Why India Cements Share Price is Rising

India Cements share price has surged 17.9% in the past five days. The stock is up over 33% in a month already.

This steep rally has surprised many investors. Before this up move, the stock was reeling under pressure. Earlier this month on 4 June 2024, it touched a 52-week low of Rs 172.6.

The recent rally is driven by the new government's first major policy decision. This announcement has generated significant optimism among investors, leading to a rally in cement stocks, including India Cements.

This rally is part of a broader trend in the cement sector, with other major players like UltraTech Cement, JK Cement, Shree Cement, ACC, and Ambuja Cements also experiencing gains.

However, India Cements has outperformed its peers, reflecting strong investor confidence in its growth potential amidst the government's renewed focus on infrastructure.

Let's delve into the specifics of this pivotal government announcement and its implications for India Cements and the cement industry as a whole.

Modi 3.0's Boost for Cement Sector

The recently re-elected government, led by Prime Minister Narendra Modi, on 10 June 2024 announced the plan to assist an additional 30 million (m) rural and urban households in constructing houses. This decision aims to meet the increased demand from a growing number of eligible families under the Pradhan Mantri Awas Yojana (PMAY).

Since its inception in 2015-16, the PMAY has provided significant assistance for house construction, resulting in the completion of 42.1 m houses for eligible poor families over the past decade. These houses come with essential amenities like toilets, LPG connections, electricity, and functional taps, ensuring a better quality of life for beneficiaries.

In the interim union budget for 2024-25, Rs 806.7 billion (bn) was allocated to the PMAY, with a goal to construct two crore affordable houses in the next five years.

The government's commitment to expanding the PMAY underscores its dedication to addressing housing needs and promoting inclusive growth and social welfare.

This policy decision has positively impacted the cement sector, with India Cements being one of the primary beneficiaries. The anticipated increase in demand for construction materials, driven by the government's ambitious housing plans, has bolstered investor confidence in India Cements.

As infrastructure projects gain momentum, India Cements is poised to see substantial growth, reflected in its rising share price.

However, today the company has captured investor interest for a completely new development.

Let's dive into what's driving this renewed focus.

UltraTech Cement to Acquire Stake in India Cements

India's cement industry is witnessing a major development.

UltraTech Cement, the country's largest player owned by the Aditya Birla Group, announced a significant investment. They are acquiring a 23% stake in India Cements for Rs 267 per share, in a deal valued at around Rs 18.9 bn. This move is seen by UltraTech as purely a financial investment.

The news triggered a surge in both companies' share prices. UltraTech reached a record high of Rs 11,811, while India Cements jumped 12.5% to a new high of Rs 295.8.

This acquisition comes at a time when the Indian cement industry is experiencing a boom, driven by increased government spending on infrastructure projects and housing.

UltraTech, already a giant with a 23% market share, plans to further expand its capacity by 35 m tonnes over the next three years.

This move by UltraTech is another sign of consolidation in the Indian cement industry, following the acquisition of ACC and Ambuja Cements by billionaire Gautam Adani in 2022.

Amidst this backdrop of optimism, let's examine how did the company's financial performance look in 2024.

Financial Performance of India Cements

India Cements reported a reduced consolidated net loss of Rs 500.6 m for Q4 FY24, compared to a net loss of Rs 2,437.7 m in the corresponding quarter last year.

Consolidated revenue from operations during the said quarter stood at Rs 12.7 bn, down from Rs 14.9 bn m a year earlier.

Despite a decrease in cement and clinker volume to 24.4 lakh tonnes from 27.9 lakh tonnes year-on-year (YoY), the company managed a cash profit of Rs 240 m for the quarter, aided by a profit from land sales.

The firm's operating performance improved as it increased capacity utilisation to 63% from 51% in the preceding quarter, following an infusion of working capital to alleviate previous financial strains.

Total expenses in the fourth quarter decreased to Rs 13.6 bn from Rs 16.4 bn in the corresponding period of the previous financial year.

During FY24 the cement company reported a consolidated net loss of Rs 21.6 bn, compared to a loss of Rs 1.7 bn in the previous financial year.

Consolidated revenue from operations for FY24 was Rs 51.1 bn, down from Rs 56.1 bn in FY23.

What Next?

India Cements' top management is optimistic about its future. Following the appointment of new government, the company anticipates a boost in infrastructural activity. This focus is expected to stimulate construction activities across India, driving demand for cement.

Specifically, India Cements foresees robust demand in the southern region, where existing capacity is deemed sufficient to meet market requirements.

Data supports this outlook. India's cement consumption is projected to grow significantly due to ongoing infrastructure projects and investments in housing and commercial developments.

According to industry reports, cement demand in India is expected to rise by approximately 7-8% annually over the next few years, driven by infrastructure spending by both the government and private sectors.

However, India Cements acknowledges several challenges that could potentially affect profit margins moving forward. These challenges include escalating costs of raw materials, particularly energy and fuel, logistical expenses due to transportation constraints, and intense competition within the market.

Looking at the broader cement industry outlook, most companies are expected to face margin pressures in the first quarter of FY25. This is primarily due to the aforementioned cost escalations coupled with the seasonal impact of monsoon-related disruptions on construction activities in certain regions.

In summary, while India Cements anticipates strong demand and benefits from adequate capacity in the southern market, it remains cautious about the margin pressures posed by rising costs and competitive dynamics.

How India Cements Share Price has Performed Recently

In the past five days, India Cements share price rallied 18%. In the last month, it is up over 30%.

In 2024, so far its share price is up 10%.

The stock touched its 52-week high of Rs 277 on 4 January 2024 and a 52-week low of Rs 172.6 on 4 June 2024.

About India Cements

India Cements is the largest producer of cement in South India.

The company has four plants in Tamil Nadu and four in Andhra Pradesh India which cater to all major markets in South India and Maharashtra. It the market leader with a market share of 28% in the South India.

It has a distribution network with over 10,000 stockists. Its brands include Coromandel King, Sankar Sakthi, Raasi Gold Coromandel blended cements and sulphate resisting portland cement. Its product also includes ready mix concrete (RMC).

India Cements was incorporated on 21 February 1946.

To know more about the company, check out its financial factsheet and latest quarterly results.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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