ambuja cement case

1. Gujarat Ambuja: Cost
Leader in Indian
Cement Industry
Growth
- A Concrete Story..

2. TEAM MEMBERS
 Sonal Arya
 Sarjak Kikani
 Shailja Kapoor
 Shalu Weling
 Shivika kanchan
 Shashank Rai
 Sanket Bhatia
 Shailesh gupta
 Shivani maheshwari
 Shakti Dash
 Shazia Tasneem

3. CONTENTS
 Introduction
 Background Note
 Indian Cement Industry
 Manufacturing Process
 Total Cost Management
 Logistics
 Order Processing Systems
 Inventory Management
 Packaging
 Transportation
 Warehousing
 Future Outlook and Conclusion

4. AMBUJA CEMENT
Started production in 1986
Cement factories mn tons
Sea terminals 1986 2002
Capacity 0.7 13.0

5. INTRODUCTION
 In 2004 GACL was the third largest producer of cement
in India
 Widely considered to be the lowest cost producer
 GACL’s quest for cost leadership had been driven by
productivity improvement and cost cutting measures.
 Believed in doing things in innovative and
unconventional ways.

6. …
 Pioneered in various cost cutting measures like:-
 Modern plants, large kilns, high degree of automation,
low-manpower cost, power tariff, fuel cost.
 Use of substitutes instead of coal to cut energy costs.
 Ship transportation to cut down freight costs.
 Low cost funds helped to cut the cost capital.
 Picked up best practices during oversees visits.

7. BACKGROUND
 GACL was established as APCL in 1981 by Narotam S
Sekhsaria.
 Originally a cotton trader.
 Suresh Neotia was appointed the Chairman & Sekhsaria took
over as MD of APCL.
 In 1983, company floated a public issue & changed its name
to GACL & production started at 0.7 mtpa in Ambuja Nagar
Gujarat.
 In 1993, GACL commissioned its 2nd plant named Gujambuja
Cements.
 In 1995, it set up a 1.5 mtpa plant in HP called ACHU &
floated a wholly owned subsidiary in Mauritius – CAIL.
 In 1996, GACL floated Ceylon Ambuja Cements Ltd.,
through which it acquired a small company, Midigama
Cement, in Sri Lanka.

8. CONTD.
 3rd plant at Ambuja Nagar named Guj Line – II (1 mtpa).
 GACL also established grinding and packing units at
Ropar & Panvel.
 In 1997, it acquired sick Modi Cements, plant of 1.4
mtpa at Raipur for Rs. 1.66 billion. It was renamed
ACEL.
 In 1998, GACL acquired Nadikudi and Proddatur
limestone mines in AP to strengthen its presence in
Southern India.
 In December 1999, GACL paid 3.5 billion to acquire a
51% stake in Delhi based DLF Cement. After this
merger, GACL became the 4th largest cement
manufacturer in India after ACC, L&T and Grasim.

9. CONTD.
 In December 1999, GACL acquired 7.2% stake in ACC
for Rs 4.55 billion.
 ACC has 14 manufacturing units in India with a total
capacity of 11 mtpa.
 In December 2001, GACL began trial production in
Chandrapur, Maharashtra with 2 mtpa, 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

10. THE INDIAN CEMENT INDUSTRY
 India - world's second largest cement producer after China.
 With the capacity of 151.2 Million Tones (MT), it is big in size and hence
accommodates a number of cement companies in the market .
 Foreign MNC’s entered the country-Lafarge and Italicementi
 Gujrat was the largest cement producing state.
 The demand was closely linked to performance of Indian Economy.
 Indian Government was a major consumer of cement
 Top 20 companies accounted for more than 70% of the total cement production
in India.
 The total installed capacity is distributed over 129 plants, owned by 54 major
companies across the nation.

11. MAJOR PLAYERS IN INDIAN CEMENT
INDUSTRY(2003)
ACC – 13.3%
Gujrat Ambuja – 11.7%
Grasim Ind – 10.2%
L & T – 10.1%
India Cement – 5.1%
Others – 24.4%

12. OLIGOPOLY
 Market Structure characterized by few sellers and
interdependent price/output decisions
 Significant barriers to entry
 Product could be homogenous (similar) or differentiated
 Potential for economic profits in the long run
 Incentive for illegal price setting
 Competition can be vigorous among the few firms

13. Stable price conditions under Kink Demand Curve
In oligopoly firms operate under imperfect competition.
Demand is relatively inelastic because all other firms leading to
similar price cut leading to price war.
With the fierce competitiveness created by sticky upward demand
curve firms use non price competition in order to accrue greater
revenue and market share.

14. Manufacturing
Plant locations and their capacities(June 2003)
Location Capacity (‘000 Production quantity
Ambujanagar(amreli,G tonnes)
4150 4876.45
UJ)
Bhatinda(PUNJAB) 520 335.42
Chandrapur(MAH) 1730 1734.67
Daburji(PUNJAB) 1400 1918.96
Suli(HP) 1200 974.8
Basic raw materials used for manufacturing of cement are :
– Limestone
– Clay
– Silica
– Gypsum

15. • Cement manufacturing process involves the following steps:
– Quarrying and crushing
– Grinding and blending of raw materials
– Clinker production
– Finish grinding
Types of processes for production of cement
• Wet process
• Semi dry process
• Dry process
Cement Capacity in India(break up by
process)
Process Capacity %age to total
Dry 3,21,695 94
Semi-Dry 5,930 2
Wet 13,220 4
Total: 3,40,845 100

16.  Dry process reduced the fuel consumption from 330kg to
250kg of coal.
 Output of dry process was 2.5 times than wet process.
 Vertical shaft technology –mini cement units-wet process
 Rotary kiln technology used in large plants –dry process
 GACL’s engineers used husk and crushed sugarcane to
fire the kiln. This bought energy bill down to Rs.20 per
ton.
 GACL replaced V belt driver by flat belt drivers.
 GACL’s clinker was heated at right temperature thereby
reducing the power costs from 120 to 90 units per ton.

17. MANUFACTURING

18. MATERIAL REQUIRED FOR THE PRODUCTION OF
CEMENT PER TONNE OF CEMENT
 1.2 – 1.5 tons of limestone
 0.25tons of coal
 120 kwh of power
 0.05 tons of gypsum

19. POPULAR VARIETIES OF CEMENT ARE:
 Ordinary Portland cement
 Portland Pozzoland cement
 Portland blast furnace slag cement
 White cement

20. Cost
 GACL always attempted to reduce their cost of production in any
which way possible.
 There were two main costs associate with the production costs of
GACL: Dec.. Dec.. Jul-sep
4. Power cost 2003 2002 2003
Units 85 86 90
consumed
Cost 180 187 183
(Rs/Ton)
Dec .. Dec.. July-sep
9. Fuel cost
2003 2002 2003
K.Cal/Kg of 718 729 727
Clinker
Cost 229 224 230
(Rs/Ton)

21. Techniques used by GACL to reduce its cost of production:
 V belt drives which consumed more energy were replaced by flat belt
drives.
 improved version of mechanical conveyor was used to eliminate
breakdown and spillages.
 Adjusted retention time,maximised temperature and the rate of cooling to
reduce power cost from 120 units per ton to 90 units per ton.
 Reduced mining expenses by implementing ‘ripping technology’.
 Introduced an Australian device called Surface miner to recover more
material from the given area and save energy.
 Computerized process control system for easy access and regulating the
production process.
 Zero Error Electronic Rotary Machines to increase capacity utilization.
 Improvement in efficiency and lower shutdown rates to increase capacity

22. THIS CLEARLY SAYS THAT BY REDUCING THE
DIFFERENT COSTS ON THE RAW MATERIAL, POWER
COST, REPAIRING COST, SHUTDOWN COST,
TRANSPORTATION COST GUJARAT AMBUJA HAS
BROUGHT DOWN ITS AVERAGE COSTS WHICH HELPS IN
INCREASING THE PROFIT.

23. CLASSIFICATION OF COSTS

24. ECONOMIES OF SCALE
 Cost advantages that a business obtains due to
expansion.
 Situation in which output can be doubled for less than a
doubling of cost.
 Types of Economies of Scale:
 a) External Economies
 b) Internal Economies

25. INCREASE IN THE SIZE OF
INDUSTRY
End year of Capacity (Mt) Production Capacity
plan (Mt) Utilization (%)
4th plan 19.76 14.66 74
(1969-74)
5th plan 22.58 19.42 86
(1974-79)
6th plan 42.00 30.13 72
(1980-85)
7th plan 61.37 45.42 74
(1985-90)
8th plan 105.26 76.22 72
(1992-97)
9th 145.37 106.90 73
plan(1997-2002)
10th 177.83 161.66 91
plan(2002-07)

26. INTERNAL ECONOMIES OF SCALE
 GACL is executing Rs. 2200 Crore capacity expansion
and aimed at hiking its capacity to 20 million tonnes
over next three years, from 13.7 million tonnes.
 By rationalizing the use of vertical shaft technology in
Mini units of cements and rotary klin technology in large
plants.
 The Company used Zero error Electronic Rotary
Machines, which helped them to minimize the wastages.

28. LOGISTICS
 GACL was one of the 1st cement producer company to
introduce Integrated logistics system(ILS).
 Order Processing System
 involved the flow of information about the orders
from generation to fulfillment.
 involved transmission of customer order, paper
processing, retrieval from the ware-house, dispatch to
the transpotrers, transmission of information to
production planning dept.

29. …..
 Inventory Management
 Involved knowing both, when to order and how much
to order
 Management had to control the cost of carrying larger
inventory
 Had well developed system for inbound raw materials.

30. ….
 Packaging
 cement was packed in 25-50 kgs packet bags using
jute bags.
 Was 1st to use paper bags for packaging having
advantage of low pilferage, better preservation,
appearance with low cost.
 Each bag contained the brand name, ISI logo, with
identification number, price of the bag and net weight of
the bag.

31. TRANSPORTATION
 Cement is highly freight intensive in nature. manufacturing of each
tonne involved a transportation of 1.6 tonne of limestone,0.25 tonnes
of coal, 0.05 tonnes of gypsum.
 Road transportation beyond 200 kms was not economical,55%
transported through railways.
 Unavailability of wagons for transportation on western and
southeastern railways.
 In 2003,70% of the movement worldwide was by sea compared to
only 1% in india.

32.  GACL was the first co. to use water transportation for
domestic as well as export consignments.
 As a result the cost came down drastically.
 The cost of transporting were as follow:
RAIL – 580/ton
ROAD – 670/ton
SEA – 190/ton

33. CONTD…..
Bought ports and freight handling terminals at Muldwarka, surat and
vashi.
In 2003 muldwarka was equipped to export clinker, cement, import
coal and furnace oil.
Built a bulk terminal at kochi in kerala.
Setting up Breakwater and jetty facilities in Gujarat, Maharashtra and
Kerala.
Acquired five ships for transporting cement in bulk.
350 self financed trucks and a railway siding its in its factory premises
provided flexibility in the mode of transportation

34. WAREHOUSING AND DISTRIBUTION
The Company used to types of warehouses – Dumps and
Transhipment point storage.
Online connectivity for facilitate efficient delivery of goods.
Bulk cement terminals located at
1. Surat
2. Vashi
3. Galle

35. GAME THEORY
 Game theory is mainly concerned with predicting the outcome of games of
strategy in which the participants have incomplete information about the
others' intentions.
 A game occurs when there are two or more interacting decision-takers
(players) and each decision or combination of decisions involves a
particular outcome . The fate (or the payoff) of a player in a game depends
not only on the actions of that player but also on the other players!
 The Prisoners’ Dilemma
 Game theory analysis has direct relevance to our study of the behaviour of
businesses in oligopolistic markets

36. IMPLICATIONS OF GAME THEORY
2003 2004 2005 2006 2007 2008 2009 2010
AMBU PRIC 235 235 235 235 232 262 275 270
JA
E
NP 222 293 468 1503 1971 1402 1218 1263
ACC PRIC 250 248 242 242 242 257 273 270
E
NP 350 450 544 1231 1438 1212 1606 1120
•.
AMBUJA
Constant Decrease
A
C Constant 1503 , 1231 1971 , 1438
C Decrease 293 , 450 1263 , 1120
By game theory, we can conclude that constant price is desirable. So, now
price of both the cement bag is 270 per piece in 2011

37. FUTURE OUTLOOK OF GACL
• GACL has been pursuing a combination of strategies
like
 Strategic alliances
 Capacity expansion
 New plants
 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.

38. CONTD…
 It had also set up a one million ton grinding units, one at
Bhatinda and another one at West Bengal.
 Also to enhance its presence in the south , the company
had planned to set up a Rs 600 crores, two million ton
Greenfield project in A.P
 GACL has also started offering ready mix cement.
 As 2004 got under way, GACL looked well placed in the
Indian Cement Industry.

39. …..
 Best quality cement
 Good packaging
 Higher customer satisfaction
 Strong distribution network
 Eco friendly operations such as
 Use of agro waste and bio gas as alternative fuel
 Use of surface miners- blast free mining.
 Restoration of mines – green spots and water reservoir
 Global standards of environmental measures.