Last Updated – Sept 2022
In this article, we will cover,
Cement Stocks in India
The Indian cement industry is the world’s second-largest producer after China and is the third-largest consumer. Housing & Real estate consists of 65% share of cement demand followed by Public infrastructure, Industrial Development which is 25% and 10% respectively. Cement industry is currently going through a structural change as COVID-19 forced many companies to manage their costs effectively. Strong pricing levels across regions and low operating costs helped cement companies in not only overcoming the crisis but also getting back to growth in FY21. In terms of management commentaries many top cement companies have reinstated their CAPEX plans, which were put on hold due to the pandemic, and this shows that the confidence among large cement players is coming back and tough times are largely over. Over the medium-term cement companies are facing huge cost-related headwinds as most of the cement companies have reported increase in raw material, power and fuel costs backed by soaring energy and logistic costs will pose a challenge in maintaining elevated realisations and profits. Cooling of the commodity prices can cool down the prices and upscale the demand for cement.
List of Best Cement Stocks to buy now in India
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP – Sept 2022||Rating||Industry|
|12||JK Lakshmi Cement||500380||JKLAKSHMI||607.1||0.5||Cement|
How to identify a good Cement company?
- Cement industry is a highly capital-intensive industry. A green field project for 1 MT requires capital expenditure to the tune of Rs.3 bn (2 MT is an ideal size for a company to have some kind of economies of scale).
- This sector operates with a high level of fixed cost (maintenance cost is around US$ 5 per tonne annually) and therefore volume growth is critical. Access to raw materials (limestone and coal) and consumer markets are equally important in the long term. Therefore, any material change in raw material prices or contracts with suppliers can hamper production to a huge extent.
- The Indian cement industry has to be viewed on a regional basis viz, North/South/West/East. Demand may be favourable/unfavourable in some areas. It is also highly fragmented with top six companies already accounting for 60% of industry capacity, the rest 40% is distributed among 40 small players. So conservative investors should pick top companies atleast since the current scenario is challenging.
- Cost factor plays a huge role in cement companies as more the savings in cost more will be their margins. So, a company who can control its freight, power and other fixed costs can score against its peers as the competition level is also very high amongst players in this sector.
- Since cement is a regional play on account of its high freight costs, the company should not have all its plants concentrated in one region. It should have a geographical spread so that adverse market conditions in one region can be mitigated by high growth in the other region.
- Important ratios to look for are EBITDA per tonne, Net Debt/EBITDA, Top & Bottom line growth, ROE & ROCE etc. Also, capacity utilization levels are equally important to look at while analysing a cement company as it shows how efficiently the company is utilising its capacities.
Cement Stocks in India – Portfolio Companies
Shree Cements which started operations at its first greenfield cement plant in Beawar, Rajasthan, in 1979, is the second largest cement group in India with operational capacity of 40.4 million tonnes per annum (mtpa) as on March 31, 2020. From 100% of its capacity being in northern India until 2014, the company has diversified across Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, and Karnataka.
The company is among the efficient players in the cement industry. Its operating efficiency arises from a sharp focus on operations, low power consumption, and mainly sale of blended cement resulting in reduced consumption of energy and raw material per tonne of cement. Flexibility (to switch to grid or to shut down the plant based on merchant tariff) and ability to operate with multiple fuels (imported coal or petcoke) helps keep generation cost competitive. The operating profit per tonne of cement remains one of the highest in the industry.
Shree Cements continues to enjoy its leadership position in northern markets despite improved presence of top cement players through recent inorganic means, 60% of its total volumes come from the north regions and demand from this region was the least impacted due to COVID-19 lockdowns. Going ahead, the company has announced addition of a 3rd clinker unit (capacity of 12,000 TPD in Chattisgarh which is expected to get commissioned in the next 2 years.
The company has low debt to equity of 0.11x and decent other financials which include ROE of 14% and ROCE of 17%. The 5 year revenue and profit CAGR is of 12%.
It has also reiterated its vision of doubling its current capacity of 40 MTPA to 80 MTPA in the next 6-7 years. It continues to face headwinds related to its costs.
UltraTech is among the largest global cement manufacturers and the largest manufacturer of grey cement, ready mix concrete (RMC) and white cement in India. It has a capacity market share of 24% – and has a consolidated capacity of 125 mtpa including UNCL and the cement business of Century. It has 23 integrated plants, 1 clinkerisation plant, 27 grinding units and 7 bulk terminals. Its operations are across India, UAE, Bahrain, Bangladesh and Sri Lanka. With 100+ RMC plants in 35 cities, UltraTech is the largest manufacturer of concrete in India. It also has a slew of speciality concretes that meet specific needs of discerning customers. Moreover, the company has a network of 80,000+ partners/dealers across the country with a market reach of more than 80% Indian cities and towns. UltraTech’s takeover of Century’s cement business has improved its position in the high-growth eastern market. Additionally, a pan-India presence helps the company from downtrends in any single region.
The company has been mainly focusing on reducing its leverage and till now it has reduced its net debt from Rs.16,860 in March,2020 to Rs.6,717 cr as of Mar’21 (Net Debt/EBITDA-0.55x and Net Debt/Equity-0.15x). Moreover, the company recorded the highest capacity utilisation in Q4FY21 at 93% and a robust volume growth of 30% YoY in Q4FY21. The management remains keenly focused on reducing its debt and has set an ambitious target to become net debt free by FY23. The company has reinstated their CAPEX plans and has announced a fresh 12.8 MT capacity addition across central and eastern regions. This involves a capex of Rs. 5,477 crore for which funding will be entirely done via internal accruals. UltraTech’s total capacity is expected to reach 131 MT (current capacity at 114.8 MTPA) by FY23 with a long term plan to achieve 160 MT capacity.
The company announced a Rs 12,900 crore capex plan of adding 22.6 million tonnes per annum (mtpa) capacity by FY25. This will contribute to overall domestic cement capacity increasing at a compounded annual growth rate (CAGR) of 5.5% over FY22-25, compared with an estimated overall 7.5-8% growth in demand over the same period.
ACC Limited is a
leading player in the Indian building materials space, with a pan-India operational and marketing presence. Initially called Gujarat Ambuja Cements Ltd, the Company later became Ambuja Cements Ltd. In 2006, global cement major Holcim, acquired management control of the Company. Holcim’s stake has now been acquired by Adani group. ACC has grown manifold over the past decade. Its cement capacity as of FY22 is 36 MTPA installed. The Company has undertaken to increase capacity by 2.7 MT of clinker and 4.8 MTPA of cement by 2024. ACC enjoys a reputation of being one of the most efficient cement manufacturers in the world. Its environment protection measures are considered to be at par with the finest in the country.
ACC Ltd was operating at the highest capacity utilisation of ~85% as of FY22 due to high demand in rural and semi-urban areas. The company operates PAN India and has strong operational linkages in their plants and grinding units which helps them obtain better cost efficiency. The company’s net debt/EBITDA stands at -0.01 times. Its Sales & PAT has grown at a 5 year CAGR of 8% and 23%.
Ambuja Cements is a part of global conglomerate Lafarge Holcim which was acquired by the Adani group. The acquired stake was over 50% of the company. Ambuja has a total capacity of 30 MT and has 5 integrated cement manufacturing plants with 8 cement grinding units across the country. Ambuja was the first Indian cement manufacturer to build a captive port with three terminals along the country’s western coastline and it enjoys a reputation of being one of the most efficient cement manufacturers in the world. The company also has its own fleet of ships for effective transportation of cement.
It has registered a sales CAGR growth of 7.59% in the last 5 years, which is the highest among the industry and at the same time, its PAT has grown at a CAGR of 24.3% for the same period. The company has highest capacity in North and Central regions (40%) and as the demand in these regions continue to grow post-pandemic, Ambuja cements is likely to be at an advantageous position over its peers. As far as its costs are concerned, freight cost consists of 26% of its total income which could be a concern going forward as diesel prices have risen sharply which could in turn impact its profitability and margins in the near-term.
Key Risks & Conclusion of Cement Stocks
Higher construction prices these days, as well as restricted supply of sand and aggregates, as well as elections and transport strikes in some regions of the nation, have all had a negative influence on cement demand in India. Cement volumes increased by 8% on average for the top 16 cement makers in FY22. Due of logistical problems and erratic demand patterns caused by local lockdowns in FY21, smaller manufacturers regained market dominance in FY22. Over the long term, the demand is expected to remain strong given the infrastructure uptake in the country. Further, post the headwinds the stock will be available at cheaper valuations to buy at the dips.
Video on how to analyse and pick Cement Stocks for Investments
In order to get an exposure to best Indian cement stocks, you would need a total of Rs.55.541.1 for the below curated portfolio as of September, 2022.
|Company Name||Weightage||CMP – Sept 2022||Quantity||Total|
A detailed table with various parameters for Best Cement Stocks to buy
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP – Sept 2022||Rating||Industry||Market Cap||Debt/Equity||PE||ROE%||ROCE%||OPM%||Sales Growth(5Yrs) %||Profit Growth(5Yrs) %||Dividend Yield (%)|
|12||JK Lakshmi Cement||500380||JKLAKSHMI||607.1||0.5||Cement||5355.75||0.74||11.62||21.49||20.19||17.91||12.4||125.69||0.82|
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