Top Cement Stocks in India

India is the second largest producer of cement in the world. According to IBEF, the Indian cement capacity accounts for more than 7% of the global installed capacity.

At present, the country boasts an installed capacity of is 500 MTPA (million tonnes per annum) with production of 298 MTPA.

The domestic cement demand is well poised for a surge. With high allocation under the Union Budget 2022-23 for infrastructure, affordable housing schemes and road projects to fuel the economy, the cement production in India is expected to grow at 1.4 time of the real GDP.

Porter's Five Forces Analysis of the Cement Sector in India

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry.

These are barriers to entry, bargaining power of suppliers, bargaining power of customers, threat of substitutes and competition within the industry.

A change in any of the forces normally requires a company to re-assess the marketplace.

Let us have a look at how these five forces shape the cement sector:

#1 Barriers to Entry

The most attractive segment is one in which barriers to entry are high as they restrict the threat of new entrants.

Conversely if the barriers are low, the risk of new companies venturing into a given market is high.

In the cement sector, barriers to entry are high, as plant set up, land and the development of limestone and coal mines requires large capital investment. Moreover, the unavailability of land near mines causes more hindrance.

#2 Bargaining Power of Suppliers

The bargaining power of customers is the ability of suppliers to put the firm under pressure. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

Even though the top 20 players account for 70% of the total cement capacity, the bargaining power of suppliers is low due to the presence of several other small and medium size players spread across the region.

#3 Bargaining Power of Customers

The bargaining power of customers is the ability of customers to put the firm under pressure. It is high if buyers have many alternatives and low if they have few choices.

In the cement sector, the bargaining power of customers is low to moderate. Demand/ supply imbalance determines the price of commodities. Major customers typically negotiate prices based on current market levels.

#4 Competition

For most industries, having an understanding of the competition is vital to successfully marketing a product.

Although the competition in the cement industry is moderate to high due to the presence of several smaller players, it is far better than it used to be.

#5 Threat of Substitutes

A substitute product uses a different technology to try to solve the same economic need.

This is low for the cement sector, as there are no substitutes to cement.

Porters Five Forces Analysis of the Cement Sector in India

When to Invest in Cement Stocks

Cement stocks are usually risker as their fortunes are prone to economic booms and busts. For this reason, they are 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.

However, before selecting a stock, check to see whether the industry is due for revival or not.

Key Points to Keep in Mind While Investing in Cement Stocks

Here are some key points to take note of before you invest in cement stocks:

#1 Cyclicality of the sector

This is the most important factor one must keep in mind while investing in cement stocks.

Since cement stocks are cyclical, the best time to buy them is at the start of an economic expansion. The best time to sell them is just before the economy begins to slow down.

Investing in a cement stock at the peak of an economic cycle could result in a huge chunk of the investment being wiped it. Nevertheless, identifying the bottom of the cycle is not an easy task.

#2 Profitability of the company

Cement companies with a pan India presence are insulated from concentration risk and thus may generate healthier profit margins.

Cement companies operate within their region considering cement cannot travel long distances. So, for some reason, if a single region does not perform well, the others act as a buffer.

Therefore, before you compare the performance of two cement companies, say for instance, Ultratech vs Shree Cement, do factor in their regional exposure.

Here's a list of top cement companies in India based on their consolidated net profit.

Company	Net Sales (Rs m)	Operating Profit (Rs m)	Consolidated Net Profit (Rs m)
Ultratech Cement Ltd.	5,06,635	1,15,482	70,665
Shree Cement Ltd.	1,43,059	41,852	23,766
Ambuja Cements Ltd.	1,39,650	34,931	20,805
ACC Ltd.	1,61,514	32,052	18,203
The Ramco Cements Ltd.	59,800	13,151	8,927
JK Cement Ltd.	76,786	16,249	6,307
JK Lakshmi Cement Ltd.	50,408	8,685	4,262
Orient Cement Ltd.	27,254	6,006	2,633
Heidelberg Cement India Ltd.	22,970	4,836	2,523
HIL Ltd.	19,735	3,066	1,858

Source: Equitymaster
Data as of March 2022

#4 Debt to equity (D/E) ratio

A company uses both equity and debt to run a business. However, the amount of debt it uses indicates its fixed obligations. Higher the leverage, higher will be the fixed charges such as interest expense which will lower the profitability.

One must look for a debt to equity ratio of one or less than one.

Here's a list of top cement companies in India with low debt to equity ratio.

Company	Debt to Equity (x)
Ultratech Cement Ltd.	0.2
Ambuja Cements Ltd.	0
Shree Cement Ltd.	0.12
ACC Ltd.	0
Dalmia Bharat Ltd.	0
JK Cement Ltd.	0.76
The Ramco Cements Ltd.	0.6
Nuvoco Vistas Corporation Ltd.	0.4
JK Lakshmi Cement Ltd.	0.39
Heidelberg Cement India Ltd.	0.12
HIL Ltd.	0.06

Source: Equitymaster
Data as of March 2022

#5 Return on Capital Employed (ROCE) ratio

Along with a low debt to equity ratio, a one must look for a high return on capital employed (ROCE).

Return on capital employed measures how much profits the company is generating through its capital. The higher the ratio, the better.

An ROCE of above 15% is considered decent for companies that are in an expansionary phase.

Here's a list of top cement companies in India with more than 15% in ROCE.

Company	ROCE (%)
Shree Digvijay Cement Company Ltd.	28.77
Sahyadri Industries Ltd.	25.93
HIL Ltd.	23.87
Orient Cement Ltd.	23.13
Visaka Industries Ltd.	20.99
Heidelberg Cement India Ltd.	20.97
KCP Ltd.	20.91
JK Lakshmi Cement Ltd.	19.79
ACC Ltd.	18.71
Deccan Cements Ltd.	17.25
Shree Cement Ltd.	17.17
JK Cement Ltd.	17.09

Source: Equitymaster
Data as of March 2022

#6 Valuations

Two commonly used financial ratios used in the valuation of steel cement 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 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 stocks according to their P/BV Ratios.

#7 Dividend yields

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

Here's a list of top cement companies in India that score well on dividend yield and dividend payout.

Company	Dividend Yield (eoy)	Dividend Payout (%)
Shree Digvijay Cement Company Ltd.	5.1	91.2
Heidelberg Cement India Ltd.	4.8	80.8
ACC Ltd.	2.6	59.8
Visaka Industries Ltd.	2.6	21.9
Orient Cement Ltd.	1.8	19.5
Ambuja Cements Ltd.	1.7	60.1
HIL Ltd.	1.6	26.3
Sahyadri Industries Ltd.	1.4	9.5
JK Lakshmi Cement Ltd.	1.1	13.8

Source: Equitymaster
Data as of March 2022

For more details, check out the top stocks offering high dividend yields.

Top Cement Stocks in India

The cement sector is in its growth phase. The top cement stocks in India can immensely benefit with so many factors positively affecting the industry.

Here are the top cement stocks in India which score well on crucial parameters.

Company	RoE (Latest, %)	D/E (Curr FY, x)	Sales CAGR (3 yrs, %)	Profit CAGR (3 yrs, %)	P/E (x)
ACC	17.8	0	2.9	7.1	36.6
Ambuja Cement	14.6	0.1	3.6	7.6	33.9
Ultratech	16.7	0.1	8.1	44.1	26.5
Shree Cement	16.6	0.1	-3.5	32.1	42.3
Ramco Cement	9.7	0.4	4.9	20.7	21.5
JK Cement	17.5	0.7	14.9	37.1	33.7

Source: Ace Equity

For more details on cement stocks such as steel stocks, check out Equitymaster's Powerful stock screener for filtering the best cement stocks in India.

List of Cement Stocks in India

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.

Best Sources for Information on the Cement Sector

Indian Brand Equity Foundation Cements and Mining Sector Report - https://www.ibef.org/industry/cements-and-mining

So, there you go. Equitymaster's detailed guide on the top cement stocks in India is simple and easy to understand. At the same time, it offers detailed analysis of both the sector and the top stocks in the sector.

You can also checkout our playlist on Cement Stocks on Equitymaster's YouTube channel.

Here's a list of articles and videos on the cement sector and top cement stocks in India. This is a great starting point for anyone who is looking to explore more about cement stocks and the cement sector.

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...