Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 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.
Gujarat Ambuja: Investor meet extracts - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Gujarat Ambuja: Investor meet extracts

Sep 5, 2005

Cement over the last 25 years has been growing at 7% CAGR, which is at about 1.3 times our GDP growth rate of 5% to 5.5%. Going forward, with India’s GDP expected to notch growth rates of 6.5% to 7%, how are the prospects of the Indian cement industry? At the recently held investor meet in Pune on August 27, 2005, Mr. Jayesh Doshi, VP (treasury) of Gujarat Ambuja, one of the most efficient cement players in the country, threw light on this aspect and many more pertaining to the company itself in his presentation to investors. Below are key excerpts of the same.

The Indian economy
Mr. Doshi expressed confidence in the continued growth of the Indian economy, despite the crude oil prices being at record levels of over US$ 65 per barrel, and believes that our GDP would grow in the region of 6.5% to 7% going forward. He stated that India has witnessed a complete shift from an agrarian economy to a service oriented economy. Further, he pointed out that the demography of India is far superior compared to anywhere in the world.

Cement: A proxy to GDP growth
Mr. Doshi indicated that if GDP grows, cement consumption has to grow. He stressed on the need for better roads, ports and airports, if India needs to sustain its economic growth. He went on to point out the fact that whenever the per capita GDP of a country crosses the US$ 450-500 mark, a substantial rise in cement consumption has been witnessed. This is on the back of the housing and infrastructure development that is taking place in the country. He believes that the cement growth is here to say and this is one industry that can sustain the 8% per annum growth rates for the next 15 years.

Mr. Doshi then went on to comment on India’s sufficiently large forex reserves and the political scenario. He believes that the trio (Manmohan Singh, Chidambaram and Ahluvalia) would take the necessary steps that would help drive infrastructure growth going forward. He also stated that the government’s indication of using a part (US$ 20 bn) of our huge forex reserves (US$ 140 bn) to build infrastructure is a positive one. Since we are yet not a developed country, it is pertinent not to keep the huge forex reserves (US$ 140 bn) idle but to use this for infrastructure development. He also mentioned about the abundant liquidity and low interest rates being the other positives for the country. According to Mr. Doshi, interest rates will increased, but not significantly.

Further in the presentation, Mr. Doshi stated that the Indian cement industry has almost achieved equilibrium (i.e. demand is largely in line with supply), a situation not witnessed in the last decade. Further, since only 8 million tones (MT) of capacity is likely to be added over the next 3 years, the prospects for the Indian cement industry appear bright. Another advantage for Gujarat Ambuja, according to him, is the company’s cement exports to Dubai, which is witnessing strong infrastructure development and acts as a buffer in case of any domestic demand slowdown. The extent of infrastructure development in Dubai can also be gauged from the fact that 25% of the global cranes are in Dubai.

About Gujarat Ambuja
GACM is a 14 MT company, up from 0.7 MT in 1986. It is primarily present in the northern and the western regions of the country. The company has grown with a ‘sound business model’. This includes:
  • Huge owned infrastructure and thus no reliance on Governmental agencies. Captive 200 MW of thermal power, owned ports, roads, trucks, railway sidings.

  • Presence in the growing markets of the North and the West where the per capita income is higher and thus demand is higher and realizations better

  • Premium brand – only selling in retail markets. The company does not sell to the government, no credit and no wholesale.

  • Largest exporter of cement in the country with 15% of our production sold in the international markets. Further, 35% of its cement is transported by sea, which is the cheapest mode of transport and thus helps it remain amongst the lowest cost producers of cement.

GACM has amongst the highest operating profit per ton compared to peers. It plans to increase capacity by 3 to 4 MT in the next 2 to 3 years by way of acquisition, upgradation and brown field expansion. The entire growth would be funded by free cash flows.

GACM-Holcim partnership
GACM has increased its stake in ACC from 8.3% to 11.5%, without any investment. Moreover, as per the agreement, Holcim has to grow with GACM and cannot venture on its own. Holcim has mining in Indonesia and since GACM imports coal (35% of total requirement) from Indonesia and China, it would benefit. Holcim also has a Middle East based trading company, which would help the company’s export sales.

Rationale behind acquiring 15% stake in ING Vysya Life Insurance
GACM has invested just about 10% of its cash flows in acquiring the stake (Rs 600 m). Mr. Doshi stated that considering the fact that India is a vastly under-penetrated market as far as insurance is concerned, the sector is bound to grow and hence GACM expects to reap rich rewards over the next 3 to 5 years from this investment.

Our view
We concur in totality with Mr. Doshi’s view on the Indian cement industry over the long-term. However, this is on the assumption that industry players behave rationally and do not resort to building huge capacities. If it were to happen, this could again spoil the demand-supply dynamics of the sector. However, from an investment point of view, considering the current stockmarket scenario, we believe investors need to keep a close watch on valuations of cement stocks. Nonetheless, Gujarat Ambuja remains our preferred play in the sector from a long-term standpoint.

  • To view the investor meet slide show, click here

  • To download the Gujarat Ambuja presentation, click here.

  • To Read the Full Story, Subscribe or Sign In
    To Read the Full Story, Subscribe or Sign In

    Get the Indian Stock Market's
    Most Profitable Ideas

    How To Beat Sensex Guide 2019
    Get our special report, How to Beat Sensex Nearly 3X Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2019 (Close)


    • 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