X

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.
Consolidation is the name of the game - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 2, 2000

    Consolidation is the name of the game

    Associated Cement Companies Limited (ACC) is one of India’s largest cement companies commanding a capacity of 12 million tonnes. Given the company’s inefficient processes, it did not come as a surprise when the company posted a loss for the financial year 2000. Nevertheless a big surprise awaited its shareholders. Gujarat Ambuja Cements Limited (Ambuja) entered into an agreement to purchase a 14.5 percent stake from the Tata Group, promoters of ACC, outbidding Lafarge.

    Ambuja, despite its relatively smaller size, is a pioneer in the sector. The company’s strengths lie in its highly rated management and this has helped the company become one of the most efficient producers of cement in the Asian region.

    The company’s acquisition binge does not end with ACC, for which it agreed to pay over Rs 9 bn. The company also acquired a 42 percent stake in the 1.5 million tonne capacity DLF Cement Limited for a consideration of Rs 1.3 billion. Both these deals catapulted the company from being a regional player to a national player. Infact the company is also to shortly launch its cement in the Sri Lankan market, which is dominated by international players.

     

    Ambuja has also stepped on the gas as far as capacity expansions are concerned. The company will be adding over 3.5 million tonnes of capacity over the next three years, taking the total to 8.5 million tonnes. Another 2 million tonnes is to be added under a subsidiary. The combination of acquisitions and expansion will make the company a dominant player in the domestic markets. This will go a long way in taking on international competition.

    The company’s acquisition of the stake in ACC has however come in for some questioning given the pricing of the deal. Ambuja had paid Rs 370 per share of ACC, the market price of which is currently ruling at Rs 120. Some reasoned that the deal was more of a way of keeping international competition out. Indeed its stock price too has corrected sharply to sub Rs 200 levels.

    The deal, if looked at in another way, makes a lot of business logic. ACC has the volumes, while Ambuja has the skills and experience to run plants efficiently. ACC, despite its efforts, has seen its profitability erode considerably. Ambuja on the other hand operates largely in the lucrative markets of Mumbai, Rajasthan and Gujarat. Together these companies would command large volumes, giving them pricing power. And with help from Ambuja, ACC's operations could become much more efficient, generating better margins. The markets however do not seem to place much faith in the deal.

    The company’s financial performance for financial year 2000 clearly brings to light the challenging environment facing the cement sector. The company managed to pull through with only a marginal decline in operating margins. However profits (before extraordinary items) continued to grow at a fast clip of 16 percent. This was largely due to a decline in interest expenditure. It recorded large extraordinary income during this period in view of certain restructuring exercise.

    (Rs m) FY99 FY00 Change
    Net Sales 10,580 11,170 5.6%
    Operating Profit (EBDIT) 3,820 3,980 4.2%
    Operating Profit Margin (%) 36.1% 35.6%
    Interest 1,080 990 -8.3%
    Depreciation 1,230 1,240 0.8%
    Profit before Tax 1,510 1,750 15.9%
    Other Adjustments (Net) 0 2,530
    Tax - -
    Profit after Tax/(Loss) 1,510 4,280 183.4%
    Net profit margin (%) 14.3% 15.7%
    Diluted Earnings per share 10.3 29.1 183.4%
    Diluted Earnings per share* 10.3 11.9 15.9%
    * excluding other adjustments

    In coming years the domestic cement sector holds much promise in terms of an improvement in operating environment. It is anticipated that after years of a supply glut demand will finally meet supply. Infact some estimate that there could actually be a supply deficit. This factor combined with the consolidation in the sector will benefit cement companies in terms of a better pricing environment.

    Ambuja is probably the best placed to capitalize on this emerging scenario. The company will be commissioning large capacities in coming years, when the sector scenario is much better. Also, its deals with ACC and DLF will give it size and a national presence. And finally, what will continue to give the company a competitive edge in the markets will be its unparalleled efficiency and productivity levels.

     

     

    Equitymaster requests your view! Post a comment on "Consolidation is the name of the game ". 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

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    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

    AMBUJA CEMENT SHARE PRICE


    Aug 18, 2017 02:31 PM

    TRACK AMBUJA CEMENT

    • 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

    AMBUJA CEMENT 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE AMBUJA CEMENT WITH

    MARKET STATS