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Guj. Ambuja: Analyst Meet Notes - Views on News from Equitymaster
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  • Sep 25, 2001

    Guj. Ambuja: Analyst Meet Notes

    Gujarat Ambuja, which is India's most efficient cement company, is betting that demand from the housing and infrastructure sectors will propel growth to 12% – 15% over the next few years. The company anticipates that it will continue to post growth rates of over 20% in the next few years.

    Consider the main points put forth by the management.

  • There is no new cement capacity under construction in the country today, save for its cement plant (capacity 2 million tonnes) that goes on stream in December 2001. With supply from new plants drying out, only marginal accretion to capacity is anticipated due to debottlenecking.

  • Demand by conservative estimates will continue to grow at 8% to 9%. However, a more optimistic view points to a growth rate in excess of 12%. This growth is likely to be driven by the housing sector, demand from the road sector (anticipated at over 5 million tonnes over the next few years) and reconstruction demand in Gujarat (anticipated to be 3 – 4 million tonnes). A good monsoon will boost housing construction and repair activity.

  • As the gap between demand and supply narrows, cement prices are expected to remain buoyant. The company is projecting a supply deficit of 7 million tonnes by FY04. Indeed, an international comparison reveals that cement prices are abysmally low in India.

    Cement Prices - A comparison
      Cement Price Capacity Domestic
    Capacity Util
      US $ m tonnes m tonnes %
    Mexico 120 40 29 73
    Philippines 55 17 12 71
    Thailand 55 53 18 34
    Malaysia 50 26 11 42
    Indonesia 45 43 22 51
    India 40 112 90 80
    Source : Gujarat Ambuja Analyst Meet Presentation

    On Gujarat Ambuja:

  • The group’s total capacity will touch 12.5 million tonnes in December 2001 with the commissioning of its Maharashtra plant.

  • The company continues to be the leader in the markets it operates in – Himachal Pradesh (42%), Punjab (32%), Gujarat (25%) and Mumbai (22%). More importantly, its cement sells at a premium to that of its competitors.

  • The company continues to be the lowest cost producer of cement in the country. This has helped in sustaining its margins even in an increasingly competitive environment.

    Lowest Cost Producer
    (Rs/tonne) Guj Ambuja Madras Cements India Cements ACC
    Power 226 282 329 328
    Fuel 258 259 335 253
    Raw Materials 129 227 169 277
    Consumables 88 85 68 104
    Direct Cost 701 853 901 962
    Source : Gujarat Ambuja Analyst Meet Presentation

  • Ambuja’s operating margins compare well with not only domestic players but also its international peers.

    Highest Operating Margins
    (%) FY97 FY98 FY99 FY00 FY01
    Grasim NA NA 14 13 17
    L&T NA NA 11 15 17
    ACC 14 11 7 9 16
    India Cement 25 24 25 23 24
    Madras Cement 35 33 31 31 31
    Ambuja Cement 36 36 36 36 37
    Source : Gujarat Ambuja Analyst Meet Presentation


    Global Comparison
      FY00 OPM (%)
    Lafarge 21
    Holcim 24
    Cemex 36
    Ambuja Cement* 37
    * FY01  
    Source : Gujarat Ambuja Analyst Meet Presentation

  • It is taking all initiatives to improve the profitability of its two subsidiaries – Ambuja Cement Eastern and Ambuja Rajasthan. Infact, Ambuja Cement Eastern turned the corner in FY01, posting a profit for the first time since its inception in the late 1980s. Ambuja anticipates both the companies to post a significant improvement in profitability in the coming years.

  • An interesting slide in the presentation showed that despite being highly profitable as compared to its international peers, Gujarat Ambuja trades at a significant discount to them.

    Ambuja Undervalued?
    (FY00) Lafarge Holcim Cemex Ambuja*
    EV/Ton (US$) 160.00 134.00 170.00 76.00
    Gearing 1.06 0.79 1.11 0.78
    Debt/EBIDTA 2.80 1.98 2.76 2.52
    ROE 9.20 12.50 18.50 12.70
    ROCE 11.70 13.80 13.70 12.90
    Interest Coverage 3.50 4.80 4.10 3.50
    * FY01        
    Source : Gujarat Ambuja Analyst Meet Presentation



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