Apr 24 2024, 09:07
These companies have strong balance sheets and a lean cost structure:
Expansion is the name of the game in Indian cement industry. Here are four cement-makers with a strong balance sheet and a lean cost structure.
In India's cement industry, large, pan-India manufacturers have pricing power across regions leaving hardly any room for small, regional players to become market makers.
Among the large firms, Ultratech Cement, Ambuja Cements, and Shree Cement are preferred picks of analysts. Apart from wider reach, these companies have strong balance sheets and a lean cost structure. In addition, they have expanded in a well-calibrated manne without stretching their balance sheets.
Ultratech Cement:
Timely and aggressive addition of volume has been a key strength of India's largest cement firm by capacity - Ultratech Cement. Over the past two years, the company has increased capacity to 140.4 million tonnes (MT) from 119.9 MT, both organically and inorganically. By the end of FY25, the company is estimated to add incremental capacity of 30 MT in a similar manner. They plan to further augment capacity to 195.4 MT by the end of FY27.
This expansion needs to be seen in the context of two parameters. One is the demand cycle in the industry. The other is its impact on the company's balance sheet. On each of these parameters, Ultratech scores well. At present, the demand cycle in the industry is weak. Expansion at a low phase of the demand cycle will help Ultratech to take advantage once demand recovers after the general elections and the monsoons. The company has a healthy balance sheet with a debt-to-equity ratio of under one.
Shree Cement:
Shree Cement has been one of the lowest cost cement producers in India given its use of a higher share of green power compared to peers. The company has recently announced plans to increase the share of premium products to 15% in revenue by FY25 from around 9%.
At present, the company has a capacity of 50.4 MT, which will be expanded to 75 MT by FY27. A large part of the expansion will be in its existing markets of northern, eastern and southern India. Demand, especially in the northern region, is stable enough for Shree Cement to make the most of this expansion, which will be funded through internal accruals. After the expansion, the company's debt-to-equity ratio is expected to remain less than one.
J K Cements:
Among the regional players, J K Cements, which operates in central, north and western regions, stands out given its robust fundamentals and exposure to white cement. Between FY19 and FY24, the company expanded capacity at an annual rate of 16.1%. Its sales volume is expected to grow by 13.3% during the period.
source:et
Apr 25 2024, 08:59
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