Firm Analysis – ACC Cements

Project Report – Competition and Strategy

Submitted to – Professor Rishikesha T. Krishnan

SUBMITTED BY – GROUP 3

Anantha Krishnan S (1311077)

Gaurav Pagaria (1311087)
Lavanya (1311097)
Parimella Venkatesh (1311108)
Tania Garg (1311131)
Contents

1. ACC Cement – An Introduction............................................................................... 3

2. Performance of ACC – Comparison with Industry and Competitors ............. 4
3. Resources and Capabilities ........................................................................................ 5
3.1 Backward Integration .................................................................................................... 5
3.2 Supplier Network ............................................................................................................ 6
3.3 Operational Efficiencies ................................................................................................. 6
3.4 Distribution and Delivery .............................................................................................. 6
3.5 Marketing and Customer Relations ............................................................................ 7
3.6 Research and Development .......................................................................................... 7
4. Challenges ...................................................................................................................... 9
4.1 Increasing Presence of large and mid-size players .................................................. 9
4.2 Increasing cost pressure ................................................................................................. 9
4.3 Sluggish Demand ............................................................................................................. 9
4.4 Increasing sales of new quality of cements ..............................................................10
4.5 Future demand and expansion plans ........................................................................10
5. Current Strategy ....................................................................................................... 10
5.1 Setting up new plants to enhance capacity ..............................................................10
5.2 Innovativeness in productivity & profitability: Institutionalizing excellence.11
5.3 Use of renewable energy and energy conservation................................................11
5.4 Use of alternate fuels and raw materials..................................................................12
6. Situation Analysis and Recommendations .......................................................... 12
6.1 Increase Penetration .....................................................................................................12
6.2 Setting-up new plant in NE region ............................................................................13
6.3 Increased use of alternate fuels and raw materials ...............................................14
6.4 Increasing presence in Ready Mix Concrete ..........................................................14
6.5 Technological Innovation ............................................................................................15
Appendix .............................................................................................................................. 16

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1. ACC Cement – An Introduction
India has the second largest cement industry in the world with a yearly demand of 224
MT and an installed capacity of 290MT. Indian cement industry, highly fragmented
with 100+ players appears to be highly competitive owing to its little product
differentiation and its captive customer base. Besides this, the cement industry is highly
concentrated with very few players like Ultratech, Ambuja, ACC, Shree cements
contributing for more than 70% of the market share1.

Market Share by Sales Turnover (FY13)

Ultratech

ACC

26% 27% Ambuja Cements

Shree
6% 15% Prism Cements

6% India Cements

7% 13%
Others

Figure 1 - Indian Cement Industry - Major Players by Market Share

Owing to the requirements for the huge capital investments and well-established
distribution networks, the barriers to entry are very high for cement industry in India.
Moreover, Inter-firm rivalry is also high due to little product differentiation.

In face of these factors, generating significant cost advantage in terms of production,

distribution and improved technology stands as a key success factor in the cement
industry. Furthermore, the use of cost effective fuel, power and raw material and the
ability of the firm to expand its presence through the establishment of new plants to
meet the local needs adds to the list of key success factors.

ACC cements, which was established in 1936 by the merger of 10 companies is the
foremost manufacturer of cement in India. Swiss cement major Holcim became the
major stakeholder of ACC cements in 2004-05. In these days, Holcim is in news for
restructuring of its business in India. Holcim intends to streamline the ownership

1 http://www.acclimited.com/newsite/finance/Investor_Presentation_august_12.pdf

3
 structure of its operations in India in to strengthen its existing platform. Through this
intragroup restructuring, Holcim eyes to increase its shareholding in Ambuja Cements
Ltd. to 61.39% and Ambuja in turn will acquire Holcim’s 50.01% stake in ACC Ltd.
This restructuring allows for closer back-end cooperation between the companies and
the simplified group structure.

*Source – Holcim.com

2. Performance of ACC – Comparison with Industry and Competitors

Cement industry has evolved through the years with new national as well as regional
players emerging from time to time. This has made the industry volatile in terms of
market share and ACC is currently the third largest cement company in India by sales
turnover. A brief comparison in this area has been shown in the chart below.

The performance of ACC on stock market hasn’t been good in past one year as the
company saw 23.3% fall in stock prices, which is the highest when compared to its
biggest competitors like Ultratech, Ambuja and Shree Cement. The detail about these
and the comparison of the stock market performance of these companies can be found
in appendix.

The return on capital employed stood at 21% for ACC for FY122, which is close the
industry average3 of 17.77% for the same year but the CAGR in terms of production
for the company has been around 3.7% for FY08-12, which is way below the industry

2 www.acclimited.com/newsite/finance/annual_report_2012.pdf
3 http://www.capitaline.com

4
 average of about 9.7% for the same period. This raises questions about the growth of
the company and we will try to answer those questions in coming sections of this report.

3. Resources and Capabilities

The major strengths of ACC are the resources and capabilities that it has developed or
acquired over the years. These are focused towards achieving cost advantage in this
highly competitive industry. The major resources and capabilities of ACC are discussed
in detail below.

3.1 Backward Integration

Power4

ACC has Captive Power Plants from which it derives 65-66% of its power requirements.
This gives ACC a huge cost advantage because this power is about 35% cheaper than
the power purchased externally from SEBs.

Coal Blocks

Its subsidiary ACC Mineral Resources Ltd. is responsible for acquiring coal for use by
the captive power plants. It has Joint Ventures for coal exploration in coal blocks in
Madhya Pradesh and West Bengal.

Limestone Mines

The company also has experience in limestone mining and has its own mines operated
by two of its wholly owned subsidiaries - Lucky Minmat Private Limited and National
Limestone Company Private Limited.

4 http://www.acclimited.com/newsite/pdf/ACCWebUpdate2012_final.pdf

5
3.2 Supplier Network2

ACC’s large network of cement plants across the country requires about 60,000
different inputs. For this, ACC has a vendor base comprising of more than 6000
suppliers across India. ACC uses central procurement to achieve economies of scale
while also procures certain materials locally for specific plant requirements. It engages
in long-term contracts with its suppliers under which it shares the responsibilities of
sustainability and safety with them. ACC also undertakes constant risk and performance
assessment of its supplier base to ensure quality and timely delivery.

3.3 Operational Efficiencies5

In terms of operational efficiency, ACC has built tremendous capabilities in terms of
logistics. In 2012, ACC launched a program called SPEED which was a vehicle
tracking system based on the RFID technology 6 . The aim of the program was to
improve efficiency and productivity with reduced detention time of transport vehicles
and reduction in freight costs.

The RFID technology along with GPS tracking ensured faster movement of products,
long distance scanning, better data capacity and faster readings. This highly improved
the utilization of assets at the ACC’s plants. Starting with the Tikaria plant, followed
by Damodhar and Thondebhavi plants, ACC has plans to implement this to all 17 of
the company’s plants in the next two years.

3.4 Distribution and Delivery

ACC’s range of cement products use a network of sales units, area offices and
warehouses across the country for its distribution. It has a strong distribution network
of 9000 dealers and even sub-dealers. 80% of the total sales are done through this
network while the rest are direct sales to the consumers.

5 http://www.acclimited.com/newsite/pdf/ACCWebUpdate2012_final.pdf
6 http://www.thehindubusinessline.com/companies/acc-targets-logistics-to-cut-costs-improve-
margins/article5361175.ece

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 Bulk Cement

For the large consumers of cement, ACC has started direct transportation of cement in
loose form to the consumers. For this it uses bulk tankers for transport and developed
portable 15-tonne silo to be used at the site for receiving supply. It was a great
development from the bag based distribution system which was time-consuming for
these consumers.

3.5 Marketing and Customer Relations7

 After identifying gaps in the markets, ACC launched premium products to cater
to specific segments. These products included F2R, Coastal+, Concrete+ etc.8
 It has implemented Customer Relationship Management Software across the
organization targeted at two segments – Cement Dealers and Home Builders.
This software helped the ACC sales force to get real time information on
transactions that helped facilitate better interactions.
 Introduction of Websales allowed dealers to order cement online. The
Concrete Club provided an engagement platform for the influencers for
knowledge exchange. EasyACCess platform offered quick online issue
resolution for the dealers.

3.6 Research and Development 9

ACC has developed an in-house research and development facility that works in cement
and concrete related areas. From technology upgradation to development of new
products and processes for the business, the R&D department engages in a whole lot of
activities. This department was responsible for the development of special products like
Acconex (a non-explosive demolition agent), ACCMarg (for flexible pavements
useful for strengthening of highways and roads) and different High Performance
Concretes.

7 http://www.acclimited.com/newsite/pdf/ACCWebUpdate2012_final.pdf

8 http://www.acclimited.com/newsite/finance/Investor_Presentation_august_12.pdf

9 http://www.acc.co.nz/about-acc/research-sponsorship-and-projects/research-and-
development/index.htm

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 Further, the analysis of these using the resource-based tests gives the following results:

Competitive
Resources Inimitability Durability Appropriability Substitutability
Superiority

Geographical expanse High High High Low High

Supplier Network High High High Low High

Backward integration
(Mines, Coal Blocks, High High High Moderate High
Captive Power)

R&D Moderate Moderate Moderate Low Moderate

Operational Efficiency Moderate High High Low High

Brand Reputation High Moderate High Low Moderate

Marketing & Customer

Low High Moderate Moderate Moderate
Relations

Hence, the major resources that give ACC sustainable competitive advantage are its:

Vast geographical expense

This takes time to build and is particularly important because the freight costs are very
high in this industry and hence there is more focus on servicing the local markets.

Supplier Network

ACC has built a large and trusted supplier network over the years that allow it to
centrally procure raw materials and enter into long-term sustainability agreements with
them.

Backward Integration

This gives ACC huge cost advantage, which is extremely important in this industry.
Moreover, the mines and captive power plants that it owns are huge investments and
hence no easy to acquire.

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 Operational Efficiency

With its scale and innovation in technology, ACC has been able to improve its
production and logistic processes that also give ACC huge cost advantages.

4. Challenges
The competitiveness of the industry, owing to several factors like little product
differentiation and cost leadership strategy followed by most of the companies, there
are several challenges that ACC is faced with currently. The major challenges can be
classified under below heads.

4.1 Increasing Presence of large and mid-size players10

The market share of ACC and other large companies has reduced in recent years
because of the increasing presence of small and mid size players. Their ability to
establishing a good local network and meet the demands of the consumers effectively
gives them an advantage over the big players.

4.2 Increasing cost pressure11

The consistent higher levels of inflation have led to increase in prices of diesel, coal
and railway freights. This has increased the cost pressure on the production of the
company. Volatile FOREX rates and a depreciating rupee, which led to a fall in
domestic savings and consumption has also affected the performance of the company
and thriving in such environment is going to be a challenge for the company going
forward.

4.3 Sluggish Demand12

The Indian economy has been facing a slowdown in past couple of years, because of
the deceleration in global economic growth. As a result, two main drivers of economic
growth for cement industry viz. infrastructure and industrial projects have performed
below expectations. But recently, the industry has shown signs of recovery, which
should improve the scenario for ACC.

10 www.ibef.org/download/Cement-261112.pdf
11 http://www.livemint.com/Money/ljJ6O6GgFZfBTlsXDyciDI/Cement-price-hikes-unlikely-to-
improve-industry-margins.html
12 http://articles.economictimes.indiatimes.com/2013-10-04/news/42718130_1_cement-
dealers-madras-cement-ultratech-cement

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4.4 Increasing sales of new quality of cements9
Customer awareness about the industry products is increasing which is leading to
requirements for specific products. This calls for the companies to be highly innovative
in terms of their product offering. As this can be a potential competitive advantage for
big players like ACC, the challenge to consistently improve their technology cannot be
underrated.

4.5 Future demand and expansion plans13

Based on the forecast, demand is predicted to increase to double by the year 2020 and
the only solution to that will be to increase the capacity. But because of difficulties
associated with land acquisition, environmental clearances and raw material supply, it’s
not going to be a smooth sailing for ACC.

5. Current Strategy

5.1 Setting up new plants to enhance capacity

 ACC is setting up a new plant at Jamul in Chhattisgarh. It is expected to be
completed in phases in 2015 with a new clinkering line (2.79 million tone
capacity) and 1.10 million tone grinding facility14.
 Two new grinding units are also being set up at Sindri and Kharagpur.

Together these are expected to enhance capacity up to 5 million tonnes per annum.
There has also been expansion of capacity at the existing plants15:
 New clinkering line (7000 million tone capacity) commissioned at ACC’s
Chanda plant in Maharashtra.
 At ACC’s Wadi Cement plant, a kiln with the capacity of 12500 tonnes per
day was installed.

13 http://www.acclimited.com/newsite/finance/Investor_Presentation_august_12.pdf
14 http://www.acclimited.com/newsite/finance/annual_report_2012.pdf

15 http://www.acclimited.com/newsite/nation_milestones_en.asp

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5.2 Innovativeness in productivity & profitability: Institutionalizing excellence
To further enhance customer value and achieve cost leadership the company focused
on improvements in five major sectors through its Institutionalizing Excellence
program:

Manufacturing

Efforts to reduce costs of production through improved clinker factor, higher thermal
and electrical energy efficiency and better plant performance across several KPIs.

Sales and Marketing

Focus on Customer Relationship Management to strengthen ACC’s brand reputation

and sustain its market share in the wake of entry by new players.

Logistics

ACC is first to use technologies like RFID and GPS in cement industry with aim to
reduce both the cost and time to serve.

Procurement

ACC used Central Procurement policy at corporate level to reap benefits of economies
of scale while serving specific requirements at the plant level.

People Processes

The improved HR system enhances people centricity with programs for career
development, talent management and productivity improvement.

5.3 Use of renewable energy and energy conservation

 Use of renewable energy sources like wind power and biofuels. 42.33 million
units of wind power being generated at the three plants in Tamil Nadu,
Maharashtra and Rajasthan16.
 Various initiatives to reduce thermal and electrical energy consumption at its
various plants through efficiency improvements. Plans to reduce electrical
energy consumption from 89.6 kwh/tonne to 80 kwh/tonne of cement. 17 Also

16 http://www.acclimited.com/newsite/finance/annual_report_2012.pdf

17 http://www.acclimited.com/newsite/finance/Investor_Presentation_august_12.pdf

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 thermal enrgy consumption to reduce from 3101 MJ/tonne to 2885 MJ/tonne of
clinker 9. Focus also on process improvement to reduce clinker factor to 60%.

5.4 Use of alternate fuels and raw materials

 ACC has been among the first to use alternate fuels and raw materials in Indian
cement industry. They have plans to double its AFR usage to 740000 tonnes by
2015.9
 ACC has developed waste management solutions that involve co-processing i.e.
waste materials from existing industrial processes are used as alternative fuels
or raw materials in cement kilns and power plants.
 ACC uses blast furnace slag from steel plants in its manufacturing process to
produce Portland Slag Cement. The Kudithini Cement Grinding Plant was
opened with capacity of 1.1 MTPA of PSC in 201018.
 It also uses fly ash from thermal power plants in the manufacture of Portland
Pozzolana Cement.
 It has also developed a scheme for Jatropha and Castor Tree Plantation whose
seeds and fruits can serve as biomass supplying energy equivalent to 50,000 tons
of coal over four year period 19.

6. Situation Analysis and Recommendations

Considering the nature of the industry, performance and the company and the volatile
Indian Economy, below are some of the strategies that the company can choose to focus
upon in the time to come.

6.1 Increase Penetration

As seen from the financial analysis of ACC, the CAGR of the company is 3.7%, quite
below the industry standards of 9.7% in FY 08-13. This implies that the company has
been lagging on expansion. The reason for this could be the fact that cement industry
has become very concentrated and regionalized. Holcim has divided the two companies
into separate regions of operation. ACC mainly covers the northern and eastern India
while Ambuja focuses on the southern region. Since the raw material costs have

18 http://www.acclimited.com/newsite/nation_milestones_en.asp
19 http://www.acclimited.com/newsite/afrawmaterial.asp

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 increased over the past few years, to sustain profits, it is important to increase
penetration.

Recommendation

Holcim owns its stake in both ACC and Ambuja, and major operations of Ambuja are
in the western region of India. Hence, it makes sense for ACC to focus on other regions.
ACC has been looking for capacity expansion in the eastern region, in West Bengal and
Jharkhand. This is close to the coal suppliers and will meet the demand requirements
also, which is further expected to rise in the next decade. ACC can comfortably leverage
on its low debt-to-equity ratio and raise debt, in case needed, for its expansion projects.

6.2 Setting-up new plant in NE region

The Northeast region has been in deficit in cement because of inadequate supply from
the local companies. The estimated demand is 5.2 MTPA and supply is just 3.0 MTPA,
making a deficit of 2.2 MTPA. Many companies are looking on this opportunity to
penetrate in this underutilized market. The demand and required plant-capacity might
not be sufficient for a company to set-up a plant right now but looking at the future
prospects and the increase in demand with growing of industrialization, the requirement
of a dedicated plant in the region cannot be ignored.

Figure 2 - NE India: Cement demand-supply gap

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 Recommendation

Since ACC is already operating and expanding in the eastern region, it is easier for it
to expand in the NE region as well. The following capabilities can be useful in this
expansion –
 The resources and capabilities available in eastern region of India in terms of
raw material supplier and distributor relations can be used for its new plants.
But to build a strong presence in the area, new localized network of distributors
and suppliers will be required. Early steps in this direction can be useful.
 Anticipating the future increase in demand, the planning for the plant should be
started as early as possible, keeping in mind the time that it will take to get the
environmental and other clearances from the govt.

6.3 Increased use of alternate fuels and raw materials

Since the coal prices have increased and it has become difficult to obtain coal due to
government monopoly, companies are looking for alternate fuels to process their
cement. Ambuja was successful in reducing CO2 emission by 30,000 tonnes by using
tyre chips and rubber dust as alternate fuel. ACC has also been working in this direction.

Recommendation

Some of the alternate fuels, which are less costly and environment friendly are end-of-
life tyres, secondary liquid fuels (such as waste solvents from printing and cleaning),
paper and packaging wastes, sewage sludge, meat and bone meal. Alternate raw
materials may include silica sand, fly ash / pulverized fuel ash (PFA), iron oxides and
bauxite. Many of these materials are environment friendly, which can further help in
getting the clearances faster for its new plants. Each of the options may be further
evaluated based on availability, cost, technology and investment needed.

6.4 Increasing presence in Ready Mix Concrete

As the industry competitiveness has been increasing, it has become imperative not only
to reduce costs through operational efficiencies but also to bring some amount of
differentiation in products. ACC has already launched high performance premium
products like Coastal+, Concrete+, ACCF2R. But it needs to work upon RMX cement,
where its presence has still not been very significant.

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 Recommendation

It is advisable to continue in this direction of product innovation and invest in

developing differentiated products for different markets and also improve quality
compared to its competitors. In case of RMX, it also needs to appropriately market
these products through word of mouth and other means to ensure that it always stays
ahead of its competitors.

6.5 Technological Innovation

All cements have to fulfill the requirements on durability, strength development, early
strength development, workability, cost and environment and it depends upon the
technology that the producer possesses to optimize the different cement types with
respect to these categories.

Recommendation

ACC can use Holcim’s superior technology to out beat its competitors by achieving
operational efficiencies, very much needed in the current scenario. It also needs to look
out for industry wide best practices followed by the other company at global asa well
as national level. ACC has already been investing towards this and has the first R&D
department among cement companies and it should capitalize upon that.

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Appendix

Comparison on Stock Market

Company Name 1 Year 9 Month 6 Month Last Price

1434.25 1220.05 1224.15
ACC 1,100.00
-23.30% -9.84% -10.14%
209.65 186.7 178.8
Ambuja Cements 183.8
-12.33% -1.55% 2.80%
201.1 243.7 221.6
Ramco Cements 170.5
-15.22% -30.04% -23.06%
4328.95 4168.95 4876.8
Shree Cements 4,316.00
-0.30% 3.53% -11.50%
1998.3 1846.1 1858.5
UltraTechCement 1874.85
-6.18% 1.56% 0.88%

Historical Stock Price Performance Chart –

Ultratech Cement

Ambuja Cement

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 ACC Cement

Annual Sales of Cement Companies

25000

20000
Sales (Cr.)

15000
Ambuja
ACC
10000
Ultratech

5000

0
2008 2009 2010 2011 2012

Promoter Shareholding Structure of ACC

Shares pledged or
No. Name of the Shareholder Total Shares held otherwise encumbered
As a % of
grand total
Number (A) + (B) + (C) Number % of Total shares held
1 Holcim (India) Private Limited 938,88,120 50.01
2 Holderind Investments Ltd 5,41,000 0.29
Total 944,29,120 50.3

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