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Ambuja Cement
This company has fabulous balance sheet with almost no debt. The RoIC and the margins are quite enviable too.
If we look at the figures below (crore = 10 million, 50 Rs=$1), the company has good growth and the sales are touching $1.7 billion mark now. The compounded annual growth rate in sales was a bit more than 10% and the company did not even bat an eye-lid during the 2008-2009 crisis. The growth is in line with the consumption growth in cement for India, which is around 12% mark.
ACC Cement
Almost the same story is true for ACC cement too. Both companies have similar sales ($1.9 billion) and almost no debt. The sales growth for ACC was 7% compounded and the return on capital employed or RoIC is also quite attractive.
In short, both these companies are a very good investment for Holcim.
Global exposure
Holcim has an enviable position with operations in around 70 countries with production facilities at around 2,200 locations. This global presence “evens out” fluctuations in the individual markets and stabilizes earnings and revenue.
The mature markets in Europe and North America sees less and less portion of Holcim’s total sales. In 2007, Holcim had total sales of SFr. 27 billion as compared to SFr. 21 billion in 2011. In absolute terms though the sales in both mature and emerging markets have fallen down quite a bit since 2007. This is not something to worry about as other companies and in fact the whole industry has seen similar level of decay in sales.
Holcim has annual cement capacity of 216 million tonne while it sold only 144 million tonne in 2011. The expansion of cement capacity has been done mainly in the growth market (75% of the production capacity in 2011 is in the growth markets). In India, ACC and Ambuja commisioned cement capacity totalling 3.9 million tonnes. A 1.6 million tonne capacity plant is going to come online in 2013 in the booming Indonesia and a new plant is also being commissioned in Mexico.
Bottom line
Holcim is increasing capacity for the time when the demand will pick up. There is nothing else to do, either for the company or the investors. The uptick will come when it comes. Meanwhile, we pick the best company in terms of the financial stability and value and wait for the eventual turnaround of the world economy. I will strongly recommend buying Holcim when the P/S ratio falls below 0.7. This is SFr. 44 and in USD, $48. It will give you a financially strong company with good growth prospects in the emerging markets, and a fabulous management with a 50% margin of safety.
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"Holcim is increasing capacity for the time when the demand will pick up. There is nothing else to do, either for the company or the investors."
This is where the science of investing meets the art.