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Ambuja Cement Ltd Cement major Ambuja Cement Ltd reported better-than-expected volume growth in the December quarter. Cement sales volumes grew 8% year-on-year (y-o-y) to 7.05 million tonnes. Still, it significantly lagged peers UltraTech Cement and Shree Cement Ltd, whose volumes grew around 15% in the quarter.

Ambuja’s capacity utilization for the December quarter stood at 90%. To tackle capacity constraint, the cement maker is looking at expansions.

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In a post-earnings conference call, the company management said its Marwar-Mundwa clinker plant will be commissioned by June and a full ramp- up is likely in calendar year 2022.

Volume trend
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Volume trend

Furthermore, to strengthen its presence in east and west India, it is evaluating expansions in the Bhatapara and Maratha regions.

While Ambuja’s capacity expansions are much needed, analysts said they are not enough to curb the market share losses beyond 2022.

Nirmal Bang Securities Ltd analysts were of the view that the current expansion is just 6% of its total cement grinding capacity. “While this expansion will address clinker constraints in north India and possibly add an additional volume of around 4 million tonnes, we believe it will not be enough to arrest the market share loss," the analysts said in a report on 22 February.

An analysis by Motilal Oswal Financial Services Ltd showed that Ambuja has lost an all-India market share of 250 basis points by volume over the past decade due to its lack of capacity growth. One basis point is one-hundredth of a percentage point. Its market share at an all-India level stands at 7%.

“While the greenfield Marwar-Mundwa plant should help it grow in line with the market in CY20-22E (11% volume CAGR), we expect market share losses to start again in CY23E in the absence of any announced growth plan," said the domestic brokerage house in a report on 19 February. CAGR is short for compound annual growth rate.

Ambuja is likely to decide on new capital expenditure plans by the end of 2021, the management added.

Even though it has indicated that it will evaluate greenfield and brownfield capacity expansions, analysts said the next set of expansion is at least three years away.

Meanwhile, the Ambuja stock hit a new 52-week high of 290.50 ahead of the earnings announcement on 18 February. On Monday, the stock fell around 3% to end the day’s session at 266 on the NSE.

On the valuations front, Bloomberg data shows that the stock is trading at an EV-Ebitda of 8 times, far lower than the peers, reflecting the constraints on growth. UltraTech and Shree Cement are trading at multiples of 16 times and 21 times, respectively.

EV stands for enterprise value. Ebitda is short for earnings before interest, tax, depr-eciation and amortization.

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