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Ambuja Cements, part of the Swiss cement giant Holcim, is in top gear to reduce its logistic costs and increase efficiency as demand for cement continues to remain weak. Lower off-take of the building material at a time when sector is sitting on a huge unutilised capacity is not letting cement prices to go up, which in turn, is impacting companies' profitability.
On top of it, rising fuel costs and no respite from heavy taxes have added further burden on companies' balance sheets.
'Cutting costs is our priority. Industry has worked a lot on reducing energy costs. Now, we have reached a stage where squeezing more on this front is difficult. So, the next level is to focus on logistics as in India on a per tonne basis, costs involved in logistics are phenomenal,' says Onne van der Weijde, managing director of Ambuja Cements.
Currently, around 60% of cement in India is transported using roads - the costliest of the transportation modes at around Rs 1.5 per tonne per kilometer. This roughly translates into an additional cost of about Rs 25 on a 50 kg bag of cement if transported 300 kilometers from production units.
The cement maker is embarking on its expansion projects to take its overall manufacturing capacity to 35 million tonne (Mt) from the current 28 Mt.
'If you look at our newer expansion in Sanand (Gujarat) and Rabriyawas (Rajasthan) our grinding units are closer to the markets where the fly ash is. Then, instead of bringing the hundred% to that point, you have to bring only 65%. The final products should be produced close to consumption centres. That's our strategy to cut logistics costs,' adds Weijde. It has taken up 13 new projects at different locations worth Rs 272 crore to optimise and enhance efficiency. These projects have a quick payback of 2.5 to 4 years and likely to be completed in the first half of 2014.
The company, which also depends on sea route, generally a non-conventional route in India's cement industry, has recently added 2 more ships into its fleet taking the overall number to 10 ships. 'We are also expanding the number of ships. As long as Gujarat has a certain capacity, we can add more ships,' says Weijde. Ambuja is one of the largest transporters of cement via sea route. Its Gujarat plant caters to the southern market.
Sea route is the most cost-efficient as it costs about 50 paisa per tonne per kilometer - a third of the costs involved in roads. Ambuja already has a terminal in Kochi (Kerala). 'We are about to complete our new bulk cement terminal in Mangalore. This is how we have met our whole capex plans and developed a complete strategy for India,' he adds. Further, the company is also in a process of re-configuring its warehouses so that it can optimise the logistics footprints.
Net profit for Ambuja in the quarter ended June, 2013 took a hit as it dipped 31% to Rs 324 crore compared with Rs 469 crore in the corresponding previous quarter. Its net sales had declined 8.6% in the period to Rs 2,346 crore on poor cement demand.
Going forward Ambuja has kept its options open for inorganic growth too. 'I have been interested in acquiring assets if they are of the right quality and at the right price. We are looking at opportunities but I do not think they will be large possibilities for us,' says Weijde.
According to him, there are players in the South which are interested to sell. If that happens, they are more logical fit to ACC. If the same comes up in Gujarat or western markets, Ambuja will take care of them.
