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You are here: Home / Stocks / Which Cement Stocks Should You Buy?

Which Cement Stocks Should You Buy?

December 22, 2015 by Rajat Sharma 6 Comments

With nearly 390 million tonnes of cement production capacity, India is the second largest cement producer in the world (after China) accounting for about 8 % of the total global cement production. Large cement plants account for 97% of the total installed capacity in India. By 2020, cement production in India will reach 550 million tonnes.

cement plantsCement Industry – Demand Driver

Housing industry is the biggest consumer of cement, accounting for about 64% of the total cement consumption, followed by infrastructure (17%), commercial construction (13%) and industrial construction (6%).

cement stocks

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While demand from the housing industry is declining with new house construction activity slowing down due to a current oversupply, cement demand in coming years is likely to improve from increased government spending on infrastructure. At current prices the entire cement pack looks expensive. Cement stocks rallied towards the middle of last year after the new government took office with expectation of increased infrastructure activity. However, earnings (EPS) have not improved in line with expectation.

Going forward, focus on companies with greater presence in southern Indian states where bulk of new infrastructure projects will be developed. These companies will get logistical advantage given their proximity to these upcoming projects.

Some of the Big Upcoming/Under Construction Infrastructure Projects

  • South – Infrastructure project initiated by the Andhra Pradesh government – Amravati project. According to Andhra Pradesh’s government, approximately 2 million tonnes of cement will be required annually for this project.
  • South – Rs. 5,000 Cr. Mega Transhipment Hub Project in Tamil Nadu.
  • South – Rs. 14,000 Cr. 72-km elevated metro project in Telangana.
  • North – Rs 80,000 Cr. Bharat Mala project (7,000 kms) connecting Gujarat, Rajasthan, Punjab, J&K, HP, Uttarakhand, part of UP, Bihar and West Bengal.
  • North – Rs. 12,000 Cr. project (889 km) connecting Char Dham (Kedarnath, Badrinath, Gangotri and Yamunotri in Uttarakhand).
  • West – Rs 90,000-crore Mumbai-Ahmedabad bullet train project.
  • Pan India – Four major industrial corridor development projects – Delhi-Mumbai, Amritsar-Kolkata, Vizag-Chennai and Bangalore-Mumbai.

Top 10 Cement Stocks in India (by Market Cap as on 21 December, 2015)

Cement Stocks : Geographical Split (by Revenue)

cement stocks in IndiaAlso see : Cement Stocks in India – Industry Insight

Revenue Net profit

Debt – Equity Ratio

Interest Coverage Ratio

UltraTech 24,349 2,098

0.26

7.54

Shree 6,454 462

0.08

11.11

Ambuja 10,000 1,487

0.00

29.21

ACC 11,739 1,162

0.00

18.23

Ramco 3,655 246

0.87

3.69

Dalmia Bharat 3,514 3

2.08

1.39

J. K. Cement 3,399 144

1.86

1.93

Prism Cement 5,654 3

1.88

1.21

JK Lakshmi Cement 2,316 103

1.27

3.76

Birla Corp 3,210 175

0.47

3.87

 Valuation Based on Price Earnings (P/E)

Industry P/E = 32.22

Ultratech Cement

ultratech cementAt the current price of Rs. 2,811.90 (as on 21 December 2015), Ultratech’s trailing 12 month PE comes to ~ 39.31.

Shree Cement

shree cementAt the current price of Rs. 10,945.40 (as on 21 December 2015), Shree Cement’s trailing 12 month PE comes to ~ 85.45.

Ambuja Cements

ambuja cementAt the current price of Rs. 200.50 (as on 21 December 2015), Ambuja Cement’s trailing 12 month PE comes to ~ 30.29.

ACC Cements

acc cementAt the current price of Rs. 1349.00 (as on 21 December 2015), ACC Cement’s trailing 12 month PE comes to ~ 31.29.

Ramco Cements

ramco cementsAt the current price of Rs. 364.80 (as on 21 December 2015), Ramco Cement’s trailing 12 month PE comes to ~ 24.32.

Birla Corporation

birla corporationAt the current price of Rs. 452.00 (as on 21 December 2015), Birla Corporation’s trailing 12 month PE comes to ~ 44.27.

Regionalization

Cement is a freight-intensive industry. Transport over long distances is a big problem for the cement companies. This has made cement industry largely a regional play. While deciding on the plant location, there is a trade-off between proximity to raw material sources and proximity to markets/projects. Ultratech, ACC and Ambuja will likely to benefit from the proposed boost to infrastructure projects due to their pan-India presence.

Pan India Presence

  • UltraTech Cement
  • Ambuja Cements
  • ACC

North

  • Shree Cements
  • JK Lakshmi Cement
  • K. Cement
  • Birla Corporation

South

  • Ramco Cements
  • Dalmia Bharat

Central

  • Prism Cement

Geographical Presence (by Capacity)

cement plants in india

Last updated: 22nd December, 2015

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Filed Under: Stocks, valuation Tagged: cement, industry research, stock analysis

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About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

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Comments

  1. By anamika on December 22, 2015 at 2:26 pm

    good information sharing

    Reply »

  2. By Rohi Shetty on December 22, 2015 at 5:19 pm

    Thanks, Rajat, great info.
    I think Ambuja is the best among these stocks.
    Right?

    Reply »

    • By Rajat Sharma on December 22, 2015 at 7:11 pm Author

      From my perspective they are all over valued for now.

      Reply »

  3. By Xyroid on December 23, 2015 at 8:52 am

    What’s your thoughts on Deccan Cements?

    Reply »

  4. By Lokesh G on January 4, 2016 at 3:21 pm

    Why does Shree cement enjoys higher valuation (P/E – 83X ) compared to Ambuja, ACC & others even though the Avg ROE, D/E are comparable.

    Reply »

  5. By Balaji on January 30, 2016 at 12:56 pm

    Thank you so much, very use full information. ACC and Ramco looks good for 2016

    Reply »

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