**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).

As per the market cap, the **top 5 cement companies in India are**:

- UltraTech Cement- 1,89,684
- Shree Cement- 92,217
- Ambuja Cement- 64,782
- ACC- 37,305
- Dalmia Bharat- 35,149

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.

**Key Drivers for the Growth of the Cement Sector**

**Government focus on infrastructural development such as rural development, construction sector, etc.****Increasing purchasing power in rural areas and urbanization as well****Current as well as upcoming projects of Governments like Highways, etc.****High-Entry Barrier****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**

We have selected the following five Large Cap Cement companies for our Quantitative Analysis.

**Market Capitalization of 5 Cement Stocks (Rs. Cr):**

- UltraTech Cement- 1,89,684
- Shree Cement- 92,217
- Ambuja Cement- 64,782
- ACC- 37,305
- Dalmia Bharat- 35,149

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 of Top 5 Cement Companies in India**

**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 22.34, ACC gets the first position and 5 points. And Shree Cement with the highest PE of 42.53 among peers is awarded 1 point only.

**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, Ambuja Cement bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 9.89. Shree Cement with the highest EV/EBITDA ratio of 24.25 receives the last position and one point only.

**Return on Capital Employed (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 19.4% and hence obtains the 1
^{st}position as well as 5 points. - Dalmia Bharat gets the last position and 5
^{th}rank due to the lowest ROCE of 10.6%.

**Return on Equity (ROE)**

- RoE signifies how well the company generates the return on shareholders’ investment. Company with higher RoE are considered good.
- In this parameter, Shree Cement again beat other peers by scoring the highest ROE of 16.01% and hence obtains the 1
^{st}position as well as 5 points. - Ambuja Cement with the lowest RoE of 12.80% receives the last rank.

**Debt-to-Equity 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 is a debt-free company and hence rewarded with full points and given the first position.
- ACC is also nearly a debt-free company with a total D/E of 0.01.
- UltraTech Cement has the highest D/E ratio of 0.40 and hence given 5
^{th}rank. Likely, Shree Cement and Dalmia Bharat have the D/E ratio of 0.12 and 0.24 respectively.

**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 almost zero-debt companies, they maintain a good Interest Coverage Ratio. ACC, with an Interest Coverage Ratio of 38.5, highest among peers, gets the first rank.
- Due to the lowest Interest Coverage Ratio of 5.7, Dalmia Bharat is ranked and scored accordingly.

**Pledged %**

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

**Institutional Holding (FII + DII)**

- Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Ambuja Cement, collectively of 82% and hence Ambuja Cement is rewarded with full points and first rank.
- FIIs and DIIs also hold around 77.7% stake in UltraTech Cement and hence it secures the 2
^{nd}position in this criterion and scores 4 marks. - Dalmia Bharat has the lowest stake of institutional investors of 42% in the Company’s shareholding pattern and hence is given 1 point only.

**Operating Profit 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 30.1% and secures 1
^{st}position. - With the lowest OPM of 19.3%, ACC scores last rank among the peers.

**Sales and Net Profit Growth- 5 Year CAGR**

- In terms of Sales Growth, Shree Cement Tech posts the highest figure of 19.6% and hence gets the full points. Here, Dalmia Bharat got the 5
^{th}position. - ACC has registered the highest Profit after Tax (PAT) growth on 5 years CAGR basis of 20.5% and hence is rewarded with the first rank. Here again, Dalmia Bharat got 5
^{th}rank.

**Sales & Net Profit Growth: 3 Year CAGR:**

- On a 3-Years CAGR basis, UltraTech Cement outscores the other players with 13% Sales Growth and receives the first position and 5 points as well. ACC delivered poor performance and post negative Sales Growth of (0.5%) 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 2
^{nd}, 3^{rd,}and 4^{th}respectively. - While Dalmia Bharat ranks first with the highest PAT growth of 61.5% on a 3-Years CAGR basis. With the lowest PAT growth of 3.2%, ACC is ranked 5
^{th}and given 1 point.

**Capacity Metrics – Installed Capacity in Million Tonne per Annum**

- Here UltraTech Cement is a one-sided winner with 116.8 MTPA capacity with a market share of 21.4%, hence secured 1
^{st}rank and 5 points. - Ambuja Cement has the lowest capacity of 34.5 MTPA with a market share of 5.6%, hence given only 1 point.

**Capacity Metrics- Utilization in Q4 FY21 & FY21**

- Capacity utilization denotes that how much of the total capacity you are using, the higher the better. Here we calculated for both Q4 as well as for complete Financial Year 2021.
- Ambuja Cement with capacity utilization of 96% 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.

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

- UltraTech Cement has the highest Realization/tn of 5,186. Hence, secured 1
^{st}rank and 5 points. Whereas, Dalmia Bharat gets 2^{nd}rank and 4 points. - Here Shree Cement is the worst performer within the peers with a Realization/tn of 4,622. Hence, it is ranked lowest.
- The QoQ performance of Ambuja Cement and ACC has come down.

**Per Tonne Ratio Analysis – EBITDA per Tonne**

- Shree Cement has the highest EBITDA/tn of 1,499. Hence, secured 1
^{st}rank and 5 points. Whereas, Ambuja Cement gets 2^{nd}rank and 4 points. - Here ACC is the worst performer among the peers with EBITDA/tn of 1,079. Hence, it is ranked lowest and only 1 point given.
- The QoQ performance of both UltraTech Cement and Shree Cement has shown negative growth.

**Operating Performance Ratios- Inventory Turnover Ratio**

- Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
- Here ACC secured the 1
^{st}rank with the highest Inventory turnover of 15.2 and get full 5 points. - Shree Cement again got the last rank due to a poor Inventory turnover ratio of 7.2, hence only 1 point given.

**Operating Performance Ratios- Debtor Days (Lower the Better)**

- Debtor days denotes how fast the debtors of the company are repaying the amount they owed, hence, the higher the better.
- Here again, ACC secured the 1
^{st}rank with the lowest debtor days of 15.5 and get full 5 points. - Shree Cement again got the last rank due to the highest debtor days of 29.8, hence only 1 point given.

**Operating Performance Ratios- Cash Conversion Cycle (CCC)**

- Again ACC secured the highest rank among its peers with the lowest CCC of negative (4.3) and get full 5 points.
- Here Shree Cement again got the last rank due to the highest CCC of 60, hence only 1 point given.

**Final Score**

- After analyzing and summing up all the marks scored by the Top 5 Cement Companies, Ambuja Cement is the front runner thereby conquers the first position in our analysis. Ambuja Cement scores 75, the highest among all 5 companies.
- ACC, UltraTech Cement, and Shree Cement scored 71 points, 68 points, and 59 points respectively and hence secured 2
^{nd}, 3^{rd}and 4^{th}rank. - Due to poor performance in the majority of parameters, Dalmia Bharat gets the lowest score of 53 points.
- On account of healthy scores, Ambuja Cement and ACC appear to be strong Cement Companies.