Ambuja Cements Limited

Company Profile
Publication Date: 10 Aug 2009

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Ambuja Cements Limited

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5

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Ambuja Cements Limited

Company Overview

COMPANY OVERVIEW
Ambuja Cements Limited* (Ambuja) is primarily engaged in the manufacture and distribution of cement. The company primarily operates in India. It is headquartered in Mumbai, India and employs 2,922 people. The company recorded revenues of INR64,373.2 million ($1,486.4 million) in the financial year ended December 2008, an increase of 8.9% over 2007. The net profit was INR6,837.4 million ($157.9 million) in FY2008, an increase of 28.9% over 2007. * It was formerly known as Gujarat Ambuja Cements Limited.

KEY FACTS
Head Office Ambuja Cements Limited 106 Maker Chambers III Nariman Point Mumbai 400 021 IND 91 22 6659 7300 91 22 2285 3051 http://www.gujaratambuja.com

Phone Fax Web Address

Revenue / turnover 64,373.2 (INR Mn) Financial Year End Employees Bombay Stock Exchange Ticker December 2,922 500425

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Ambuja Cements Limited

SWOT Analysis

SWOT ANALYSIS
Ambuja Cements Limited (Ambuja) is primarily engaged in the manufacture and distribution of cement. Ambuja is able to product cement at low cost and has become one the most profitable cement companies in India. However, heavy coal prices increase the companys operating costs and puts pressure on its margins. Strengths Cost advantage Leading cement manufacturer in India FMCG approach Opportunities Increased public investment in infrastructure Steady growth in the cement industry New clinker and captive power projects Weaknesses Suspension and delay of projects in Bihar and Ahmedabad

Threats Volatile coal prices High taxes on cement Social and political factors impact demand in J&K

Strengths

Cost advantage Ambuja has an advantage in terms of cost of producing cement. Cement is an energy-intensive industry and over 40% of its production cost comes from power. To keep the power costs to a minimum, the company has consistently remained focused on improving efficiency.This was achieved, firstly, by setting up a captive power plant at a substantially lower cost than the national grid. Secondly, Ambuja sourced a cheaper and higher quality coal from South Africa and furnace oil from the Middle East. Also, Ambuja was one of the first companies to transport cement via the sea; this works out to be a much cheaper, and faster, compared to rail and road. As a result, Ambuja is able to product cement at low cost and has become one the most profitable cement companies in India. Leading cement manufacturer in India Ambuja has been one of India's leading cement companies for the last five years. The company has built a strong position by creating a network of clinkerisation plants and grinding units, a strong distribution network, and new logistics solutions like bulk cement movement by sea. Ambuja sold 15.4 million tons of cement in the 13 states / Union territories, occupying a healthy 18% share in these markets. Ambujas leading position has strengthened its bargaining power and also its brand name.

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Ambuja Cements Limited

SWOT Analysis

FMCG approach Ambuja has built a strong position in the housing sector in smaller towns and rural areas over the last two decades. An FMCG (fast moving consumer goods) approach was adopted to create a wide retail network of small shops, down to the village level. A large sales force works alongside these small dealers to help them promote and sell the brand to the right consumer at the right price. Expert civil engineers also work closely with small contractors and masons to demonstrate better construction. The company has also undertaken training of local people in masonry skills. For example, the Gujarat state government has teamed up with Ambuja to start a formal mason training school in Dahod, near Baroda. Creating a distribution and customer service network down to the rural level has enabled the company to expand market presence and penetrate regional markets.

Weaknesses

Suspension and delay of projects in Bihar and Ahmedabad Ambuja has suspended the plan to set up a onemillionton grinding unit at Barh in Bihar. The grinding unit project (with an investment of about $32.3 million) has been suspended owing to delays in the setting up of the National Thermal Power Corporation (NTPC) power plant, from which fly ash was to be sourced. Ambuja has also decided to go slow with the proposed 1.5millionton grinding unit at Sanand near Ahmedabad. This project has been deferred to 2010. Suspension or delay of projects will prevent the company from capitalizing on the growth in demand for cement.

Opportunities

Increased public investment in infrastructure Increased investments in infrastructure proposed by the Indian finance ministry (as per the budget released in July 2009) will drive the demand for cement. There will be increased expenditure in infrastructure, and higher allocation to highway and rural and urban housing projects. Furthermore, the finance ministry aims to increase expenditure in infrastructure to 9% of GDP by 2014. The increased spending on infrastructure will translate into a higher demand for cement, and act as an impetus to the companys growth. Steady growth in the cement industry The cement industry in India has witnessed steady growth in recent times. Cement consumption grew by 8% in 2009. Cement dispatches (including exports) for the 11 months ended February 2009 were at 162.89 million ton; this represented a 7.2% growth over the same period last year. The industry demand is expected to grow 67% in the financial year ending March 2010. A healthy growth scenario in the cement industry bodes well for Ambuja.

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Ambuja Cements Limited

SWOT Analysis

New clinker and captive power projects Ambuja is consistently expanding its facilities to increase cement/clinker production. Two major clinkerisation expansion projects, in Chhattisgarh and Himachal Pradesh (both in Northern India) are currently in progress and expected to complete in 2009. Each of these projects comprises a 7000 ton per day kiln line, and they will add approximately 4.4 million tons of clinker capacity. In alignment with the new clinker capacity, grinding units at Dadri and Nalagarh in Northern India will come on stream in 2009 and 2010, respectively. This will increase capacity by 5.5 million tons in the next 1.5 years. Additional captive power projects are also in progress at Ambujanagar, Bhatapara, and Maratha.These will add approximately another 90 MW, most of it being commissioned in 2009 and taking total capacity to more than 400 MW. These projects are expected to significantly enhance the companys production level thereby accelerating its top-line growth.

Threats

Volatile coal prices Coal remains the single most important fuel, both for the kilns and captive power plants. The volatility of coal prices in 2008 has demonstrated its impact on the company's profitability. At the end of 2008, international coal prices (as well as freight) dropped even more sharply than they had risen, and this degree of volatility creates uncertainty in the companys business planning. A heavy import duty of about 58% on coal further increases the companys costs. An increase in coal cost during 2008 increased the companys cost of captive power generation by about 20%.High coal prices will put pressure on the companys operating costs and margins. High taxes on cement Indias latest Budget (that was released in July 2009) has not addressed issues of tax rationalization specific to the cement industry. The cement industry is one of the most highly taxed industries, with a complex 3-tier excise structure. Apart from excise duty, other taxes on the commodity comprise duties on power tariff, sales tax, royalty and cess on limestone and gypsum. The cement industry in India had hoped for rationalization of the tax structure and lowered excise duty and abatement. The industry's demand was unaddressed during the budget 2009-2010 and taxes on cement still continue to be higher in India than in most other countries. This will have a significant impact on the pricing of cement. Social and political factors impact demand in J&K Since Ambuja has a substantial presence in Jammu & Kashmir (J&K), the political tension in the state poses a threat to the companys operations. A two-month long agitation (related to Amarnath land transferThe central government of India and the state government of J&K reached an agreement to transfer 100 acres of forestland to the Amarnath board, the body that organizes the

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SWOT Analysis

annual pilgrimage, Amarnath yatra) in the latter half of 2008 affected supplies in the state. As a result, the demand for cement from J&K recorded a decline of 7% in 2008. Ambujas performance in the state will be adversely affected by these political disturbances.

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