Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Cement: Bottoming out? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 21, 2001

    Cement: Bottoming out?

    The recent fall in the global markets has subdued sentiment on the bourses. The panic selling after the Tuesday's terrorist attack in light of a possible outbreak of a war and its consequent effect on global economy has resulted in benchmark indices plummeting to a new lows. Valuations have also fallen significantly and the cement scrips are no exception.

    (Rs m) ACC Grasim Guj. Ambuja L&T Madras Cements
    Market Price (Rs) 101 257 145 157 4,200
    Book Value (Rs) 63 428 103 159 3,342
    Number of shares (m) 170.9 72.3 147.2 249.0 1.2
    EPS (FY02E) 9.7 67.6 13.5 17.0 539.6
    P/E (x) 10.4 3.8 10.7 9.2 7.8
    Price to book value (x) 1.6 0.6 1.4 1.0 1.3
    Market Capitalisation 17,261 18,545 21,344 39,093 5,039
    Sales (FY02E) 28,846 52,556 14,208 79,689 7,228
    Net profit (FY02E) 1,655 4,885 2,088 4,240 653
    Market cap/sales (x) 0.60 0.35 1.50 0.49 0.70

    First, a brief look at the positives for the cement sector. The per capita consumption of cement in India is just 90 kgs as compared to a world average of 250 kgs. Housing sector continues to remain buoyant thanks to various incentives proposed in recent budgets. This combined with a fall in interest rates have also augurs well for the industry. Another important development in the current year is the government's aggressive stance towards the road network development program. Apart from the Golden Quadrilateral that aims at connecting the four metros of the country, improving rural connectivity is also on the cards. As a result, cement demand is expected to increase by 8% per annum and cement consumption is expected to touch 200 million tonnes (MT) by 2010 as against around 93 MT currently. If the government manages to push reform and eliminate structural issues, which have hindered growth till now, one could witness a sharp upturn in cement demand in coming years.

    If one were to look at the production and consumption trend in the last one year, trend is volatile. 4QFY01 witnessed a sharp slump in cement demand and production on account of earthquake in Gujarat. Despite a fall in demand, prices have been on the rise since December 2000 thanks to the cartelisation of cement companies. Against a 8.3% fall of in cement prices in April-July 2000, cement prices have increased by 19.8% for the aforesaid period in the current year (average prices in the current year are Rs 181 per 50 kg as compared to Rs 151 per 50 kg last year). Though cement prices seem to have come off in recent months, on a year on year basis, per bag prices are on the higher side compared with last year's trend.

    Coming to the valuations perspective, the combined market capitalisation to sales of the top 5 companies works out to just 0.55 times. Gujarat Ambuja is trading at a significant premium to its peers in light of its high efficiency standards. ACC is back in black and the company is expected to report sharp growth in profits on the back of a significant improvement in margins. Grasim is the cheapest cement scrip probably in light of the diversified nature of the company (the other divisions like viscose staple fibre and fabrics are witnessing slow down in demand). Madras Cements is trading at a lower P/E due to its predominantly southern region focus.



    Equitymaster requests your view! Post a comment on "Cement: Bottoming out?". Click here!


    More Views on News

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    UltraTech: One of the Weakest Quarters in Years (Quarterly Results Update - Detailed)

    May 18, 2017

    Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms