Ambuja Cement vs UltraTech Cement: Which Cement Stock is Better?

India is the second largest producer of cement in the world, after China. Availability of raw materials like limestone and coal make India a desirable destination for cement production.

That is why many international firms such as Holcim Group and Heidelberg Cement, have invested in the Indian cement industry.

According to the India Brand Equity Foundation (IBEF) report, India has more than 7% of the world's installed cement capacity.

Ambuja Cement and UltraTech Cement are two of the well-known players in this industry.

In this article, we compare these two companies based on their operational efficiency, profitability, and their future growth prospects.

Business Overview

Ambuja Cement is a part of the Adani Group. Previously it was a part of the Holcim Group, (formerly known as LafargeHolcim), a global leader in providing green building solutions in 70 markets across five continents.

Recently, Adani Group acquired 63.11% stake in Ambuja Cement, and 4.48% in ACC Cement from Holcim Group to become the second largest cement producer in the country after UltraTech Cement.

Ambuja Cement's unique product portfolio is tailor made to suit Indian climatic conditions. The company is the industry leader in using both natural and man-made resources responsibly and has been awarded several accolades for the same.

UltraTech Cement is a part of the Aditya Birla Group and is the largest manufacturer of grey cement, ready mix concrete (RMC), and white cement in India.

It's the third largest cement producer in the world and the only company to have 100+ million tonnes per annum (MTPA) production capacity in a single country (excluding China).

The company offers products that can be used in various aspects from foundation to finish namely, cement, white cement, building products and other building solutions to both domestic and international markets.

It's the first company to set up a retail store, UltraTech building solutions (UBS), for offering a complete range of products and building solutions for home builders under one roof.

Ambuja vs UltraTech Business Overview

	Ambuja Cement	UltraTech Cement
Products	Ambuja Cement Ambuja Kawach Ambuja Plus Ambuja Cool Walls Ambuja Compocem Ambuja Builcem Ambuja Powercem Ambuja Railcem	UltraTech Weather Plus UltraTech Amazing Concrete UltraTech RMC UltraTech Weather Pro Birla White Cement White Topping Concrete
Services	Home Building Services Skill Building Services Architecture and Engineer Services Ambuja Knowledge Centres (AKC)	UltraTech Building Solutions Expert Testing Van Vaastu Tips Home Building Tips Smart Planning Tools
Competitive Advantage	Pan India presence Zero debt company Industry leader in sustainable practices	Largest cement manufacturing capacity Pan India presence with low concentration in each region Economies of scale through inorganic growth
Key Risks	Vulnerable to raw material prices and industry cyclicality	Vulnerable to raw material prices and industry cyclicality

Data Source: Company

Ambuja Cement and UltraTech Cement are offering innovative products and services to the end user and locking horns with each other to gain market share.

Ambuja Cement follows a calendar year format ending 31 December for reporting their financials, while UltraTech Cement follows the financial year ending 31 March.

Double-digit revenue growth for UltraTech Cement (CAGR)

Revenues for Ambuja Cement have grown at a CAGR of 4.2% in the last five years (2017-2021) whereas UltraTech's revenue has grown at a CAGR of 11.6%.

Ambuja vs UltraTech Revenue Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (in m)
Ambuja	2,39,313	2,64,124	2,76,843	2,49,658	2,93,288
UltraTech	3,06,734	4,20,723	4,30,810	4,54,723	5,31,066
Revenue Growth (%)
Ambuja		10.4%	4.8%	-9.8%	17.5%
UltraTech		37.2%	2.4%	5.6%	16.8%

Source: Equitymaster

UltraTech Cement is also leading in terms of sales volume. On an average, the sales volume is almost 3 times higher than Ambuja Cement in the last five years.

Despite the pandemic, UltraTech Cement's sales grew 9.2% while Ambuja Cement's sales grew 3.3%, on a compound annual growth rate (CAGR) basis, over the last five years. Both UltraTech and Ambuja cement concentrated on premium products in the last few years.

The growing contribution of premium products in the revenue mix led to higher realisations. As a result, the revenue growth of the two companies has also improved over the years.

Ambuja vs UltraTech Sales Volume Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Sales Volume (in m tonnes)
Ambuja	23	24.2	24	22.7	27
UltraTech	60.7	82.4	78.8	82.6	94
Sales Volume Growth (%)	2.642701525	3.406120761	3.287145242	3.64181738	3.478534419
Ambuja		5.4%	-0.9%	-5.4%	19.2%
UltraTech		35.8%	-4.4%	4.8%	13.8%

Data Source: Annual report

The growth in the last five years was due to strong institutional demand in the initial two years and housing and rural demand in the last three years. Apart from this, the infrastructure push from the government, and urbanisation has also led to growth in volumes and sales for both the companies.

Healthy profit margins

Operating profit is the income earned from the core business. It doesn't include any non-operating income like interest income.

In case of Ambuja Cement and UltraTech Cement, it's the profit earned from selling cement.

The five-year average operating profit margin for Ambuja Cement and UltraTech Cement is 18% and 21.1%, respectively. Better volume growth of UltraTech led to higher operating margins.

Ambuja vs UltraTech Profit Margins (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Operating Profit Margin (%)
Ambuja	17.6%	14.8%	17%	19.7%	21%
UltraTech	19.3%	17.4%	21.8%	25.3%	21.9%
Net Profit Margin (%)
Ambuja	8.8%	11.4%	10.2%	12.6%	12.7%
UltraTech	7.4%	5.8%	13.6%	11.9%	13.6%

Source: Equitymaster

Despite inflationary pressures, both the companies could expand their profit margins in financial year 2022. The five-year average net profit margin for Ambuja and UltraTech Cement is 11.1% and 10.5% respectively.

Lower costs, due to cost optimisation measures taken by both the companies have led to higher operating and net margins for them.

Also, despite increase in input costs such as pet coke and diesel, efficient management of raw materials has helped the companies maintain their total costs.

Manufacturing capacity

UltraTech Cement has an installed capacity of 119.95 MTPA of grey cement and 1.5 MTPA of white cement.

Ambuja Cement's installed capacity is 26% of UltraTech's at 31.45 MTPA spread across six integrated plants and eight grinding units.

UltraTech Cement has 23 integrated manufacturing units, 27 grinding units, one clinkerisation unit, seven bulk packaging terminals, and 130 RMC plants across India, Sri Lanka, and other countries.

The company has been increasing its production capacity by organic and inorganic growth (acquisitions) to become the third largest cement manufacturer in the world (excluding China).

It has announced an expansion of 12.8 MTPA in December 2020 to increase its manufacturing capacity by 10%. Whereas, Ambuja Cement aims to reach an installed capacity of 50 MTPA in the medium term.

In line with its goal, during the year Ambuja cement set up a greenfield project with a clinker capacity of 3 MTPA, and cement griding capacity of 1.8 MTPA. It is also setting up a 1.5 MTPA brownfield grinding unit which will be operational in financial year 2023.

In the year 2021, Ambuja Cement achieved a capacity utilisation of 86%, while UltraTech reached a capacity utilisation of 77.2% in March 2022.

Distribution network

UltraTech Cement has a strong distribution network of one lakh channel partners with more than 80% market reach across India. It also has a network of 2,900 retail chain stores of UBS, which is a one-stop-shop solution for home building.

Apart from this, it has a nationwide reach and serves over 25,000 destinations through its truck fleet of over 60,000 vehicles.

Ambuja Cement, on the other hand, has a network of 50,000 channel partners and 30 Ambuja Knowledge Centers (AKCs), a knowledge sharing platform for construction professionals across India.

During the year, Ambuja Cement added around 1,850 dealers, and 4,200 new retailers to its distribution network in line with its expansion plans.

Low dividends due to high capex

When a company earns profits, it either retains the profit or distributes it to the shareholder in the form of dividend, or does a combination of both.

The five-year average dividend payout ratio for Ambuja Cement and UltraTech Cement is 41.5% and 13.6%, respectively.

Ambuja vs UltraTech Dividend Ratios (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Dividend Payout Ratio (%)
Ambuja	37%	10.1%	10.8%	115.6%	33.9%
UltraTech	13%	13.2%	6.5%	20.1%	15.3%
Average Dividend Yield (%)
Ambuja	1.4%	0.6%	0.7%	8.8%	1.8%
UltraTech	0.3%	0.3%	0.3%	0.7%	0.5%

Source: Equitymaster

Dividend yield measures the income from holding a share. The five-year average dividend yield for Ambuja Cement and Ultratech Cement is 2.7% and 0.4% respectively.

The dividend payout and dividend yields are slightly higher for Ambuja Cement, mainly due to a special dividend the company announced during the calendar year 2020.

Both the companies have low dividend payout and yield mainly because of the high capex they are incurring in the last few years.

With the government pushing infrastructure and growing demand for urbanisation and rural housing, the growth for cement will be high in the medium term. The companies are planning to capitalise on this growth by increasing their capacities.

Inventory Days

Days sales in inventory, also known as inventory days, is a measure of time taken by the company to convert its inventory into sales.

The five-year average inventory days for Ambuja cement and UltraTech Cement is 50 days and 92 days respectively.

This means Ambuja Cement takes 51 days to convert their inventory into sales while UltraTech cement is taking 92 days.

Ambuja vs UltraTech Inventory Days (2017-2022)

Inventory Days	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Ambuja	47	46	49	60	47
UltraTech	102	64	92	130	70

Source: Equitymaster

Clearly, Ambuja Cement is doing a better job at inventory management and sales performance. However, the sales volume for UltraTech Cement is high and hence requires them to stock up on raw materials.

Stocking up on raw materials has also benefited them to reduce their cost of production despite increase in input costs.

Moreover, UltraTech Cement, managed to reduce their inventory days in financial year 2022, despite having high production and sales volume.

Debt to equity ratio

The debt-to-equity ratio shows how much leverage a company is using. The lower the debt, the better the risk profile of the company.

Ambuja vs UltraTech Debt to Equity Ratio (2017-2022)

Debt to Equity Ratio (x)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Ambuja	0	0	0	0	0
UltraTech	0.6	0.7	0.4	0.3	0.1

Source: Equitymaster

Ambuja Cement is a debt free company. It's strong cash flows and efficient management of working capital are helping the company stay debt-free.

UltraTech Cement, on the other hand, has taken debt to fund its capex.

In the last five years, UltraTech Cement has been concentrating on deleveraging its balance sheet.

It reduced its debt by Rs 184 bn from financial year 2018. Currently has only a debt of Rs 37 bn in its balance sheet. Strong cash flows have led to prepayment of debt.

Return on capital employed (ROCE)

Return on capital employed measures the company's efficiency in generating profits from the capital invested.

The five-year average ROCE for Ambuja Cement and UltraTech Cement is 16.7% and 13.5% respectively.

Ambuja vs UltraTech Return on Capital Employed (2017-2022)

ROCE (%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Ambuja	14.3%	13.7%	16.7%	18.1%	20.8%
UltraTech	10.7%	10.7%	12.8%	16.5%	16.7%

Source: Equitymaster

Ambuja Cement is doing a better job at generating profits on the capital invested than UltraTech Cement. A high growth in revenues and better capacity utilisation has helped Ambuja Cement grow its RoCE at a faster rate the UltraTech Cement in the last few years.

Valuations

Price to Earnings ratio (P/E) and Price to Book Value (P/BV) are valuation ratios used by analysts to determine the relative value of a stock.

PE ratio uses the company's earnings to determine how much a shareholder is willing to invest against one rupee of earnings.

PB ratio, on the other hand, uses a company's book value to determine how much a shareholder is willing to pay against one rupee of book value.

For Ambuja Cement, the P/E and P/BV ratios stood at 18.4 and 2.7 respectively in financial year 2022. For the last five years the average is 17.7 and 3.7 respectively.

For UltraTech Cement, the P/E and P/BV stood at 28 and 4 respectively in financial year 2022. The five-year average is 34.2 and 3.7 respectively.

Ambuja vs UltraTech Valuation Ratios (2021-2022)

	P/BV Ratio	5 year average P/BV	Average P/E Ratio	5 year average PE
Ambuja	2.7	2.2	18.4	17.7
UltraTech	4	3.7	28	34.2

Source: Equitymaster

Ultratech Cement is slightly overpriced than Ambuja Cement. However, both the shares are trading below their five-year average, indicating they are slightly cheaper than their five-year average.

Another valuation that is unique to capital intensive industries in EV/tonne. It shows how much capital is required to produce one tonne of cement.

The lower the number, the cheaper it's, making it a better choice for a takeover.

Ambuja vs UltraTech Enterprise Value/Tonne (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Ambuja	20,732.54	15,677.23	12,396.50	11,125.99	14,596.79
UltraTech	12,438.92	11,187.35	8,221.96	14,808.93	12,668.50

Data Source: Ace Equity

UltraTech Cement is cheaper than Ambuja Cement, making it a better option for a takeover in the near term.

Sustainability efforts

Cement industry is one of the core sectors in India and requires companies to practice sustainability to reduce their carbon footprint.

Ambuja Cement, though much smaller in terms of manufacturing capacity than UltraTech Cement, is carefully and responsibly using resources.

It has also been certified as 8x water positive and is also plastic negative. The company has also generated 7.1% of its power needs from renewable resources. It focuses on further increasing this number in the coming years.

UltraTech Cement on the other hand aims to be 5x water positive by 2023, it is currently at 4.2x. It has been continuously making efforts to reduce carbon emissions, recycle waste, increase green power capacity, and increase the use of alternatively fuels in its operations.

Prospects look bright

Though India is the second largest producer of cement, the per capita consumption is 235 kg, which is much lesser than the global average of over 500 kg.

This indicates that the cement industry has a significant growth opportunity. The Indian cement industry saw a strong rebound in demand since the lockdown restrictions were lifted.

Government initiatives like 'Housing for All', and government efforts towards building infrastructure in the country are some of the demand drivers of the industry.

Apart from this, growing demand for urbanisation, increasing rural income, and higher number of younger population will all drive demand for housing. This will in turn will increase the demand for cement.

Both the companies saw their sales volumes grow due to strong rural demand, and housing demand in the last couple of years.

With a huge push from the budget towards infrastructure, the companies are expecting their volumes to grow significantly. Hence, they are investing majorly towards capex to capture the growing demand.

ACC Cement, a subsidiary of Ambuja Cement, is another well-known brand in the cement space. Both the companies have been operating together, optimising their production capacity and benefiting from operational and financial synergies.

Moreover, Ambuja Cement has been expanding its product portfolio to include more sustainable and environment friendly wall solutions.

However, with a huge manufacturing capacity, UltraTech Cement has better prospects of capitalising on rising demand for cement than Ambuja Cement and ACC Cement.

Also, diesel and pet coke prices are rising, increasing the cost of production for the companies. To not put pressure on the margins, the companies have been hiking their prices.

Hence, one can expect the companies to maintain healthy margins, despite rise in input costs.

Which is better?

UltraTech Cement is leading in terms of revenue and volume growth mainly due to a higher installed capacity.

In terms of operating profit margin, Ambuja Cement isn't far too behind UltraTech Cement.

However, in terms of net margins, Ambuja Cement is leading mainly due to low finance costs as it is a zero-debt company.

Ambuja Cement is also giving better returns on capital and is paying better dividends than UltraTech Cement.

In a manufacturing company, capex and capacity utilisation are very crucial as they indicate a company's ability to capitalise on growing demand.

UltraTech Cement is aggressively expanding its capex to meet the rising demand. It also has a higher capacity utilisation rate than Ambuja Cement indicating a strong growth in business.

In terms of valuation, UltraTech Cement's shares are slightly costlier than Ambuja Cement shares. However, when compared to their five-year averages, both look underpriced.

UltraTech Cement seems to have a better edge over Ambuja Cement in terms of production and sales of cement.

Lower debt of Ambuja Cement, on the other hand, can give a higher ROCE in the medium term. However, heavy capex is required in the future if it wishes to reach anywhere close to UltraTech Cement's production capacity.

With Adani Group taking over Ambuja Cement, the company aims to grow its production capacity aggressively to become the number one cement company in the country.

Before you choose a stock to invest, take a look at each of the company's fundamentals and valuations. They help in deciding which company is better for investment.

Still confused which is better?

Use our feature-rich comparison tool which draws a detailed comparison between any two companies. This tool also includes a graphical analysis making it easy for you to see trends!

Ambuja Cement vs UltraTech Cement

You can also compare both the companies with their peers.

Ambuja Cement vs Andhra Cement

UltraTech Cement vs Dalmia Bharat

Ambuja Cement vs Heidelberg Cement

UltraTech Cement vs Shree Cement

For a detailed analysis, check out Ambuja Cement factsheet and UltraTech Cement financial factsheet.

You can also check out the latest quarterly results for Ambuja Cement and UltraTech Cement.

Since stocks from the cement sector interest you, check out Equitymaster's powerful Indian stock screener tool to find the top cement companies in India.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...