SECTOR OVERVIEW
India is the second-largest producer of cement in the world. It accounts for more than 7% of the global installed capacity. The top 20 companies produce around 70% of India's total cement production, and these players have partial price control.
In Union Budget FY22, the government had given a massive push to the infrastructure sector by allocating INR 2,33,083 Cr to enhance the transport infrastructure.
In FY20, India's total cement production was 329 MT (Million Tonnes) and is projected to reach 381 MT by FY22. In FY22, cement production rose, driven by rural housing demand and the government's strong focus on infrastructure development.
COMPANY OVERVIEW
The Ramco Cements Limited is the primary business of the Ramco Group, a well-known business conglomerate of South India, headquartered in Chennai. They have eight production facilities spread across Tamil Nadu, Andhra Pradesh, Odisha, West Bengal, with a total production capacity of 19.4 MTPA (Million Ton Per Annum).
They manufacture portland cement, white cement, blast furnace slag cement, and pozzolana cement. The company has a market share of about 4% in portland cement, which is their primary product. They are also into power production with a total capacity of 359 MW (MegaWatt), windmill capacity of 166 MW, thermal power plants of 175 MW, and 18 MW of WHRS (Waste Heat Recovery System).
INVESTMENT RATIONALE
The cement industry in India is expected to have significant growth due to increased demand and government spending on infrastructure. Due to input cost pressure, the company's operating expenses are expected to increase, which can be compensated with the price hike. But there is no robust cost reduction initiative planned to be implemented by the company.
Moreover, Ramco Cements' capacity utilization is significantly less than its peers. Also, the market share of Ramco Cements has dropped by 12% in the past ten years. Ramco Cements Limited is able to sustain strong margins despite weak volumes and cost inflation; however, we believe the company will take a couple of years to give positive results once the expansion projects are functioning with significant capacity utilization.
For a detailed report on Ramco Cements Limited: https://www.linkedin.com/posts/goa-institute-of-managemen...
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