Cement

Equity | India | Cement
Initiating Coverage
Cement Industry - Thematic

Concrete road ahead..
Slowing pace of capacity addition to improve utilisation going ahead Given the slowing pace of capacity additions we expect the installed capacity to grow at 6.7% CAGR across India in FY11-15E. At the same time in view of a) peaking of interest rates b) US$1 tn investment over next five year plan c) expectation of increase in infrastructure spending as a percentage of GDP, and d) improvement in demand from housing segment, we expect the consumption of cement to grow at a CAGR 8.8% in FY11-FY15E. Hence we expect the capacity utilisation on an all India basis to reach 75.9% in FY13E and 78.4% in FY14E. Pricing discipline in South to stay intact There has been a strong display of maturity by cement manufacturers in the recent past in South. As a result of this, the companies have not only been able to raise cement prices but also maintain prices near all time highs over the last one and half years. With the demand expected to improve on account of a) relatively stable political environment, b) recent CII partnership summit indicating a huge investment of `6.5 tn investment proposals, c) announcement of new projects by some of the real estate developers, d) significant improvement seen in long pending dues to contractors, and e) lastly with no major capacities by the existing and established player of South expected to hit the market in the short to medium term, we believe the pricing discipline would stay intact. Peaking of interest rates to trigger demand from industrial segment.
March 15, 2012
Regional Spread of capacity (In mn MT)

South 38.7% North 21.7%
West 14.4%
Central 13.0%
East 12.1%
Consumption pattern
Commercial and Institutional, 13% Housing, 64% Industrial, 6%
Infrastructure , 17%
All India Prod., Cap. Utilisation trends

330 310 290 mn MT 270 250 230 210 190 FY08 FY09 FY10 FY11 As on Dec'11 195.1 237.2 264.7 288.3 309.9
RBI has put a pause to the rising repo rate in the monetary policy held on December 16, 2011 indicating peaking of interest rates. Given the declining trend of IIP, six core industry data and GDP makes a case for interest rate reversal. However, oil prices and inflation still remain above the comfort zone of RBI, hence we expect the RBI might soften interest rates only in the next monetary policy in Apr12. Also the time required for decline in interest rates is shorter when compared to time required for rise in interest rates. Softening of interest rates would be a big positive for the sector, thereby positively impacting the credit off take from both housing and industrial segment. US$1 tn investment in five year plan might trigger next bout of demand
Trends in capacity utilisation

400 350 300 250 200 150 100 50 0 FY12E FY13E FY14E FY15E FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 81.1% 78.6% 77.3% 86.4% 83.3% 81.4% 78.4% 75.5% 74.4% 70% 65% 75.9% 73.7% 90.3% 95% 90% 85% 80.4% 80% 75%
GoI had envisaged to make US$1 tn over next five year plan starting Apr12. The GoIs estimates were done assuming a GDP growth rate of 9% in the base year FY12E. However considering the recent trends in GDP, in order to make an estimated investment of US$1 tn, GoI has to increase the share of investment in infrastructure as percentage of GDP from 9.88% by at least 203bps. Hence, there is a very high possibility that the share of investment as a percentage of GDP might increase. This is expected to trigger a bout of demand for cement from the infrastructure segment. Valuation and views In view of the a) slowing pace of capacity addition, b) increasing trends of both utilisation and realisation, c) strong production discipline in South d) peaking of interest rates, e) increasing trends in operating margins, f) increasing trend in sourcing of power by companies from Captive Power Plant compared to last up cycle, and g) US$ 1tn over next five year plan expected to trigger much needed demand from infrastructure segment, we anticipate the sector to get re-rated upwards, taking the valuations of cement stocks above its valuations in the last up cycle. Hence, we initiate a coverage on Madras Cements Ltd with BUY recommendation and with a one year price target of `191.1, India Cements Ltd with a BUY recommendation and with a one year price target of `134.5, Ambuja Cements ltd with a BUY recommendation and with a one year price target of `201.1 per share and Ultratech Cement Ltd with a NEUTRAL recommendation and a one year price target of `1,595 per share.
Cap (mn M T)
Produciton (mn M T)
Capacity Utilization (%)
Manohar Annappanavar
Analyst
+91-22- 6614 2696 manohar@geplcapital.com
GEPL Capital Research

Overview of the Cement Industry
March 15, 2012
The Indian cement industry with a total installed capacity of 288.3 mtpa (FY11) and 309.9 mtpa (FY12E) is the second largest cement producer in the world after China, surpassing developed nations like the USA and Japan. However, compared to Chinese cement capacity of 2,020 mtpa (CY11), Indias cement capacity is far below China. Industry fragmentation Top seven cement companies with a total installed capacity of 173.7 mtpa control around 56.1% of the overall capacity. There has been a consolidation in the industry over the past few years. However, the Herfindahl-Hirschman Index, a commonly used measure of market concentration indicates that, cement industry remains to be mostly fragmented with 641 HHI index. Ultratech with 48.75 mtpa of cement capacity is the largest cement maker in India. Regional spread of cement companies The Southern region of India with a total installed capacity of 120.1 mtpa (38.7% of total Indias cement capacity) dominates the cement space, followed by North with 67.3 mtpa (21.7% of total Indias cement capacity). Meanwhile, the Western region has a total capacity of 44.7 (14.4% of total Indias cement capacity), Central India has a total capacity of 40.2 mtpa (13.0% of total Indias cement capacity) and Eastern India has a total installed capacity of 37.6 mtpa (12.1% of total Indias cement capacity). Region wise capacity breakup
140.0 120.0 100.0 mtpa 80.0 60.0 40.0 20.0 0.0 South North West Central East 67.3 44.7 40.2 37.6 120.1
Source: Company data, GEPL Capital Research
GEPL Capital Research | Initiating Coverage

Region wise presence of cement companies
Top ten cement companies in South
14.0 12.0
India Cement dominates THE Southern region with 10.8% market share and Ultratech with a market share of 10.5% followed by Madras Cement, ACC, Dalmia and Chettinad cement with a market share ranging between 7.1% 9.6%.
March 15, 2012
13.0
12.6
11.5 9.7 9.0 8.5
10.0 mtpa 8.0 6.0 4.0 2.0 0.0
7.8
7.3
7.0 5.7
Dalmia Cement
ACC
Penna Cement
My Home
2.5 Birla Corp
India Cements
Madras Cement
Top ten cement companies in North

16.0 14.0 12.0 10.0 mtpa 8.0 6.0 4.0 2.0 0.0 Ambuja Cement Mangalam Cement ACC JK Cement Jaypee Cement Shree cement JK Lakshmi Ultratech Binani 13.5 11.1 8.9 6.3 6.2 5.9
Chettinad Cement
4.9
4.3 2.0
Shree Cement dominates Northern region with a 20.1% market share, followed by Ultratech & Ambuja with 16.6% and 13.2% respectively.
Zuari Cement
Ultratech
Kesoram

Top ten cement companies in West
14.0 12.0 10.0 12.8 11.3
March 15, 2012
Ultratech dominates the Western region with overall market share of 28.6% & Ambuja with 25.3%.
mtpa
8.0 6.0 4.0 2.0 0.0 Ambuja Cement ACC Jaypee Cement Sanghi Gujarath Sidhee Cement Orient Cement Century Cement India Cements Ultratech Saurashtra 4.8 4.0 2.6 2.0 1.9 1.5 1.2 1.1
Top ten cement companies in Central

14.0 12.0 10.0 mtpa 8.0 6.0 4.0 2.0 0.0 Century Cement Ambuja Cement
0.6 Burnpur Cement Ltd
12.0
7.5 5.6 4.5 3.8 3.8 1.5 1.5
ACC
Jaypee Cement
Prism Cement
Top ten cement companies in East

7.0 6.0 5.0 6.5 5.4 5.3 5.1 4.7
4.3
Lafarge dominates in East with a 17.4% market share, followed by OCL (14.2%), ACC (13.5%), Ultratech (12.5%), Ambuja (14.1%) and Jaypee (11.4%).
mtpa
4.0 3.0 2.0 1.0 0.0 Ambuja Cement ACC Jaypee Cement Birla Corp Lafarge Century Cement Madras Cement Ocl India Ultratech 2.3 2.1 1.0
Heidelberg
Birla Corp
Ultratech
Jaypee dominates Central India with a market share of 29.8%, followed by Ultratech, Prism and ACC with 18.6%, 13.9% and 11.2% respectively.

Consumption Pattern
March 15, 2012
Historically housing has been the pillar of cement consumption in India constituting 64% of the total consumption, followed by infrastructure (17%), Commercial & Institutional (13%) and rest by Industrial segment (6%). Consumption Pattern
Commercial and Institutional, 13 Housing, 64 Industrial, 6
Infrastructure , 17
Source: Task force report on Indian Cement Industry, GEPL Capital Research
Demand Drivers Primary demand drivers of cement in India include
Prevailing Interest rate scenario Income levels Urbanisation Government spending on infrastructure and Overall economic growth

Slowing capacity addition pace to ease Utilisation pressure
March 15, 2012
In anticipation of the strong demand, cement companies across the country had announced expansion plans. As a result of this, the industry had seen a total addition of 114.8 mtpa over last 3-4 years witnessing a CAGR of 13% in FY08- 9MFY12. However, over the recent past the pace of addition has slowed down. In FY09 industry saw a total addition of 42.1 mtpa, 27.5 mtpa in FY10, 23.6 mtpa in FY11 and around 21.5 mtpa in FY12(till Dec11). All India cement capacity
330 310 290 mtpa 270 250 230 210 190 FY08 FY09 FY10 FY11 195.1 237.2 264.7 288.3
309.9
As on Dec'11
Also on the supply side, there has not been much progress on the 26.5 mtpa announced earlier in Andhra Pradesh (AP). Given the long gestation period for setting up of capacity, we dont see this capacity hitting the market any time soon thereby positively impacting the demand supply scenario. Further on an all India basis we expect a net addition of 24.8 mtpa over next 15 months taking the overall installed capacity of cement to around 334.6 mtpa by FY13E. Capacity additions over next 15 months
Sr No 1 2 3 4 5 Companies North West East Central South Total Installed Capacity Net additions Y-o-Y Growth in Capacity
Dec-11 67.3 44.7 37.6 40.2 120.1 309.9
FY12E 67.8 44.7 37.6 40.2 130. 320.3 10.5 3.4%
FY13E 69.3 49.6 41.1 42.7 131.9 334.6 14.3 4.5%
Total Additions 2.1 4.9 3.5 2.5 11.8 24.8
CAGR Growth (%) 2.4 8.7 7.4 4.9 7.8 6.3
Given the slowing pace of capacity additions we expect the installed capacity to grow at 6.7% CAGR across India in FY11-15E. At the same time in view of a) peaking of interest rates b) US$1 tn investment over next five year plan c) expectation of increase in infrastructure spending as a percentage of GDP, and d) improvement in demand from housing segment, we expect the consumption of cement to grow at a CAGR 8.8% in FY11-FY15E. Hence we expect the capacity utilisation on an all India basis to reach 75.9% in FY13E and 78.4% in FY14E.

Trends in capacity, production and utilisation:
FY03 Cap (mn MT) Production (mn MT) Capacity Utilisation (%) 150.5 116.4 77.3 FY04 157.1 123.5 78.6 FY05 164.7 133.6 81.1 FY06 171.1 147.8 86.4 FY07 178.9 161.6 90.3 FY08 195.1 162.6 83.3 FY09 237.2 193.0 81.4 FY10 264.7 199.9 75.5 FY11 288.3 214.5 74.4 FY12E 314.6 231.9 73.7 FY13E 334.6 254.1 75.9
March 15, 2012
FY14E 354.2 277.7 78.4
FY15E 374.3 300.8 80.4
Installed Capacity, Production and utilisation

400 350 300 250 mtpa 200 150 100 50 0 FY12E FY13E FY14E FY15E FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 77.3 81.1 78.6 86.4 90.3 83.3 81.4 75.5 75.9 78.4 80.4 100.0 90.0 80.0 70.0 60.0 50.0 % 40.0 30.0 20.0 10.0 0.0
74.4 73.7
Capacity
Produciton
Capacity Utilization
Details of cluster wise expansion in AP with little Progress

Nalagonda ACC Aryabhatta Chettinad Choramandal Emami Krishnagiri Reliance Sanghi Industries Sarvashakti Shree Cement Sitharam Trishul Vidyagiri Vishwambara Total 1.5 2 2 2 1 8.5 1 1 3 Yerranguntla 1 Kurnool 2 2 6 2 1 2 15 Tandur Total 1 2 1 1.5 2 2 6 2 2 2 1 1 2 1 26.5

Region wise demand supply scenario
North India: Utilisation levels might continue to remain strong
March 15, 2012
Northern region has posted a healthy growth of 11.2% CAGR in FY08-11. However, the region had exhibited a growth of mere 5.3% in FY11, lowest in the last four years owing to slower demand from the infrastructure segment and industrial segment. Recently, there has been a strong pickup of demand in North, showing a growth of 15.6% in Q3FY12 and 10.1% for 9MFY12. This was primarily on account of strong demand in major states (Punjab and Rajasthan) of North, which grew by 15% and 9.8% Y-o-Y respectively for the first six months of FY12. In view of a) peaking of interest rates, b) with FY13E being first year of five year plan, and c) with start of work on the Delhi Mumbai Industrial Corridor, we expect the demand to grow at a 9.9% CAGR in FY11-15E. At the same time with no major capacity to hit the market, we expect the capacity to witness a CAGR of 3.9% in FY11-15E. Hence, we believe the utilisation to reach to 81.0% in FY12E, 86.4% in FY13E. Trends in Capacity, Production and Utilisation
90 80 70 mtpa 60 50 40 30 20 10 0 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E Capacity utilisation % Installed capacity Consumption 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 %
Company wise capacity expansion

Sr No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Companies Shree cement Ultratech Ambuja Cement Binani ACC JK Cement Jaypee Cement JK Lakshmi Birla Corp Mangalam Cement India Cements Shriram Cement Lafarge India Wonder Cement Total Installed Capacity
Rajasthan 11.7 8.1 1.8 6.3 1.5 4.9 0.0 4.3 2.5 2.0 1.5 0.2 44.7 0.7 -
HP 3.1 4.4 3.5 11.0 0.2 -
Uttarakhand 1.8 1.0 1.2 4.0 0.1 -
Haryana 0.0 1.3 1.5 2.8 0.0 -
Punjab 1.7 3.0 4.7 0.1 -
FY11 13.5 11.1 8.9 6.3 5.9 4.9 6.2 4.3 2.5 2.0 1.5 0.2 0.0 0.0 67.2 67.2
FY12E 0.6 0.5 67.8
FY13E 1.5 1.6 3.1 70.9
FY14E 2.2 3.0 5.2 76.1
FY15E 1.8 1.8 77.9

Central India: Demand to improve; Suupply to come at a slower pace
March 15, 2012
The Central region had posted 5.6% CAGR in FY08-11.There has been a strong pickup in demand in Centre, showing a growth of 11.5% in Q3FY12 and 7.6% for 9MFY12. In view of a) peaking of interest rates, b) with FY13E being first year of next five year plan, c) demand from industrial segment also to improve in Central India, and d) with start of work on Delhi Mumbai Industrial Corridor, we expect the demand to witness a 7.2% CAGR in FY11-15E. At the same time with no major capacity to hit the market, we expect the capacity to witness a CAGR of 6.1% in FY11-15E. As a result of this, we expect the utilisation levels to improve to 86.7% in FY13E. Trends in Capacity, Production and Utilisation
50 45 40 35 30 mtpa 25 20 15 10 5 0 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E Capacity utilisation % Installed capacity Consumption 75.0 80.0 85.0 90.0 % 95.0 100.0

Sl No 1 2 3 4 5 6 7 8 9 Companies Jaypee Cement Prism Cement Ultratech ACC Century Cement Birla Corp Heidelberg Ambuja Cement KJS Cement Total Installed Capacity
MP 7.4 5.6 4.9 2.2 3.8 3.8 1.5 1.5 30.7 -
UP 4.6 2.6 2.3 9.5 -
FY11 12.0 5.6 7.5 4.5 3.8 3.8 1.5 1.5 40.2 40.2
FY12E 0.0 40.2
FY13E 2.5 2.5 42.7
FY14E 0.0 42.7
FY15E 1.5 2.3 3.8 46.5

Western India: Demand to improve; Supply to come at a slower pace
March 15, 2012
Western region has posted 1.8% CAGR in FY08-11. However, there has been a strong pickup in demand in the West, showing a growth of 23.7% in Q3FY12 and 16.6% for 9MFY12. Western Indias demand is predominantly driven by growth in industrial and infrastructure segment. Hence with peaking of interest rates, and start of work on the Delhi Mumbai Industrial Corridor, we expect the demand to witness a 11.2% CAGR in FY11-15E. At the same time with no major capex on the anvil, we expect the capacity to show a 7.8% CAGR in FY11-15E; Hence, we expect the utilisation levels reach 80.8% in FY13E. Trends in Capacity, Production and Utilisation
60 50 40 mtpa 30 20 10 0 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E Capacity utilisation % Installed capacity Consumption 86.0 84.0 82.0 80.0 78.0 76.0 74.0 72.0 70.0 68.0 %

Sr No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Companies Ultratech Ambuja Cement Jaypee Cement Sanghi Orient Cement JK Lakshmi ACC Saurashtra Gujarath Sidhee Cement Binani Cement Century Cement India Cements Heidelberg ABG Cement Total % of capacity Installed Capacity
Maharashtra 5.8 4.6 2.0 4.0 1.9 1.1 1.0 20.4 0.5 -
Gujarat 7.0 6.7 4.8 2.6
FY11 12.8 11.3 4.8 2.6 2.0
FY12E -
FY13E 2.4 2.5 4.9 49.6
FY14E 2.5 2.5 52.1
FY15E 0.0 3.5 3.5 55.6
0.5
0.5 4.0
1.5 1.2 24.3 0.5 -
1.5 1.2
1.9 1.1 1.0
0.0 44.7
44.7 44.7
10

Eastern India: Demand to improve
March 15, 2012
The Eastern region has posted a healthy 9.8% CAGR in FY08-11. The demand in East showed a marginal growth of 2.3% in Q3FY12 and 3.2% for 9MFY12. In view of a) peaking of interest rates, b) FY13E being first year of next five year plan, and c) the large potential for hydro electric generation in the North Eastern states, we expect the demand to witness a 8% CAGR in FY11-15E. At the same time with no major capacity to hit the market the capacity is expected to see a CAGR of 6.3% in FY11-15E. Hence, we believe the utilisation levels should improve to 96.6% in FY13E. Trends in Capacity, Production and Utilisation
60 50 40 mtpa 30 20 10 0 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E Capacity utilisation % 100.0 95.0 90.0 85.0 80.0 75.0 70.0 %
Installed capacity
Consumption

Sl No 1 2 3 4 5 6 7 8 9 10 11 12 13 Companies Ultratech Lafarge ACC Ocl India Ambuja Cement Jaypee Cement Century Cement Birla Corp Barak Valley Cement JK Lakshmi Burnpur Cement Ltd Madras Cement Shiva Total Installed Capacity
Bihar 0.0 0.0 -
Chattisgarh 2.5 2.1 1.6 2.8 2.2 2.1 13.3 0.4 -
W Bengal 1.2 1.0 0.5 2.5 2.3 0.6 1.0 9.1 0.2 -
Assam 0.2 0.2 0.0 -
Orissa 1.0 1.2 5.4 0.1 7.5 0.2 -
Jharkhand 0.0 3.4 1.8 0.0 0.0 2.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7.3 0.2 -
FY11 4.7 6.5 5.1 5.4 5.3 4.3 2.1 2.3 0.2 0.0 0.6 1.0 0.1 37.6 37.6
FY12E 0.0 37.6
FY13E 1.5 1.5 0.5 3.0 40.6
FY14E 4.8 4.8 45.4
11
March 15, 2012
Southern Region: Demand to improve and ease pressure on oversupply situation

The demand remained in the negative territory for the Southern region as a whole, mainly on account of sharp decline of 19% in demand for the first six months of FY12 in AP. However, there has been a strong pick up in demand for cement during Nov-Dec11, with states like Kerala showing a growth of 15%, Tamil Nadu showing a growth of 12%,, Karnataka exhibiting a growth of 8% and Andhra Pradesh, which had been the lagard in South has shown a growth of 12%. In view of a) peaking of interest rates, b) progress observed in payment of dues to the contractors, and c) with FY13E being first year of next five year plan, we expect the demand to grow at a 7.5% CAGR in FY11-15E. At the same time, we expect the capacity to grow at a CAGR of 9.1% on name plate basis, however looking at the production discipline and lower utilisation, considering the net additions; we expect the net capacity addition to happen at a CAGR of 6.0%. As a result of this we expect the utilisation levels to improve to 67.8% in FY13E and to go beyond 70% by FY15E. Trends in Capacity, Production and Utilisation
160 140 120 100 mtpa 80 60 40 20 0 FY11 FY12E FY13E Consumption FY14E FY15E Capacity utilisation Installed Capcity 73.0 72.0 71.0 70.0 69.0 68.0 67.0 66.0 65.0 64.0 63.0 %
12

Sl No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Companies India Cements Ultratech ACC Dalmia Cement Chettinad Cement Kesoram Penna Cement Zuari Cement Jaypee Cement My Home JK Cement Deccan Cement KCP Keerthi Industries NCL Orient Cement Panyam Cement Prism Cement Rain Commodities Sagar Cement JSW Steel Andhra Cement Bheema Cement Anjani Portland Cement Heidelberg Cement BMM Ispat Lalitha Cement Total Installed Capacity
March 15, 2012
TN 5.9 7.6 2.5 1.2 6.5 8.5 24.5 -
AP 7.1 3.7 5.6 2.5 1.5 7.8 5.7 7.0 1.8 1.5 0.6 2.0 3.0 0.6 2.9 2.7 1.8 0.9 1.2 52.5 -
KAR 0.3 4.5 8.5 5.8 3.0 0.6 0.6 22.3 -
Kerala 0.0 -
Goa 0.0 -
FY11 13.0 12.6 9.7 9.0 8.5 7.3 7.8 5.7 0.0 7.0 3.0 1.8 1.5 0.6 2.0 3.0 0.6 0.0 2.9 2.4 0.6 1.8 0.1 0.5 0.6 0.0 0.0 101.7 101.7
FY12E 3.5 -
FY13E -
FY14E -
FY15E 2.5 -
CAGR -
2.5
4.8
4.2 1.2 1.0 7.7 109.4
0.0 109.4 1.4 3.9 113.3
7.3 120.6
4.4%
13

Pricing discipline in South to stay intact
March 15, 2012
Cement capacity in South witnessed a CAGR of 28.5% in FY08-FY10, while the consumption saw a CAGR of 12%. The slower growth in consumption was mainly on account of lacklusture demand from both housing and infrastructure investment by the government, as a result of which utilisation levels declined. The lower demand and surplus capacity forced companies to sell cement below the variable cost with prices touching as low as `130-143 per bag during Aug-Sep10. Consequent to this companies reduced their capacity utilisation by ~40%, which has helped companies not only to rise cement prices to as high as `250-280 per bag but also to maintain the same over the last one and half years, thereby helping companies recover the losses they made in CY10. The consumption for the H1FY12 de-grew by 4.12% Y-o-Y with Tamil Nadu (TN) and Kerala showing a flat growth. AP continued to slide showing a decline of 19% Y-o-Y. The negative growth was mainly on account of low demand from both private and bulk consumers. This had further reduced the utilisation levels close to around 60% for the region as a whole. On the contrary to the negative growth in despatches for the first half, there has been a strong recovery in Nov-Dec11. Despatches for Nov-Dec11 grew by 18% in TN, 15% in Kerala, 12% in AP and 8% in Karnataka on a Y-o-Y basis. We expect the despatches to remain strong during Q4FY12E & Q1FY13E. Reasons for strong demand pick up in coming months
Relatively stable political environment Recent CII partnership summit indicating a huge investment of `6.5 tn investment proposals Signs of recovery seen in other major cities in AP, except Hyderabad where demand for housing is yet to take shape Announcement of New projects by some of the real estate developers like PEBL venture with L&T, Mahindra life space announcing 200 mn sq ft worth `2.5 bn and many more in pipeline Good business environment in real estate which had slowed down in the recent past has started showing some signs of improvement Significant improvement seen in long pending dues to contractors Lastly no major capacities by the existing and established player of South expected to hit the market in the short to medium term
14
March 15, 2012
Peaking of interest rates to trigger demand from industrial segment

The interest rates are on the rise since Apr09, with repo increasing from 4.75 % in Apr09 to 8.5% in Oct11 an increase of 375bps over the last 33 months. A Similar increase was observed during Oct05Jul08, where the repo rate had risen from 6.25% to 9.0%, showing an increase of 275bps over 34 months. RBI has now put a pause to the rising repo rate in the monetary policy held on December 16, 2011, indicating signs of peaking of interest rates. Given the declining trend of IIP, core industry and GDP makes a case for interest rates reversal. However oil prices and inflation still remain above the comfort zone of RBI, hence we expect the RBI to soften interest rates in the next monetary policy in Apr12. It can also be observed that the time required for decline in interest rates is less compared to time required for rise in interest rates. Softening of interest rates would be a big positive for the sector. Hence we believe this to have positive impact on the credit off take from both housing and industrial segment thereby positively impacting the interest sensitive segments such as Cement, Steel (Longs) and Auto. Trends in Repo rates
10.00 9.00 9.00 8.00 7.77 7.00 6.00 5.00 4.75 4.00 3.00 2.00 1.00 0.00 26-Dec-05 26-Dec-06 26-Dec-07 26-Dec-08 26-Dec-09 26-Dec-10 26-Dec-11 26-Jun-06 26-Jun-07 26-Jun-08 26-Jun-09 26-Jun-10 26-Feb-06 26-Apr-06 26-Feb-07 26-Apr-07 26-Feb-08 26-Apr-08 26-Feb-09 26-Apr-09 26-Feb-10 26-Apr-10 26-Feb-11 26-Apr-11 26-Jun-11 26-Oct-05 26-Oct-06 26-Oct-07 26-Oct-08 26-Oct-09 26-Oct-10 26-Aug-06 26-Aug-07 26-Aug-08 26-Aug-09 26-Aug-10 26-Aug-11 26-Oct-11 8.25 7.50 7.25 6.75 6.50 6.25 6.00 5.75 5.50 8.50
6.25
5.25 5.00
Source: Bloomberg, GEPL Capital Research
15

GDP and Cement Consumption trends
March 15, 2012
Cement is a cyclical commodity and has a high correlation with GDP. Average growth in cement consumption on an annualized basis to GDP has been around 1.2xGDP (CY05-10). Lately ,Cement consumption to GDP has declined to 1.1x in FY11 from 1.30x in FY09 and 1.36x in FY10, indicating decoupling of cement with GDP as the major chunk of demand for cement has been from the housing sector (64% of total), especially from the rural housing and partly from industrial segment (6% of total). The demand from the other important segment such as Infrastructure (17% of total) and commercial segment (13% of total) has been low as evident from decline in incremental Gross Domestic Capital Formation (GDCF) in FY11(refer table one). The average incremental GDCF over CY06-08 stood at `1.61 tn as against an average of `0.87 tn during last three years (refer table 1). Incremental GDCF for H1FY12 stood at `0.27 tn as against `0.76 tn in H1FY11
FY06 Cement Consumption/GDP 1.2 FY07 1.1 FY08 1.1 FY09 1.3 FY10 1.4 FY11 1.1
Source: Review of the economy 2010/11 in Feb 2011, Bloomberg, GEPL Capital Research
However, FY13 being the first year of XIIth five year plan (CY12-17E), we expect the demand from non-housing sector to show some revival thereby improving the Cement to GDP multiplier from current levels. Table A: Gross Domestic Capital Formation
(In tn `) Gross Domestic Capital Formation Incremental GDCF Y-o-Y growth (%)
FY05 9.3
FY06 10.7 1.4 15.3
FY07 12.3 1.5 14.3
FY08 14.1 1.9 15.2
FY09 14.5 0.4 2.6
FY10 15.7 1.2 8.1
FY11 16.8 1.1 6.9
On the contrary to Q2 being a slack season for cement, the cement consumption to GDP multiplier has shown an improvement sequentially. This was mainly on account of better performance by cement as against a de-growth in GDP (refer table A). The Cement consumption to GDP rose sequentially from a low of 1.01x in Q2FY12 vs 0.73x in Q1FY12 (refer table B). The cement consumption to GDP Multiplier on a Y-o-Y basis rose to 1.01x in Q2FY12 vs 0.55x in Q2FY12 (refer table C), showing some signs of recovery in demand for cement. However, the multiplier still remains lower compared to an average of 1.23x in Q2 of last six years. Table B: Q-o-Q performance
Q1FY12 GDP Cement Multiplier
Q2FY12 6.90% 7.0% 1.01
Change bps (80) 136
7.7% 5.6% 0.73
Table C: Y-o-Y performance

Q2FY07 Cement/GDP Multiplier GDP (%) Cement Consumption (%)
Q2FY08 1.41 9.4% 13.3
Q2FY09 1.00 7.5 7.5
Q2FY10 1.42 8.6 12.2
Q2FY11 0.55 8.9 4.9
Q2FY12 1.01 6.90 7.0
1.10 10.1 11.1
16
March 15, 2012
US$1 tn investment in five year plan might trigger next bout of demand
GoI during its X and XI five year plan had estimated to make an investment of around US$ 200.9 bn and US$492.5 bn respectively. Looking at the growing need for infrastructure, the government had estimated to make an investment of over US$1 tn, assuming GDP to grow at 9% and infrastructure investment as a percentage of GDP at an average of 9.88% over the XII plan. Estimated investments for XII five year plan
FY12 GDP at market prices(`tn) Rate of growth of GDP (%) Infra. investment % of GDP Infrastructure investment prices(`tn) Infrastructure investment (US $ bn) @ `40/$
Source: Report on investment in Infrastructure- Sept 10
FY13 68,825.5 9.0 9.0 6,194.3 154.9
FY14 75,019.8 9.0 9.5 7,126.9 178.2
FY15 81,771.6 9.0 9.9 8,095.4 202.4
FY16 89,131.0 9.0 10.3 9,180.5 229.5
FY17 97,152.8 9.0 10.7 10,395.3 259.9
Total 411,900.6 9.0 10.0 40,992.4 1,024.8
63,142.7 9.0 8.4 5,283.2 132.1
However, in view of the recent trends in GDP, estimation of 9% does not seem practical. Making the necessary changes to the GDP growth rates, in order to make an estimated investment of US$1 tn, the government has to increase the share of investment in infrastructure as a percentage of GDP from 9.88% by at least 203bps. Hence there is a very high possibility that the share of investment as a percentage of GDP would increase, thereby leaving a head room for increase in share of consumption of infrastructure as a percentage of overall consumption. Accordingly, we expect the infrastructure share in demand to rise to over 20% from the current 17% and also consumption of cement to GDP multiplier to reach 1.4x. Estimated investments for XII five year plan (our estimates)
FY12 GDP at market prices(`tn) Rate of growth of GDP (%) Infra. investment % of GDP Infrastructure investment (`tn) Infrastructure investment (US $ bn) @ `47/$
Source: Report on investment in Infrastructure, GEPL Capital research
FY13 67,878.3
FY14 73,308.6
FY15 79,539.8
FY16 86,698.4
FY17 94,501.3
Total 401,926.5
63,142.7
7.0 10.4 6,569.6
7.5 11.0 7,489.9
8.0 11.5 8,455.7
8.5 11.9 9,492.6
9.0 12.3 10,693.7
9.0 12.7 12,034.1
9.0 12.0 48,166.1
139.8
159.4
179.9
202.0
227.5
256.0
1,024.8
17

Encouraging data on Project implementation under Public private partnership
March 15, 2012
The data as on July 31, 2011, indicates that currently 212 projects are under implementation spanning across all segments of infrastructure (roads, ports, railways and airports) amounting to `1.41 tn with 74.94% of it being under construction stage. This is expected to benefit firstly the large cement players with Pan Indian presence, secondly the large players in respective regions and finally the mid-sized companies over the tenure of the construction period. Project implementation under Public private partnership Particulars of PPP Completed Bidding Construction Operational Under operation Under Implementation Total Total Cost of Investment (`bn) 10 5 1,058 2 177 159 1,412 % of Total 0.7 0.4 74.9 0.2 12.6 11.3 100.0
Delhi-Mumbai Industrial Corridor (mega infra-structure project of USD 90 bn) to benefit players in North, Central and Western India.
Delhi-Mumbai Industrial Corridor is a mega infra-structure project of US$90 bn with the financial and technical aids from Japan, covering an overall length of 1483 Km between the political capital and the business capital of India, i.e. Delhi and Mumbai. A MOU was signed in Dec06 between Vice Minister, Ministry of Economy, Trade and Industry (METI) of Government of Japan and Secretary, Department of Industrial Policy & Promotion (DIPP). A Final Project Concept was presented to both the Prime Ministers during Premier Abes visit to India in Aug07.
18
March 15, 2012
Finally, GoI has announced establishing of the Multi-modal High Axle Load Dedicated Freight Corridor (DFC) between Delhi and Mumbai, covering an overall length of 1483 km and passing through the six states - UP, NCR of Delhi, Haryana, Rajasthan, Gujarat and Maharashtra, with end terminals at Dadri in the National Capital Region of Delhi and Jawaharlal Nehru Port near Mumbai. Distribution of length of the corridor indicates that Rajasthan (39%) and Gujarat (38%) together constitute 77% of the total length of the alignment of freight corridor, followed by Haryana and Maharashtra 10% each and Uttar Pradesh and National Capital Region of Delhi 1.5 % of total length each. This Dedicated Freight Corridor envisages a high-speed connectivity for High Axle Load Wagons (25 ton) of Double Stacked Container Trains supported by high power locomotives. The Delhi - Mumbai leg of the Golden Quadrilateral National Highway also runs almost parallel to the Freight Corridor. This would be a big positive for the cement sector, as this will help rise demand from industrial and infrastructure segment which currently accounts for 6% and 17% of the overall consumption in India respectively. Demand to remain strong across regions even in Q1FY13E unlike last year Historically, the demand for cement peaks during Dec- Mar period owing to pick up in demand from all segments, with little regional variation. All India cement consumption
21.50
20.50 19.51 19.50 19.65
18.50
18.01 17.79 16.61
17.98
17.73 17.11 16.62
17.87 17.22 17.61
mtpa
17.50
16.50 16.35 15.50 15.76 15.76 16.27 16.27 15.85 15.29 14.50 14.56 13.50 15.21 14.92 15.67 15.67 15.57
12.50 May Aug Feb Sep Oct Apr Nov Mar Jun Jan Jul Dec
2008
2009
2010
2011
Unlike last year this year we expect the consumption to improve during the first quarter of FY13E. Some of the arguments for our belief are. All round pick up in demand from Industrial, retail, infrastructure and commercial segment Start of constructional activities owing to conducive weather conditions for construction. (mainly housing, which constitutes the major chunk of demand) FY13E being the first year of XII five year plan we expect the demand to pick up Lastly, GoI may unveil its plans for making of concrete road, which it is planning since the last two five year plans. Though actual implementation might take time, this will be a big positive for the sector as it would provide the lacking visibility on the cement demand. As per the earlier draft concrete road might require to make 60,000 km of concrete roads, assuming 1,000 MT of cement per km of concrete road would require at least 60 mn MT.
19

Key concerns
Increase in Input costs:
March 15, 2012
Upward revision in government levies on key input costs may adversely affect our projections. Royalty on Lime stones Import duty on Gypsum, Imported Coal and Petcoke Increase in Diesel prices Excise duty Value added tax Upward revision in classification of finished products and key raw materials by Indian Railways. Royalty on Limestone
65 60 55 50 45 40 35 FY10 FY11 FY12 45 63
w .e.f 13.08.2009
63
Royalty on lime stone has been revised with effect from August 8,2009 from `45 per MT - `63 per MT and `one per bag extra. On an average 1.3-1.5 MT of lime stone is required per MT of clinker; however quantity of lime stone per MT of cement depends on the extent of production of blended cement such as PPC or PSC. Any upward revision in royalty on lime stone, which accounts for 33% of total cost of lime stone mining (second largest cost after excavation & transportation charge 46%), might have a negative impact on the cost of lime stone in making cement. Cost structure of Limestone
Others, 0.0 Excavation and Transportation, 57.3 Salaries and Wages, 5.0 Royalties and Cess Charges, 40.4
Rs / ton
M achinery Repairs and M aintenance, 1.0

Stores Consumption, 19.5
20

Changes in VAT
March 15, 2012
Value added tax is applicable on the intrastate (within) sales of cement; the VAT on cement varies in the range of 12.5%-15% depending on the state. There has been a several revision during last couple of years (Refer Table). Cement being more of regional commodity any upward revision in the VAT might have negative impact on the companies. Trends in VAT
FY10 West Bengal w.e.f 15-11-2010 Orissa w.e.f 1-4-2011 Karnataka w.e.f 1-4-2011 Jharkhand w.e.f 7-5-2011 Andhra Pradesh w.e.f 15-1-2010
Source: Government publications, GEPL Capital Research
FY11 13.50% 12.50% 13.50% 12.50%
FY12 13.50% 13.50% 14.00% 14.00% 14.50%
12.50%
12.50%
14.50%
Value added Tax

15.0 14.5 14.0 % 13.5 13.0 12.5 12.0 11.5 FY10 WB w.e.f October 15, 2010 Kar w.e.f April 1, 2011 AP w.e.f January 15, 2010
Source: Government publication, GEPL Capital Research
14.5
14.5 14.0 13.5
13.5
12.5 12.5
12.5
FY11
FY12 Orissa w.e.f April 1, 2011 Jharkhand w.e.f May 7, 2011
Changes in MAT Similarly there have been several revisions in the MAT, any upward revision in MAT might have negative impact on cement companies. Trends in MAT
20.0 18.0 16.0 14.0 % 12.0 10.0 8.0 6.0 4.0 2.0 0.0 FY10 FY11 FY12
Source: Government publications, GEPL Capital Research
18.0 15.0
10.0
21

Revision in excise
Sr No 1 2 3 For other than Mini Cement Plant Retail Sale price <`190 per Bag Retail Sale price >`190 per Bag All goods other than those cleared in packaged form Existing Excise New Excise Duty
March 15, 2012
`290 PMT*
10% of Retail Sale Price* 10% or `290 PMT whichever is higher*
10% Advalorem+`80 PMT* 10% Ad Valorem+`160PMT* 10% Advalorem*
*3% of secondary and higher secondary cess extra. Government publications, GEPL Capital Research
Excise duty for trade sales was revised during Feb11 budget from earlier 10% on maximum retail price (cess @3% extra) vs new ED of 10% on basic plus `160 PMT (Cess @ 3% extra). Whereas direct sales was revised to ED of 10% on basic plus `160 PMT (Cess @ 3% extra) from 10.3% or `298.7, whichever is higher. Any upward revision in excise duty might have negative impact on consumption of cement, thereby negatively impacting the revenue of cement companies. Sharp increase in BDI Sharp rise in baltic dry Index coupled with rupee depreciation might have a negative impact on the freight cost of imported coal. Trends in Baltic Dry Index
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0 May-09 May-10 May-11 Nov-09 Nov-10 Aug-10 Sep-10 Aug-09 Sep-09 Dec-09 Dec-10 Nov-11 Jul-09 Jul-10 Jul-11 Oct-09 Oct-10 Feb-11 Aug-11 Sep-11 Feb-10 Feb-09 Jan-10 Jun-10 Jan-11 Mar-09 Mar-10 Mar-11 Jan-09 Jun-09 Jun-11 Oct-11 Apr-09 Apr-10 Apr-11
BDIY
22

Increase in coal prices
March 15, 2012
Sharp pick up in coal prices coupled with weakening rupee to impact the cost of imported coal thereby impacting the cost of production and negatively impacting the margins. In view of uninterrupted and good quality coal, cement companies with access to nearest port mostly import coal from international markets such as Indonesia or Australia. Considering 80% of product mix to be a blended cement and approximate addition of around 25% of fly ash, the fuel costs for making one ton of cement at current costs works out to be `32.4 per bag assuming no blending whereas assuming 80% of blended cement the cost of fuels works out to be 25.2 per bag. Considering 55% of imported coal any increase of coal prices by 5% would give rise to around `0.7 per bag assuming domestic coal price to remain constant. At the same time any increase of 5% in domestic coal price would give rise to cost of fuel for making cement to rise by `0.5 per bag. Hence, any sharp increase in cost of coal might have a negative impact on cost of coal in making cement. Coal cost calculation and impact of coal price on cement.
OPC Addition of Fly ash Clinker % Share of PPC & OPC 0% 90.0% 20% PPC 25% 65.0% 80.0%
Std Kcal/ Unit of Cement
750 Domestic Imported 5500 60.0%
Kcal/Kg Share of Domestic and Imported
3700 40%
Cost/ MT Increase in Cost Wtd Average Kcal Wtd Average Cost Cost per Kg
3811 0% 4780 4565 4.56
5067 0%
Cost per Unit of Cement Cost of coal per Bag @ Nil blending
644.58 32.2 Cement Produced (MT) 1 0.18 0.52
Clinker Required
OPC PPC
Kcal Required
OPC PPC Total Coal Required kg/MT Coal Cost per Bag @ 80% PPC
135 390 525 501.3 25.1
Accordingly, the cost of fuel constituting ~18% of the variable costs and power cost constituting around 10% of the variable costs. Any sharp increase in coal costs would have a significant negative impact on our assumption.
23
Initiating Coverage
CMP (`) 1,499.60 Potential Upside 6.4%
UltraTech Cement Ltd.

Volume, ReaIisation & Scale of operation to drive growth
March 15, 2012
NEUTRAL
Target (`) 1,595 Absolute Rating NEUTRAL
Investment Rationale
Recent merger to aid UCL in the next up cycle of cement Post the merger of Grasims cement business (Samridhi Cement) with Ultratech Cement Ltd (UCL), UCL is the largest cement maker by capacity in India. UCL currently operates 11 integrated cement plants and 11 grinding units with a total installed capacity of 48.75 mtpa almost 2.11x its 23.1 mtpa prior to merger. The merger has not only helped UCL to strengthen its market positions across all regions but also has given UCL an access to northern market, where it had no presence prior to merger; Thus making it a pan India player. We believe this should help UCL in the next up cycle, as it gives UCL better economies of scale as compared to previous up cycle of cement. Increased shift towards captive sourcing of power to insulate UCL from tariff rise There has been a significant shift in the ratio of power being sourced from a captive power plant (CPP) currently as against that in the last up cycle (CY07-08). UCL currently sources around 78.5% of its entire power requirement from its CPP as against mere 22% in CY07-08. With cost of purchased power being 44% costlier than the cost of power from CPP (as per FY11 annual report), we believe the increased shift towards CPP to aid UCL insulating itself from sharp rise in power tarrariffs and also ensure uninterrupted power supply. Industrial preference over midsized players; Western region presence to benefit in long run Our channel check indicates that UCL along with other two large cement majors are the preferred brands by most of the industrial user segment, owing to its better performance and low cost of concrete. We expect a) interest cycle expected to reverse, b) demand from industrial segment in West to increase, and c) UCLs large exposure in the West to help UCL in next up cycle. Improving utilisation of UCL across other regions and pricing discipline in South With no major capacity expected to hit the market in the near term, we expect the capacity utilisation of UCL to improve from current levels. Also we anticipate the pricing discipline in South to remain intact thereby helping cement companies operating in South. With UCLs market share of 10.5% by capacity in south (second largest), we believe UCL should benefit on account of strong pricing discipline. Capacity expansion to fuel growth during next up cycle UCL is progressing on its schedule to expand its capacity at Chhattisgarh and Karnataka by 4.8 mtpa and 4.4 mtpa respectively and expects to complete the same by Mar13. With commissioning of its new capacity, we expect the sales volume to see a growth of 9.7% Y-o-Y in FY14E and 4.8% Y-o-Y FY15E. Given no major capacity expansion to hit the market we expect the average realisation to improve over next two to three years, there by helping UCL to improve both top line as well as bottom line.
Market Info (as on 14th March, 2012)

BSE Sensex Nifty S&P 17919 5464
Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) A 532538 ULTRACEMCO UTCEM IN 410.98 40% 1517 / 916 131067 10.00 / 6.00 274.0
Shareholding Pattern
Promoters 63.35 FIIs 16.10 DII 6.38 Others 14.17
Financial Snapshot
Y/E Mar Net Sales EBITDA PAT EPS ROE (%) ROCE (%) P/E EV/EBITDA FY10 19,839 10,952 88.0 26.7 19.7 13.1 8.0 FY11 25,705 13,674 49.9 17.9 15.2 22.7 13.6 FY12E 186,657 44,945 19,668 71.8 17.0 13.9 20.2 10.2 71,751 136,912
(`mn)
FY13E 220,663 56,818 25,463 92.9 18.7 14.1 15.6 8.5
Share Price Performance

160 150 140 130 120 110 100 90 80 70 Apr-11 Jul-11 Aug-11 Jun-11 Oct-11 Jan-12 Nov-11 Mar-11 Feb-12 Dec-11 Sep-11 May-11 Mar-12
Valuation and views

In view of the a) significant improvement in sourcing of power from CPP as compared to its last up cycle of cement, b) better economies of scale post merger, c) access to northern market as well as strengthening of its market position all across other regions compared to last up cycle, d) preference given to UCL by large industrial consumers, and e) slowing pace of new capacity additions across other regions and strong pricing discipline in south should positively impact both the utilization as well as realisation going ahead, thereby benefiting UCL in next up cycle. Hence, we believe UCL deserves a better valuation compared to its last up cycle. Accordingly we initiate coverage on UCL with NEUTRAL rating and with one year price target of `1,595 per share based on both EV/MT and EV/EBIDTA on a differential weight age.
UltraTech Cement
BSE SENSEX
Rel. Perf. UCL (%) SENSEX (%)
1Mth 6.8 0.4
3 Mths 30.4 12.8
6Mths 36.0 7.2
1Yr 45.9 (2.8)
Analyst
24

Recent merger to aid UCL in the next up cycle of cement
March 15, 2012
Ultratech Cement Ltd. (UCL) is the largest cement maker by capacity in India post the merger of Grasims cement business (Samridhi Cement). UCL currently operates 11 integrated cement plants and 11 grinding units with a total installed capacity of 48.75 mtpa. It also operates one white cement plant with 0.56 mtpa. Apart from this, UCL also operates one clinkerisation unit at UAE and two grinding units, one in Bahrain and one in Bangladesh with a total installed capacity of 3 mtpa outside India. With an intention to focus on cement, the company had merged all its cement business in to single entity in a phased manner. In the first phase the cement business of Grasim was demerged in to a separate entity Samriddhi Cement. In the second phase the same has been merged with UCL. UCLs current total grey cement capacity post merger stands at 2.11x as against 23.1 mtpa prior to merger. This has given UCL better economies of scale as well as strengthened its market position across other region (Refer table below). We believe this should help UCL in the next up cycle of cement. Details of capacities post merger and prior to merger
Before Merger Capacity (mtpa) North South East West Central Total 0 8.0 2.2 11.0 1.9 23.1 After Merger Capacity (mtpa) 11.1 12.6 4.7 12.8 7.5 48.7 % Total 22.9 25.8 9.6 26.3 15.4 100.0 Increase in Capacity (%) NM 57.5 113.6 16.4 294.7 111.0
GEPL Capital Research| Initiating Coverage
25

Plant wise details UCL in India
Sl No 1 2 3 4 5 6 Location Jafrabad Magdalla Rajula Awarpur Ratnagiri Hotgi West 7 8 9 10 11 Tadipatri Ginigera Malked Arakkonam Reddipalyam South 12 13 14 Raipur Rajbandh Arda East 15 16 17 18 Panipat Bhatinda Shambupura Kotputli North 19 20 21 22 Hirmi Jawad Road Dadri Koli Central Madhya Pradesh Madhya Pradesh Uttar Pradesh Uttar Pradesh Mtpa Mtpa Mtpa Mtpa Haryana Punjab Rajasthan Rajasthan Mtpa Mtpa Mtpa Mtpa CTG West Bangal Orissa Mtpa Mtpa Mtpa Andhra Pradesh Karnataka Karnataka Tamil Nadu Tamil Nadu Mtpa Mtpa Mtpa Mtpa Mtpa State Gujrat Gujrat Gujrat Maharashtra Maharashtra Maharashtra UoM Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Capacity in mtpa 0.5 0.7 5.8 3.6 0.4 1.8 12.8 5.6 1.3 3.2 1.1 1.4 12.6 2.5 1.2 1.0 4.7 1.3 1.7 5.0 3.1 11.1 1.9 3.0 1.3 1.3 7.5 48.7
March 15, 2012
% Of Total 1.0 1.4 11.9 7.4 0.8 3.7 26.3 11.5 2.7 6.6 2.3 2.9 25.8 5.1 2.5 2.1 9.6 2.7 3.6 10.3 6.4 22.9 3.9 6.2 2.7 2.7 15.4 100.0
26
March 15, 2012
Increased shift towards captive sourcing of power to insulate UCL from tariff rise
There has been a sea of change in the ratio of CPP from what the company had during the last up cycle of the cement (FY07-08) as compared to its current position. During FY07, the quantity of purchased power was as high as 60.1% and power from CPP stood at mere 21.9%, the cost per unit of power stood at `4.79/Unit and `1.4/Unit for Purchased and Captive Power respectively. In FY11 CPPs share as a percentage of its total power requirement increased to 78.5% and share of Purchased power stood at 19% with rates per unit at `5.35 and `3.71 respectively. With power cost being a major input cost and also given the fact that the cost of purchased power being 44% (as per FY11annual report) dearer than cost of power from CPP for UCL, we believe the shift to CPP would help UCL in insulating itself from the sharp rise in power tariffs and also give UCL an access to un-interrupted power supply. Details of power sourcing
FY07 Qty Electricity Purchased Electricity Generated (Steam Turbine) 847,582,016 309,571,008 Rate 4.79 1.40 % Share 60.1 21.9 Qty 543,606,016 2,251,368,960 FY11 Rate 5.35 3.71 % Share 19.0 78.5
Currently, the companys total installed capacity of CPP stands at 600MW. It plans to expand its CPP by 25MW and waste heat recovery plant by 45MW, which is expected to get commissioned by Mar13. UCL currently has a linkage to domestic supplies to the tune of 35%, 15% of coal requirement is through e-Auction and balance around 50% is imported.
27

Industrial preference over midsized presence to benefit in long run players;
March 15, 2012
Western
region
UCL sells around 1/3rd of volumes to the trade and 2/3rd to the non-trade segment. UCL gets 32% of its revenue from North and Central India put together, 22% of the revenue from Southern India, ~18% from Eastern India and the balance 22% from Western India. Our channel check indicates that UCL along with other two large cement majors are the preferred brands by most of the industrial user segment owing to its better performance and low cost of concrete. UCL is currently the largest cement maker in West with a total market share by capacity of 28.6%. As Western India (primarily Mumbai) is mostly dominated by bulk consumer of cement, we expect any indication of interest rate reversal to spur demand from this segment, and thereby benefiting large players like UCL, Ambuja Cement Ltd and ACC. With government envisaged to make an investment of US$1 tn in next five year plan, also with Delhi-Mumbai corridor expected to start soon, we believe it should benefit the major players operating in North, Centre and West.
UCL sells around 1/3rd of volumes to the trade and 2/3rd to the non trade segment and gets 22% of its revenue from western India
28
March 15, 2012
Improving utilisation of UCL across other regions and pricing discipline in South
On anticipation of strong demand, cement companies across the country had announced expansion plans. As a result of this industry had seen a total addition of 114.8 mtpa over last 3-4 years witnessing a CAGR of 13% in FY08- 9MFY12. However, over the recent past the pace of addition has slowed down. In FY09 industry saw a total addition of 42.1 mtpa, 27.5 mtpa in FY10, 23.6 mtpa in FY11 and around 21.5 mtpa in FY12 (till Dec11). Also on the supply side, there has not been much progress on the 26.5 mtpa announced earlier in Andhra Pradesh (AP). Given the long gestation period for setting up of capacity, we dont see this capacity hitting the market any time soon thereby positively impacting the demand supply scenario. Further on an all India basis we expect a net addition of 24.8 mtpa over next 15 months taking the overall installed capacity of cement to around 334.6 mtpa by FY13E. Given the slowing pace of capacity additions, we expect the installed capacity on an all India basis to witness a CAGR 6.7% in FY11-15E. At the same time in view of a) peaking of interest rates b) US$ 1tn investment over next five year plan c) expectation of increase in infrastructure spending as a percentage of GDP, and d) improvement in demand from housing segment, we expect the consumption of cement to witness a CAGR 8.8% in FY11-FY15E. Hence, we expect the capacity utilisation on an all India basis to reach 75.9% in FY13E and 78.4% in FY14E. Trends in Capacity additions
Company All India Cement Capacity (mn MT) Capacity additions(in mn MT) Total Additions in mn MT
FY08 195.1
FY09 237.2 42.1
FY10 264.7 27.5
FY11 288.3 23.6
As on Dec.11 309.9 21.5 45.2
Production discipline to remain intact, to help maintain high prices Cement capacity in South since FY09, has seen a CAGR 28.5% in FY08-FY10, the consumption has seen a CAGR of 12%. The slower growth in consumption was mainly on account of lackluster demand from both housing and infrastructure investment by the government, as a result of which the utilisation levels declined. The lower demand and surplus capacity forced companies to sell cement below the variable cost with prices touching as low as `130-143 per bag during Aug-Sep10. Consequent to this companies reduced their capacity utilisation by ~40%, which has helped companies not only to raise cement prices to as high as `250-280 per bag but also to maintain the prices over the last one and half years, thereby helping companies recover the losses they made in CY10. With lack lusture consumption from both private as well as government projects, the consumption for the H1FY12 de-grew by 4.12% Y-o-Y with Andhra Pradesh (AP) showing a sharp decline of 19% Y-o-Y. There has been a signs of recovery seen in South, TN showing a growth of 18% Y-o-Y growth for Nov-Dec11 period, Kerala showing a growth of 15% Y-o-Y, AP which had been the laggard showing a growth of 12% Y-o-Y and lastly Karnataka also exhibiting a strong growth of 8% Y-o-Y. With Q4 & Q1 being the strong quarter for Southern cement companies, we expect the despatches to remain strong during Q4FY12E & Q1FY13E.
29

Reasons for demand pick up in coming months
March 15, 2012
Relatively stable political environment Recent CII partnership summit indicating a huge investment of `6.5 tn investment proposals Signs of recovery seen in other major cities in AP, except Hyderabad where demand for housing is yet to take shape Announcement of New projects by some of the real estate developers like PEBL venture with L&T, Mahindra life space announcing 200 mn sq ft worth `2.5 bn and many more in pipeline
Good business environment in real estate which had slowed down in the recent past has started showing some signs of improvement Significant improvement seen in long pending dues to contractors
UCLs market share by capacity at 10.5% second largest in south and the strong pricing discipline should aid UCL significantly.
30

Capacity expansion to fuel growth during next up cycle
March 15, 2012
UCL has planned a capital expenditure of `110 bn over the next two years for a) brown field expansion of its cement capacities at Chhattisgarh and Karnataka by 4.8 mtpa and 4.4 mtpa respectively, involving an investment of `51.5 bn, commencing by Mar13 b) enhancing thermal power capacities by 25Mw and waste heat recovery plant capacity by 45MW at a total estimated costs of `6.8 bn, and c) development of infrastructure, ready mix concrete and modernization and up gradation. With commencement of production at both the units by Mar13, we expect the sales volume to see a growth of 9.7% Y-o-Y in FY14E and 4.8% Y-o-Y in FY15E. Given no major capacity expansion to hit the market we expect the average realisation to improve over next two to three years, thereby positively impacting UCLs top line as well as bottom line going forward. Trends in capacity, utilization and sales volume
commencement of production at both the units by March 2013, we expect the sales volume to see a growth of 9.7% Y-o-Y in FY14E and 4.8% Volume growth in FY15E Installed Capacity FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY07 FY06 FY05 FY04 57.8 57.8 48.8 48.8 48.8 23.1 21.9 18.2 17.0 17.0 15.5 15.5 Capacity Utilised (%) 83.0 79.2 85.5 81.9 67.5 76.4 72.4 82.8 86.1 78.4 78.2 76.1 Sales Quantity 47.9 45.8 41.7 39.9 33.2 17.8 15.8 15.0 15.2 14.2 12.5 14.9
`/Bag (Net)
254.7 244.7 225.4 205.9 164.5 171.0 170.7 161.1 147.0 108.6 89.9 90.6
Net Sales 244,140 223,873 188,012 164,456 109,330 60,746 53,960 48,401 44,591 30,913 22,505 26,932
*the data are not strictly comparable to figures in earlier years. Source: Company data, GEPL Capital Research
31

Financial Overview
Revenue to record 23.6% CAGR over FY11-FY14E
March 15, 2012
We expect UCL to report a robust 23.6% CAGR in revenue, to `258.6 bn in FY11-14E driven by increase in a) 9.2% CAGR in FY13-14E volumes and b) 13.9% CAGR in FY13-14E blended realisation. Slower growth of capacity additions across the industry coupled with strong overall growth in demand from all segment especially the infrastructure and industrial segment to aid growth going forward. Net Sales
300.0 250.0 200.0 Rs bn 150.0 100.0 50.0 0.0 FY11 FY12E Net Sales
90.8 220.7 186.7 136.9 36.3 18.2
258.6
100.0 80.0 60.0 %
` 17.2
40.0 20.0 0.0
FY13E
FY14E
Y-o-Y growth
Trends in capacity, utilization and sales volume

Installed Capacity FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY07 FY06 FY05 FY04 57.8 57.8 48.8 48.8 48.8 23.1 21.9 18.2 17.0 17.0 15.5 15.5 Capacity Utilised (%) 83.0 79.2 85.5 81.9 67.5 76.4 72.4 82.8 86.1 78.4 78.2 76.1 Sales Quantity 47.9 45.8 41.7 39.9 33.2 17.8 15.8 15.0 15.2 14.2 12.5 14.9
`/Bag (Net)
254.7 244.7 225.4 205.9 164.5 171.0 170.7 161.1 147.0 108.6 89.9 90.6
Net Sales 244,140 223,873 188,012 164,456 109,330 60,746 53,960 48,401 44,591 30,913 22,505 26,932
*the data are not strictly comparable to figures in earlier years. Source: Company data, GEPL Capital Research
32

EBIDTA margin to grow to 869bps to 27.5% in FY14E
March 15, 2012
The average EBIDTA margin on a standalone basis for the first nine months stood at an average of 22.2%. With Q4 generally being a stronger quarter and given the strong pricing trends, we expect the margin to improve further from this level. Trends in EBIDTA and EBIDTA Margin
60.0 50.0 40.0 Rs bn 30.0 20.0 10.0 0.0 FY11 FY12E EBITDA
27.5 24.1 18.8 56.8 25.7
30.0 25.0 20.0
44.9 19.8 25.7
15.0 10.0 5.0 0.0
FY13E
FY14E
EBITDA M argin (%)
In view of a) strong pricing trends b) improving utilization trends which should spread its fixed costs, and c) increased share of CPP, we expect the EBIDTA margins to reach 25.7% in FY13E. Net profit to record a CAGR of 35.8% in FY11-14E on higher realisation We expect higher realisation and growing volumes to result in net profit witnessing a 35.8% CAGR in FY11-14E to `34.2 bn. Trends in Net profit and Net profit Margin
40.0 35.0 30.0 Rs bn 25.0 20.0 15.0 10.0 5.0 0.0 FY11 FY12E Net Profit
13.2 10.0 10.5 11.5
14.0 12.0 10.0 8.0 %
` 34.2 13.7 19.7 25.5
6.0 4.0 2.0 0.0
FY13E
FY14E
Net Profit M argin
33

Key Risks
Break in the pricing discipline
March 15, 2012
Company derives 20% of its revenue from the southern part of India. However given the large surplus in the region and low pick up in demand, the utilization has been very low. As a result of conscious decision by the manufacturers to keep low utilization, the company has been able to maintain healthy cement prices in the region. Any discrepancy in the pricing discipline with entry of new players and sudden increase in utilizations to take advantage of high price might have a negative impact our earnings estimates. Sharp rise in coal prices coupled with sharp depreciation to affect power and fuel costs of the company and impact our assumptions Owing to uncertainties with regards to supply, quality and prices of domestic coal manufacturers have shifted to imported coal. Hence, any sharp increase in imported thermal coal might affect our estimation and in turn our valuation.
34

Valuation
March 15, 2012
In view of the a) significant improvement in sourcing of power from CPP as compared to its last up cycle of cement, b) better economies of scale post merger, c) access to northern market as well as strengthening of its market position all across other regions compared to last up cycle, d) preference given to UCL by large industrial consumers, and e) slowing pace of new capacity additions across other regions and strong pricing discipline in south should positively impact both the utilization as well as realisation going ahead, thereby benefiting UCL in next up cycle. Hence, we believe UCL deserves a better valuation compared to its last up cycle. Accordingly we initiate coverage on UCL with NEUTRAL rating and with one year price target of `1,595 per share based on both EV/MT and EV/EBIDTA on a differential weight age. Valuation on EV/EBIDTA The stock has been trading in the band of 7-7.5x one year-forward EV/EBITDA . However during the last up cycle UCL was trading in the range of 8.5-9.0x touching ~9.25x. Given the significant improvement in key parameters such as larger share of CPP, access to key growth areas like northern markets, better economies of scale and lastly expected pickup in with slowing pace of capacity additions, we expect the stock to trade at the highs of its last up cycle at 9.25x one year forward EV/EBITDA. Accordingly the target price works out to be `1,605 per share with a potential upside of 20% from CMP. Trends in EV/EBIDTA
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Jul-11 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Price
6.0x
7.0x
7.5x
8.5x
9.0x
Source: Company Data, GEPL Capital Research
35

Valuation on EV per MT
March 15, 2012
Over last two years EV/ MT has been in the range of US$116-203. At the current market price the stock is trading at US$195/MT at its two years high and at a 4% discount to its all time high of US$203/MT. Given strong pricing trend, economies of scale and expected improvement in investment cycle both by GOI and private players, we expect UCL to trade above its all time high. Accordingly considering US$203/MT, the one year target price works out to be `1,557 per share. EV/MT
230.0 210.0 190.0 170.0 150.0 130.0 110.0 90.0 70.0 50.0 30.0 20-Jul-07 20-Jul-08 20-Jul-09 20-Jul-10 20-Oct-06 20-Oct-07 20-Oct-08 20-Oct-09 20-Oct-10 20-Jul-11 20-Oct-11 20-Apr-07 20-Apr-08 20-Apr-09 20-Apr-10 20-Jan-07 20-Jan-08 20-Jan-09 20-Jan-10 20-Jan-11 20-Apr-11 20-Jan-12 US$203/MT US$195/MT
EV (US$)/MT
US$116/MT
Target price based on both EV/EBIDTA and EV/MT on differential weight age. Owing to the low EBIDTA margins of the company compared to the margins during the last up cycle we have considered a weight of 80% to EV/EBIDTA instead of 100% and 20% to EV/MT. Accordingly, we derive our one year target price to be `1,595 per share with a potential upside of 6.4% Valuation Methods EV/EBIDTA EV/MT Target Price Current Market Price Potential Upside
Weight age 80% 20%
Target price 1,605 1,557 1,595 1,499 6.4%
36

Company Background
March 15, 2012
Part of Aditya birla group, UCL currently operates 11 integrated cement plants and 11 grinding units with a total installed capacity of 48.75 mtpa. From July10 Grasims cement business has been merged with UCL, giving it an access to northern India and also strengthening its market position all across other regions.
Sl No Location State UoM Capacity in mtpa % Of Total
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Jafrabad Magdalla Rajula Awarpur Ratnagiri Hotgi West Tadipatri Ginigera Malked Arakkonam Reddipalyam South Raipur Rajbandh Arda East Panipat Bhatinda Shambupura Kotputli North Hirmi Jawad Road Dadri Koli Central
Gujrat Gujrat Gujrat Maharashtra Maharashtra Maharashtra Andhra Pradesh Karnataka Karnataka Tamil Nadu Tamil Nadu CTG West Bangal Orissa Haryana Punjab Rajasthan Rajasthan Madhya Pradesh Madhya Pradesh Uttar Pradesh Uttar Pradesh
Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa Mtpa
0.5 0.7 5.8 3.6 0.4 1.8 12.8 5.6 1.3 3.2 1.1 1.4 12.6 2.5 1.2 1.0 4.7 1.3 1.7 5.0 3.1 11.1 1.9 3.0 1.3 1.3 7.5 48.7
1.0 1.4 11.9 7.4 0.8 3.7 26.3 11.5 2.7 6.6 2.3 2.9 25.8 5.1 2.5 2.1 9.6 2.7 3.6 10.3 6.4 22.9 3.9 6.2 2.7 2.7 15.4 100.0
Grey cement contributes around 84.7% of the overall sales of the company followed by RMC Putty and white cement which constitutes over 2% of the total revenue. With no big ticket expansion expected to hit the market, we expect the utilization levels of the company to improve with a minor decline in FY14E owing to commissioning of its 9.2 mtpa capacity.
37

Income Statement
Y/E Mar (`mn)
Total net revenues COGS Gross Profit Employee Cost Advertising Expenses Other Expenditure EBITDA EBITDA Margin (%) Depreciation Other Income Interest (Net) PBT PBT Margin (%) Tax Minority Interest Adjusted PAT Extraordinary /exceptional Reported PAT
March 15, 2012 Balance Sheet
FY09
65,636 31,828 33,808 2,209 13,755 689 17,156 26.1 3,244 1,023 1,256 13,678 20.8 3,882 16 9,781 0 9,781
FY10
71,751 32,700 39,051 2,568 16,153 491 19,839 27.6 3,897 1,213 1,178 15,978 22.3 5,010 16 10,952 0 10,952
FY11
136,912 67,854 69,058 6,990 35,399 964 25,705 18.8 8,130 2,896 2,995 17,476 12.8 3,866 (63) 13,674 0 13,674
FY12E
186,657 69,996 116,661 9,996 44,507 17,213 44,945 24.1 11,899 0 5,345 27,701 14.8 8,033 0 19,668 0 19,668
FY13E
220,663 81,094 139,569 11,995 51,478 19,278 56,818 25.7 13,759 0 7,195 35,864 16.3 10,400 0 25,463 0 25,463
Y/E Mar (`mn)

Equity capital Reserves & Surplus Preference Capital Net worth Minority interest Deffed tax liability Total debt Total Liabilities & Equity Net block Capital WIP Total fixed assets Investments Goodwill Current Assets Inventories Debtors Cash & bank Loans & advances Other Current Assets Current Liab. & Prov. Creditors Other liabilities Provisions Net Working capital Net DTL Total Assets
FY09
1,245 34,759 0 36,004 0 (7,229) 21,416 57,421 46,357 6,773 53,130 10,348 0 13,720 6,920 1,939 1,045 3,816 0 12,548 7,394 3,832 1,322 1,172 (7,229) 57,421
FY10
1,245 44,842 0 46,087 0 (8,307) 16,045 62,132 49,417 2,594 52,011 16,696 0 14,724 8,217 2,158 837 3,511 0 12,991 6,815 4,566 1,610 1,733 (8,307) 62,132
FY11
2,740 103,920 0 106,660 0 (17,301) 41,446 148,106 114,003 11,053 125,056 37,303 0 37,587 19,565 6,023 1,448 10,539 12 34,539 16,782 12,022 5,735 3,048 (17,301) 148,106
FY12E
2,740 121,629 0 124,370 0 (17,301) 65,446 189,816 127,103 31,053 158,156 37,303 0 38,274 18,921 5,421 3,704 10,228 0 26,618 15,025 1,648 9,944 11,656 (17,301) 189,816
FY13E
2,740 145,182 0 147,922 0 (17,301) 94,446 242,368 148,344 56,053 204,397 37,303 0 49,600 21,764 6,469 8,671 12,696 0 31,632 17,372 1,949 12,311 17,968 (17,301) 242,368
Key Ratio
Y/E Mar (`mn)
Per Share Ratios Fully diluted E P S Book Value Dividend per share per share FCFO Valuation Ratio P/E P/BV EV/EBITDA EV/Sales Price/ FCFO per share Growth Ratios Sales Growth EBITDA Growth Net Profit Growth EPS Growth Common size Ratios Gross Margin EBITDA Margin PAT Margin Employee Cost S&G Expenses Return ratios RoAE RoACE Turnover ratios (days) Debtors ( Days) Creditors ( Days) Inventory (Days) Net working capital Solvency Ratios Total Debt/Equity Interest coverage
Cash Flow
FY09
78.6 1.9 0.0 9.9 7.0 1.9 5.2 1.4 55.4 16.7 (1.1) (3.2) (3.2) 0.0 26.1 14.9 3.4 79.0 31.1 21.0 10 57 36 (2) 0.6 8.5
FY10
88.0 3.1 6.0 11.3 13.1 3.1 8.0 2.2 102.2 9.3 15.6 12.0 12.0 0.0 27.6 15.3 3.6 77.5 26.7 19.7 10 50 39 3 0.3 10.0
FY11
49.9 2.9 6.0 7.7 22.7 2.9 13.6 2.6 146.6 90.8 29.6 24.8 (43.3) 0.0 18.8 10.0 5.1 74.1 17.9 15.2 10 39 37 3 0.4 5.3
FY12E
71.8 3.2 6.0 11.2 20.2 3.2 10.2 2.5 129.9 36.3 74.9 43.8 43.8 0.0 24.1 10.5 5.0 76.2 17.0 13.9 11 41 38 9 0.5 4.4
FY13E
92.9 2.7 6.0 16.4 15.6 2.7 8.5 2.2 88.1 18.2 26.4 29.5 29.5 0.0 25.7 11.5 4.4 76.7 18.7 14.1 10 36 34 14 0.6 4.2
Y/E Mar (`mn)

PBT Add: Depreciation Add: Interest expense Less: Other Income Other Adjustments Chg in working capital Taxes paid CF from operations Chg in fixed assets Chg in Intangi. Asset Chg in investments Other income CF from invest. acti. Chg in debt Chg in Equity capital Chg in Pref. capital Div. & dividend tax Interest paid Other Adjustments CF from Finan. acti. Change in cash Opening cash Closing cash
FY09
13,678 3,244 1,256 (1,023) 0 (888) 3,882 12,385 (8,538) 0 (8,639) 1,023 (16,154) 4,011 0 0 0 (1,256) 1,806 4,561 777 1,007 1,045
FY10
15,978 3,897 1,178 (1,213) 0 (768) 5,010 14,061 (2,777) 0 (6,348) 1,213 (7,912) (5,371) 1 0 (871) (1,178) 1,078 (6,341) (208) 1,045 837
FY11
17,476 8,130 2,995 (2,896) 0 (704) 3,866 21,135 (81,175) 0 (20,608) 2,896 (98,887) 25,401 1,515 0 (1,911) (2,995) 8,993 31,003 (46,686) 837 1,448
FY12E
27,701 11,899 5,345 0 0 (6,352) 8,033 30,559 (45,000) 0 0 0 (45,000) 24,000 0 0 (1,911) (5,345) 0 16,745 2,304 1,448 3,704
FY13E
35,864 13,759 7,195 0 0 (1,344) 10,400 45,073 (60,000) 0 0 0 (60,000) 29,000 0 0 (1,911) (7,195) 0 19,894 4,967 3,704 8,671
Du-Pont Analysis
(%)
Net Profit Margin Asset Turnover Leverage ROE
FY09
14.9 1.1 1.6 31.1
FY10
15.3 1.2 1.3 26.7
FY11
10.0 0.9 1.4 17.9
FY12E
10.5 1.0 1.5 17.0
FY13E
11.5 0.9 1.6 18.7
38
Initiating Coverage
CMP (`) 167.45 Potential Upside 22.9%
Ambuja Cements Ltd.

Volume on account of higher utilization to benefit Ambuja
March 15, 2012
BUY
Target (`) 205.7 Absolute Rating BUY
Exposure to West and North to help (Ambuja Cements Ltd) ACL going ahead For the first 9MFY12, both North and West have shown a robust growth of 10.1% and 16.6% respectively. With no big ticket expansion in both West and North, peaking of interest rates, start of work on the Delhi Mumbai Industrial Corridor, we expect the consumption in North and West to grow at a CAGR of ~10% and 11.2% in FY11-FY15E respectively. ACL currently with 23.6% market share is the second largest in West and with 13.2% market share by capacity in North is the third largest. Given ACLs large exposure to high growth areas like West & North to help ACL going ahead. Also over last 4 years ACLs installed capacity of cement has risen from 18.5 mtpa in CY07 to 27.3 mtpa in CY11, giving it better economies of scale. Large exposure to West: preference by industrial consumers to aid ACL Western Indias demand is predominantly driven by growth in industrial and infrastructure segment, which in turn is driven by prevailing interest rates and investment by the government & private players. Our channel check indicates that ACL, ACC and Ultratech are preferred brands by most of the industrial user segment owing to its better performance and low cost of concrete. Hence given the interest cycle to reverse and demand from Industrial segment to improve going ahead. ACLs large presence in the Western part of India where industrial demand constitutes the major cement consuming segment, we expect ACL along with other two large brands, ACC and Ultratech, to be the major beneficiary. Increasing shift to Captive Power to insulate from rise in tariff Owing to higher cost of purchased power vs cost of power from Captive Power Plant (CPP),34% higher, ACL has been able to reduce its dependency on the State Electricity Board (SEBs) as well as Diesel Generator (DG) set, accordingly the share of DG has declined from 27.4% in CY07 to 10.4% in CY10, at the same time the share of CPP has increased from 51.6% in CY07 to 67.3% in CY10, we believe this shift to captive power to help company in reducing dependency on the SEBs and to get un interrupted power at a lower cost.

Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) A 500425 AMBUJACEM ACEM IN 257.76 50% 182 / 119 2103147 2.00 / 1.80 1,534.3
Promoters 50.29 FIIs 25.01 DII 13.62 Others 11.08
Financial Snapshot
Y/E Mar Net Sales EBITDA PAT EPS ROE (%) ROCE (%) P/E EV/EBITDA CY10 73,902 17,630 12,143 8.0 16.6 61.5 13.0 8.2 CY11P 86,196 19,948 12,277 7.9 15.2 38.7 18.1 11.5 CY12E 104,384 23,201 11,475 8.0 13.2 32.0 12.7 6.8
(`mn)
CY13E 124,530 31,413 16,709 7.5 17.0 29.5 18.0 8.0
Valuation and views

Over last two years EV per MT in US$ has been in the range of US$112-208. At current market price the stock is trading at US$ 194 at 8% discount to its two year high of US$209/MT and at a 51% discount to its all time high of US$293/MT. In view of improvement in following parameters for ACL as against the last up cycle of cement such as a) Increase in installed capacity of cement b) strengthening of market positions c) Improvement in share of CPP as against the share of CPP in the last up cycle e) Large exposure to high growth area and preference by large consumers. We believe ACL deserves a higher valuation compared to its last up cycle; accordingly we initiate coverage on ACL with BUY rating and with one year price target of `205.7 per share based on both EV/MT and EV/EBIDTA on a differential weight age.

150 140 130 120 110 100 90 80 70 Apr-11 Jul-11 Aug-11 Jun-11 Jan-12 Nov-11 Mar-11 Feb-12 Oct-11 Dec-11 Sep-11 May-11 Mar-12
Ambuja Cements
BSE SENSEX
Rel. Perf. Amb. Cem (%) SENSEX (%)
1Mth (1.9) 0.4
3 Mths 11.1 12.8
6Mths 14.7 7.2
1Yr 31.4 (2.8)
Analyst
39
Ambuja Cements Ltd.

Exposure to West & North to be the key
March 15, 2012
Northern region has posted a healthy growth of 11.2% CAGR in FY08-11. However, region had exhibited a growth of mere 5.3% in FY11 Lowest over last four years owing to slower demand from infrastructure segment and industrial segment. Recently, there has been a strong pickup of demand in North, showing a growth of 15.6% in Q3FY12 and 10.1% for 9MFY12. This was primarily on account of strong demand in major states (Punjab and Rajasthan) of North, which grew by 15% and 9.8% Y-o-Y respectively for the first six months of FY12. In view of a) peaking of interest rates, b) with FY13E being first year of five year plan, and c) with start of work on the Delhi Mumbai Industrial Corridor, we expect the demand to grow at a 9.9% CAGR in FY11-15E.At the same time with no major capacity to hit the market, we expect the capacity to grow at CAGR of 3.9% in FY11-15E. Hence, we believe the utilisation in Northern India to reach to 81.0% in FY12E, 86.4% in FY13E. While Western region has posted a growth of 1.8% CAGR in FY08-11. However, there has been a strong pickup in demand in the West, showing a growth of 23.7% in Q3FY12 and 16.6% for 9MFY12.Western Indias demand is predominantly driven by growth in industrial and infrastructure segment. Hence with peaking of interest rates, start of work on the Delhi Mumbai Industrial Corridor, we expect the demand to grow at a 11.2% CAGR in FY11-15E. At the same time with no major capex on the anvil, we expect the capacity to show a 7.8% CAGR in FY1115E; Hence, we expect the utilisation levels reach 80.8% in FY13E. ACL with 10.3 mtpa, which account for 23.6% of the overall capacity in the Western India, is the second largest cement producer in West. ACL with 13.2% market share by capacity is the third largest in North. Hence ACLs large exposure to both North and West to aid ACL going ahead both in terms of top line growth and bottom line growth. Over last 4 years ACLs installed capacity of cement has risen from 18.5 mtpa in CY07 to almost around 27.3 mtpa at current level, showing an increase of 8.8 mtpa in absolute terms or 10% CAGR in CY07-11. This gives ACL a better economies of scale compared to last up cycle. Installed capacity
30.0 25.0 27.3 CY11
42% ACLs overall capacity is concentrated in Western part of India, 38.5% in the North and Central India followed by 19.5% in the eastern part of India
mtpa
15.0 9.0 7.0 10.0 5.0 5.0 2.0 2.0 5.0 0.7 0.7 0.0 FY91 FY93 FY95 FY97 FY99 FY01 FY03 0.7 3.5 5.0 5.5 9.0
12.9
FY05
13.3
16.3
20.0
CY07
18.5 CY09
ACLs installed capacity of cement has risen from 18.5 mtpa in CY07 to almost around 27.3 mtpa.
22.0
However, owing to sharp increase in capacity by most of the cement players the production had fallen below its CY06 levels and the utilization has fallen to 81% in CY10 from as high as 139% in CY06.
22.0
25.0
40
Ambuja Cements Ltd.

Production
25.0 20.0 12.8 15.0 10.4 10.0 6.0 4.1 5.0 5.8 6.1 3.1 5.0 1.0 1.0 1.0 0.0 CY06 CY08 CY10 FY92 FY94 FY96 FY98 FY00 FY02 FY04 9.8 22.6
March 15, 2012 Capacity Utilisation

138.9 105.1 109.3 96.3 91.1 80.7 87.1 160 140.2 143.2 149.5
20.1
16.9
17.8
18.8
140 120
100.7
87.5
101.0
120.2
mtpa
82.1
80.6
80 60 40 20 0 FY92
1.6
2.0
7.2
FY94
78.9
FY96
FY98
FY00
FY02
80.1
FY04
CY06
CY08
Cement Capacity Detail of ACL Cement State West North & Central East Total Installed Capacity 11.3 10.4 5.3 27.0 % Of Total 41.9 38.5 19.6 100.0
CY10
80.5
100
85.6
41
Ambuja Cements Ltd.
March 15, 2012
Large exposure to West: preference by industrial consumers to aid ACL

Our channel check indicates that ACL, ACC and Ultratech are preferred brands by most of the industrial user segment owing to its better performance and low cost of concrete.
Our channel check indicates that ACL, ACC and Ultratech are preferred brands by most of the industrial user segment owing to its better performance and low cost of concrete.
Western Indias demand is predominantly driven by growth in industrial and infrastructure segment, which in turn is driven by prevailing interest rates and investment by the government & private. With peaking of interest rates, start of work on the Delhi Mumbai Industrial Corridor, and with government envisaged to make US$1 tn over next five year plan, we expect the demand in West to grow at a 11.2% CAGR in FY11-15E. ACL sells around 80% of volumes to the trade and 20% to the non trade segment. ACL gets 40% of its revenue from North and Central India put together, 40% of the revenue from West and balance 20% from eastern India. On account of large exposure to West and preference by industrial users we expect ACL to benefit the most in the long term.
42
Ambuja Cements Ltd.
March 15, 2012
Increasing shift to Captive Power to insulate from rise in tariff

Owing to higher cost of purchase power vs cost of power from CPP (34% higher), ACL has been able to reduce its dependency on the SEBs as well as DG set, accordingly the share of DG has declined from 27.4% in CY07 to 10.4% in CY10, at the same time the share of CPP has increased from 51.6% in CY07 to 67.3%, we believe this shift to captive power to help company in reducing dependency on the SEBs and to get power at a lower cost. Hence, we believe with power cost being a major input cost and also given the fact that the cost of purchased power being 34% (as per FY11annual report) dearer than cost of power from CPP, shift to CPP would help ACL in insulating itself from sharp rise in power tariffs and also to have an access to an un-interrupted power supply. Details of power sourcing and cost per unit for the same
CY07 Qty (Kwhr) Electricity Electricity Own Generation (Diesel Generator) Electricity Own Generation (Steam Turbine) 309,100,000 403,300,000 760,300,032 % of Share 21.0 27.4 51.6 Rate per Unit 3.6 3.9 2.1 Qty (Kwhr) 402,000,000 186,400,000 1209,299,968 CY10 % of Share 22.4 10.4 67.3 Rate per Unit 4.2 7.0 3.1
ACL currently operates 410.4MW of captive power plant, at full capacity this can cater to 100% requirement of power. ACL has a linkage to domestic supplies to the tune of 39%, 1% of coal requirement is through e-Auction and balance around 60% is imported. Capacity expansion As on date company has no big ticket expansion plans, Also as there are no much progress made on to the expansion announced earlier by the company with regards to setting up of 2.2 mtpa of cement capacity at Rajasthan, we have not considered the same in our assumption. However, ACL expects to make an expenditure of `6,000-7,000 mn per year over next couple of years.
43
Ambuja Cements Ltd.

Financial Overview
March 15, 2012
We expect ACL to report a robust 10.9% CAGR in revenue, to `131.8 bn in CY11-CY14E driven by increase in a) volumes, which is expected to grow at 5.4% CAGR in CY11-CY14E and b) blended realisation, which is expected to grow at 9.3% CAGR in CY11-CY14E. Slowing trends of capacity utilization, preference by industrial user segment, large exposure to West and North, peaking of interest rates, to aid ACL in improving its utilizations levels thereby positively impacting the top line going ahead. With no big ticket expansion expected to hit the market, we expect the utilization levels of the company to improve. We expect the net realisation of the cement for the company on a consolidated basis to improve over next two years firstly FY13 being first year of XII five year plan, government envisaged to make an investment of US$1 tn as against US$480 bn in previous five year plan. Secondly peaking of interest rates to spur growth from the private investment leading to increase in consumption of cement from industrial segment. Also with no major expansion to hit the market in the near term, we do not see any reason for the cement prices to move south wards. Net Sales
140.0 120.0 100.0 Rs mn 80.0 60.0 40.0 20.0 0.0 CY11(P) 86.2 16.6
21.1 19.3
25.0 20.0 15.0 %
104.4
124.5
131.8 ` 5.8
10.0 5.0 0.0
CY12E Net sales
CY13E
CY14E
Y-o-Y growth
44
Ambuja Cements Ltd.

EBIDTA Margin to remain firm
March 15, 2012
With a) peaking of interest rates expected to spur demand from industrial segments, b) government envisaged to make investment of US$1 tn, and c) with the start of work on Delhi Mumbai Industrial Corridor, we expect the demand to remain firm and improve from here on. Given the strong trends in demand, we believe ACL will be able to pass any increase in the costs, thereby we expect the margins to remain intact. Higher utilization and increased shift to CPP should aid the company in improving its margins going ahead. Trends in EBIDTA and EBIDTA Margin
35.0 30.0 25.0 Rs mn 20.0 15.0 10.0 5.0 0.0 CY11(P) CY12E 19.9 23.1 22.2 26.1
25.2 24.9
25.5 25.0 24.5 24.0 23.5 23.0 22.5 22.0 21.5 21.0 20.5
30.9
32.5
CY13E
CY14E
EBITDA
EBITDA Margin (%)
Net profit to record a CAGR of 12.32% in FY11-14E on higher realisation We expect higher realisation and growing volumes to result in net profit clocking a growth of 12.32% CAGR in FY11-14E. Trends in Net profit and Net profit Margin
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
14.2 11.0
13.4
13.2
16.0 14.0 12.0 10.0 %
Rs mn
16.7 12.3 11.5
` 17.4
8.0 6.0 4.0 2.0 0.0
CY11(P)
CY12E
CY13E
CY14E
Net Profit
Net Profit Margin
45
Ambuja Cements Ltd.

Key Risks
March 15, 2012
Sharp rise in coal prices coupled with sharp depreciation to affect power and fuel costs of the company and impact our assumptions. Owing to uncertainties with regards to supply and quality and prices of domestic coal either manufacturer has shifted to imported coal. Any sharp increase in thermal coal might affect our estimation and in turn our valuation.
46
Ambuja Cements Ltd.

Valuation
March 15, 2012
In view of the improvement in following parameters for ACL as against the last up cycle of cement such as a) Increase in installed capacity of cement b) strengthening of market positions c) Improvement in share of CPP as against the share of CPP in the last up cycle e) Large exposure to high growth area and preference by large consumers. Hence, we believe ACL deserves a better valuation compared to its last up cycle; accordingly we initiate coverage on ACL with BUY rating and with one year price target of `205.7 per share based on both EV/MT and EV/EBIDTA on a differential weight age. EV/EBIDTA The ACL recently has been trading at an average of 7.7X its one year forward earning. On the contrary during the last up cycle ACL was 9x to 12x band. Given the significant improvement in key parameters such as larger share of CPP, access to key growth areas like Northern markets, better economies of scale and lastly demand expected to pickup coupled with slowing pace of capacity additions, we expect the stock to trade at 8.5x its FY13E earnings, accordingly the one year target price to be `195 per share with a potential upside of 22.5% from CMP. ACL Band Chart
220 200 180 160 140 120 100 80 60 40 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Apr-12
Price
5.0x
6.0x
7.0x
8.0x
9.0x
47
Ambuja Cements Ltd.

EV per MT
March 15, 2012
Over last two years EV per MT in US$ has been in the range of US$ 112-208.5 At current market price the stock is trading at US$ 194 at 8% discount to its two year high of US$ 208.5/MT and at a 51% discount to its all time high of US$ 293/MT. Given strong pricing trend, economies of scale and expected improvement in investment cycle both by GOI and private players we expect ACL to trade at its all time high in terms of EV/MT. Accordingly considering US$ 293 /MT, the one year target price works out to be `246 per share. EV/MT
330.0 High: US$293/MT 280.0 High: US$208/MT
230.0 EV (US$) / MT
180.0
130.0 Low: US$112/MT 80.0
30.0 31-Jul-07 31-Jul-08 31-Jul-09 31-Jul-10 30-Apr-07 30-Apr-08 30-Apr-09 30-Apr-10 30-Apr-11 31-Jul-11 31-Oct-06 31-Oct-07 31-Oct-08 31-Oct-09 31-Oct-10 31-Oct-11 31-Jan-07 31-Jan-08 31-Jan-09 31-Jan-10 31-Jan-11 31-Jan-12
Target price based on both EV/EBIDTA and EV/MT on differential weight age. Owing to low EBIDTA margins of the companies in the sector as a whole compared to its margins during last up cycle we have considered a weight of 80% to EV/EBIDTA and 20% to EV/MT, accordingly considering the same our one year target price works out to be `205.7 per share with a potential upside of 22.5%. Valuation Methods EV/EBITDA EV/MT Target Price Current Market Price Potential Upside
Weight age 80% 20%
Target Price 195.0 246.0 205.7 167.5 22.5%
48
Ambuja Cements Ltd.

Company Background
March 15, 2012
ACLs capacity is mostly skewed towards North and Western India with no exposure to southern India. In North companys capacity currently stands at 42% of the overall capacity, followed by North and Central region which combined has 38.5% and 19.5% to eastern India. ACL derives around 40% of the revenue each from North (Inc Central) and Western India and rest 20% from eastern region.
Cement Capacity Detail of ACL Cement State West North & Central East Total Installed Capacity 11.3 10.4 5.3 27.0 % Of Total 41.9 38.5 19.6 100.0
49
Ambuja Cements Ltd.

Income Statement
Y/E Dec (`mn)
Total net revenues COGS Gross Profit Employee Cost Selling & Admin Expenses Other Expenditure EBITDA EBITDA Margin (%) Depreciation Other Income Interest (Net) PBT PBT Margin (%) Tax Minority Interest Adjusted PAT Extraordinary /exceptional Reported PAT
CY09
70,769 33,367 37,402 2,728 14,173 2,037 18,463 26.1 2,973 2,558 224 18,018 25.5 5,849 0 12,168 0 12,168
CY10
73,902 34,662 39,240 3,437 15,742 2,431 17,630 23.9 3,872 2,476 487 16,126 21.8 3,983 0 12,143 0 12,143
CY11P
86,196 26,440 59,757 4,359 19,353 16,097 19,948 23.1 4,462 2,303 535 17,012 19.7 4,738 (3) 12,277 0 12,277
CY12E
104,384 32,150 72,234 5,230 26,096 17,706 23,201 22.2 5,284 0 530 17,387 16.7 5,912 0 11,475 0 11,475
CY13E
124,530 36,425 88,105 5,977 30,883 19,831 31,413 25.2 5,596 0 500 25,317 20.3 8,608 0 16,709 0 16,709
Y/E Dec (`mn)

Equity capital* Reserves & Surplus Preference Capital Net worth Minority interest Deffed tax liability Total debt Total Liabilities & Equity Net block Capital WIP Total fixed assets Investments Current Assets Inventories Debtors Cash & bank Loans & advances Other Current Assets Current Liab. & Prov. Creditors Other liabilities Provisions Net Working capital Miscellaneous Exp Deferred tax assets Total Assets
CY09
3,051 61,629 0 64,680 0 4,858 1,657 71,195 34,442 27,144 61,587 7,224 19,793 6,832 1,522 8,809 2,528 102 17,437 10,697 0 6,740 2,356 27 0 71,194
CY10
3,074 70,192 0 73,266 0 5,309 650 79,225 56,319 9,307 65,627 6,211 31,353 9,019 1,282 17,484 3,403 166 23,971 13,005 0 10,966 7,382 5 0 79,224
CY11P
3,390 77,257 0 80,647 25 6,445 696 87,812 62,658 5,796 68,453 8,060 38,389 9,278 2,478 20,754 5,636 245 27,100 16,032 0 11,069 11,289 3 7 87,812
CY12E
3,390 83,669 0 87,059 25 6,445 696 94,224 63,373 6,996 70,369 8,060 38,865 10,867 2,059 21,764 4,175 0 23,071 17,159 0 5,912 15,795 0 0 94,224
CY13E
3,390 95,161 0 98,551 25 6,445 696 105,716 63,777 8,096 71,873 8,060 55,203 13,306 2,491 34,425 4,981 0 29,420 20,812 0 8,608 25,783 0 0 105,716
Key Ratio
Y/E Dec (`mn)
Per Share Ratios Fully diluted E P S Book Value Dividend per share per share FCFO Valuation Ratio P/E P/BV EV/EBITDA EV/Sales Price/ FCFO per share Growth Ratios Sales Growth EBITDA Growth Net Profit Growth EPS Growth Common size Ratios Gross Margin EBITDA Margin PAT Margin Employee Cost S&G Expenses Return ratios RoAE RoACE Turnover ratios (days) Debtors ( Days) Creditors ( Days) Inventory (Days) Solvency Ratios Total Debt/Equity Interest coverage
Cash Flow
CY09
8.0 42.4 2.4 12.7 13.0 2.4 8.2 2.1 8.2 13.0 13.0 (12.4) (12.5) 52.9 26.1 17.2 3.9 20.0 21.5 36.3 10.5 49.1 44.4 0.0 69.1
CY10
7.9 47.7 2.6 11.5 18.1 3.0 11.5 2.7 12.4 4.4 4.4 (0.2) (1.0) 53.1 23.9 16.4 4.7 21.3 18.7 34.4 9.7 53.5 41.8 0.0 28.3
CY11P
8.0 52.6 3.2 9.3 12.7 1.9 6.8 1.6 10.9 16.6 16.6 1.1 1.3 69.3 23.1 14.2 5.1 22.5 16.8 33.4 6.9 58.5 39.1 0.0 29.0
CY12E
7.5 56.7 3.3 9.0 18.0 2.4 8.0 1.8 15.0 21.1 21.1 (6.5) (6.5) 69.2 22.2 11.0 5.0 25.0 14.3 30.5 8.0 61.5 38.7 0.0 33.8
CY13E
10.9 64.2 3.4 16.6 12.4 2.1 5.5 1.4 8.1 19.3 19.3 45.6 45.6 70.8 25.2 13.4 4.8 24.8 18.8 44.0 7.2 60.0 38.0 0.0 51.6
Y/E Dec (`mn)

PBT Add: Depreciation Add: Interest exp. Less: Other Income Other Adjustments Chg in work. cap. Taxes paid CF from operations Chg in fixed assets Chg in Intan. Asset Chg in investments Other income CF from inv. acti. Chg in debt Chg in Equity cap. Chg in Pref. capital Dividend & divi. tax Interest paid Other Adjustments CF from fin. acti. Change in cash Opening cash Closing cash
CY09
18,018 2,973 224 2,558 0 6,574 5,849 19,382 (13,115) 0 (3,946) 2,558 (14,503) (1,230) 0 2 (4,277) (224) 1,067 (4,663) 216 8,521 8,809
CY10
16,126 3,872 487 2,476 1 3,649 3,983 17,676 (7,912) 0 1,013 2,476 (4,423) (1,007) 0 24 (4,625) (487) 473 (5,621) 7,630 8,809 17,484
CY11P
17,012 4,462 535 2,303 2 (637) 4,738 14,333 (7,288) 0 (1,849) 2,303 (6,834) 45 0 316 (4,910) (535) 1,131 (3,950) 3,547 17,484 20,754
CY12E
17,387 5,284 530 0 3 (3,496) 5,912 13,797 (7,200) 0 0 0 (7,200) 0 0 (0.1) (5,063) (530) 10 (5,581) 1,010 20,754 21,764
CY13E
25,317 5,596 500 0 4 2,673 8,608 25,482 (7,100) 0 0 0 (7,100) 0 0 0 (5,217) (500) 0 (5,713) 12,662 21,764 34,425
Du-Pont Analysis
(%)
CY09
17.2 1.0 1.1 18.8
CY10
16.4 0.9 1.1 16.6
CY11P
14.2 1.0 1.1 15.2
CY12E
11.0 1.1 1.1 13.2
CY13E
13.4 1.2 1.1 17.0
50
Initiating Coverage
CMP (`) 142 Potential Upside 34.6%
Madras Cements Ltd.

Improving utilization and strong pricing to drive growth
March 15, 2012
BUY
Strong pricing discipline to stay intact The consumption has seen a sharp up-tick during Nov- Dec11 period with major states in South like Kerala showing a growth of 15% Y-o-Y, Tamil Nadu showing a growth of 12% Y-o-Y, Karnataka showing a growth of 8 Y-o-Y % and Andhra Pradesh showing a growth of 12% Y-o-Y, driven by strong pickup in demand from housing and industrial segment. Madras Cement Ltd (MCL) sells around 93% in the South, with 50% in TN, followed by 23% in Kerala, 10% each in Karnataka and AP and balance in the East. TN and Kerala remain to be the focus area for MCL. In view of a) relatively stable political environment, b) recent CII partnership summit indicating a huge investment of `6.5 tn investment proposals, c) significant improvement seen in long pending dues to contractors and d) lastly with no major capacities by the existing and established player of South expected to hit the market in the short to medium term, we believe the pricing discipline would stay intact. Given MCLs large exposure to key growing areas of South mainly TN and Kerala, we believe MCL would be a major beneficiary going ahead. Increased shift in Captive Sourcing of power as compared to previous up cycle There has been a sea change in the ratio of power being sourced from a captive power plant (CPP) as against share of CPP (NIL) during the last up cycle (FY07-FY08- last leg). MCL currently has around 148 MW of thermal power plant (including DG sets) and around 159 MW of wind power. The cost of power from CPP is lower by 24.4% as against purchased power. Increased shift to CPP not only insulates MCL from an uninterrupted supply but also help MCL to source power at lower costs. Capacity expansion to fuel growth going forward

Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) B 500260 MADRASCEM MC IN 33.87 55% 154 / 79 128370 1.00 / 1.25 237.9
Promoters 42.01 FIIs 7.60 DII 21.28 Others 29.11 (`mn) FY11 26,049 6,174 1,711 14.9 9.9 29.3 9.0 6.7 FY12E 30,321 7,720 2,189 8.5 11.5 15.6 11.2 8.1 FY13E 34,505 9,295 3,113 9.6 14.5 18.4 8.3 6.1
Financial Snapshot
Y/E Mar Net Sales EBITDA PAT EPS ROE (%) ROCE (%) P/E EV/EBITDA FY10 28,009 8,569 3,332 14.9 21.4 38.1 7.1 6.4
In Aug11, MCL had installed 2 mtpa of cement capacity taking the total capacity of cement to 12.44 mtpa from 10.44 in FY11. MCL has also augmented its grinding unit capacity by 0.5 mtpa at Salem. We believe the full benefit of the expansion would only accrue from FY13E. MCL expects the augmentation of the grinding unit of 0.5 mtpa at RR Nagar by end of FY12E. Apart from this MCL plans to enhance its installed capacity from 2 mtpa to 3.56 mtpa by FY14E. We believe his should help MCL increasing its volume and thereby positively impacting the top line.
Valuation and views

During the last up cycle of cement, MCL traded in the range of 6-7.5x its one year forward EV/EBITDA, while currently the stock is trading at 6.1x its one year forward EV/EBITDA. In view of the a) improvement in share of CPP as against the last up cycle b) better economies of scale c) production discipline which is expected to stay intact, and d) also with MCLs large exposure to Southern region we expect MCL to witness a boost in profitability. Lastly with demand expected to improve from here on, we believe MCLs valuation should improve. Hence, we believe MCL deserves a better valuation compared to its last up cycle and accordingly we initiate coverage on MCL with BUY rating and a one year price target of `191.1 per share based on both replacement costs and EV/EBIDTA on a differential weightage with a potential upside of 34.6% from CMP of `140 per share.

190 170 150 130 110 90 70 Apr-11 Jul-11 Aug-11 Jun-11 Nov-11 Mar-11 Feb-12 Oct-11 Dec-11 Sep-11 Jan-12 May-11 Mar-12
Madras Cements
BSE SENSEX
Rel. Perf. Mad. Cem (%) SENSEX (%)
1Mth 0.3 0.4
3 Mths 32.5 12.8
6Mths 36.8 7.2
1Yr 53.4 (2.8)
Analyst
51
Madras Cements Ltd.

Strong pricing discipline to stay intact
March 15, 2012
In anticipation of the spurt in demand for cement most of the manufacturers in Southern region had announced major expansions in FY06-07.Accordingly the installed capacity had risen from 78.2 mtpa in FY09 to 100.5 mtpa in FY10, an increase of 22 mtpa in absolute terms and an increase of 28.5% Y-o-Y in percentage terms. However, production grew at a much slower pace showing a growth of 12.2% Y-o-Y in percentage terms and 7.3 mtpa in absolute terms. As a result of this, the utilization levels declined and the prices moved well below their variable costs of production touching as low as `130-143 per bag during Aug-Sep10. In view of this, companies had cut their capacity utilization levels by ~40%. However, due to the strong pricing discipline companys in this region companies have been able to maintain prices at `250-280 per bag over last one and half years, and hence been able to recover from the losses incurred during FY11. In view of the following reasons we believe that pricing discipline should remain intact and continue to benefit players having exposure to Southern region.
Pricing discipline to remain intact thereby helping companies operating in this region. MCL sells around 93% of the overall sales in south.
On the demand side, there has been a sharp increase in consumption during Nov-Dec11, period with major states in South like Kerala showing a growth of 15% Y-o-Y, TN showing a growth of 12% Y-o-Y, Karnataka showing a growth of 8% Y-o-Y and AP showing a growth of 12% Y-o-Y, indicating strong pickup in demand from housing and industrial segment. Also there has been a significant improvement in long payment disbursement to the contractors, a positive indicator for demand reversal from contractors. The recently held CII partnership summit indicated a huge investment of `6.5 tn investment proposals in AP. Signs of improvement in business environment in real estate which had slowed down in the recent past. On the supply side there has not been much progress on to the capacities totaling 25.5 mtpa announced in South earlier. With retail segment constituting as a major demand drivers for cement, which in turn being brand driven, we do not expect new players (Jaypee new to southern region and JSW new to region as well as new to the sector) to have a major impact on the cement prices and pricing discipline.
52
Madras Cements Ltd.
March 15, 2012 MCL is the second largest cement maker in TN and produces 80% of PPC and balance 20% of OPC. MCL sells around 93% of its total output in the Southern region, with 70% in the trade segment and balance in the non trade segment. Top 10 cement companies in South
14.0 12.0 10.0 mtpa 8.0 6.0 4.0 2.0 0.0 Dalmia Cement ACC Penna Cement My Home India Cements Madras Cement Chettinad Cement Zuari Cement Ultratech Kesoram 13.0 12.6 11.5 9.7 9.0 8.5
7.8
7.3
7.0 5.7
MCL has a 61% exposure by capacity in TN followed by 29.3% in AP and 2.3% in Karnataka. Apart from this company also has a grinding unit of 0.95 mtpa capacity at Kolaghat in West Bengal (WB), which accounts for around 7.6% of the capacity. MCL currently sells 50% to TN, followed by 23% to Kerala, 10% each to Karnataka and AP and balance to Eastern India. TN and kerala remains to be in focus for MCL. MCL also sells around 93% of the total sales in the Southern India, where the prices have been stable over last one and half years, with demand expected to pick up in this region. MCLs large exposure to key growing areas of South mainly Tamil Nadu & Kerala, expectation of production discipline to stay intact, make us believe that MCL should witness an improvement in both top line as well as operating margins going ahead.
53
Madras Cements Ltd.
March 15, 2012
Increased shift in Captive Sourcing of power as compared to previous up cycle

Owing to the low unit cost of electricity generation through captive power plant using thermal coal, MCL has been on a constant drive to increase the CPP capacity. In this line MCL has installed two 20MW CPP each at Ariyalur taking the total installed capacity to 148MW. The complete benefit of this expansion would accrue for the entire year in FY13E. Moreover, the third unit with a capacity of 25MW at Ariyalur expected to commence by end of this year. This would totally decouple MCL from grid connectivity except supply from APGCL (Andhra Pradesh Generation Co. Ltd.) where company gets power on a subsidized rate owing to its power purchase agreement as result of equity holding. With the recent expansion, the self sufficiency of captive power plant assuming cement plat to operate at full capacity would stand at 91.4% With a total captive power of 148 MW, MCL plans to increase the CPP capacity to 173 MW by FY14E. The cost of power from CPP is lower by 24.4% as against the purchased power. Increased shift to CPP not only insulates MCL from an uninterrupted supply but also help MCL to source power at lower costs. Details of sourcing of power
Particulars Electricity Own Generation Electricity Own Generation (Diesel Generator) Electricity Purchased
FY07 Units 181,614,000 23,208,000 204,442,000 % of Share 44.4 5.7 50.0 Rate 2.4 5.6 3.7 Units 311,352,992 70,641,000 220,708,000
FY11 % of Share 51.7 11.7 36.6 Rate 3.9 7.6 4.8
Details of Captive Power Plants

Sl No 1 2 3 4 Location Ramasamy Raja Nagar Alathiyur Govindapuram Singhipuram District Virudhunagar Ariyalur Ariyalur Salem State Tamil Nadu Tamil Nadu Tamil Nadu Tamil Nadu Sub Total 1 2 Jayanthipuram Collective power in AP Sub Total Krishna Andhra Pradesh Type of Unit Thermal power Thermal power Thermal power Heavy Oil Sub Total Thermal power Thermal power Sub Total Grand Total
FY11
FY12E 0
FY13E 0 36 65 5 106 36 6 42 148
FY14E 25 36 65 5 131 36 6 42 173
36 40 5 81 36 6 42 123
36 65 5 106 36 6 42 148
54
Madras Cements Ltd.

Capacity expansion to fuel growth going forward
March 15, 2012
In Aug11, MCL had installed 2 mtpa of cement capacity taking the total capacity of cement to 12.44 mtpa from 10.44 in FY11. MCL has also augmented its grinding unit capacity by 0.5 mtpa at Salem. We believe the full benefit of the expansion would only accrue from FY13E. MCL expects the augmentation of the grinding unit of 0.5 mtpa at RR Nagar by end of FY12E. MCL also plans to enhance its installed capacity from 2 mtpa to 3.56 mtpa by FY14E which would further give boost volume growth going forward.
Madras Cement 78% of the revenue is derived from valueadded steel supplying mainly to Auto and White Goods sectors Installed Capacity Cement Sold Realisation `/ Bag Net Sales of Cement Division Net Sales of Wind mill Net Sales of RMC Net Sales dry mortar Mix FY11 12,440 7184 194 27,828 1222.8 181 154.6 FY12E 12,440 7699 205 28,725 1259 184 157.7 FY13E 13,940 8597 210 32,858 1297 190 160.8 FY14E 15,500 9568 215 37,440 1336 196 164.1
Total Net Sales Y-o-Y Growth %

26,049
30,327 16.4%
34,506 13.8%
39,136 13.4%
Given the strong pricing trends we expect the pricing to remain firm over the next two quarters. With the interest rates cycle expected to reverse we expect demand to pick up. Also the recent expansion should aid company in increasing its sales volume. Accordingly we expect the sales to grow at 14.5% CAGR in FY11-14E.
55
Madras Cements Ltd.

Financial performance
March 15, 2012
We expect ICL to report a robust 14.5% CAGR in revenue, to `39.1 bn in FY11-14E driven by increase in volumes on account of expansion which is expected to grow at a 10.5% CAGR in FY11-14E and at the same time realisation is expected to show a 3.5% CAGR in FY11-14E Net Sales
45.0 40.0 35.0 30.0 Rs bn 25.0 20.0 15.0 10.0 5.0 0.0 FY11 26.0 (7.0)
16.4 13.8 13.4
20.0 15.0 10.0 `39.1 5.0 0.0 (5.0) (10.0) %
30.3
34.5
FY12E Net Sales
FY13E
FY14E
Y-o-Y growth
EBIDTA Margin to remain firm Given the strong pricing trends in south, improvement seen in payment of long pending dues in AP, increased shift to CPP as compared to last up cycle, increase in installed capacity expansion to fuel growth of MCLs top line as well as bottom line going ahead. Trends in EBIDTA and EBIDTA Margin
12.0 27.9 10.0 8.0 Rs bn 6.0 4.0 2.0 0.0 FY11 FY12E EBITDA
29.0 26.9 25.5 23.7 6.2 7.7 9.3 10.9 ` 28.0 27.0 26.0 25.0 % 24.0 23.0 22.0 21.0 FY13E FY14E
EBITDA Margin
56
Madras Cements Ltd.

Net profit to record a CAGR of 29.2% in FY11-13E on higher realisation
March 15, 2012
We expect higher realisation to result in net profit to reach `4.4bn by FY14E as against `2.0 bn in FY11 showing a CAGR of 29.2% in FY11-14E. Trends in Net profit and Net profit Margin
5.0 4.0 3.0 Rs bn 2.0 1.0 0.0 FY11 FY12E Net Profit
11.2 9.4 7.8 7.6
12.0 10.0 8.0
3.2 2.0 2.3
4.4 `
6.0 4.0 2.0 0.0
FY13E
FY14E
Net Profit Margin
57
Madras Cements Ltd.

Key Risks
Break in the pricing discipline
March 15, 2012
Company derives 20% of its revenue from the southern part of India; however given the large surplus in the region and low pick up in demand the utilization has been very low. As a result of conscious decision by the manufacturers to keep low utilization has helped them maintain healthy cement prices in the region any discrepancy in to the pricing discipline with entry of new players and sudden increase in utilizations to take advantage of high price might have negative impact our earnings estimates. Delays in starting up of the coal concession agreement Any long delays in starting up of coal concession arrangement by MCL might negatively impact our assumption there by impacting valuations of the company. Spur in agitation for separate state hood of Telangana Though there has been no instance of agitation, the matter is still simmering and might come up any time. Continued agitation might affect the move of cement, supply of coal and also have a negative impact on the new projects. Hence our valuation might get adversely affected.
58
Madras Cements Ltd.

Valuation
March 15, 2012
During the last up cycle of cement, MCL traded in the range of 6-7.5x its one year forward EV/EBITDA, while currently the stock is trading at 6.1x its one year forward EV/EBITDA. In view of the a) improvement in share of CPP as against the last up cycle b) better economies of scale c) production discipline which is expected to stay intact, and d) also with MCLs large exposure to Southern region we expect MCL to witness a boost in profitability. Lastly with demand expected to improve from here on, we believe MCLs valuation should improve. Hence, we believe MCL deserves a better valuation compared to its last up cycle and accordingly we initiate coverage on MCL with BUY rating and a one year price target of `191.1 per share based on both replacement costs and EV/EBIDTA on a differential weightage with a potential upside of 34.6% from CMP of `142 per share. Valuation based on EV/EBIDTA Given the significant improvement in key parameters such as larger share of CPP, access to key growth areas like northern markets, better economies of scale, strong pricing trends in southern part of India and lastly demand expected to pickup coupled with slowing pace of capacity additions, we expect the stock to trade at 6.5x its FY13E EV/EBIDTA. Accordingly the one year target price works out to be `188.5 per share. MCL Band charts- 1 YR FWD CHART
250
200
150
100
50
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Oct-06
Jan-07
Oct-07
Jan-08
Oct-08
Jan-09
Oct-09
Jan-10
Oct-10
Jan-11
Jul-11
Oct-11
Price
5.0x
6.0x
7.0x
8.0x
Jan-12
59
Madras Cements Ltd.

Replacement costs
March 15, 2012
As a thumb rule and based on the expansions announced it costs around `4,500-5,000 mn for setting up of an integrated cement plant and around `1,500-2,000mn for setting up of a grinding unit or a blending unit. Accordingly, we have arrived at a total replacement cost or the firm value at `69,690 mn and the target price works out to be `201.5 per share. Details of Replacement costs for Cement
Sl No 1 2 3 4 5 Location Ramasamy Raja Nagar Alathiyur Govindapuram Kattuputhur Singhipuram Type of Unit Cement Plant Cement Plant Cement Plant Grinding Unit* Grinding Unit* Capacity 2.0 3.1 2.0 0.5 1.5 9.1 1 2 3 Jayanthipuram Mathodu Kolaghat Cement Plant Cement Plant Grinding Unit* Total Cement 1 At various location in south* Wind Power 3.7 0.3 1.0 13.9 159.9 100 Total
*Wind mills of MCL located at various locations in southern india, Located at Muppandal, oolavadi, Thandayarkulam, Veeranam, Muthunaickenpatti, Pushpathur and Udumalpet, Vani Vilas Sagar and GIM II Hills
Cost per Unit 4,500 4,500 4,500 1,500 1,500
Total Replacement cost 9,000 13,725 9,000 750 2,250
4,500 4,500
16,425 1,305
15,990 52,455
Details of Replacement costs for captive power plant

Sl No 1 2 3 4 Location Ramasamy Raja Nagar Alathiyur Govindapuram Singhipuram Type of Unit Thermal power Thermal power Thermal power Heavy Oil Sub Total 1 2 Jayanthipuram Collective power in AP Thermal power Thermal power Sub Total Total
Capacity
Cost per Unit 40.0
Total Replacement cost 1,440.0 1,600.0 200.0
36.0 40.0 5.0 81.0 36.0 6.0 42.0 123.0
40.0 40.0 40.0
40.0 40.0
1,440.0 240.0
20,910.0
60
Madras Cements Ltd.

age.
March 15, 2012 Target price based on both EV/EBIDTA and replacement costs based on differential weight Owing to low EBIDTA margins of the companies in the sector as a whole compared to its margins during last up cycle, we have considered 20% weight to the replacement costs and 80% to EV/EBIDTA. Considering the same our one year target price works out to be `191.1 per share with a potential upside of 34.6%.
Valuation Methods EV/EBIDTA EV/MT Target Price Current Market Price Potential Upside
Weightage 80% 20%
Target Price 188.5 201.5 191.1 142 34.6%
EV/MT trends: Over last two years ICL has been trading the range of US$77-113 EV/EBIDTA. At current market price the stock is trading at US$100.1/MT, an 89% discount to its all time high of US$189/MT, with large potential for improvement in valuation. EV/MT
210.0 High: US$189/MT 190.0 170.0 150.0 EV (US$) / MT 130.0 High: US$113/MT 110.0 90.0 70.0 50.0 30.0 28-Dec-06 28-Dec-07 28-Dec-08 28-Dec-09 28-Dec-10 28-Dec-11 28-Mar-07 28-Sep-07 28-Mar-08 28-Sep-08 28-Mar-09 28-Sep-09 28-Mar-10 28-Sep-10 28-Mar-11 28-Sep-11 28-Jun-07 28-Jun-08 28-Jun-09 28-Jun-10 28-Jun-11 Low: US$77/MT c US$101.2/MT
61
Madras Cements Ltd.

Company Background
March 15, 2012
Madras Cement Madras Cements Ltd (MCL) is the flagship company of Ramco Group. MCL operates in to four broad segments such as Cement, Windfarm, Ready Mix Concrete and Dry Mortar Mix. Sales mix
Dry M ortar, 0.53 RM C, 0.62
Cement, 94.7
Windmill, 4.16
With cement sales constituting 94% of the overall sales of MCL, the cement division is the backbone of MCL. MCL also operates 159.19MW of wind farm in the state of TN and Karnataka. Wind farm division with 4% of overall sales is the second largest contributor to the MCLS top line. MCL operates two packing units with 120 MT per Hr in the state of TN and AP. MCL also operates RMC (Ready Mix Concrete) and Dry mortar Mix division in the state of TN, which contributes marginally to the overall sales of MCL. State wise, Market Share and Sales break up MCL currently operates five cement plant (10.49mtpa) and three satellite grinding unit (1.95 mtpa) with a total combined installed capacity of 12.44 mtpa. The installed capacity of the company is mostly skewed towards the Southern part of India with 61% exposure to TN followed by 29.3% to AP and 2.3% to Karnataka. Apart from this company also has a grinding unit of 0.95 mtpa capacity at Kolaghat in WB which forms 7.6% of the total capacity. The utilization levels for this division have been very low owing to lack of clinker. The company continues its policy of not purchasing clinker from external sources. Accordingly, its Kolaghat (West Bengal) grinding unit sources clinker from Jayantipuram (A.P.) located around 1800 km away. Owing to the long distance the cost of transportation of clinker per MT remains very high at ~`40-45 per bag of cement. Hence, it is actively looking for a partnership in the Eastern region which will help MCL to source clinker to the WB unit. It is also planning for its own expansion in the Sast (Orissa/Jharkhand) to diversify its focus from South India. Tamil Nadu AP Karnataka West Bengal Total Capacity in mn MT 7.55 3.65 0.29 0.95 12.44 % of Share 61 29.3 2.3 7.6 100
62
Madras Cements Ltd.

State wise capacity distribution
Tamil Nadu, 61
March 15, 2012
West Bengal, 8
Karnataka, 2 Andhra Pradesh, 29

On account of large capacity exposures, MCL currently sells 50% to TN, followed by 23% to Kerala, 10% each to Karnataka and AP and balance to Eastern India. TN and kerala remains to be in focus for MCL. Tamil Nadu AP Karnataka Kerala Others Total % of Sales 50 10 10 23 7 100
Region wise sales mix

Tamil Nadu, 50
Others, 7
Andhra Kerala, 23 Karnataka, 10

Pradesh, 10
63
Madras Cements Ltd.

Income Statement
Y/E Mar (`mn)
Total net revenues COGS Gross Profit Employee Cost Selling & Admin Expenses Other Expenditure EBITDA EBITDA Margin (%) Depreciation Other Income Interest (Net) PBT PBT Margin (%) Tax Minority Interest Adj. PAT after Min. Int. Extraordinary /exce. Reported PAT
FY09
24,562 11,006 13,556 1,099 4,628 47 7,781 31.7 1,377 0 1,100 5,304 21.6 1,819 0 3,485 0 3,485
FY10
28,009 12,277 15,732 1,373 5,744 45 8,569 30.6 1,961 0 1,509 5,100 18.2 1,768 0 3,332 0 3,332
FY11
26,049 12,663 13,386 1,540 5,628 43 6,174 23.7 2,208 0 1,393 2,574 9.9 863 0 1,711 0 1,711
FY12E
30,321 11,352 18,969 1,910 9,339 0 7,720 25.5 2,522 0 1,833 3,365 11.1 1,176 0 2,189 0 2,189
FY13E
34,505 12,422 22,083 2,368 10,421 0 9,295 26.9 2,633 0 1,897 4,765 13.8 1,652 0 3,113 0 3,113
Y/E Mar (`mn)

Equity capital* Reserves & Surplus Preference Capital Net worth Minority interest Deffed tax liability Total debt Total Liabilities & Equity Net block Capital WIP Total fixed assets Investments Current Assets Inventories Debtors Cash & bank Loans & advances Other Current Assets Current Liab. & Prov. Creditors Other liabilities Provisions Net Working capital Miscellaneous Exp Deferred tax assets Total Assets
FY09
238 12,364 0 12,602 31 4,899 24,635 42,167 29,997 6,354 36,351 886 9,138 3,289 898 386 4,565 0 4,404 3,354 0 1,050 4,734 196 0 42,166
FY10
238 15,344 0 15,582 15 5,851 25,665 47,113 36,925 3,177 40,102 887 11,357 4,125 1,555 356 5,320 0 5,462 4,265 0 1,198 5,894 229 0 47,113
FY11
238 17,107 0 17,345 0 5,890 27,912 51,147 39,460 5,434 44,894 888 10,987 3,923 1,827 400 4,838 0 5,899 4,564 0 1,335 5,088 277 0 51,147
FY12E
238 18,748 0 18,986 0 5,890 28,412 53,287 41,280 5,434 46,714 888 11,907 4,320 1,412 443 5,732 0 6,221 4,403 0 1,819 5,686 0 0 53,287
FY13E
238 21,288 0 21,526 0 5,890 29,412 56,828 41,647 5,434 47,081 888 15,521 4,916 1,607 2,475 6,523 0 6,662 5,010 0 1,652 8,859 0 0 56,828
Key Ratio
Y/E Mar (`mn)
Cash Flow
FY09
14.9 53.0 15.4 21.7 7.1 2.0 6.4 2.0 4.9 22.1 22.1 (13.2) (56.6) 55.2 31.7 14.2 4.5 18.8 43.0 18.0 9.4 39.7 18.0 2.0 5.8
FY10
14.9 65.5 16.7 23.6 9.0 2.0 6.7 2.0 5.7 14.0 14.0 (0.5) (0.5) 56.2 30.6 11.9 4.9 20.5 30.1 15.5 9.9 40.8 37.2 1.6 4.4
FY11
8.5 72.9 2.7 25.9 11.2 1.3 8.1 1.9 3.7 (7.0) (7.0) (42.7) (42.7) 51.4 23.7 6.6 5.9 21.6 12.1 7.4 17.2 53.4 51.9 1.6 2.8
FY12E
9.6 79.8 2.7 25.2 8.3 1.0 6.1 1.6 3.2 16.4 16.4 12.7 12.7 62.6 25.5 7.2 6.3 30.8 13.3 9.2 17.0 53.0 52.0 1.5 2.8
FY13E
13.5 90.5 2.8 27.3 5.9 0.9 4.9 1.3 2.9 13.8 13.8 40.5 40.5 64.0 26.9 9.0 6.9 30.2 17.1 13.1 17.0 53.0 52.0 1.4 3.5
Y/E Mar (`mn)

FY09
5,454 1,377 1,100 151 0 (800) 1,819 5,162 (12,901) 0 1 151 (12,749) 8,278 0 119 (4,277) (1,100) 1,138 4,158 (3,511) 229 386
FY10
5,303 1,961 1,509 204 0 (1,190) 1,768 5,611 (5,713) 0 (1) 204 (5,510) 1,031 0 0 (4,625) (1,509) 903 (4,200) (4,099) 386 356
FY11
2,972 2,208 1,393 398 0 850 863 6,162 (6,999) 0 (1) 398 (6,602) 2,247 0 0 (643) (1,393) (24) 188 (336) 356 400
FY12E
3,459 2,522 1,833 94 0 (554) 1,176 5,989 (4,342) 0 0 94 (4,248) 500 0 0 (643) (1,833) 277 (1,699) 43 400 443
FY13E
4,859 2,633 1,897 94 0 (1,141) 1,652 6,502 (3,000) 0 0 94 (2,906) 1,000 0 0 (666) (1,897) 0 (1,563) 2,032 443 2,475
Du-Pont Analysis
(%)
FY09
14.2 0.6 3.3 27.7
FY10
11.9 0.6 3.0 21.4
FY11
6.6 0.5 2.9 9.9
FY12E
7.2 0.6 2.8 11.5
FY13E
9.0 0.6 2.6 14.5
64
Initiating Coverage
CMP (`) 103 Potential Upside 31.8%
India Cements Ltd.

Improving utilization and strong pricing to drive growth
March 15, 2012
BUY
Production discipline to stay intact in south The consumption has seen a sharp up-tick during Nov- Dec11 period with major states in South like Kerala showing a growth of 15% Y-o-Y, Tamil Nadu showing a growth of 12% Y-o-Y, Karnataka showing a growth of 8 Y-o-Y % and Andhra Pradesh showing a growth of 12% Y-o-Y, driven by strong pickup in demand from housing and industrial segment. ICL is the largest in South and derives ~ 83.3% of its revenue from Southern India. In view of a) relatively stable political environment, b) recent CII partnership summit indicating a huge investment of `6.5 tn investment proposals, c) significant improvement seen in long pending dues to contractors and d) lastly with no major capacities by the existing and established player of South expected to hit the market in the short to medium term, we believe the pricing discipline would stay intact. Given ICLs large exposure to South and also production discipline to stay intact, we believe ICL to be the major beneficiary going ahead. Increased shift in sourcing of power from CPP There has been a sea change in the ratio of power being sourced from a captive power plant (CPP) as against share of CPP (NIL) during the last up cycle (FY07-FY08- last leg). At ICLs current capacity of 121 MW of CPP, self sufficiency of captive power plant assuming cement plant operating at full capacity stands at 58.7%. Further, post commissioning of its ongoing expansions captive power plant would be sufficient for 92.4% of its entire power requirement. The shift in sourcing of power from CPP would help ICL to insulate itself from the sharp rise in power tariffs and also lead to an uninterrupted power supply. ICLs new railway siding at its grinding units to save cost on clinker transportation With installation of its new railway siding in H1FY12, ICL expects to transport at least 70%-80% of the requirement by rail from FY13E. This should help ICL to save ~`354 per MT and total savings of ~`25.3-`27.8 mn per year at current costs. Start of coal production from its Indonesian coal concession agreement to aid ICL ICL had entered into a coal concession agreement through its subsidiary for a total investment of US$20 bn. The reserves are estimated to be in the range of 325 mn MT, with calorific value estimated to be ~ 5,700 Kcal. The coal from this can be utilised directly in CPP where as for the kiln the same needs to be stabilized by adding high calorie, low ash and low moisture coal. All in all, at current estimated costs there would be a savings of ~US$ 8-10/MT. Management has indicated that the production would start by Q1FY13E. We believe the total cost incurred on fuel might decline by `138.2 mn and `352.8 mn at current cost in FY13E & FY14E respectively.

Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) B 530005 INDIACEM ICEM IN 31.65 75% 110 / 62 746701 10.00 / 1.50 307.1
Promoters 25.77 FIIs 26.96 DII 15.92 Others 31.35 (`mn) FY11 35,387 3,508 570 11.3 1.4 16.3 11.9 8.7 FY12E 40,447 7,624 2,464 2.1 5.9 2.9 45.0 16.0 FY13E 46,353 9,922 3,948 8.0 8.8 10.5 10.0 6.4
Financial Snapshot
Y/E Mar Net Sales EBITDA PAT EPS ROE (%) ROCE (%) P/E EV/EBITDA FY10 37,453 7,313 3,461 15.0 8.6 23.2 7.1 4.7

130 120 110 100 90 80 70 60 Apr-11 Jul-11 Aug-11 Jun-11 Oct-11 Jan-12 Nov-11 Mar-11 Feb-12 Dec-11 Sep-11 May-11 Mar-12
Valuation and views

In view of the a) improvement in share of CPP as against the last up cycle as well as better economies of scale b) installation of new railway siding c) start of its coal production from its Indonesian coal concession agreement d) production discipline to stay intact going forward in south helping players like ICL with large exposure to the region. Hence, we believe ICL, deserves a higher valuation compared to its last up cycle. Accordingly we initiate coverage on ICL with BUY rating and with a one year price target of `134.5 per share based on both replacement costs and EV/EBIDTA on a differential weight age with a potential upside of 31.8% from CMP of `102 per share.
India Cements
BSE SENSEX
Rel. Perf. India Cem (%) SENSEX (%)
1Mth 7.4 0.4
3 Mths 43.9 12.8
6Mths 40.1 7.2
1Yr 10.7 (2.8)
Analyst
65
India Cements Ltd.

Production discipline to stay intact
March 15, 2012
Cement capacity in South has witnessed a CAGR of 28.5% in FY08-FY10 while the consumption has seen a CAGR of 12% in the same period. The slower growth in consumption was mainly on account of lackluster demand from both housing and infrastructure investment by the government, as a result this the utilisation levels declined. The lower demand and surplus capacity forced companies to sell cement below the variable cost with prices touching as low as `130-143 per bag during Aug-Sep10. Consequent to this, companies reduced their capacity utilisation by ~40%, which has helped companies not only to raise cement prices to as high as `250-280 per bag but also to maintain the same over the last one and half years, thereby helping companies recover the losses they made in CY10. The consumption for the H1FY12 de-grew by 4.12% Y-o-Y with TN and Kerala showing a flat growth. AP continued to slide showing a decline of 19% Y-o-Y. The negative growth was mainly on account of low demand from both private and bulk consumers. This had further reduced the utilisation levels to around 60% for the region as a whole.
Production discipline to remain intact and ICLs large exposure to south to help ICL. ICL currently commands 10.8% market share by capacity, largest in south.
On the contrary to the negative growth in despatches for the first half, there has been a strong recovery in Nov-Dec11. Despatches for Nov-Dec11 grew by 18% in TN, 15% in Kerala, 12% in AP and 8% in Karnataka on a Y-o-Y basis. We expect the despatches to remain strong during Q4FY12E & Q1FY13E. In view of the following reasons we believe that pricing discipline should remain intact and continue to benefit players having exposure to the Southern region.
On the demand side, there has been a sharp increase in consumption during Nov-Dec11, period with major states in South like Kerala showing a growth of 15% Y-o-Y, TN showing a growth of 12% Y-o-Y, Karnataka showing a growth of 8% Y-o-Y and AP showing a growth of 12% Y-o-Y, indicating strong pickup in demand from housing and industrial segment. Also there has been a significant improvement in long payment disbursement to the contractors, a positive indicator for demand reversal from contractors. The recently held CII partnership summit indicated a huge investment of `6.5 tn investment proposals in AP. Signs of improvement in business environment in real estate which had slowed down in the recent past. On the supply side there has not been much progress on to the capacities totaling 25.5 mtpa announced in South earlier. With retail segment constituting as a major demand drivers for cement, which in turn being brand driven, we do not expect new players (Jaypee new to southern region and JSW new to region as well as new to the sector) to have a major impact on the cement prices and pricing discipline.
With ICLs market share by capacity at 10.8% its the largest cement maker in south. We believe the pricing discipline in this region should aid ICL significantly. ICLs large exposure to South and the expectations of a stable production discipline, we believe it should help ICL in improving both top line as well as operating margins going ahead.
66
India Cements Ltd.
March 15, 2012 ICL derives ~ 83.3% of its revenue from Southern India, with 37.7% from TN, 45.6% from AP and balance 16.7% from other regions of Maharashtra & Rajasthan. Sales mix
Andhra Pradesh, Others, 5 Maharashtra, 15 15
Karnataka, 13
Kerala, 14
TamilNadu, 38
ICLs capacity is mostly skewed towards southern part of India with 45.6% of total capacity is in AP, followed by 37.7% in TN, 9.6% from Rajasthan through its wholly owned subsidiary Trinetra Cement Ltd and balance in Maharashtra. Capacity distribution
Rajasthan, 9.6 TamilNadu, 37.7
M aharashtra, 7.1
Andhra Pradesh, 45.6
67
India Cements Ltd.

Increased shift in sourcing of power from CPP
March 15, 2012
ICL is amongst the high power and fuel cost producers in India due to ~60%-70% of its coal requirements being met by high cost imported coal and 90% of the power requirement coming from grid power. ICL currently operates wind mill of 18MW, Gas fired power unit of 25 MW at TN, 7.7 MW of Waste heat recovery plant. Apart from this company has a collective Power facility at AP to draw 21 MW at a subsidized rate of `2.1 per unit. In order to have self sufficiency the company had installed a 50 MW captive thermal power plant at TN, which has already commenced production. Another unit at Rajashthan with a capacity of 25MW has also been commissioned during first half of FY12. ICL is currently progressing on schedule to start another unit of 50MW at AP, which is expected to get commissioned by the end of FY13E. At ICLs current capacity of 121 MW of CPP, self sufficiency of captive power plant assuming cement plant operating at full capacity stands at 58.7%. Further, post commissioning of its ongoing expansions captive power plant would be sufficient for 92.4% of its entire power requirement. We believe with the higher cost of purchased power which is dearer than cost of power from CPP, the shift in sourcing of power to CPP should help ICL in insulating itself from a sharp rise in power tariffs and also lead to an uninterrupted power supply. Details of current Captive power plants of ICL Sr No 1 2 3 4 5 6 7 Type of Capacity CPP AP CPP at TN CPP Rajasthan Waste Recovery plant Gas fired CPP Collective power arrangement Wind Mills Self sufficiency at full capacity
Current Capacity
Additions 50
Total Captive Power Post expansion 50 50 20 8 25 21 18 Jun09
Status Under Implementation Existing Under Implementation Jun09 Jun09
50 0 8 25 21 18 122 58.7% 70.0 20
192 92.4%
68
India Cements Ltd.
March 15, 2012
ICLs new railway siding at its grinding units to save cost on clinker transportation
The clinker needed for the Parli unit at Maharasthra right from its inception in Q1FY11, is being met from its clinkeristion unit in AP. On account of no railway siding at Parli, the clinker was fed mainly by road. With ICLs commissioning of railway siding at its grinding unit, ICL expects to transport at least 70%-80% of the requirement by Rail. This would result in ICL to save ~`354 per MT and lead to total savings of `25.3- 27.8 mn per year. ICL during FY11 had incurred a total cost of `850 mn on inter unit transfer of clinker. Details of saving calculation on clinker transportation The parli plant is located at distance of 411 km by road from its clinkerisation unit in AP. Also given the fact that the transportation is charged generally on 1.5x one way distance by road and adding loading and unloading charges of `4 per bag, the cost of transportation by road works out to be ~ `28.7-41.04/bag depending on the truck load. On the other hand, the distance traversed by clinker by rail stands at 328.73 km. Also considering the class of clinker classification by Indian railways and freight charged on the same the cost per bag for the transportation by rake works out to be `17.2 per bag, resulting in an average savings of `354 per MT. Assuming a transport of three rakes per month over the next 9 months, it would result in transportation of 101,952 MT per annum. Total savings on 70% of transportation by rail would be ~`25.3-27.8 mn per annum, ie 3%-3.3% of savings on the cost incurred in FY11. Going forward with increase in demand and consequent increase in utilization total savings might increase further. Details of cost of transportation of by road
Savings per Annum Total clinker transported (3 rakes per month for 9 months) Post Railway siding 70-80% to be moved by rail Currently 100% moved by road Savings per MT (300 TO 400) Total Savings from siding Total Cost incurred on inter Unit transfer of Clinker % of Savings
ICLs new railway siding at its grinding units to save cost on clinker transportation
101,952.0 71,366.4 353.9 25.3 850.0 3.0%
112,147.2 78,503.0 353.9 27.8 850.0 3.3%
69
India Cements Ltd.

Details of cost of transportation of clinker by rail
Particulars Distance traveled (Km) Total Distance Considered for Charging by transporter Average truck load in MT Mileage per Km/ Ltr Total Diesel Required in Ltrs. Cost of diesel in AP (`) Total Transportation Charge (`) Cost per MT of Clinker (`) Cost per 50 kg Clinker(`) Cost of Transportation by Road per Bag (`) Loading and Unloading (`)
March 15, 2012
Cost Calculations 411.0 616.5 10.0 3.7 168.6 44.0 7,408.8 740.9 37.0 24.7 4.0 28.7 411.0 616.5 15.0 3.7 168.6 44.0 7,408.8 493.9 24.7 37.0 4.0 41.0
`per Bag by Road

Total Distance by rail km Cost of Transportation by Railways per bag (Source: Freight Table) Savings per Bag Total Savings per MT Average Savings per MT depending on truck load
321.0 17.2 11.5 230.5
321.0 17.2 23.9 477.4 353.9
70
India Cements Ltd.
March 15, 2012
Start of coal production from its Indonesian coal concession agreement to aid ICL
Currently ICLs domestic coal linkage accounts for 40-45%, balance is basically imported from Indonesia. ICL generally keeps a stock of three months inventory or keeps three months stocks in pipeline. ICL uses higher grade coal of 6,300 kcal in kiln and 5,500 Kcal for their CPP, in order to insulate itself from the vagaries of uneven coal supplies from domestic suppliers and high cost of imported coal. ICL had entered into a coal concession agreement through its subsidiary for a total investment of US$20 bn. The reserves are estimated to be in the range of 325 mn MT, with calorific value estimated to be ~ 5,700 Kcal. The coal from this can be utilised directly in CPP where as for the kiln the same needs to be stabilized by adding high calorie, low ash and low moisture coal. All in all, at current estimated costs there would be a savings of ~US$ 8-10/MT. ICLs management has indicated that the production would start by Q1FY13E, and plans to produce 40,000 MT per month initially and further plans to ramp it upto 100,000MT gradually. Accordingly we have considered 40,000MT for first 9M in FY13E, and 60,000MT/month for FY14E. Details of Indonesian Coal Concession Project
Q1FY12 Production of Coal Savings in `Mn Savings per MT of Coal in US $ # Exchange Rate
Q2FY12
Q3FY12
Q4FY12
FY13E 360,000 138.2 8 48
FY14E 720,000 352.8 10 49
Under Implementation
The total cost incurred on fuel might decline by `138.2 to `352.8 in FY13E & FY14E respectively. ICL had incurred a total cost of `10.43 bn on power and fuel expense during FY11. The savings on account of start of Indonesian coal might account for 1.3% in FY13E and 3.4% in FY14E at FY11 costs. Capacity Expansion The company has no big ticket expansions planned in the near term. In order to strengthen its geographic diversification the company had planned setting up of 2.5 mtpa at HP for which company has mining lease. However on account of infrastructure related issues the company has shelved its plan for now. For the ongoing expansions, ICL intends to incur an expenditure of ~ 6000 mn over next two year, with 2500mn in FY12E and 350 mn in FY13E.
Capex CPP Power plant at TN in INR mn CPP Power plant at AP in INR mn Indonesian Coal Concession Project (US$ mn) Exchange rate Assumed 48INR/$
Total Costs 2,500 2,600 20 960 6,060
Amount Spent 1,900 400 6 288 2,588
Balance to be spent 600 2,200 14 728 3,528
Expected Date of Commissioning Dec-11 Oct-13 Jan-12
71
India Cements Ltd.

Financial Overview
March 15, 2012
We expect ICL to report a robust 12.8% CAGR in revenue, to `50.8 bn in FY11-14E driven by increase in realisation which is expected to grow at a 13.8% CAGR in FY11-14E. Net Sales
60.0 50.0 40.0 Rs bn 30.0 20.0 10.0 0.0 35.4 (5.5) FY11 FY12E Net Sales
20.0 14.3 14.6 9.5 46.4

`
15.0 10.0 5.0 0.0 -5.0 -10.0 %
40.4
50.8
FY13E
FY14E
Y-o-Y growth
EBIDTA margin to remain firm Given a) the strong pricing trends in the South, b) improvement seen in payment of long pending dues in AP, c) start of its new railway siding by ICL, d) increased shift to CPP as compared to last up cycle, and e) start of Indonesian coal, we expect the margins to remain firm and improve going ahead. Trends in EBIDTA and EBIDTA Margin
14.0 12.0 10.0 Rs bn 8.0 6.0 4.0 2.0 0.0 FY11 EBITDA
21.4 18.8
22.6
25.0 20.0 15.0 %
9.9 7.6 3.5 9.9
11.5
10.0 5.0 0.0
FY12E
FY13E
FY14E
EBITDA M argin (%)
72
India Cements Ltd.

Net profit to record a CAGR of 39.4% in FY11-13E on higher realisation
March 15, 2012
We expect higher realisation to result in net profit reaching `5.1 bn by FY14E as against `0.65 bn in FY11. Trends in Net profit and Net profit Margin
6.0 5.0 4.0 Rs bn 3.0 2.0 1.0 0.0 1.8 0.7 FY11 FY12E Net Profit
10.0 8.5 6.1 ` 3.9 2.5 5.1
12.0 10.0 8.0 6.0 4.0 2.0 0.0 %
FY13E
FY14E
Net Profit M argin
73
India Cements Ltd.

Key Risks
Break in the pricing discipline:
March 15, 2012
The company derives 20% of its revenue from the Southern part of India. However given the large surplus in the region and low pick up in demand the utilization has been very low. Conscious decision by the manufacturers to keep utilization low has helped them maintain healthy cement prices in the region. Hence any discrepancy in pricing discipline with entry of new players and sudden increase in utilizations to take advantage of high price might have a negative impact our earnings estimates. Delays in starting up of the coal concession agreement Any long term delays in starting up of coal concession arrangement by ICL might negatively impact our assumptions. Spur in agitation for separate statehood of Telangana Though there has been no instance of agitation, the matter is still simmering and might come up any time. Continued agitation might affect the movement of cement, supply of coal and also have a negative impact on the new investments, there by impacting our valuation diversely.
74
India Cements Ltd.

Valuation
March 15, 2012
In view of the a) improvement in share of CPP as against the last up cycle as well as better economies of scale b) installation of new railway siding c) start of its coal production from its Indonesian coal concession agreement d) production discipline to stay intact going forward in south helping players like ICL with large exposure to the region. Hence, we believe ICL, deserves a higher valuation compared to its last up cycle. Accordingly we initiate coverage on ICL with BUY rating and with a one year price target of `134.5 per share based on both replacement costs and EV/EBIDTA on a differential weight age with a potential upside of 31.8% from CMP of `102 per share.
Valuation on EV/EBIDTA trend

ICL recently has been trading at an average of 5.0-6.0x to its one year forward EV/EBITDA, contrary to the last up cycle when it traded at an average of 7.25x. Given the significant improvement in key parameters such as larger share of CPP, access to key growth areas like northern markets, better economies of scale, strong pricing trends in Southern part of India and lastly expectation of demand pickup coupled with slowing pace of capacity additions, we expect the stock to trade at 6x its FY13E earnings. Accordingly the one year target price works out to be `129.1 per share. Trends in EV/EBIDTA
350 300 250 200 150 100 50 0 (50) (100) Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Aug-11 Dec-11 Apr-12
Price
4.0x
5.0x
6.0x
7.0x
8.0x
75
India Cements Ltd.

Valuation on replacement costs
March 15, 2012
As a thumb rule and based on the expansions announced it costs ~ `4,500 - 5,000 mn for setting up of an integrated cement plant and ~ `1,500 - 2,000mn for setting up of a grinding unit or a blending unit. Accordingly we have arrived at a total replacement cost or the firm value at `69,690 mn accordingly the target price works out to be `155.8 per share. Details of Replacement costs for Cement
Sr No 1 2 3 4 1 2 3 4 1 2 Location Sankarnagar Sankari Dalavoi Vallur Chilamkur Yerranguntla Vishnupura Malkapur Parli Banswara Installed Capacity 2.1 0.9 1.9 1.1 5.9 1.5 0.7 2.4 2.5 7.1 1.1 1.5 2.6 15.6
Type of Capacity Clinkerisation Clinkerisation Clinkerisation Grinding Clinkerisation Clinkerisation Clinkerisation Clinkerisation Grinding Clinkerisation
Cost per Unit 4,500 4,500 4,500 1,500 4,500 4,500 4,500 4,500 1,500 4,500
Total Replacement cost 9,225 3,870 8,325 1,650 6,570 3,285 10,800 11,250 1,650 6,750 63,375
Details of Replacement costs for captive power plant

Sr No 1 2 3 4 5 6 7 Type of Capacity CPP AP CPP at TN CPP Rajasthan Waste Recovery plant Gas fired CPP Collective power arrangement Wind Mills 50 0 8 25 21 18 122
Current Capacity
Cost per Unit 40 40 40 150 40 120
Total Replacement Cost 0 2,000 0 1,155 1,000 0 2160 6,315
76
India Cements Ltd.
March 15, 2012 Target price based on both EV/EBIDTA and replacement costs based on differential weight age Owing to low EBIDTA margins of the companies in the sector as a whole compared to its margins during last up cycle we have considered a weight of 80% for EV/EBIDTA and 20% for EV/MT. Considering the same our one year target price works out to be `148 per share with a potential upside of 31.8%.
Valuation Methods EV/EBIDTA EV/MT Target Price Current Market Price Potential Upside
Weight age 80% 20%
Target Price 129.1 155.8 134.5 102.0 31.8%
EV/MT trends: Over last two years ICL has been trading the range of US$63-99 EV/EBIDTA. At current market price the stock is trading at US$81.3/MT at a 184% discount to its all time high of US$231/MT, with large potential for improvement in valuation. EV/MT
280.0
230.0
High: US$231/MT
EV (US$) / MT
180.0
130.0 High: US$99/MT US$81.3/MT
80.0 Low: US$63/MT 30.0 29-Mar-07 29-Mar-08 29-Mar-09 29-Mar-10 29-Mar-11 29-Sep-07 29-Sep-08 29-Sep-09 29-Sep-10 29-Dec-06 29-Dec-07 29-Dec-08 29-Dec-09 29-Dec-10 29-Sep-11 29-Dec-11 29-Jun-07 29-Jun-08 29-Jun-09 29-Jun-10 29-Jun-11
77
India Cements Ltd.

Company Background
State wise, Market Share and Sales break up
March 15, 2012
ICL operates 11.25 mtpa of clinker and 15.5 mtpa of cement across AP, TN, MH and Rajasthan. ICL is the largest cement player by capacity in the South, largest player in AP and 4th largest in TN. The company produces ~ 70% of PPC and balance 30% of OPC. ICL sells ~ 80% of its total output in the Southern region, with 60% in the trade segment and balance in the non trade segment. Top ten cement companies in South
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Dalmia Cement ACC Penna Cement My Home India Cements Madras Cement Chettinad Cement Zuari Cement Ultratech Kesoram 13.0 12.6 11.5 9.7 9.0 8.5
7.8
7.3
7.0 5.7
78
India Cements Ltd.

Market presence and Network
March 15, 2012
The Southern region has continuously dominated other regions in consumption and production. Over the last six quarters the demand in the Southern region especially AP has been a laggard. ICL caters to key markets of AP, TN, Kerala, Karnataka and Maharashtra. The company has eight plants in TN and AP. In order to reduce the risk of its geographical concentration, the company had set up a grinding unit at Maharashtra of 1.1mtpa and has a capacity of 1.5 mtpa through its subsidiary company Trinetra Cement in which ICL currently holds 60.8% of stake. ICL has plans to raise its stake in this subsidiary to 90%. Location wise details of cement plants of ICL
Sr No 1 2 3 4 1 2 3 4 1 2 Location Sankarnagar Sankari Dalavoi Vallur Chilamkur Yerranguntla Vishnupura Malkapur Parli Banswara (Trinetra Cement) District Tirunveli Salem Perambalur Tiruvallur Cuddapah Cuddapah Nalagonda Ranga Reddy Beed Banswara State Tamil Nadu Tamil Nadu Tamil Nadu Tamil Nadu Sub Total Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh Sub Total Maharashtra Rajasthan Sub Total Grand Total
Installed Capacity 2.1 0.9 1.9 1.1 5.9 1.5 0.7 2.4 2.5 7.1 1.1 1.5 2.6 15.6
Type of Capacity Clinkerisation Clinkerisation Clinkerisation Grinding Clinkerisation Clinkerisation Clinkerisation Clinkerisation Grinding Clinkerisation
% Of Total 13.2 5.5 11.9 7.1 37.7 9.4 15.4 4.7 16.1 45.6 7.1 9.6 16.7 100
79
India Cements Ltd.

Income Statement
Y/E Mar (`mn)
Total net revenues COGS Gross Profit Employee Cost Selling & Admin Expenses Other Expenditure EBITDA EBITDA Margin (%) Depreciation Other Income Interest (Net) PBT PBT Margin (%) Tax Minority Interest Adjusted Pat Extraordinary /exce. Reported PAT
FY09
35,518 14,607 20,911 2,033 8,405 32 10,441 29.4 2,045 0 1,123 6,480 18.2 2,174 0 4,305 0 4,305
FY10
37,453 16,749 20,704 2,536 10,795 60 7,313 19.5 2,345 1,262 1,428 5,238 14.0 1,777 0 3,461 0 3,461
FY11
35,387 17,510 17,877 2,605 11,695 69 3,508 9.9 2,510 1,285 1,506 796 2.3 227 0 570 0 570
FY12E
40,447 15,855 24,592 2,735 14,232 0 7,624 18.8 2,576 1,285 2,599 3,733 9.2 1,269 0 2,464 0 2,464
FY13E
46,353 17,707 28,646 2,954 15,770 0 9,922 21.4 2,762 1,285 2,462 5,982 12.9 2,034 0 3,948 0 3,948
Y/E Mar (`mn)

Equity capital* Reserves & Surplus Preference Capital Net worth Minority interest Deferred tax liability Total debt Total Liabilities & Equity Net block Capital WIP Total fixed assets Investments Current Assets Inventories Debtors Cash & bank Loans & advances Other Current Assets Current Liab. & Prov. Creditors Other liabilities Provisions Net Working capital Miscellaneous Exp Deferred tax assets Total Assets
FY09
2,820 32,518 0 35,337 31 2,744 19,888 58,000 38,239 9,040 47,280 3,556 18,544 3,935 3,694 880 10,034 0 11,716 11,716 0 0 6,828 158 179 58,000
FY10
3,073 37,381 0 40,453 15 2,903 23,006 66,378 39,388 14,291 53,679 5,148 21,266 4,706 5,003 768 10,789 0 13,921 13,921 0 0 7,345 0 206 66,378
FY11
3,073 36,844 0 39,917 0 2,928 27,357 70,203 43,730 15,542 59,272 3,372 19,856 5,529 2,633 509 11,184 0 12,481 12,481 0 0 7,375 0 184 70,203
FY12E
3,072 38,602 0 41,674 0 2,928 27,357 71,959 43,654 16,542 60,196 3,372 23,444 4,876 4,876 3,054 10,638 0 15,052 13,076 0 1,976 8,392 0 0 71,959
FY13E
3,072 41,782 0 44,854 0 2,928 27,357 75,139 44,391 16,642 61,033 3,372 28,521 5,461 5,334 5,535 12,191 0 17,787 14,985 0 2,802 10,734 0 0 75,139
Key Ratio
Y/E Mar (`mn)
Cash Flow
FY09
15.0 125.4 2.3 20.8 7.1 0.8 4.3 1.6 5.1 14.6 14.6 (34.2) (34.2) 58.9 29.4 12.1 5.7 23.7 16.0 16.4 29.9 72.9 30.9 0.6 7.5
FY10
11.3 131.7 2.0 17.4 11.9 1.0 6.1 1.8 7.7 5.4 5.4 (18.1) (24.8) 55.3 19.5 9.2 6.8 28.8 10.2 11.8 33.6 105.1 36.3 0.6 3.5
FY11
2.1 129.9 1.5 9.8 45.0 0.7 7.7 1.5 9.7 (5.5) (5.5) (81.1) (81.1) 50.5 9.9 1.6 7.4 33.0 1.5 1.9 44.9 132.2 44.6 0.7 0.7
FY12E
8.0 135.7 2.3 25.7 10.0 0.6 13.9 1.4 3.1 14.3 14.3 277.3 277.3 60.8 18.8 6.1 6.8 35.2 6.1 7.9 44.0 118.0 44.0 0.7 1.9
FY13E
12.9 146.0 2.5 26.1 6.2 0.5 6.1 1.1 3.1 14.6 14.6 60.2 60.2 61.8 21.4 8.5 6.4 34.0 9.7 12.6 42.0 118.0 43.0 0.6 2.9
Y/E Mar (`mn)

FY09
6,480 2,045 1,123 0 0 (1,621) 2,174 5,853 (8,799) 0 (226) 0 (9,025) 1,773 0 0 (661) (1,123) 405 393 (2,860) 4,262 880
FY10
5,238 2,345 1,428 1,262 0 (628) 1,777 5,345 (8,744) 0 (1,592) 0 (10,336) 3,118 0 253 (716) (1,428) 295 1,523 (2,208) 880 768
FY11
796 2,510 1,506 1,285 0 (289) 227 3,014 (8,103) 0 1,776 1,262 (5,065) 4,351 0 0 (537) (1,506) 47 2,357 408 768 509
FY12E
3,733 2,576 2,599 1,285 0 1,528 1,269 7,886 (3,500) 0 0 1,285 (2,215) 0 0 (1) (707) (2,599) 184 (3,120) 2,545 509 3,054
FY13E
5,982 2,762 2,462 1,285 0 139 2,034 8,031 (3,600) 0 0 1,285 (2,315) 0 0 0 (768) (2,462) 0 (3,226) 2,482 3,054 5,535
Du-Pont Analysis
(%)
FY09
12.1 0.6 1.6 12.2
FY10
9.2 0.6 1.6 8.6
FY11
1.6 0.5 1.8 1.4
FY12E
6.1 0.6 1.7 5.9
FY13E
8.5 0.6 1.7 8.8
80
India Cements Ltd.

NOTES
March 15, 2012
Recommendation Rationale
Recommendation BUY ACCUMULATE NEUTRAL REDUCE SELL Expected Absolute Return (%) over 12 months >20% <20% and >10% <-10% and <10% >-10% and <-20% >-20%
Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our target price represents the fair value of the stock based upon the analysts discretion. We note that future price fluctuations could lead to a temporary mismatch between upside/downside for stock and our recommendation.
GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt. Ltd.) Head Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001 Reg. Office : 922-C, P.J. Towers, Dalal Street, Fort, Mumbai 400001 Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Name : Manohar Annappanavar Sector : Cement Disclaimer: This report has been prepared by GEPL Capital Private Limited ("GEPL Capital "). GEPL Capital is regulated by the Securities and Exchange Board of India. This report does not constitute a prospectus, offering circular or offering memorandum and is not an offer or invitation to buy or sell any securities, nor shall part, or all, of this presentation form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy, recommendation or any other content contained herein is suitable or appropriate to a recipients individual circumstances or otherwise constitutes a personal recommendation. All investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by the recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of GEPL Capital as a result of using different assumptions and criteria. GEPL Capital is under no obligation to update or keep current the information contained herein. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect GEPL Capitals internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by GEPL Capital or any other source may yield substantially different results. GEPL Capital makes no representation or warranty, express or implied, as to, and does not accept any responsibility or liability with respect to, the fairness, accuracy, completeness or correctness of any information or opinions contained herein. Further, GEPL Capital assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent development, information or events, or otherwise. Neither GEPL Capital nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. In no event shall GEPL capital be liable for any direct, special indirect or consequential damages, or any other damages of any kind, including but not limited to loss of use, loss of profits, or loss of data, whether in an action in contract, tort (including but not limited to negligence), or otherwise, arising out of or in any way connected with the use of this report or the materials contained in, or accessed through, this report. GEPL Capital and its affiliates and/or their officers, directors and employees may have similar or an opposite positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). The disclosures contained in the reports produced by GEPL Capital shall be strictly governed by and construed in accordance with Indian law. GEPL Capital specifically prohibits the redistribution of this material in whole or in part without the written permission of GEPL Capital and GEPL Capital accepts no liability whatsoever for the actions of third parties in this regard.
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Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Regional Spread of capacity (In mn MT)

All India Prod., Cap. Utilisation trends

Trends in capacity utilisation

Capacity Utilization (%)

+91-22- 6614 2696 manohar@geplcapital.com

GEPL Capital Research

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Source: Company data, GEPL Capital Research

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

11.5 9.7 9.0 8.5

10.0 mtpa 8.0 6.0 4.0 2.0 0.0

Source: Company data, GEPL Capital Research

Top ten cement companies in North

Source: Company data, GEPL Capital Research

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Source: Company data, GEPL Capital Research

Top ten cement companies in Central

7.5 5.6 4.5 3.8 3.8 1.5 1.5

Source: Company data, GEPL Capital Research

Top ten cement companies in East

Source: Company data, GEPL Capital Research

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Demand Drivers Primary demand drivers of cement in India include

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Source: Company data, GEPL Capital Research

Dec-11 67.3 44.7 37.6 40.2 120.1 309.9

FY12E 67.8 44.7 37.6 40.2 130. 320.3 10.5 3.4%

FY13E 69.3 49.6 41.1 42.7 131.9 334.6 14.3 4.5%

Total Additions 2.1 4.9 3.5 2.5 11.8 24.8

CAGR Growth (%) 2.4 8.7 7.4 4.9 7.8 6.3

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

FY14E 354.2 277.7 78.4

FY15E 374.3 300.8 80.4

Source: Company data, GEPL Capital Research

Installed Capacity, Production and utilisation

Details of cluster wise expansion in AP with little Progress

GEPL Capital Research | Initiating Coverage

Equity | India | Cement

Cement Industry - Thematic

March 15, 2012

Company wise capacity expansion

HP 3.1 4.4 3.5 11.0 0.2 -

Uttarakhand 1.8 1.0 1.2 4.0 0.1 -