Ambuja Cement's strategy pays off
This week the 3Q17 results have been flooding in for Indian cement manufacturers with Lafarge-Holcim-owned ACC and Ambuja Cement reporting their results and seeing net profits rise to nearly double-digits in the latter's case.
"Ambuja Cement has delivered a strong set of results. We have focussed on building brand equity, and providing value to our customers through differentiated offerings for individual home builders, building and infrastructure segments," said Ajay Kapur, managing director and CEO, Ambuja Cement.
"Our strategy to focus on key markets, premium products and value based pricing has paid off, leading to strong net sales and EBITDA growth. Our plan-Indian Ambuja Knowledge Centres impart education on world-class construction best practices. We are advantaged by our well spread network of dealers and retailers, as well as the opportunity to leverage the global best practices of our parent Lafarge Holcim to deliver sustainable performance."
Ambuja Cement saw top-line growth in higher sales and growth in value-added pricing, but it also found cost pressures relating to rising fuel costs, packaging and raw material prices. There has been a move by the company to increase its use of petcoke and alternative fuels further than the 67 per cent it achieved in June 2017.
Meanwhile, in Chhattisgarh the company's Gare Palma coal block will be operational in 2018 for long-term fuel requirements.
The cost per tonne of cement has been falling for Ambuja Cement from INR3530/t in 2016 from INR3636/t in 2015, a decline of three per cent YoY. However, power and fuel costs rose over this period, a trend that continues to date.
Planning for the future
The company had a capacity utilisation of 71 per cent in 2016. Furthermore, it is adding 1.7Mta of clinker capacity with a greenfield plant at Marwar Mundwa, Nagar district in Rajasthan, where construction is underway and due for completion in 2019.
Ambuja Cement has also secured new limestone mining leases at the Maldi Mopar mines for its Bhatapara cement plant and at the Lodhva mines for the Ambujangar cement works, plus a lease for limestone mining at the Nandgaon-Ekodi block, Maharashtra.
The strength of Ambuja Cement is predominantly in the north of India where it has five grinding stations and an integrated plant at Rauri. In addition, the cement producer has a presence in the west and central eastern areas with two terminals in the south. The company currently operates 17.7Mta of clinker capacity and 29.7Mta of grinding capacity from its five integrated plants and eight grinding units.
Merger ambitions
Ambuja Cement has a 50.05 per cent share in ACC Ltd and the board of directors have initiated a study into the possibility of merger between the two companies. The Economic Times states that in a post-merger situation, "the new entity would save about 10 per cent in operating expenses, especially with better logistics in terms of reaching relevant markets, manpower and taxes."
"One of the major benefits of the merger is the improvement in realisations. The merged entity would follow a strategy of pushing aggressively the ACC brand in regions where it is strong, and pushing Ambuja brand where it is strong. This should enhance the blended realisations," said Nitin Bhasin, cement analyst at Ambit Capital.
The new entity would have a cement capacity of 63Mta in India, making it the number two player after UltraTech Cement.
ACC 3Q17 results
Referring to the company's July-September 2017 results, Neeraj Akhoury, ACC Ltd’s Managing Director and CEO, said, “ACC’s results demonstrate our capacity to respond quickly and resolutely to changing market dynamics and execute strategies with focus and determination. Our approach to customers and operational efficiencies is taking shape with a positive impact on results.”
