New Winners in the Cement Sector in India

India's cement industry is all stirred up as two big rivals are hardening their positions.

Two of India's largest business conglomerates- the Aditya Birla group and the Adani group are in quest to become India's largest cement producer.

UltraTech, India's largest cement player owned by Aditya Birla group, has announced that its board has approved picking up a 23% non-controlling stake in India Cements.

The deal comes two weeks after Adani Group unit Ambuja Cement announced acquisition of Hyderabad-based Penna Cement.

Ever since the Adani Group entered the cement business by acquiring assets of Ambuja Cements and ACC in 2022, the cement sector is in a ferment.

The challenger Adani and the leader Birla look for aggressive consolidation in their hunger for market share.

Business experts in the industry expect consolidation to continue with more inorganic growth as compared to organic growth.

The Indian government is firmly focused on infrastructure development to spur economic growth and is striving for full infrastructure coverage to establish smart cities.

These measures are expected to result in increased construction activity in the country, thereby boosting demand for cement.

In this article, we will look at the top stocks that are present in the cement sector in India.

Read on...

#1 Ultratech Cement

Ranking as the 3rd largest cement producer worldwide, UltraTech Cement Limited stands out as the only cement company (outside of China) with a manufacturing capacity of over 100 million tonnes per annum.

In the white cement segment, UltraTech operates under the brand name Birla White, boasting a capacity of 1.98 metric tons per annum.

The company has 23 integrated plants and 27 grinding units, seven bulk terminals, two white cement and putty plants and over 100 ready mix concrete plants.

Besides India, the company's operations span across the UAE, Bahrain, Bangladesh, and Sri Lanka. The company has an installed capacity of 114 MTPA.

Ultratech's distribution network spans across 30,000 dealers, 64,000 retailers and a fleet of more than 60,000 trucks across India.

Coming to the financials, Ultratech reported a 12.1% revenue growth in FY24 with operating profit growing at 22%. EBITDA margins also improved to 18.3%.

Going forward, management has guided for continuing capex to the tune of Rs 100-110 bn annually for the next few years as capacity utilisation rates in Q4FY24 reached 98%. The company expects further consolidation in the cement industry.

The stock is up 43% in the last one year due to strong operational performance.

#2 Ambuja Cements

Ambuja Cements Limited, a prominent cement company in India, is part of the Adani Group, known for its diverse sustainable businesses. Since its inception, Ambuja Cement has focused on providing eco-friendly home-building solutions.

The company has a cement capacity of 31 million tonnes with six integrated cement manufacturing plants and eight cement grinding units across the country.

The company manufactures and sells various types of cement such as Portland pozzolana Cement, ordinary Portland cement, water-repellent cement, etc.

Ambuja aims to strengthen its market share in the southern markets of India by completing the acquisition of a 1.5 mn tonne grinding unit at Tuticorin in Tamil Nadu.

The company also aims to improve its market share to 20% through organic capacity expansions as well as inorganic acquisitions.

In line with Ultratech's move on acquisition of India Cements, Ambuja cement also acquired Penna Cement for Rs 104 bn which increased the company's market share by 8%.

Coming to the financials, the company reported revenue decline of 14.8% in FY24. However, EBITDA growth came in at 24.9%. EBITDA margins also improved significantly to 19.3% in FY24.

Going ahead, management has guided for reducing costs 8-10% through efficiency and productivity improvement. Annual capex guidance is Rs 75 bn to expand capacities.

Ambuja Cement stock is up 47% in the last one year on the back of sustained financial performance.

#3 ACC

Established in 1936, ACC has a significant presence in India's building materials industry, with manufacturing and marketing operation units spread across the nation.

The company is principally engaged in the business of manufacturing and selling of cement and ready-mix concrete.

The company operates 18 cement plants and over 82 ready-mixed concrete plants, supported by a skilled workforce, extensive distribution channels, and sales offices.

The company's distribution network includes 56,000 channel partners/ retail points. ACC's brand portfolio includes the Gold and Silver ranges, offering superior quality for various construction needs.

The company has a manufacturing capacity of 89 MTPA from its 22 cement plants and 86 ready mix concrete plants across India. The company also operates 11 captive power plants for power requirements of its cement plants.

In 2022, ACC became part of the Adani Group, adding to its diversified portfolio of sustainable businesses.

The company expects higher utilisation over the next five years with demand outpacing supply thereby leading to operating leverage.

Coming to the financials, ACC reported a decline of 10% in its consolidated revenues. However, EBITDA grew 59% for FY2024. EBITDA margins almost doubled to come in at 15.3% versus 8.7% in the previous year.

Shares of ACC are up 28% since in the last one year. The stock is down by 5.8% in the past one month.

#4 Shree Cement

Shree Cement is engaged in manufacturing and selling of cement and cement related products and is one of the lowest cost producers in the country.

The company 3^rd largest cement producer in India with an installed capacity of 46.4 MTPA.

The company sells cement under the brand name Roofon, Bangur Power, Shree Jung Rodhak, Bangur Cement, and Rock strong.

The company derives 94% of its revenues from India and the balance 6% from export markets. The company has 4 fully integrated cement manufacturing plants and 10 grinding units across 10 states in India.

Shree Cement also has a power generation capacity of 771 MW. The company is targeting 80 MTPA capacity by 2030 by exploring newer geographies across the country and adopting both organic and inorganic means.

Coming to the financials, Shree Cement reported 14% growth in consolidated revenues and 52.6% growth in EBITDA for FY24. EBITDA margins came in at 17.7% compared to the previous year's 13.2%.

Going ahead, management has guided to improve efficiency and margins due to operating leverage kicking in at 80% capacity utilisation. Capex guidance for the company is at Rs 40 bn for FY25.

Shares of Shree Cement are up 15% in the last year. However, the stock is down 2.2% in the past one month.

Conclusion

Cement plays vital role in the economic development of any country. India's cement industry is the second largest in the world, after China.

With the adoption of massive modernisation and assimilation of state-of-the-art technology, Indian cement plants are today the most energy-efficient and environment-friendly and are comparable to the best in the world in all respects.

In the next 10 years, India could become the main exporter of clinker and grey cement to the Middle East, Africa, and other developing nations of the world.

The cement demand in India is estimated to touch 419.92 MT by FY27 driven by the expanding demand of different sectors, i.e., housing, commercial construction, and industrial construction.

Investors can make use of the ongoing volatility to build a solid portfolio of fundamentally strong stocks at lower prices.

Remember the challenges before diving headfirst as cement companies are capex heavy businesses and incorrect capital allocation strategies can derail the operating performance of the companies in economic downturns.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...