Ambuja’s capacity expansion cannot control the loss of market share

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Ambuja Cement Ltd The subsidiary of Cement Ambuja Cement Ltd recorded better than expected volume growth during the December quarter. Cement sales volumes increased 8% year-over-year (year-on-year) to 7.05 million tonnes. Nonetheless, it lagged significantly behind UltraTech Cement and Shree Cement Ltd, whose volumes increased by around 15% during the quarter.

Ambuja’s capacity utilization for the December quarter was 90%. To cope with capacity constraints, the cement manufacturer is considering extensions.

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In a conference call after the results, company management said its Marwar-Mundwa clinker plant would be commissioned by June and a full scale-up is likely during the next year. calendar year 2022.

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Volume trend

In addition, to strengthen its presence in eastern and western India, it is evaluating expansions in the regions of Bhatapara and Maratha.

While Ambuja’s capacity expansions are essential, analysts said they were not enough to curb market share losses beyond 2022.

Analysts at Nirmal Bang Securities Ltd believed that the current expansion represents only 6% of its total cement grinding capacity. “While this expansion will resolve the clinker-related constraints in northern India and potentially add an additional volume of around 4 million tonnes, we believe this will not be enough to stop the loss of market share,” said Analysts said in a Feb. 22 report.

An analysis by Motilal Oswal Financial Services Ltd showed that Ambuja lost a market share of 250 basis points by volume across India over the past decade due to its lack of capacity growth. A basis point is equal to one hundredth of a percentage point. Its market share across India is 7%.

“While the new Marwar-Mundwa plant is expected to help it grow in line with the CY20-22E market (11% by volume CAGR), we expect the market share losses will start again at CY23E in the absence of any growth plan announced, ”the domestic brokerage firm said in a Feb. 19 report. The CAGR is short for compound annual growth rate.

Ambuja is expected to decide on new capital spending plans by the end of 2021, the management added.

Although he said he would assess the capacity expansion of new factories and brownfields, analysts said the next round of expansion will be at least three years away.

Meanwhile, Ambuja stock hit a new 52-week high 290.50 before the results were announced on February 18. On Monday, the stock fell about 3% to end the day’s session at 266 on the NSE.

On the valuation front, Bloomberg data shows the stock is trading at an 8x EV-Ebitda, well below that of its peers, reflecting growth constraints. UltraTech and Shree Cement trade at multiples of 16 times and 21 times, respectively.

EV stands for enterprise value. EBITDA is short for earnings before interest, taxes, depreciation and amortization.

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