INTRODUCTION

The cement industry accounts for approximately 1.3% of GDP and employs over 0.14 million
people. It is a significant contributor to the revenue collected by both the central and state
governments through excise and sales taxes. For example, central excise collections from
cement industry aggregated Rs. 45.23 billion in FY2005 and accounted for 4.3% of total
excise revenue collected by the government. Cement has consistently figured among the top
5-7 commodities. It is a heavily taxed commodity and the duties amount to around 30% of
the selling price of cement. India is the second largest producer of cement in the world.

In 2005, India produced 142 mt of cement, accounting for 6.4% of global production of 2.22
billion tonnes. India is the second largest producer-behind China (1,000 mt), but ahead of the
US (99 mt) and Japan (66 mt). India's cement industry-both installed capacity and actual
production-has grown significantly over the past three decades, with production increasing at
an average rate of 8.1% per year between 1981 and 2004-05. In recent years, the cement
sector has accounted for a declining share of gross bank credit (GBC) of scheduled
commercial banks (SCBs), largely because of decline in credit during FY2004. With GBC of
Rs. 61.12 billion in March 2005, the cement industry accounted for 1.67% of industry GBC
of SCBs in March 2005, as compared with 1.81% in March 2000.

Duties on Cement

Traditionally, cement has been a heavily taxed sector with both the central and the state
governments levying the taxes. The major taxes/ levies comprise central excise duty; sales tax
levied by the respective state governments; royalty and cess on limestone and coal; and,
duties on power tariff.

These duties account for around 30% of the sale price of cement or around 70% of the ex-
factory price (excluding local transport and dealer margins).

The excise duty rates on cement are on specific basis, as against ad valorem rates on most
products. These specific rates have risen manifold from Rs. 65 per tonne in 1977 to the
current level of Rs. 400 per tonne. The excise revenue collection from the cement Industry
has shown an increasing trend over the years. The duties in India (relative to the selling price
of cement) are among the highest in the world.

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DEMAND-SUPPLY POSITION

Robust Production Growth

India's cement production increased 11.2% during FY2006 to 141.81 mt. By comparison,
production increased 8.6% during FY2005, and 5.5% during FY2004. Production has
increased at a 3-year compound annual growth rate (CAGR) of 8.4%. On a decadal basis,
India's cement production increased at an annual average of 8.2% during FY1996-2006, as
compared with 6.9% during FY1986-96

The increased growth in cement consumption since 2004 has had a positive impact of the
capacity utilization of cement producers. Capacity utilisation increased from 76% in FY2002
to around 90% in FY2006.

Regional Production Patterns

The Indian cement industry is comprised of 129 large cement plants and 300 mini-cement
plants, with installed capacities of 153.6 mtpa and 11.10 mtpa, respectively at end-FY2005.
Since cement is a high bulk and low value commodity, the growth of the cement industry has
been around the limestone deposits. Proximity to limestone deposits contributes considerably
to pushing down the costs of transportation of heavy limestone. If units are located close to
limestone resources, trucks can be used to move limestone instead of railways. The proximity
of coal deposits constitutes another important factor in cement manufacturing. Nearly 68% of
the coal required by the cement industry during FY2005 was transported by rail; the balance
32% was moved by road. There are at present seven clusters-Satna (Madhya Pradesh),
Chandrapur (North Andhra Pradesh and Maharashtra), Gulbarga (North Karnataka and East
AP), Chanderia (South Rajasthan + Jawad & Neemuch in MP), Bilaspur (Chattisgarh),
Yerraguntla (South AP), and Nalgonda (Central AP)-with a total capacity of 75.23 mtpa at
end-March 2005, accounting for 48.4% of the total installed capacity.

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During FY2006, after the slack of the monsoon season, cement production registered high
growth since October 2005. High growth in the cement sector reflected robust demand from
the construction sector and high exports.

As cement is a basic construction material with virtually no substitute, it is used worldwide

for all construction work. Thus, the growth in the construction industry has a direct relation
with the production and consumption of cement.

GDP from the construction industry has grown at a high rate over the last three years-12.1%
during FY2006, 12.5% during FY2005, and 10.9% during FY2004.

This has had a positive impact on cement consumption, which increased 10.1% during
FY2006, as compared with 8.1% during FY2005.

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AMBUJA GUJARAT, RAJASTHAN PROPOSE MERGER news

Mumbai: The boards of directors of Gujarat Ambuja Cements Ltd (GACL) and Ambuja
Cement Rajasthan Ltd (ACRL), formerly known as DLF Cement Ltd, have unanimously
approved the merger of ACRL with GACL, subject to necessary approvals.

They have recommended an exchange ratio of 1 new share of GACL to be issued for every
50 shares of ACRL, which is based on the valuation report of M/s NM Raiji and Company.

The management control of ACRL was acquired by GACL in March 2000. ACRL has a 1.5
million-tonne cement plant along with a captive power plant of 21 mw located in Rajasthan.

It markets its cement under the brand name Ambuja Cement and enjoys a leadership
position in the markets of Rajasthan, Haryana and Delhi. Since last two years, it has
acquired a good market share in each of these markets.

Gujarat Ambuja whole-time director Anil Singhvi says in view of the strategic location of
ACRLs cement plant, which fits well into GACLs market strategy of having leadership in
the cement markets of north and west India, the proposed merger will not only benefit in
terms of this marketing strategy but will also reduce lots of cost on selling and
administrative overheads of both the companies. "With the proposed merger GACL will
have a leadership position in all the markets from Maharashtra to Jammu and Kashmir."

The current share capital of ACRL is about Rs 261 crore, out of which Rs 128 crore (49 per
cent) is owned by GACL. Based on the valuation ratio, GACL will issue 26,62,424 shares
to the shareholders of ACRL. This will increase GACLs share capital from Rs 155.19 crore
to Rs 157.85 crore, an increase of 1.7 per cent.

Upon merger, the cement capacity of GACL will go up to 10.5 million tones, and with its
subsidiary ACEL the total capacity is 12.5 million tonnes. The proposed merger is subject
to necessary approvals from shareholders, the Board of Industrial and Financial
Reconstruction and any other approvals as may be necessary.

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CEMENT MAKING PROCESS

STEP 1: QUARRY

Basic Elements

For it’s raw materials, cement uses minerals containing the four essential elements for it’s
creation: calcium, silicon, aluminum, and iron.

Raw materials

Most plants rely on a nearby quarry for limestone. The most common combination of
ingredients is limestone(for calcium) coupled with much smaller quantities of clay and
sand( as sources of silica, aluminium, and iron). Other raw materials, such as mill scale,
shale, bauxite and fly ash, are brought in from outside sources when necessary.

Crusher

Rock blasted from the quarry face is transported to the primary crusher, where chair sized
rocks are broken into pieces the size of baseballs. A secondary crusher reduces them to the
size of gravel. Some plants now crush materials in a single stage.

STEP 2: PROPORTIONING, BLENDING & GRINDING

Proportioning and Blending

The raw materials are now analyzed in the plant laboratory, blended in the proper proportion,
and then ground even finer.

Grinding

Plants grind the raw materials with heavy, wheel-type rollers that crush the materials into
powder against a rotating table. After grinding, the material is now ready for the kiln or
preheater, depending on plant type.

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STEP 3: PREHEATER TOWER

Tower

The preheater tower supports a series of vertical cyclone chambers through which the raw
materials pass on their way to the kiln.

Hot Gases

To save energy, modern cement plants preheat the materials before they enter the kiln. Rising
more than 200 feet, hot exit gases from the kiln heat the raw materials as they swirl through
the cyclones.

STEP 4: KILN

Raw materials

Raw materials now enter the huge rotating furnace called a kiln. It’s the heart of the cement
making process – a horizontally sloped steel cylinder, lined with firebrick, turning from about
one to three revolutions per minute. The kiln is the world’s largest piece of moving industrial
equipment.

Intense Heat

From the preheater, the raw material enters the kiln at the upper end. It slides and tumbles
down the kiln through progressively hotter zones toward the flame. At the lower end of the
kiln, fuels such as powdered coal and natural gas feed a flame that reaches 3400 F (1870 C) –
one-third of the temperature of the sun’s surface. Here in the hottest parts of the kiln, the raw
materials reach about 2700 F (1480 C) and become partially molten.

Clinker

This intense heat triggers chemical and physical changes. Expressed at its simplest, the series
of chemical reactions converts the calcium and silicon oxides into calcium silicates, cement’s
primary constituent. At the lower end of the kiln, the raw materials emerge as a new
substance: red hot particles called clinker.

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STEP 5: CLINKERCOOLER & FINISH GRINDING

Cooler

The clinker tumbles onto a grate cooled by forced air. Once cooled the clinker is ready to be
ground into the gray powder known as Portland cement.

Re-circulate

To save energy, heat recovered from this cooling process is recirculated back to the kiln or
preheater tower.

Ball-Mill

The clinker is ground in a ball mill – a horizontal steel tube filled with steel balls. As the tube
rotates, the steel balls tumble and crush the clinker into a super-fine powder. It can now be
considered Portland cement. The cement is so fine it will easily pass through a sieve that is
fine enough to hold water. A small amount of gypsum is added during final grinding to
control the set.

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STEP 6: BAGGING & SHIPPING

Silos

From the grinding mills, the cement is conveyed to silos where it awaits shipment.

Transportation

Most cement is shipped in bulk by trucks, rail, or barge.

Bagged

A small percentage of the cement is bagged for customers who need only small amounts or
for special uses such as mortar.

Most cement is shipped to ready-mixed concrete producers. There, it’s combined with water,
sand, and gravel to make concrete delivered in the familiar trucks with revolving drums.
Cement is also used for a wide array of precast concrete products.

CEMENT – VARIETIES AND TECHNOLOGY

There are different varieties of cement based on different compositions according to specific
end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement, White Cement,
Portland Blast Furnace Slag Cement and Specialised Cement. The basic difference lies in the
percentage of clinker used.

• Ordinary Portland Cement (OPC):

OPC, popularly known as grey cement, has 95 per cent clinker and 5 per cent gypsum and
other materials. It accounts for 70 per cent of the total consumption.

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• Portland Pozzolana Cement (PPC):

PPC has 80 per cent clinker, 15 per cent pozolona and 5 per cent gypsum and accounts for 18
per cent of the total cement consumption. It is manufactured because it uses fly ash/burnt
clay/coal waste as the main ingredient.

• White Cement:

White cement is basically OPC - clinker using fuel oil (instead of coal) with an iron oxide
content below 0.4 per cent to ensure whiteness. A special cooling technique is used in its
production. It is used to enhance aesthetic value in tiles and flooring. White cement is much
more expensive than grey cement.

• Portland Blast Furnace Slag Cement (PBFSC):

PBFSC consists of 45 per cent clinker, 50 per cent blast furnace slag and 5 per cent gypsum
and accounts for 10 per cent of the total cement consumed. It has a heat of hydration even
lower than PPC and is generally used in the construction of dams and similar massive
constructions.

• Specialised Cement:

Oil Well Cement is made from clinker with special additives to prevent any porosity.

• Rapid Hardening Portland Cement:

Rapid Hardening Portland Cement is similar to OPC, except that it is ground much finer, so
that on casting, the compressible strength increases rapidly.

• Water Proof Cement:

Water Proof Cement is similar to OPC, with a small portion of calcium stearate or non-
saponifibale oil to impart waterproofing properties.

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There are three types of processes to form cement - the wet, semi-dry and dry processes. In
the wet/semi-dry process, raw material is produced by mixing limestone and water (called
slurry) and blending it with soft clay. In the dry process technology, crushed limestone and
raw materials are ground and mixed together without the addition of water. The dry and semi-
dry processes are more fuel-efficient. The wet process requires 0.28 tonnes of coal and 110
kWh of power to manufacture one tonne of cement, whereas the dry process requires only
0.18 tonnes of coal and 100 kWh of power. Coal and power costs account for 35 per cent of
the total cement production costs. With 95 per cent of the total capacity based on the modern
dry process technology, the Indian cement industry has become more cost efficient. Top
companies in the cement industry match quite well with world standards in terms of energy
(thermal energy Kcal/kg of clinker - India 665 against 690 of Japan) and pollution norms
(SPM of 40 in India against 20 in Japan).

Major Players (Capacity-wise)

As discussed, ACC is the largest player with a capacity of 18.64 mtpa at end-March 2006.
UltraTech CemCo Ltd. now occupies the second slot with a capacity of 17 mtpa (which
includes 1.5 mtpa of subsidiary Narmada Cement). The Gujarat Ambuja group has emerged
as the third largest player with a capacity of 14.86 mtpa. Grasim ranks fourth with a capacity
of 14.12 mtpa. Other leading players include India Cements, Jaypee group, Century Textiles,
Madras Cements, Lafarge, and Birla Corp.

Locational Issues

Cement being a high bulk and low value commodity, outward freight accounts for close to
one fifth of the total manufacturing cost. In addition, for every tonne of cement produced,
close to 1.7 tonnes of raw material (including coal) is transported. In this scenario, the
location of the cement plant becomes crucial. While deciding on the plant location, there is a
trade-off between proximity to raw material sources and proximity to markets. A split-
location cement plant can be a good compromise between the two options. The plant also has
to address issues of logistics (evacuation of cement by rail, road or waterways), power
availability in the region, and availability of materials (limestone, coal, slag, etc).

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The bulk of the cement manufactured is consumed near urban centres. In the manufacture of
cement, for every 1 tonne of clinker, about 1.6-1.7 tonnes of limestone and coal need to be
assembled. For OPC, another 50 kg of gypsum is required while grinding the clinker down.

For PPC, up to another 250 kg of pozzolonic material such as fly ash requires to be
assembled. Thus, there can be two broad locational strategies, stemming from the principal
objective, which is not merely to minimise unit-manufacturing cost, but to minimise unit
delivered

cost as well. The first strategy is to locate manufacturing facilities near the consuming
centres. In this case, outward freight is minimised and marketing flexibility enhanced at the
cost of higher raw material assembly costs. The second strategy is to locate the plant close to
the mineral deposits, so as to minimise raw material assembly costs. Given that 1.4-1.5
tonnes of limestone are required per tonne of clinker, locating the plant along the limestone
deposits is the logical corollary. Occasionally, as in areas like Satna, Rewa, and Raipur, the
coal pitheads are also quite close by. As long as retention prices were the norm, outward
freight was of no concern to cement companies. All the cement plants thus naturally
gravitated to one of the several large limestone bearing areas in the country. With the
introduction of partial, and later full, decontrol, outward freight has become a critical issue in
determining a company's profitability. However, if the list of new plants which have come up
since 1982 as well as those under implementation today, is examine, it may be observed that
barring some, all companies continue to opt for the limestone-deposit bias in locating new
capacity. However, a hybrid strategy exists. The clinker to cement ratio is virtually 1:1 for
OPC, with the addition of gypsum being only 5%. For PPC, with fly ash addition, the clinker
to cement ratio is 0.8:1. Split location plants thus become a distinct possibility, with the
clinker manufacture near limestone deposits and grinding and bagging facilities near the
consuming centres. The advantages of this split location strategy derive from the ease of
transporting clinker in open-to-sky condition (rather than bagged cement under protective
cover), lower handling losses in transit and ease of storage of clinker (as opposed to cement
at the market centred grinding mills).

This is especially true for PPC/PBFS, since fly ash/slag is available from the thermal power
stations/steel plants, which are located in, and around the country's urban centres. Flyash
disposal by power utilities has become a contentious environmental issue. Similarly, steel
producers face problems in disposing slag. Therefore, utilisation of these materials in this

11
manner can improve the cement company's profitability while benefiting the environment. By
locating such grinding units close to the markets, the distribution costs are reduced to a great
extent. If the grinding unit is near a port with a steel mill or power plant nearby, this becomes
an ideal situation for targeting the export markets. Such possibilities exist near Mangalore,
Vizag and Cochin, where the clinker can also be moved economically by coastal shipping
from plants located in North-western India. However, this strategy will be limited somewhat
by the extent in which PPC is accepted in the market. Over the last decade, the share of
PPC/PBFS has increased significantly from 28.3% in FY1995 to 55.6% in FY2005.

High Growth in Domestic Cement Consumption

India's cement consumption increased 10.1% during FY2006 to 135.56 mt. By comparison,
consumption 8.1% during FY2005, and 5.8% during FY2004. Production has increased at a
3-year compound annual growth rate (CAGR) of 8%.

MAINTENANCE AND STORES REQUIREMENTS

The two important items of stores and spares in the case of cement manufacture are refractory
material and grinding media. For grinding media, high chrome grinding balls are normally
used. In the case of refractory materials, companies go in for two kinds of refractory bricks-
high alumina and high chrome. Typically, the life of the refractory material is 6-8 months
(with the indigenously made high-alumina bricks), after which the kiln has to be stopped and
the affected sections relined, a process, which takes 3-4 days. Kiln relining is normally made
to coincide with the normal planned shutdown. Some companies are also experimenting with
imported high-chrome bricks, which provide for a longer uninterrupted operational life of 18-
24 months. In practice, this can extend the availability of calendar hours and thereby enhance
the actual capacity of the plant.

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ENERGY AND TRANSPORT REQUIREMENTS

The cement industry is dependent on three major infrastructural sectors of the economy: coal,
power and transport. The inputs from these three sectors account for roughly 50% of the cost
of cement.

Both the availability and the cost of these inputs have a vital bearing on the fortunes of the
cement players. All these sectors are largely in the State sector, and, historically cement
companies have had virtually no control on the cost or availability of these inputs. Hence, the
industry response has largely been in the form of achieving efficiency

gains and finding alternatives (captive power, use of waterways). One additional external
influencer of the cement industry performance is the taxes and levies imposed by the Central
and State Governments. These together account for around 30% of the selling price of cement
in the Indian context.

Coal

Coal is an important input in cement manufacture and accounts for 15-20% of the total cost.
Coal serves a dual role in cement manufacture. Firstly, the heat value in coal provides the
thermal energy required for the operation of the kiln. Secondly, the mineral content in coal
(basically, silica content) acts as a constituent in clinker. For every tonne of clinker, around
200-220 kg of coal is consumed. Coal consumption by cement plants has increased from 19
mt in FY2000 to around 33 mt in FY2005. Cement accounts for around 4.5% of India's coal
demand. Consumption of coal for production of cement has not increased proportionately
with cement production because of the switch to the dry process, efficiency improvements in
cement kilns and the increased use of fly ash produced in power plants and granulated slag
produced in blast furnaces of steel plants in the production of cement. In India, overall coal
distribution was statutorily governed by the Colliery Control Order of 1945.

Subsequently, this order has been amended and the new Colliery Control Order 2000 has
been notified according to which the price and distribution of all grades of coal have been

13
deregulated with effect from 1.1.2000. To ensure smooth and co-ordinated supplies of coal to
all consumers, the Government and the coal companies have adopted a system of linking of
supply sources with consuming units and their requirement. All consumers are broadly
classified into two different categories viz. core sector and non-core sector. Cement comes
under the core sector. Each consumer is given a linkage (allocation) of quantity on an
appropriate field. The linkages to cement plants and power utilities are decided by the
Standing Linkage Committee (SLC). Key members of the SLC include representatives from
the Ministry of Coal, the Ministry of Railways, the Ministry of Power/Industry, the Planning
Commission, the coal companies and the Central Fuel Research Institute (CFRI). The
quantity, and the coalfields from where the coal is to be supplied to a particular cement plant,
is decided by the SLC even before the cement plant is commissioned. The actual movement
programme is, however, drawn up by the SLC every quarter indicating the quantities to be
moved, the mode of transport and the coal Fields / Coal Company with which the cement
company is to be linked. To meet the requirement of Indian consumers, there are seven
grades of coal available from Indian collieries. The classification is done based on the Useful
Heat Value content of coal, as mentioned below:

Transportation

Outward freight on cement is an important element in the operating cost of a cement plant. It
accounts for around one third of the total variable costs. Most of the cement plants in India
are located in and around the limestone clusters. These clusters are distant from the collieries
and the markets for cement. Cement has an average lead of around 535 km. Thus, cement
companies have to rely on extensive transportation for moving coal from the coal pitheads to
the cement plants and for despatching cement from the plant to the markets. As both coal and
cement are of low value and bulky in nature, freight costs are considerably high for cement
plants. Cement companies use both road and rail transport to transport cement and to receive
coal. Rail dispatches amount for about 33% while roads carry the balance 66%. The balance
1% is accounted by Sea transporation. The share of road over rail has only gone up over the
years. For coal transportation, the dependence on rail network is still very high and accounts
for around 70% of coal movement.

Although rail transportation is more economical for distances beyond 250-300 km, cement
companies have started preferring road transportation even for longer distances because of

14
several reasons. Rising railway traffic coupled with insufficient investments by the railways
for increased wagon supplies and the fact that the cement industry is not an important
customer of the Railways (cement cargo accounts for just 7-8% of the total railway freight)
have resulted in a shortage of wagon supply to the cement industry. The railways had
launched the "Own Your Wagon" scheme-a scheme where companies could buy wagons and
lease it to the Railways and the Railways would in turn operate these wagons and ensure their
availability to the owner. But the unfavourable terms and conditions of this scheme prevented
its successful commercialization.

The Railways have also increased their tariff on a regular basis (often higher than the
increases in the road sector), making them uneconomical vis-à-vis road tariffs even for longer
distances.

MAJOR PLAYERS

Domestic players

Associated Cement Companies Ltd (ACCL)

Associated Cement Companies Ltd manufactures ordinary Portland cement, composite

cement and special cement and has begun offering its marketing expertise and distribution
facilities to other producers in cement and related areas. It has twelve manufacturing plants
located throughout the country with exports to SAARC nations. The company plans capital
expenditure through expansion of existing units and/or through acquisitions. Non-core assets
are to be divested to release locked up capital. It is also expected to actively pursue overseas
project engineering and consultancy services.

Birla Corp

Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting, cement, jute
goods, yarn, calcium carbide etc. The cement division has an installed capacity of 4.78
million metric tonnes and produced 4.77 million metric tonnes of cement in 2003-04. The
company has two plants in Madhya Pradesh and Rajasthan and one each in West Bengal and
Uttar Pradesh and holds a market share of 4.1 per cent. It manufactures Ordinary Portland

15
cement (OPC), Portland pozzolana cement, fly ash-based PPC, Low-alkali Portland cement,
Portland slag cement, low heat cement and sulphate resistant cement. Large quantities of its
cement are exported to Nepal and Bangladesh. Going forward,

The company is setting up its captive power plant to remain cost competitive.

Century Textiles and Industries Ltd (CTIL)

The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper, shipping,
property & land development, builders and floriculture.

Cement is the largest division of CTIL and contributes to over 40 per cent of the company's
revenues. The company has an installed capacity of 4.7 million tonnes with a total cement
production of 5.43 million tonnes in 2003-04. CTIL has four plants that manufacture cement,
one in Chhattisgarh, two in Madhya Pradesh and one in Maharashtra. Going forward, the
company has scripted a three-pronged strategy closing down its shipping business, continuing
with its chemicals and adhesive division, and focusing on cement, rayon and paper as its
long-term business plan.

Grasim-UltraTech Cemco

Grasim's product profile includes viscose staple fibre (VSF), grey cement, white cement,
sponge iron, chemicals and textiles. With the acquisition of UltraTech, L&T's cement
division in early 2004, Grasim has now become the world's seventh largest cement producer
with a combined capacity of 31 million tonnes. Grasim (with UltraTech) held a market share
of around 21 per cent in 2003-04. It has plants in Madhya Pradesh, Chhattisgarh, Punjab,
Rajasthan, Tamil Nadu and Gujarat among others. The company plans to invest over US$ 9
million in the next two years to augment capacity of its cement and fibre business. Its also
plans to focus on its international ventures, ramping up the capacity of Alexandra Carbon
Black in Egypt to 1,70,000 tonne per annum (from 1,20,000 tpa) and raising the capacity of
the carbon black plant in China from 12,000 tpa to 60,000 tpa.

Ambuja Cements Ltd (ACL)

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Ambuja Cements Ltd was set up in 1986 with the commencement of commercial production
at its 2 million tonne plant in Chandrapur, Maharashtra. The group has clinker manufacturing
facilities at Himachal Pradesh, Gujarat, Maharashtra, Chhattisgarh, Punjab and Rajasthan.
The company has a market share of around 10 per cent, with a strong foothold in the northern
and western markets.

Its total sales aggregated US$ 526 million with a capacity of 12.6 million tonnes in 2003-04.
Ambuja is India's largest cement exporter and one of the most

cost efficient firms. ACL has a 14.45 per cent stake in ACC, making it the second largest
cement group in the country, after Grasim-UltraTech Cemco. The company has free cash
flows that it is likely to use to grow inorganically. The company is scouting for a capacity of
around two million tonne in the northern and western markets. It has also earmarked around
US$ 195-220 million for acquisitions

India Cements

India Cements is the largest cement producer in southern India with a total capacity of 8.81
million tonnes and plants in Andhra Pradesh and Tamil Nadu. The company has a market
share of 5.4 per cent with a total cement production of 6.36 million tonnes in 2003-04. Its
product portfolio includes ordinary portland cement and blended cement. The company has
limited its business activity to cement, though it has a marginal exposure to the shipping
business. The company plans to reduce its manpower significantly and exit non-core
businesses to turnaround its fortune. It also expects the export market to open up, with the
Gulf emerging as a major importer.

Jaiprakash Associates Limited

Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is part of the
Jaypee Group with businesses in civil engineering, hospitality, cement, hydropower, design
consultancy and IT. It has an annual capacity of 4.6 million tonnes with plants located in
Rewa & Bela (Madhya Pradesh) and Sadva Khurd (Uttar Pradesh). The company has a
market share of 3.8 per cent with the cement division contributing US$ 172 million to
revenue in 2003-04. The company is upgrading its capacity to 6.5 million tonnes through the

17
modernising of the existing units and the commissioning of a new grinding unit at Tanda
(Uttar Pradesh) with an investment of US$ 163 million. Jaiprakash Associates has decided to
concentrate on its core business of construction and engineering and leave its cement plant to
its subsidiary Jaypee Rewa Cement Ltd. The company manufactures a wide range of world
class cement of OPC grades 33, 43, 53, IRST-40 and special blends of pozzolana cement.

JK Synthetics

JK Synthetics, a Singhania Group company, started manufacturing nylon at Kota in 1962.

Subsequently, it diversified into PSY/PFY, nylon tyre-cord, cement (in 1975), acrylic and
white cement (in 1984). The company has a market share of 2.7 per cent. JK Synthetics
Limited is restructuring its business divisions into two

separate entities- JK Cements and JK Synthetics. After the restructuring, it will be left with a
cement plant at Nimbahera in Rajasthan, with a capacity of 3.26 million metric tonnes and
manufacturing white cement.

Madras Cements

Madras Cements Ltd is one of the oldest cement companies in the southern region and is a
part of the Ramco group. The company is engaged in cement, clinker, dolomite, dry mortar
mix, limestone, ready mix cement (RMC) and units generated from windmills. The company
has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement plant in Karnataka.
It has a total capacity of 5.47 million tonnes annually and holds a market share of 3.1 per
cent. Madras Cements plans to expand by putting up RMC plants. As Karnataka is a
promising market, the company is further expanding its capacity from the present 1.5 million
tonnes to 3.4 million tonnes through an investment of US$ 9 million.

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Foreign players

Holcim

Holcim, earlier known as Holderbank, has a cement production capacity of 141.9 million
tonnes. It is a key player in aggregates, concrete and construction related services. It has a
strong market presence in over 70 countries and is a market leader in south America and in a
number of European and overseas markets.

Holcim entered India by means of a long-term strategic alliance with Gujarat Ambuja
Cements Ltd (GACL) now Ambuja Cement Limited (ACL) . The alliance aims to strengthen
their clinker and cement trading activities in South Asia, the Middle East and the region
adjoining the Indian Ocean. Holcim also intends to use India as an additional base for its IT
operations, R&D projects as well as a procurement sourcing hub to generate additional
synergies and value for the group

Italcementi Group

The Italecementi group is one of the largest producers and distributors of cement with 60
cement plants, 547 concrete batching units and 155 quarries spread across 19 countries in
Europe, Asia, Africa and North America. Italcementi is present in the Indian markets through
a 50:50 joint venture company with

Zuari Cements. All initiatives in southern India are routed through the joint venture company,
while Italcementi is free to buy deals in its individual capacity in northern India. The joint
venture company has a capacity of 3.4 million tonnes and a market share of 2.1 per cent.

Lafarge India

Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement capacity of 5
million tonnes and a clinker capacity of 3 million tonnes in the country. Lafarge commenced
operations in 1999 and currently has a market share of 3.4 per cent. It exports clinker and
cement to Bangladesh and Nepal.

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It produces Portland slag cement, ordinary Portland cement and Portland pozzolana cement.
The Indian cement plants are located in Chhattisgarh and

Rajasthan. Lafarge Cement has become the largest cement selling firm in the Indian markets
of West Bengal, Bihar, Jharkhand and Chhattisgarh.

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SOME OF THE PRODUCTS OF AMBUJA

 Waterproof cement coating

 Pozzocrete - a cement replacement product
 Cement concrete blocks-application
 super grip pvc solvent cement
 Cement Mosaic Tiles
 Birla White Cement
 Starlite a white cement based plaster
 Interior Wall Finishes (cement primer oil base)
 Interior Wall Finishes (cement primer water base)
 Decorative waterproof cement coating(Supremcem)

Ambuja Cement: Wall-to-wall advertising

By Devina Joshi, agencyfaqs!, Mumbai, January 09, 2008

Section: News Category: Advertising

Share

In an ad for Ambuja Cement, Grey Worldwide has ensured that the strength of the cement
rides on the strength of emotion

There’s something about walls and advertising. It’s ironic, really. On the one hand, you have
telecom brand Airtel talking of breaking down walls (‘Deewarein Gir Jaati Hain’), while on
the other, you have Ambuja Cement talking of unbreakable walls (‘Yeh Deewaar Nahin
Tootegi’). Obviously, the context is vastly different in the two cases, but one can’t help but
notice the strikingly opposite thoughts, executed along similar lines.

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The demolition talks in progress

Boy, interrupted

Bulldozer fails

The stumped builder

Rejoicing children

'Ambuja Cement. Yeh

Deewaar nahin tootegi'

Marketing

Total sales of cement and clinker in the year 2002-2003 were 14.58 lac tonnes and 1.70 lac
tonnes respectively compared to 12.67 lac tonnes and 1.55 lac tonnes in the previous year.
Inspite of increase in sales by 14%, sales value increased by only 9% due to extremely
depresses selling prices.

The Company has substantially increased its share in the trade segment and developed a
potential network of Dealers/Stockists. Reorientation of marketing strategy continues with a
strong focus on the Company's natural markets. The Company's brand name Ambuja
continued to gain wider preference due to its superior quality and the Company's fair
practices with its dealers and stockists.

Cost Impacts

Raw Materials-There was a marginal increase of 5% in cost of raw materials in the year
2002-2003 compared to the previous year, mainly due to raw mix optimisation for improved
cement quality and higher production of pozzolona Portland cement by 18%.

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 Coal - There was a saving of 8% in cost of coal due to lower consumption and more
production of pozzolona Portland cement.

Power-Power requirements continued to be met largely from captive generation with only
12% of the total being sourced from the grid. The reduced dependence on grid power helped
in reducing the total power cost by 3%.

Logistics Management - Further savings of Rs. 237 lacs were achieved in freight and
forwarding due to dynamic management of logistics.

Interest- the Company saved a large amount in interest cost due to continuing restructuring
of its debt by way of replacement of high cost funds by low cost funds. The overall interest
burden of the Company was reduced by almost 14%over and above the 13%achieved last
year.

SOME RISKS & CONCERNS

Coal, power, Government levies and duties are major cost components the cement industry
and the same are under the control of the Government. Cement demand also depends heavily
on the Government’s policy on infrastructure and housing development. Therefore, any
change in government policy may have significant impact on the industry. In the Union
Budget 2003-2004, the excise duty on cement which was already very high has been further
increased from Rs.350/- to Rs.400/- per tonne. This has put further strain on the Company's
profitability. The proposal for implementation of Value Added Tax (VAT) when made
effective will pose a challenge to trade and industry.

INTERNAL CONTROL SYSTEMS

The Company is committed to maintain high standards of internal control systems. The
Company has its Internal Audit Department headed by a senior Chartered Accountant which
monitors internal controls, compliance with procedures and their adequacy from time to time.
The department submits its report to the Audit Committee on quarterly basis or earlier if
required by the Audit Committee.

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The Company believes that its Internal Control Systems are adequate keeping in view the
nature and size of the Company's operations. This department is enlarging its scope and size
to meet the fast changing business scenario and the Company's philosophy to strive for high
standards of Corporate Governance.

HUMAN RESOURCES

The Company maintained cordial relationship with its employees at all levels. In order to
improve the ability and skills of its employees the Company organized in-house workshops
and conferences covering wide-ranging subjects. Employees were also deputed to attend
seminars externally to widen their exposure. These programmes have helped to motivate the
employees and to integrate them with the core ethos of the organisation.

ENVIRONMENT MANAGEMENT & COMMUNITY DEVELOPMENT

Drought in Rajasthan was widespread. The Company continued with assistance to

neighbouring villages by constructing anicuts and earthern dams to help in water
preservation. Free grain and lentils were distributed to more than 270 individuals identified to
be the hardest hit due to drought. Drinking watertankers were supplied to nearby villages and
fodder for cattle was distributed in many parts of Pali district.In addition, Ambuja Cement
Foundation (ACF) also widened theiractivities by:

Alleviating the drinking water problem due to drought conditions prevalent for four years by
supplying drinking water through tankers,constructing Roof Rain Water HarvestingStructures
& Waterstorage tanks, deepening existing wells, installing new hand pumps andmaintaining
existing hand pumps.

Conducting cattle camp for examination of animals, distributing water and fodder and
bringing home to farmers the beneficial aspects of sustainable farming practices, plantation,
horticulture, dripirrigation etc.

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 - Conducting regular health check-up camps and distributing free medicines through the
mobile dispensary.

- Supplying furniture, notebooks, sports kits, uniforms and utensils (for mid-day meal
programmes) and conducting training programmes for women.

DIRECTORS

Shri Suresh Neotia and Shri A. C. Singhvi, Directors of the Company, retire by rotation and
being eligible, offer themselves for re-appointment. The Board recommends their re-
appointment.

AUDITORS

M/s. A. F. Ferguson & Co., Auditors of the Company, will retire at the ensuing Annual
General Meeting and are eligible for re- appointment.M/s. A. F. Ferguson & Co. have
confirmed that their appointment, if made, shall be within the limits under Section 224( 1 B)
of the Companies Act, 1956. The Board of Directors recommend reappointment of the
Auditors and fix their remuneration. M/s. P. M. Nanabhoy & Co., Cost Accountants, have
been appointed Cost Auditor of the Company for the year 2003-2004.

CORPORATE GOVERNANCE

The Company has complied with the Corporate Governance Code in accordance with the
listing agreement with Stock Exchanges. A separate section on Corporate Governance, along
with a certificate from the Auditors confirming compliance is annexed and forms part of the
Directors' Report.

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PUBLIC DEPOSITS

The Company has neither invited nor accepted any deposits from the public within the
meaning of Section 58A of the Companies Act, 1956,during the year under review.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND

FOREIGN EXCHANGE EARNINGS AND OUTGO

Information with respect to Conservation of Energy, Technology Absorption, Foreign

Exchange Earnings and Outgo, required to be given pursuant to Section 217(1)(e) of the
Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the
Board of Directors) Rules, 1988 is set out in Annexure I and forms part of this Report.

DIRECTORS' RESPONSIBILITY STATEMENT

As required u/s 217(2AA) of the Companies Act, 1956, the Directors hereby confirm that:

i) In the preparation of the Annual Accounts, the applicable accounting standards have been
followed along with proper explanations relating to material departures;

ii) Appropriate accounting policies have been selected and applied consistently and have
made judgements and estimates that are reasonable And prudent, so as to give a true and fair
view of the state of affairs of the Company as on 30*' June, 2003 and of the loss of the
company forth year ended 30th June, 2003;

iii) Proper and sufficient care has been taken for the maintenance of adequate accounting
records in accordance with the provisions of the Companies Act, 1956 for safeguarding the
assets of the Company and for preventing and detecting fraud and other irregularities;

iv) The annual accounts have been prepared on a going concern basis.

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RESEARCH AND DEVELOPMENT (R & D)

1 Specific areas in which R & D carried out by the Company:

i) Optimization of raw-mix design.

ii) Optimisation of particle size to improve raw mix burn ability.

iii) Optimisation of Kiln operation by microscopy.

iv) Installation of XRD for mineralogical analysis of raw mix.

2 Benefits derived as a result of above R & D:

i) Improved productivity, quality & power and fuel efficiencies.

3. Future plan of actions:

i) Upgradation of XRD software.

ii) To procure microscope to continue microscopic studies of raw materials and clinker.

iii) Differential thermal analysis (DTA) and thermal gravimetry (TG) of kiln feed samples.

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Conclusion

I concluded that the cement industry in India is on great boom and accounting a lot to
Indian GDP. In India the cement was mostly demanded by housing sector The cement sector
is expected to witness strong production and consumption growth of 10% during FY2007 in
line with the economic growth because of the strong co-relation with GDP and the increased
activity in the construction sector.

It is estimated that requirement of new dwelling units over a period of 25 years

(1996-97 to 2020-21) will be around 140 million units requiring an investment of
approximately Rs. 20,000 billion. Besides, demand from infrastructure projects and
industrial/commercial ventures account for 20% each. Even as NHDP-I (comprising (2006-
15) envisages construction of another 36,000 kms of roads at an estimated cost of Rs. 1,270
billion. Overall, from the demand perspective, the fundamentals look bright, and cement
demand in the medium term is expected to grow by around 9%. The Planning Commission's
Working Group on Cement Industry predicts cement production in India to grow at a rate of
10% during the Tenth Five-Year Plan (2002-2007). By comparison, the cement industry is
expected to grow at around 8-10% during the 2003-07 period. Growth of 9% per annum
from FY2006-10 would result in cement production increasing to around 196 mt in FY2010.
By comparison, consumption could increase to 190 mt in FY2010. China, the world's largest
producer of cement, has seen sustained cement production average annual growth of 10%
since 1980, mostly due to the enormous infrastructure development that country has
experienced over this period.

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