Presentation on Ambuja Ltd - Group 2

7/28/2019 Presentation on Ambuja Ltd - Group 2

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CASE STUDY:GUJARAT AMBUJA CEMENTSLIMITED


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INDUSTRY

ANALYSIS


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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


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HISTORY OF CEMENT INDUSTRY IN

INDIA 19471969: 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 %


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Current Scenario


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MAJOR COMPANIES IN THE INDIAN

CEMENT INDUSTRY1. Ultratech Cement

2. Gujarat Ambuja CementLimited

3. JK Cements

4. Acc Cement

5. Century Cements

6. Madras Cements7. Holcim

8. Lafarge


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DEMAND DRIVERS

Source: Crisil Research


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SUPPLY DRIVERS

The total cementcapacity in India = 323MT (E) in 2011-12.

Indian cementproduction by 2017 =480 (E) MT

India is worlds 2NDlargest producer afterChina.

In FY11-12 CEMENTDEMAND GROWTH =6.35 %


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PORTERS FIVE FORCE

MODEL


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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 thehousing 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.


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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

Improving

asset

utilization

Greater field

penetration

Enhancing

margins


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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 increasingthe share of imported coal and use of pet-coke.


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Greater field penetration:

Increased presence of Sales force would enable

companies to push its product over its competitorofferings.

This would also help in the customer being educated aboutthe brand with added benefits aiding in branddifferentiation apart from the generic cement grades.

Enhancing margins:

To enhance margins in future, Companies will concentrateon revenue boosting and cost cutting measures byreducing fuel, distribution costs and power costs by

bringing down unit power consumption and increasingreliance on low cost, captive power, through freshinvestments in power generation facilities


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ABOUT

AMBUJA CEMENTSLTD.


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Ambuja Cements Ltd. (ACL) is one of the leading cementmanufacturing 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 companyon a fast track to growth.

The Company is currently known as Ambuja Cements Ltd.


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The global cement major Holcim acquired management controlof ACL in 2006.

Holcim today holds little over 50% equity in ACL.

In 2011, company has completed 25 years of operations. Thejourney of 25 years has been very satisfying and full of pride.

The Company has grown from 0.7 million tonne Cement Grindingcapacity to 27.35 million tonnes.

Facilitate timely, cost effective and environmentally cleanershipments 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 hadhelped it to become the cost leader in the industry.


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Awards, achievements &

recognition In 2003 Business world & FICCI for CSR (2nd

Runner Up)

In 2004-05: Ernst & Young Entrepreneur of theyear

Asian institute of management for Environment

Excellence

In 2005-06 Best Environment Management

Practices Award by State Pollution Control Board


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Vision, Mission & Values

Vision: To be the most sustainable & Competitivecompany in our industry

Mission: Create Value for all

Delighted customers Inspired Employees

Enlightened Partners

Energized Society

Loyal Shareholders

Healthy Environment


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I CAN

The I Can spirit signifies that each person contributes hispotential 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 achievethe 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.


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ENVIRONMENTAL THREATS

AND OPPORTUNITY PROFILE

(ETOP)


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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 ruralhousing 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 andentertainment houses have also emerged as demanddrivers for cement.

India has significant potential to cater to the cementrequirements of the Middle East and the South East Asiannations


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TECHNOLOGICAL ENVIRONMENT

In essence, cement is a simple business. Unlike otherindustries 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.


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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 isthe government


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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 throughexcise and sales taxes.

India is the second largest producer of cement in the

world.


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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 in1999.

The major taxes/ levies comprise central excise duty; sales tax leviedby the

respective state governments; royalty and cess on limestone andcoal; and, duties on power tariff.

These duties account for around 30% of the sale price of cement oraround 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 Boardevolved emission regulations which are applicable for all sections ofproduction in cement plant


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POLITICAL ENVIRONMENT

Designing new SEZ increase construction demand and thedemand 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 isdemand for cement industry.


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INTERNATIONAL ENVIRONMENT

As there is high potential growth, quite a few foreign

transnational have been eyeing the Indian markets and areplanning 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, GujaratAmbuja, 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 Nature of Impact Impact of Each Factor


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v o e a Sec o Na u e o pac pac o ac ac o Market 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.Political increasing demand of cement

Socio-cultural Worlds largest democracy, and as standard ofleaving increasing

International Many foreign companies eyeing over Indiandomestic companies.


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OPPORTUNITIES &THREATS


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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


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THREATS

Government intervention to adjust cement prices.

Coal prices climbing up; industry players say current

shortage of coal in the country is estimated to beover 10 million tonnes.

Cement Industry is highly fragmented.

Industry is also highly regionalized.


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ORAGINSATIONAL

CAPABILITY FACTORS


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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 crucialimportance to strategy formulation and implementation.


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FINANCIAL CAPABILITY

FACTORSFactors relate to the availability, usage and

management of funds.

Year 2011 (in cr)

Share capital 306.87

Reserve & surplus 7,730.45

ESO outstanding 32.11

Unsecured loan 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.


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MARKETING CAPABILITY

FACTORS DISTRIBUTION:

Extensive & loyal distribution network -Over 7000

dealers and 25,000 retailers Provides access togrowing Individual, Housing and Builders Markets.

BRANDING:

Ambuja tried to brand the cement by not only givingthe customers high quality but by aggressively

marketing and advertising the brand.


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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.


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OPERATIONAL CAPABILITY

FACTORS The company ranks high in utilizing assets efficiently

and as a result, operating margin is significantlyhigher than competition.

Interruption in operation very low : 2 per day.

Company achieved a record run of 40 days withoutinterruption.

Problems in operation are viewed as joint problem,not merely as a mechanical, electrical, qualitycontrol or marketing problem


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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 .


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Cont..

Thus, it can be said that Ambuja cement has

Highly satisfied and motivated work force

Efficient and effective personnel system


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INFORMATION CAPABILITY

FACTORS Computerized system has been installed in company tomanage the flow of information from outside, into and within

the organisation.

The quarterly, half-yearly and yearly financial results of thecompany 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).


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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


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STRATEGIC ADVANTAGEPROFILE

Capability factor Competitive Strength/WeaknessFinancial capability Readiness of investors to invest, cost leader,

growth of profitMarketing capability Efficient Distribution channel, High quality

service, Brand nameOperational capability

Effective utilization of equipment, Lessenedinterruption in production run.

Personnel capability Empowered employees, overseasassignments Growth opportunities for

employees, Employee participationInformation Management

Capability Computerized system, financial results aresent to stock exchange quicklyGeneral Management

Capability I can rational, Clear vision, Team orientedculture


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STRENGTH &

WEAKNESSES OFCOMPANY


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STRENGTHS Lowest cost producer of cement in the world. India's largest exporter of cement.

The company sourced a cheaper and higher quality coalfrom South Africa, and better furnace oil from the

Middle East. Effective and well managed distribution channels

Ambuja cement has been a partner with Holcim, whichprovides it with advantages like economies of scale

resulting from the larger size of operations, savings inthe time and cost required to set up a new unit andaccess to new markets


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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 seriousconstraint


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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.


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THANK YOU

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Presentation on Ambuja Ltd - Group 2