4QCY2012 Result Update | Cement

February 13, 2013

Ambuja Cements
Performance Highlights
Quarterly results (Standalone)
Y/E Dec. (` cr) Net Sales Operating profit OPM (%) Rep. Net Profit 4QCY2012 2,313 450 19.3 212 3QCY2012 2,168 522 24.0 304 % chg qoq 6.7 (13.8) (472)bp (30.3) 4QCY2011 2,329 450 19.1 302 % chg yoy (0.7) 0.1 20bp (29.9)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 29,294 (3,737) 0.8 221/136 185,275 2 19,608 5,933 ABUJ.BO ACEM@IN

`190 -

Source: Company, Angel Research

During 4QCY2012, Ambuja Cements (ACEM) posted a weak performance on the bottom-line front, with the net profit declining by 29.9% yoy. A major disappointment was the 5% yoy de-growth in volumes during the quarter, resulting in a marginal 0.7% yoy decline even on the top-line front. OPM flat yoy at 19.3%: Despite a 5% yoy volume de-growth, the top-line declined only marginally due to the 4.1% yoy improvement in realization. On a sequential basis realization was down by 2.4%. OPM stood flat at 19.3%, with power and fuel costs/tonne and freight costs/tonne going up by 21.7% yoy and 20.2% yoy respectively. However, power and fuel costs/tonne fell by 11% on a qoq basis due to the fall in coal prices. The companys EBITDA/tonne stood at `833, up 6.6%

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.6 9.5 32.4 7.5

yoy, but down 24.0% qoq. The bottom-line fell by 29.9% yoy to `212cr with
depreciation costs going up by 49.8% on a yoy basis. During the quarter, the companys depreciation charges included `27cr pertaining to previous years. Outlook and valuation: We expect ACEM to register a 14.2% and 19.3% CAGR in its top-line and bottom-line, respectively, over CY2011-13E. At the current market price, the stock is trading at EV/tonne of US$160 on CY2013E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock.

Abs. (%) Sensex ACEM

3m 5.3

1yr 10.3

3yr 21.4 77.9

(9.6) 11.8

Key financials (Standalone)

Y/E Dec. ( ` cr) Net sales % chg Adj. net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales EV/tonne (US$) Installed capacity (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

CY2010 7,390 4.4 1,237 1.5 26.4 8.1 23.5 4.0 17.9 20.8 3.6 217 25 13.6

CY2011 8,514 15.2 1,253 1.3 23.4 8.2 23.3 3.6 16.3 18.6 3.1 187 27 13.2

CY2012E 9,675 13.6 1,576 25.8 25.6 10.2 18.6 3.3 18.7 21.0 2.6 165 27 10.2

CY2013E 11,112 14.9 1,748 10.9 25.0 11.3 16.8 3.1 19.0 22.4 2.2 160 27 8.7

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 4QCY2012 Result Update

Exhibit 1: 4QCY2012 performance (Standalone)

Y/E Dec. (` cr) Net sales Other operating income Total operating income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income Exceptional Inc./(Exp.) PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

4QCY12 2,313 22 2335 143 6.2 547 23.7 137 5.9 582 25.1 476 20.6 1,885 450 19.3 24 186 88 328 116 35.5 212 9.2 1.4

3QCY12 2,168 7 2175 46 2.1 562 25.9 115 5.3 503 23.2 426 19.7 1,653 522 24.0 17 137 89 457 154 33.6 304 14.0 2.0

% chg qoq 6.7 221.1 7.4 210.1 (2.7) 18.7 15.5 11.8 14.0 (13.8) (472)bp 46.6 35.1 (1.5) (28.2) (24.1) (30.3) (486)bp (30.3)

4QCY11 2,329 29 2358 336 14.4 471 20.2 125 5.4 507 21.8 468 20.1 1,908 450 19.1 10 124 65 24 357 54 15.3 302 13.0 2.0

% chg yoy (0.7) (23.5) (1.0) (57.3) 16.1 8.9 14.6 1.8 (1.2) 0.1 20bp 146.1 49.9 35.3 (8.0) 113.9 (29.9) (382)bp (29.9)

CY12 9,675 55 9,730 471 4.9 2,329 24.1 479 4.9 2,276 23.5 1,703 17.6 7,257 2,473 25.4 76 565 349 279 1,902 605 31.8 1,297 13.4 8.5

CY11 8,504 50 8,554 634 7.5 2,001 23.5 433 5.1 1,933 22.7 1,575 18.5 6,577 1,977 23.1 53 445 248 24 1,703 474 27.8 1,229 14.4 8.1

% chg 13.8 10.9 13.7 (25.8) 16.4 10.5 17.7 8.1 10.3 25.1 230bp 43.8 27.0 40.7 11.7 27.6 5.5 (104)bp 5.5

Exhibit 2: Financial performance

3,000 2,500 2,000 (` cr) 1,500 1,000 500 0 3QCY11 4QCY11 Net Sales 1QCY12 2QCY12 Net Profit 3QCY12 4QCY12 OPM (RHS) 302 312 469 20.0 304 212 15.0 1805 (%) 25.0 2329 2,633 35.0 2,566 2168 2313 30.0

171

Source: Company, Angel Research

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Ambuja Cements | 4QCY2012 Result Update

Exhibit 3: 4QCY2012 Actual vs Angel estimates

(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual 2,313 450 19.3 212

Estimates 2,753 600 21.5 353

Variation (%) (16.0) (25.0) (221)bp (40.0)

Performance highlights
Volume de-growth leads to top-line contraction
ACEMs top-line for 4QFY2012 came in below our estimates due to the 5% yoy de-growth on the volumes front. The companys cement volumes stood at 5.14mn tonne during the quarter. Cement demand remained weak during the quarter as construction activity across the country failed to pick-up. That said, ACEMs performance on the volume front is worse than its peers such as ACC and UltraTech, who have posted a flat or only a minimal decline in their volumes on a yoy basis. However, ACEM posted a 4.1% yoy improvement in realization, which offset the volume decline to a considerable extent.

OPM flat on a yoy basis

Despite higher yoy realizations ACEM reported a flat performance on the margin front, as most of the costs such as freight and power & fuel costs were higher on a yoy basis. Freight costs rose on account of higher diesel charges and higher railway freight charges. Higher raw material costs too are to an extent attributable to higher fuel costs.

Per tonne analysis

For 4QCY2012, ACEMs realization/tonne improved by 4.1% yoy to `4,501. Power and fuel expenses/tonne increased by 21.7% yoy to `1,065. However, on a qoq basis, power and fuel expenses/tonne were down by 11.0%. Freight cost/tonne also rose by 20.2% yoy to `1,131. The operating profit/tonne stood at `833, higher by 6.6% yoy.

Exhibit 4: Per tonne analysis

(`) Realization/tonne Raw-material cost/tonne Power and fuel cost/tonne Freight cost/tonne Other costs/tonne Operating profit/tonne
Source: Company, Angel Research

4QCY12 4,501 316 1,065 1,131 927 833

3QCY12 4,614 317 1,196 1,071 907 1,096

4QCY11 % chg (yoy) % chg (qoq) 4,322 283 875 942 869 781 4.1 11.8 21.7 20.2 6.7 6.6 (2.4) (0.2) (11.0) 5.6 2.2 (24.0)

February 13, 2013

Ambuja Cements | 4QCY2012 Result Update

Investment rationale
Capacity addition to aid volume growth
During the past two years, ACEM added ~5mtpa of grinding capacities at various locations to reach its current overall capacity of ~27mtpa. Going ahead, we expect these capacity expansions to drive the companys volume growth.

New clinker capacities to aid margin expansion

Stabilization of production at the company's new clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri has resulted in elimination of external high-cost clinker purchase.

Outlook and valuation

We expect ACEM to register a 14.2% and 19.3% CAGR in its top-line and bottom-line, respectively, over CY2011-13E. At the current market price, the stock is trading at EV/tonne of US$160 on CY2013E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock. Exhibit 5: One-year forward EV/tonne
350,000 300,000 250,000 EV (` mn) 200,000 150,000 100,000 50,000 0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Dec-12 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

EV/tonne Source: BSE, Company, Angel Research

$110

$140

$170

$200

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,250 190 82 133 241 4,506 1,936 Tgt. Price (`) Upside (%) FY2014E P/BV (x) 2.9 3.1 0.7 1.0 2.0 3.4 3.0 FY2014E P/E (x) 16.7 16.8 7.6 5.8 12.9 13.5 16.5 FY2012-14E EPS CAGR 3.1 17.8 5.5 37.3 7.3 35.9 14.5 FY2014E EV/tonne^ RoE (%) 18.1 19.0 9.0 17.7 16.9 28.4 19.5 US $ 126 165 63 54 89 150 191

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis;#Y/E June

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Ambuja Cements | 4QCY2012 Result Update

Company Background
Swiss cement major, Holcim acquired a controlling stake in ACEM in 2005. In India, the Holcim Group currently controls one-fifth of the total cement capacity through ACEM and ACC. On a standalone basis, ACEM is the third largest cement player in India with total capacity of 27mtpa. The company majorly focuses on northern and western India, with no plants in southern India. Of its current total capacity, 40% capacity is in the western, 38% in northern, 16% in eastern and northeastern and 6% in the central region of the country.

February 13, 2013

Ambuja Cements | 4QCY2012 Result Update

Profit & loss statement (Standalone)

Y/E Dec. (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY08 6,168 9.5 4,461 519 1,326 266 2,350 1,707 (16.5) 27.7 260 1,447 (20.0) 23.5 32 246 15 1,662 (13.7) (308) 1,970 568 28.8 1,402 1,183 (5.9) 19.2 7.8 7.8 (5.9) CY09 7,181 16.4 5,210 1,014 1,423 273 2,501 1,971 15.5 27.9 297 1,674 15.7 23.7 22 151 8 1,803 8.5 1,803 585 32.4 1,218 1,218 3.0 17.2 8.0 8.0 2.9 CY10 7,518 4.7 5,567 542 1,697 344 2,984 1,951 (1.0) 26.4 387 1,564 (6.6) 21.2 49 120 7 1,635 (9.3) (27) 1,662 398 24.0 1,264 1,237 1.5 16.7 8.1 8.1 1.1 CY11 8,603 14.4 6,608 634 2,006 433 3,535 1,994 2.2 23.4 445 1,549 (0.9) 18.2 53 230 13 1,727 5.6 24 1,703 474 27.8 1,229 1,253 1.3 14.7 8.2 8.2 1.0 CY12E 9,730 13.1 7,257 471 2,329 479 3,979 2,473 24.0 25.6 565 1,908 23.1 19.7 76 349 16 2,181 26.3 279 1,902 605 31.8 1,297 1,576 25.8 16.3 10.2 10.2 25.1 CY13E 11,221 15.3 8,447 797 2,515 512 4,622 2,774 12.2 25.0 579 2,196 15.1 19.8 78 454 18 2,571 17.9 2,571 823 32.0 1,748 1,748 10.9 15.7 11.3 11.3 10.9

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Ambuja Cements | 4QCY2012 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 5,707 2,514 3,193 1,947 332 2,339 852 300 1,188 1,474 865 4 6,342 6,224 2,784 3,440 2,714 727 1,979 881 253 846 1,741 238 3 7,122 8,779 3,151 5,628 931 626 3,135 1,648 441 1,047 2,394 741 0 7,926 9,657 3,516 6,141 532 864 4,004 2,069 745 1,190 2,764 1,240 8,778 9,678 4,081 5,597 783 1,656 4,389 2,256 904 1,228 3,011 1,378 9,414 9,911 4,660 5,251 1,518 1,656 5,166 2,705 978 1,483 3,409 1,757 10,182 305 5,368 5,673 289 381 6,342 305 6,166 6,471 166 486 7,122 307 7,023 7,330 65 531 7,926 307 7,763 8,069 65 644 8,778 308 8,497 8,805 60 548 9,414 308 9,265 9,574 60 548 10,182 CY08 CY09 CY10 CY11E CY12E CY13E

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Ambuja Cements | 4QCY2012 Result Update

Cash flow statement (Standalone)

Y/E Dec. (` cr) Profit before tax Depreciation Change in WC Interest expenses Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Dec in Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY08 1,970 260 (252) 32 246 568 1,196 (1,726) 957 246 (523) 1 (42) 390 32 (463) 209 643 852 CY09 1,803 297 698 22 151 585 2,085 (1,284) (395) 151 (1,528) 8 (123) 390 22 (528) 29 852 881 CY10 1,662 387 257 49 120 398 1,836 (771) 101 120 (550) 55 (101) 425 49 (519) 767 881 1,648 CY11E 1,703 445 (159) 53 230 474 1,337 (480) (238) 230 (487) 30 (1) 570 (111) (429) 421 1,648 2,069 CY12E 1,902 565 49 76 349 605 1,638 (272) (792) 349 (715) 2 (4) 643 91 (737) 186 2,069 2,256 CY13E 2,571 579 69 78 454 823 2,021 (968) 454 (514) 867 191 (1,058) 449 2,256 2,705

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Ambuja Cements | 4QCY2012 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) (0.1) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.8) 32.1 (0.2) (1.0) 29.4 (0.2) (0.9) 25.2 (0.3) (1.0) 28.0 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (38) 0.9 39 8 142 (37) 1.0 36 9 145 (32) 1.1 35 8 139 (30) 24.7 38.2 22.9 24.9 47.4 20.1 20.8 35.2 17.9 18.6 26.9 16.3 21.0 30.4 18.7 22.4 35.6 19.0 23.5 71.2 1.2 20.2 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.0 18.0 72.2 1.3 17.2 19.6 68.2 1.4 18.8 19.6 68.0 1.5 20.4 7.8 7.8 10.9 2.2 37.3 8.0 8.0 9.9 2.4 42.4 8.1 8.1 10.7 2.6 47.7 8.2 8.2 10.9 3.2 52.6 10.2 10.2 12.1 3.6 57.1 11.3 11.3 15.1 4.8 62.1 24.5 17.4 5.1 1.2 4.3 15.5 4.2 23.8 19.1 4.5 1.3 3.6 12.8 3.5 23.5 17.7 4.0 1.4 3.6 13.6 3.3 23.3 17.4 3.6 1.7 3.1 13.2 3.0 18.6 15.7 3.3 1.9 2.6 10.2 2.7 16.8 12.6 3.1 2.6 2.2 8.7 2.4 CY08 CY09 CY10 CY11E CY12E CY13E

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Ambuja Cements | 4QCY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Ambuja Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 13, 2013

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