risk profiling of cement industry
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Risk Profiling Of Cement Industry
Prepared By – Adarsh Chhajed (P301414CMG411) Anoop Sharma (P301414CMG420)
Apoorva Sharma (P301414CMG422) Arpit Somani (P301414CMG423)
Rushikesh Chinderker (P301414CMG458)
India Cement
Risk Likelihood
Impact
Priority
Description
ECONOMIC RiskInterest rate riskDemand and Supply Imbalance
3 3 3 Interest Cost increased from Rs 152.5 Cr to Rs 219.4 CrVariance in the demand and supply of the product in various areas.
OPERATIONAL RiskLogistic RiskFuel and Coal RiskSafety Risk
4 5 5 The hike of railway freight by the Government has increased freight cost from Rs 633.4 Cr to Rs 734.4. Further, any increase in diesel price may have an adverse impact on freight cost, thereby putting pressure on margins.Erratic supplies of coal due to domestic production constraints and price fluctuations adversely impact the input costs and increased to Rs 793.5 Cr from Rs 673.9 Cr. The Cement Industry is labor intensive and hence the safety of employees and workers is of utmost importance to the Company.
India Cement
Risk Likelihood
Impact
Priority
Description
OPERATIONAL RiskAmalgamation and Synergy risk
Company amalgamated M/s Trinetra Cement Limited and Trishul Concrete Products Limited in January FY2014 with itself.
MANAGEMENT RISK
2 4 5 The company is associated with 3C’s- Cement, Cricket and Credibility since long time. Recent match fixing scandal in IPL has tarnished this brand image.
FINANCIAL RiskRise in taxes/Rise in input cost of Raw Material
1 2 2 Raw material costs went up by 7% - mainly on account of fly ash cost which went up 8% in FY2013 and royalty increase due to amendment in MMDR act for addition of funds.Cost of production was impacted with the increase in the price of input materials of fly ash, gypsum, power and fuel, higher transport charges, This was, however, more than offset by the improvement in selling prices and consequently EBIDTA was higher at Rs.713.35 Crores against Rs.594.20 Crores. In the previous year FY2014.
India Cement
Risk Likelihood
Impact
Priority
Description
FINANCIAL RiskDebtor and Creditor turnover days
The company’s debtor days have increased to 38 days in FY2015 from 34 days in FY2014.The company’s creditor days have also simultaneously decreased to 135 days in FY2015 from 141 days in FY2014.
JK Cement
Risk Likelihood
Impact
Priority
Description
ECONOMIC RiskHigh Interest RatesExchange rate risk
2 2 4 Finance costs were higher at Rs.425.98 Crores as compared to Rs.353.64 Crores with higher utilization of cash credit and additional loans taken in FY2015.High charges on account of forex fluctuations
OPERATIONAL RiskFreight CostCyclical EffectPower Cost
3 4 4 Steep increase in railway freight from March 2015 resulting in increase in freight cost between 2% to 10%Due to huge supply of cement in Southern region and fierce marketing completion company facing a lowering in price especially in Andhra Pradesh.Company commissioned 48MW captive power plant and the shipment of coal from own mines in Indonesia have started to come. The power and fuel expenses in FY2015 is at Rs.1235.26 crores as compared to FY2014 of 1371.08.
JK Cement
Risk Likelihood
Impact
Priority
Description
OPERATIONAL RiskMining
Key challenges with mining is to identify proper limestone quarries & get various regulatory permissions required to start mining from the quarry.
MANAGEMENT RISKOrganisation and Management Risk
3 4 3 Management risk is high owing to the fact that it is into expansion mode and therefore 3 new plants are being commissioned at the same time which demands for greater debts/equity which is evident from the balance sheet of FY2015
BUSINESS RISK 3 5 5 J K cements is the largest player in northern region and 2nd largest in white cement sector in the country.The Cement Industry is becoming intensely competitive with the foray of new entrants and some of the existing players adopting inorganic growth strategies.
JK Cement
Risk Likelihood
Impact
Priority
Description
FINANCIAL RiskCost of CapitalExchange rate volatilityProject RiskCredit Risk
4 5 5 Credit ratings for latest debt instrument "Commercial Paper" is A+.The Company has currency exposures of Rs 75.8 Cr in the form of Loans to wholly owned Subsidiary company etc. and also for export orders.Cement industry is highly capital intensive in nature, there could be exposure to time and cost overruns.Risk in settlement of dues by dealers/customers
Ultratech Cement
Risk Likelihood
Impact
Priority
Description
ECONOMIC RiskUncertain Economic Scenario
3 3 3 Capacity Creation and Oversupply based on government’s projection and thrust to infrastructure development. Cement demand has not materialised accordingly thereby creating a condition of oversupply. For UltraTech cement capacity utilisation has decreased from 79% to 75%
OPERATIONAL RiskRaw MaterialsPower CostFreight Charges
4 5 5 Steep increase in railway freight from March 2015 resulting in increase in freight cost between 2% to 10%Stressed supply of quality coal, limestone reserves.The power and fuel expenses as on FY FY2015 is at Rs.4742.89 Crores compare to Rs 4135.43 i.e increase of 12.8%.Freight and Forwarding expenses have gone up to 5400.38 Crores in FY 2015 from 4580.8 Crores in the previous year.
Ultratech Cement
Risk Likelihood
Impact
Priority
Description
COMPLIANCE & REGULATORY NORMS
3 3 4 Stringent regulations and increasing level of compliance with strict environmental compliance. Non- conformance leading to high penalties.
FINANCIAL RiskRise in taxes/Rise in input cost of Raw MaterialDebtor and Creditor turnover daysFluctuations in interest rates, exchange rates.
1 2 3 Raw material costs went up mainly on account of fly ash cost which went up 11% in FY2014.Cost of production was impacted with the increase in the price of input materials of fly ash, gypsum, power and fuel, higher transport charges and the resultant EBIDTA was lower.
Ambuja Cement
Risk Likelihood
Impact
Priority
Description
ECONOMIC RiskUncertain Economic ScenarioHigher Interest rates
3 3 3 Demand-supply mismatch could take time to stabiliseHigh Interest rates on housing: The re-pricing of the interest rates in the last four years has resulted in the slowdown in residential property market.Effect of global recession on real estate: The real estate prices are stabilizing and facing steady slowdown especially in metros. There has been drastic reduction in property prices due to reduced demand and increased supply.
OPERATIONAL RiskWater ShortageClimate change
4 5 5 Rising concern for ready & continued water availability at manufacturing sites owing to unpredictable weather patterns coupled with increase in costs for water procurement may pose risks to the operations.Rising sea level pose a risk to operations in the Cement Terminals used to transport cement in bulk through sea route.
Ambuja Cement
Risk Likelihood
Impact
Priority
Description
OPERATIONAL RiskClimate changeLogisticsMining
The Company also has two large manufacturing facilities in water scarce region. Water availability issues in the region due to climate change may put plant operations at risk.Ready availability of logistics infrastructure is critical for ensuring the success of any business. Implementation of the ambitious plans for public road and highway construction, expansion of rail networks and rolling stock, port improvements, etc. will be vital to ensure cost efficient as well as safe movement of materials between cement plants, customers, and suppliers.The key challenges associated with the mining operations are land acquisition, mineral distribution, ground water table intersection and mine rehabilitation.
Ambuja Cement
Risk Likelihood
Impact
Priority
Description
MANAGEMENT RISKLocal Communities
2 3 3 The Company is exposed to physical risks, as one of its large manufacturing facility lies in a coastal region.The company has manufacturing sites in rural areas of the country. The rural communities are plagued with widespread income in-equalities, which often present a source of discontentment and social unrest.The Company had taken up 13 new ambitious projects at different locations worth Rs. 272 Cr. to optimize and enhance efficiency.
FINANCIAL RiskRise in taxes/Rise in input cost of Raw Material
2 2 2 Cost of major raw material, fly ash, increased by 7% on per tonne basis. However strategy to change in mix of gypsum resulted in cost decrease by 2% on per tonne basis. Overall, the absolute raw material cost decreased by approx. 6% over the previous year including the impact of lower volumes.
Ambuja Cement
Risk Likelihood
Impact
Priority
Description
FINANCIAL RiskRise in taxes/Rise in input cost of Raw Material
Power and fuel costs account for approximately 26% of the total operating cost of the Company. Coal cost for kiln and captive power plants reduced by 8% and 10% respectively, due to reduced usage of imported coal and also substitution of high cost coal by pet coke usage. Besides, there was increased usage of Alternate fuels by 3%. Cost of grid power continued its upward movement with per kwh rate increasing by approximately 22% over the previous year. Captive power generation which supports 66% of the total power requirements of the Company, reduced by 10%.Freight and forwarding cost works out to 30% of total operating costs. During the year, the same was reduced by 6% on per tonne basis over the year 2014 due to a reduction in diesel prices.The cost of packing bags went up by around 14%, driven by increase in PP granule prices.
ACC Limited
Risk Likelihood
Impact
Priority
Description
ECONOMIC RiskMarket Risk
3 2 2 Current stock market is very volatile due to Global cues and can change the market capitalization of firm very rapidly.
OPERATIONAL RiskFuel and Coal Risk
3 3 3 Cement production needs large quantities of coal and fuel to meet its kiln and captive power requirement. Being very energy intensive process coal requirement should be monitored efficiently.Erratic supplies of coal due to domestic production constraints and price fluctuations would adversely impact the input costs for an industry as dependent on coal as the Cement Industry. The cost of fuel was around 21% of the total operating income in both FY 2013 and 2014. (ie: 2376 Cr and 2442 Cr).Cement industry is highly capital intensive in nature, there could be exposure to time and cost overruns. Its Compound Annual. Growth Rate (CAGR) for the next five years is expected to be ~6.5 %
ACC Limited
Risk Likelihood
Impact
Priority
Description
OPERATIONAL RiskProject RiskSafety Risk
Cement industry is highly capital intensive in nature, there could be exposure to time and cost overruns. Its Compound Annual. Growth Rate (CAGR) for the next five years is expected to be ~6.5 %The Cement Industry is labour intensive and hence the safety of employees and workers is of utmost importance to the Company.
MANAGEMENT RISK
1 2 1 The parent company of ACC is Holcim Ltd which is a swiss based company who owes 50.01% of shares of ACC. There can be regulation changes as per the swiss government hence increasing risk for ACC.
Business Risk 3 3 4 The Cement Industry is becoming intensely competitive with the foray of new entrants and some of the existing players adopting inorganic growth strategies.
ACC Limited
Risk Likelihood
Impact
Priority
Description
FINANCIAL RiskCost of CapitalSales
3 3 4 Company debt-Equity ratio is zero because of no debt.Company cost of capital for 2013 is 13.20% which is increased from Rs. 1084 crores in 2013 to Rs. 1105 crores in 2014 due to capital is raised only through equity.Company net sales has increased from 10889Cr in FY 13 to 11481Cr in FY 2014 but the EBITDA margin has decreased from 15% to 13% which alerts for increase the operating cost