7 Factor Analysis of India’s Cement Sector (Ratios based analysis of top 8 Cement companies)
Let’s study some Cement companies, we have selected the following companies for study and analysis (the companies are selected on the basis of market cap, the top 8 companies of that sector according to market cap): –
- Ultra Tech Cement
- Shree Cements
- Ambuja Cement
- Ramco Cement
- JK Cements
- Birla Corporation
- Prism Johnson
|Sr. No.||Company Name||Market Cap (Rs. Crore)|
|1||Ultra Tech Cement||107,951|
This analysis is done with the only purpose of screening out good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly go and invest in the top scoring companies of this analysis.
The top 100 companies according to the New Market Cap Classification are called as the large cap companies. Companies from 101 to 250 (based on New Market Cap Classification) are the mid-cap companies and the rest, that is above 250 are the small cap companies. The risk associated with small cap companies is more as compared to large cap and mid-cap companies.
Ultra Tech Cement, Shree Cements, Ambuja Cements and ACC are large cap companies. Ramco Cements is a mid-cap company. JK Cements, Birla Corporation and Prism Johnson are the small cap companies.
The analysis of these companies is going to be based on the following parameters. They are as follows: –
- What is PE Ratio
- What is ROCE (Return on Capital Employed)
- What is ROCE (Return on Capital Employed)
- Debt to Equity Ratio (DE Ratio)
- Interest Coverage Ratio
- 5 Years Sales Growth
- 5 Years Net Profit Growth
These parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these parameters are crucial for initial screening.
First, we have given the companies their ranks and then accordingly we have assigned scores to those companies from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)
|Sr. No.||Company Name||PE Ratio||Rank||Score|
|1||Ultra Tech Cement||51.24||8||1|
What is PE Ratio is nothing but what price an investor is paying for 1 rupee of earning.
The company which has the highest PE ratio has been given number 8 rank and the company which has the lowest PE ratio has been given number 1 rank. But the company which has the highest PE ratio has been given the lowest score. Ultra Tech Cement has the highest PE ratio and thus got number 8 rank and scored 1. JK Cements has the lowest PE ratio and thus scored number 1 rank and a score of 8.
|Sr. No.||Company Name||ROCE||Rank||Score|
|1||Ultra Tech Cement||12.11%||6||3|
The company which has the highest ROCE has the highest rank and has also been given the highest points. And the company which has the lowest ROCE has the lowest rank and has also been given the lowest score. Shree Cements has the number 1 rank and scored 8 points. And Birla Corporation has the lowest rank (8th) and scored 1 point.
|Sr. No.||Company Name||ROE||Rank||Score|
|1||Ultra Tech Cement||9.36%||5||4|
ROE has been analyzed on the same basis as ROCE.
The company which has the highest ROE has the highest rank and has also been given the highest points. And the company which has the lowest ROE has the lowest rank and has also been given the lowest score. Here, JK Cements ranked 1st as it had the highest ROE and thus scored 8. And here too, Birla Corporation ranked 8th as it had the lowest ROE and thus scored 1.
|Sr. No.||Company Name||DE Ratio||Rank||Score|
|1||Ultra Tech Cement||0.74||5||4|
A lower DE ratio means that the company doesn’t require debt for its growth or for its working capital. That is the debt component of that company is very low and it can run its operations smoothly using the existing equity or reserves & surplus.
The company which has the highest DE ratio has the least score and the company with lowest DE ratio has the highest score. Ambuja Cement and ACC being 0-debt companies have scored 8. Prism Johnson has the highest DE ratio and has thus scored 1.
Interest Coverage Ratio
|Sr. No.||Company Name||Interest Coverage Ratio||Rank||Score|
Interest Coverage Ratio plays an important role where the working capital requirements are high. This parameter is very crucial in the capital-intensive sectors.
The more the interact coverage ratio, the better it is for the company. Normally, it is alarming if the interest coverage ratio falls below 2.5. If it falls to between 1 to 1.5, then the company needs to take very strong actions. And if the interest ratio of a company is below 1, then the company is not even able to service their interests.
The company which has the highest Interest Coverage Ratio will have the highest rank and also the highest score. And the company with the lowest Interest Coverage Ratio will get the lowest rank and lowest score. Ambuja Cement has the highest Interest Coverage Ratio and thus scored 8 by ranking 1st. And Birla Corporation has scored 1 as it has lowest Interest Coverage Ratio and ranked 8th. It can be seen that, the companies which have the lowest DE ratio have the highest Interest Coverage Ratio
5 Years Growths
|Sr. No.||Company Name||5 Years Sales Growth||Rank||Score|
|Sr. No.||Company Name||5 Years Net Profit Growth||Rank||Score|
The company with the highest 5 Year CAGR in Sales and Net Profit get the highest rank and thus gets the highest score. And Vice-Versa.
Ambuja Cement has scored 8 in 5 Year Sales Growth and JK Cement has scored 8 in 5 Year Net Profit Growth, as they have the highest 5 years sales & net profit growth. And Prism Johnson has scored 1 in 5 Year Sales Growth and Birla Corporation has scored 1 in 5 Year Net Profit Growth, as they have the lowest 5 years sales & net profit growth.
|Rank||Company Name||Final Score|
|6||Ultra Tech Cement||23|
JK Cements is on the 1st position with 41 points, Shree Cements & Ambuja Cements are tied on 2nd with 40 points and Prism Johnson is on the last position, that is 8th with 18 points.
If one is an aggressive investor, then one can keep JK Cements on their radar, as it is a small cap company and the risk associated with it will be high. If one is a conservative investor, then they can keep the large cap companies, Shree Cements & Ambuja Cement, on their radar.
The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them. And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.
- We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
- All the data used is of Trailing Twelve Month (TTM)