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Ambuja Cement's massive 20 MT capacity expansion to cost Rs 10,000 crore

Ambuja's upcoming facility in Marwar Mundwa, Rajasthan will enhance clinker capacity by 3 MTPA and help improve cement sales by 5 MTPA, contributing to long term strategy of capacity expansion

twitter-logoNevin John | April 30, 2021 | Updated 19:33 IST
Ambuja Cement's massive 20 MT capacity expansion to cost Rs 10,000 crore
Ambuja Cement's expansion plans to cost Rs 10,000 crore

Ambuja Cement's plan to add 20 million tonne per annum (MTPA) to its existing 30 MTPA capacity will be costly, but it will intensify the competition in the segment. Analysts estimate that the company will have to spend around Rs 10,000 crore for the expansion, which it plans to complete in the medium term (around 3-5 years).

Ambuja's upcoming facility in Marwar Mundwa, Rajasthan will enhance clinker capacity by 3 MTPA and help improve cement sales by 5 MTPA, contributing to long term strategy of capacity expansion. This greenfield integrated plant, at a total investment of Rs 2,350 crore, will commence operations by July-September quarter.

The cement maker is evaluating brownfield expansions in Bhatapara (Chhattisgarh) and Maratha (Maharashtra) plants. It is also looking at significant debottlenecking opportunities across all plants. The growth plans will be executed in mid-term for Ambuja to reach 50 MTPA cement capacity.

It has reported a 71 per cent jump in its consolidated net profit at Rs 947.21 crore in January-March quarter, as against a profit of Rs 554 crore last year, beating analyst estimates on the back of strong volume growth and lower operating costs.

Ambuja's execution on costs continues to beat expectations, with a combination of fuel-mix change, optimising fixed costs, distribution, and energy efficiency measures contributing to the lower costs, said Goldman Sachs in its report. "Some of these cost benefits are likely to continue, which should help narrow the valuation gap vs larger peers -- in our view. Additionally, the expected capacity addition at Marwar Mundwa by Q3CY21 will not only add 3 MTPA of clinker and 1.MTPA of grinding for the company but also provide clinker for some starved grinding capacity and hence drive better than historical volume growth for the company. This drives our EBITDA to grow from Rs 3,100 crore in CY21 to Rs 3,800 crore in CY22 -- growth of 23 per cent," said Goldman Sachs.

"Ambuja Cement continued to surprise positively with Q1CY21 EBITDA increasing 62 per cent YoY to Rs 980 crore led by lower costs. Total cost per tonne declined 6 per cent QoQ (and 5 per cent YoY) vs our expectations of flat cost/te owing to fuel mix optimisation, better cost efficiencies and operating leverage. Volumes including clinker sales grew 25 per cent YoY while realisation remained flat QoQ -- both broadly in-line with our estimates," said ICICI Direct report.

Morgan Stanley report said that better-than-expected demand led to faster volume growth. Lower-than-expected costs, helped by the company's ongoing cost-saving initiatives, and higher-than-expected price increase resulted in better EBITDA margins, it added.

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