Ambuja Cements also sells clinker for both domestic and export markets. The company has entered into a strategic partnership with Holcim (SIX:HOLN), the second-largest cement manufacturer in the world since 2006. Holcim had, in January, bought a 14.8 percent promoters' stake in the GACL (Gujrat Ambuja Cement Ltd) for Rs.21.4B; currently, Holcim holds 61.62% of the shares in Ambuja Cements. Ambuja Cements Limited is one of the leading cement companies in India and a part of the LafargeHolcim Group, the world leader in the building materials industry, and is committed to improving quality of life across more than 70 markets through its four business segments Cement, Ready-Mix Concrete, Aggregates and Solutions & Products1.

The company saved on operating costs amid improved operational efficiency, including logistics (direct dispatched and increased home market sales) despite the headwinds of higher raw material and energy costs. Key contributors to margin expansion (on a sequential basis) include the benefit of inventory adjustments (161/T), improvement in logistic efficiencies aided by MSA- master supply agreement (12/T) and other cost optimization (83/T) that led to overall cost reduction of Rs.256/T, which may be sustainable in the coming days2.

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  • 1. In Mar’21 QTR, Ambuja cement posted core operating profit (EBTDA=EBITDA-INTT) for Rs.1.81B against Rs.1.30B sequentially and Rs.1.16B yearly; i.e. an increase of almost 39% and 36% respectively. Core operating revenue was around Rs.7.71B against 7.45B sequentially (Dec’20 QTR) and Rs.6.25B yearly (Mar’20 QTR), translating a gain of +3.5% and 19%. EBITDA margin was around 23.42% in Mar’21 QTR vs 17.47% sequentially and 18.52% yearly. Overall, core operating EPS was at 9.10 against 6.56 in Dec’20 (+38.81%) and 5.83 in Mar’20 (+56.08%).
  • 2. The management said: Total operating cost per ton declined by more than 5% led by operational efficiency programs in the plants along with logistics efficiencies such as direct dispatches, reduction in the lead, and increased home market sales. These initiatives have compensated for the impact of rising fuel and raw material costs, which continues to be a matter of attention for the coming quarters.

India’s GDP is estimated to grow at around 10.5% for the year April 2021 to March 2022. Though the second wave of pandemic warrants caution, the increased vaccination drive combined with the various stimulus proposals provided in the Union Budget 2021 and accommodative monetary and fiscal policies are expected to support economic recovery in the medium term. Rural demand is likely to remain resilient on a good projection for the agriculture sector. We would like to remain cautiously optimistic for the year.

Highlights of Ambuja Cements Ltd (ACL):

  • Healthy market share in North and West India; robust operating efficiency, strong balance sheet (negligible debt), and good cash flows
  • Ambuja Cements Ltd (ACL) has installed capacity now around 29.65 MTA; ACL operated at 96% of capacity utilization in Q1CY21 led to sales volume growth +25% (y/y) to 7.24 MT; realizations at Rs.5002/T
  • Guided capacity expansion to 50 MTA in the mid-term; focus on East and West India and de-bottlenecking of existing plants rather than too much emphasis on organic/inorganic expansion; expected incremental capacity would be around 15 MTA, which may be funded through free operating cash flow rather than too much debt or equity
  • Another major Indian Cement manufacturing company ACC is now a subsidiary of ACL under the same global Lafarge Holcim group. Both companies have a common line of business and entered into a master supply agreement which helps them operate symbiotically, optimizing each other’s plant capacities and spare inventories, and thus benefit from operational and financial synergies
  • The increasing stress on RE may benefit in the long term and help further cost-cutting
  • Pricing power as cement industry is now in a virtual cartel among top 10 players after consolidation, JV, MSA, etc in the last few years; India’s top-10 cement players are now Ultra Tech (market share 21.40% at FY19), Ambuja Cements (6.20%), ACC (6%), Shree Cements (NS:SHCM) (7%), Dalmia Bharat (5.50%), Birla Corp (3.20%), India cement (3%), Orient Cement (1.60%), and Heidelberg Cement (1.10%).