Better realisation gets Ambuja to head South

Ambuja Cements, the country’s third largest cement maker and part of Swiss major Holcim, plans to expand in the south India market by transporting the building material by sea route, helping it compete with rivals such as India Cements.

The Gujarat-based company has recently taken one more terminal in south at Mangalore in Karnataka, the second one after Cochin (Kerala) in an attempt to corner a portion of the fastest growing cement market in the country. Ambuja is also going to add one more ship to its fleet, which will be used for cement transportation. With this acquisition, the fleet strength will go up to 11. Besides, the company has also placed orders for three more ships, which it will receive in two years.

A L Kapur, managing director, Ambuja Cements, said, “We are entering south through the coastal line as sea routes are very cheap. We will carry cement from Gujarat to the southern states for which we need to have a string of terminals.”

CONCRETE IDEAS

Ambuja’s Kochi terminal will be completed by December

Ambuja gets another south terminal in Mangalore

One more ship is being ordered taking total fleet size to 11

Company will ship cement from Gujarat to South

Higher realisation will be the direct benefit

India Cements, Madras Cement, Grasim, ACC, Kesoram the main southern players

The company is one of the few domestic cement makers having expertise in using sea routes for transporting cement.

According to industry analysts, the southern market is easily reachable as cost of transportation through sea is one-third that of the road transportation cost. Normally, for road transportation, the average freight cost works out to be Rs 1.5 per tonne per km. In case of sea, it comes to around 50-70 paise.

Ambuja is expanding in the southern market to avoid a glut in the western region where additional capacities are being built, which is expected to keep the prices depressed. The move is also expected to help the company reap benefits of higher prices in the southern region and even out seasonal differences. Binani, Sanghi, Jaypee, ABG Shipyard and Ambuja are adding fresh capacities in Gujarat. The industry statistics suggest an additional capacity of over 12 million tonnes in Gujarat alone. Market experts believe that the company may be able to sell cement at some discount in view of lower transportation cost. The southern market has seen average prices in the range of Rs 240-250 a bag which is higher than the prices in north India (Rs 230-235) and other markets.
 

Market share of top cement companies in south India
Company	Mkt  share (%)

India Cements          

18 Madras Cem               11 ACC                    10 Grasim               9 Kesoram              7 UltraTech               6 Dalmia               6   Sources : Industry analysts     

“The issue here is Gujarat is going to see a tremendous increase in capacities. Where is the alternative route for cement from the state,” asked Kapur. So far, the company has been transporting cement from Gujarat to Mumbai at its Panvel terminal.

The company had its operations in Cochin earlier, but the business suffered due to the lack of its own terminal. But now the company is relying on this strategy of expansion in south India.

“So, now with these two terminals, we will enter Kerala and Karnataka. Again through Kerala, we can enter Tamil Nadu. We are already present in Andhra Pradesh,” he added.

The company has invested around Rs 100 crore for the Cochin terminal, which is expected to be commissioned by December. “Since we just have got the Mangalore terminal, work hasn’t started yet. It will be ready a year later than the one at Cochin,” said Kapur.

The southern market already has more than five major players – India Cement, Madras Cement, ACC, Grasim, Kesoram, UltraTech and Dalmia. India Cement is the leading player in the region, capturing one-fifth of the market share followed by Madras Cement and ACC.

“We are confident enough to be in the southern market, which is the fastest growing in the country. Whatever material (cement) we could get there, we will capture the market share as it is not a problem given our good brand,” said Kapur.

Industry analysts said that there might be difficulty in the initial stages to enter the southern market.