Gujarat Ambuja Cements Limited (GACL) has finalised plans to double capacity to 14 million tonnes per annum within the next three years. The company is planning to have a major presence in all the markets in India. It has drawn out the pans on the back of its estimates, which suggest that India is likely to have a deficit of cement supply in FY2001 and FY2002.
GACL is the largest manufacturer of cement in Gujarat and Punjab. It has a total capacity of 5 m tonnes per annum spread over 4 manufacturing units. It is India's most efficient cement manufacturer due to high degree of mechanisation in its products and mining activities. It has controlled freight costs by moving bulk of its production through the sea route.
The planned expansion will involve setting up two 2 m tonnes per annum plants in Andhra Pradesh and Maharashtra, a terminal and grinding unit (1 million tonnes) in Sri Lanka and expanding capacity by a total of 2 m tonnes at its plants in Himachal Pradesh, Gujarat and Madhya Pradesh. The total capital cost has been set at Rs 12.9 bn, of which roughly half will be financed by debt. The company's new plants in India will enjoy income tax and sales tax benefits.
In the quarter ending 30th September, the company has increased market share in all its markets – Gujarat 29% (26%), Mumbai 24% (21%) and Punjab 33% (30%). The management has stated that its performance in the coming three-quarters is expected to be even better.
According to the management, Ambuja Cement will continue to abide by its existing business model: Lowest costs, highest productivity, highest quality, strongest brand and highest price realisation. The management has also sounded a note of caution on the prospects of blended cement, which has lower compressive strength as compared to ordinary portland cement.
The company's unique style of operations has ensured that the fallout of the recent diesel price hike will only be marginal. It has estimated that the hike in costs will be only one-fourth (Rs 1.3 per bag) of the cost escalation that its competitors will have to bear (Rs 5 per bag).
In conclusion, Gujarat Ambuja is becoming aggressive on the prospects of the cement industry in India. It is demonstrating this by jacking up capacity by 100% over the next three years. At the same time, it is also planning for times when there is an over supply in this cyclical industry, by cutting costs and maximising productivity. This will hold the company in good stead in the future.
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