Cement Thematic. How Cement Industry is poised to grow

Cement

1. Cement Industry Was in a Mess till DEC’24

2. The Profitability (EBITDA/Ton) was at is lowest in last 15 years Has just recovered in Q4 2025 Net Realisation has been stagnant for last decade. Still is Consolidation has happened at a rapid pace but at a cost Lets see , how bad things were till just 3 months back 2

3. Ramco CEMENT 3 Lowest EBITDA/Ton in last 15 years

4. UtlTRATECH CEMENT 4 ~ Almost at the lowest EBITDA/Ton in last 15 years

5. 5 Source : IKIGAI, ICICI Securities Share of cement in profit pool is at decadal lows

6. Cement realization Trend 6 Net Realisable Value for a cement manufacturer has remained between Rs. 5 – Rs.5.5 for the last decade

7. Top 4 Cement players control ~60% of Capacity Name Capacity (FY26) Ultratech ++ 195 MT Ambuja /Adani ++ 119 MT Shree Cement 62 MT Dalmia Bharat 53 MT Total of Top 4 Players 429 MT India Cement Capacity ~700 MT Ultratech capacity includes Kesoram , Orient Cement

8. ADANI and ULTRATECH Instead of buying Assets Expensive, did the leaders do a price war and ended up buying assets cheap. Adani needs to buy more 20MT of capacity to reach his targeted 140 MT capacity as announced by him. Ultratech has already reached their stated target of 200MT It is clear that consolidation is nearing its end 8

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10. Where do we go from here Realization per bag can only improve leading to improved profitability Dealer/Distributor Margins can be squeezed leading to improved profitability Benefits of Adani and Ultratech consolidation will spread to survivors/those who are not sold . They will reap benefits of consolidation Govt even bringing in more dynamism in Private Coal Mining – so some levers on Power Cost can be handled Improved Rail and Road connectivity will also address Logistic Costs Problems of cost of Lead Distance (area catered from one plant) will only reduce post consolidation Click to edit Master text styles Click to edit Master text styles 10

11. The big picture Lets not think in terms of decades. Have the big boys done all this consolidation for a purpose ? Lets see , if Cement players can do 1500 Crore EBITDA/Ton in 3 years from now Mar’25 qtr – most cos did a Rs. 1000 EBITDA/Ton Shree Cement did 1500 EBITDA/Ton in Mar’25 qtr All it takes is a 30 Rs per bag hike to go from Rs. 1000 to Rs. 1500 EBITDA/Ton. Can this hike happen as 10 Rs each over next 3 years 11

12. LET me throw some numbers AMBUJA Cement will have consolidated capacity of 140 MT. If they grow 7% p.a. on volume (slightly higher than GDP), they reach 100 MT sales volume – will be operating at 70% utilisation At 100 MT, with 1500 EBITDA/ton they will earn EBITDA of 15000 Crore. If they get EV-EBITDA Multiple of 17-20, they end up with a EV of 2.5 lakh Crore to 3 lakh Crore. (PS : Ultratech trades at 18, Shree Trades at 21) Ambuja will not have any Debt, infact they might have 4000-5000 Crore cash in FY28. So EV = Market Cap = 2.5 to 3 lakh Crore Today market Cap of Ambuja is 1.4 lakh Crore 12

13. 13 Can AMBUJA CEMENT enter NIFTY As of now hitting 2.5 lakh to 3 lakh Crores helps you enter Nifty. - I am sure things will change a bit by 2028, but lets just stick to 2.5 lakh crore - Would Gautam Adani want a unquestionable leadership stock in Nifty and enjoy its perks !! - For that the multiples have to rerate to Ultratech/Shree levels only i.e. 18 times EV-EBITDA Does Mr. Adani want to enter Nifty with a legit cash throwing co – which Institutions will want to embrace and buy. Can Ambuja be to Mr. Adani what Jamnagar is for Mr. Ambani Could it make him eligible to sit with big boys across the world . If that’s his vision, then while he makes money – the leftover Cement co which have not got sold will also go beserk and enjoy.

14. CEMENT PRICING 14 - Cemen t is taxed like a Sin Goods @ 28% GST. - What this means is , all State Govt which always need money – will never have a problem with increasing sales price - Because they get more 28% of the sale price - Cement Cost in a property is now very small component . For 1,000 sq. ft., approximately 400 cement bags would be needed so if prices increase by even 50/bag – the impact on per sq feet basis is just Rs. Rs. 20

15. 15 By hiking cement prices from 350 – 375 – i.e. just 25 Rs/bag – we reach EBITDA of 1500/Ton. Last qtr Cement Cos increased prices by Rs. 10 and EBITDA jumped from 750-800 to 1000-1300 for most players Road to EBITDA of INR 1500/Ton

16. Benefits of consolidation 16 <----- This can be attacked Can we see end of Price Excess and backloading ? <-- Discount can be attacked In a lot of cases promoter makes cash profits through these routes

17. Price excess To meet their sales Volume targets, sales guys often commit large discounts to dealers unofficially. As month keeps coming to an end, there is always pressure on sales team to convert this unofficial discount to official one. This is ever prevalent dark box of Cement Industry – “what people call as we have raised prices – but prices are not sticking”. A lot of this discount is not passed on to the end customer, but pocketed by Dealers/Distribution value chain. So while Cement Bag price remains same, net realization to Cement plant is less. 17

18. backloading Backloading implies officially booking materials for a Higher Lead Distance and unloading them at shorter distance vs their officially billed leads. Thus co co pays for more distance to the transporter but actual distance travelled is less. The savings to transporter is passed on to the customer in the form of additional discounts and maybe some pocketed here and there. Thus actual Freight costs are always much less than freight costs booked. 18

19. FAST FORWARD TO 2028 If we achieve the Magic Figure of EBITDA/Ton of INR 1500 in say FY 28 i.e. per year hike of 10 Rs for next 3 years and cement demand in India continues to grow at 6% CAGR, then we essentially have the following scenario 19

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21. CEMENT Deal VALUES

22. Last 12 year Deal VALUES 22

23. What do we decipher from Deal VAlues Forget USD/Ton . I have never been a fan of it The thumb rule I have is that it takes Rs. 700- 800 Cr/ton construct a cement plant Infact if we exclude the Yellow Marked Transactions that were from problematic assets, the average deal value of running cement plants is 787 Crore/Ton going back all the way till 2012 23

24. Where is the money To take banking analogy – when PSU’s + ICICI were doing bad, HDFC and Kotak were rerated because they were the only good nice boys – efficient , scalable. So all Institutions wanted them and they got rerated. When PSU’s and ICICI resolved their mess – first their derating vanished. Slight rerating also took place – basis their performance. Are Shree Cement and Ultratech , HDFC and Kotak of Cement No further scope for rerating. Compounding will continue But what happens to the SBI, Axis , Indusind and RBL ( Ambuja , Ramco , Nuvoco , Dalmia in no specific order) 24