India’s Top 500 Companies 2008
  
   
 

Most Represented Sectors

The six most-represented sectors are construction-infrastructure development, cement, engineering/capital goods, iron and steel, pharmaceuticals and textiles; each of these sectors consists of 20 and more companies. These companies collectively account for around 31% of the total 500 companies, while in terms of market capitalisation they together constitute around 13%. The most-represented sectors posted an aggregate total income of more than Rs 4,467 bn in FY09, which is 16% of the aggregate total income of all companies in the Top 500 publication. In terms of growth, the most-represented sectors clocked a y-o-y total income growth of approximately 21%. Construction-infrastructure development was at the forefront, as it displayed a strong 44% total income growth y-o-y, followed by engineering/ capital goods with a growth of 25%.

Iron and steel

India, which was fifth among the top ten steel-producing countries of the world in 2008, produced around 59 MMT of finished carbon steel in FY09. According to the Ministry of Steel, pig iron and finished carbon steel production grew at a CAGR of 13% and 10%, respectively, through FY05 to FY09. However, the Indian steel industry displayed an almost flat production growth of 1% in FY09 due to the impact of various global factors.

The 33 iron and steel companies of the 2009 Top 500 edition constituted a blend of integrated steel producers and secondary steel producers. The integrated steel producers, who possess captive units for iron ore and coke, are mainly involved in the production of mild steel, including flat steel products such as hot rolled, cold rolled and galvanised steel. The secondary producers are largely involved in long steel production. Private players dominate the sector. In the 2009 edition, the steel sector represented around 7% of the total number of companies in the Top 500 and accounted for around 5% and 6% of total income and PAT, respectively. The small-cap companies dominated the sector with 58% representation; followed by 30% of mid-cap and 12% large-cap companies.

Income growth moderate and profits largely muted

In FY09, the total income of the iron and steel industry grew by around 18% y-o-y. The small-cap companies outperformed the mid-cap companies and large-cap companies and registered a growth of about 21% y-o-y in total income. The topline growth of large-cap companies grew by 18%, which was in line with the overall sector growth. Though the topline growth for FY09 of the companies in the steel sector recorded growth but their bottomline has declined.

In FY09, the profitability parameters - EBITDA and PAT – of the steel companies declined considerably, but among all the companies, the small-cap companies bore a larger burnt as compared with mid-cap and large-cap companies. The small-cap companies struggled to maintain profitability, as their EBITDA and PAT declined by 29.8% and 73.9%, respectively.

The fall in EBITDA could be attributed to the rise in input costs of various raw materials. Iron ore, coal and limestone are the basic raw materials that are used in producing steel. The raw material costs of the sector shot up to 36% in FY09. Normally, Indian steel giants import coking coal from foreign countries. The large-cap companies expended maximum on the raw materials which is followed by the small-cap companies.

The total debt of the iron and steel companies went up by 28% in FY09. The interest expenses of the sector surged by 45% y-o-y and the interest expenses of mid-cap companies went up by 47%. The personnel expenses of the sector rose by around 10% over the previous year and that of mid-cap companies displayed the highest growth as compared with the small-cap and large-cap companies.

The depreciation charges of these companies also went up along with the other expenses. The small-cap and mid-cap companies registered a growth of around 20% in depreciation and this growth was higher than the growth of the overall sector due to an increase in the capital expenditure of these companies in anticipation of growth in demand. Further the total debt of the small and mid-cap companies also registered a y-o-y growth of 32% and 35%, respectively.

CWIP at moderate levels due to wait and watch approach of end-user industries

The financial year 2008-09 started on a positive note, as world steel demand and prices rose sharply during this fiscal year. However, the steel industry witnessed two divergent trends as the fiscal year progressed; in the first half, steel demand surged and led to high steel prices, but in the second half demand subsided and so did the steel prices. In the second half the global steel industry suffered from dismal growth that could be attributed to the downswing in economic activities following the sub-prime crisis and its domino effects. The Indian steel sector witnessed a dip in demand and steel prices during 2008; however, the counter measures adopted by the government in the wake of financial crisis aided the demand growth in auto, housing and real estate sectors, which are the major consumers of flat and long steel products, and created demand for steel products.

The growth of major iron and steel utilising industries, or the end-use sectors such as engineering and capital goods, auto components, construction, and electrical and electronic equipment have assisted the steel industry in getting back on the recovery path. This is evident from the growth which these sectors displayed in Top 500 edition where engineering and capital goods grew by 26% and construction and infrastructure development grew by 44% in terms of total income. Further the capital expansion plans of these sectors also reflected growth.

The iron and steel sector is working on roll out major expansion plans in the near future, which is evident from its high CWIP. The CWIP of the sector increased at about 63% y-o-y in FY09 as compared with 97% in FY08 because players postponed or delayed their expansion plans during 2009. One reason for this trend could be that the end-user application industries are going slow on their expansion plans. The demand-supply pattern of these companies also reflected this sentiment when in the first two quarters of FY10, the finished steel production grew by around 5%, but the finished steel consumption declined over the quarters.

The debt to equity ratio for the industry was at a reasonable 0.99 times, but the mid-cap companies had a high debt to equity ratio of 2.3% which resulted in rise in interest costs. The total debt/EBITDA ratio of the entire sector was 2.7 in FY09 as compared to 1.7in FY08 indicated that the operating cash available with steel companies was under severe strain. Further, there was no significant increase in EBITDA as well; as a result, these companies enjoyed lesser flexibility to incur capital expenditure or pay dividends.

Large-cap companies manage to rein in debt comfortably

The debt to equity ratio for the sector crawled up to 1 times in FY09 as compared with 0.8 times in FY08, signifying a rise in dependence on debt. The mid-cap companies witnessed a major jump in their debt to equity ratio, which stood at 2.3 times in FY09 vis-à-vis 1.9 times in FY08. The borrowings for the mid-cap companies grew by around 35%, which was a major reason for the ratio to scale up. Surprisingly, the large-cap companies which witnessed a 56.2% of y-o-y growth in their total debt managed to have the lowest debt to equity ratio amongst the other sub groups and stood at 0.8 times in FY09 which marginally increased from 0.6 times in FY08.

Despite the highest growth in borrowings as compared with its small and medium peers, the large-cap companies are comfortably placed. The large-cap companies again managed to surpass the other players in terms of debt to EBITDA ratio, which stood at 1.98 times followed by small-cap and mid-cap companies. Irrespective of a decline in the interest coverage ratio, the large-cap companies still managed to perform better. This shows that the large-cap companies were stable and very well-positioned even in turbulent times.

Pharmaceuticals

The pharmaceutical sector is the second-largest sector in terms of representation (excluding the banking sector) in terms of number of companies features in this publication and has accounted for around 6% of the total Top 500 Companies. The composition of the companies remained the same as last year and is dominated by 14 mid-cap companies followed by nine large-cap and eight small-cap companies. During FY09, the pharmaceutical sector accounted for 4% of the total market cap of the Top 500 Companies.

Small-cap companies excel with higher TI and export growth

The resilience of the Indian pharmaceutical industry was tested during FY09. The inelastic demand for the pharmaceutical products proved to be a cushioning factor for the companies and helped the industry enjoy a healthy topline. During FY09, the pharmaceutical companies witnessed a decent y-o-y growth of around 13% and within this sector, the small-cap companies recorded the highest growth of around 24%, followed by large-cap and mid-cap companies with growth of 11.9% and 11.1%, respectively.

Even though the total exports of the sector accounted for around 43.5% of the total income and also grew better than the total income, the foreign exchange losses eroded most of its bottomline. Composition-wise the large-cap companies accounted for around 57% of the total pharmaceutical exports, while growth-wise the small-cap companies showed the highest growth, which further drove their topline. Though all the pharmaceutical companies earn most of their revenue from the domestic market, the exposure in overseas markets is growing gradually.

Total expenditure on the rise; but raw material expenses under control

The contribution of raw material expenses to the total expenses fell to 34.6% in FY09 from 39.0% in FY08 and solaced the pharmaceutical companies. The personnel expenses as a percentage of total expenses remained stagnant which could be a result of lower recruitments to control the rise in total expenses.

Irrespective of the financial turmoil, the R&D expenditure by the sector has increased marginally, which shows that the Indian pharmaceutical companies are making conscious efforts to keep up with the fierce competition. Two major components that increased the total expenses were interest expenses and foreign exchange losses.

Though the contribution of the interest expenses to the total expenses was low, the interest outgo escalated by 86% in FY09 as compared with the earlier year, due to an increase in debt. Other expenses accounted for a major part of the total expenses during FY09 and the composition increased by 780 bps. Other expenses include components such as power & fuel, advertising & publicity, packaging expenses etc.

Margins take a hit vis-à-vis last year but clock positive results

As depicted in the chart below, the NPM and the EBITDA margins witnessed a sharp fall on account of increase in expenditure and foreign exchange losses. During FY09, the pharmaceutical companies suffered foreign exchange loss of Rs 23,618 mn as compared with foreign exchange gain of Rs 8,338.4 mn in FY08. Mark-to-market losses and regulatory action in the export markets seemed to affect the profitability, which in turn dampened the margins. ROCE, an indicative measure about the overall profitability of the operations dropped considerably for the sector during FY09 as shown below. However, inelastic demand from the domestic market and healthy exports aided the pharmaceutical companies in clocking reasonable profits.

Short-term borrowings take a leap

During FY09 debt rose by 32% and was majorly driven by short-term borrowings that grew by around 40% y-o-y growth. During the same period, debtors and inventory also witnessed a y-o-y increase of 20% and 13.7%, respectively.

The aftermath of increase in borrowings reflects in the various ratios exhibited in the above table. The interest coverage ratio, for instance, stood at 5 times in FY09 - less than halved as compared with the last year. The debt to equity ratio scaled up marginally due to increase in the total debt, especially short-term borrowings. The debt to EBIDTA ratio which calculates the approximate amount of time needed to pay off all the debt also worsened and stood at 3.1 times in FY09. This denotes that, the total debt for the pharmaceutical companies is three times their EBIDTA. In short, the pharmaceutical companies need to keep a watchful eye on their borrowings in the near future to avoid financial woes.

Private companies score in topline & exports; multinationals display strong margins Of the 31 pharmaceutical companies, around 80% of the companies are subject to private owned and the remaining to foreign firms. In FY09, the total income of the multinationals witnessed a miniscule growth of 0.2% whereas private companies grew by 16.3%. Private companies displayed 18.8% growth in exports in FY09 as compared with 7.9% of the foreign companies.

The foreign companies were already struggling due to sluggish total income growth and to add to it were troubled further by a hike in expenditure by 34.6% owing to higher interest outgo following rise in borrowings. The private and foreign companies recorded 90.4% and 55.3% y-o-y growth, respectively, in their interest expenses.

Although the foreign companies lagged behind their private counterparts in terms of total income and exports growth, the former outshined the latter in terms of profitability. Barring a single loss-making company, the NPM of foreign companies stood at 19.9% while the private companies’ profit margin stood at 11.9%.

Large companies willing to invest more in R&D

25 companies whose R&D expenditure for the past three years of FY07-FY09 was available were considered for the analysis. The R&D expenses of these companies as a percentage of sales were in the range of 5-6% during FY07-FY09. During the same period, sales grew at around 29% and R&D expenditure grew somewhat in a proportionate manner at 27%.

The 25 pharmaceutical companies displayed higher willingness to invest in R&D activities, as their R&D expenses grew considerably from 6.7% in FY08 to 18.8% in FY09. The R&D expenses of large-cap companies grew the most by 18% in FY09 as compared with 4.4% in FY08. More than the foreign players, private players seemed keener on exploring R&D activities as their R&D expenses doubled in FY09 as compared with 10% in FY08.

Construction - Infrastructure development

The period of 2004-2007 saw the Indian economy displaying unprecedented developmental growth; sustained by huge investments in physical infrastructure like roads, railways, ports, power, water and other sectors. However, after witnessing spectacular growth, the infrastructure sector lost steam amidst the global financial turmoil. By Sep 2008, huge infrastructure projects with lengthy gestation periods almost became unviable due to the escalating interest rates and the heightened risk perception among banks, leading to decline in the number of projects. The aftermath of the economic slowdown can be clearly noticed in the performance of the infrastructure sector that presented a mixed picture in FY09.

The 22 listed infrastructure companies featured in the Top 500 2009 together constituted about 4.4% of the total number of companies profiled in the publication. Among these 22 companies, around 45% (10 companies) are small-cap, 41% (9 companies) are mid-cap and about 14% (3 companies) are large-cap. Collectively, the sector accounted for about 1.3% of the total market cap of the Top 500 Companies.

Construction-Infrastructure companies’ present mixed picture

The fiscal stimulus packages announced by the government that was focussed on investments towards infrastructure projects helped reinforce the growth aspects of the sectors. Therefore, despite the global downturn, the sector exhibited a strong growth as compared with other major sectors. In FY09, large-cap companies in the sector registered 64.6% y-o-y growth in TI, and outperformed the overall growth of the sector at 44.1%. However, the order book of large-cap companies declined by 4.0% due to the lag effect of the slowdown and delay in project clearances.

Subsequent to the emphasis on infrastructure development by the government, the order book size of 19 construction-infrastructure companies (whose order book position was available) increased by 16.9% y-o-y at Rs 1,410 bn. The order book-to-net income ratio of the sector stood at 2.7 times based on its 12-months financial performance ended Mar 2009, thereby indicating that overall companies in the sector have sustainable revenues in the forthcoming fiscals.

Although the sector seemed to enjoy a comfortable level of income generation, margins were affected, although not significantly, on account of rising expenses. In FY09, the NPM and EBITDA margins went down to 5.6% and 14.5% y-o-y from 6.3% and 14.8% in FY08.

In FY09, the total debt of the large-cap and mid-cap companies grew by over 60%, largely contributed by substantial increase in short term loans. While the debt-equity ratio of midcaps was 1.1, their interest coverage ratio was 2.4 times. The combined effect of the two, along with high interest expenses placed the mid-cap companies in a vulnerable position. Owing to very high growth in financial expenses, the bottom-line of small-cap companies was under pressure throughout the year and registered a meagre growth of 3.5% over the previous year.

Surge in order booking led by core infrastructure projects

The construction companies featured in the Top 500 2009 operate across many verticals that include infrastructure development of railways/roads/highways/bridges, ports and airport development, IT parks and SEZ development, industrial plants, irrigation projects et al. Although the order book to net income ratio of the sector went down from 3.3 times in FY08 to 2.7 times in FY09, it seems that heavy government spending on infrastructure gave a positive impetus to the troubled construction sector. Further easing of liquidity crunch and liberalisation of ECB norms provided some relief to the sector.

Similar to the last edition, majority of the companies in Top 500 2009 are operating in roads/ railways/highway development. However, the relative role of public sector and the initiatives of state governments towards urban development have further boosted investments towards irrigation and water development projects. Consequently, irrigation and water-related projects, besides roads/railways/highway development are the most prominent verticals in this edition, as 64% companies operate in both these verticals.

The mid-cap and small-cap companies witnessed healthy growth of around 25% in their order books, and contributed 63.4% and 14.6% to the total order book size, respectively. The project mix of mid-cap companies was focussed mainly on irrigation and power projects.

In spite of turbulent times, less diversified companies display satisfactory performance The construction-infrastructure companies featured in Top 500 2009 were categorised into four groups on the basis of number of verticals. Companies operating in two verticals were considered to be less diversified; while companies catering to three verticals were classified as moderately diversified. Furthermore, companies catering to four verticals were categorized as highly diversified companies and those catering to five or more than five verticals were known as extremely diversified. No company was found to be operating in a single vertical.

In FY09, the order book of highly diversified companies was 3.1 times their net income, which highlighted the growth potential of these companies. On the other hand, despite reporting a strong order book growth, the order book to net income ratio of moderately diversified companies remained the lowest in FY09.

Highly diversified companies reported a robust topline growth of 51.7%. These companies also witnessed a decent PAT growth, despite a high y-o-y growth of 52.5% in the total expenses.

The EBITDA and NPM margins remained the highest for moderately diversified companies, owing to the comparatively lower impact of financial expenses on their bottom-line.

Raw material being the major component of the cost structure, registered an average y-o-y growth of approximately 40% across all verticals. Companies that were extremely diversified registered the highest growth in raw materials and interest expenses. The companies in the same category have reported substantial growth in debt and have negative cash and bank balance. Therefore, companies in this category can face the burden of servicing their debt efficiently and may find it difficult to meet their working capital requirements and maintaining their bottom-line.

Moderately diversified companies reported very high growth in short-term borrowings. However, a healthy bottomline coupled with an interest coverage ratio of 3.3 times, put the companies in this category in a comfortable position to repay their debt.

It is worthy to note that despite delivering a satisfactory performance, less diversified companies have been comparatively better in rewarding their stakeholders. In FY09, the RONW and ROCE for this category stood at 18.4% and 26.9%, respectively, indicating stability over the last few years.

Textiles

The textile industry is considered to be the second most-important industry in India after agriculture in terms of employment generation and export earnings. According to the NCAER, the sector’s share in manufacturing value added is estimated at be about 12%. In 2009, however, the industry faced severe contraction in demand due to economic crisis in international markets and slowdown in domestic market.

The 22 textile companies featured in Top 500 2009 collectively constituted 4.4% of the total companies in the publication. The sector is highly-fragmented and largely dominated by 15 small-cap companies that represent about 68% of the sector. Like the previous edition, the sector has no large-cap companies this year too. The share of the textile sector in the total market cap is much lower (about 0.4%) as compared with other most-represented sectors such as iron and steel, pharmaceuticals and engineering/capital goods.

Textiles weave fabric of marginal success

During FY09 the textile sector grew at a comparatively lower pace as compared with the overall Top 500 Companies, which registered a TI growth of around 19.2%. The total income of the sector grew by 11.9% over FY08 to Rs 320.23 bn.

Even though the sluggish demand in the international market restricted the exports of the sector to a large extent, the inclination of companies towards the domestic market seemed to have paid off. During both FY08 and FY09, domestic sales hugely outperformed exports by contributing around 70% to the total income.

According to the Ministry of Textiles estimates, the export revenue of the textile industry registered a growth of 8.07% over FY08. The textile companies in Top 500, however, reported a y-o-y export growth of 9.6%.

Among the companies in the sector, the mid-cap companies registered the highest y-o-y growth, as their domestic and export earnings rose by about 17.5% and 22.5%, respectively, in FY09. Exports for small-caps grew by 4.8%, while their revenue from the domestic market increased by around 10.4% y-o-y.

Cost under control but soaring interest expenses play spoilsport

During FY09 the sector registered substantial growth in its financial expenses, as interest expense grew by 50.0%. Interest expenses as a percentage of total expenses was 6.2% as compared with 4.9% in the previous year. The rise in financial expenses exerted higher pressure on costs.

Margins were exposed to further pressure due to high input costs and high overheads. In FY09, raw material costs, among other expenses, as a percentage of total expenses remained the highest (at about 53.7%). Mid-caps reported about 32.0% rise in raw material expenses as compared with last year. The rise in crude oil prices increased the chemical fibre raw material prices. According to the Ministry of Textiles, average prices of raw materials such as cotton increased by about 24% during FY09, while that of viscose filament yarn and nylon filament yarn rose by 9.3% and 7.1%, respectively. The rise in prices especially affected the mid-cap companies that displayed 32% growth in raw material expenses. In the meanwhile, raw jute prices increased by 38.9% owing to the escalating demand across various parts of the world and the ban imposed by Bangladesh on jute export.

Moreover, exchange rate fluctuation and inflationary economic environment further dented the profits of textile manufacturers. During FY09, the sector reported very high foreign exchange losses (almost Rs 8.2 bn).

Mid-caps on high degree of leveraged capacity expansion

During FY09, the textile sector reported an y-o-y rise of about 18% in total debt; as a result, the sector’s debt-equity ratio increased to 2.1 times in FY09 as compared with 1.8 times in FY08. The interest coverage ratio of the sector was at an unsafe level of 1.3 times in FY09, which increased the vulnerability of the sector to debt-related elements. Mid-cap textile companies showed a tendency to opt for long-term borrowings to fulfil their expansion plans.

Despite a healthy EBITDA margin, the NPM growth was sluggish for the mid-cap companies during FY09. Mid-caps have accelerated long term borrowings by almost 38% as compared to 3% by small–caps. The mid-cap companies appear to have invested heavily towards capacity expansion, which is evident from the high y-o-y change in CWIP. As mid-caps have not been able to generate enough cash from operations, their cash and bank balance reflected negative growth. It is likely that owing to the ongoing expansion plans and the capital-intensive nature of the industry, mid-caps were highly dependent on debt finance in FY09. However, based on the rise in CWIP, mid-cap companies seem to be more optimistic and confident about their future growth prospects as compared to small-cap companies.

On the other hand, small-cap companies seem to be in a better situation, as they have lesser debt and been able to maintain a healthy cash flow from operations. However, small-cap companies appear to be less inclined towards capacity expansion. Thus small-cap companies seem to be risk averse and bid their time for investing in capacity expansion projects in the near future.

Cement

The cement industry, which had enjoyed a good run during the economic boom, also had to bear the brunt of recession due to lower demand in the market in FY09. Conditions worsened for the industry as a result of higher interest rates and liquidity crunch that hit the housing demand and the investments in the infrastructure sector. Cement prices, which were on an upward swing during the infrastructure expansion till 2007, stagnated for most part of FY09; as a result, the cement manufacturers could not pass on the effect of spiralling input costs to the customers. In short, rising input cost and inability to increase the prices dampened the performance of the sector. However, in FY10, the construction activities revamped and sent a positive sign for the industry to regain its past performance.

In Top 500 2009, there are 20 cement companies, which is why the sector is one of the most represented sectors in the publication that accounts for 4% of the 500 companies. The sector accounts for nearly 2% of the total market cap of the Top 500 Companies. To get a better view of the installed capacity and production levels of cement, the companies are classified as per the location of their registered offices namely eastern region, western region, southern and northern regions. The sector has around 35% companies from the southern region, followed by the eastern region with 25% and the northern and western regions each representing 20% of the total sample.

Cement companies gear up to meet future demand

In FY09, according to Cement Manufacturers’ Association, the installed capacity and production of the cement industry stood at 219.1 MT and 181.6 respectively. For the same time period, the installed capacity and production levels of the cement companies in Top 500 2009, accounted for 80.5% and 75.8% respectively of the industry statistics. Aggregately, the cement companies of Top 500 saw their installed capacity grow by 18% over the last year though its production grew only by 5.3%. This seems to be an indication that with the revival of infrastructure activities, the cement companies are in a position to service the demand in the near future. The below mentioned table includes regional classification of the cement companies on the basis of their capacity, production and sales.

As shown in the table above, the southern region witnessed 40% growth in its capacity but its production grew merely by 1.1% thus resulting into drop in its capacity utilisation from 98.2% to 70.8%. In FY09, the capacity utilisation of all 20 cement companies fell and stood at 78.1% as compared with 87.5% during FY08, while the sales volume grew merely by 6.7%, though the growth in capacity expansion was much higher.

According to Cement Manufacturers’ Association, the overall cement consumption in India went up by 8.3% during FY09. In FY08, demand exceeded production. However, in FY09, consumption levels remained low due to slump in the real estate and the infrastructure activities as compared with the earlier year. However, with the real estate and infrastructure activities picking up, slowly the concern over excess capacity will whittle down in the near future.

Massive expansion pushes up long-term debt

The cement companies undertook massive expansion activities during FY09 that resulted in 27% increase in total debt, especially long-term debt, for capital expansion plans. The long-term borrowings increased by 33% and in turn increased the interest expenses and dented the margins. The interest coverage ratio for the cement companies dropped to 9.3 times from 13.2 times in FY09. The debt to EBITDA ratio also increased marginally from 1.0 to 1.5 in FY09. The interest coverage ratio dropped and the debt to EBITDA increased vis-à-vis last year; however, the companies seem to be well placed to meet their financial obligations in the near future.

Increase in fuel prices and foreign exchange losses dent margins

The topline of the cement companies grew moderately at 12% in FY09 on account of lower demand in the domestic market. The total expenditure registered 23% y-o-y growth and accounted for 82.1% of the total income, which was around 700 bps more than FY08. The cement companies incurred higher total expenditure due to increase in raw material prices and freight charges. The raw material prices accounted for around 21% of the total expenses, while the freight charges accounted for 34.9% of the total expenses. Outward freight on cement is an important element in the operating cost of a cement plant. As the crude oil prices hovered at around more than $100 per barrel in mid-CY 2009, the freight cost also escalated and pushed up the total expenses. Furthermore, the depreciation and interest cost recorded 20% and 25% y-o-y increase on account of capacity expansions.

The cement companies incurred foreign exchange losses worth Rs 315.6 mn in FY09 as compared with foreign exchange gains of Rs 1,303.7 mn during FY08. Thus inability to pass on the growing cost pressures to the ultimate consumer seems to have adversely affected the performance of the cement companies - the EBIDTA and the net profit figures dropped by 9% and 14% respectively. However, the measures taken by the government to promote housing and infrastructure by injecting liquidity were welcomed by the industry.

Captive generation needed among cement companies

On an average, the 20 cement companies have spent around Rs 50.6 bn on purchase and generation of electricity during FY09. Electricity generation by the cement companies during 2005 accounted for 68% of the total electricity consumed, and this number decreased to 64.4% in 2009.

In 2005, on an average, the cost per unit (CPU) for electricity purchased was Rs 3.8 and for electricity generated was Rs 2.5. By 2009, the CPU to generate electricity went up by 80 paise and for purchase of electricity the cost went up by 30 paise. Although, the growth in CPU for electricity generation was higher, the CPU of electricity generation at Rs 3.3 still remained lower as compared to that of purchase of electricity at Rs 4.1.

On a point-to-point basis, the electricity purchased saw a growth of 49.3% as compared to 27.1% growth of electricity generation from 2005 to 2009. Thus electricity purchased stood at a higher level of cost and growth. During 2009 if the companies would have generated electricity on their own, they would have ended up saving around Rs 4.16 bn.

Thus internal electricity generation for the cement companies can turn out to be very costeffective and not too heavy on the pockets in the long run. Steam seems to be the preferred mode of electricity generation for the cement companies; which displayed the highest CAGR of 14% for 2005-2009 among all other sources of electricity generation.