Ambuja Cements

Beneficiary of ‘Housing for all by 2022’

Company Description:

Ambuja Cement, a part of the global conglomerate Lafarge-Holcim, is a leading cement company in India known for its hassle-free, home building solutions. Its unique products tailor-made for Indian climatic conditions, sustainable operations (ranked 7thworld-wide in the category by Dow Jones Sustainability index 2017) and market leading brands have made it the most trusted brand in Indian cement industry.

Playing the India Thematic:

Government led spending will be the key growth driver for Cement demand in India. The industry will benefit from the Government’s focus to build infrastructure and provide housing for all by 2022.

Industry Outlook:

  • Improvement in rural demand and pick-up in government spend to drive cement demand by 7-8 % in FY19
  • Improving capacity utilization, consolidation of capacities and production discipline is expected to support strong pricing environment, potentially the industry may re-gain pricing power in FY19.

Company Outlook

  • Ambuja is the third largest cement company in India with a total capacity of 29.7mt and five integrated cement manufacturing plants and eight cement grinding units across India. It is one of the lowest cost producers of cement in India.
  • With focus on structurally sound markets of North, West and East, Ambuja has a large network of 26,000 dealers and retailers providing it presence in the remotest locations in the country. It is also the largest exporter of cement from India.
  • Ambuja’s intends to unlock synergies between itself and ACC (another Lafarge-Holcim company in India) via a Master Supply Agreement by optimizing cost to service market by using each other’s plant capacities, enabling growth without further capacity addition.

Exhibit: Financials

 




Eicher Motors

Beneficiary of Domestic Consumption

Company Description:

Eicher Motors is the flagship company of the Eicher Group, which was a catalyst in the green revolution in India with the production of India’s first agricultural tractor in 1959. EML is now a leading player in the Indian automotive space. Eicher Motors owns the iconic Royal Enfield motorcycle business, which leads the premium motorcycle segment in India. 

Playing the India Thematic:

With rising incomes levels and the increasing aspiration for leisure motorcycling in India, bikers from the commuter segment (sub 250 cc) are gradually shifting towards the middle weight premium segment (250- 750cc) that is dominated by Royal Enfield.

Industry Outlook:

  • 2-Wheeler industry’s volumes in India are expected to grow at 8-10% CAGR over the next five years, driven by increasing rural penetration and replacement demand in the urban markets. Within motorcycles, the premium segment is expected to grow at 12-15% CAGR
  • The industry is facing several short and medium-term challenges like committed investment for BSIV (vehicle meeting new emission norms) and Electrical Vehicle(EV), with potential to disrupt existing business models. Lack of clear policy roadmap compounds existing challenges

Company Outlook

  • Eicher Motors manufactures affordable leisure bikes (250cc & above) in India under the brand ‘Royal Enfield’. It also manufactures commercial vehicles (CVs), automotive gears and components, and engineering solutions through its subsidiary, Volvo Eicher Commercial Vehicles
  • Demand for Royal Enfield motorcycles has been good, driven by increasing trend of lifestyle biking and low competition. Exports is another growth driver for Royal Enfield. In CV’s, Eicher’s local market expertise and Volvo’s technological strength positions it well for a cycle recovery
  • Strong demand, new product launches and capacity addition will drive strong volume and earnings growth of ~30 % CAGR for Eicher over the next 5 years.

Exhibit: Financials