India Cements Limited is a cement manufacturing company in India. The company is headed by former International Cricket Council Chairman N. Srinivasan. The company is majorly involved in manufacturing of general and specialized grade of cement and its first plant was set up at Thalaiyuthu in Tamil Nadu in 1949.
The company’s shares have 52 weeks price band of INR 116-67 and a total market capitalization of INR 31.92 billion which makes it a Large-Cap company. The shares have a P/E ratio of 38.8 and a dividend yield of 0.78%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ☆ ☆ ☆)
The cement business does not have a highly distinguished product, so operational efficiency gives price dominance in the market. The cement manufacturing process is such that the cost of electricity and transport comes to around 35% of the total cost. India Cements has a current manufacturing capacity of 15.5+ million tonnes per annum. India Cements has now 8 integrated cement plants in Tamil Nadu, Telangana, Andhra Pradesh and Rajasthan and two grinding units, one each in Tamil Nadu and Maharashtra.
This, however, has not helped the company to achieve a solid market presence and wide distribution due to the stronghold of other cement companies in various regional markets. Hence the company does not have a solid economic moat and gets only 2 stars in India Cements fundamental analysis due to the asset-heavy nature of the business.
2. Business Model and Management (★ ★ ★ ☆ ☆)
The growth story of the company is such that after the approval of a Scheme of Amalgamation and arrangement between Trinetra Cement Ltd and Trishul Concrete Products Ltd with The India Cements Ltd, all the cement assets have come under one roof – India Cements. While retaining cement over the years as its mainstay, the company has also ventured into related fields like shipping, captive power and coal mining that has some synergy with its core business. This has also made the company an integrated manufacturer capable of combatting price uncertainties in energy and other inputs.
Mr N Srinivasan is the Managing Director of the company and was an active member of the Prime Minister’s High Profile Council of Trade and Industry (1996-2001). He has more than 5+ decades of experience in the industry. Smt Nalini Ratnam is on the board of Directors and is the Nominee of Life Insurance Corporation of India. Mr V.Venkatakrishnan is the Nominee of IDBI Bank Limited and represents the Institutional interest in the company. Overall the management is capable but has not been able to give a robust growth to the financials of the company. Therefore this category gets 3 stars in India Cements fundamental analysis.
3. Growth Ratios (★ ★ ☆ ☆ ☆)
The revenue has shown a flat growth rate of over the last 10 years. The operating and Net income has also shown fluctuations over time. The capital expenditure has also been decreasing and the working capital has been negative due to the nature of business. This overall shows poor growth for the company in the past as well as in the coming years. Therefore this category gets 2 stars in India Cements fundamental analysis.
4. Profitability Ratios (★ ★ ☆ ☆ ☆)
The gross margins of the company have been varying due to the nature of demand. There are also some effects because of the economies of scale and higher asset utilization. The fluctuations in the margins are due to the cyclic demand of the market and are normal in cement companies. However, the company has been performing poorly in terms of profits as compared to its peers. Therefore this category gets 2 stars in India Cements fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ☆ ☆)
The Capital expenditure has shown some decline and the net income margin has worsened in recent years. The Free cash flow has remained positive and the operating cash flow growth has shown a nominal decline. Overall the company has seen a deterioration of its cash position. Therefore this category gets 3 stars in India Cements fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ☆ ☆ ☆)
The current ratio has shown some improvement in recent years but has been below the minimum requirement of 1. This shows the company has a deficit of current assets over current liabilities. The financial leverage and debt to equity have declined over the years and the profitability margins have also deteriorated. This reduces the solvency of the company. Therefore this category gets 2 stars in India Cements fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the efficiency has not shown any significant improvement over the years. The payables period has gone up significantly from 144 days to 193 days. The receivables period has gone up slightly and days inventory has almost remained flat. However, the company did manage to achieve a negative cash conversion cycle, which is an indicator of good efficiency. Therefore this category gets 4 stars in India Cements fundamental analysis.
8. Valuation Ratios (★ ★ ☆ ☆ ☆)
The company has shown flat valuation, this means the market has started pricing their shares at constant price multiples. This is because of weak expansion plans and a low number of new projects. The company has also not shown any significant growth prospects in the coming years. Therefore this category gets 2 stars in India Cements fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ☆ ☆ ☆)
The leverage ratio has declined over the years. This shows a decrease in debt as well as new Cap-Ex. The company has also shown declining net profitability. The operating margin has also reduced and interest burden ratio has decreased. The tax efficiency has also been fluctuating. Overall this has made the ROE decline over the years. Therefore this category gets 2 stars in India Cements fundamental analysis.
10. Future Prospects (★ ★ ☆ ☆ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The COVID-19 lockdown will have a severe impact on cement consumption due to the halt on construction sites. However, this is only a temporary situation and construction is expected to resume especially for large projects after the lockdown. The retail cement consumption will show some decline in FY2021.
- The management is looking forward to reducing fixed costs by using lower contractual labour and improving the sales mix towards PPC which has a lower cost. The company has stopped compensating dealers for selling at a discount to the billing price.
- The company’s Rajasthan plant’s utilization has improved as demand has picked up in the northern region. They expect a strong demand recovery in Andhra and nearby states as the state government has started placing orders.
- The Telangana government has also launched housing schemes that would boost demand but the company may not remain competitive enough as compared to its peers to take advantage of the situation.
The company overall has not shown any significant growth over the last few years and also the Covid-19 related disruption will impact severely. The management has taken a few steps to improve the financial position but anything significant is not expected in the near future. Therefore this category gets only 2 stars in India Cements fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
INDIA CEMENTS SHARES (2.4/5)
Therefore it is a 2-star stock
★ ★ ☆ ☆ ☆
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|India Cements Shares|
|Economic Moat||★ ★ ☆ ☆ ☆|
|Business & Management||★ ★ ★ ☆ ☆|
|Growth Ratios||★ ★ ☆ ☆ ☆|
|Profitability Ratios||★ ★ ☆ ☆ ☆|
|Cash Flow Ratios||★ ★ ★ ☆ ☆|
|Liquidity & Solvency||★ ★ ☆ ☆ ☆|
|Efficiency Ratios||★ ★ ★ ★ ☆|
|Valuation Ratios||★ ★ ☆ ☆ ☆|
|ROE (Du Pont Analysis)||★ ★ ☆ ☆ ☆|
|Future Prospects||★ ★ ☆ ☆ ☆|
|Overall Fundamental Rating||★ ★ ☆ ☆ ☆|
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