Fitch affirms Gujarat Ambuja Cements

Fitch Ratings said it affirmed Gujarat Ambuja Cements Ltd.'s AAA(ind) national long-term issuer and debt ratings and F1+(ind) short-term and commercial paper ratings. The outlook is stable.

The rating affirmations follows the recent acquisition by Holcim Ltd. of a 14.8% equity stake in Gujarat from the founder families. Fitch said it expects Gujarat to benefit from Holcim's alternative fuel strategy, greater stability in margins and cash flows and to capitalize on opportunities that are likely to be available on account of the fragmented nature of the industry.

The ratings continue to reflect Gujarat's low cost operations, efficient logistics and strong foothold in key markets, which allow the company to enjoy superior margins compared to its peers, the agency said. The ratings also recognize the substantial improvement in credit metrics during 2005 and the stability in cement prices expected in the short to medium term on account of correction in demand supply balance.

Fitch said key risks include the cyclical nature of the industry and the increasing cost of raw materials, especially imported coal. With present capital expenditure being limited, any significant debt-led capital expenditures could impact debt protection measures.

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