Name: Abhishek Agrawal PRN: 12020941031 Seat No.

: 1201

Wealth Management Assignment # 1 : Stock Analysis of Ambuja Cements

About The Company
Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold. The total cement capacity of the company is 18.5 million tones. Its plants are some of the most efficient in the world. With environment protection measures that are on par with the finest in the developed world. The company's most distinctive attribute, however, is its approach to the business. Ambuja follows a unique homegrown philosophy of giving people the authority to set their own targets, and the freedom to achieve their goals. This simple vision has created an environment where there are no limits to excellence, no limits to efficiency. This has proved to be a powerful engine of growth for the company. As a result, Ambuja is the most profitable cement company in India, and one of the lowest cost producers of cement in the world. When the company started out, it approached the cement business with an open mind. To compete with the older, established players who had already written off their plant cost, it was important to have the lowest capital cost per ton of cement. Their plants would have to be set up in record time. Their capacity utilization would have to be above 100%. And their power consumption would have to set a record low these were the main theme of company. Today, Ambuja is the 3rd largest cement company in India, with an annual plant capacity of 16 million tonnes including Ambuja Cement Eastern Ltd. and revenue in excess of Rs.3298 crore.In 1993, Ambuja Cement set up a complete system of transporting bulk cement via the sea route, making it the first company in India to introduce bulk cement movement by sea. Others followed and today, about 10% cement travels by this new route. Port terminal of the company is situated at Muldwarka, Gujarat. Its an all-weather port, 8 kms from the companys Ambujanagar plant. It handles ships with 40,000 DWT. It is also equipped to export clinker and cement and import coal and furnace oil.

Bulk Cement Terminals of the company:

Surat: Bulk Cement Terminal with a storage capacity of 15,000 tonnes has bulk cement unloading facility. Panvel: Strategically located near Indias biggest cement market, has a storage capacity of 17,500 tonnes and a bulk cement unloading facility. Galle: 120 kms from Colombo, Sri Lanka. It handles 1 million tonnes of cement annually. Cochin: The latest addition to the companys configuration of Bulk Cement Terminal

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Business area of the company:

The company is engaged in manufacture and market cement and clinker for both domestic and export markets. Ambuja Cement exports almost 17% of its production in a very competitive international environment. For the last ten years, Ambuja Cement remains Indias highest exporter of cement.

Milestones:

2010

On 24th February 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant (grinding unit) at Dadri, Uttar Pradesh. Capacity: 1.5 million tonnes.. On 27 March, 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant (grinding unit) at Nalagarh, Himachal Pradesh. Capacity: 1.5 million tonnes. In December 2010, the Dadri Grinding Unit in its very first year of operation received the Integrated Management System (IMS) Certification, including ISO 9001:2008, ISO 14001:2004, and OHSAS 18001:2007 by BSI (U.K.). The Company launched its knowledge initiative i.e. Ambuja Knowledge Center,to enable industry professionals get a first-hand feel of the world of cement and concrete. During the year, three centers became operational in the cities of Jaipur, Ahmedabad and Kolkata. The Company also sets up the Corporate Communications department, thus marking its deep commitment to be a responsive organisation, answerable and accountable to its key internal and external stakeholders.

2009

2008

2009 The Company launched its knowledge initiative i.e. Ambuja Knowledge Center,to enable industry professionals get a first-hand feel of the world of cement and concrete. During the year, three centers became operational in the cities of Jaipur, Ahmedabad and Kolkata. Opening of Dadri Plant On 24th February 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant (grinding unit) at Dadri, Uttar Pradesh. Capacity: 1.5 million tonnes. On 27 March, 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant (grinding unit) at Nalagarh, Himachal Pradesh. Capacity: 1.5 million tonnes. In December 2010, the Dadri Grinding Unit in its very first year of operation received the Integrated Management System (IMS) Certification, including ISO 9001:2008, ISO 14001:2004, and OHSAS 18001:2007 by BSI (U.K.).

Achievements

Environment protection measure that conforms to the worlds best. Benchmarking quality standards for the industry. Reinventing cement transportation.

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Ambujanagar has won 'Best Environmental Excellence in Plant Operation' National award by NCBM 2009 'Certificate of Appreciation' for Accident Free million man hour our worked - Gujarat Safety Council, Baroda 2009

Recognition

National Award for commitment to quality by the Prime Minister of India. National Award for outstanding pollution control by the Prime Minister of India. ISO 9002 Quality Certification. ISO 14000 Certification for environmental systems. Best Award for highest exports by CAPEXIL. Economic Times - Harvard Business School Association Award for corporate excellence.

In News The Holcim deal

Swiss building materials major Holcim got FIPB nod to merge holding firm Holcim India with its unit Ambuja Cements as part of the plan to restructure its India operations. Holcim, which has majority stakes in two leading Indian cement makers - ACC and Ambuja Cements - had announced plan in July to consolidate operations in a cash and share deal in a two-step process, valued at about Rs 14,500 crore. The complex deal was cleared by the Foreign Investment Promotion Board (FIPB) at its meeting. Since Holcim's proposal is of more than Rs 1,200 crore, it would require approval of the Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manamohan Singh. Holcim had said that as part of the rejig process; Holcim India's over 50% stake in ACC will go to Ambuja. Holcim's stake in Ambuja will rise to 61.39%, from a little over 50% after merger of Holcim India with Ambuja. Ambuja Cements would merge Holcim India through cash and share transactions. Ambuja will first acquire a 24 percent stake in HIPL for Rs 3,500 crore, followed by stock merger between HIPL and Ambuja.As part of the merger, the Swiss firm had said that

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Holcim will receive 58.4 crore new equity shares of Ambuja resulting in an increase of its ownership in Ambuja from 50.55% to 61.39 percent. On the total value of the transaction, Ambuja Cements Managing Director Onne van der Weijde had said it would be about Rs 14,500 crore. ACC and Ambuja would operate as separate entities with their respective brands, managements and dealer networks, he had said. At the same time, he said the restructuring will have a synergy benefit of Rs 900 crore per annum accrued from logistics and supply chain. At present, Holcim has a controlling stake in both ACC and Ambuja. The Swiss major directly owns 40.79 percent stake in Ambuja and another 9.76 percent through Holcim India (HIPL). Holcim has 0.29 percent in ACC directly and 50.01 percent through HIPL. Post these transactions, Holcim will have 61.39 percent stake in Ambuja and 0.29 percent stake in ACC directly. Ambuja will have 50.01 percent stake in ACC.

Financials
Valuation Ratios
P/E Ratio (TTM) P/E High - Last 5 Yrs. P/E Low - Last 5 Yrs. Beta Price to Sales (TTM) Price to Cash Flow (TTM) Company 19.42 23.97 7.68 0.83 5.52 16.66 Industry 14.25 19.91 10.18 1.13 3.34 12.31 Difference 5.17 4.06 -2.5 -.03 2.18 4.35

Analysis:
P/E ratio TTM (trailing twelve months) and the last 5 years P/E high ratio of ACL is lower than the industry average. This shows that investors of ACL have been paying more for 1$ earning. The norm is that P/E ratio and also other ratios move towards average/benchmark. The industry P/E is the benchmark. Thus it is expected that P/E ratio of ACL will fall. The same is the case with Price to Sales & Price to Cash Flow ratio.

Dividends
Dividend Yield Dividend Yield - 5 Year Avg. Dividend 5 Year Growth Rate Payout Ratio(TTM) Company 2.01 2.08 0.57 31.59 Industry 2.66 1.98 34.50 29.65 Difference -0.65 0.1 -33.93 1.94

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Analysis:
Though the Dividend yield (DPS/MP) & Payout ratio (DPS/EPS) is good but the dividend growth rate is extremely low when compared to Industry average. The 5-year dividend growth rate of industry is 34.5% whereas the dividend growth rate of ACL is just 0.57%. Thus the investor has no incentive in holding the stock as the dividend is not increasing at all.

Growth Rates
Sales - 5 Yr. Growth Rate EPS - 5 Yr. Growth Rate Capital Spending - 5 Yr. Growth Rate Company 11.40 -7.11 -2.53 Industry 16.97 30.65 46.22 Difference -5.57 -37.76 -48.75

Analysis
The 5-year growth rates of Sales, EPS & Capital Spending is very low especially when compared with industry average. The most important point to notice in the above table is that EPS and Capital spending has a negative growth rate, it means that both EPS & Capital spending has decreased from what it was 5-years back.

Financial Strength
Company Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) ----118.01 Industry 3.38 4.03 12.44 16.39 1.70 Difference -3.38 -4.03 -12.44 -16.39 116.31

Analysis
Since ACL has very less short term & long term debt its quick ratio, current ratio, Long term debt to Equity ratio & Total Debt to Equity ratio is very less (nearing zero). This is also the reason for their very high Interest coverage ratio (EBIT/Interest). Also its capital spending has reduced by 2.53% as seen in previous table. This shows that ACL is not looking for any expansion.

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Profitability Ratios
Gross Margin (TTM) Operating Margin (TTM) Pre-Tax Margin (TTM) Net Profit Margin (TTM) Company 93.63 31.74 34.10 28.59 Industry 45.53 29.91 30.45 23.45 Difference 48.1 1.83 3.65 5.14

Analysis
As seen above ACL has performed very badly in different aspects, but still they were able to maintain good profitability ratios. ACLs Gross Profit Margin, Operating Profit Margin, Pre-Tax Margin & Net Profit Margin were all above the Industry average. This shows that ACL has maintained a good efficiency level even though the company has performed badly.

Management Effectiveness
Return on Assets - 5 Yr. Avg. Return on Investment - 5 Yr. Avg. Return on Equity - 5 Yr. Avg. Company 13.22 16.91 18.60 Industry 20.81 24.56 27.24 Difference -7.59 -7.65 -8.64

Analysis
As seen above ACL has not performed very well, its Return on Assets, Return on Investment & Return on Equity ratio also proves the same. As it is less than the industry average. If an investor is getting a better return on its investment in the same industry then he/she would not like to invest in ACL.

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Technicals

Analysis
From the above chart we can see that since November 2013 the lower bollinger band is regularly breached by the candle sticks, this shows that the stock is in falling trend and is moving its support to a new lower level. The volume shown by Chaikin Money Flow is also very less. Moreover the stochastic is also in falling trend. The Parabolic SAR (stop & reverse) is also above the candle sticks (the dotted lines in red and green), which means that price is going to fall further in coming days. Thus it is advisable not to take risk in investing in this stock.

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Future prospects
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A new Bulk Cement Terminal (BCT) is nearing completion at Mangalore. With operations to commence early 2013, it will help the company to expand its footprints in southern markets of India. A new brown-field expansion project was announced in 2011 at Sankrail Grinding Unit in the eastern region comprising of a roller press and related logistics. The project has started progressing, with extended scope to include advanced technical specifications. This would add 0.80 million tonne grinding capacity to the unit, along with other facilities. Significant cement capacity addition of approximately 4,50 MT at proposed integrated plant (with extended grinding capacities) is coming up at Marwar Mundwa, Nagaur district in Rajasthan, with associated clinkerisation capacity of 2.20 million tonnes. Environmental clearances for the project are already in place while mining land acquisition is in an advanced stage. The Company is also in the process of tying-up water sources required for construction and operations. Full-fledged construction work is expected in the later part of year 2013. The Company has taken up 13 new ambitious projects at different locations worth 7272 crores to optimize and enhance efficiency. These projects have a quick payback of2.5 to 4 years and likely to be completed in first half of 2014. A new brown-field expansion project at the Rabriyawas unit in Rajasthan, for commissioning a roller press at a cost of Rs. 70 crores, will add 0.30 million tonne grinding capacity by the end of the year 2013. Plans are afoot to set up a state-of-the-art blending facility at Sanand in Gujarat with grinding and mechanized packing facilities at an investment of 7 267 crores. This facility, once operational by the 3rd quarter of 2015, will lend a competitive edge in the nearby central markets of Gujarat.

The year 2013 would see capital expenditure worth 7 1100 crores, over and above 7600 crores investment made in the year 2012. The entire proposed expenditure would be financed by internal accruals.

Alternative Fuels - The Green Energy

An ambitious project, named 'Geo20', taken up by the Company to substitute costlier traditional fossil fuels by Alternative Fuels (AF) is progressing well and supporting cost-cutting. Holcim is actively supporting our efforts by making available its world-wide experience and technical expertise in the area of clean and green technology and burning all sorts of wastes without corresponding release of harmful gases and CO2in the air. Besides, Holcim's rich experience in the area has helped the company in devising innovative ways of sourcing. The Company envisions being the most sustainable Company in the cement industry and draws heavily on Holcim's sustainability policy on CO2 and energy, eco-efficient products,

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

atmospheric emissions, sustainable construction, etc. The strategic stress on environmentallyfriendly and cost effective resources resulted in the establishment of the Geo cycle department to focus on Alternative Fuels and Raw Material (AFR). In order to optimize the furnaces at 5 of the integrated plants, to support higher utilization of lower cost, environmentally-friendly, alternative fuels, the Company has planned investments involving capital expenditure of 7200 crores. Some work on these ambitious projects has already started. During 2012, the Company increased use of alternative fuels in its kilns from 0.59% in2011 to 1.40% in 2012. The company is determined to achieve higher thermal energy substitution rates in the coming years.

Decision
Although they have lot of good projects and capital investments lined up this could boost their sales and decrease the overall cost in future but currently their financial ratios are lacking way behind the Industry average. Except for the profitability ratios which show that the company has maintained a good efficiency level, ACL has performed badly in all other aspects in comparison with the Industry Average. If an investor is getting more returns on the stock in the same industry but in another company then he/she would not like to invest in it. My analysis would be to sell/avoid this stock. Risk takers could hold this stock and wait for some time to see how the Holcim deal spans out and the impact this deal has in the market, then take a calculated decision. Moreover from the technical analysis point of view, as mentioned in the analysis the stock is going to fall in the coming days, thus its better to book the profits/loss (sell) and dont take unnecessary risks. Thus the advice I would give to investors in long term (fundamental analysis) & short term (technical analysis) would be to sell/avoid this stock

Name: Abhishek Agrawal PRN: 12020941031 Seat No.: 1201

Bibliography:
http://profit.ndtv.com/ http://www.ventura1.com/ http://www.moneycontrol.com/ http://in.reuters.com/ https://www.ambujacement.com/index.php