India’s cement industry which constitutes a vital part of its economy, has gained the attention of huge investments, from Indian as well as foreign investors. One significant factor aiding the growth of this sector is the handy availability of the raw materials for making cement including limestone and coal. India’s cement demand is anticipated to reach 550-600 Million Tonnes Per Annum (MTPA) by the year 2025.
On 22nd September, all stocks of cement sector turned green, amongst which Ramco Cement has shown notable increase, quoting above 5% at Rs. 608.50. The stock opened at Rs. 582.00 against its previous closing at Rs. 579.90.
It is believed that a possible uptick in utilization driven by sound profitability, improvement in southern consumption, consistent balance sheet deleveraging, an efficient brand equity, etc. will help Ramco Cements to enhance its growth. Also, it is anticipated that change in fuel mix (~70% petcoke in FY17 v/s 50% in FY16) and 12MW new CPP will boost the Company’s operating synergy further.
Present Scenario
Cement stocks is seen to outperform benchmark indices in the ongoing calendar year since they have given average return of more 20 per cent during January 1- September 19. Furthermore, analysts are bullish on the cement sector because industry dynamics looks favorable owing to slowing capacity addition and expected demand recovery.
Between Jan 1-Sept 19, Kakatiya Cement shares soared the most 162 % to Rs 396.45 till September 19. Mangalam Cement, Heidelberg Cement and Burnpur Cement gained 69.54 %, 65.75 % and 55.32 % respectively. Other cement majors namely; The India Cements, The Ramco Cements and Shree Cement gained 52.84%, 48.94 %and 48.10%.
| Net Profit Between Jan 1-Sept 19 | ||
| # | Company Name | Net Profit (Rs. Cr.) |
| 1 | Kakatiya Cement | 162 % |
| 2 | Mangalam Cement | 69.54 % |
| 3 | Heidelberg Cement | 65.75% |
| 4 | Burnpur Cement | 55.32% |
| 5 | Ramco Cements | 52.84% |
| 6 | Shree Cement | 48.94% |
The June 2016 quarter end favored the cement companies since they have noted more than 80% (average) Y-o-Y rise in bottom-line figures. JK Cement posted net profit amounting to Rs 60.85 crore for this quarter versus Rs 1.06 crore in the corresponding quarter last year. Other cement majors, Shree Cement, Ramco Cement and Ultratech Cement noted 507.67 crore, 155.93 crore, and 774.92 crore Y-o-Y rise in net profit during April-June period.
| Net Profit June 2016 quarter | ||
| # | Company Name | Net Profit (Rs. Cr.) |
| 1 | JK Cement | 60.85 crore |
| 2 | Shree Cement | 507.67 crore |
| 3 | Ramco Cement | 155.93 crore |
| 4 | Ultratech Cement | 774.92 crore |
On the other hand, average expenditure of cement companies looked stable in the quarter ended June 2016. During July-September period, average fuel prices for cement firms rose by 18-30 per cent on Q-o-Q basis, led by firm global coal prices. It is believed that global coal prices will hopefully remain firm till December-end owing to lower supply, since rains are likely to impact Australian production, as well as higher demand due to winter restocking.
Prospects
The eastern part of India is the newer and virgin markets for cement companies and could help in the contributing to their bottom line in the times to come. 10 years from now, India could turn to be the chief exporter of clinker and gray cement to the countries of Middle East, Africa, and other developing nations of the world. Cement plants close to the ports, for example the plants in Gujarat and Visakhapatnam, will have an extra advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.
A huge number of foreign players are also anticipated to make an entry in the cement sector, driven by the profit margins and substantial demand. In the long run, domestic cement companies could go for global listings either via the FCCB route or the GDR route.
With subsequent aid provided by the government in terms of lower taxation, friendlier laws, and increased infrastructure spending, the sector is seen to grow and take India’s economy forward along with it.
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