Ambuja Cements Capacity Expansion Focuses On Cost Reductions

BY Realty Plus

Ambuja Cements announces grinding capacity expansion of 14mtpa in next 24 months. ACEM announced organic clinker/cement capacity expansion of 8mtpa/ 14mtpa in the next 24-months. The company plans to add clinker capacity of 4mtpa (each) at its two existing locations- Bhatapara, Chhattisgarh, and Maratha, Maharashtra. Additionally, the company is increasing grinding capacities in multiple states, including Maharashtra, Chhattisgarh, Uttar Pradesh, and West Bengal. The company has already placed orders for the main plant and equipment.  

ACEM’s sales volumes grew 12% YoY (on a like-to-like comparison). The company’s cement capacity utilization stood at 86% in FY23 vs. 82% in CY21. Higher volume growth was aided by accelerated volume under MSA with ACC. The company sold 4.1mt in FY23 (vs 1.1mt in CY21) to ACC under MSA.

FY23 was a challenging year due to cost inflation (higher raw material and fuel prices). Raw material cost/t of cement rose 5% in FY23 vs. CY21 due to an increase in slag and gypsum prices. Power and fuel cost/t raised 26% in FY23 vs. CY21 due to a sharp increase in fuel (both coal and petcoke).

Blended realization improved 2% in FY23 vs. CY21. However, due to significant cost pressures (up 11% in FY23 vs. CY21), EBITDA margin declined to 16% in FY23 vs. 23% in CY21. EBITDA/t stood at INR845 in FY23 vs. INR1,182 in CY21. We estimate EBITDA margin to improve to 20%/23% in FY24/FY25.

In FY23, it installed cumulative 53MW of WHRS capacity at various locations at a total capex of INR5.5b. While 27.5 MW capacity is at an advanced stage to be commissioned in FY24. It plans to raise WHRS/Solar power capacity to 87.6MW/100MW by FY24, at its existing plants. It is focusing to increase green power share to 43% in total power consumption by FY24.

ACEM’s FCF turned negative in FY23 due to lower profitability, higher capex, and advances, under the long-term supply arrangement. In FY23, the company has given advances to a related party (Mundra Petrochem, a subsidiary of Adani Enterprises) for securing rights for raw material/fuel for its upcoming cement plant at Mundra, which is likely to be commissioned in FY26.

Going forward, we expect OCF to improve in FY24/FY25, led by profitability improvement. However, given the robust expansion plan, we estimate an FCF outflow of INR7b/INR1b in FY24/FY25 (in our current assumptions, we have not considered the recent announcement of acquisition of Sanghi Industries).

ACEM announced capacity expansion of 14mtpa in the next 24-months. Looking, ahead the company aims to double its overall capacity by FY28 by involving a combination of greenfield projects, brownfield expansions, and de-bottlenecking efforts. ACEM’s clinker/cement capacity stood at 21mtpa/31.5mtpa; however, with the successful completion of these expansion initiatives, the cement/clinker capacity will increase to 29mtpa/ 45.5mtpa by FY25-end.

Recently, the company has also announced acquisition of Sanghi Industries (SNGI) having clinker/cement capacity of 6.6mtpa/6.1mtpa in Kutch, Gujarat. The acquisition is subject to CCI clearance and other regulatory approvals. ACEM plans to increase SNGI grinding capacity to 10mtpa (from 6.1mtpa currently) with an investment of INR5b by Mar’24 and further expansion to 15mtpa at an investment of INR30b by FY26E.

The company is taking various cost-optimization initiatives such as adding WHRS/ Solar power plants, ramp-up of coal mining from Gare-Palma IV coal block and Dahegaon Gowari, reduction in lead distance and rail-road mix optimization. The management targets sustainable cost reduction of INR400/t.

Tags : Ambuja Cements capacity expansion organic clinker cement capacity sales volumes