SUMMER INTERNSHIP PROJECT SUMMER INTERNSHIP PROJECT
On On
Equity Research of Cement sector Equity Research of Cement sector
At At
Birla Sun Life Insurance Ltd. Birla Sun Life Insurance Ltd.
In Partial Fulfilment Of In Partial Fulfilment Of
PGDM FMG XXV PGDM FMG XXV FORE SCHO
FORE SCHOOL OF OL OF MANAGEMENTMANAGEMENT
Submitted to Submitted to
Prof. Vinay Kumar Dutta Prof. Vinay Kumar Dutta FO
FORE SRE Schochool ol of Managementof Management
Submitted by Submitted by Nishant Nishant FMG 25, Roll No. 251170 FMG 25, Roll No. 251170 FO
FORE SRE Schochool ol Of ManageOf Managementment
June 2017 June 2017
DECLARATION
DECLARATION
I am, Mr.
I am, Mr. NishantNishant Roll No. 251170 have completed my summer internship atRoll No. 251170 have completed my summer internship at Birl a SBirla Sunliunli fefe Insurance, Pushp Vihar
Insurance, Pushp Vihar and has submitted this project report entitledand has submitted this project report entitled Equity ResearchEquity Research on Ceme
on Cement snt s ectorector towards partial fulfilment of the requirements for the award of the Posttowards partial fulfilment of the requirements for the award of the Post Graduate Diploma in Management FMG-25 2016-2018.
Graduate Diploma in Management FMG-25 2016-2018.
This Report is the result of my own work, no part of it has earlier comprised any other This Report is the result of my own work, no part of it has earlier comprised any other report, monograph, dissertation or book.
report, monograph, dissertation or book. Name: Nishant Name: Nishant Roll: 251170 Roll: 251170 Place: Delhi Place: Delhi Date: Date:
CERTIFICATE
CERTIFICATE
This is to certify that Mr.
This is to certify that Mr. NishantNishant Roll No. 251170 has completed his summer internship at Roll No. 251170 has completed his summer internship at Birl
Birl a Sunlife Insurance, Pa Sunlife Insurance, Pushp ushp VihaVihar r and has submitted this project report entitled and has submitted this project report entitled Equity Research on Cement Sector
Equity Research on Cement Sector towards partial fulfilment of the requirements for thetowards partial fulfilment of the requirements for the award of the Post Graduate Diploma in Management FMG-25 2016-2018. This Report is award of the Post Graduate Diploma in Management FMG-25 2016-2018. This Report is the result of his own work and to the best of my knowledge, no part of it has earlier
the result of his own work and to the best of my knowledge, no part of it has earlier
comprised any other report, monograph, dissertation or book. This project was carried out comprised any other report, monograph, dissertation or book. This project was carried out under my overall supervision.
under my overall supervision.
Date: Date: Place: Place: ———————————— ————————————
Prof. Vinay K. Dutta Prof. Vinay K. Dutta
ACK
ACKNOWLEDGMENT
NOWLEDGMENT
I take this platform to express my sincere regards towards the various stakeholders of my I take this platform to express my sincere regards towards the various stakeholders of my Summer Internship Program underwent for period of two months. Each one of the following Summer Internship Program underwent for period of two months. Each one of the following has a major role to play in bringing this project to a possible closure.
has a major role to play in bringing this project to a possible closure.
Starting with, I would like to convey my sincere gratitude towards the entire team at
Starting with, I would like to convey my sincere gratitude towards the entire team at BirlaBirla Sun life Insurance P
Sun life Insurance Pvt Ltvt Lt dd. for the able guidance they showered upon me which paved my. for the able guidance they showered upon me which paved my way smoother to complete the project successfully.
way smoother to complete the project successfully. A special acknowledgemen
A special acknowledgement towards Mr.t towards Mr. Nikesh RuparelNikesh Ruparel, my Industry mentor; who was a, my Industry mentor; who was a constant source of inspiration for me to work very hard and provided me with all possible constant source of inspiration for me to work very hard and provided me with all possible inputs whenever I approached him.
inputs whenever I approached him.
On this note, I would also want to thank my Faculty guide Prof
On this note, I would also want to thank my Faculty guide Prof . V. Vinay Kuminay Kum ar Duttaar Dutta for giving for giving me timely responses and instilling great encouragement through his knowledge and me timely responses and instilling great encouragement through his knowledge and experience.
TABLE OF CONTENTS TABLE OF CONTENTS
CHAPTER
CHAPTER NO. NO. SUBJSUBJECT ECT COVERECOVERED D PAGE PAGE NO.NO. 1.
1. Executive Executive Summary Summary 1010
2. Introduction 2. Introduction 2.1 Background 2.1 Background 2.2 Objectives 2.2 Objectives 2.3
2.3 Company Company ProfileProfile 2.4
2.4 Literature Literature ReviewReview
11 11 11 11 15 15 15 15 17 17 3.
3. Research Research MethodologyMethodology 3.1
3.1 Project Project DesignDesign
3.2 Data Collection methods 3.2 Data Collection methods
3.3 Equity Research techniques & Valuation concepts 3.3 Equity Research techniques & Valuation concepts
21 21 21 21 21 21 21 21 4.
4. Fundamental Fundamental AnalysisAnalysis 4.1 Introduction 4.1 Introduction 4.2
4.2 EIC EIC FrameworkFramework
4.3 Valuation of Cement Stocks 4.3 Valuation of Cement Stocks
29 29 29 29 29 29 35 35 5.
5. Technical Technical AnalysisAnalysis 5.1 Introduction 5.1 Introduction 5.2
5.2 Chart Chart TypesTypes 5.3
5.3 Chart Chart PatternsPatterns
5.4 Long term Technical Analysis of Cement Stocks 5.4 Long term Technical Analysis of Cement Stocks 5.5 Short Term Technical Analysis
5.5 Short Term Technical Analysis
5.6 Short Term Technical Analysis of Cement Stocks 5.6 Short Term Technical Analysis of Cement Stocks
42 42 42 42 43 43 47 47 52 52 56 56 66 66 6.
7.
7. Conclusion Conclusion 7474
8.
8. Scope Scope of of Study Study 7676
9.
9. Limitations Limitations of of the the study study 7777
10. Annexure 10. Annexure 10.1 Formulae Used 10.1 Formulae Used 10.2 References 10.2 References 78 78 78 78 78 78
LIST OF TABLES LIST OF TABLES
S.
S. No. No. TOPIC TOPIC PAGE NO.PAGE NO.
4.1
4.1 Topline Topline & & Bottomline Bottomline of of L-Cap L-Cap of of Cement Cement stocks stocks 3636 4.2
4.2 Value Value Picks Picks 3737
4.3
4.3 Growth Growth Picks Picks 3939
4.4
4.4 Rating Rating of of Cement Cement Stocks Stocks 4040 4.5
4.5 Ranking Ranking of of Cement Cement Stocks Stocks 4141 6.1
6.1 Allocation Allocation of of Cement Cement Stocks Stocks 7070 6.2
LIST OF FIGURES LIST OF FIGURES
S.
S. No. No. TOPIC TOPIC PAGE PAGE NO.NO.
2.1
2.1 Top Top Cement Cement Producers Producers & & Consumers Consumers 1313 2.2
2.2 Cement Cement Production Production YoY YoY 1313 5.1
5.1 Line Line Chart Chart 4444
5.2
5.2 Bar Bar Chart Chart 4545
5.3
5.3 Candlestick Candlestick Chart Chart 4646 5.4
5.4 Head Head & & Shoulders Shoulders Reversal Reversal 4747 5.5
5.5 Cup Cup with with Handle Handle 4848 5.6
5.6 Bump Bump & & Run Run Reversal Reversal 4949 5.7
5.7 Double Double Top Top 5050
5.8
5.8 Rounding Rounding Bottom Bottom 5050 5.9
5.9 Tripple Tripple Bottom Bottom 5151 5.10
5.10 Long Long Term Term trend trend of of Ramco Ramco Cements Cements 5252 5.11
5.11 Long Long Term Term trend trend of of OCL OCL India India 5353 5.12
5.12 Long Long Term Term trend trend of of Birla Birla Corp Corp 5454 5.13
5.14
5.14 Candlesticks Candlesticks 5656
5.15
5.15 Doji Doji 5757
5.16
5.16 Long Long White+ White+ Doji Doji 5858 5.17
5.17 Hammer Hammer & & Hanging Hanging Man Man (i) (i) 5959 5.17
5.17 Hammer Hammer & & Hanging Hanging Man Man (ii) (ii) 6060 5.18
5.18 (i) (i) Inverted Inverted Hammer Hammer & & Shooting Shooting star star 6161 5.18
5.18 (ii) (ii) Inverted Inverted Hammer Hammer & & Shooting Shooting star star 6262 5.19
5.19 Star Star Position Position 6363 5.20
5.20 Harami Harami Position Position 6464 5.21
5.21 Marubozu Marubozu 6565
5.22
5.22 Short Short term term analysis analysis of of Ramco Ramco Cements Cements 6666 5.23
5.23 Short Short term term analysis analysis of of OCL OCL India India 6767 5.24
5.24 Short Short term term analysis analysis of of Birla Birla Corp Corp 6868 5.25
5.25 Short Short term term analysis analysis of of India India Cements Cements 6969 6.1
1. Executive Summary
1. Executive Summary
This project report is about the ‘Equity research in Cement sector. It consists the study of This project report is about the ‘Equity research in Cement sector. It consists the study of Cement sector on macroeconomic and microeconomic basis. It will be helpful for investors Cement sector on macroeconomic and microeconomic basis. It will be helpful for investors who are looking for investment in Cement sector companies. It will give them approach for who are looking for investment in Cement sector companies. It will give them approach for investment in whichever sector they want to invest.
investment in whichever sector they want to invest.
Fundamental and Technical Analysis are the methods used to analyze the Cement sector. Fundamental and Technical Analysis are the methods used to analyze the Cement sector. In Technical Analysis, two types of Technical Analysis are used i.e. Short Term Technical In Technical Analysis, two types of Technical Analysis are used i.e. Short Term Technical Analysis
Analysis and Long and Long Term TecTerm Technical Anhnical Analysis. Ialysis. In Long Tn Long Term Technierm Technical analycal analysis, Varioussis, Various Patterns have been observed as a part of Long Term Technical Analysis and points at Patterns have been observed as a part of Long Term Technical Analysis and points at which the investors can buy and sell the stocks have been spotted. Also, the current trend which the investors can buy and sell the stocks have been spotted. Also, the current trend of the stocks has been found out. In Short Term Technical Analysis various candlesticks of the stocks has been found out. In Short Term Technical Analysis various candlesticks are used to find out the different trends which helps the investors to buy and sell the stocks are used to find out the different trends which helps the investors to buy and sell the stocks in the Cement sector.
in the Cement sector.
In fundamental analysis, we find out which stocks are growth picks and value picks. After In fundamental analysis, we find out which stocks are growth picks and value picks. After finding the growth picks and value picks stocks from the analysis, we rank the stock based finding the growth picks and value picks stocks from the analysis, we rank the stock based on some financial ratios which are important to Cement sector.
on some financial ratios which are important to Cement sector. A portfoli
A portfolio consisto consisting of the ing of the selected Cselected Cement seement sector stocks ctor stocks is creatis created and the Need and the Net Assett Asset Value (NAV) of the portfolio is calculated. Performance of the entire portfolio is analyzed Value (NAV) of the portfolio is calculated. Performance of the entire portfolio is analyzed with respect to the Index NIFTY 500 (which acts as a benchmark) on daily basis to see if with respect to the Index NIFTY 500 (which acts as a benchmark) on daily basis to see if the portfolio of the Cement sector stocks beats the benchmark NIFTY 500.
2. INTRODUCTION
2. INTRODUCTION
2.1 B
2.1 BACKGROUACKGROUND:ND:
The Indian cement industry is the second largest market in the world after China and is The Indian cement industry is the second largest market in the world after China and is responsible for 7-8% global production of cement. Cement, being a bulk commodity, is a responsible for 7-8% global production of cement. Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can prove to be
freight intensive industry and transporting it over long distances can prove to be
uneconomical. This has resulted in cement being largely a regional play; with the industry 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. The North divided into five main regions viz. north, south, west, east and the central region. The North and South regions are the leading suppliers of cement. The East, West and Central regions and South regions are the leading suppliers of cement. The East, West and Central regions however, face deficit of cement and thereby rely more on purchases from the North and however, face deficit of cement and thereby rely more on purchases from the North and South. The Southern region of India has the highest installed capacity, accounting for about South. The Southern region of India has the highest installed capacity, accounting for about one-third of the country's total installed cement capacity. The Indian Cement Industry had a one-third of the country's total installed cement capacity. The Indian Cement Industry had a total manufacturing capacity of about 384 million tonnes (MT) as of financial year ending total manufacturing capacity of about 384 million tonnes (MT) as of financial year ending 2015-16.
2015-16.
Cement is a cyclical commodity with a high correlation with GDP of the economy. The Cement is a cyclical commodity with a high correlation with GDP of the economy. The demand for cement in real estate sector is spread across rural housing (40%), urban demand for cement in real estate sector is spread across rural housing (40%), urban
housing (25%) and construction/infrastructure/industrial activities (25%). While the rest 10% housing (25%) and construction/infrastructure/industrial activities (25%). While the rest 10% demand is contributed by commercial real estate sector. The demand for Cement is
demand is contributed by commercial real estate sector. The demand for Cement is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The housing expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The housing sector being the biggest demand driver of cement, accounts for about 67% of the total sector being the biggest demand driver of cement, accounts for about 67% of the total consumption in India. The other major contributors of cement include infrastructure at 13%, consumption in India. The other major contributors of cement include infrastructure at 13%, commercial construction at 11% and industrial construction at 9%. To meet the rise in
three years. Moreover, the per capita consumption of cement in India still remains three years. Moreover, the per capita consumption of cement in India still remains
substantially low at less than 200 kg when compared with the world average which stands substantially low at less than 200 kg when compared with the world average which stands at about 500 kg. In case of China it is over 1,000 kg per head. Herein, underlines the
at about 500 kg. In case of China it is over 1,000 kg per head. Herein, underlines the tremendous scope for growth in the Indian cement industry in the long term.
tremendous scope for growth in the Indian cement industry in the long term. ..
Financial Year 2016 Financial Year 2016::
During the financial year 2015-16 (FY16), India's cement demand stood at 284 MTPA as During the financial year 2015-16 (FY16), India's cement demand stood at 284 MTPA as against the supply of 384 MTPA during FY 2015-16. The poor growth in cement demand against the supply of 384 MTPA during FY 2015-16. The poor growth in cement demand can be attributed to slower progress in infrastructure projects and low off-take from housing can be attributed to slower progress in infrastructure projects and low off-take from housing and industrial user segments. While the rural demand was affected by less-than-normal and industrial user segments. While the rural demand was affected by less-than-normal monsoon, the demand from real estate market in urban areas was also poor because of monsoon, the demand from real estate market in urban areas was also poor because of frail market conditions. The demand from Industrial capital expenditure was adversely frail market conditions. The demand from Industrial capital expenditure was adversely
affected due to existence of excess capacities across various industrial sectors. The supply affected due to existence of excess capacities across various industrial sectors. The supply side on the other hand, continued to reflect over-capacity leading to lower capacity
side on the other hand, continued to reflect over-capacity leading to lower capacity
utilization levels by cement companies. The drop in commodity prices especially coal has utilization levels by cement companies. The drop in commodity prices especially coal has however helped cement companies in rationalizing their cost of production.
however helped cement companies in rationalizing their cost of production. Ce
Cement Sector ment Sector Growth DriversGrowth Drivers::
Cement demand is closely linked to the overall economic growth, particularly the housing Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. If the rate of growth of consumption remains low at 5-6%, the and infrastructure sector. If the rate of growth of consumption remains low at 5-6%, the existing capacity would be sufficient to meet the cement demand for the next few years. existing capacity would be sufficient to meet the cement demand for the next few years. Higher government spending on infrastructure and housing, and rising per capita incomes Higher government spending on infrastructure and housing, and rising per capita incomes will be key growth drivers for the cement industry. There have also been positive moves on will be key growth drivers for the cement industry. There have also been positive moves on
the policy front, in areas related to ease of doing business, promoting start-ups, the policy front, in areas related to ease of doing business, promoting start-ups,
rationalizing the tax structure and administration, and opening up more areas for foreign rationalizing the tax structure and administration, and opening up more areas for foreign investment through the automatic route. The government has been substantially stepping investment through the automatic route. The government has been substantially stepping up infrastructure spending. From a long-term point of view, overall pick-up observed in the up infrastructure spending. From a long-term point of view, overall pick-up observed in the infrastructure spending by the Government and downward trend in the interest rates is infrastructure spending by the Government and downward trend in the interest rates is expected to revive the demand across sectors. The 7th Pay Commission is expected to aid expected to revive the demand across sectors. The 7th Pay Commission is expected to aid in housing demand. Government thrust on affordable housing for realizing its vision of in housing demand. Government thrust on affordable housing for realizing its vision of ""Housing for AllHousing for All" by 2022," by 2022, AMRUT AMRUT (Atal Mission for Rejuvenation and Urban (Atal Mission for Rejuvenation and Urban
transformation) and
transformation) and Smart CitySmart City programprogram should also help in propelling demand growth for should also help in propelling demand growth for cement. Under Union Budget 2017-18, US$ 3.42 billion has been allocated to achieve cement. Under Union Budget 2017-18, US$ 3.42 billion has been allocated to achieve government's mission of 'Housing for All by 2022. The scheme will be extended to 600 government's mission of 'Housing for All by 2022. The scheme will be extended to 600 districts In the Budget 2016, the GOI, allocated a total of USD8.22 billion for the
districts In the Budget 2016, the GOI, allocated a total of USD8.22 billion for the development of roads &
development of roads & highways of India, highways of India, bracing the cement industry of bracing the cement industry of India. India. HousingHousing sector is considered to drive the cement industries in India to a great extent, which held sector is considered to drive the cement industries in India to a great extent, which held nearly 67 per cent of the total cement consumption in India. Also, the metro rail projects in nearly 67 per cent of the total cement consumption in India. Also, the metro rail projects in Mumbai, Bangalore, Hyderabad & the expansion phase in Delhi drives cement demand. Mumbai, Bangalore, Hyderabad & the expansion phase in Delhi drives cement demand. Therefore, the outlook for the cement sector looks better. Nonetheless, medium term Therefore, the outlook for the cement sector looks better. Nonetheless, medium term
challenges remain in the form of excess capacity, the adverse impact of demonetization on challenges remain in the form of excess capacity, the adverse impact of demonetization on economic activity, slowdown in rural demand and slow offtake of infrastructure projects. economic activity, slowdown in rural demand and slow offtake of infrastructure projects.
Fig 2.1 Top Cement Producers & Consumers
Fig 2.1 Top Cement Producers & Consumers
Fig 2.2 Production of Cement YoY Fig 2.2 Production of Cement YoY
From the above graphs, we can see that India is one of the top two countries in the world From the above graphs, we can see that India is one of the top two countries in the world as a Producer and Consumer of cement. And the production in cement has been
as a Producer and Consumer of cement. And the production in cement has been
increasing constantly over the years thereby, promising lot of growth opportunities for the increasing constantly over the years thereby, promising lot of growth opportunities for the sector. Cement production increased at a CAGR of 6.44 per cent to 282.79 million tonnes sector. Cement production increased at a CAGR of 6.44 per cent to 282.79 million tonnes
2.2 O
2.2 Objectbjective -ive
-➢
➢ To provide a To provide a brief overview brief overview of the of the Indian Cement Indian Cement Industry.Industry. ➢
➢ To study some of the major To study some of the major players in Indian players in Indian Cement Industry which have someCement Industry which have some good potential investment prospects.
good potential investment prospects. ➢
➢ To identify the main growth To identify the main growth drivers of the drivers of the sector and sector and the recent the recent development.development. ➢
➢ To identify the top-line and To identify the top-line and bottom-line factors of the bottom-line factors of the companies selected under companies selected under thethe sector.
sector. ➢
➢ To analyse the various stocks of To analyse the various stocks of the Cement sector by the Cement sector by calculating the various ratios,calculating the various ratios, the price targets and the technical analysis which would help us know which stock is the price targets and the technical analysis which would help us know which stock is outperforming and which stock is underperforming. Apart from this, the price target outperforming and which stock is underperforming. Apart from this, the price target would help us know that by how much our shares would rise or fall when the market would help us know that by how much our shares would rise or fall when the market fluctuates in future.
fluctuates in future.
2.3 Company Profile 2.3 Company Profile
Established in 2000
Established in 2000, Birla Sun Life Insurance Company Limited, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture (BSLI) is a joint venture between the
between the Aditya Birla Group Aditya Birla Group, a well known and trusted name globally amongst Indian, a well known and trusted name globally amongst Indian conglomerates and
conglomerates and Sun Life Financial IncSun Life Financial Inc, leading international financial services, leading international financial services
organization from Canada. The local knowledge of the Aditya Birla Group combined with organization from Canada. The local knowledge of the Aditya Birla Group combined with
customers' future. With an experience of over 10 years, BSLI has contributed significantly customers' future. With an experience of over 10 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks to the growth and development of the life insurance industry in India and currently ranks amongst the top 7 private life insurance companies in the country.
amongst the top 7 private life insurance companies in the country.
Known for its innovation and creating industry benchmarks, BSLI has several firsts to Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce “Free Look Period” its credit. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. and the same was made mandatory by IRDA for all other life insurance companies. Additiona
Additionally, BSLI lly, BSLI pioneerepioneered the laud the launch of Unnch of Unit Linked it Linked Life InsuLife Insurance plarance plans amongns amongstst the private players in India. To establish credibility and further transparency, BSLI also the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders’ These category development initiatives have helped BSLI be closer to its policy holders’ expectations, which gets further accentuated by the complete bouquet of insurance expectations, which gets further accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers.
the company offers.
BSLI ranks 4th in India among the private life insurers in terms of annual premium BSLI ranks 4th in India among the private life insurers in terms of annual premium equivalent, with a market share of 7.6% for FY16. During 2015-16, it recorded a gross equivalent, with a market share of 7.6% for FY16. During 2015-16, it recorded a gross premium income of Rs. 5, 580 Crore, registering a y-o-y growth of 7% and posted a net premium income of Rs. 5, 580 Crore, registering a y-o-y growth of 7% and posted a net profit of Rs. 140 Crore. Its assets under Management at Rs. 30, 811 Crore as on FY 16. profit of Rs. 140 Crore. Its assets under Management at Rs. 30, 811 Crore as on FY 16. BSLI has a nation-wide distribution presence through 489 branches, 3 bancassurance BSLI has a nation-wide distribution presence through 489 branches, 3 bancassurance partners, over 55,000 direct selling agents and more than 150 corporate agents and partners, over 55,000 direct selling agents and more than 150 corporate agents and brokers. BSLI is meeting its growth capital and solvency requirements through internal brokers. BSLI is meeting its growth capital and solvency requirements through internal accruals and has not required any capital infusion during past five years. The company accruals and has not required any capital infusion during past five years. The company offers a complete range of protection solutions, children's future solutions, wealth with offers a complete range of protection solutions, children's future solutions, wealth with
protection solutions, health and wellness solutions, retirement solutions and savings with protection solutions, health and wellness solutions, retirement solutions and savings with protection solutions
protection solutions..
Vision Vision
To be a leader and role model in a broad based and integrated financial services business. To be a leader and role model in a broad based and integrated financial services business. Mission
Mission
To help people mitigate risks of life, accident, health, and money at all stages and under To help people mitigate risks of life, accident, health, and money at all stages and under all circumstances.
all circumstances.
Enhance the financial future of our customers including enterprises. Enhance the financial future of our customers including enterprises. Values
Values
Integrity, Commitment, Passion, Seamlessness, Speed Integrity, Commitment, Passion, Seamlessness, Speed
2.4 Literature Review 2.4 Literature Review
A few rese
A few research studarch studies/papeies/papers have brs have been careen carried out ried out over a peover a period of timriod of time by differente by different academicians, researchers and economists of the country. They have been done by academicians, researchers and economists of the country. They have been done by analyzing the performance in different aspects. But very few have been carried out, analyzing the performance in different aspects. But very few have been carried out, analyzing and commenting about the financial performance of the cement industry and analyzing and commenting about the financial performance of the cement industry and stocks in particular. Some of such research papers are:
•
• Nair N.K. (1991)Nair N.K. (1991) has studied the productivity aspect of Indian Cement Industry. His has studied the productivity aspect of Indian Cement Industry. His study emphasized that cement, being a construction material, occupied a strategic study emphasized that cement, being a construction material, occupied a strategic place in the Indian economy. This study has revealed that, in 1990-91, the industry had place in the Indian economy. This study has revealed that, in 1990-91, the industry had an installed capacity of 60 million tonnes with a production of 48 million tonnes. In this an installed capacity of 60 million tonnes with a production of 48 million tonnes. In this study, the cement industry was forecasted to have a capacity growth of about 100 study, the cement industry was forecasted to have a capacity growth of about 100 million tonnes by the year 2000. This study has also analyzed the productivity and million tonnes by the year 2000. This study has also analyzed the productivity and performance ratios of the cement industry with a view to identifying the major problem performance ratios of the cement industry with a view to identifying the major problem areas and the prospects for solving them.
areas and the prospects for solving them.
•
• SUBIR COKAVN AND REJENDRA VAIDHA (1993)SUBIR COKAVN AND REJENDRA VAIDHA (1993) have made an attempt to evaluatehave made an attempt to evaluate the performance of cement industry after decontrol. They found that the performance of the performance of cement industry after decontrol. They found that the performance of the cement industry after decontrol was characterized by outcomes that were generally the cement industry after decontrol was characterized by outcomes that were generally competitive and welfare enhancing. Their study has revealed that the structure of the competitive and welfare enhancing. Their study has revealed that the structure of the industry changed significantly with large magnitude of relative technologically and industry changed significantly with large magnitude of relative technologically and superior capacity being created by many new entrants into the industry. It was noticed superior capacity being created by many new entrants into the industry. It was noticed in this study that there were significant real price increase and an associated increase in in this study that there were significant real price increase and an associated increase in profitability. The performance of firms across the strategic group was different with firms profitability. The performance of firms across the strategic group was different with firms operating relatively new and large plants appeared to have an advantage. Further, their operating relatively new and large plants appeared to have an advantage. Further, their study has dealt with the nature and effect of inter-firm heterogeneities in the cement study has dealt with the nature and effect of inter-firm heterogeneities in the cement industry.
industry.
•
• CHANDRASEKARAN N (1993)CHANDRASEKARAN N (1993) has made an attempt to examine the determinants ofhas made an attempt to examine the determinants of profitability in cement industry. He identified that profitability was determined by
structural, as well as, behavioral variables. He also identified that the other variables structural, as well as, behavioral variables. He also identified that the other variables which influenced profitability were growth of the firm, capital turnover ratio, management which influenced profitability were growth of the firm, capital turnover ratio, management of working capital, inventory turnover
of working capital, inventory turnover ratio etc. Some ratio etc. Some of the main of the main changes changes in thein the cement industry environment during 1980’s identified this study were: from complete cement industry environment during 1980’s identified this study were: from complete control to decontrol, number of new entrants and substantial additions of capacity, control to decontrol, number of new entrants and substantial additions of capacity, changing technology from inefficient wet process to efficient dry process and from changing technology from inefficient wet process to efficient dry process and from conditions of scarcity of cement to near gloat in the market.
conditions of scarcity of cement to near gloat in the market.
•
• NaNand nd KisKis horhore Sharma (20e Sharma (200202),), in his Study on financial appraisal of cement industry in in his Study on financial appraisal of cement industry in India, has found that the liquidity position was decreasing, current ratio and quick ratio India, has found that the liquidity position was decreasing, current ratio and quick ratio showed a decreasing trend and also these ratios varied from time to time. On
showed a decreasing trend and also these ratios varied from time to time. On
comparing the current ratio and quick ratio of cement industry, six companies were comparing the current ratio and quick ratio of cement industry, six companies were found higher than the industry average and four companies lower than industry found higher than the industry average and four companies lower than industry
average. The solvency position in term of debt-equity ratio has showed a decreasing average. The solvency position in term of debt-equity ratio has showed a decreasing trend in the first 4 years of study, after that, it registered an increasing trend. The ratio of trend in the first 4 years of study, after that, it registered an increasing trend. The ratio of fixed assets to total debt always showed more than 100 percent which indicated that the fixed assets to total debt always showed more than 100 percent which indicated that the claims of outsiders were covered by the fixed assets of the cement companies.
claims of outsiders were covered by the fixed assets of the cement companies.
•
• Kumar B. Das (1987)Kumar B. Das (1987) has made an analysis of the financial performance of the cement has made an analysis of the financial performance of the cement industry. it can be analyzed that the net fixed assets as a percentage of total assets industry. it can be analyzed that the net fixed assets as a percentage of total assets
Current liabilities have increased than the current assets. Liquidity 16 performance of Current liabilities have increased than the current assets. Liquidity 16 performance of the cement industry is not healthy during period of the study. The Debt Asset ratio has the cement industry is not healthy during period of the study. The Debt Asset ratio has downward During the period of the study and Debt Equity ratio has slightly increased downward During the period of the study and Debt Equity ratio has slightly increased while net worth ratio has decreased over the years.
3.
3. RESEARCH METHODOLOGYRESEARCH METHODOLOGY
3.1 Project Design
3.1 Project Design The project is on equity research analysis of the sectors. HenceThe project is on equity research analysis of the sectors. Hence study has to be done on the basis of information and news available about the sectors i.e. study has to be done on the basis of information and news available about the sectors i.e. secondary data by various modes. This research had to be completed by doing
secondary data by various modes. This research had to be completed by doing Fundamental analysis and Technical analysis of the companies.
Fundamental analysis and Technical analysis of the companies.
3.2 Data Collection Methods 3.2 Data Collection Methods
Secondary data was collected from the internet, company websites, magazines and various Secondary data was collected from the internet, company websites, magazines and various articles
articles..
Stock market data has been taken from BSE and NSE websites (Bombay Stock Exchange Stock market data has been taken from BSE and NSE websites (Bombay Stock Exchange and National Stock Exchange, the two stock exchanges operating in India)
and National Stock Exchange, the two stock exchanges operating in India)
Secondary data was also collected from the internet, company websites, magazines and Secondary data was also collected from the internet, company websites, magazines and various articles. However, the main source of information is the Annual Reports issued by various articles. However, the main source of information is the Annual Reports issued by the companies and also quarterly reports of the current year showing their performances the companies and also quarterly reports of the current year showing their performances in current market scenario.
in current market scenario.
3.3 Equity Research Technique & Valuation Concepts: 3.3 Equity Research Technique & Valuation Concepts:
Sector Analysis was done on the basis of research and understanding various companies Sector Analysis was done on the basis of research and understanding various companies of the sector which had strong Fundamentals over other companies of the same sector. of the sector which had strong Fundamentals over other companies of the same sector. Companies’ growth and past performance was taken into account along with its top Companies’ growth and past performance was taken into account along with its top-line-line
(Revenue) and Bottom-line (Profits) for that period. Companies with strong fundamentals (Revenue) and Bottom-line (Profits) for that period. Companies with strong fundamentals were preferred.
were preferred.
The Ratios that were taken into consideration were : The Ratios that were taken into consideration were :
(i)Price /Ea
(i)Price /Earnirni ngs ngs Ratio (P.E RRatio (P.E Ratio)atio)
The price to earnings (P/E) multiple or ratio is probably the most popular indicator used by The price to earnings (P/E) multiple or ratio is probably the most popular indicator used by investors for valuing stocks. It is the ratio of a company's stock price to its earnings per investors for valuing stocks. It is the ratio of a company's stock price to its earnings per share. (Earnings per share or EPS is a company's net profit divided by the number of share. (Earnings per share or EPS is a company's net profit divided by the number of shares it has issued.) Another way of looking at the P/E ratio is as a ratio of the value that shares it has issued.) Another way of looking at the P/E ratio is as a ratio of the value that the market thinks a company deserves (its market capitalization) to its net profit.
the market thinks a company deserves (its market capitalization) to its net profit. It tells you how to cheap or expensive a company's stock is. It is the number of times It tells you how to cheap or expensive a company's stock is. It is the number of times investors must pay for the company's current earnings. For example, assume that the investors must pay for the company's current earnings. For example, assume that the share price of a company is Rs.80. If its EPS is, say Rs 5, its P/E is 16. So, investors are share price of a company is Rs.80. If its EPS is, say Rs 5, its P/E is 16. So, investors are willing to pay 16 times for every rupee of the company's earnings.
willing to pay 16 times for every rupee of the company's earnings.
Since you can use the P/E ratio to figure out if a company's stock is cheap or expensive, Since you can use the P/E ratio to figure out if a company's stock is cheap or expensive, you can compare the stock price of one company with that of another company in the same you can compare the stock price of one company with that of another company in the same industry, or stocks of two companies from different industries. You can have a P/E ratio for industry, or stocks of two companies from different industries. You can have a P/E ratio for an industry as well as a stock group, like the BSE Sensex or the NSE Nifty.
an industry as well as a stock group, like the BSE Sensex or the NSE Nifty.
It is a good guide but it is not a watertight indicator. The major number entering the P/E It is a good guide but it is not a watertight indicator. The major number entering the P/E ratio from the profit and loss statement is net profit. Some companies are known to inflate ratio from the profit and loss statement is net profit. Some companies are known to inflate profit figures. For example, earnings under the head called 'other income' which could be profit figures. For example, earnings under the head called 'other income' which could be by way of selling assets (and hence non-business income) can play spoilsport and result in by way of selling assets (and hence non-business income) can play spoilsport and result in
a misleadingly low P/E to lure gullible investors. Lower expenses than the actual can also a misleadingly low P/E to lure gullible investors. Lower expenses than the actual can also inflate the net profit number and hence distort the P/E.
inflate the net profit number and hence distort the P/E. It is calculated as
It is calculated as
-•
• Market Value Market Value per per Share Share / / Earnings Earnings per per Share Share (EPS)(EPS)
(ii) Price/Ea
(ii) Price/Earnirni ngs Growngs Grow th Ratio (PEG th Ratio (PEG RaRatiotio ))
The PEG ratio gives a more complete picture of stock valuation than simply viewing the The PEG ratio gives a more complete picture of stock valuation than simply viewing the price-earnings (P/E) ratio in isolation. The PEG ratio is calculated easily and represents the price-earnings (P/E) ratio in isolation. The PEG ratio is calculated easily and represents the ratio of the P/E to the expected future earnings growth rate of the company.
ratio of the P/E to the expected future earnings growth rate of the company.
Stock theory suggests that the stock market should assign a PEG ratio of one to every Stock theory suggests that the stock market should assign a PEG ratio of one to every
stock. This would represent theoretical equilibrium between the market value of a stock and stock. This would represent theoretical equilibrium between the market value of a stock and anticipated earnings growth. For example, a stock with an earnings multiple of 20 and 20% anticipated earnings growth. For example, a stock with an earnings multiple of 20 and 20% anticipated earnings growth would have a PEG ratio of one.
anticipated earnings growth would have a PEG ratio of one. PEG ratio results greater than one suggest one of the following: PEG ratio results greater than one suggest one of the following:
•
• Market expectation Market expectation of of growth growth is is higher higher than than consensus consensus estimates.estimates.
•
• Stock is Stock is currently currently overvalued overvalued due due to to heightened heightened demand demand for for shares.shares. PEG ratio results of less than one suggest one of the following:
PEG ratio results of less than one suggest one of the following:
•
• Markets are Markets are underestimating growth underestimating growth and and the the stock stock is is undervaluedundervalued
•
A great fe
A great feature of ature of the PEG the PEG ratio is tratio is that by brhat by bringing inging future grofuture growth expectwth expectations inations into the mixto the mix,, we can compare the relative valuations of different industries that may have very different we can compare the relative valuations of different industries that may have very different prevailing P/E ratios. This makes it easier to compare different industries, which tend to prevailing P/E ratios. This makes it easier to compare different industries, which tend to each have their own historical P/E ranges.
each have their own historical P/E ranges.
The PEG ratio is best suited to stocks with little or no dividend yield. Because the PEG ratio The PEG ratio is best suited to stocks with little or no dividend yield. Because the PEG ratio doesn't incorporate income received by the investor in its presentation of valuation, the doesn't incorporate income received by the investor in its presentation of valuation, the metric may give unfairly inaccurate results for a stock that pays a high dividend.
metric may give unfairly inaccurate results for a stock that pays a high dividend. Thorough and thoughtful stock research should involve a solid understanding of the Thorough and thoughtful stock research should involve a solid understanding of the
business operations and financials of the underlying company. This includes knowing what business operations and financials of the underlying company. This includes knowing what factors the analysts are using to come up with their growth rate estimates, and what risks factors the analysts are using to come up with their growth rate estimates, and what risks exist regarding future growth and the company's own forecasts for long-term shareholder exist regarding future growth and the company's own forecasts for long-term shareholder returns.
returns.
Investors must always keep in mind that the market can, in the short-term, be anything but Investors must always keep in mind that the market can, in the short-term, be anything but rational and efficient. While in the long run stocks may be constantly heading toward their rational and efficient. While in the long run stocks may be constantly heading toward their natural PEGs of one, short-term fears or greed in the markets may put fundamental
natural PEGs of one, short-term fears or greed in the markets may put fundamental concerns on the backburner.
concerns on the backburner.
When used consistently and uniformly, the PEG ratio is an essential tool that adds When used consistently and uniformly, the PEG ratio is an essential tool that adds
dimension to the P/E ratio, allows comparisons across diverse industries and is always on dimension to the P/E ratio, allows comparisons across diverse industries and is always on the lookout for value.
the lookout for value.
PEG RATIO is calculated as: PEG RATIO is calculated as:
The growth rate is expressed as a percentage above 100%, and should use real growth The growth rate is expressed as a percentage above 100%, and should use real growth only, to correct for inflation. A lower ratio is "better" (cheaper) and a higher ratio is "worse" only, to correct for inflation. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive).
(expensive).
Top Line a
Top Line and Bottnd Bott om Linom Lin e Ce Concepts:oncepts:
1.
1. Top Top LinLinee
A referen
A reference to the ce to the gross sgross sales or reales or revenues venues of a companof a company, or an y, or an allusion allusion to a courto a course ofse of action that increases or reduces revenues. The "top" reference relates to the fact that on a action that increases or reduces revenues. The "top" reference relates to the fact that on a company's income statement, the first line at the top of the page is generally reserved for company's income statement, the first line at the top of the page is generally reserved for gross sales or revenue. A company that increases its revenues is said to be "growing its gross sales or revenue. A company that increases its revenues is said to be "growing its top line", or "generating top-line growth".
top line", or "generating top-line growth".
2.
2. Bottom lineBottom line
Bottom line refers to a company's net earnings, net income or earnings per share (EPS). Bottom line refers to a company's net earnings, net income or earnings per share (EPS). Bottom line also refers to any actions that may increase/decrease net earnings or a
Bottom line also refers to any actions that may increase/decrease net earnings or a
company's overall profit. A company that is growing its net earnings or reducing its costs is company's overall profit. A company that is growing its net earnings or reducing its costs is said to be "improving its bottom line".
Unde
Undervalued and rvalued and OveOvervalued Stocks:rvalued Stocks:
1.
1. Undervalued Undervalued StockStock
Undervalued is a financial term referring to a security or other type of investment that is Undervalued is a financial term referring to a security or other type of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's
stock can be evaluated by looking at the underlying company's financial statements financial statements andand analyzing
analyzing its
its fundamentals, fundamentals, such as such as cash flow, cash flow, return on assets, return on assets, profit retention and capital profit retention and capital management, to determine said stock's intrinsic value.
management, to determine said stock's intrinsic value.
Value investing is not foolproof, however. There is no guarantee as to when or whether a Value investing is not foolproof, however. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's
determine a stock's intrinsic value intrinsic value —— it is basically an educated guessing game. it is basically an educated guessing game.
An underv
An undervalued stocalued stock is belik is believed to eved to be priced be priced too low batoo low based on csed on current inurrent indicators, dicators, such assuch as those used in a
those used in a valuation valuation model. Should a particular company’s stock be valued well belowmodel. Should a particular company’s stock be valued well below the industry average, it may be considered undervalued. In these instances,
the industry average, it may be considered undervalued. In these instances, value value investors
investors may focus on acquiring these investments as a method of pulling in reasonablemay focus on acquiring these investments as a method of pulling in reasonable returns for a lower initial cost.
returns for a lower initial cost.
Whether a stock is considered undervalued is open to interpretation. If a valuation model is Whether a stock is considered undervalued is open to interpretation. If a valuation model is inaccurate or applied in the wrong way, it is possible the stock is valued properly. In
contrast, a stock deemed
contrast, a stock deemed overvalued, overvalued, or price higher than its or price higher than its perceived value, perceived value, it may in fact it may in fact be priced appropriately.
be priced appropriately.
2.
2. Overvalued Overvalued StockStock
An overv
An overvalued stocalued stock has ak has a current price current price that is not justified by itsthat is not justified by its earnings earnings outlook oroutlook or price/earnings (P/E) ratio, so it is expected to drop in price. Overvaluation may result from price/earnings (P/E) ratio, so it is expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the stock's
an emotional buying spurt, which inflates the stock's market price, market price, or from a deterioration in or from a deterioration in a company's financial strength. Potential investors do not want to overpay for a stock.
a company's financial strength. Potential investors do not want to overpay for a stock. small group of staunch efficient market theorists believe the market is perfectly efficient. small group of staunch efficient market theorists believe the market is perfectly efficient. They believe that
They believe that fundamental analysis fundamental analysis of a stock is a wasted exercise because theof a stock is a wasted exercise because the stock stock market
market is all-knowing; as such, stocks are never is all-knowing; as such, stocks are never undervalued undervalued or overvalued.or overvalued.
Price Target : Price Target :
A price ta
A price target is thrget is the projece projectedted price level price level of a financial security stated by anof a financial security stated by an investment
investment analyst analyst or or advisor. advisor. It represents a security's price that, if achieved, results in a It represents a security's price that, if achieved, results in a trader recognizing the best possible outcome for his investment. This is the price at which trader recognizing the best possible outcome for his investment. This is the price at which the trader or investor wants to exit his existing position so he can realize the most reward. the trader or investor wants to exit his existing position so he can realize the most reward.
Target prices are like research reports: there are good ones and bad ones. The bad ones, Target prices are like research reports: there are good ones and bad ones. The bad ones, which are used to deceive investors, are short on factual analysis and long on deceptive which are used to deceive investors, are short on factual analysis and long on deceptive
risk/reward profile of the stock. risk/reward profile of the stock.
The Long Term Price Target is calculated The Long Term Price Target is calculated as-LTPT=EPS*AVG PE
4. FUN
4. FUNDAMENTAL ANA
DAMENTAL ANALYSIS:
LYSIS:
4.
4.1 I1 Introdntrod uctiouctio n :n :
Fundamental analysis is the method of evaluating a security in an attempt to measure Fundamental analysis is the method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysis determines the health and performance of an quantitative factors. Fundamental analysis determines the health and performance of an underlying company by looking at key numbers and economic indicators.
underlying company by looking at key numbers and economic indicators.
When analyzing a stock, futures contract, or currency using fundamental analysis there are When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use;
two basic approaches one can use; bottom up analysisbottom up analysis and and top down analysistop down analysis. The term is. The term is used to distinguish such analysis from other types of investment analysis, such as
used to distinguish such analysis from other types of investment analysis, such as
quantitative analysis and technical analysis. Here in our research, we follow the top-down quantitative analysis and technical analysis. Here in our research, we follow the top-down approach; wherein, we start looking at the macro picture and then zooming-in into the approach; wherein, we start looking at the macro picture and then zooming-in into the individual stocks. Fundamental analysis is performed on historical and present data, and individual stocks. Fundamental analysis is performed on historical and present data, and there are several possible objectives:
there are several possible objectives: ❖
❖ To conduct a To conduct a company stock valuation and company stock valuation and predict its probable price predict its probable price evolution,evolution, ❖
❖ To make To make a projection on a projection on its business its business performance,performance, ❖
❖ To evaluate To evaluate its management its management and make and make projected decisions,projected decisions, ❖
❖ To find out the intrinsic value of the shareTo find out the intrinsic value of the share
4.2 EIC Framework 4.2 EIC Framework::
Fundamental analysis includes the study of : Fundamental analysis includes the study of : ➢
➢ Economic Economic analysisanalysis ➢
On the basis of these three analyses, the intrinsic value of the shares are determined. This On the basis of these three analyses, the intrinsic value of the shares are determined. This is considered as the true value of the share. If the intrinsic value is higher than the market is considered as the true value of the share. If the intrinsic value is higher than the market price, it is recommended to buy the share. If it is equal to market price, then hold the share price, it is recommended to buy the share. If it is equal to market price, then hold the share and if it is less than the market price then sell the shares. Here, we will see the economic and if it is less than the market price then sell the shares. Here, we will see the economic and industry analysis w.r.t. the Cement Sector.
and industry analysis w.r.t. the Cement Sector.
Economic Analysis Economic Analysis
Here, our study of economic analysis is restricted to India alone. India has emerged as the Here, our study of economic analysis is restricted to India alone. India has emerged as the fastest growing major economy in the world as per the Central Statistics Organization fastest growing major economy in the world as per the Central Statistics Organization (CSO) and International Monetary Fund (IMF). The Government of India has forecasted (CSO) and International Monetary Fund (IMF). The Government of India has forecasted that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per the Economic that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per the Economic Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent in FY Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent in FY
2017-2017-18. The improvement in India’s economic f 18. The improvement in India’s economic f undamentals has accelerated in the yearundamentals has accelerated in the year 2015 with the combined impact of strong government reforms, Reserve Bank of India's 2015 with the combined impact of strong government reforms, Reserve Bank of India's (RBI) inflation focus supported by benign global commodity prices.
(RBI) inflation focus supported by benign global commodity prices.
India's consumer confidence index stood at 136 in the fourth quarter of 2016, topping the India's consumer confidence index stood at 136 in the fourth quarter of 2016, topping the global list of countries on the same parameter, as a result of strong consumer sentiment, global list of countries on the same parameter, as a result of strong consumer sentiment, according to market research agency, Nielsen. Moody's has affirmed the Government of according to market research agency, Nielsen. Moody's has affirmed the Government of India's Baa3 rating with a positive outlook stating that the reforms by the government will India's Baa3 rating with a positive outlook stating that the reforms by the government will enable the country perform better compared to its peers over the medium term.
enable the country perform better compared to its peers over the medium term. India's gross domestic product (GDP) grew by 7 per cent year-on-year in India's gross domestic product (GDP) grew by 7 per cent year-on-year in
October-December 2016 quarter, which is the strongest among G-20 countries, as per Organization December 2016 quarter, which is the strongest among G-20 countries, as per Organization
for Economic Co-operation and Development (OECD) Economic Survey of India, 2017. for Economic Co-operation and Development (OECD) Economic Survey of India, 2017. According
According to IMF Worlto IMF World Economic d Economic Outlook UOutlook Update (Japdate (January 2nuary 2017), Ind017), Indian econian economy isomy is expected to grow at 7.2 per cent during FY 2016-17 and further accelerate to 7.7 per cent expected to grow at 7.2 per cent during FY 2016-17 and further accelerate to 7.7 per cent during FY 2017-18. India's labour force is expected to touch 160-170 million by 2020, during FY 2017-18. India's labour force is expected to touch 160-170 million by 2020, based on rate of population growth, increased labour force participation, and higher based on rate of population growth, increased labour force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute.
Thought Arbitrage Research Institute.
India's foreign exchange reserves stood at US$ 366.781 billion as on March 17, 2017 as India's foreign exchange reserves stood at US$ 366.781 billion as on March 17, 2017 as compared to US$ 360 billion by end of March 2016, according to data from the RBI. Also, compared to US$ 360 billion by end of March 2016, according to data from the RBI. Also, The Union Cabinet, Government of India, has approved the Central Goods and Services The Union Cabinet, Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation Bill. India's industry output grew 2.74 per cent year-on-year in January 2017, led by a good Bill. India's industry output grew 2.74 per cent year-on-year in January 2017, led by a good performance in the capital goods sector which registered a 10.7 per cent year-on-year performance in the capital goods sector which registered a 10.7 per cent year-on-year growth.
growth.
India's unemployment rate has declined to 4.8 per cent in February 2017 compared to 9.5 India's unemployment rate has declined to 4.8 per cent in February 2017 compared to 9.5 per cent in August 2016, as a result of the Government's increased focus towards rural jobs per cent in August 2016, as a result of the Government's increased focus towards rural jobs and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
scheme. Numerous foreign companies are setting up their facilities in India on account of scheme. Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India.
various government initiatives like Make in India and Digital India.
Importantly, Finance Minister Arun Jaitley in his Union Budget speech announced a record Importantly, Finance Minister Arun Jaitley in his Union Budget speech announced a record
a positive impact on the Indian economy, which will help foster a clean and digitized a positive impact on the Indian economy, which will help foster a clean and digitized economy in the long run, according to Ms Kristalina Georgieva, Chief Executive Officer, economy in the long run, according to Ms Kristalina Georgieva, Chief Executive Officer, The World Bank.
The World Bank.
Industry Analysis Industry Analysis::
In the cement industry, the demand-supply situation is highly skewed with the latter being In the cement industry, the demand-supply situation is highly skewed with the latter being significantly higher. While the Housing sector acts as the principal growth driver for cement. significantly higher. While the Housing sector acts as the principal growth driver for cement. However, industrial and infrastructure sectors have also emerged as demand drivers. Over However, industrial and infrastructure sectors have also emerged as demand drivers. Over the years, the industry has become more organized and structured, and average size of the years, the industry has become more organized and structured, and average size of players has increased. Growing scale, coupled with improvement in manufacturing players has increased. Growing scale, coupled with improvement in manufacturing
technology, has led to significant cost efficiencies as well. Cost of manufacturing cement technology, has led to significant cost efficiencies as well. Cost of manufacturing cement has risen over the years, thanks to higher costs of fuel and financing, and high taxes. While has risen over the years, thanks to higher costs of fuel and financing, and high taxes. While the companies have been able to pass on a part of cost hike to consumers, costs are still the companies have been able to pass on a part of cost hike to consumers, costs are still rising faster than cement prices. Fixed costs in the cement industry are particularly high rising faster than cement prices. Fixed costs in the cement industry are particularly high and significant relative to variable costs. Fixed costs generally account for more than 50% and significant relative to variable costs. Fixed costs generally account for more than 50% of the overall production costs. The fixed costs are usually sunk costs. Once built, a cement of the overall production costs. The fixed costs are usually sunk costs. Once built, a cement plant can serve no other purpose. As fixed costs are high with respect to the variable costs, plant can serve no other purpose. As fixed costs are high with respect to the variable costs, the break-even point is high. Transportation is a major cost element for cement companies the break-even point is high. Transportation is a major cost element for cement companies (around
20-(around 20-25% of sales). Using Porter’s Five Forces analysis gives us a better insight to25% of sales). Using Porter’s Five Forces analysis gives us a better insight to the industry.
Porter’s Five Forces Analysis Porter’s Five Forces Analysis::
Barriers to entry Barriers to entry
High capital costs and long gestation periods. The capital costs come out to be Rs 7200 High capital costs and long gestation periods. The capital costs come out to be Rs 7200 per tonne, cement being a capital intensive industry. Access to limestone reserves (key per tonne, cement being a capital intensive industry. Access to limestone reserves (key input) and government clearances also acts as a significant entry barrier. Large players input) and government clearances also acts as a significant entry barrier. Large players benefit from economies of scale, whereas, rising costs mean low IRR for new green field benefit from economies of scale, whereas, rising costs mean low IRR for new green field capacities.
capacities.
Bargaining power of suppliers Bargaining power of suppliers
Licensing of coal and limestone reserves, supply of power from the state grid, etc. are all Licensing of coal and limestone reserves, supply of power from the state grid, etc. are all controlled by a single entity, which is the government. However, many producers are controlled by a single entity, which is the government. However, many producers are
relying more on captive power. Also, coal linkages have decreased so many producers are relying more on captive power. Also, coal linkages have decreased so many producers are relying on alternative fuel sources where they can dictate the prices.
relying on alternative fuel sources where they can dictate the prices.
Bargaining power of customers Bargaining power of customers
Cement is a commodity business and sales volumes mostly depend upon the distribution Cement is a commodity business and sales volumes mostly depend upon the distribution reach of the company. Cement is sold in two segments - trade and non-trade. Trade reach of the company. Cement is sold in two segments - trade and non-trade. Trade
cement is the one sold to the dealers. Non-trade cement is sold directly to the consumers, cement is the one sold to the dealers. Non-trade cement is sold directly to the consumers,
companies that have a strong distribution network and retail presence tend to have better companies that have a strong distribution network and retail presence tend to have better cement realizations.
cement realizations.
Competition Competition
Intense competition with players expanding reach and achieving pan India-presence. The Intense competition with players expanding reach and achieving pan India-presence. The industry is a lot more consolidated than a couple of decades ago with a few large players industry is a lot more consolidated than a couple of decades ago with a few large players controlling substantial market share.
controlling substantial market share.
Threa
Threat of Substit of Substi tutestutes
There is no real substitute to Cement. Although steel can be used for medium to high rise There is no real substitute to Cement. Although steel can be used for medium to high rise buildings, building regulations require structural steel to be encased in concrete for fire buildings, building regulations require structural steel to be encased in concrete for fire protection purpose. This increases the importance of steel and reduces the threat of its protection purpose. This increases the importance of steel and reduces the threat of its substitutes.