Event
Holcim Group companies - ACC and Ambuja have announced cement capacity additions. ACC is adding capacity of 5.9mtpa at a cost of US$71/t in Central region (MP and UP), while Ambuja has increased its ongoing clinker capacity addition by 1.4mtpa in Rajasthan.
Details
Ambuja Cement
ACC Cement
o 1mtpa at Katni, M.P.
o 1.6mtpa at Tikaria, U.P.
o 2.2mtpa in U.P.
o 1.1mtpa at Sindri, Jharkand
Impact of this capacity addition on Industry
The plants being set up by Ambuja and ACC will largely be commissioned in 2HFY21 and be ramped up in FY22. Accordingly, any impact of the same will be visible over the long term. In the meanwhile, capacity additions in the North and Central market are limited over the next two years. Moreover, demand in both these regions has picked up over the past year and continues to be robust in FY19. Accordingly, we believe demand will grow ahead of capacity in these regions. This would drive higher utilisations and thereby pricing power for cement manufacturers over the next year.
Valuation and view
Ambuja is trading at 10.2x CY19 EV/EBITDA and US$107 on EV/T basis. ACC is trading at 10.5x CY19 EV/EBITDA and US$101 on EV/T basis. Overall, both ACC and Ambuja have announced capacity expansions in line with their strategy to grow volumes and gain market share. The capacity addition addresses concerns on volume growth over the long term for the group. We continue to like both ACC and Ambuja considering reasonable valuations, re-focus of mgmt. on the operations post corporate re-structuring and sustained growth momentum. Maintain Outperformer rating on both ACC and Ambuja.
Ambuja Cement is a holding company. Co. is engaged in the manufacture and bulk export of cement and clinker products. Through its subsidiaries, Co. is engaged in investment holding in cement industries; finance services; the manufacture of cement; and property development and construction projects.
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