Industry Analysis (5/10)
#InvestingUniversity
#ULTRACEMCO cement is trading at 17% lower and #JKCEMENT is trading at 25% lower from their respective 52-week Highs, what exactly happened to the cement Industry? Let’s delve deep into the Cement Industry.
Cement Industry👷🚧
India is the second largest producer of cement in the world and it accounts for more than 7% of the world’s installed capacity. Demand for Infrastructure construction and housing for all drivers the demand for the Cement industry.
🌟 Cyclicity: When the economy is not performing well, citizens do not have the necessary income to spend on construction, and the government also imposes curbs on infrastructure spending.
🌟 Value Chain
➡️ Procurement (Raw Material from Lime quarries)
➡️ Manufacturing (Raw material to cement)
➡️ Distribution (Storage, Transportation)
➡️ Sales & Marketing (Packaging, Promotion, Advertisements)
🌟 Revenue Drivers
➡️ Sale of Cement
➡️ Interest Income
🌟 Cost Drivers
➡️ Transportation (Cement being Bulky attracts high storage and freight costs)
➡️ Raw Material costs.
➡️ Power and Fuel costs (Coal and Electricity involved in the production of cement)
🌟 Growth Drivers
➡️ Economic conditions (Good economic conditions can lead to both consumer spending and private investment)
➡️ Supply Chain efficiency (Technology involvement, Production in own country)
🌟 Key Market Players
➡️ ACC
The cement Industry has been always under the scanner for its inefficient supply chain, lack of R&D and sub-par technology. Consequently, the market has been witnessing a price decline in major cement stocks. If we were to list out the factors that led to this situation:
🔻 Decline in Demand (Government’s reluctance on infrastructure spending)
🔻 High Costs (Expanded fuel costs led to increased production costs)
🔻 Exports decline (Strong dollar leading to profit erosion)
While keeping these factors in mind, one can safely say that with improved economic conditions, cement stocks are likely to generate wealth for the investors.