Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Leading the pack... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 28, 1999

    Leading the pack...

    More often than not, it is seen that cyclical movements in the economy lead performances of core sector companies. In India, over the past three years, as the economy, ran into rough weather, many Indian companies fell along the way. Yet, amongst the ruins, we can see one company that has managed to stand tall and consistently beat the odds. Gujarat Ambuja - India's fourth largest cement company has done all that and more.

    Today, Gujarat Ambuja has established itself amongst the most efficient cement producers not only in India, but across the world. The company, led by an inspiring and innovative management, was the first to use waterways as a means of transporting cement in India. It is accredited with being the first to brand its product and attempt to differentiate what is basically a commodity.

    Efficiency, thy name is Ambuja...
    Most companies in India - accustomed to the licence-raj environment, have failed to focus on cost controls and have found their margins shrink when business environments turned adverse. However this situation never arose in the case of GACL as it went ahead to control costs, with an unconcealed passion, both in good and the bad years.

    The company, today, derives its competitive advantage from a combination of factors such as favorable plant locations, use of waterways for transporting cement, low input costs and very efficient operations. Gujarat Ambuja partially insulated itself from price increases in administered costs (costs controlled by the government) by setting up a captive power plant. Today, it is not only self sufficient in its power requirement but its consumption levels per ton of cement are also lower. In financial year 1999, its power consumption was 98 kWh per ton of cement, against 105 kWh per ton in the previous year.

    The single-minded attitude towards cost control and efficiency has paid rich dividends to the company. For the year ended June 1999, Gujarat Ambuja sold 5.9 million metric tons of cement (an increase of 17 percent over the previous year). Net sales increased by 8.4 percent to Rs.10.7 bn and profit after tax grew by 14.3 percent to Rs.1.5 bn. Operating margins increased from 33.6 percent to 34.2 percent largely on account of reductions in fuel and power costs. The fact that the company was able to show profit growth in a year when cement prices declined by 5-6 percent speaks volumes about the management's ability to control costs. In financial year 1999 direct production costs declined by nearly 20 percent to $16-17 per ton.


    Be where it matters...
    GACL sells its cement in three main markets - north India (accounting for 42 percent of sales), Gujarat (37 percent) and Bombay (14 percent). Demand for cement in these markets is expected to grow at 10-12 percent, much higher than the national average of 7-8 percent.

    In its existing markets of Gujarat and Punjab (north India), Gujarat Ambuja commands a market share of 29 percent and 31 percent respectively. In order to expand its reach, the company recently acquired Modi Cement, which will enable it to tap the eastern markets - a region in which it has no presence. Apart from focusing on domestic markets, GACL exports cement to Sri Lanka, Mauritius, the Middle East and Singapore. Also, it has indicated its plans to set up a production base in Sri Lanka to take advantage of a better pricing environment compared to India.

    The company has not been a laggard where capacity expansion is concerned. Incorporated in 1981, Gujarat Ambuja commissioned its first cement plant (of 0.7 million tons per annum) in October 1986. Since then, it has expanded capacity at a compounded annual rate of 35 percent over the past 7 years. Currently it has a capacity of 5 million tons per annum, and also owns another 1.5 million tons through a subsidiary (acquired in 1998). Though the nameplate capacity is 5 million tons, it has a history of operating well above its stated capacities.

    The road ahead...
    Without resting on past laurels, the company plans to grow aggressively in future either through acquisitions or by building new plants.

    In the immediate future, it plans to set up two new cement plants of 2 million tons each to be commissioned over the next two- three years. The two plants costing around Rs 5 billion each are to be located at Maharashtra (Western India) and Andhra Pradesh (Southern India). The company is likely to go ahead with the southern plant first and the target completion date in middle of fiscal 2002. The funding for this capital expenditure will come from internal resources.

    In recent weeks the cement sector has been re-rated positively by analysts and fund managers. With its fundamentals in place, Gujarat Ambuja is well set to benefit from the recovery in the economy and the rise in cement prices.



    Equitymaster requests your view! Post a comment on "Leading the pack...". Click here!


    More Views on News

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    Ambuja Cem: Heavy Monsoon, Subdued Demand Hit Sales (Quarterly Results Update - Detailed)

    Nov 8, 2016

    Heavy monsoon and subdued demand impact Ambuja Cements' cement sales during the quarter ended September 2016.

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 09:40 AM


    • Track your investment in AMBUJA CEMENT with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts