Top Cement Industry Stocks in India

Overview

The Indian Cement Industry has been a pillar of strength in nation-building along with Industries like Steel and Iron Industries in India. Not only do they form a significant chunk of the Country’s GDP, but they also have been instrumental in infrastructure building as well as employment generation in urban as well as rural areas helping the economy to reduce unemployment levels as well as keeping it afloat.

With its strong commitment towards international agreements like the Paris Convention, the Indian cement industry has consistently strived to achieve Nationally Determined Contributions targets and has been recognized as a global leader in social as well as environmentally responsible production processes.

Market Size and Growth Over the years

IBEF reports suggest that the Indian Cement Industry has been recognized as the world’s second-largest one responsible for around eight percent of the total installed capacity in the world. In the country, around 97% of the production capacity has been helmed by the private sector whereas the remaining less than 3% of the capacity goes to the public sector. It also suggests that the market size of the cement industry was around 3.6BT which is anticipated to reach around 4.8BT by 2028 with a CAGR of 4.94% from 2023 -2028. In the past financial year, the total cement production in the country was around 3MT of cement, leading to around 7% Y-O-Y rise in production. With rising investments in mega infrastructure and residential construction projects in this FY, production is further anticipated to rise around 8% shortly. Another CRISIL research report also suggests that within the next three years, the Indian cement sector aspires to increase its capacity by 160MMT.

At present, the total installed cement capacity is around 568MT per annum leading to a production of 298MT per annum, however the same is anticipated to reach around 450MT in the next two years. This sudden growth could be attributed to the growing need for infrastructure, government-led policies backing infrastructure and rural development, affordable housing, and building smart cities under the Bharatmala policy focused on building highways, etc.

Government Initiatives

Being one of the largest contributors to the country’s GDP, the Government of India has adopted several strategic initiatives to boost the supply and production of the Cement Industry in India including sanctioning various investment policies. Such major development in the infrastructure and construction industry is anticipated to largely benefit the private cement industry. The Government is working in the following manner for sustained progress of the cement sector-

• Introduction of programs and policies like the National Infrastructure Pipeline, Gati Shakti National Master Plan, Urban Rejuvenation Mission, AMRUT, Smart Cities Mission, and Swachh Bharat, etc among others to encourage demand for cement products by authorizing

a total budget outlay of around 2Lakh Crores in the current financial year.

• Rolling out policies for economic housing for all Indian citizens will directly benefit the construction and cement industry by approving a budget outlay of Rs 79000Cr under the Pradhan Mantri Awas Yojana which is 60% higher compared to the previous year’s budget estimation of Rs. 48000cr which will in turn create more demand for the cement industry.

Industry Developments

• In May 2023, Dalmia Cements started the production of a special category of the PPC by the brand name, Dalmia Supreme. Earlier in April 2023, this cement manufacturer had also notified the commencement of cement manufacturing in a new plant in Jharkhand.

• UltraTech Cement further declared the conclusion of a mega plant expansion project in Bihar leading to an added annual production capacity of around 4.5MT.

• Adani Cements also notified the completion of the successful merger process of Ambuja Cements and its subsidiary ACC Ltd. under the conglomerate for a sum of $6B, which is one of the biggest transactions for the cement industry in India.

SWOT Analysis of the Cement Stock Industry

Despite the presence of alternative construction materials, cement continues to be a key raw material for construction activities in the country thus leaving a positive overall outlook with plentiful prospects and little threat from substitutes.

Cement Stocks Strengths

1. Robust Infrastructure Demand: Multinational corporations are driving growth in India, requiring modern industrial facilities and commercial spaces. Hence, Infrastructure investments and affordable housing policies are expected to drive demand for the cement industry causing an appreciation in cement stock value.

2. Technological Advancements and Innovation- Rapid digitization and AI are revolutionizing manufacturing processes, enhancing quality control, communication, and cost reduction while enhancing efficiency and operational conditions. Lower costs of production will naturally increase profit margins for the investors.

• Adoption of Renewable Energy Sources- Technology is helping cement businesses achieve green goals by switching to renewable energy sources for low-cost green energy and reducing carbon footprints. For example, installing solar power plants and water heating systems can help cement makers reduce production costs and optimize the use of available geographical areas, which will again help to give a healthy growth to the cement stock value.

Cement Stocks Opportunities

1. Adoption of Cement over Bitumen: Shifting to cement instead of bitumen for all infrastructure projects will stimulate industry evolution forming a specialized market for Ready Mix Concrete (RMC), which is anticipated to grow stock value in the longer run making it an attractive opportunity for the investors.

2. Market Concentration Reduction: The emergence of small- and mid-size cement players in various regions is reducing the market dominance of industry giants. Factors such as higher profit margins, growing demand favorable valuations, etc. would lead to more foreign investment making cement stocks an attractive investment opportunity.

• Rising Investment Opportunities: Substantial Investments in the infrastructure and incentives for reasonable housing countrywide pose substantial growth prospects for the industry which will directly benefit the cement stock growth soon.

Cement Stocks Risk Factors

Industry performance is linked to economic pressures- The performance of the cement industry is directly linked to the economic cycles. Thus, higher inflation may lead to rising costs of production despite higher demand hurting customer sentiments and cement stock performance.

1. Competitive Pressures and Consolidation: The Indian cement sector is highly competitive, with large players expanding nationwide, intensifying market competition, which may also affect the individual performance of cement stocks in India.

• Unchanged tax rate of GST- Cement falls under the highest GST rate slab of 28%, increasing taxation and costs for the infrastructure sector hence leading to a fall in profit margins for the cement stock investors.

1. Supply Chain Disruption: Russia being a key exporter of fuel supplies to India, since the happening of war has disrupted the whole supply chain leading the prices to soar at an unprecedented level potentially increasing investment risk for investors.

2. Stringent Rules for Carbon Emission- Though the regulations for carbon emission are crucial to save the environment but hamper industrial growth. Thus, the latest regulations call for measures such as investments in cleaner technologies, increasing production costs, and potentially affecting cement stock value.

3. Impact of foreign exchange fluctuations- Frequent currency rate fluctuations may affect the costs of production for the cement manufacturers potentially lowering the profit margins for the cement stockholders in India.

Industry Outlook and its Implication on Cement Stocks

Post-COVID-19 pandemic, rebuilding and strengthening the Indian economy, and driving demand for nurturing economic growth and employment opportunities has been a top priority of the Government.  In the past two years, strong demand for cement has reinforced the balance sheets of larger players and certain sturdy market existence, inspiring them to expand their production capacities with the backing of healthy cash accruals and credit profiles.  Availability of raw materials such as limestone and Coal apart from foreign investment from companies like Lafarge-Holcim, Heidelberg Cement, and Vicat, have bolstered India’s position as the “Hub for Cement Production”.

According to a report from the National Statistical Organization, the post-pandemic recovery of the Indian cement industry was boosted by private consumption apart from the support from government spending for the year 2021-22.  Sustaining this positive trajectory is central to achieving an optimal supply-demand balance and ensuring competitive market dynamics, given the industry’s high manufacturing capacity juxtaposed with subdued demand.

However, due to several factors such as affordable housing, commercial construction, and industrial development, the cement industry is expected to reach 550MT in the next year attaining 419.9MT in the coming three years. Also, with rising opportunities and profit margins among growing demand for cement, more foreign investments and collaborations are expected to arrive.

In the coming years, the Indian cement industry is poised to emerge as a substantial exporter, especially to regions like the Middle East, Africa, and other developing nations leading to logistical advantages to regions like Gujarat and Visakhapatnam for exports and could compete well with inland cement plants. Leading to a positive change in the cement stocks and increased value of stock purchases. However, to support cement businesses, the Government may be required to reevaluate tax structures to help maintain low input costs.

Factors to Consider before Investing in Cement Stocks in India?

• Growth Potential- Since the last decade, the cement industry in India has seen continual growth specifically in emerging markets leading businesses within the industry to take benefit from rising demands for innovative products with the potential to grow cement stock value over time.

• Low-Risk factor- Compared to other industries, cement stock investments contain lower risk with lower volatility compared to speculative instruments. Moreover, most of the cement companies hold significant liquid assets offering an additional hedge in the unfortunate events.

• Dividend Income- Several cement stocks offer regular dividend payments offering a steady source of income and capital appreciation benefit to investors over longer periods.

• Long-Term growth opportunities- Since most of the infrastructure projects are long-term in nature, they pose an attractive prospect for the shareholders with a long-lasting investment horizon.

• Environmental regulations- Cement manufacturing is an extremely energy-intensive activity in nature leading to carbon emissions. Thus, the introduction of more stringent laws and regulations might raise the manufacturing costs of the cement businesses which will in turn have a bearing on the business profitability and stock value accordingly. On the other hand, the adoption of sustainable practices could acquire a preference from investors and a competitive edge, which will give an advantage to the cement stock value of the company.

Who should Invest in Cement Stock in India?

Investors seeking long-term investment with significant growth prospects but with certain risk tolerance could go for cement stocks in India. Nonetheless, it is recommended to conduct in-depth research on the market trends and periodically examine them in light of their investing goals.

Future Growth Prospects in Cement Stocks

Therefore, as the second-largest cement manufacturer in the world, Cement stocks present promising investment opportunities in India for 2023, as the nation continues its robust infrastructure development and experiences increasing demand for housing and commercial projects. Over the years, it has witnessed remarkable progress across numerous regions, and with rising housing and real estate sector, growing interest in sustainable infrastructure development along with several government initiatives to intensify railroad capacities and warehousing facilities, etc. the cement industry in India is yet to see much higher growth signalling better profit margins and long- term capital appreciation for investors. Nevertheless, like any other investment thorough research, continual review and strategic analysis are critical to enhance possible returns, particularly in an industry subjected to market instabilities as well as opportunities.