UltraTech Cement & Ambuja Cements: Built To Last
9/20/2012 9:02 PM Thursday
While the cement sector, which is key to economic growth, is going through some rough times, two leading companies, UltraTech Cement and Ambuja Cements, have emerged unscathed. Chandrakant Shukla tells us more.
- UltraTech Cement and Ambuja Cements together account for almost 25 per cent of the total cement production capacity in the country, and have seen a strong recovery in their business from the lows seen in 2011.
- Both companies are leaders in terms of market share and have a strong pan Indian presence, which insulates them from any major variations in regional demand and price volatility.
- The companies have shown a decent operating performance despite a continuous rise in input costs. They have sustained their margins on the back of efforts to improve efficiency and reduce internal costs.
- Both companies have been on an expansion spree over the last five years, which is expected to drive volume growth in the coming years.
The cement industry has been in the news for quite some time now. Whether on account of scrips trading at their 52-week highs despite a lull in the overall market or for negative reasons like the alleged involvement of companies in cartelisation, there has been a lot of talk about the sector and the companies therein. This is hardly surprising, as the cement sector plays an important role in the overall economic landscape and is a major contributor to inclusive growth. Cement is a critical input for the construction and infrastructure sectors – these are expected to drive India’s economy and consequently, the demand for cement.
The cement business largely depends on the demand-supply situation in the country. Over the last five years, supply has outpaced demand. The industry has added capacity at a CAGR of 12 per cent over this period, while demand has seen a CAGR of nine per cent. Due to this, there has been a continuous decline in the utilisation levels from 85 per cent in 2009 to almost 73 per cent in 2011.
Despite this, the stocks of leading companies are trading at their highest levels. What is the rationale behind this? Here is an analysis of two major cement companies – UltraTech Cement and Ambuja Cements – which should help you understand this. However, before moving ahead with the analysis, let’s understand the current scenario.
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