OPEA/002

IBS Center for Management Research

Gujarat Ambuja: Cost Leader in the Indian Cement Industry

This case was written by Manoj Kumar Singaravelu, IBS Center for Management Research. It was compiled from published
sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective
handling of a management situation.

 2004, IBS Center for Management Research. All rights reserved.

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 OPEA/002

Gujarat Ambuja:
Cost Leader in the Indian Cement Industry
Introduction

Gujarat Ambuja Cement Ltd (GACL), which had grown tenfold during the late 1990s, was the
third largest producer of cement in India in 2004 next only to Birla Groups (consisting of Grasim
Cements and Larsen & Toubro Cements) and Associated Cement Companies (ACC) &. In 2003,
GACL had a capacity of 12.5 mn tonnes and generated revenue in excess of Rs. 2,500 crores. The
company had posted a net profit of Rs 221.73 crore for the year ended June 30, 2003. GACL was
the lowest cost producer in the Indian cement industry.
GACL’s quest for cost leadership had been driven by productivity improvement and cost cutting
measures. The company had won various awards for management excellence, quality, and
environment management. Ever since its inception, the company had believed in doing things in
innovative and unconventional ways.
GACL’s modern plants, large kilns, high degree of automation, low manpower costs, low power
tariff and low fuel costs had helped it to become the cost leader in the industry. GACL had cut
energy costs by reducing the usage of coal through use of substitutes like crushed sugarcane.
GACL operated most of its plants at above 100% capacity utilisation. The company had pioneered
the use of ship transportation to cut freight costs and also established the necessary infrastructure
like ports, freight and handling terminals. Low-cost funds had helped GACL to cut the cost of
capital. The company's engineers had picked up best practices during visits to overseas plants in
countries like Japan and Australia. GACL had also reduced pollution levels at its cement
production plants and complied with the Swiss standards of 100 milligrams per cubic nanometer.

Background Note

GACL was established as Ambuja Cements Private Ltd. (ACPL) in 1981 by Narotam
Satyanarayan Sekhsaria (Sekhsaria), a businessman from Gujarat in western India. Originally a
cotton trader, Sekhsaria liked the cement business because of its stable demand, lack of substitutes
and limited competition. With the support of Gujarat Industrial Investment Corporation (GIIC),
Sekhsaria and his two partners, Suresh Neotia and Vinod Neotia, set up APCL. Suresh Neotia was
appointed Chairman while Sekhsaria took charge as the Managing Director. In 1983, the company
floated a public issue and its name was changed to GACL. The same year, production started at a
0.7 million tons per annum (mtpa) plant, named Ambuja Cements, in Ambuja Nagar, Gujarat.
GIIC sold its stake in GACL in two tranches to Sekhsaria in 1987 and 1990.
In 1993, GACL commissioned its second cement plant at Ambuja Nagar (capacity 1 mtpa), named
Gujambuja Cements. Attracted by buoyant cement demand in the northern regions, GACL set up a
1.5 mtpa plant at Suli in Himachal Pradesh (HP), named Ambuja Cements Himachal Unit in 1995.
In the same year, GACL floated a wholly owned subsidiary in Mauritius - Cement Ambuja
International Ltd. (CAIL). In 1996, GACL floated another subsidiary, Ceylon Ambuja Cements
(Private) Ltd., through which it acquired a small company, Midigama Cement, in Sri Lanka.

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In 1996, GACL set up its third plant at Ambuja Nagar, named Guj Line - II (capacity 1 mtpa).
GACL also established grinding and packing units at Ropar (Punjab) and Panvel (Maharashtra). In
1997, GACL acquired Modi Cements' sick 1.4 mtpa plant at Raipur (Madhya Pradesh) for Rs 1.66
billion. This plant was renamed Ambuja Cement Eastern Ltd. After the acquisition, GACL
revamped its processes to bring them on par with the standards of its other plants. In 1998, GACL
acquired the Nadikudi (about 100 kms from Guntur) and Proddatur (near Cuddaph) limestone
mines in Andhra Pradesh to strengthen its presence in southern India.
In December 1999, GACL paid Rs 3.5 billion to acquire a 51% stake in Delhi based DLF Cement.
DLF Cement had started its operations in 1997 in Rajasthan with a plant capacity of 1.4 mtpa.
After this merger, GACL became the fourth largest cement manufacturer in India after ACC, L&T
and Grasim.
In the same month, GACL also acquired a 7.2% stake in ACC for Rs 4.55 billion. With 14
manufacturing units in India, ACC had a total capacity of over 11 mtpa. It was one of the largest
integrated cement companies in the world. In December 2001, GACL began trial production at a
new 2 mtpa plant in Chandrapur, Maharashtra, taking its total capacity to 12.5 mtpa. In FY 2003,
the company recorded a sales figure of Rs 2173 crores and a PAT of Rs 293 crores.

The Indian Cement Industry

In 2003, with a total capacity of 144 mn tonnes (including mini plants), the Indian cement industry
was the second largest in the world, after China. India’s cement capacity had increased from 3
mtpa in 1950-51 to around 130 mtpa in 2003, at a growth rate of 7.6% per annum. Between
FY1992 and FY2001, the capacity increased at an average 7.8% per annum (67 mtpa to 130 mtpa)
while production and despatches grew at 6.9% per annum (54 mt to 98 mt). Indian cement
companies had produced 111.35 million tonnes of cement, an increase of 8.7% and dispatched
111.06 million tonnes of cement, an increase of 8.5% for the fiscal year ending March 2003. The
domestic consumption growth had been marginally lower at 6.8% per annum, with the balance
being made up by an annual growth of 27.3% in cement exports.
Exhibit: I
Indian Cement Production

1999-00 2000-01 2001-02 2002-03

Production 94.03 93.4 101.99 111.36

% Change 15.53 -0.67 9.2 9.18
Capacity 109.72 115.92 130 138.96

% Change 4.34 5.66 12.15 6.89

Operating rates (%) 85.7 80.57 78.45 80.14
Source: Crisinfac.
Rivalry in the Indian cement industry was intense with over 50 companies operating around 120
plants. The top five companies accounted for over 48.5% of the total capacity. The rest of the
companies, typically, were operating single-location plants with capacities ranging from 0.5 to 2.0
mtpa. Leading cement companies like Grasim, Larsen & Toubro, Gujarat Ambuja, ACC, India
Cement, Madras Cement and Shree Cement alone had added over Rs 20,000 crore to their market
capital as the combined market capital had touched Rs 31,724.40 crore in Dec 2003.

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Figure (i)

Market Share (2003)

ACC
Gujarat Ambuja

Others Grasim Ind

L&T
India Cement

Source: CMA.
Exhibit: II
Major Players in the Indian Cement Industry (2003)
Company Capacity % share Production % share
Latest in total Apr-May03 in total
ACC 16.1 11.5 2.6 13.3
Gujarat Ambuja 12.5 8.9 2.3 11.7
Grasim Ind 14.1 10.1 2 10.2
L&T 17 12.1 2 10.1
India Cement 8.8 6.3 1 5.1
Century Textiles 4.7 3.4 0.9 4.6
Jaypee 4.6 3.3 0.8 4.3
Birla Corp 4.8 3.4 0.8 4.1
Lafarge 5 3.6 0.8 3.9
Madras Cement 5.5 3.9 0.6 2.9
Zuari 3.4 2.4 0.4 2
Chettinad Cement 1.8 1.3 0.3 1.6
Surashtra Cement 2.1 1.5 0.2 1
Andhra Cement 1.7 1.2 0.1 0.7
CCI 3.9 2.8 0.1 0.3
Others 34.1 24.4 4.8 24.4
Total 140 100 19.6 100
Source: CMA.

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In view of the huge market potential, some foreign multinationals had entered the country.
Companies like Lafarge and Italicementi had made acquisitions and other majors like Holcim and
Cemex were waiting for a favourable opportunity to do the same. Gujarat was the largest cement
producing state with a capacity of around 15 million tonnes in end 2003. The total cement demand
was, however, only around 6 MT. The excess output was sold in states like Maharashtra, Rajasthan
and Kerala.
The demand for cement was closely linked to the performance of the Indian economy. Cement was
consumed in large quantities by the infrastructure sector. Hence, cement demand in emerging
economies was much higher than in developed countries. The demand for cement in India was
roughly split between the urban and rural areas. In rural areas, penetration levels were still low as
cement was substituted by cheaper building materials like mud, lime, etc for building cheaper non-
permanent structures. The Indian government was a major consumer of cement.
Exhibit: III
Demand & Supply by Region (in mn Tonnes)
FY02 FY03 % Change
Cap Demd Cap Demd Cap Demd
North 28.42 31.48 31 34.06 9.1 8.2
West 38.5 25.15 41.01 26.91 6.5 7
East 21.8 16.3 22.34 16.96 2.4 4.1
South 41.27 26.08 44.61 29.66 8.1 13.7
Total 130 99 138.96 107.59 6.9 8.7
Source: Crisinfac.
The performance of cement companies was dependent on infra-structural investments made by the
government. The National Highway Development Project (NHDP) had been initiated to upgrade
the existing highways to connect the four metropolitan cities Delhi, Mumbai, Chennai and Kolkata
by the Golden Quadrilateral and the North-South and East-West Corridors. This project involved
upgradation to four/six lanes of about 13,000 kms of National Highways. Almost 25% of these
roads were expected to be concretised. These road projects were expected to generate a demand for
cement of 4-5mn tons pa (i.e. 4-5% incremental growth) over the next two years.

Manufacturing

In 2003, GACL had manufacturing plants in five different locations (Exhibit: IV). GACL also had
three grinding mills at Ropar (Punjab). GACL along with ACC had plants in Karnataka, Tamil
Nadu, Andhra Pradesh, Madhya Pradesh, Maharashtra, Uttar Pradesh and Bihar.
The basic raw materials used in cement manufacturing were limestone, clay, silica and gypsum.
The cement manufacturing process involved four stages: quarrying and crushing; grinding and
blending of raw materials; clinker production; and finish grinding. The raw materials after grinding
and blending were fed into a pre-heater followed by a kiln, which typically completed one
revolution per minute. The material flowed towards the hot end of the kiln and was heated to a
temperature of 1300-1400 degree centigrade for 1 hour. Crushed and pulverized coal was used as
the fuel. The heating process in the kiln resulted in dehydration (removal of water vapour) and
calcination (removal of carbon dioxide). The product formed in the kiln was a dark and hard
nodule, which was cooled to form clinker. After air cooling, clinker was mixed with retarders 1

1
The components used to extend the retarding time of cement.

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such as gypsum, plaster or calcium lignosulfonate. Then air entraining2, dispersing and water
proofing agents3 were added. The mixture was fed to the grinding mills, which produced cement.
When mixed with water, cement formed a hard mass due to the hydration of the constituent
compounds.
Exhibit: IV
Plant Locations and Their Capacities (June 2003)
Location Capacity Production qty
'000 tonnes '000 tonnes
Ambujanagar (Amreli, GUJ) 4150 4876.45
Bhatinda (Bathinda, PUN) 520 335.42
Chandrapur (Chandrapur, MAH) 1730 1734.67
Daburji (Rupnagar, PUN) 1400 1918.96
Suli (Solan, HP) 1200 974.8
Source: CMIE.
Exhibit: V
Capacity by Region: GACL & Its Subsidiaries (2003)
Gujarat 4.00
Himachal Pradesh/ Punjab 3.00
Rajasthan 1.50
Chattisgarh/ West Bengal 2.00
Maharashtra 2.00
Total 12.50
Source: Company Website.
Three types of processes – wet, semi-dry and dry were used to produce cement. In the wet process,
the raw material was prepared by mixing limestone and water (called slurry), and blended with soft
clay. The slurry had 30 to 40 % water content. Before it was powdered, the slurry was evaporated
to remove water content. The wet process consumed more energy compared to the dry process.
Exhibit: VI
Cement Capacity in India (Break up by Process)
Process Capacity (TPD ) %age to Total
Dry 3,21,695 94
Semi-Dry 5,930 2
Wet 13,220 4
Total: 3,40,845 100
Source: www.indiacements.co.in (April 2003).

2
A chemical, which does not allow air to be trapped between the cement molecules during hardening.
3
A chemical added to withstand water molecule pressure.

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The dry process had become popular over the years. It reduced fuel consumption from 330 kg (in
the wet process) to 250 kg of coal for a ton of cement. Also, for a given kiln size, the output in the
dry process was two and a half times to three times than in the wet process. However, the dry
process required high capital investment. The vertical shaft technology employed by mini-cement
units used the wet process whereas the rotary kiln technology employed by the large plants used
the modern dry process.
Figure (ii)
The Cement Manufacturing Process

Additive
preparation:
Raw Material Supply: Fuel Preparation: Crushing, drying
Quarrying, mining, supply Crushing, grinding, drying
Additives

Cement
Materials Preparation: Pyro-processing: Clinker
Grinding:
Grinding, Homogenising, Pre-heating, calcination, nodules Grinding,
drying or slurring clinkering, cooling blending

Bagging & transport

Source: www.ghgprotocol.org
Figure (iii)
Cement Manufacturing Flow Diagram

Source: www.r2002.com
There were different varieties of cement based on their composition and use. Some of the popular ones
were Ordinary Portland cement, Portland Pozzolona cement, Portland Blast Furnace Slag cement, and
White cement. These grades differed in the percentage of clinker used in making cement.
Ordinary Portland Cement (OPC) required 95 percent clinker, the balance being mostly gypsum. It
accounted for 70 percent of the total consumption of cement in the country. OPC was the most
common cement used in general concrete construction when there was no exposure to sulphates in
the soil or groundwater. It was capable of bonding mineral fragments into a compact whole when
mixed with water. This hydration process resulted in a progressive stiffening, hardening and
strength development.

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Portland Pozzolona Cement (PPC) required 80 percent clinker, 15 percent pozzolona and 5 percent
gypsum. It accounted for 18 percent of the total cement consumption in the country. Pozzolona
materials were siliceous and aluminous materials that did not possess cementing properties but
developed these properties in the presence of water.
Portland Blast Furnace Slag Cement (PBSF) required 45 percent clinker, 50 percent blast furnace
slag and 5 percent gypsum and accounted for 10 percent of the total cement consumed in India. It
was useful in marine construction.
White cement was a slight variation of OPC. It contained a small quantity of iron oxide to act as a
filler between ceramic tiles. The cement was used for decorative purposes like rendering4 of walls,
flooring, etc. The ash content in white cement had to be low. Hence, gas was used as fuel instead
of coal. Relatively small amounts of white cement were produced in the country, because it was
almost three times more expensive than ordinary cement.
Normally about 1.2 – 1.5 tons of limestone, 0.25 ton of coal, 120 kwh of power, and 0.05 ton of
gypsum were needed per ton of cement. Limestone was the key raw material. The quality of
limestone significantly affected the operating efficiency of the plant.
GACL’s total cost management (TCM) drive had concentrated on two key areas – productivity and
consumption of coal and power. In 2003, GACL’s average production cost was Rs. 1316 per
tonne, significantly lower than any of its nearest rivals.
GACL had achieved more than 100 % capacity utilization from 1999. While its total installed
capacity was around 5 mtpa, the company produced almost 6 mtpa (excluding the Modi Cements
plant). GACL consumed only 96 kwh of power per ton of cement against the industry average of
110-115 kwh per ton. Its captive power plants (40 MW and 12 MW added in Gujarat and
Himachal Pradesh respectively during 1998) had reduced dependence on the more expensive
power supplied by State Electricity Boards and supplied around 60.3% of its total power
requirements. In the early 2000s, GACL’s captive power generation cost was only Rs. 1.30 per
kilowatt (excluding interest and depreciation), compared to Rs. 4.50 per kilowatt for power
supplied by Electricity Boards. GACL’s coal consumption of 170 kg per tonne of cement was also
the lowest in the industry against an industry average of 250 kg per tonne. In terms of calorific
value, it was 743 kcal per ton of clinker compared to the industry norm of 850 kcal.
Since the Kodinar plant was located in the agricultural belt of Saurashtra area, husk was available
in plenty. GACL engineers attempted to reduce coal consumption by using groundnut husk to fire
the kilns. In the second plant in Ambuja Nagar, GACL replaced coal with crushed sugarcane. The
use of sugarcane created problems because water content differed with every batch, leading to
fluctuations in the kiln temperature. GACL designed a special mechanical system that could adjust
the rate of feeding to ensure a stable temperature in the kiln. In the process, GACL brought the
energy bill down by Rs. 20 for every tonne of crushed sugarcane used.
Exhibit: VII
Power Cost
Oct-Dec Jul-Sept
2003 2002 2003
Units consumed 85 86 90
Cost (Rs./Ton) 180 187 183
Source: Company Website.

4
A first layer of plaster on stone or brick.

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Exhibit: VIII
Fuel Cost
Oct-Dec Jul-Sept
2003 2002 2003
K. Cal/ Kg of Clinker 718 729 727
Cost (Rs./Ton) 229 224 230
Source: Company Website.
Exhibit: IX
Cost of Production
Oct-Dec Jul-Sept
2003 2002 2003
Power 180 187 183
Fuel 229 224 230
Raw material 146 134 140
Consumables 51 56 67
Direct cost 606 601 620
Source: Company Website.
GACL replaced V belt drives (which consumed more energy due to friction) by flat belt drives.
Even though mechanical conveyors gave problems like spillages and breakdowns, GACL did not
shift to pneumatic conveyors, which consumed more power. Instead, the company devised an
improved version of the mechanical conveyor to eliminate the drawbacks.
Cement plants often overcooked the clinker. In the early 1990s, during a visit to a plant in Japan,
GACL engineers observed that clinker pieces were being extracted from the kiln and scanned under the
microscope to examine their crystal structure. By studying the structure of the crystal, the Japanese
engineers determined whether the clinker had been heated to the right temperature. Learning from this
experience, GACL engineers successfully reduced the power costs, from 120 units/ton to 90 units/ton,
by adjusting the retention time, maximum temperature and the rate of cooling.
Exhibit: X
Expenses (Rs./tn)
Increase /
FY 2003 FY 2002
(Decrease) (%)
Power 187 179 4
Fuel 227 254 -11
Raw material 136 133 2
Consumables 47 48 -2
Direct cost 597 614 -3
Source: Company Website.

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GACL had made coordinated efforts to reduce mining expenses. It was a normal practice for cement
companies to operate their own limestone mines. Mines were not only extremely destructive
environmentally, but were also expensive to operate. Explosives used in mining were on the negative
list of imports and substantial costs were involved in implementing safety measures. In 1997, GACL
sent its engineers to Australia to study the extraction of metals. On their return, GACL implemented
the ‘ripping’ technology that could access limestone in smaller areas where blasting was not possible.
To reduce the noise and vibration, which occurred during the conventional drilling, blasting and
crushing process, GACL introduced an Australian device called Surface Miner. The Surface miner
was not only energy efficient, but also recovered more material from a given area.
GACL’s information system facilitated easy access of data by different departments. The entire
plant was monitored by a computerized process control system from a central control room, which
had visual display screens, and an interlocking system connecting crucial stacks. The input of raw
materials into the kiln was also regulated from the control room.
Figure (iv)
Trends in Operating Margin

45
40
35

30
25

20
1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: UTISEL estimates.

Figure (v)

GACL: Cost Movement

350
300
250 Domestic Freight on
Rs/tonne

200 domestic sales

150 Total power
100
50
0
1996 1997 1998 1999 2000 2001 2002

Source: UTISEL estimates.

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Over the years, GACL had streamlined its quality control practices. The earlier practice had been
to report quality control data once a day. Later, GACL introduced the practice of reporting the data
48 times a day. Starting with the optimum raw material mix, the computerized control over 3,000
operational parameters helped in improving quality at each step of the production process.
Machines were also continuously monitored for any malfunctioning. Improvement in efficiency
and lower shutdowns rate led to an increase in capacity utilization from 143 percent in 1991-92 to
149 percent in 1992-93.
GACL had attempted to ensure that bags contained the right quantity of cement. The company
used Zero Error Electronic Rotary machines, which checked the quantity of cement in randomly
picked bags. In the case of 50 kg bags, GACL permitted a maximum variation of 200 gm.

Logistics
Cement, being freight intensive industry, various initiatives had been taken up by GACL to
streamline its logistics. GACL was one of the first cement producers of the country to introduce an
Integrated Logistics System (ILS). At each manufacturing unit, a cross functional committee was
responsible for the efficient management of logistic functions. The committee met at regular
intervals and reviewed the working of the total system. The recommendations were forwarded to
the top management for immediate action.
Order Processing Systems
Order Processing Systems involved the flow of information about the orders from generation to order
fulfilment. Orders once received, had to be processed quickly and accurately. GACL had linked all the
major offices through a Wide Area Network (WAN). Electronic Data Exchange (EDE) and Material
Resources Planning (MRP) systems facilitated timely and accurate processing of orders.
Effective order processing systems involved transmission of customer order, paper processing,
retrieval from the warehouse, dispatch to the transporters, adjustment of the inventory level and
transmission of information to the department of production planning. GACL had adopted a fully
computerized system, including Electronic Data Exchange (EDE) and MRP systems.
Inventory Management
Inventory decisions involved knowing both, when to order (timing) and how much to order
(quantity). Management had to balance the cost of carrying larger inventory against resulting sales
and profit. GACL linked its inventory management process to most of the functions such as
production planning, raw material planning, ordering etc. Online ordering, not only reduced time,
but also transaction costs.
Limestone, Coal, Gypsum, Iron Ore and Red Ochre were the basic raw materials needed for the
production of cement. GACL had a well-developed system for inbound raw materials. Limestone
extracted from near by mines was transported to the production site with the help of Overland Belt
Conveyer (OBC) and in some cases with the help of trucks. This process ran for sixteen hours a
day and provided sufficient stocks to enable the plant run smoothly round the clock. This helped
GACL to cut inventory carrying cost drastically. It sourced other raw materials from various
places across India. (Coal, one of the basic raw materials, was sourced all the way from Bihar and
some times from Meghalaya). At the production site, the company maintained a buffer of about 10
to 20 days depending upon the location of the production unit.
Packaging
Cement was usually packed in 25 kg or 50 kg bags. Traditionally, packaging was done using
jute bags. This frequently caused problems like pilferage and leakage. From 1987 to 1994, the
cement industry had to pack 70 per cent of the production in jute sacks as per the provisions of

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Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 (JPMA). In
1995, it was reduced to 50 per cent. The industry was freed from the controls of JPMA in 1998
after intense lobbying.
GACL was the first to use paper bags for cement packaging. Paper bags offered a significant
advantage over traditional jute bags, through low pilferage, better preservation, and appearance.
Cement packaging at GACL followed the international norms of specific colours of packaging for
different types of cement. It also gave total information about the quality, date of manufacturing
and location of plant (manufacturing unit). Each bag of cement contained the brand name, the ISI
logo with identification number, price of the bag, and net weight of the bag.
Transportation
Cement was highly freight intensive in nature. Manufacture of each tonne of cement involved the
transportation of 1.6 tonnes of limestone, 0.25 tonnes of coal, 0.05 tonnes of gypsum and 1 tonne
of the finished product. Freight accounted for about 18 % of the total cost. Raw materials were
transported either by rail or road. Since road transportation beyond 200 kms was not economical,
55 % of cement was moved by the railways. There was the problem of inadequate availability of
wagons especially on western railways and southeastern railways. In this scenario, manufacturers
were looking seriously at sea routes. In 2003, 70% of the cement movement worldwide was by sea
compared to only about 1% in India. GACL became the first cement company in India to use water
transportation for domestic as well as export consignments. This reduced the transportation cost
dramatically. In 2002, GACL’s freight mix was Road 40%, Rail 30% and Sea 30%.
For a 10,000-tpd plant in India, it took 1,000 dispatches per day using 10-tonne trucks or 250
dispatches using 40-tonne trucks. In 1997, a single ship could carry 40,000 tons, at a cost of only
Rs. 190/tonne as against Rs. 580/tonne for rail and Rs.670/tonne for road transport. When the
government allowed the privatisation of ports, GACL set up ports and freight handling terminals at
Muldwarka (about 8 kms from the company’s plant at Ambuja Nagar), Surat (South Gujarat), and
Vashi (near Mumbai). In 2003, the terminal in Muldwarka, was equipped to export clinker and
cement and import coal and furnace oil5.
GACL also had plans to build a bulk terminal at Kochi in Kerala. It entered into an agreement with
the Cochin Port Trust for building cement storing and packing infrastructure in Wellington Island
(Kerala). To improve the transport infrastructure, GACL set up captive breakwater 6 and jetty7
facilities in Gujarat, Maharashtra and Kerala. The company had also acquired five ships for
transporting cement in bulk.
To facilitate movement by ships, GACL transported cement in sealed road tankers from the plant
site to the shipping terminal, where it was transferred to silos8. From these silos, it was poured into
airtight holds in the ships. At the destination, the cement was unloaded from ship holds, and again
placed in silos, before being pumped into the sealed road tankers. Customers were provided small
storage tanks into which cement was pumped from the sealed tankers by a ‘fluidisation9’ process.
For a customer who preferred to have bagged cement, GACL arranged special packing facilities at
the unloading terminals. GACL had conveyor belts running up to the dispatch yard for loading
trucks and wagons. A fleet of around 350 self-financed trucks and a railway siding in its factory
premises provided flexibility in the mode of transportation.

5
Company Records.
6
An artificial canal dug to bring the ships closer to the place of loading/unloading.
7
The place where the ship is loaded and unloaded.
8
Large containers that store cement till it is transferred to the ship for transport.
9
A process by which small particles are made to behave like gases and liquids. This allows pumping the
material through pipelines.

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Routing and scheduling decisions were important in the cement industry. GACL conducted route
surveys periodically to arrive at the best possible route for each destination. Key inputs that went
into scheduling of the dispatch of the material were the location and distance of the destination, the
road conditions, the receiving party, the unloading facilities available at the destination point etc.,
apart from scheduling instructions given in the order.
Warehousing & Distribution
GACL had recognized the importance of effective warehousing. The company used two types of
warehouses, the Dumps and Trans-shipment point storage. The warehouses were connected online
with the marketing office and the production units to facilitate efficient delivery of goods. The Bulk
Cement Terminal in Surat had a storage capacity of 15,000 tonnes and it also had a bulk cement
unloading facility. In Panvel (strategically located near India’s biggest cement market – Mumbai),
GACL had a storage capacity of 17,500 tonnes and a bulk cement unloading facility. GACL also had
a bulk cement terminal in Galle, 120 kms from Colombo, Sri Lanka. The locations of the dumps and
trans-shipment points, were decided taking into account various factors like transportation facility,
availability of packing space, availability of trained and cheap manpower, etc.

Future Outlook

In line with the company's vision to become the leader in Indian cement industry, GACL had been
pursuing a combination of strategies like strategic alliances, capacity expansion, new plants, and
aggressive takeovers. The company had set up a two million ton Greenfield cement unit in Maharashtra
at an investment of Rs. 500 crores. It had expanded capacity at the existing Gujarat Site from three
million to four million at an incremental cost just of Rs. 100 crores. It had also set up one million ton
grinding units, one at Bhatinda and another in West Bengal. To enhance its presence in the south, the
company planned to set up a Rs. 600 crores, two million ton greenfield project in Andhra Pradesh.
GACL had also started offering ready-mix cement, the demand for which was expected to grow in the
future. As 2004 got under way, GACL looked well placed in the Indian cement industry. But the
management realised it could not be complacent, in the wake of competition from multinationals like
Lafarge, which were eyeing to enter into Indian Cement Industry.

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 Gujarat Ambuja:...

Figure (vi)

Gujarat Ambuja’s Markets (2002)

Cement Plants 1986 2003

Sea Capacity 0.7 12.5

Markets

Source: Company Website.

Figure (vii)

GACL: Share Holding pattern (2003)

Bank, FIs,
MFs GDR's
23% 9%
Promotors
29%
Public
FII
25%
14%

Source: Report by LKP Shares & Securities Ltd.

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 Gujarat Ambuja:...

Exhibit: XI

GACL – Summarised Profit and Loss Statement

Gujarat Ambuja Cements Ltd. Jun-99 Jun-00 Jun-01 Jun-02 Jun-03

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths

Income
Sales 1252.34 1303.23 1448.63 1584.05 2033.48
Other income 36.1 42.26 17.12 37.73 64.51
Change in stocks -16.02 12.08 9.95 -12.41 5.94
Non-recurring income 13.42 294.24 18.41 6.72 12.37

Expenditure
Rawmaterials, stores, etc. 139.12 168.53 202.58 229.32 309.52
Wages &salaries 33.55 44.32 46.31 53.29 69.2
Energy(power &fuel) 240.49 278.58 296.37 323.99 430.6
Indirect taxes (excise, etc.) 193.25 187.36 180.11 201.3 294.14
Advertising &marketing expenses 19.94 22.36 23.88 28.82 33.87
Distribution expenses 164.97 150.35 152.5 167.57 275.42
Others 89.41 92.79 107.71 121.37 145.79
Non-recurring expenses 1.89 2.05 6.16 12.79 1.19

Profits / losses
PBDIT 403.22 705.47 478.49 477.64 556.57
Financial charges (incl. lease rent) 129.58 125.45 141.71 115.77 131.1
PBDT 273.64 580.02 336.78 361.87 425.47
Depreciation 122.96 123.89 129.3 137.82 171.64
PBT 150.68 456.13 207.48 224.05 253.83
Tax provision 0.12 28.25 14.52 45.12 31.74
PAT 150.56 427.88 192.96 178.93 222.09

Appropriation of profits
Dividends 68.01 78.97 84.78 93.11 122.64
Retained earnings 82.55 348.91 108.18 85.82 99.45
Source: CMIE.

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Bibliography

1. Lakshmi Narasimhan, “Gujarat Ambuja Cements all set for expansion,” www.domain-
b.com, 13th February 1999.
2. Kasturirangan, “Cement selling gets imaginative,” www.domain-B.com, July 1999.
3. Katja Schumacher and Jayant Sathaye, “India’s Cement Industry: Productivity, Energy
Efficiency and Carbon Emissions,” Environmental Energy Technologies Division, July 1999.
4. Namrata Datt & Surendar, “Cementing its position,” Business World, 10th January 2000,
p. 48 – 52
5. An interview with Vipul Mehta, www.capitalideasonline.com, March 2000.
6. Bala Gopal Menon, “Gujarat Ambuja - I can, I can, I can,” www.5paisa.com, July 2000.
7. Sandeep Banzai, “Cementing its hold,” Business India, 16th October 2000, p. 70 – 75.
8. “Another round of cement wars?,” Business India, 14th May 2001.
9. UTI Securities Research, June 2001.
10. P.N.V. Nair, “Straddling the Indian market,” Project Monitor, 16th September 2001.
11. H.H. Mankad, Director & Professor of Business Economics, NMIMS, “Gujarat Ambuja
Cement Company,” Case Study, 2002.
12. An interview with Anil Singhvi, Myiris.com, 30th September 2002.
13. Parag Parikh Financial Advisory Services Ltd – Report on Gujarat Ambuja, May 2003.
14. Arun Agrawal, “ICRA reaffirms high safety ratings assigned to Gujarat Ambuja Cements
Limited,” 18th June 2003.
15. Roshni Jayakar, “Cementing the future,” Business Today, 20th July 2003, p. 62 – 66
16. An interview with Anil Singhvi, “Leader Speak,” India Infoline, 08th August 2003.
17. Kohinoor Mandal, “Mandatory jute packaging — Ministry yet to pin down errant cement,”
The Hindu Business Line, 09th August 2003.
18. An interview with Anil Singhvi, Executive Director, GACL, “CEO Talk,” HDFC securities,
23rd September 2003.
19. Sangeetha Singh, “Is 'India Shining' or is it mere hyperbole?” Financial Express, 07th April 2004.
20. CMIE Database.
21. ICRA Ltd, India (Investment Information and Credit Rating Agency).
22. Datamonitor.
23. EBSCO host.
Websites
1. www.gujaratambuja.com – Company Website.
2. www.naviamarkets.com
3. www.indiainfoline.com

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4. www.financialexpress.com
5. www.moneypore.com
6. www.myiris.com
7. www.karvy.com
8. www.hdfcsec.com

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