Recently, Ambuja Cements brought by Gautam Adani grabbed headlines again by becoming India’s second largest cement producer in one stroke. The Adani family acquired the assets of Holcim India, Ambuja Cements and ACC for $6.4 billion.
This begs a question, “What did the Adani family see in Ambuja Cements and ACC?” Let us try to answer this by doing a fundamental analysis of Ambuja Cements.
We’ll start by getting a quick overview of the company. After that, we move forward to understand the scenario of India’s cement industry. Next, we look at how the company has grown over the years, its return ratios, and its profit margin. Future plans and a summary ends the article.
Table of Contents
- Ambuja Cements – Company Overview
- Industry Overview
- Ambuja Cements – Financials
- Revenue & Net-Profit Growth
- Profit Margins
- Debt & Return Ratios
- Profit Margins
- Revenue & Net-Profit Growth
- Shareholding Pattern & Pledged Shares
- Future Plans Of Ambuja Cements
- Fundamental Analysis Of Ambuja Cements – Key Metrics
- In conclusion
Ambuja Cements – Company Overview
Established in 1983, Ambuja Cements is one of the leading cement producers in India. It owns 6 integrated manufacturing units, 8 grinding units, 5 captive power plants and 5 bulk cement terminals. This gives the Mumbai-based company a cumulative manufacturing capacity of 31.45 MTPA.
The company has a diversified presence in most parts of the country: northern, western, central and eastern markets. Ambuja has a monopoly market share of 89% in the blended cement category.
The figure below shows the diversified manufacturing and sales capabilities of Ambuja Cements Limited.
In 2006, The Holcim Group, headquartered in Switzerland, entered into a partnership with Ambuja Cements. Over time, it acquired a majority stake of 63% in the company. In another move in 2016, Ambuja bought out Holcim’s stake in ACC, which the Swiss major had started acquiring in 2004. This made Ambuja the majority shareholder in ACC Limited with a stake of 54.53%.
However, as recently as May this year, the company saw an ownership change. Adani Group’s Ports Power acquired Holcim’s Indian interests in Ambuja and consequently ACC.
Having learned about the company, let us now move to an overview of the cement industry in India as part of our fundamental analysis of Ambuja Cements Limited.
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Industry Review
India’s cement industry is the second largest in the world after China. It accounts for 8% of the global cement market with an estimated manufacturing capacity of 550 MTPA. However, at 242 kg, the country’s per capita cement consumption is less than half of the world average of 525 kg. This offers a huge growth opportunity for Indian cement producers.
Cement demand in India grew by 13% year-on-year (y-o-y) in calendar year 2021. It is projected to grow by 7% year-on-year in 2022. The growth of the cement sector follows the GDP growth of the country. , making it a cyclical industry.
Going forward, structural demand from the housing sector, rising rural incomes, national infrastructure pipeline expenditure, and industrial/commercial demand will be the primary growth drivers for the region.
The industry is heavily dependent on electricity, fuel and transportation costs. For example, power and fuel costs and freight and forwarding expenses accounted for about 60% of Ambuja Cements’ costs in FY11.
The huge transportation cost involved in the movement of raw materials and finished cement makes the cement industry a geographical sport.
Thus we can conclude that the Indian cement industry is a slow growing sector with immense potential for growth. Now we can move ahead to know how has been the growth of Ambuja Cements in the last five years.
Ambuja Cements – Financials
Revenue and net profit growth
As mentioned earlier, Ambuja Cements holds 50.05% stake in ACC Limited, making it a subsidiary of the former. For FY21 ended December, ACC reported sales of ₹16,152 crore. Standalone operations of Ambuja Cements generated revenue of ₹ 13,965 crore.
This prompts us to study the consolidated as well as standalone revenue and net profit figures of the company as part of our fundamental analysis of Ambuja Cements.
Over the last 5 years, the consolidated revenue of Ambuja Cements has grown at a CAGR of 4.17% every year. During the same period, standalone revenue saw an annual growth rate of 5.96% every year.
As far as its net profits are concerned, they have grown at the rate of 13.79% and 10.73% respectively in the last 5 years on consolidated and standalone basis.
The table below presents the revenue and net profit figures of Ambuja Cements on a consolidated and standalone basis for the last five years.
Profit Margins
So far we have covered company description, industry overview and company developments as part of our fundamental analysis of Ambuja Cements Limited. In this section, we talk about the profit margin of a cement manufacturer.
The operating and net profit margins of Ambuja Cements have increased over the years due to better capacity utilization. The table below shows the profit margin for the last five years.
Debt and Return Ratio
Ambuja Cements is almost debt free company with very low debt. 47 crores and a negligible debt-to-equity ratio of 0.02.
With respect to the consolidated return ratios of Ambuja Cements, we can see in the table below that they have consistently improved over the last five financial years. In FY21, the return on equity and return on capital employed stood at an impressive level of 10.96% and 15.92% respectively.
Shareholding pattern and pledged shares
Currently, Adani Group holds 63.22% stake in Ambuja Cements through Holderend Investments Limited and Endeavor Trade & Investment Limited. For large scale purchase of cement companies, the group pledged its entire stake in Ambuja Cements and ACC. immediately after acquisition.
According to separate filings given to the exchanges, the group said that around 57% of ACC and 63% of Ambuja Cements are encumbered “for the benefit of certain lenders and other financial parties”.
Additionally, FII and DII hold 11.05% and 26.26% stake in the company, respectively.
Future plans of Ambuja Cements
1. In FY21, the company spent Rs. 1,160 crore towards capex. Rs 310 crore will be earmarked for brownfield expansion of 1.5 MTPA at its Ropar unit.
2. In addition, it increased the clinker capacity to 3.2 MTPA (brownfield) and cement grinding capacity to 7 MTPA.
3. Ambuja Cements has also acquired limestone reserves to support its long term growth plans.
4. The cement maker has an audacious target of achieving 50 MTPA production capacity in the near future, a growth of 59% from current levels.
5. For the long term goals of both the companies, Gautam Adani has announced a long term goal of 140 MPTA by 2030. This points towards doubling the production capacity from 70 MTPA at present.
Conclusion
In this article, we have done the fundamental analysis of Ambuja Cements. From what we have learned, we can say that Ambuja Cements was a company that settled comfortably in a cyclical, slow-moving industry. This was reflected in its share price which rose 77% in the last five years.
However, ever since Adani announced the acquisition of the two companies in mid-May this year, the value of Ambuja Cements has appreciated by over 46%. This comes after Gautam Adani announced big plans for cement companies. It will be interesting to track the company’s growth story from this point.
In your opinion, should investors climb the wall of Ambuja’s rising stock? Or should they wait for material growth in the company? How do you tell us in the comments below?
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