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Anand Rathi Research India Equities
Cement
Sector Update
India I Equities
Manish Valecha
Research Analyst
Sensex: 46104
Nifty: 13529
Monthly cement production (m tonnes)
Source: IIP data
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
0
5
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35
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Apr/20
Jul/20
Oct/20
(m tons)
Production Volume growth
Cement volumes
growth was up 2.8%
y/y for Oct'20
10 December 2020
Cement channel check
Healthy demand outlook; short-term pricing pressure may arise
The Competition Commission of India began investigating some cement
companies’ alleged anti-competition behaviour. Some short-term
sentimental impact on stock prices, we believe, is likely. With input prices
rising, however, price hikes cannot be ruled out in the long term.
We ran a channel check to gauge the current demand and pricing milieu.
After firm demand in Oct, Nov was partially hit by the Diwali holidays
and region-specific issues, which dealers said were temporary as infra
activity is improving and higher IHB demand is expected. Prices across
regions declined Rs5-15 a bag except in the South, where prices were
hiked by Rs20-25a bag in the first week of Dec. Pricing pressure in some
regions is likely owing to volumes being pushed by companies which
follow the calendar year. We prefer some of the Central region companies
(Birla Corp, Heidelberg) and Ramco Cements in the South.
CCI investigation may restrict price hikes in the short term. On 9
th
Dec’20 the CCI began investigating some cement companies to examine
possible cartelisation, and searched offices. We believe this will restrict
significant price hikes in the industry in the near future. Considering rising
costs in FY22, however, we do not rule out the possibility of price hikes. An
appeal is still pending against a CCI penalty (~Rs63bn) imposed in 2012 on
several cement companies for colluding to under-use plants and create artificial
cement shortages.
North and Central. After good demand here in Sep and Oct, demand in Nov
was hit by the Diwali holidays and continued weak in Dec (the wedding season
and winter). Dealers, however, expect demand to improve from end-Dec.
Demand in Delhi continues to be hit by the high number of Covid-19 cases,
pollution and the ongoing farmer protest. Prices were reduced by Rs5-10 in
the first week of Dec in the North and Central regions.
West and East. Demand here was firm in Oct and Nov. In some cities,
however, demand was hit by labour shortages, post-Diwali, the huge number
of Covid-19 cases and festivals (Chhath Pooja in Bihar). Dealers expect
volumes to rise with some companies which follow the calendar year
(ACC/Ambuja) expected to push volumes. This could keep prices squeezed.
Prices declined by Rs10-15 a bag in the first week of Dec in the West and East
regions.
South. Demand here in Nov was weak. Dealers, however, say demand in
Bengaluru was curtailed by the heavy monsoon and in Hyderabad by the
property-registration issue curbing IHB demand. Also, infra projects are facing
a funding issue (Polaveram/Kaleshwaram). In Hyderabad prices rose by Rs20-
25 a bag in the first week of Dec; whereas in Bengaluru they held at Nov
levels.
10 December 2020 Cement channel check – Healthy demand outlook; short-term pricing pressure may arise
Anand Rathi Research 2
Fig 1 – Cement prices – West
Source: Company, Anand Rathi Research
Fig 2 – Cement prices – North
Source: Company, Anand Rathi Research
Fig 3 – Cement prices – East
Source: Company, Anand Rathi Research
Fig 4 – Cement prices – Central
Source: Company, Anand Rathi Research
Fig 5 – Cement prices – South
Source: Company, Anand Rathi Research
Fig 6 – Cement prices – All-India
Source: Company, Anand Rathi Research
200
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(Rs/bag)
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(Rs/bag)
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(Rs/bag)
10 December 2020 Cement channel check – Healthy demand outlook; short-term pricing pressure may arise
Anand Rathi Research 3
Fig 7 – Cement sector snapshot
CMP
(Rs)
EV / tonne ($) EV / EBITDA (x) P / E (x) Capacity (tonnes)
FY20 FY21e FY22e FY20 FY21e FY22e FY20 FY21e FY22e FY20 FY21e FY22e
ACC 1,629 107 105 102 10.8 12.2 11.6 22.5 27.8 27.4 33.4 33.4 33.4
Ambuja 247 151 172 158 15.2 16.0 13.5 32.1 33.8 29.5 29.7 29.7 31.5
UltraTech 5,003 192 186 178 18.0 19.3 15.5 25.8 44.3 31.7 112.9 114.9 116.1
Shree 23,807 291 251 251 23.4 25.5 20.3 54.7 72.8 48.6 40.4 46.4 46.4
Dalmia Bharat 1,034 115 104 85 10.8 8.9 8.2 89.1 29.8 30.0 27.3 29.5 34.8
JK Lakshmi 347 62 57 50 7.9 7.0 5.8 17.4 14.2 12.1 11.7 11.7 11.7
Star Cement 94 133 84 86 9.1 10.6 8.4 13.4 19.4 15.0 3.7 5.7 5.7
Ramco 834 164 158 147 21.4 20.6 14.8 32.7 35.1 22.8 18.8 19.8 20.8
India Cement 149 72 68 68 14.0 9.7 8.8 71.7 27.7 21.2 15.6 15.6 15.6
Birla Corp. 753 86 87 70 7.2 7.5 7.2 11.5 13.5 13.0 15.5 15.5 19.6
JK Cement 1,975 158 153 147 14.9 12.9 11.4 26.4 23.6 21.3 15.3 16.0 16.0
Orient Cement 78 48 44 39 7.3 5.9 5.1 18.4 12.3 10.0 8.0 8.0 8.0
Heidelberg 207 98 98 92 9.0 9.7 7.8 17.5 19.4 15.1 6.5 6.5 6.5
Mangalam 223 39 40 36 5.4 5.3 4.3 7.9 8.3 6.8 3.8 3.8 3.8
Deccan 362 30 26 21 6.3 3.0 2.5 7.7 5.5 5.7 2.3 2.3 2.3
Sanghi Industr. 32 69 51 49 10.6 13.6 8.6 12.2 NA 19.7 4.1 6.1 6.1
NCL Industr. 143 49 50 51 4.1 6.8 6.2 12.7 14.7 12.8 2.7 2.7 2.7
Prism 86 41 78 74 6.5 14.9 10.1 64.5 NA 29.9 7.0 7.0 7.0
Source: Bloomberg, Anand Rathi Research
Fig 8 – Stock performance
Absolute price performance (%)
Relative price performance (%) – vs. the Nifty
1-month 3-month 6-month 12-month
1-month 3-month 6-month 12-month
Dalmia Bharat 13.9 45.8 83.3 24.8
Dalmia Bharat 7.2 28.1 50.1 11.1
Ramco Cement (0.3) 19.3 35.3 8.4
Ramco Cement (7.1) 1.6 2.0 (5.3)
JK Cement 6.3 37.3 69.8 72.5
JK Cement (0.4) 19.5 36.6 58.8
India Cement 24.2 25.9 12.9 101.9
India Cement 17.5 8.1 (20.3) 88.2
JK Lakshmi 14.6 36.9 40.3 26.7
JK Lakshmi 7.9 19.2 7.0 13.0
Birla Corp 8.0 24.4 38.0 21.2
Birla Corp 1.3 6.7 4.7 7.5
Prism 12.5 62.7 98.7 38.3
Prism 5.8 45.0 65.5 24.6
Orient 17.6 24.9 27.9 10.0
Orient 10.8 7.1 (5.4) (3.7)
Heidelberg 12.4 16.3 19.5 19.2
Heidelberg 5.7 (1.4) (13.7) 5.6
Sagar 0.4 52.9 106.1 42.5
Sagar (6.3) 35.2 72.9 28.8
Star 10.4 10.0 6.0 9.7
Star 3.7 (7.8) (27.3) (4.0)
Mangalam 9.7 20.8 24.8 (16.5)
Mangalam 3.0 3.1 (8.5) (30.2)
Deccan 7.1 31.7 53.2 28.8
Deccan 0.4 14.0 20.0 15.1
Sanghi 7.2 16.8 50.4 (9.7)
Sanghi 0.5 (0.9) 17.1 (23.4)
NCL 1.6 32.3 117.4 72.7
NCL (5.1) 14.6 84.2 59.0
Not Rated
ACC (1.4) 21.8 28.3 13.9
ACC (8.1) 4.1 (5.0) 0.2
Ambuja (0.5) 16.8 29.6 27.0
Ambuja (7.2) (0.9) (3.7) 13.3
Ultratech 5.4 27.0 31.2 23.2
Ultratech (1.3) 9.3 (2.1) 9.5
Shree 4.3 20.9 10.4 18.3
Shree (2.4) 3.1 (22.9) 4.6
Kesoram Inds 20.5 18.2 64.8 (5.1)
Kesoram Inds 13.8 0.5 31.6 (18.8)
Nifty 6.7 17.7 33.2 13.7
Nifty 0.0 0.0 0.0 0.0
Source: Bloomberg
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