Case study

Ambuja Cement: Cost Leader in the

Indian Cement Industry
Presented by

Introduction

In 2004 GACL was the third largest producer o

cement in India

Widely considered to be the lowest cost producer

GACLs quest for cost leadership had been driven by

productivity improvement and cost cutting measures

Believed in doing things in innovative and unconventional

ways

Pioneered in !arious cost cutting measures li"e:#

$i% &odern plants' large "ilns' high degree o automation'
low# manpower cost' power tari(' uel cost)
$ii% *se o substitutes instead o coal to cut energy costs)
$iii% +hip transportation to cut down reight costs)
$i!% Low cost unds helped to cut the cost capita

Pic"ed best practices during o!erseas

!isits
,ac"ground

GACL was established as APCL in -./- by

0arotam + +e"hsaria$Cotton 1rader%)

+uresh 0eotia was appointed the Chairman 2

+e"hsaria too" o!er as &3 o APCL)

In -./4' company 5oated a public issue 2

changed its name to GACL 2 production started
at 0)6 mtpa in Ambuja 0agar Gujarat)

In -..4' GACL commissioned its 2

nd plant named
Gujambuja Cements)
Cont),ac"groun
d

In -..7' it set up a -)7 mtpa plant in 8P called

AC8* 2 5oated a wholly owned subsidiary in
&auritius 9 CAIL)

In -..:' GACL 5oated Ceylon Ambuja Cements

Ltd)' through which it ac;uired a small company'
&idigama Cement' in +ri Lan"a)

In -..6' it ac;uired &odi Cements' plant o -)4

mtpa at <aipur or <s) -):: billion) It was
renamed AC=L)

In -../' GACL ac;uired 0adi"udi and Proddatur

limestone mines in AP to strengthen its presence
in +outhern India)
Cont),ac"groun
d

In 3ecember -...' GACL paid 4)7 billion to

ac;uire a 7-> sta"e in 3elhi based 3L? Cement)
Ater this merger' GACL became the 4
th largest cement
manuacturer in India ater ACC' L21 and Grasim)

In 3ecember -...' GACL ac;uired 6)2> sta"e in ACC or <s 4)77 billion)

In 3ecember 200-' GACL began trial production in Chandrapur' &aharashtra with 2

mtpa' ta"ing its total capacity to -2)7 mtpa)
1he Indian Cement
Industry

India # world@s second largest cement producer

ater China)

Aith the capacity o -7-)2 &illion 1ones $&1%' it

is big in siBe and hence accommodates a number
o cement companies in the mar"et )

?oreign &0CCs entered the country#Laarge and

Italicementi

Gujrat was the largest cement producing state)

ContD

1he demand was closely lin"ed to perormance

o Indian =conomy)

Indian Go!ernment was a major consumer o

cement

1op 20 companies accounted or more than

60> o the total cement production in India)

1he total installed capacity is distributed o!er

-2. plants' owned by 74 major companies across
the nation)
&ajor Players In Indian Cement
Industry
ACC 9 -4)4>
Gujrat Ambuja 9 --)6>
Grasim Ind 9 -0)2>
L 2 1 9 -0)->
India Cement 9 7)->
Ethers 9 24)4>
Eligopoly

Maret !tructure characteri"ed by few sellers and interdependent

price#output decisions

!ignificant barriers to entry

$roduct could be homogenous %similar& or differentiated

$otential for economic profits in the long run

'ncentive for illegal price setting

Competition can be vigorous among the few firms

Oligopoly

'n oligopoly firms operate under imperfect competition(

)emand is relatively inelastic because all other firms leading to

similar price cut leading to price war(

With the fierce competitiveness created by sticy upward demand

curve firms use non price competition in order to accrue greater
revenue and maret share(
Pac"aging

cement was pac"ed in 27#70 "g pac"et bags using

jute bags

was -
st to use paper bags or pac"aging ha!ing ad!antage o low pilerage' better
preser!ation' appearance with low cost

each bag contained the brand name' I+I logo' with identiFcation number' price o the bag
and net weight o the bag
Logistics

GACL was one of the *

st cement producer company to introduce 'ntegrated logistics system%'L!&

+rder $rocessing !ystem,-

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 transporters.
transmission of information to production planning dept(
In!entory &anagement

In!ol!ed "nowing both. when to order and how much

to order

Management had to control the cost of carrying larger

inventory

/ad well developed system for inbound raw materials

&anuacturing
Basic raw materials used for manufacturing of cement are ,
Limestone
Clay
!ilica
Gypsum
&anuacturing
Cement manufacturing process involves the following steps,
0uarrying and crushing
Grinding and blending of raw materials
Cliner production
1inish grinding
Types of processes for production of cement
Wet process
!emi dry process
)ry process
&anuacturing

)ry process reduced the fuel consumption from 223g to 453g of coal(

+utput of dry process was 4(5 times than wet process(

6ertical shaft technology 7mini cement units-wet process

8otary iln technology used in large plants 7dry process

GACLs engineers used hus and crushed sugarcane to fire the iln( 9his bought
energy bill down to 8s(43 per ton(

GACL replaced 6 belt driver by flat belt drivers(

GACLs cliner was heated at right temperature thereby reducing the power
costs from *43 to :3 units per ton(
MA9;8'AL 8;0<'8;) 1+8 9/; $8+)<C9'+= +1 C;M;=9
$;8 9+==; +1 C;M;=9

*(4 7 *(5 tons of limestone

3(45tons of coal

*43 wh of power

3(35 tons of gypsum

$+$<LA8 6A8';9';! +1 C;M;=9 A8;,

+rdinary $ortland cement

$ortland $o""oland cement

$ortland blast furnace slag cement

White cement

GACL always attempted to reduce their cost

o production in any which way possible)

1here were two main costs associate with

the production costs o GACL,
Power cost
?uel cost
Dec June Dec
2002 2004 2004
*nits
consumed
/: .0 /7
CostGton -/6 -/4 -/0
H)calG"g 62. 626 6-/
Cost 224 240 22.
Techniques used by GACL to reduce its cost of
production:

I belt dri!es which consumed more energy were replaced by

5at belt dri!es)

impro!ed !ersion o mechanical con!eyor was used to

eliminate brea"down and spillages)

Adjusted retention time'maJimised temperature and the rate

o cooling to reduce power cost rom -20 units per ton to .0
units per ton)

<educed mining eJpenses by implementing Kripping

technologyC)

Introduced an Australian de!ice called +urace miner to

reco!er more material rom the gi!en area and sa!e energy)

ComputeriBed process control system or easy

access and regulating the production process)

Lero =rror =lectronic <otary &achines to increase

capacity utiliBation)

Impro!ement in eMciency and lower shutdown rates

to increase capacity utiliBation)
?iJed cost
<2d
3epreciation
<ent
Iariable
cost
=lecrtricity
<aw materials
wages

Cost advantages that a business obtains

due to e>pansion(

!ituation in which output can be

doubled for less than a doubling of cost(
=conomies o scale
1ransportation

Cement is highly freight intensive in nature( manufacturing of each

tonne involved a transportation of *(? tonne of limestone.3(45
tonnes of coal. 3(35 tonnes of gypsum(

8oad transportation beyond 433 ms was not economical.55@

transported through railways(

<navailability of wagons for transportation on western and

southeastern railways(
ContdD)

'n 4332.A3@ of the movement worldwide was by sea compared to

only *@ in india(

GACL was the first co( to use water transportation for domestic as
well as e>port consignments(

As a result the cost came down drastically(

Bought ports and freight handling terminals at Muldwara. surat

and vashi(
ContdD)

'n 4332 muldwara was equipped to e>port cliner. cement. import

coal and furnace oil(

Built a bul terminal at ochi in erala(

!etting up Breawater and Betty facilities in GuBarat. Maharashtra and

Cerala(

Acquired five ships for transporting cement in bul(

253 self financed trucs and a railway siding provide fle>iblity(

?uture Eutloo"
GACL has been pursuing a combination of strategies lie

!trategic alliances

Capacity e>pansion

=ew plants

Aggressive taeovers(
9he company had set up a two million ton Greenfield cement unit in
Maharashtra at an investment of 8s(533 crores(
't had e>panded capacity at the e>isting GuBarat !ite from three million
to four million at an incremental cost Bust of 8s(*33 crores(
1han" you