Best Cement Stocks to Buy in India

Last Updated – November 2021

Best Cement Stocks to Buy in India

In this article, we will cover,

– Overview of the cement industry in India
– A comprehensive and well-researched list of the best cement stocks to buy now in India
– How to identify a good cement company
– Portfolio companies
– Key risks posing the cement industry
– A model portfolio in order to gain relevant exposure to the best Indian cement stocks
– A detailed table consisting of the various parameters measured and compared while collating the list of best cement stocks to buy in India

Overview of the cement industry 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 over 40-50% 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. However, this rising costs were majorly offset by aggressive price hikes by major cement players also growth in the infrastructure and real-estate sectors is likely to augment demand for cement in the coming fiscal.

Summary Table of the Best Cement Stocks to buy now in India

Sr.No Company Name BSE Scrip Code NSE Scrip code CMP as of 26th Nov 2021 Rating Industry
1 Ultra Tech 532538 ULTRACEMCO 7,390.65 0.5 Cement
2 Shree Cements 500387 SHREECEM 25,936.60 2 Cement
3 Ambuja 500425 AMBUJACEM 372.4 1 Cement
4 ACC 500410 ACC 2,309.30 1 Cement
5 Ramco Cements 500260 RAMCOCEM 955.3 0.5 Cement
6 Dalmia 542216 DALBHARAT 1894.1 1 Cement
7 JK Cement 532644 JKCEMENT 3,240.90 0.5 Cement
8 Birla Corp 500335 BIRLACORPN 1351.7 0.5 Cement
9 Heidelberg 500292 HEIDELBERG 231.1 0.5 Cement
10 India Cements 530005 INDIACEM 186.9 0.5 Cement
11 Star Cements 540575 STARCEMENT 95.1 0 Cement
12 JK Lakshmi Cement 500380 JKLAKSHMI 631.9 0.5 Cement
13 Orient Cement 535754 ORIENTCEM 157.6 0.5 Cement
14 Sagar Cement 502090 SAGCEM 263.2 0.5 Cement
15 Shree Digvijay 502180 SHRDIGCEM 75.2 0.5 Cement
16 KCP 590066 KCP 129.1 0.5 Cement
17 Mangalam Cement 502157 MANGLMCEM 374.2 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.

Portfolio Companies

Shree Cements:

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. Its cement production has grown at a CAGR of 13% from 12 mtpa in 2009-10 to 46 mtpa in 2020-21. Moreover its capacity has grown at a CAGR of 12.45% from 210 MegaWatt (MW) in 2009-10 to 742 MW. The company reported EBITDA per tonne of Rs.1,473 in FY21 which is highest in the industry on the back of highest ever volumes which stood at 26.84 MTPA up by 8% YoY. Its biggest advantage over its peers is that it is a Net debt free company, its debt to equity ratio stands at 0.1x in 20-21 (lowest in the industry).

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. 

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, In FY21 its operating costs and rising fuel costs impacted growth in its operating margins and given the sustained amount of Inflation on the costs front may likely impact the company’s overall margins in the coming quarters.

UltraTech Ltd:

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 new capacity expansion plans will boost UltraTech’s capacity in the central and east regions. Although its Capex plans have slowed down due to the second wave of COVID-19 but it’s on course to achieve commissioning of 19.5 mtpa by FY23.

ACC Ltd:

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. Today, Holcim holds a little over 50% equity in ACL. ACL has grown manifold over the past decade. Its current cement capacity is 34.5 million tonnes. The Company has 5 integrated cement manufacturing plants and 8 cement grinding units across the country. 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 of 85% as of Dec’20 due to high demand in rural and semi-urban areas but overall in CY20 it dropped to 77% due to impact of lockdown. The company operates PAN India and has strong operational linkages in their plants and grinding units which helps them obtain better cost efficiency. Currently, ACC is expanding its capacity from 34.5 mtpa to 39.3 mtpa to strengthen its position in demand accretive central and eastern regions of India.  The company’s Net Debt/EBITDA stands at -0.46 times as of CY20. Its Sales & PAT has grown at a 5 year CAGR of 3.3% and 21.4% (Profits grew higher than the top cement companies like UTECH (17.6%), Shree Cements (15%) respectively.

Ambuja Cements:

Ambuja Cements is a part of global conglomerate Lafarge Holcim which acquired over 50% stake in 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 21% 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 28.3%. 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. Over and above the company has also maintained the highest dividend yield of 4.8% (highest among Top 10 cement companies). 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:

With the re-imposition of lockdowns to curb the spread of the second wave of COVID-19, India’s cement demand declined by ~20-25% MoM on April-21. The demand is likely to return post Unlock from June month 2021. Rising energy and fuel costs remain to be another key risks for the cement companies in the near-term. Major cement companies saved the majority of their administration, travel and advertising expenses which are expected to come back to normal levels as the economy fully revives this will bring down the elevated margins and realization levels of the companies in FY22. Furthermore, any delay in capacity expansion plans and fear of a second wave of COVID-19 could pose a big risk on the cement companies.

Watch our video on how to analyse and pick Cement stocks for investments

Model Portfolio:

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 26th Nov, 2021.

 

Company Name Weightage CMP (As of 26th Nov 2021) Quantity Total
Shree Cements 52% 25,936.60 1 25936.6
UltraTech Cement 29% 7,390.65 2 14781.3
ACC 18% 2,309.30 4 9237.2
Ambuja 11% 372.4 15 5586
Total       55,541.10

The below table covers some of the most important factors while evaluating cement stocks such as return ratios including RoE and RoCE, operating margins, sales and earnings growth and market cap among others.

Sr.No Company Name BSE Scrip Code NSE Scrip code CMP as of 26th Nov 2021 Rating Industry Market Cap Debt/Equity PE ROE% ROCE% OPM% Sales Growth(5Yrs) % Profit Growth(5Yrs) % Dividend Yield (%)
1 Ultra Tech 532538 ULTRACEMCO 7,390.65 0.5 Cement 213,182 0.3 33.8 13.1 15.1 25.4 12.2 17.6 0.5
2 Shree Cements 500387 SHREECEM 25,936.60 2 Cement 92,095 0.1 35.5 15.9 19.1 29.2 19.6 14.8 0.2
3 Ambuja 500425 AMBUJACEM 372.4 1 Cement 73300 0.0 31.8 10.5 18.3 22.3 21.0 28.3 4.8
4 ACC 500410 ACC 2,309.30 1 Cement 42942 0.0 21.6 12.8 16.0 18.0 3.3 21.4 0.7
5 Ramco Cements 500260 RAMCOCEM 955.3 0.5 Cement 22030 0.6 20.5 14.6 14.6 28.2 8.2 7.5 0.3
6 Dalmia 542216 DALBHARAT 1894.1 1 Cement 35032 0.2 389.5 10.4 10.2 24.6 0.2
7 JK Cement 532644 JKCEMENT 3,240.90 0.5 Cement 24802 0.9 36.9 21.0 20.0 21.5 8.7 65.0 0.5
8 Birla Corp 500335 BIRLACORPN 1351.7 0.5 Cement 10175 0.7 23.9 13.4 11.6 18.1 15.7 33.8 0.7
9 Heidelberg 500292 HEIDELBERG 231.1 0.5 Cement 5047 0.2 15.8 22.3 24.9 22.3 5.1 55.0 3.5
10 India Cements 530005 INDIACEM 186.9 0.5 Cement 5728 0.5 30.0 3.8 6.6 14.1 -1.6 12.2 0.5
11 Star Cements 540575 STARCEMENT 95.1 0 Cement 3875 0.0 24.5 12.2 13.7 18.2 0.1 12.4 0.0
12 JK Lakshmi Cement 500380 JKLAKSHMI 631.9 0.5 Cement 7612 0.7 17.0 21.5 20.2 19.0 12.4 126.0 0.6
13 Orient Cement 535754 ORIENTCEM 157.6 0.5 Cement 3124 0.4 10.8 17.6 19.1 24.1 9.7 27.9 1.3
14 Sagar Cement 502090 SAGCEM 263.2 0.5 Cement 2996 0.7 21.1 17.3 19.0 24.4 12.7 33.2 0.5
15 Shree Digvijay 502180 SHRDIGCEM 75.2 0.5 Cement 1080 0.0 14.1 18.5 28.9 22.7 1.2 48.2 3.3
16 KCP 590066 KCP 129.1 0.5 Cement 1633 0.4 9.8 17.8 21.6 22.5 5.8 11.8 1.6
17 Mangalam Cement 502157 MANGLMCEM 374.2 0.5 Cement 969 0.9 8.0 17.3 19.6 18.4 9.1 47.1 0.4

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2 Comments

  1. Hasmukh Patel

    Good morning Rshmiben
    Excellent information given by u

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