Large cements should not deter investors
Large-sized cement companies such as UltraTech Cement, ACC, Ambuja Cement and Shree Cement are trading in EVEBIDTA range of 12-16 times for FY18 which is quite high when compared with past 10-year average of 7-10.
Typically, cement demand from lowest point to peak in a cycle lasts for seven or eight years. Cement demand has been growing 4-5% and all-India capacity utilisation has been 67%. In the past demand cycle (FY01-07), capacity utilisation was close to 80% at the end of the cycle. Since the industry is in an upward cycle, demand and capacity utilisation are expected to improve. In an upcycle, valuation multiples expand and large companies trade significantly higher than their long-term valuation