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Top 5 Cement Stocks- Quantitative Analysis

Top 5 Cements Stocks Quantitatives Analysis

Published on 24 December 2021 Views 0 Comments 4

Which is the best Cement Stock?  Here is the Quantitative Analysis of Top-5 Cement companies based on their Q2FY22 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- 2,19,537
  • Shree Cement- 96,444
  • Ambuja Cement- 77,609
  • ACC- 44,859
  • Dalmia Bharat- 37,138

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:

Top 5 Cement Companies- PE Ratio

Top 5 Cement Companies- 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 21.91, ACC gets the first position and 5 points. And Shree Cement with the highest PE of 36.76 among peers is awarded 1 point only. QoQ PAT of ACC ltd. has reduced which resulted in a fall of the prices.

2) EV/EBITDA:

Top 5 Cement Companies- EV/EBITDA

Top 5 Cement Companies- 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, ACC Limited bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 12.1. Dalmia Bharat with the highest EV/EBITDA ratio of 234.94 receives the last position and one point only. Overall EBITDA was affected due to an increase in the cost price.
  • ACC  Ltd. management has done a terrific job in cost saving by their program called ‘Parvat’ which helped them increase the EBITDA value.

3) Return on Capital Employed (ROCE):

Top 5 Cement Companies- ROCE

Top 5 Cement Companies- 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.
  • Shree Cement has employed the capital very well which can be seen by the returns generated of 19.24% which is due to good demand in north and east regions which increased the returns.
  • Dalmia Bharat gets the last position and 5th rank due to the lowest ROCE of 10.59%.

4) Return on Equity (ROE):

Top 5 Cement Companies- ROE

Top 5 Cement Companies- 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.

5) Debt-to-Equity Ratio:

Top 5 Cement Companies- D/E 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.
  • Ultratech Cement has the highest D/E ratio of 0.46 and is hence given 5th rank. Likely, Dalmia Bharat and Shree Cement have the D/E ratio of 0.3 and 0.14 respectively.

6) Interest Coverage Ratio:

Top 5 Cement Companies- Interest Coverage Ratio

Top 5 Cement Companies- 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 5.4, Dalmia Bharat is ranked and scored accordingly.

7) Pledged %:

Top 5 Cement Companies- Pledged %

Top 5 Cement Companies- Pledged %

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

8) Institutional Holding (FII + DII):

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

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

  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Ambuja Cement, collectively of 80% 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 45.11% in the Company’s shareholding pattern and hence is given 1 point only.

9) Operating Profit Margin (%):

Top 5 Cement Companies- Operating Profit Margin (%)

Top 5 Cement Companies- 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 32% and secures 1st position.
  • With the lowest OPM of 21%, ACC scores last rank among the peers.

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

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

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

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

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

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

  • On a 3-Years CAGR basis, UltraTech Cement outscores the other players with 13.02% 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 62% on a 3-Years CAGR basis. With the lowest PAT growth of 16%, ACC is ranked 5th and given 1 point.

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

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

  • Here UltraTech Cement is a one-sided winner with 116 MTPA capacity with a market share of 21.4%, hence securing 1st rank and 5 points.
  • Ultratech cement has the biggest capacity in the industry which stands around 116 MTPA, which is placed pan India helping them to cater to more customers than its peers. The surge in demand and higher presence helped higher capacity utilization of their plant.

13) Capacity Metrics- Utilization in Q2 FY22:

Top 5 Cement Companies- Capacity Metrics- Utilization in Q2FY22

Top 5 Cement Companies- Capacity Metrics- Utilization in Q2FY22

  • Capacity utilization denotes that how much of the total capacity you are using, the higher the better.
  • Ultratech Cement with capacity utilization of 93% 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.

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

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

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

  • Realization/Tonne is calculated by revenue divided by total volume sold.
  • Ultratech cement sold the highest volume of cement with an increase in price/bag helping them realize good revenue/ton.
  • Ultratech Cement has the highest Realization/tonne of 5,538. Hence, it secured 1st rank and 5 points. Whereas, Ambuja Cement gets 2nd rank and 4 points.
  • Here Shree Cement is the worst performer within the peers with a Realization/tonne of 5,043. Hence, it is ranked lowest.

15) Per Tonne Ratio Analysis - EBITDA per Tonne:

Top 5 Cement Companies- EBITDA per Tonne

Top 5 Cement Companies- EBITDA per Tonne

  • EBITDA/Tonne is calculated by EBITDA divided by total volume sold. EBITDA/tonne is calculated to see what the company is earning after variable cost is deducted. The higher the ratio is better.
  • Shree Cement has the highest EBITDA/tonne of 1,483. Hence, it secured 1st rank and 5 points. Whereas, Dalmia Bharat gets 2nd rank and 4 points.
  • Shree Cement has the highest EBITDA/Tonne as the company’s volume sold didn't increase due to transport restriction Chhattisgarh which reduced spending of the company hence increasing the EBITDA/Tonne. 
  • Here ACC is the worst performer among the peers with an EBITDA/tonne of 1,027. Hence, it is ranked lowest and only 1 point given.

16) Operating Performance Ratios- Inventory Turnover Ratio: