Cement Sector Analysis Report 

Must See: These Segments are Witnessing Incredible Growth with Modi's Push

• India is the world's second largest cement market, both in production and consumption. Of the total production capacity, 98% lies with the private sector and 2% with the public sector. The top 20 companies account for around 70% of the total production. Housing and real estate sectors account for nearly 65% of the total cement consumption in India.
• However, the presence of small & mid-sized cement players across regions is increasing, which reduces the bargaining power of industry leaders. A large number of foreign players have also entered the market owing to the attractive profit margins, stable and growing demand and right valuations.
• Ever since it was deregulated in 1982, the Indian cement industry has attracted huge investments, both from Indian as well as foreign investors. According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$ 5.3 billion between April 2000 and March 2020.
• Higher government spending on infrastructure and housing, and rising per capita incomes have been the key growth drivers for the cement industry.
• Cement demand is also closely linked to the overall economic growth, particularly the housing and infrastructure sector. Long term cement demand growth rate is estimated at 1.2 times the GDP growth rate.
• The Government of India has taken various measures to boost infrastructure in the country, which will help boost demand for the cement sector. In addition to its smart cities' initiative, it has announced The National Infrastructure Pipeline which has introduced projects worth US$ 1.5 trillion for the next five years.
• It also has plans to set up a Credit Guarantee Enhancement Corporation, to enhance the source of capital for infrastructure financing, for which regulations have been notified by the Reserve Bank of India (RBI).
• The government has decided to adopt cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable and cheaper to maintain than bitumen in the long run. It also plans to expand the capacity of the railways and the facilities for handling and storage to ease the transportation of cement and reduce transportation costs.

• Supply
• The demand-supply situation is highly skewed with the latter being significantly higher.
• Demand
• Housing sector acts as the principal growth driver for cement. However, industrial and infrastructure sectors have also emerged as demand drivers.
• Barriers to entry
• High, as there are high capital costs and long gestation periods. Access to limestone reserves also acts as a significant entry barrier.
• Bargaining power of suppliers
• High. Licensing of coal and limestone reserves, supply of power from the state grid, etc. are all controlled by a single entity, which is the government.
• Bargaining power of Buyers
• Low, as the cement industry in India is largely an oligopoly with larger players having pricing control.
• Competition
• Intense competition with players expanding reach and achieving pan India-presence. The industry is a lot more consolidated than a couple of decades ago with a few large players controlling substantial market share.
• Threat of substitutes
• No threats, as there is no substitute for cement. Cement is already replacing bitumen – a widely used alternative.

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• Cement production in India grew at 9% for FY23 (368 million tonnes) driven by strong demand from housing and infrastructure sectors. The housing sector accounted for most of the India's cement consumption, followed by the infrastructure sector, and commercial and industrial building constructions.
• EBITDA margins of cement players declined by almost 10% YoY in H1FY23 mostly due to an increase in power and fuel cost on the back of a sharp surge in coal prices. Limestone

  prices also escalated during H1FY23.

• Elevated prices of pet coke and imported coal because of geo-political events adversely impacted the entire cement industry. As a result, power and fuel costs shot up significantly during the year. The impact was mitigated to some extent by enhanced sourcing of domestic linkage coal, higher consumption of alternate fuels and augmentation of fuel supply sources.
• There was a 3% YoY increase on average in wholesale cement prices in FY23. While the prices have remained flattish in Q3, Q4 witnessed a further marginal decline in prices.
• As projected, the industry was likely to add 30-35 million tons of capacity FY23 reaching 590-595 million tons of pan India cement capacity.
• In May 2022, the Adani Group acquired a 63.1% stake in Ambuja Cements along with related assets. Ambuja's local subsidiaries include ACC , which is also publicly traded.
• In June 2022, UltraTech Cement approved Rs 129 bn (US$ 1.65 billion) capital expenditure to increase capacity by 22.6 million tonnes per annum (MTPA) through brownfield and greenfield projects.
• The Government in the Union Budget 2023-24 allocated US$ 11.4 billion for the creation of safe housing (rural and urban), sanitation and increasing road connectivity.
• With a busy construction season ahead with the preelection spending kicking in, the industry is expected to see a volume growth of 6-8% going forward and is likely to reach 390-400 million tonnes.

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• The demand of cement industry is expected to achieve 550-600 million tonnes per annum by 2025 because of the expanding requests of different divisions i.e. housing, commercial construction and industrial construction.
• The country's demand growth is likely to be led by East and Central regions and will be primarily from affordable housing and infrastructure creation and the cement sector is expected to largely benefit from it. Some of the major initiatives such as development of smart cities are expected to provide a major boost to the sector.
• Government initiatives like Housing for All will also push demand in the sector. Affordable housing initiatives are expected to pick up pace under the Pradhan Mantri Awas Yojana (PMAY) with enhanced budgetary allocation by 9% over last fiscal's estimates. PMAY-Urban has an overall target of constructing 11.2 million houses by 2022, of which 10.3 million houses were sanctioned as of January 2020.
• Strong growth in rural housing and low-cost housing is expected to amplify demand. PMAY-Rural has the overall target of 19.5 million units, of which about 9 million units stand completed as of December, 2019.
• Demand in Tier II cities can also be expected to improve with increased construction of commercial centers and office spaces.
• Improvement in public infrastructure is also expected to boost demand for the sector. As per Union Budget 2019-20, the government is expected to upgrade 125,000 kms of road length over the next five years. Projects like Dedicated Freight Corridors and ports are also under development. Metro rail projects are already underway in most major cities.

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When is a good time to invest in the cement sector?

As the demand for cement is closely linked to the economy, cement stocks are usually riskier - their fortunes are prone to economic booms and busts. For this reason, they are often called cyclical stocks. Generally considered an offensive tactic in investing, cyclical stocks can be used to generate high returns when the economy is doing well.

Therefore, the best time to buy such stocks (cement stocks) is at the start of an economic expansion and the best time to sell them is just before the economy begins to slow down. However, before selecting a stock, one must check whether the industry is due for revival or not.

Where can I find a list of cement stocks?

The details of listed cement companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of cement stocks.

Which cement stocks were the top performers over the last 5 years?

UltraTech Cement, Sri Digvijay Cement and JK Lakshmi Cement were the top cement performers over the last 5 years in terms of sales and profit growth.

UtlraTech Cement's growth can be attributed to its position as the largest player in the Indian cement industry while Sri Digvijay Cement's growth can be attributed to its track record as an established player in the cement industry with a long track record of more than five decades and installed capacity of 1.2 MTPA.

Birla Corporation also has shown steady growth backed by its established market position in the northern region and highly cost-efficient operations.

To know which other companies performed well over the last 5 years, use Equitymaster's stock screener.

What kind of dividend yields do cement stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top cement stocks offering high dividend yields.

Which are the cement stocks with the highest returns on capital employed (RoCE)?

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency by determining how well the management is able to allocate capital for future growth. An RoCE of above 15% is considered decent for companies that are in an expansionary phase.

UltraTech Cement, Ambuja Cement and ACC Cement are the top cement stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other cement stocks offer great return on capital employed, you can check out the top cement stocks offering the best RoCE here.

Which are the best cement stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

• Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

  To find stocks with favorable P/E Ratios, check out our list of cement stocks according to their P/E Ratios

• Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

  To find stocks with favorable P/BV Ratios, check out our list of cement stocks according to their P/BV Ratios