A Case Study On Ambuja Cement

GUJARAT AMBUJA CEMENT LIMITED

Presentation By Bhavesh Chaudhari

CEMENT INDUSTRY-AN OVERVIEW Second largest producer in world after China with capacity of approximately 160 MT in 2006. Growing at approx CAGR of 9% since last 5 years 54 companies exist at present The cement industry accounts for approximately 1.3% of GDP and employs over 0.14 million people. Location Specific

CONTINUE… Highly fragmented (low entry barriers) Highly capital & energy intensive Heavily taxed sector High bulk (volume) low value product Heavy dependence on 4 sectors viz. coal, power and transport, Infrastructure Cyclical industry

Indian cement industry – Major players in 2006

12.6 34.8

9.7 10.6

3.2 4.5

5.9

3.6 4.7

10.3

ACC Ultratech Gujarat Ambuja Grasim Industries Century Textiles and Industries Birla Corp Ltd India Cements Jaiprakash Industries (Jaypee) Lafarge Others

Market Share in Last 6 Years

ENVIRONMENT ANALYSIS— PORTER’S MODEL

SWOT ANALYSIS Strength

Weakness

•Growth at approx CAGR of 9% in last 5 years

• High Oil Prices, Cost of Power increase

•Growing Domestic cement consumption at

production cost •Supply exceeds Production lead to competition in price •Low Quality as compared to international standard but improving

approx CAGR of 8% in last 3 years • Highly Capital Incentive so difficult for small entrant • Not much restriction by govt. • Market consolidation taking place

Opportunity

Threat

•High Mortgage Penetration - Low Interest

•Further Hike in Oil Prices

Rates •Easy loan availability for housing finance •Increased investments in Infrastructure •Increased govt. outlay on BHARAT NIRMAN, GOLDEN QUADRILATERAL, BRTS etc.

•Use of plastic engineering in construction •Sub prime market loss may affect

Recent Trends

• • • • •

Dry technology in place of Wet technology Market consolidation Flurry of consolidation in the last couple of years. Notable ones include: Gujarat Ambuja picking up 14% in ACC Grasim acquiring cement business of L & T forming Ultratech Holcim taking stake in GACL and ACC Heidelberg Cement acquiring 50% in Indorama Cement

GACL-MILESTONES Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold The total cement capacity of the company is 16.5 million tonnes It touched to capacity utilization of 100% in 1st 6 months. Capacity built up from 0.7 MT in 1986 to16.5 MT as of today at CAGR of 18% Organic growth through acquisitions 2001 – Private equity investors (American International Group and Government of Singapore) invested in ACIL 2005 – ACIL restructured as a joint venture with Holcim 2006 – Founder promoters sold part of their holding in ACL in favor of Holcim ACL is a Holcim Group company since May 2006

Strategies Adopted By GACL MARKET ENTRY Presence of strong competitors at the time of entry Speedy setup of plant 100% utilization in first 6 months only Emphasis on Quality

HUMAN RESOURCE POLICY Unlocking Potential of Employees Employed Experienced people from other companies More stress was on enthusiasm not on experience Motivating factor was empowerment to perform than monetary factor Free access to senior official including VP Communication Meetings on regular basis to discuss and sort out grievances Preference to existing employees for higher position Reward to suggestions

Operation and Control- Positioning in INDIA North Central Region

Eastern Region

8.0 millon t 1

3.0 million t 1

South West Region 7.5 million t 1

Cement plant Grinding station Terminal Port

1

Cement Capacity

Continue… Hub & Spoke Strategy - Grinding close to markets Strong Control Problem is seen as Joint problem not as mechanical, electrical or marketing problem Modification in operation was allowed to be done by junior and after that it is reported resulting into speed, trust and responsibility Control data was generated 48 times a day for better control Interruption was reduced to 2 per day from 4-5 days

Marketing Strategy Emphasis was on Quality High Advertisement for BRANDING-3 times than ACC at one time Improvement in Packaging by information provided by suppliers Extensive & primarily exclusive distribution network-Over 6,000 dealers and 20,000 retailers Promotion through seminar, workshops for masons, architects, contractors etc by providing info on use of AMBUJA CEMENT Advertising and Publicity campaign

Transportation and Logistics Sea transportation- Seven dedicated vessels for faster & cheaper Ahmedabad transportation GACL was the 1st Cement company to use Sea as transportation Muldwarka, Gujarat: All weather port, 8 kms from our Ambujanagar plant. Handles ships with 40,000 DWT. is also equipped to export clinker and cement and import coal and furnace oil.

Ambujanagar Surat Maratha

Panvel

A fleet of 350 self financed trucks was also their for easy transportation Cochin

R&D Own R&D Department in 1989 Encouraged Experiments at all level Use of Mechanical conveyors instead of pneumatic conveyors against industry trend Use of Industrial waste to reduce fuel consumption

Cost Reduction Speedy set up of plant Reduction in energy cost Captive infrastructure - Port, Receiving Terminals and Captive Power Plants (260 MW) Electricity (Kwh/T of Cmt) Coal/Other Fuel (Kcal/Kg of Clinker)

90

745 740

88

735 730

86

725 720

84

715 710

82

705 80

700 2002-03

2003-04

2004-05

2006

2007

§ Consumption per unit of Production

Shift from liquid to solid fuel to reduce cost of captive energy.

Expansion Strategy Starting with a plant with a capacity of 0.7 MT in Gujarat, GACL is now having plants at different place with total 16.5 MT. Plant It has adopted organic growth.

Capa city

Gujarat

5

H.P/Punjab

4.5

Rajasthan

2

W.B/Chhattisgarh

2

Maharashtra

3

Total

16.5

Expansion projects Location

2007

Cluster

Rauri

North

Dadri

North

Nalagarh

North

Surat

SW

Ahmedabad

SW

Cochin

SW

Bhatapara

East

Barh

East

2008

2009

2010

Clinkering Grinding Grinding Grinding Grinding Terminal Clinker

Total Greenfield

§ Clinker plants

1600

§ Grinding units

1050

§ Captive power plants

545

§ Ships & Terminals

245

2.2

-

-

1.5

-

1.5

-

1.0

-

1.5

2.2

Grinding

Major Capital outlay (in Rs. Crores.)

Clinker Cement (million t) (million t)

-

_

1.0

4.4

6.5

Brownfield

Consolidation Strategy In 1995, GACL floated a wholly owned subsidiary in Mauritius – Cement Ambuja International Ltd. (CAIL). A year later, GACL floated another subsidiary, Ceylon Ambuja Cements (Private) Ltd., through which it acquired a small company, Midigama Cement, in Sri Lanka. In 1997, GACL acquired Modi Cements’ sick 1.4 mtpa plant at Raipur (Madhya Pradesh) for Rs 1.66 billion. This plant was renamed Ambuja Cement Eastern Ltd. In 1998, GACL acquired the Nadikudi (around 100 kms from Guntur) and Proddatur (near Cuddaph) limestone mines in Andhra Pradesh to strengthen its presence in southern India.

Continue… In December 1999, GACL acquired a 51% stake in Delhi based DLF Cement for Rs 3.5 billion. After this merger, GACL became the fourth largest cement manufacturer in India after ACC, L&Tand Grasim. In the same month, GACL also acquired a 7.2% stake in Associated Cement Companies (ACC) for Rs 4.55 billion which was later on increased to 14.4% 2001 – Private equity investors (American International Group and Government of Singapore) invested in ACIL 2005 – ACIL restructured as a joint venture with Holcim ACL is a Holcim Group company since May 2006

Share Holding Pattern

Public 12.54%

GDR, 3.39%

Insurance / MF / FI 14.07%

Holcim, 45.68%

FIIs 23.50%

Founder family 0.82%

Summary Solid market position built up within short period of time through organic growth and acquisitions Pin-pointed positioning tied to substantial captive infrastructure to serve markets including sea transportation, capability to export High use of alternative raw materials in production of composite cements Substantial greenfield and brownfield expansion plans to grow within the attractive markets and an internal financing capability to fund expansion projects

Continue… Strong Brand by emphasis on quality to make present in competitive market Expansion through proper merger and acquisition at proper time.

Thank You