CASE STUDY: GUJARAT AMBUJA CEMENTS LIMITED

INDUSTRY ANALYSIS

CEMENT INDUSTRY ANALYSIS

History of Industry Stages of Life cycle

Major companies or players

Buyer side and demand side patterns and conditions

State of competition

Capital requirements
Technology level Role and impact of Government policies

Skills and Resource ability

Future Prospects

HISTORY OF CEMENT INDUSTRY IN INDIA

1947 1969: Rapid growth stage capacity utilization- start = 10% 1937-38 = 99% 1950 = 67% 1969-1982: Control Period - oversupply - CAGR = -0.73%. 1982-1989: Partial Decontrol 1989 onwards-till date: Total Decontrol - production increased - CAGR = 0.93%. 2007- capacity utilization = 94 %

Current Scenario

MAJOR COMPANIES IN THE INDIAN CEMENT INDUSTRY

1. Ultratech Cement 2. Gujarat Ambuja Cement Limited 3. JK Cements 4. Acc Cement 5. Century Cements 6. Madras Cements 7. Holcim 8. Lafarge

DEMAND DRIVERS

Source: Crisil Research

SUPPLY DRIVERS
The total cement capacity in India = 323 MT (E) in 2011-12. Indian cement production by 2017 = 480 (E) MT India is worlds 2ND largest producer after China. In FY11-12 CEMENT DEMAND GROWTH = 6.35 %

PORTERS FIVE FORCE MODEL

Industry outlook
FI tightened their credit norms led to a credit crunch and impacted upcoming real estate, infrastructure and other projects. demand for cement moderated. However, stimulus packages and agricultural income, government spending on the infrastructure, rural demand will give a impetus to the demand for the commodity. The cement industry is likely to maintain its growth momentum and continue growing at around 8% to 9% in the medium to long term in line with the development of the economy (GDP). Government initiatives in the infrastructure sector and the housing sector are likely to be the main growth drivers. During FY2011, all-India demand grew by moderate 4.7% Y-o-Y, the lowest in the past several years.

CRITICAL SUCCESS FACTORS (CSFs)

CSF, sometimes referred as to strategic factors are those which are crucial for organizational success. Four Critical Success Factors of Cement Industry.

Maintaining cost leadership

Greater field penetration

Improving asset utilization

Enhancing margins

Maintaining cost leadership: Better logistics management will be a key area for reducing distribution costs in future. A renewed emphasis on reducing working capital through better management of inventories and receivables as well as improvement in labour productivity at all units should contribute towards reducing costs. Improving asset utilization: Stress on process control measures, use of alternative energy sources and increased use of high calorific imported coal to bring down energy costs by increasing the share of imported coal and use of pet-coke.

Greater field penetration: Increased presence of Sales force would enable companies to push its product over its competitor offerings. This would also help in the customer being educated about the brand with added benefits aiding in brand differentiation apart from the generic cement grades. Enhancing margins: To enhance margins in future, Companies will concentrate on revenue boosting and cost cutting measures by reducing fuel, distribution costs and power costs by bringing down unit power consumption and increasing reliance on low cost, captive power, through fresh investments in power generation facilities

ABOUT AMBUJA CEMENTS LTD.

 Ambuja Cements Ltd. (ACL) is one of the leading cement manufacturing companies in India.

The Company, initially called Gujarat Ambuja Cements Ltd., was founded by Narotam Sekhsaria in 1982 with a partner, Suresh Neotia. The Company commenced cement production in 1986.
Sekhsarias business acumen and leadership skills put the company on a fast track to growth. The Company is currently known as Ambuja Cements Ltd.

 The global cement major Holcim acquired management control of ACL in 2006. Holcim today holds little over 50% equity in ACL. In 2011, company has completed 25 years of operations. The journey of 25 years has been very satisfying and full of pride. The Company has grown from 0.7 million tonne Cement Grinding capacity to 27.35 million tonnes.

Facilitate timely, cost effective and environmentally cleaner shipments of bulk cement to its customers.
Ambuja's modern plants, large kilns, high degree of automation, low manpower costs, low power tariff and low fuel costs had helped it to become the cost leader in the industry.

Awards, achievements & recognition

In 2003 Business world & FICCI for CSR (2nd Runner Up) In 2004-05: Ernst & Young Entrepreneur of the year Asian institute of management for Environment Excellence In 2005-06 Best Environment Management Practices Award by State Pollution Control Board

Vision, Mission & Values

Vision: To be the most sustainable & Competitive company in our industry Mission: Create Value for all Delighted customers Inspired Employees Enlightened Partners Energized Society Loyal Shareholders Healthy Environment

I CAN
The I Can spirit signifies that each person contributes his potential to achieve the goal. It does not mean that he is the only one responsible for the achievement of the goal. For example a person working under an engineer in a plant has a right to give a suggestion which if worthwhile is appreciated by the person above him and then the whole team works together to achieve the goal This process of tapping individual initiative for team synergy is at the heart of the culture nurtured over the years Give a man orders and he will do the task reasonably well. But let him set his own targets, give him freedom and authority and his task becomes a personal mission: I Can.

ENVIRONMENTAL THREATS AND OPPORTUNITY PROFILE (ETOP)

MARKET ENVIRONMENT
Private housing sector is the major consumer of cement (65%) followed by the government infrastructure sector. Encouraging trend in demand due to pick-up in rural housing demand and industrial revival Housing sector acts as the principal growth driver for cement. However, in recent times, industrial and infrastructure including SEZ, retail chains, shopping malls and entertainment houses have also emerged as demand drivers for cement. India has significant potential to cater to the cement requirements of the Middle East and the South East Asian nations

TECHNOLOGICAL ENVIRONMENT
In essence, cement is a simple business. Unlike other industries it does not suffer rapid technological obsolescence or shifting consumer trends. Therefore, it constantly attracts new investments. This results in surplus capacity. Still technological up gradation in industry is in process which introduces improve quality, reliability & speed of work.

SUPPLIERS ENVIRONMENT
Nearly 55-60% of the inputs controlled by the government Facing problems due to power shortage Coal availability and quality affecting production Licensing of coal and limestone reserves, supply of power from the state grid and availability of railways for transport are all controlled by a single entity, which is the government

ECONOMIC ENVIRONMENT
The cement industry accounts for approximately 1.3% of GDP and employs over 0.14 million people. It is a significant contributor to the revenue collected by both the central and state governments through excise and sales taxes. India is the second largest producer of cement in the world.

REGULATORY ENVIRONMENT
The impact of government policies on cement demand has been steadily decreasing with the sector being gradually deregulated. At present, 100 per cent foreign direct investment (FDI) is permitted in the cement industry. Lafarge was the first foreign company to enter the Indian market in 1999. The major taxes/ levies comprise central excise duty; sales tax levied by the respective state governments; royalty and cess on limestone and coal; and, duties on power tariff. These duties account for around 30% of the sale price of cement or around 70% of the ex-factory price (excluding local transport and dealer margins). Cement industry in India has been identified as one of the major air polluting industries for which the Central Pollution Control Board evolved emission regulations which are applicable for all sections of production in cement plant

POLITICAL ENVIRONMENT Designing new SEZ increase construction demand and the demand for cement. The continuation of fiscal benefits for promoting housing, lower housing finance rates, sustained growth in disbursements of housing finance etc will give a fillip to the cement demand growth. SOCIO CULTURAL ENVIRONMENT As the standard of living is increasing in the country there is demand for cement industry.

INTERNATIONAL ENVIRONMENT
As there is high potential growth, quite a few foreign transnational have been eyeing the Indian markets and are planning to acquire domestic companies. Already, while companies like Lafarge, Heidelberg and Italicementi have made a couple of acquisitions, majors like Holcim managed to partner a domestic company, Gujarat Ambuja, and acquire a stake in ACC. After acquiring stake in big companies, transnational are now eyeing median capacity producers. However, it must be noted that the transnationals will find the going tough since cement is a game of volumes and with the median capacity of fragmented players being just about 1 m tonne, the transnationals.

Environmental Sector Market

Nature of Impact

Impact of Each Factor Enormous and encouraging demand

Technological

No large scale sudden changes.

Economical

Economic Development, Liberal economic Reforms will have good impact.

Regulatory

New Industrial Policy, 100% FDI is permitted in this sector. increasing demand of cement

Political

Socio-cultural

Worlds largest democracy, and as standard of leaving increasing Many foreign companies eyeing over Indian domestic companies.

International

OPPORTUNITIES & THREATS

OPPORTUNITIES
Cement demand has grown in tandem with strong economic growth; derived from Growth in housing, retail chain and SEZ Infrastructure projects like ports, airports, power projects, dam & irrigation projects Rise in industrial projects Export potential

THREATS
Government intervention to adjust cement prices. Coal prices climbing up; industry players say current shortage of coal in the country is estimated to be over 10 million tonnes. Cement Industry is highly fragmented. Industry is also highly regionalized.

ORAGINSATIONAL CAPABILITY FACTORS

ORGANISATIONAL CAPABILITY FACTORS

Organisational capability is the inherent capacity or potential of an organisation to use its strengths and overcome its weaknnesses in order to exploit opportunities and face threats in its external environment. Organisational capability factors are the strategic strengths and weaknesses existing in different functional areas within an organisation which are of crucial importance to strategy formulation and implementation.

FINANCIAL CAPABILITY FACTORS

Factors relate to the availability, usage and management of funds.
Year 2011 (in cr) Share capital Reserve & surplus ESO outstanding Unsecured loan 306.87 7,730.45 32.11 49.36

Good financial condition High level of net worth Reserve and surplus- very high Debt to equity ratio very low Return on capital employed 21% Increase in EBITDA 3% approx.

Strong financial capability factors make company a cost leader in the industry.

MARKETING CAPABILITY FACTORS

DISTRIBUTION: Extensive & loyal distribution network -Over 7000 dealers and 25,000 retailers Provides access to growing Individual, Housing and Builders Markets. BRANDING: Ambuja tried to brand the cement by not only giving the customers high quality but by aggressively marketing and advertising the brand.

PROMOTION: Conducts seminars and workshops for masons, architects, contractors, etc., who are often the decision makers on behalf of the ultimate users. PACKAGING: Worked on improving the packaging of cement. HDPE bags were improved through interaction with suppliers.

OPERATIONAL CAPABILITY FACTORS

The company ranks high in utilizing assets efficiently and as a result, operating margin is significantly higher than competition. Interruption in operation very low : 2 per day. Company achieved a record run of 40 days without interruption. Problems in operation are viewed as joint problem, not merely as a mechanical, electrical, quality control or marketing problem

PERSONNEL CAPABILITY FACTORS

Ambuja follows a unique homegrown philosophy of giving people the authority to set their own targets, and the freedom to achieve their goals. Thus, Motivating factor is empowerment to perform rather than monetary reward. Moreover, short term overseas assignments & projects have been provided tremendous learning and motivation to employees .

Cont..
Thus, it can be said that Ambuja cement has Highly satisfied and motivated work force Efficient and effective personnel system

 Computerized system has been installed in company to manage the flow of information from outside, into and within the organisation. The quarterly, half-yearly and yearly financial results of the company are sent to the Stock Exchanges immediately after the Board approves these. These results are simultaneously posted on the website of the company at http/www.gujaratambuja.com and on the Electronic Data Information Filing and Retrieval (EDIFAR) website maintained by SEBI in association with the National Informatics Center (NIC).

INFORMATION CAPABILITY FACTORS

GENERAL MANAGEMENT
The management is aggressive and visionary. Management of Ambuja has adopted the I CAN rationale as its management philosophy. It can also be observed that management is very effective due to which the Company managed to achieve the highest ever sales, in terms of volume and value In spite of the difficult market conditions.

STRATEGIC ADVANTAGE PROFILE

Capability factor Financial capability Marketing capability Operational capability Personnel capability Competitive Strength/Weakness Readiness of investors to invest, cost leader, growth of profit Efficient Distribution channel, High quality service, Brand name Effective utilization of equipment, Lessened interruption in production run. Empowered employees, overseas assignments Growth opportunities for employees, Employee participation Computerized system, financial results are sent to stock exchange quickly I can rational, Clear vision, Team oriented culture

Information Management Capability General Management Capability

STRENGTH & WEAKNESSES OF COMPANY

STRENGTHS
Lowest cost producer of cement in the world. India's largest exporter of cement. The company sourced a cheaper and higher quality coal from South Africa, and better furnace oil from the Middle East. Effective and well managed distribution channels Ambuja cement has been a partner with Holcim, which provides it with advantages like economies of scale resulting from the larger size of operations, savings in the time and cost required to set up a new unit and access to new markets

WEAKNESSES
Availability of coal: The availability of coal is critical for their existing plants and for new expansions. The demand for coal is higher than its supply. Transportation: A judgment of the Supreme Court of India banned over-loading of transport trucks. As a result, the availability of trucks to move he required quantity has become a serious constraint

FUTURE PLAN OF ACTION

(a) Exploring use of product enhancer/Grinding aid and imported gypsum to increase strength and productivity. (b)Development of techniques for utilizing industrial waste plastic (c) Development of new product.

THANK YOU