Consolidation will drive cement stocks higher this year: Rakesh Arora

economictimes.indiatimes.com:

«This is potentially on cards and this could be the potential driver for some of the stocks in this year. Adani has pumped in 20,000 crore into Ambuja and it is very difficult to put in greenfield projects,» says Rakesh Arora, Founder, Go India Stocks.

There are three things we will discuss. One is the consolidation in the sector, which has happened two-three years ago, is that real? How will smaller cement companies exist and coexist? And after three-four years of perhaps flat performance by cement stocks, are we in for a good time for cement stocks? So, three things. What do you want to start with?
Cement industry, I mean, obviously, demand is working for them. There has been no doubts about demand picking up in India given all the infrastructure boom, etc. And it is always the cycles of supply which really matters. Demand has never been questioned. And this is where there is a little bit of an issue because you have two top players gunning for market share and they are trying to increase capacity quite significantly.

And in the last one year, if anything to go by that, there has been a lot of competition and pricing has been subdued. It has not been to the level where it could have been the way demand has been panning out. So, we are in a period of good demand with the moderate EBITDA margins. And if you consider 8-9% demand growth and some of the leaders outperforming the industry by 1.5 times, so we are looking at a 15% CAGR kind of earnings growth for these companies. Valuations are already rich. So, that is