2QCY2011 Result Update | Cement

August 2, 2011

Ambuja Cements
Performance Highlights
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Net profit 2QCY2011 2,173 598 27.3 348 1QCY2011 2,207 627 28.2 407 % chg qoq (1.5) (4.6) (88)bp (14.7) 2QCY2010 % chg yoy 2,048 644 30.8 391 6.1 (7.1) (350)bp (11.2)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 19,612 0.9 167/112 295857 2 18,110 5,457 ABUJ.BO ACEM@IN

`128 -

Source: Company, Angel Research

During 2QCY2011, Ambuja Cements (Ambuja) reported an 11.2% yoy decline in its bottom line to `348cr. The companys net profit was ahead of our estimates on account of an 8.5% yoy improvement in realisation. Realisation was higher during the quarter as cement prices, which touched the peak in March 2011, remained strong until May. However, despite better realisations, the company faced margin pressures on account of higher power and fuel and freight costs. We recommend a Neutral rating on the stock. OPM at 27.3%, down 350bp yoy: For 2QCY2011, Ambuja posted 6.1% yoy growth in its net sales to `2,173cr. The companys dispatches during the quarter decreased by 2.2% yoy to 5.29mn tonnes. The decline in dispatches was due to weak demand in the companys key markets situated in the northern and western regions. OPM for the quarter fell by 350bp yoy to 27.3%. EBITDA/tonne stood at `1,101 down 1.2% yoy. Outlook and valuation: All-India cement dispatches, which witnessed a marginal decline in 1QFY2012, are expected to pick-up post the monsoons. Demand growth is expected to be driven by infrastructure activities with FY2012 being the last year of the Eleventh Plan. Demand from poll-bound Uttar Pradesh is also expected to pick-up going ahead. However, the ongoing SFIO investigation on cement pricing might soften the extent of price recovery due to the pick-up in demand post the cessation of monsoons. At current levels, the stock is trading at fair valuations of 6.9x EV/EBITDA and EV/tonne of US$129 on CY2012 estimates. Hence, we recommend a Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.4 15.2 26.7 7.7

Abs. (%) Sensex Ambuja Cement

3m (4.7) (16.5)

1yr 0.2 8.1

3yr 23.6 54.6

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

CY2009
7,077 14.7 1,218 11.4 27.9 8.0 16.0 3.0 20.1 24.9 2.2 149 22 8.0

CY2010
7,390 4.4 1,237 1.5 26.4 8.2 15.6 2.7 17.9 20.8 2.3 148 25 8.7

CY2011E
8,348 13.0 1,195 (3.4) 23.9 7.8 16.5 2.4 15.5 18.4 2.0 136 27 8.4

CY2012E
9,489 13.7 1,333 11.5 24.3 8.7 14.8 2.2 15.6 19.9 1.7 129 27 6.9

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

Please refer to important disclosures at the end of this report

Ambuja Cements | 2QCY2011 Result Update

Exhibit 1: 2QCY2011 performance

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 PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

2QCY11
2,173 15.8 2189 26.2 1.2 563.3 25.9 110 5.1 498 22.9 393.2 18.1 1,591 598 27.3 15.2 107.4 56.2 532 184.5 34.7 348 16.0 2.3

1QCY11
2,207 15.4 2222 128.3 5.8 481.6 21.8 95 4.3 509 23.0 382.3 17.3 1,595 627.0 28.2 13.8 106.1 52.1 559.2 151.7 27.1 407 18.5 2.7

% chg qoq
(1.5) 2.5 (1.5) (79.6) 17.0 16.2 (2.1) 2.8 (0.3) (4.6) (87) 10.2 1.2 7.8 (4.9) 21.6 (14.7) (14.7)

2QCY10
2,048 40.8 2088 83 4.0 453 22.1 90 4.4 447 21.8 371 18.1 1,444 644 30.8 8 100.1 25.9 562 171 30.4 391 19.1 2.6

% chg yoy
6.1 (61.3) 4.8 (68.4) 24.2 22.0 11.3 6.1 10.1 (7.1) (350) 87.5 7.3 116.7 (5.3) 8.2 (11.2) (11.6)

1HCY11
4,380 31.2 4,412 155 3.5 1,045 23.9 205 4.7 1,007 23.0 776 17.7 3,186 1,225 27.8 29 213.5 108.2 1,091 336 30.8 755 17.2 5.0

1HCY10
4,038 69.4 4,107 316 7.8 809 20.0 167 4.1 860 21.3 713 17.7 2,864 1,243 30.3 19 176.5 124.5 1,172 318 27.2 854 21.1 5.6

% chg
8.5 (55.0) 7.4 (51.1) 29.2 22.3 17.1 8.8 11.2 (1.4) (115)bp 53.5 21.0 (13.1) (6.9) 5.7 (11.6) (11.6)

Exhibit 2: Financial performance

2,500 2,000 1,500 1,990 2,048 1,788 1,564 2,207 2,173 35 30 25 1,000 500 0 1QCY10 2QCY10
Net Sales

(` cr)

(%)

462

391

152

258

407

348

20 15

3QCY10

4QCY10

1QCY11
OPM (RHS)

2QCY11

Net Profit

Source: Company, Angel Research

August 2, 2011

Ambuja Cements | 2QCY2011 Result Update

Exhibit 3: 2QCY2011 Actual vs. Angel estimates

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

Actual
2,173 598 27.3 348

Estimates
2,036 486 23.9 293

Variation (%)
6.7 23.1 344bp 18.6

Performance highlights
Higher realisation results in top-line growth
During 2QCY2011, Ambuja posted 6.1% yoy growth in its net sales to `2,173, aided by higher realisation (up 8.5% yoy). Realisation was higher during the quarter as cement prices, which touched the peak in March 2011, remained strong until May. On a sequential basis as well, realisation increased by 5%. However, the company posted a decline of 2.2% and 6.2% on yoy and qoq basis in dispatches, respectively, during the quarter.

Higher power and fuel costs offset improvement in realisation Despite improved realisations, the company faced margin pressure during the quarter on account of the increase in power and fuel costs. Power and fuel costs rose substantially because of higher coal prices in the domestic as well as international market. Global coal prices were higher by ~20% during the quarter at US$120/tonne. Prices of domestic linkage coal also increased by 30% in March 2011 due to the price hike by Coal India, the impact of which was felt fully in 2QCY2011. Ambujas OPM for the quarter fell by 350bp yoy to 27.3%. Per tonne analysis
For 2QCY2011, Ambujas realisation/tonne improved by 8.5% yoy to `4,108. Power and fuel cost/tonne stood higher by 27.0% yoy due to the substantial increase in coal prices. Freight cost/tonne rose by 13.8% yoy due to higher diesel costs. Operating profit/tonne stood at `1,101, down 1.2% on yoy basis.

Exhibit 4: Per tonne analysis

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

2QCY11 1QCY11 2QCY10 % chg (yoy) % chg (qoq) 4,108 1,065 941 743 1,101 3,913 854 902 678 1,084 3,785 838 827 685 1,115 8.5 27.0 13.8 8.5 (1.2) 5.0 24.7 4.4 9.7 1.6

August 2, 2011

Ambuja Cements | 2QCY2011 Result Update

Investment arguments
Capacity addition to lead to volume growth
In CY2010, Ambuja expanded its clinker capacity by 4.4mn tonnes per annum (mtpa) by setting up clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri. The company also commissioned grinding units at Nalagarh and Dadri (with capacities of 1.5mn tonnes each) during the year. Further, the company will be adding 2mtpa of total grinding capacity at Bhatapara and Maratha in CY2011, resulting in overall capacity of 27mn tonnes by the end of the year. In October 2010, the company signed an agreement with the Rajasthan State Industrial Development and Investment Corporation for setting up a 2.2mtpa clinkerisation plant at Nagauri District. Going ahead, we expect capacity additions done by the company to drive its growth.

Exhibit 5: Installed capacity

30 25 20 22 24 25 27 27

(mtpa)

15 10 5 0 CY2008 CY2009 CY2010 CY2011E CY2012E

Source: Company, Angel Research

Substantial presence in high-growth northern region

Ambuja currently derives a major portion of its revenue from the northern region. Although this region is currently facing low demand, the long-term demand outlook is good due to a number of real-estate projects that are likely to come up in the region.

New clinker capacities to aid margin expansion

Production at the companys clinker plants has stabilised, resulting in elimination of external clinker purchase since 3QCY2010. This has resulted in boosting the companys OPM, which was down by 400bp in CY2009 due to external purchase of close to 1.7mn tonnes of high-cost clinker. Ambuja is also expected to record savings in energy cost following the commissioning of 66MW of new captive power capacities in CY2010. The company, which commissioned a 33MW captive power at Bhatapara, has set up another 30MW power plant at Ambuja Nagar, taking its overall captive power capacity beyond 400MW.

August 2, 2011

Ambuja Cements | 2QCY2011 Result Update

Outlook and valuation

All-India cement dispatches, which witnessed a marginal decline in 1QFY2012, are expected to pick-up post the monsoons. Demand growth is expected to be driven by infrastructure activities with FY2012 being the last year of the Eleventh Plan. Demand from poll-bound Uttar Pradesh is also expected to pick-up going ahead. However, the ongoing SFIO investigation on cement pricing might soften the extent of price recovery due to the pick-up in demand post the cessation of monsoons. At current levels, the stock is trading at fair valuations of 6.9x EV/EBITDA and EV/tonne of US$129 on CY2012 estimates. Hence, we recommend a Neutral rating on the stock.

Exhibit 6: Key assumptions

Earlier estimates FY12E Installed capacity (mtpa) Utilisation (%) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates FY12E 27 79 1,014 881 907 FY13E 27 86 1,045 925 965 27 89

FY13E

27 81 1,014 881 870

1,045 925 912

Exhibit 7: Change in estimates

Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

FY2012E Earlier 8,463 6,561 1,964 466 20 1,628 456 1,172 Revised 8,348 6,413 1,996 466 20 1,660 465 1,195 Var. (%) (1.4) (2.3) 1.6 0.0 0.9 2.0 1.9 2.0 Earlier 9,617 7,437 2,242 487 19 1,911 620 1,291

FY2013E Revised 9,489 7,247 2,305 487 19 1,974 640 1,333 Var. (%) (1.3) (2.6) 2.8 0.0 1.0 3.3 3.3 3.3

August 2, 2011

Ambuja Cements | 2QCY2011 Result Update

Exhibit 8: One-year forward EV/EBITDA

(EV ` cr) 30,000

12x
20,000

9x 6x

10,000

3x
0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Source: Company, Angel Research

Exhibit 9: One-year forward EV/tonne

30,000 $70 $100 $130 $160

20,000

( EV `cr)
10,000

0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Source: Company, Angel Research

Exhibit 10: Recommendation summary

Company ACC* Ambuja Cements* India Cement JK Lakshmi Madras Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral CMP (`) 1,006 128 68 44 89 1,031 Tgt. price (`) 52 Upside (%) 19.0 FY2013E P/BV (x) 2.4 2.2 0.6 0.5 1.0 2.0 FY2013E P/E (x) 16.2 14.8 7.7 6.0 8.5 12.1 FY2011-13E EPS CAGR (%) 2.2 2.7 98.6 22.8 8.6 29.1 FY2013E RoCE (%) 19.5 19.9 6.9 7.8 10.0 18.2 FY2013E RoE (%) 15.5 15.6 6.6 7.8 12.4 17.5

Source: Company, Angel Research; Note: *December year end.

August 2, 2011

Ambuja Cements | 2QCY2011 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& Amortisation 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 CY07 5,631 (10.3) 3,586 398 1,020 209 1,960 2,045 (4.4) 36.3 236 1,809 (0.2) 32.1 76 194 10 1,926 7.4 (786) 2,712 943 34.8 1,769 983 (32.5) 17.5 11.6 11.6 17.5 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 1,094 11.3 17.7 9.2 9.2 (20.6) CY09 7,181 16.4 5,210 1,446 1,423 273 2,068 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 11.4 17.2 8.0 8.0 (13.3) CY10 7,518 4.7 5,567 1,043 1,697 344 2,483 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 8.2 8.2 2.9 CY11E 8,409 11.9 6,413 1,025 2,162 392 2,834 1,996 2.3 23.9 466 1,530 (2.1) 18.3 20 150 9 1,660 1.5 1,660 465 28.0 1,195 1,195 (3.4) 14.3 7.8 7.8 (5.4) CY12E 9,551 13.6 7,247 1,165 2,430 431 3,220 2,305 15.5 24.3 487 1,818 18.8 19.2 19 175 9 1,974 18.9 1,974 640 32.4 1,333 1,333 11.5 14.1 8.7 8.7 11.5

August 2, 2011

Ambuja Cements | 2QCY2011 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 Mis. Exp. not written off Total Assets 5,231 2,271 2,960 697 1,289 1,587 643 205 739 1,169 418 6 5,370 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 1,748 341 1,047 2,394 741 0 7,926 9,710 3,617 6,092 439 826 3,805 2,173 373 1,259 2,473 1,332 8,690 10,148 4,104 6,044 728 1,026 4,471 2,571 410 1,490 2,719 1,753 9,551 305 4,356 4,661 330 378 5,370 305 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 7,801 8,109 50 531 8,690 307 8,670 8,977 43 531 9,551 CY07 CY08 CY09 CY10 CY11E CY12E

August 2, 2011

Ambuja Cements | 2QCY2011 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)/ Decin 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 CY07 2,712 236 (154) 76 194 943 1,734 (750) (156) 194 (713) 32 (535) 178 76 (757) 265 378 643 CY08 1,970 260 (464) 32 246 568 983 (1,726) 957 246 (523) 1 (42) 178 32 (251) 209 643 852 CY09 CY10 1,803 1,662 297 522 22 151 585 (1,284) (395) 151 (1,528) 8 (123) 214 22 (352) 29 852 387 395 49 120 398 (771) 101 120 (550) 55 (101) 462 49 (557) 867 881 CY11E 1,660 466 (166) 20 150 465 1,365 (439) (200) 150 (489) (15) 417 20 (452) 424 1,748 2,173 CY12E 1,974 487 (22) 19 175 640 1,643 (728) (200) 175 (753) (7) 465 19 (491) 398 2,173 2,571

1,909 1,974

881 1,748

August 2, 2011

Ambuja Cements | 2QCY2011 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 / Interest) (0.1) (0.2) 23.8 (0.1) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.9) 32.1 (0.3) (1.1) 75.8 (0.3) (1.1) 94.7 1.2 32 8 95 (4) 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (40) 0.9 43 6 139 (40) 1.0 44 7 131 (32) 35.8 46.6 24.1 24.7 38.2 21.2 24.9 47.4 20.1 20.8 35.6 17.9 18.4 27.0 15.5 19.9 29.5 15.6 32.1 65.2 1.2 26.0 23.5 71.2 1.2 20.2 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.1 18.2 72.0 1.3 17.4 19.0 67.6 1.4 18.2 11.6 11.6 13.2 1.2 30.6 9.2 9.2 10.9 1.2 37.3 8.0 8.0 9.9 1.4 42.4 8.2 8.2 10.7 3.0 47.7 7.8 7.8 10.8 2.7 52.8 8.7 8.7 11.8 3.0 58.4 11.0 9.7 4.2 0.9 3.1 8.6 3.3 13.9 11.7 3.4 0.9 2.8 10.0 2.7 16.0 12.9 3.0 1.1 2.2 8.0 2.2 15.6 11.9 2.7 2.4 2.3 8.7 2.1 16.5 11.8 2.4 2.1 2.0 8.4 1.9 14.8 10.8 2.2 2.4 1.7 6.9 1.7 CY07 CY08 CY09 CY10 CY11E CY12E

August 2, 2011

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Ambuja Cements | 2QCY2011 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

August 2, 2011

11