Best Cement Stocks in India: How to identify one?

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best cement stocks

About Cement Stocks in India

India is the world’s second largest cement producer (in the first place is China) and third largest consumer market. The housing and real estate industry in India has around 65% demand for cement shares. On the other hand, the demand for industrial development and public infrastructure is only 10% and 25% respectively.

Due to the COVID-19 pandemic, the cement industry is going through a massive structural change in order to manage its overall production cost efficiently. The low operating costs and strengthened pricing level across various regions have assisted the cement manufacturing companies to get a grip on the critical situations and increase their growth in the fiscal year of 2021.

Top cement companies in India have rehabilitated their capital expenditure plans that were still in the discussion phase during the pandemic in 2019 and the current market condition is indicating that the large cement industry player is slowly regaining their confidence and difficult times are over. Investors can take advantage of the current market condition and invest in the cement stocks in India to retain long term benefits from their investments.

How to recognize the best cement stocks in India?

Cement companies in India are capital intensive in nature

The whole cement industry is extremely capital-intensive therefore you need to make sure that the cement company has enough cash flow and financial backing to implement its future development and growth plans. For example, Rs. 3 billion capital expenditure is required for any project of a green field of 1 MT (Million tonne). The ideal standard for any financially well-off cement company is at least 2MT.

Cement Sector Stocks have fixed cost factor

In the cement sector there is a high level of fixed cost (the annual maintenance cost is close to 5 US dollars on every tonne), which makes the volume growth of the company very critical. It is equally important to check the factors such as the availability of the raw materials (mainly coal and limestone) for the company. 

Not to mention, investors should also research the consumer market. The changes in the price of raw materials or disassociation with the suppliers or contracts can slow down the overall manufacturing process.

Cement sector companies Regional market

As an investor you need to look at the Indian cement market and industry based on different regions (East, West, North, South). In some areas, the demand may become stable or unstable. 

More importantly, 60 percent of the consumer market is acquired by the top six company players whereas the rest of the 40 percent is administered by the 40 small companies. Due to the challenging scenario, investors with a low risk-taking appetite can opt for the top 10 cement stocks in India.

Cement stocks in India have higher profit margin

For cement companies the cost factor is very important as the higher savings in the production cost the higher profit margin the companies will receive. As the competition is also very high in the industry as an investor you will have to look for companies that can manage their fixed cost, power, and freight over the Indian cement industry in order to excel among its competitors.

Cement companies in India are topographically well distributed

As a potential shareholder of a cement company, you need to make sure that the company has not concentrated its production plants in a single region. The cement plants should be topographically spread to battle adverse market conditions. For instance, if one region is not performing well then, the other regions can make up for the loss.

Metrics matter for Cement sector stocks

Some of the important ratios you need to look after while you are searching for the best cement stocks to buy in India 2022 are ROE, EBITDA per tonne, Top and Bottomline growth, Total debt, etc. Moreover, you also need to evaluate the capacity utilization levels as they are of utmost importance in order to inspect the efficiency of the company in utilizing its capacities.

Top 5 Cement Companies in India based on 5 year CAGR Returns

Find out the best cement stocks to buy in India 2022 for long term investment from the table below:

Company NameMarket Cap (Cr.)P/E Ratio5Y Returns (%)
J K Cement Ltd22,75236.62201.42
Ambuja Cements Ltd1,10,76961.69114.65
UltraTech Cement Ltd1,97,76929.6961.20
Grasim Industries Ltd1,13,21815.1845.11
ACC Ltd46,22156.7448.10

(Data as of November 25, 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares.