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Top 5 Cement Stocks- Quantitate Analysis

Top 5 Cement Stocks- Quantitative Analysis

Published on 18 September 2021 Views 329 Comments 2

Which is the best Cement Stock?  Here is the Quantitative Analysis of Top-5 Cement companies based on their Q1FY22 performances.

Introduction:

India ranks second in terms of the largest cement producer in the world. In FY20, cement production in India has reached 329 million tonnes, which is expected to grow and reach 381 million tonnes by FY22  and is expected to reach 550 MT by the year 2025 (IBEF Report).

Cement sector players face monopolistic competition due to the very high cost of entry and exit from the market. Hence, few companies are dealing in cement.

The focus of the Government of India towards Infrastructure development and the announcement made about this in Budget 2021 lays the foundation of upcoming strong demand in the Cement Industry.

The cement industry is beginning a new cycle majorly driven by Government's infrastructure push, a pick-up in real estate demand, the upturn in the housing industry, rural consumption-led volume rise, and industry consolidation.

Key Drivers for the growth of the Cement Sector:

i) Government focus towards infrastructural development such as rural development, construction sector, etc.

ii) Increasing purchasing power in rural areas and urbanization as well.

iii) Current as well as upcoming projects of Governments like Highways, etc.

iv) High-Entry Barrier

v) Per Capita Consumption of Cement to increase in future.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

Cement Sector Quantitative Analysis

Companies selected for Analysis:

We have selected the following Five Large Cap Cement companies for our Quantitative Analysis.

Market Capitalization of 5 Cement Stocks (Rs. Cr):

  • UltraTech Cement- 2,15,205
  • Shree Cement- 94,650
  • Ambuja Cement- 78,502
  • ACC- 42,833
  • Dalmia Bharat- 37,676

The procedure of Analysis and its Interpretation

  • These 5 Companies are analyzed on the following 21 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Parameters of Quantitative Analysis:

1) PE Ratio:

  • PE of a company means that how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
  • With the lowest PE Ratio of 21.76, ACC gets the first position and 5 points. And Shree Cement with the highest PE of 36.6 among peers is awarded 1 point only.

Top 5 Cement Companies- PE Ratio

2) EV/EBITDA:

  • EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). This ratio assesses the overall financial performance of the firm.
  • EV/EBITDA of value below 10 is considered healthy.
  • Here also, Ambuja Cement bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 10.34. Shree Cement with the highest EV/EBITDA ratio of 19.74 receives the last position and one point only.

Top 5 Cement Companies- EV/EBITDA

3) Stock Returns % Since Last Quantitative Analysis:

  • In Comparison with our last quantitative analysis, Ambuja Cement has yielded the maximum return of 23.05% among other players and hence rewarded with full points and 1st rank.
  • While Shree Cement generated a negative return of -2.63% in the same period and got the last rank.

Top 5 Cement Companies- Stock Returns % Since Last Quantitative Analysis

4) Return on Capital Employed (ROCE):

  • ROCE signifies that how the company is using its capital to generate a return for the company and investors. The high ROCE, the better it is for the company.
  • ROCE % = ( EBIT / Total Capital Employed ) * 100
  • In this parameter, Shree Cement outperforms other peers by scoring the highest ROCE of 19.24% and hence obtains the 1st position as well as 5 points.
  • Dalmia Bharat gets the last position and 5th rank due to the lowest ROCE of 10.59%.

Top 5 Cement Companies- ROCE

5) Return on Equity (ROE):

  • RoE signifies how well the company generates the return on shareholders’ investment. Companies with higher RoE are considered good.
  • In this parameter, Ambuja Cement again beat other peers by scoring the highest ROE of 17.57% and hence obtains the 1st position as well as 5 points.
  • Dalmia Bharat with the lowest RoE of 11.20% receives the last rank.

Top 5 Cement Companies- ROE

6) Debt-to-Equity Ratio:

  • The debt-to-equity ratio is a leverage ratio that measures the debt of a company against its total shareholder’s equity.
  • Accordingly, the lesser is the debt, the better it is for the company, and vice-versa.
  • Ambuja Cement and ACC is a debt-free company and hence rewarded with full points and given the first position.
  • Dalmia Bharat has the highest D/E ratio of 0.56 and is hence given 5th rank. Likely, UltraTech Cement and Shree Cement have the D/E ratio of 0.46 and 0.14 respectively.

Top 5 Cement Companies- D/E Ratio

7) Interest Coverage Ratio:

  • The Interest Coverage ratio is in direct relation with the D/E ratio. It can be calculated by dividing EBIT from Interest Expenses.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Since Ambuja Cement and ACC are zero-debt companies, they maintain a good Interest Coverage Ratio. ACC, with an Interest Coverage Ratio of 30.8, highest among peers, gets the first rank.
  • Due to the lowest Interest Coverage Ratio of 1.9, Dalmia Bharat is ranked and scored accordingly.

Top 5 Cement Companies- Interest Coverage Ratio

8) Pledged %:

  • All the companies in the list have not pledged their share and hence are rewarded with full points and first rank.

Top 5 Cement Companies- Pledged %

9) Institutional Holding (FII + DII):

  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Ambuja Cement, collectively of 82.2% and hence Ambuja Cement is rewarded with full points and first rank.
  • FIIs and DIIs also hold around 77.5% stake in UltraTech Cement and hence it secures the 2nd position in this criterion and scores 4 marks.
  • Dalmia Bharat has the lowest stake of institutional investors of 43% in the Company’s shareholding pattern and hence is given 1 point only.

Top 5 Cement Companies- Institutional Holdings (FII + DII)

Top 5 Cement Companies- Institutional Holdings (FII + DII)

10) Operating Profit Margin (%):

  • Operating Profit Margin can be calculated by dividing Operating Profit by Total Revenue. It is sometimes also called EBIT (Earnings before Interest and Tax) Margin.
  • Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice-versa.
  • Shree Cement efficiently posts the OPM of 28.14% and secures 1st position.
  • With the lowest OPM of 22.38%, ACC scores last rank among the peers.

Top 5 Cement Companies- Operating Profit Margin (%)

Top 5 Cement Companies- Operating Profit Margin (%)

11) Sales and Net Profit Growth- 5 Year CAGR:

  • In terms of Sales Growth, Ambuja Cement Tech posts the highest figure of 21% and hence gets the full points. Here, Dalmia Bharat got the 5th position.
  • Ambuja Cement has also registered the highest Profit after Tax (PAT) growth on 5 years CAGR basis of 24% and hence is rewarded with the first rank. Here again, Dalmia Bharat got 5th rank.

Top 5 Cement Companies- Sales & Net Profit Growth- 5 Years CAGR

Top 5 Cement Companies- Sales & Net Profit Growth- 5 Years CAGR

12) Sales & Net Profit Growth: 3 Year CAGR:

  • On a 3-Years CAGR basis, UltraTech Cement outscores the other players with 13% Sales Growth and receives the first position and 5 points as well. ACC delivered poor performance and post negative Sales Growth of (1.2%) and hence is rewarded the last rank.
  • Concerning Sales Growth on a 3-years CAGR basis, Shree Cement, Dalmia Bharat, and Ambuja Cement are ranked 2nd, 3rd, and 4th respectively.
  • While Dalmia Bharat ranks first with the highest PAT growth of 72% on a 3-Years CAGR basis. With the lowest PAT growth of 15.7%, ACC is ranked 5th and given 1 point.

Top 5 Cement Companies- Sales & Net Profit- 3 Years CAGR

Top 5 Cement Companies- Sales & Net Profit- 3 Years CAGR

13) Capacity Metrics- Installed Capacity in Million Tonne per Annum:

  • Here UltraTech Cement is a one-sided winner with 116.8 MTPA capacity with a market share of 21.4%, hence secured 1st rank and 5 points.
  • Ambuja Cement has the lowest capacity of 29.70 MTPA with a market share of 5.6%, hence given only 1 point.

Top 5 Cement Companies Capacity Metrics- Installed Capacity in Million Tonne per Annum

Top 5 Cement Companies Capacity Metrics- Installed Capacity in Million Tonne per Annum

14) Capacity Metrics- Utilization in Q1 FY22:

  • Capacity utilization denotes that how much of the total capacity you are using, the higher the better.
  • Ambuja Cement with capacity utilization of 86.5% scores the highest rank for both the parameters and received 5 points in both.
  • Whereas Shree Cement became the worst performer in both parameters and ranked accordingly.

Top 5 Cement Companies- Capacity Metrics- Utilization in Q1FY22

Top 5 Cement Companies- Capacity Metrics- Utilization in Q1FY22

15) Per Tonne Ratio Analysis- Realization per Tonne (Higher the Better):

  • ACC has the highest Realization/tn of 5,680. Hence, secured 1st rank and 5 points. Whereas, UltraTech Cements gets 2nd rank and 4 points.
  • Here Shree Cement is the worst performer within the peers with a Realization/tn of 5,043. Hence, it is ranked lowest.

Top 5 Cement Companies- Per Tonne Ratio Analysis- Realization per Tonne

Top 5 Cement Companies- Per Tonne Ratio Analysis- Realization per Tonne

16) Per Tonne Ratio Analysis - EBITDA per Tonne:

  • UltraTech has the highest EBITDA/tn of 1,536. Hence, secured 1st rank and 5 points. Whereas, Ambuja Cement gets 2nd rank and 4 points.
  • Here ACC is the worst performer among the peers with an EBITDA/tn of 1,271. Hence, it is ranked lowest and only 1 point given.
  •  The QoQ performance of Shree Cement has shown negative growth.

Top 5 Cement Companies- EBITDA per Tonne

Top 5 Cement Companies- EBITDA per Tonne

17) Per Tonne Analysis:

  • If Per Tonne Ratio Analysis is summarized, then ACC Cements performs better than other players with 5,680 in terms of Realization per tonne. While UltraTech Cement well in the context of EBITDA per tonne.

Top 5 Cement Companies- Per Tonne Ratio Analysis

Top 5 Cement Companies- Per Tonne Ratio Analysis

18) Operating Performance Ratios- Inventory Turnover Ratio:

  • Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
  • Here ACC secured the 1st rank with the highest Inventory turnover of 15.2 and get full 5 points.
  • Shree Cement again got the last rank due to a poor Inventory turnover ratio of 7.9, hence only 1 point was given.

Top 5 Cement Companies- Operating Performance Ratios- Inventory Turnover Ratio

Top 5 Cement Companies- Operating Performance Ratios- Inventory Turnover Ratio

19) Operating Performance Ratios- Debtor Days (Lower the Better):

  • Debtor days denotes how fast the debtors of the company are repaying the amount they owed, hence, the higher the better.
  • Here again, Ambuja Cement secured the 1st rank with the lowest debtor days of 10.8 and get full 5 points.
  • Shree Cement again got the last rank due to the highest debtor days of 23.9, hence only 1 point was given.

Top 5 Cement Companies- Debtor Days

Top 5 Cement Companies- Debtor Days

20) Operating Performance Ratios- Cash Conversion Cycle (CCC):

  • CCC refers to the no. of days a company takes to sell its inventories and collect its receivables.
  • The shorter (even negative) the cash conversion cycle of a company is, the better it is considered and vice versa.
  • Again ACC secured the highest rank among its peers with the lowest CCC of negative (11.2) and get full 5 points.
  • Here Shree Cement again got the last rank due to the highest CCC of 43.1, hence only 1 point was given.

Top 5 Cement Companies- Cash Conversion Cycle

Top 5 Cement Companies- Cash Conversion Cycle

19) Final Score:

  • After analyzing and summing up all the marks scored by the Top 5 Cement Companies, Ambuja Cement is the front runner thereby conquers the first position in our analysis. Ambuja Cement scores 83, the highest among all 5 companies.
  • ACC, UltraTech Cement, and Shree Cement scored 73 points, 68 points, and 55 points respectively and hence secured 2nd, 3rd and 4th rank.
  • Due to poor performance in the majority of parameters, Dalmia Bharat gets the lowest score of 47 points.
  • On account of healthy scores, Ambuja Cement and ACC appear to be strong Cement Companies.

Top 5 Cement Companies- Final Score

Top 5 Cement Companies- Final Score
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