Cement Stocks in India
The Indian cement industry is the world’s second-largest producer and third-largest consumer after China.
The cement industry is currently undergoing a structural change as COVID-19 has forced many companies to effectively manage their costs. Strong price levels across regions and low operating costs have helped companies consolidate not only overcoming the crisis but also returning to growth in FY21.
In terms of management comments, many leading cement companies have resumed their CAPEX plans that were suspended due to the pandemic, and this shows , that confidence among the big cement players is returning and the tough times are largely over.
In the medium term, cement companies face huge cost headwinds as most cement companies reported increases in raw material, power and fuel costs fueled by soaring energy costs and logistics costs will pose a challenge in sustaining increased realizations and profits. A cooling in commodity prices may cool prices and increase demand for cement.
How to recognize a good cement company?
The cement industry is a highly capital intensive industry. A 1 MT greenfield project requires capital expenditure of Rs 3 billion (2 MT is the ideal size for the company to have some economies of scale).
The industry operates with a high level of fixed costs (maintenance costs are around $5 per ton per year), so volume growth is critical. Access to raw materials (limestone and coal) and consumer markets are equally important in the long run. Therefore, any material change in raw material prices or contracts with suppliers can hamper production to a large extent.
The Indian cement industry has to be viewed on a regional basis i.e. North/South/West/East. Demand may be favorable/unfavorable in some areas. It is also highly fragmented, with the top six companies already accounting for 60% of the industry’s capacity, with the remaining 40% split between 40 small players. So, conservative investors should at least pick top companies as the current scenario is challenging.
Cost factor plays a huge role in cement companies as more cost saving will be their margin. Hence, a company that can control its costs of transportation, energy and other fixed costs can score against others as the level of competition is also very high among the players in this sector.
Since cement is a regional game due to high transportation costs, a company should not have all its plants concentrated in one region. It should be geographically distributed so that adverse market conditions in one region can be offset by high growth in another region.
Important metrics to look for are EBITDA per tonne, net debt/EBITDA, top line and bottom line growth, ROE & ROCE etc. While analyzing a cement company, it is also equally important to look at capacity utilization levels as it shows how efficient the company is. utilization of its capacities.
Shree Cements
Shree Cements, which commenced operations at its first greenfield cement plant in Beawar, Rajasthan, in 1979, is India’s second-largest cement group with an operating capacity of 46.4 million tonnes per annum (mtpa) as on March 31, 2022. From 100% its capacity was in North India till 2014, the company diversified across Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, Karnataka, Jharkhand, Odisha and Maharashtra. Moreover, its capacity increased from 210 MegaWatts (MW) in 2011-12 to 771 MW.
The company is among the effective players in the cement industry. Its operational efficiency results from a sharp focus on operations, low energy consumption and, above all, the sale of mixed cement, which results in a reduction in energy and raw material consumption per ton of cement. Flexibility (switch to grid or shut down plant based on trade tariff) and ability to work with multiple fuels (imported coal or coke) helps keep generation costs competitive.
Shree Cements continues to enjoy its leadership position in the northern markets despite the improved presence of leading cement manufacturers due to recent inorganics, 60% of its total volumes come from the northern regions and demand from this region has been least affected due to the COVID-19 lockdown. The company added a 3rd clinker kiln with a capacity of 4 mtpa in Raipur district of Chhatisgarh and it was completed six months ahead of the scheduled completion date.
It 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 cost. Rising operational and fuel costs impacted its growth and margins in FY22 and H1FY23. However, margins will be helped by easing inflation and newer orders at higher commodity prices.
UltraTech Ltd
UltraTech is among the world’s largest cement producers and the largest producer of gray cement, ready-mixed concrete (RMC) and white cement in India. It has a consolidated capacity of 121.5 mtpa including UNCL and Century cement business. It operates in India, United Arab Emirates, Bahrain, Bangladesh and Sri Lanka. With over 175 RMC plants in 41 cities as of FY22, UltraTech is the largest concrete producer in India, In addition, the company has a network of 30,000+ dealers across the country with a market reach of over 80% of Indian cities and towns.
List of best cement stocks to buy in India now
1 Ultra Tech 532538 ULTRACEMCO ₹ 6,021.00 2 cement
2 Shree Cements 500387 SHREECEM ₹ 22,394.60 0.5 Cement
3 Ambuja 500425 AMBUJACEM ₹ 293.45 3 Cement
4 ACC 500410 ACC ₹ 2,041.90 3 Cement
5 Ramco Cements 500260 RAMCOCEM ₹ 737.15 1 Cement
6 Dalmia 542216 DALBHARAT ₹ 1,429.85 2 Cement
7 JK Cement 532644 JK CEMENT ₹ 2,296.10 1 Cement
8 Birla Corp 500335 BIRLACORPN ₹ 1,150.15 0.5 Cement
9 Heidelberg 500292 HEIDELBERG ₹ 194.30 1 Cement
10 Indian Cements 530005 INDIACEM ₹ 204.90 0.5 Cement
11 Star Cements 540575 STARCEMENT ₹ 91.90 0.5 cement
12 JK Lakshmi Cement 500380 JKLAKSHMI ₹ 455.15 0.5 Cement
13 Orient Cement 535754 ORIENTCEM ₹ 138.60 1 Cement
14 Sagar Cement 502090 SAGCEM ₹ 209.80 1 Cement
15 Shree Digvijay 502180 SHRDIGCEM ₹ 64.75 0.5 Cement
16 KCP 590066 KCP ₹ 112.25 0.5 Cement
17 Mangalam Cement 502157 MANGLMCEM ₹ 342.75 0.5 Cement
