Fundamental Analysis of Ambuja Cements: Recently Gautam Adani made news again by becoming India’s second-largest cement producer in a snap. The Adani Family acquired the assets of Holcim India, Ambuja Cements, and ACC for $ 6.4 billion.
This begets a question, “What did the Adani Family see in Ambuja Cements and ACC?” Let us try to get to the answer by conducting fundamental analysis of Ambuja Cements.
We shall start with getting a quick overview of the company. After that, we move to understand India’s cement industry landscape. Next, we look at how the company has grown over the years, its return ratios, and its profit margins. Future plans and a summary conclude the article in the end.
Without further ado, let us just in.
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 across most of the country: northern, western, central, and eastern markets. Ambuja has a monopolistic market share of 89% in the blended cement category.
The figure below highlights the diversified manufacturing as well as sales capabilities of Ambuja Cements Ltd.
In 2006, Switzerland-headquartered The Holcim Group 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 Holcim’s stake in ACC which the Swiss major had started acquiring in 2004. This made Ambuja a majority shareholder in ACC Ltd with a stake of 54.53%.
However, as recently as May this year, the company saw an ownership change. The power to ports conglomerate Adani Group acquired Holcim’s Indian interests in Ambuja and consequently in ACC.
Having known about the company, let us now move ahead to get an overview of the cement industry in India as part of our fundamental analysis of Ambuja Cements Ltd.
Industry Overview
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 nation’s per capita cement consumption is less than half of the world average of 525 kg. This offers a huge growth headroom for Indian cement producers.
The cement demand in India grew 13% year on year (y-o-y) in the calendar year 2021. It is projected to increase by 7% y-o-y in 2022. The cement sector growth closely follows the GDP growth of the country making it a cyclical industry.
Going forward, structural demand from the housing sector, increasing rural incomes, National Infrastructure Pipeline expenditure, and industrial/commercial demand will be primary growth drivers for the sector.
The industry is heavily dependent on power, fuel, and transportation costs. For instance, together power & fuel costs and freight & forwarding expenses accounted for almost 60% of the cost for Ambuja Cements in FY21.
This makes the cement industry a geographical play because of the heavy transportation costs that go into the movement of raw materials and finished cement.
Thus we can conclude that the Indian cement industry is a slow-growing sector with huge growth potential. We can now move ahead to know how Ambuja Cements has grown over the last five years.
Ambuja Cements – Financials
Revenue & Net-Profit Growth
As previously mentioned, Ambuja Cements holds a 50.05% stake in ACC Ltd making it a subsidiary of the former. For the FY21 ended December, ACC reported sales of ₹ 16,152 crores. Ambuja Cements’ standalone operations generated revenues of ₹ 13,965 crores.
This prompts us to study consolidated as well as standalone revenues and net-profit figures of the company as part of our fundamental analysis of Ambuja Cements.
Over the previous 5 years, the consolidated revenues of Ambuja Cements have grown at a CAGR of 4.17% every year. During the same period, the standalone revenues saw an annual growth rate of 5.96% every year.
As for its net profits, they grew at a rate of 13.79% and 10.73% for the last 5 years on a consolidated and standalone basis respectively.
The table below presents the revenue and net profit figures of Ambuja Cements on a consolidated and standalone basis for the last five years.
| Consolidated | (in Rs. Cr.) | Standalone | (in Rs. Cr.) | |
| Year | Revenue | Net Profit | Revenue | Net Profit |
| 2021 | 28,965 | 3,711 | 13,965 | 2,081 |
| 2020 | 24,516 | 3,107 | 11,372 | 1,790 |
| 2019 | 27,104 | 2,783 | 11,668 | 1,529 |
| 2018 | 26,041 | 2,973 | 11,357 | 1,487 |
| 2017 | 23,609 | 1,945 | 10,457 | 1,250 |
| 5-Yr CAGR | 4.17% | 13.79% | 5.96% | 10.73% |
Profit Margins
So far we have covered the company description, industry overview, and growth of the company as part of our fundamental analysis of Ambuja Cements Ltd. In this section, we talk about the profit margins of the cement manufacturer.
On the back of better capacity utilisations, the operating and net profit margins of Ambuja Cements have increased over the years. The table below shows profit margins for the last five years.
| Year | NPM (%) | OPM (%) |
| 2021 | 13 | 19 |
| 2020 | 13 | 18 |
| 2019 | 10 | 15 |
| 2018 | 11 | 12 |
| 2017 | 8 | 13 |
Debt & Return Ratios
Ambuja Cements is almost a debt-free company with a very low debt of Rs. 47 crores and a negligible debt-to-equity ratio of 0.02.
As for the consolidated return ratios of Ambuja Cements, we can see in the table below that they have improved sharply over the last five financial years. In FY21, the return on equity and the return on capital employed was impressive levels of 10.96% and 15.92% respectively.
| Year | RoE (%) | RoCE (%) |
| 2021 | 10.96 | 15.92 |
| 2020 | 10.39 | 14.09 |
| 2019 | 8.7 | 12.93 |
| 2018 | 9.73 | 11.15 |
| 2017 | 7.33 | 11.11 |
Shareholding Pattern & Pledged Shares
Presently, the Adani Group owns 63.22% stake in Ambuja Cements through Holderind Investments Ltd and Endeavour Trade And Investment Ltd. To fund his gigantic purchase of the cement companies, the group pledged its entire stake in Ambuja Cements and ACC. immediately after the acquisition.
As per separate filings with the exchanges, the group stated that about 57% of ACC and 63% of Ambuja Cements have been encumbered “for the benefit of certain lenders and other finance parties”.
Additionally, FIIs and DIIs own an 11.05% and a 26.26% stake in the company respectively.
Future Plans Of Ambuja Cements
- In FY21, the company spent Rs. 1,160 crores toward capex out of which Rs. 310 crores will be earmarked for brownfield expansion of 1.5 MTPA at its Ropar unit.
- Additionally, it expanded clinker capacity by 3.2 MTPA (brownfield) and cement grinding capacity by 7 MTPA.
- Ambuja Cements has also secured limestone reserves to support its long-term growth plans.
- The cement manufacturer has audacious goals of achieving 50 MTPA production capacity in the near future, an growth of 59% from present levels.
- As for the long-term goals of both companies, Gautam Adani has announced a long-term target of 140 MPTA by 2030. This points to doubling production capacity from 70 MTPA at present.
Fundamental Analysis Of Ambuja Cements – Key Metrics
We are now almost at the end of our fundamental analysis of Ambuja Cements. Let us have a quick look at some of its key metrics.
| CMP | ₹506 | Market Cap (Cr.) | ₹100,500 |
| EPS | 42 | Stock P/E | ₹2.00 |
| ROCE | 16% | ROE | 11% |
| Face Value | ₹2.0 | Book Value | ₹129 |
| Promoter Holding | 63.2% | Price to Book Value | 3.93 |
| Debt to Equity | 0.02 | Dividend Yield | 1.24% |
| Net Profit Margin | 13% | Operating Profit Margin | 19% |
In Conclusion
In this article, we performed a fundamental analysis of Ambuja Cements. From what we have learned, we can say that Ambuja Cements was a comfortably nestled company in a cyclical, slow-moving industry. The same was reflected in its stock price which moved only 77% in the last five years.
However, since the announcement of Adani’s acquisition of the two companies in mid-May this year, Ambuja Cements has appreciated over 46% in value. This comes on the heels of huge plans Gautam Adani has announced for the cement companies. It will be interesting to track the growth story of the company from this point.
In your opinion, should the investors climb to Ambuja’s rising stock wall right now? Or should they wait for material developments in the company? How about you let us know in the comments below?
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