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Company visit note
We recently met Ambuja’s Managing Director, Mr. Onne van der Weijde who
sounded a note of caution on Indian cement demand-supply for the next 6-8
quarters. While emerging markets are very important for the Holcim group, there
is a high focus on cash and profitability and market share is not the only goal. The
group is concerned about the supply glut in India and the markets of Indonesia,
Vietnam etc. could offer better risk-reward. The availability of resources (rail, fuel)
remains a key challenge in India.
Cement demand-supply imbalance to last for few more quarters
q The recent demand trend has been a disappointment; possible reasons could be
high inflation, rising interest rates, labour unavailability, weak infra spending.
q Interestingly, the government’s stimulus package (farm loan waivers etc) could
have advanced cement demand in 2008/9 which is possibly getting reversed now.
q Supply pressures would also continue for the next 6-8 quarters and the imbalance
in demand-supply may continue for another two years.
Linkage coal not necessarily cheap; better infra could help coal imports
q The subsidised domestic linkage coal from Coal India (ACC: ~50% of overall fuel,
Ambuja: 35%) is not necessarily cheap as evident from the fact that fuel cost for
the Indian arms is actually higher compared to other regions.
q This is because the ash content in case of domestic coal is as much as 30-35% (cf.
3-5% for Indonesian coal) which increases ancillary costs like freight, handling etc.
q Nonetheless, the industry prefers it due to lower lead distance; improvement in
infra (ports, terminals) could make imported coal more economical.
q The industry has not made much progress on the coal blocks allotted due to issues
like delays in land acquisitions, time involved in obtaining series of approvals etc.
Rail is the preferred mode but availability is an issue
q Rail is a preferred mode due to high lead distances in India; wagon availability is
an issue, due to which, the industry resorts to expensive road transport.
q The railways has not made significant investments on capacity additions but have
focussed on the optimisation which has led to capacity constraints.
Barriers to entry in cement have been rising now
q The barriers to entry have been rising; acquiring land, environmental clearances
are the key hurdle (land acquisition is more challenging today than clearances).
High focus on cash/ profits; maintaining market share is not the only goal
q Holcim, as a group, focuses on cash and profitability and while ACC-Ambuja intend
to maintain market shares, it is not the only goal.
q While emerging markets (50%+ of capacity) are important to Holcim, supply glut
in India is a concern; markets of Indonesia, Vietnam could offer better risk-reward.
q The recent stake acquisition in ACC-Ambuja at an investment of US$350m was in
order to raise stake beyond 50% ahead of the new merger laws in June-11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Company visit note
We recently met Ambuja’s Managing Director, Mr. Onne van der Weijde who
sounded a note of caution on Indian cement demand-supply for the next 6-8
quarters. While emerging markets are very important for the Holcim group, there
is a high focus on cash and profitability and market share is not the only goal. The
group is concerned about the supply glut in India and the markets of Indonesia,
Vietnam etc. could offer better risk-reward. The availability of resources (rail, fuel)
remains a key challenge in India.
Cement demand-supply imbalance to last for few more quarters
q The recent demand trend has been a disappointment; possible reasons could be
high inflation, rising interest rates, labour unavailability, weak infra spending.
q Interestingly, the government’s stimulus package (farm loan waivers etc) could
have advanced cement demand in 2008/9 which is possibly getting reversed now.
q Supply pressures would also continue for the next 6-8 quarters and the imbalance
in demand-supply may continue for another two years.
Linkage coal not necessarily cheap; better infra could help coal imports
q The subsidised domestic linkage coal from Coal India (ACC: ~50% of overall fuel,
Ambuja: 35%) is not necessarily cheap as evident from the fact that fuel cost for
the Indian arms is actually higher compared to other regions.
q This is because the ash content in case of domestic coal is as much as 30-35% (cf.
3-5% for Indonesian coal) which increases ancillary costs like freight, handling etc.
q Nonetheless, the industry prefers it due to lower lead distance; improvement in
infra (ports, terminals) could make imported coal more economical.
q The industry has not made much progress on the coal blocks allotted due to issues
like delays in land acquisitions, time involved in obtaining series of approvals etc.
Rail is the preferred mode but availability is an issue
q Rail is a preferred mode due to high lead distances in India; wagon availability is
an issue, due to which, the industry resorts to expensive road transport.
q The railways has not made significant investments on capacity additions but have
focussed on the optimisation which has led to capacity constraints.
Barriers to entry in cement have been rising now
q The barriers to entry have been rising; acquiring land, environmental clearances
are the key hurdle (land acquisition is more challenging today than clearances).
High focus on cash/ profits; maintaining market share is not the only goal
q Holcim, as a group, focuses on cash and profitability and while ACC-Ambuja intend
to maintain market shares, it is not the only goal.
q While emerging markets (50%+ of capacity) are important to Holcim, supply glut
in India is a concern; markets of Indonesia, Vietnam could offer better risk-reward.
q The recent stake acquisition in ACC-Ambuja at an investment of US$350m was in
order to raise stake beyond 50% ahead of the new merger laws in June-11.
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