which comes under premium segment has a strong brand Equity and goodwill of house mark •Largest Producer of white cement in India (capacity of 47500 TPA) – Branded as Birla White
Score
4
ACC’s Competitive Advantage Competitive Advantage
5. Product Life Cycle • Maturity stage in the PLC graph Score 4
SPACE Analysis
6. Product Replacement Cycle
• New variants like Fly ash based blended cement introduced . • Growth in product like Ready to Mix concrete. •Grasim is one of the largest ready mix concrete (RMC) players in India
Score 5
ACC’s Competitive Advantage Competitive Advantage
SPACE Analysis
7. Technological Knowhow
?One of the Lowest cost producers in the world. ?Developed processes for use of industrial wastes as raw mix component and maximizing fly ash absorption in PPC. ?In order to utilize limestone reserves to the full extent, R&D efforts were made towards utilization of limestone with high sulphur content. ?Efforts were also made towards development of methodology for determining fly ash content in PPC and compatibility interaction between cement and new generation super plasticizers. ?All these efforts have resulted in improving product quality and increasing customer satisfaction. ?Future plans are towards development of new product and utilization of waste fuels.
Score
6
Competitive Advantage
SPACE Analysis
8. Vertical Integration
(a) Backward Integration • Setting up of captive power plants aids in controlling the impact of rise in energy cost, which is a major cost element. • India’s largest producer of lime stone (b) Forward Integration • ready mix concrete in cement enables to reduce the price fluctuation in the finished goods. • Has strong distribution network and now Strengthens its hold over distribution by entering in retailing (Birla Super Shoppes)
Score 5
Final Rating
-2.13
ACC’s Competitive Advantage Competitive Advantage
Competitive Advantage Market Share Product Quality Product Life Cycle Product Replacement Cycle Customer Loyalty Distribution Strength Technological Knowhow Vertical Integration 1 Low Bad Long Slow Low Low Less Small
SPACE Analysis – Marico Ltd.
7 High Good Short Fast High High More Large
Score 5 6 4 4 4 5 6 5 4.87 -2.13
Average CA Score Final Rating
Environmental Stability 1. Economic Pressures • Risk of price fluctuation on raw materials, energy sources •interest rate fluctuations on its borrowings. • 60% of cement industry’s costs are driven by energy directly through power and fuel consumption in the manufacturing process, and indirectly through freight and logistics •limited ability to pass the cost increases to consumers . •Decline in demand from Real Estate and construction sector. •Export restrictions from Indian Government Score 2
SPACE Analysis
2. Price Elasticity • From 90’s all price and distribution controls were removed, thus price was elastic with respect to demand. However price elasticity is low . • Also with increase of Govt. Regulation on increasing prices due rising Inflation the margins of manufactures are started reducing.
Score 5
Environmental Stability 3. Competitive Pressure • Fragmented Market ,strong competition form Holcium group . • Highly price sensitive market •Continuous pressure on bottom line due to increasing Raw material cost Score 4
SPACE Analysis
4. Rate of inflation • Rate of inflation affects the price of Raw materials. • Also due to inflation slow down is seen in Construction and real estate nsector so cement industry also got impact .
Score 2
Environmental Stability 5. Price range of competing products No competing Product to cement 6. Technological Changes •Dry technology has practically replaced Wet and Semi-Dry technology •presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. •India is Producing various quality of cement ordinary Portland cement OPC, Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS) •Technological changes affect in rolling/crushing and pyro-processing. Score 5 Score 6
SPACE Analysis.
Environmental Stability 7. Barriers to entry into markets Score
SPACE Analysis.
•High capital costs and long gestation periods. 6 •Access to limestone reserves (principal raw material for the manufacture of cement) also acts as a significant entry barrier. •Raw material prices are regulated by the government •New Entry are mainly through Mergers and Acquisition •Technology Easily Available. •Cost advantage and economies of scale would favors bigger players •Heavy dependence on Power, coal and transport
8. Demand Variability •High during October to May and low during June to September (monsoon) •Construction and real estate sector are the main propellants of demand. •Demand Closely follows GDP growth of a country . •Production during lean season to build inventories for peak period •However addition of capacity has reduced the effect of demand variability
Score 3
Environmental Stability
SPACE Analysis
Environmental Stability Economic pressure Rate of inflation Demand Variability Price range of competing products Barriers to entry into market Competitive pressure Price elasticity of demand Technological changes
1 Many High Large Wide Few High Elastic High
7 Few Low Small Narrow Many Low Inelastic Low
Score 2 2 3 5 6 4 5 6 4.13 -2.87
Average ES Score Final Rating
SPACE Evaluation - Posture
SPACE Analysis.
Financial Strength 7 5
4.14
3 Competitive Advantage -7 -2.13 -2
Aggressive Posture
1
-1 -3 -5 -7 -2.87 3
4.33 Industry Strength
Environment Stability
RECOMMENDATIONS
? Space analysis shows an aggressive posture ? Strengths are : 1) Competitive advantage 2) Considerable Financial Strength ? Grow by acquisitions ? Cost leadership possible by scale economies ? Concentric Diversification ? Vertical Integration
Contd…
? Advertise more during peak seasons to increase market share ? Might need a new brand positioned as cement for domestic segment esp. in south ? Maximizing market share in the long run ? Profit margins can be compromised on for a while ? Look for process improvements ? R&D development for low cost production
BCG MATRIX Revised
18 16 14
TEXTILE
12
CEMENT
10
CHEMICAL
8 6
VSF
4 2 0 -0.5 -2 0 0.5 1 1.5 2
THANK YOU
Operating Ratios
SPACE Analysis.
Mar -08 Interest Cover Ratio PBIDTM (%) 27.83 28.65
Mar - 07 20.91 27.64
Mar -06 12.67 20.96
Mar -05 10.4 23.98
PBITM (%)
25.61
24.33
17.14
20.03
PBDTM (%) EPS (Rs.) Dividend (%) Payout (%)
27.73 239.03 300 12.55
26.48 163.68 275 16.8
19.61 91.36 200 21.89
22.06 94.34 160 16.96
BACK
Fianancials Mar -08 Equity Networth 91.67 8132.19 Mar - 07 91.67 6226.13 Mar -06 91.67 4977.78 Mar -05 91.67 4323.63
SPACE Analysis.
Capital Employed
11334.08
9177.71
6957.47
6331.99
Sales Other Income PBIDT
11627.92 610.65 3655.2
9609.24 320.41 2656.11
7638.41 224.07 1601.05
7201.06 221.54 1727.04
Operating Ratios
SPACE Analysis.
BACK
0
BACK
Role of Cement Industry in India GDP-Production India ranks second in the production of cement in the world The growth rate of the production of cement during the year 2006-07 was 9.1% The export of the cement in the year 2006-07 was 9.3 million tonnes The cement industry in India constitutes of 365 small cement manufacturing units and 130 large cement manufacturing units The total installed capability of the cement manufacturing is 165 million tonnes per year The large manufacturing units accounts for 94% of the total output of cement
The present scenario of cement industry is very good in terms of demand and with the prices going above Rs 160 to Rs 180 everywhere. Most importantly, the gap between the demand and supply does not exist any longer in any part of the country.
Domestic consumption with 11 per cent increase and exports keeping up with the last year levels, the Indian cement industry is expected to cross 150 million tonnes in dispatches, including domestic consumption, and exports during 2005-06 from all plants put together, including mini cement plants. Mini cement plants everywhere are operating at 100 per cent capacity utilisation. The margins are improving in line with others.
up to 2008, about 21.5 million tonnes capacity is expected to be added by expansions. This year’s domestic demand will be 140 million tonnes. Now that the GDP is expected to grow to 8 per cent, growth in the cement consumption is also expected to remain above 12 per cent per year. This means, we need an additional 50 million tonnes for the next three years. So, it clearly shows that the proposed expansions will not impact the margins.
the housing sector alone consumed 65 per cent of the total domestic consumption. With the launch of several infrastructure projects, the housing consumption may come down to 55 per cent as the infrastructure and other sectors are expected to move up to 45 per cent from the present 35 per cent.
acc
roce leverage liquidity capital employed cash flow 41.34 0.19 0.97 4621.71
gujarat ambuja 42.49 0.15 1.05 4991.29
ultratech
40.69 0.74 0.65 4436.72 342.87 41.50667 <ind avg 0.36 >ind avg 0.89 <ind avg 4683.24 <ind avg 430.8211 <ind avg
508.6 440.9933333
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doc_977699231.pptx
Analysis of Grasim Industries
GRASIM INDUSTRIES LTD. (CEMENT BUISNESS)
PRESENTATION FLOW
? ? ? ? ? ? INTRODUCTION SWOT BCG MATRIX SPACE ANALYSIS RECOMMENDATION MODIFIED BCG
GRASIM IND. LTD.
CEMENT
VISCOSE STAPLE FIBRE
SPONGE IRON
TEXTILES
CHEMICALS
GRASIM(BIRLA WHITE)
ULTRATECH
Some facts…
? Aditya Birla Group commands a 21 per cent global market share in viscose staple fibre (VSF) ? Meets over 98 per cent of India's VSF requirements ? Poised to become India’s largest cement maker ? The Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest in Asia ? India’s largest merchant producer of sponge iron ? Second largest producer of caustic soda in India ? ISO 9002 and ISO 14001 certified ? Captive power generation in most of its units ? Makes 18 million metres of textiles a year
Strengths
Aditya Birla- second largest firm in India. AAA Ratings by CRISIL. Strong Management team Superior Technology. Lowest cost producer in the industry Strong Brand name. High attention from the top management. Strong cartel. Major market share controlled by top 4 players.
Weaknesses:
Uncertainty in demand and influenced by economic cycles. Low profit margins of the industry
SWOT
Threats:
Over capacity Low entry barriers for new entrants Lack of proprietary technology; everyone has access to the same technology Ceilings on price Head-on collision with ACC and Ambuja
Opportunities:
High potential for M&As Capacity expansion and increase in sales Diversified brands in various segments—Ultra tech in premium segment; Birla White Strong product portfolio for all needs Stable growth projections of the cement industry
BCG Analysis
Product
Market Share
Market share of closest competitor
Relative Mkt Market growth Share rate
Viscose Staple Fibre Cement Chemicals Sponge iron Grasim Textiles
98 20 11 8 2 23 50 25 60
1.5 0.869565217 0.22 0.32 0.033333333
1.7 10 12 15 13
BCG MATRIX
18
SPONGE IRON
16 14
TEXTILE
12
CEMENT
10
CHEMICAL
8 6
VSF
4 2 0 -0.5 -2 0 0.5 1 1.5 2
SPACE will enable us to formulate Vision 2015
Strategic Position & Action Evaluation SPACE Analysis – GRASIM IND.LTD.(cement)
Financial Strength
7
Conservative
Aggressive
-7
0
7
Competitive Advantage
Industry Strength
Defensive
Competitive
-7
Environmental Stability
ACC’s Competitive Advantage Industry Strength
1. Growth potential
•India -world’s second largest producer of cement after China with industry capacity of over 200 million tonnes (MT). •The installed capacity is expected to increase to 241 MTPA by FY 2010-end •Export potential in Middle East and South East Asia due to locational advantage. •Lower per-capita consumption with high growth. •Growth in Engg. and Construction: growth in order book 128 per cent in 1st Q,136 per cent in the 2nd Q and at 52 per cent in the third.
SPACE Analysis
Score
5
LINK
ACC’s Competitive Advantage Industry Strength
2. Profit potential
•The growth rate of cement demand over the past five years at 8.37% was higher than the rate of growth of supply at 4.84% as also the rate of growth of capacity addition during the same period . •Per capita consumption is expected to grow from 131 kg in 2006 to 193 kg in 2011. •Margins firming up due to consolidation, capacity utilisation and higher sales figure but ban on exports and cut on import duty can lead to overcapacity. •Over the past five years, cost of cement production has grown at a CAGR of 8.4%. Also, the producers have been able to pass on the hike in cost to consumers on the back of increased demand. But Now govt. has placed a cap on increasing prices which is affecting profit margins of producers. • Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonnes in FY 07, at a CAGR of 13.6%, which has been reflected in higher profit margins of the industry. • Muted growth in northern and western region in 3rd quarter’ 08- slow down in housing and infrastructure sector Score 4
SPACE Analysis –.
ACC’s Competitive Advantage Industry Strength
3. Financial stability
• Industry margins very sensitive to sales realisations and capacity utilisation •High returns during boom times (1994-96 and 200406) and low returns during lean periods (1997-01) • Lower volatility in operating margins • Lower operating leverage (17%) • Beneficial capital structure of cement Players 5 Score
SPACE Analysis
LINK
ACC’s Competitive Advantage Industry Strength
4. Capital Intensity
• Cement plants are capital intensive and require a capital investment of over Rs. 3,500 per tonne of cement, which translates into an investment of Rs. 3,500 million for a 1 mtpa plant. •Require Large scale Equipment to be economically competitive •Capital investment per worker is highest among all industries. •Fuel switching is costly in terms of capital cost •About 60 % of raw material cost is controlled by Government.
SPACE Analysis – Marico Ltd.
Score
4
Marico’s Strength Industry Competitive Advantage
SPACE Analysis
5. Ease of entry into the market •High capital investment •Raw material prices are regulated by the government •New Entry are mainly through Mergers and Acquisition •Technology Easily Available. •Need to spend a lot in setting up distribution network •Brands not so critical ,price plays important role •Cost advantage and economies of scale would favors bigger players •Heavy dependence on power, coal and transport •Moving cement by rail expensive by 7% from Dec 2008
Score 3
ACC’s Competitive Advantage Industry Strength
6. Resource Utilization • During the period FY 03 - 07, capacity additions in the country (30.6 mn tonnes) were at a slower rate compared to demand growth leading to higher average capacity utilization rates from 81.3% to 93.8% during the same period • But in 2008 it reduced again to 82% ,due to decrease in demand from Real Estate Sector which is responsible for 55% of demand. Score 5
SPACE Analysis
Average IS Score
4.33
Marico’s Strength Industry Competitive Advantage
Industry Strength Growth Potential Profit Potential Financial Stability 1 Low Low Low 7
SPACE Analysis – Marico Ltd.
Score 5 4 5
High High High
Capital Intensity
Ease of entry into market Productivity, Capacity Utilization
Low
Easy Low
High
Difficult High
4
3 5 4.33
Average IS Score
Marico’s Competitive Advantage Financial Strength
Industry Benchmark
1. Return on Investment Score 5
SPACE Analysis
ROCE (%)
60 50 40 30 20 10
0
2004-05 2005-06 GRASIM 2006-07 ULTRATECH 2007-08 ACC
LINK
Marico’s Competitive Advantage Financial Strength
2. Leverage
Score 6
SPACE Analysis
Leverage(debt/equity)
1.6 1.4 1.2 1
0.8
0.6 0.4 0.2 0
2004-05
2005-06
Grasim
2006-07
Ultratech ACC
2007-08
Marico’s Competitive Advantage Financial Strength
3. Liquidity (Current Ratio)
Score 3
SPACE Analysis.
Liquidity (Current Ratio)
1.2 1 0.8 0.6 0.4 0.2
0
2003-04 2004-05 Grasim 2005-06 Ultratech 2006-07 ACC 2007-08
Link
Marico’s Competitive Advantage Financial Strength
4. Capital Employed Score 5
SPACE Analysis
CAPITAL EMPLOYED(in Rs. Cr.)
12000 10000 8000 6000
4000
2000 0 2004-05 2005-06 GRASIM 2006-07 ULTRATECH 2007-08 ACC
Marico’s Competitive Advantage Financial Strength
5. Cash Flow Score 3
SPACE Analysis.
Cash flow from operating activities(in USD mn.)
600 500 400 300 200 100 0 2004-05 2005-06 GRASIM 2006-07 ACC 2007-08 ULTRATECH
Marico’s Competitive Advantage Financial Strength
6. Ease of Exit from Market
• High exit barrier in form of significant capital investment. Score 2
SPACE Analysis
7. Risk involved in the Business
• • • • • • Interest rate Project Management. Competitor Risk. Foreign Exchange Risk. Economic Risk. Commodity Price Fluctuation risk.
Score 3
Final FS Score
4.14
ACC’s Competitive Advantage Financial Strength
Financial Strength Return on Investment Leverage Liquidity (Current Ratio) Capital Required vs. Capital Available Cash Flow Ease of exit from market Risk involved in the business 1 Low Unbalanced Unbalanced High Low Difficult Much
SPACE Analysis – Marico Ltd.
7 High Balanced Solid Low High Easy Little
Score 5 3 5 5 3 2 3
Average FS Score
4.14
ACC’s Competitive Advantage Competitive Advantage
1. Market Share
•The cement industry is still fragmented in India with 45 % of the market still occupied by un-organized and marginal players. •Grasim along with its subsidiary Ultratech cement has a share of 20 %.
SPACE Analysis.
Score
5
Competitive Advantage
2. Product Quality •All the plants are located close to sizeable limestone mines and are fully automated to ensure consistent quality. • All units use state-of-the-art equipment and technology and are certified with ISO 9001 for quality systems and ISO 14001 for environment management systems. •Mobile concrete laboratory at 38 locations to ensure product quality . •Excellent product quality and customer care are the hallmark of AVB group. Score 6
SPACE Analysis
3. Distribution Strength •Distribution network is very widely spread out in the country with over 5,500 dealers and 30,000 retailers . •Strengthens its hold over distribution by entering in retailing (Birla Super Shoppes) •Mobile testing cement silos at Bangalore
Score 4
Competitive Advantage
SPACE Analysis
4. Customer Loyalty
•Brand name didn’t enjoy much preference in cement industry as it is mostly price based market . • Ultra tech cement which comes under premium segment has a strong brand Equity and goodwill of house mark •Largest Producer of white cement in India (capacity of 47500 TPA) – Branded as Birla White
Score
4
ACC’s Competitive Advantage Competitive Advantage
5. Product Life Cycle • Maturity stage in the PLC graph Score 4
SPACE Analysis
6. Product Replacement Cycle
• New variants like Fly ash based blended cement introduced . • Growth in product like Ready to Mix concrete. •Grasim is one of the largest ready mix concrete (RMC) players in India
Score 5
ACC’s Competitive Advantage Competitive Advantage
SPACE Analysis
7. Technological Knowhow
?One of the Lowest cost producers in the world. ?Developed processes for use of industrial wastes as raw mix component and maximizing fly ash absorption in PPC. ?In order to utilize limestone reserves to the full extent, R&D efforts were made towards utilization of limestone with high sulphur content. ?Efforts were also made towards development of methodology for determining fly ash content in PPC and compatibility interaction between cement and new generation super plasticizers. ?All these efforts have resulted in improving product quality and increasing customer satisfaction. ?Future plans are towards development of new product and utilization of waste fuels.
Score
6
Competitive Advantage
SPACE Analysis
8. Vertical Integration
(a) Backward Integration • Setting up of captive power plants aids in controlling the impact of rise in energy cost, which is a major cost element. • India’s largest producer of lime stone (b) Forward Integration • ready mix concrete in cement enables to reduce the price fluctuation in the finished goods. • Has strong distribution network and now Strengthens its hold over distribution by entering in retailing (Birla Super Shoppes)
Score 5
Final Rating
-2.13
ACC’s Competitive Advantage Competitive Advantage
Competitive Advantage Market Share Product Quality Product Life Cycle Product Replacement Cycle Customer Loyalty Distribution Strength Technological Knowhow Vertical Integration 1 Low Bad Long Slow Low Low Less Small
SPACE Analysis – Marico Ltd.
7 High Good Short Fast High High More Large
Score 5 6 4 4 4 5 6 5 4.87 -2.13
Average CA Score Final Rating
Environmental Stability 1. Economic Pressures • Risk of price fluctuation on raw materials, energy sources •interest rate fluctuations on its borrowings. • 60% of cement industry’s costs are driven by energy directly through power and fuel consumption in the manufacturing process, and indirectly through freight and logistics •limited ability to pass the cost increases to consumers . •Decline in demand from Real Estate and construction sector. •Export restrictions from Indian Government Score 2
SPACE Analysis
2. Price Elasticity • From 90’s all price and distribution controls were removed, thus price was elastic with respect to demand. However price elasticity is low . • Also with increase of Govt. Regulation on increasing prices due rising Inflation the margins of manufactures are started reducing.
Score 5
Environmental Stability 3. Competitive Pressure • Fragmented Market ,strong competition form Holcium group . • Highly price sensitive market •Continuous pressure on bottom line due to increasing Raw material cost Score 4
SPACE Analysis
4. Rate of inflation • Rate of inflation affects the price of Raw materials. • Also due to inflation slow down is seen in Construction and real estate nsector so cement industry also got impact .
Score 2
Environmental Stability 5. Price range of competing products No competing Product to cement 6. Technological Changes •Dry technology has practically replaced Wet and Semi-Dry technology •presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. •India is Producing various quality of cement ordinary Portland cement OPC, Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS) •Technological changes affect in rolling/crushing and pyro-processing. Score 5 Score 6
SPACE Analysis.
Environmental Stability 7. Barriers to entry into markets Score
SPACE Analysis.
•High capital costs and long gestation periods. 6 •Access to limestone reserves (principal raw material for the manufacture of cement) also acts as a significant entry barrier. •Raw material prices are regulated by the government •New Entry are mainly through Mergers and Acquisition •Technology Easily Available. •Cost advantage and economies of scale would favors bigger players •Heavy dependence on Power, coal and transport
8. Demand Variability •High during October to May and low during June to September (monsoon) •Construction and real estate sector are the main propellants of demand. •Demand Closely follows GDP growth of a country . •Production during lean season to build inventories for peak period •However addition of capacity has reduced the effect of demand variability
Score 3
Environmental Stability
SPACE Analysis
Environmental Stability Economic pressure Rate of inflation Demand Variability Price range of competing products Barriers to entry into market Competitive pressure Price elasticity of demand Technological changes
1 Many High Large Wide Few High Elastic High
7 Few Low Small Narrow Many Low Inelastic Low
Score 2 2 3 5 6 4 5 6 4.13 -2.87
Average ES Score Final Rating
SPACE Evaluation - Posture
SPACE Analysis.
Financial Strength 7 5
4.14
3 Competitive Advantage -7 -2.13 -2
Aggressive Posture
1
-1 -3 -5 -7 -2.87 3
4.33 Industry Strength
Environment Stability
RECOMMENDATIONS
? Space analysis shows an aggressive posture ? Strengths are : 1) Competitive advantage 2) Considerable Financial Strength ? Grow by acquisitions ? Cost leadership possible by scale economies ? Concentric Diversification ? Vertical Integration
Contd…
? Advertise more during peak seasons to increase market share ? Might need a new brand positioned as cement for domestic segment esp. in south ? Maximizing market share in the long run ? Profit margins can be compromised on for a while ? Look for process improvements ? R&D development for low cost production
BCG MATRIX Revised
18 16 14
TEXTILE
12
CEMENT
10
CHEMICAL
8 6
VSF
4 2 0 -0.5 -2 0 0.5 1 1.5 2
THANK YOU
Operating Ratios
SPACE Analysis.
Mar -08 Interest Cover Ratio PBIDTM (%) 27.83 28.65
Mar - 07 20.91 27.64
Mar -06 12.67 20.96
Mar -05 10.4 23.98
PBITM (%)
25.61
24.33
17.14
20.03
PBDTM (%) EPS (Rs.) Dividend (%) Payout (%)
27.73 239.03 300 12.55
26.48 163.68 275 16.8
19.61 91.36 200 21.89
22.06 94.34 160 16.96
BACK
Fianancials Mar -08 Equity Networth 91.67 8132.19 Mar - 07 91.67 6226.13 Mar -06 91.67 4977.78 Mar -05 91.67 4323.63
SPACE Analysis.
Capital Employed
11334.08
9177.71
6957.47
6331.99
Sales Other Income PBIDT
11627.92 610.65 3655.2
9609.24 320.41 2656.11
7638.41 224.07 1601.05
7201.06 221.54 1727.04
Operating Ratios
SPACE Analysis.
BACK
0
BACK
Role of Cement Industry in India GDP-Production India ranks second in the production of cement in the world The growth rate of the production of cement during the year 2006-07 was 9.1% The export of the cement in the year 2006-07 was 9.3 million tonnes The cement industry in India constitutes of 365 small cement manufacturing units and 130 large cement manufacturing units The total installed capability of the cement manufacturing is 165 million tonnes per year The large manufacturing units accounts for 94% of the total output of cement
The present scenario of cement industry is very good in terms of demand and with the prices going above Rs 160 to Rs 180 everywhere. Most importantly, the gap between the demand and supply does not exist any longer in any part of the country.
Domestic consumption with 11 per cent increase and exports keeping up with the last year levels, the Indian cement industry is expected to cross 150 million tonnes in dispatches, including domestic consumption, and exports during 2005-06 from all plants put together, including mini cement plants. Mini cement plants everywhere are operating at 100 per cent capacity utilisation. The margins are improving in line with others.
up to 2008, about 21.5 million tonnes capacity is expected to be added by expansions. This year’s domestic demand will be 140 million tonnes. Now that the GDP is expected to grow to 8 per cent, growth in the cement consumption is also expected to remain above 12 per cent per year. This means, we need an additional 50 million tonnes for the next three years. So, it clearly shows that the proposed expansions will not impact the margins.
the housing sector alone consumed 65 per cent of the total domestic consumption. With the launch of several infrastructure projects, the housing consumption may come down to 55 per cent as the infrastructure and other sectors are expected to move up to 45 per cent from the present 35 per cent.
acc
roce leverage liquidity capital employed cash flow 41.34 0.19 0.97 4621.71
gujarat ambuja 42.49 0.15 1.05 4991.29
ultratech
40.69 0.74 0.65 4436.72 342.87 41.50667 <ind avg 0.36 >ind avg 0.89 <ind avg 4683.24 <ind avg 430.8211 <ind avg
508.6 440.9933333
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