CORPORATE FINANCE – I

GROUP PROJECT: VALUATION ANALYSIS OF CEMENT

INDUSTRY

PRESENTED BY: GROUP-07 (SECTION-C)

Name Reg. ID
Atul Kumar Jha 22A2HP429
Naman Jain 22A2HP447
Radha Kansal 22A2HP446
Vishal Sahij 22A2HP423
Antriksh Sahu 22A2HP412

Presented to: Prof. (Dr.) Nikhil Rastogi sir

An Overview of cement Industry in India

India is the second largest cement producer in the world and accounted for over 7% of the
global installed capacity. Of the total capacity, 98% lies with the private sector and the rest
with public sector. The top 20 companies account for around 70% of the total cement
production in India. As India has a high quantity and quality of limestone deposits through-
out the country, the cement industry promises huge potential for growth.

India's cement production is expected increased at a CAGR of 5.65% between FY16-22,

driven by demands in roads, urban infrastructure, and commercial real estate. The
consumption of cement in India is expected grow to at a CAGR of 5.68% from FY16 to
FY22.At present, the Installed capacity of cement in India is 500 MTPA with production of
298 MTPA

The Cement sector has received good investments and support from the Government in the
recent past.FDI inflows in the industry, related to the manufacturing of cement and gypsum
products, reached US$ 5.48 billion between April 2000-March 2022.

As per DGCIS, India’s export of Portland cement, aluminous cement, slag cement, super
sulphate cement and similar hydraulic cements stood at US$ 118.15 million in FY21. India
exported cement to countries such as Sri Lanka, Nepal, the US, the UAE, and Bangladesh.

Analysis of Beta

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market. Beta is used in the capital asset pricing model (CAPM), which
calculates the expected return of an asset based on its beta and expected market returns. Beta
is also known as the beta coefficient.

If the beta of the company is less than one, the company is known to maintain a defensive
strategy and if it is greater than 1, the company has an aggressive strategy

Company Market Capitalisation Market Cap. Beta Analysis

(Rs. in crores) Size
UltraTech Cement Ltd. 203979.50 Large Cap 0.99 Aggressive
Ambuja Cements Ltd. 115356.5 Large Cap 0.9524 Defensive
7
India Cements Ltd. 7479.67 Mid Cap 0.5547 Defensive
JK Lakshmi Cement Ltd. 11646.6 Mid Cap 0.94 Defensive
4
Anjali Portland Cement 639.2 Small Cap 1.1213554 Defensive
Ltd. 2
Based on the table above, it can be inferred that UltraTech Cement Ltd. being a large cap company,
has an aggressive Beta which means that its stock is more risky and more volatile as compared to the
market. And India Cements Ltd. being the small cap company, has a defensive Beta which means that
the stock is less risky and less volatile than the market.

Analysis of the Capital Structure:

Capital structure refers to the combination of debt and equity used by a company to finance its overall
operations and growth.

Particulars UltraTech Ambuja India Cements JK Lakshmi Anjali Portland

Cement Ltd. Cements Ltd. Ltd. Cement Cement Ltd.
Ltd.
Equity 191464.64 11636.57 5947.03 5955.24 4413.43
Debt 10775.91 467.57 3090.57 1886.54 50089

Cost of Debt (Kd) 5.19% 30.42% 6.92% 5.27% 42%

Weighted average cost 16.56% 16.95% 11.14% 14.96% 18%
of capital (WACC)

Based on the table above, it can be inferred that the Equity forms the major portion of the capital
structure of the companies in this industry, with Ambuja Cements Ltd. accounting for the highest
Equity based company and almost zero debt. On the other hand, India Cements Ltd. has quite a
significant debt portion of around 51.96% in its capital structure.
Analysis of the Share Valuation:

Particulars UltraTech Ambuja India JK Anjali

Cement Ltd. Cements Cements Lakshmi Portland
Ltd. Ltd. Cement Cement Ltd.
Ltd.
Value per Share using DCF method 2144.12 767.67 57.11 3590
668.285
Value per Share using P/E 12254.05 296.45 1346.02 886.6 253.23565
Multiple
Current price per Share (as on 31- 6632.48 293.01 208.77 466.56 238.31805
Mar-22)

The value per share was arrived at, based on the two methods:
(i) Discounted cash flow (DCF) of future free cash flows to the firm (FCFF) method
(ii) Price-Earnings (P/E) multiple method.
As per the DCF method of valuation, the shares of the following companies are said to be over-priced
– UltraTech Cement and JK Lakshmi Cement (value per share being less than the actual market price)
and the rest are under-priced.
Whereas,
As per the P/E multiple method of valuation, the shares of the following companies are said to be
over-priced– Ambuja Cements (by a marginal difference) and India Cements and the rest are under-
priced.

Reference

https://www.ibef.org/industry/cement-presentation#:~:text=India%20is%20the%20second
%20largest%20cement%20producer%20in%20the%20world,total%20cement%20production%20in
%20India.
https://www.moneycontrol.com/
https://in.investing.com/
https://www.ibef.org/