Ambuja Cements weathers a storm
when Covid-19 began to spread, something rather unexpected happened in India. People began to leave metropolitan cities to return home to their families, thanks to the containment lockdowns and work-from-home policies. even after the lockdowns were lifted, many of them continued to stay there, causing a spurt in the rural economy. from TikTok and Tinder to McDonald’s and shopping malls, urbanisation is rapidly rising across the country. building all those burger joints requires construction materials like cement, and manufacturers are set to capitalise.
one such is Ambuja Cements, whose stock has risen 8% in three trading sessions, from Rs 381/share on October 28 to Rs 412/share on November 1. what’s spurring this rally?
Ambuja Cements’ story is similar to almost all other companies across sectors that rely on raw materials. a global shortage of supply while demand continues to rise, resulting in a sharp spike in input costs. but the good news is that, unlike many others, Ambuja managed to increase its net profits by 10.85% for the September quarter compared to the year-ago period. this was largely driven by a growth in volume, as net sales were up by 14% over the corresponding period last year.
this helped the company offset a 7.76% increase in total expenses which was driven by more than just the inflation in raw materials. Ambuja Cements was hit harder by the spiraling costs of fuel since it only maintains one-month inventory. with every passing month, it has had to pay higher and higher for fuel and freight charges. despite this, the company managed to increase its EBITDA (an overall measure of profitability) by 3.2% for the reported quarter. this means Ambuja Cements is in a position to deliver superlative margins when the situation improves.
Ambuja used the lull in demand to commence work on its third plant in Rajasthan, at Marwar. it was inaugurated for commercial production in August 2021, enhancing production capacity of cement by 5 MTPA (million tonnes per annum) and clinkers by 3 MTPA at an investment of Rs 2,350 crore. this indicates that the company expects demand to rise in the future.
further, Ambuja MD and CEO, Neeraj Akhoury, said the new production unit is a “green plant” designed to meet its ambitions for a sustainable future.
with economic activity back in full swing, there is immense pent up demand to be fulfilled, particularly in rural areas. Ambuja cements is counting on increasing its revenue potential.