1QFY2012 Result Update | Cement

August 16, 2011

India Cements
Performance Highlights
Y/E Mar (` cr) Net revenue Operating profit OPM (%) Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
4QFY11 1,000 183 18.3 55 % chg qoq 6.1 32.2 451bp 85 1QFY11 883 91 10.3 25 % chg yoy 20.2 167.5 1,258bp 308.4

`68 -

1QFY12 1,061 242 22.8 102

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 2,075 1.1 128/62 187091 10 16,731 5,036 ICMN.BO ICEM@IN

For 1QFY2012, India Cements (INC) posted 308.4% yoy growth in its net profit to `102cr, primarily on account of higher realisation due to the supply and pricing discipline adopted by cement manufacturers in the southern region. However, INCs dispatches fell by ~13% yoy to 2.3mn tonnes. During the quarter, the company refinanced US$75mn of FCCBs with domestic debt, resulting in a substantial increase in interest cost. INC plans to venture into the infrastructure business, but it is yet to disclose its course of action in detail. We maintain our Neutral view on the stock. OPM up 1,258bp yoy: For 1QFY2012, INC registered 20.2% yoy top-line growth to `1,061cr, primarily due to a substantial 27.6% yoy (8.8% qoq) increase in cement realisation to `4,176/tonne. OPM rose by 1,258bp yoy despite higher costs due to superior cement realisation and better sales/regional mix. INCs freight cost per tonne increased by 12.7% yoy to `779 due to higher diesel costs and lead distance. Outlook and valuation: Over FY201113E, we expect INC to post a CAGR of 4.4% and 6.7% in dispatches and realisation, resulting in a substantial improvement in its bottom line over the period. Despite reasonably good earnings visibility over the period, return ratios would remain subdued for the company due to large amount of capital work in progress (`1,040cr as of FY2011-end) and substantial investments in subsidiaries (advances of `1,044cr as of FY2011-end). At the CMP, the stock is trading at EV/EBITDA of 4.8x and EV/tonne of US$55 based on FY2013E estimates. We remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 44.2 23.5 7.8 24.5

Abs. (%) Sensex INC

3m

1yr

3yr 13.6 (55.5)

(8.8) (7.3) (22.9) (35.6)

Key financials Standalone

Y/E March ( ` cr) Net sales % chg Net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/tonne (US$) EV/EBITDA
Source: Company, Angel Research

FY2010 3,687 9.8 354 (17.9) 20.1 11.5 5.9 0.6 9.7 8.2 0.9 50 4.6

FY2011 3,417 (7.3) 68 (80.8) 10.2 2.2 30.5 0.6 1.9 1.6 1.0 56 10.2

FY2012E 3,793 11.0 226 231.9 16.8 7.4 9.2 0.6 6.4 5.6 0.9 55 5.6

FY2013E 4,219 11.2 281 24.1 17.7 9.1 7.4 0.6 7.7 6.9 0.8 55 4.8

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

Please refer to important disclosures at the end of this report

India Cements | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance (Standalone)

Y/E March (` cr) Net Revenue 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 (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

1QFY12 1,061 133 12.5 239 22.5 64 6.0 180 17.0 203 19.2 819 242 22.8 58 62 1 123 21 16.9 102 9.6 3

4QFY11 1,000 172 17.2 251 25.1 67 6.7 188 18.8 139 13.9 817 183 18.3 43 62 (1) 77 22 28.4 55 5.5 2

% chg qoq 6.1 (22.8) (4.8) (5.0) (4.1) 46.1

1QFY11 883 116 11.0 275 25.9 63 5.9 184 17.3 154 14.5 792

% chg yoy 20.2 14.2 (13.2) 1.1 (2.0) 32.0 3.4 167.5 1,258bp 95.8 3.4 (636.2) 348.5

32.2 34.4 0.6 (141.4) 59.1

91 10.3 30 60 26 27 2 8.8

84.5 84.5

25 2.8 1

308.4 308.4

Exhibit 2: Financial performance

(` cr) 1,200 1,000 800 600 400 200 0 (200) 4QFY10 1QFY11 (34) 2QFY11 21 3QFY11 38 25 55 4QFY11 102 1QFY12 OPM (RHS) 974 883 1,000 843 784 1,061 (%) 40 30 20 10 0

Net revenue (LHS)

Net Profit (LHS)

Source: Company, Angel Research

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India Cements | 1QFY2012 Result Update

Exhibit 3: 1QFY2012 Actual vs. Angel estimates

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

Actual 1,061 242 22.8 102

Estimates 1,026 165 16.1 42

Variation (%) 3.4 46.6 674bp 142.9

Operating performance
During the quarter, INC dispatched 2.31mn tonnes of cement, registering a decline of 13% yoy. However, net plant realisation improved by 34.8% yoy to `3,370/tonne due to the high prices sustained in the south because of the supply and pricing discipline adopted by cement manufacturers in the region. Raw-material cost per tonne was higher by 31.3% yoy to `574. Per tonne power and fuel cost remained flat on a yoy basis at `1,032. Freight cost per tonne increased by 12.7% yoy to `779 due to higher diesel cost and lead distance. Operating profit per tonne of cement stood at `971, up 192.5% yoy. Exhibit 4: Per tonne analysis
Particulars (`/tonne) Net realisation/tonne NPR/tonne Raw-material cost/tonne Power and fuel cost/tonne Freight cost/tonne Other cost/tonne Operating profit/tonne
Source: Company, Angel Research

1QFY12 4,176 3,370 574 1,032 779 879 971

4QFY11 1QFY11 yoy chg (%) qoq chg (%) 3,837 3,050 521 937 707 546 945 3,272 2,500 437 1,035 691 579 332 27.6 34.8 31.3 (0.2) 12.7 51.8 192.5 8.8 10.5 10.2 10.2 10.2 61.0 2.7

INCs 61% subsidiary Trinetra Cement (Trinetra) owns a 1.5mtpa plant at Mahi, Rajasthan. During 1QFY2012, Trinetra dispatched 0.22mn tonnes of cement. Trinetra reported NPR/tonne and EBITDA/tonne of `2,840 and `620 respectively, during the quarter. The companys EBITDA stood at `14cr, while net loss stood at `2cr. Performance of other divisions The IPL franchisee, the shipping business and the windmill division posted revenue of `85cr, `9cr and `3.83r, respectively, during the quarter. On the operating front, the IPL franchisee posted EBIT of `6.6cr, while the shipping business reported EBIT of `3.3cr.

August 16, 2011

India Cements | 1QFY2012 Result Update

Capacity expansions well on track

INCs 50MW captive power plant (CPP) in Sankar Nagar is also expected to be operational by October 2011. The company is also in the process of setting up a 50MW CPP in Andhra Pradesh, which would commence operations in 4QFY2013. Trinetras 20MW CPP at Mahi is expected to be operational by October.

Exhibit 5: Cement Installed capacity

(mtpa) 20 15 10 5 0 FY07 FY08 FY09 FY10E FY11 FY12E FY13E 8.5 9.1 14.1 14.1 15.6 15.6 15.6

Source: Company, Angel Research; Capacity from FY2011 includes Trinetras 1.5mtpa capacity

Conference call highlights

INC has redeemed US$75mn of FCCBs, as matured on May 11, 2011, at a premium of 47.7%. The company has redeemed the FCCBs through refinancing at a cost of 11%. The company indicated total capex of `600cr over FY201113E, which would be primarily incurred towards setting up the CPP in Andhra Pradesh and coal concession mines in Indonesia. The planned cost for the Andhra Pradesh CPP is `250cr. The company has all the approvals in place for commencing mining in its Indonesian mines. It has already commenced work on road connectivity. Bridge construction is expected to be completed in 34 years. The company expects to start the mining work by January 2012, while the shipment of coal is expected to begin a few months later. The use of captive coal is expected to result in savings of US$10/tonne. During 1QFY2012, the company dispatched 55% of its overall dispatches to Tamil Nadu and Kerala. The share of Andhra Pradesh and Karnataka put together stood at 35%.

August 16, 2011

India Cements | 1QFY2012 Result Update

Cement demand scenario

During FY2011, all-India cement demand grew by a tepid 4.7% yoy, the lowest in many years. The southern region fared the worst with a decline of 3.4%. Demand scenario has worsened further in 1QFY2012, with the southern region posting a decline of 7.7%. The major cement consuming state of Andhra Pradesh posted a 21% decline in demand and Karnataka posted a decline of 8% during 1QFY2012. Demand, however, remained flat in Tamil Nadu and Kerala.

Investment arguments
Leading cement manufacturer in the south: INC, with a standalone capacity of 14mtpa, is the leading cement manufacturer in the south. The company has ~15% market share in the southern region. The company has forayed into the northern region through its 61% subsidiary Indo Zinc, which commissioned a 1.5mtpa greenfield plant in Rajasthan during FY2011. Higher use of captive power to reduce energy costs: In its bid to substantially reduce its power costs, INC is in the process of setting up the Tamil Nadu CPP, which is expected to be operational in October 2011. The company is also in the process of setting up a 50MW CPP in Andhra Pradesh, which is expected to be commissioned in 4QFY2013. The company has already completed the formalities for leasing a 1,400-acre coal mine in Kalimantan, Indonesia, which is expected to start mining operations by January 2012. The companys dependence on external coal would reduce significantly once the shipment starts from these mines.

Outlook and valuation

Over FY201113E, we expect INC to post a CAGR of 4.4% and 6.7% in dispatches and realisation, resulting in a substantial improvement in its bottom line over the period. Despite reasonably good earnings visibility over the period, return ratios would remain subdued for the company due to large amount of capital work in progress (`1,040cr as of FY2011-end) and substantial investments in subsidiaries (advances of `1,044cr as of FY2011). At the CMP, the stock is trading at EV/EBITDA of 4.8x and EV/tonne of US$55 based on FY2013E estimates. We maintain our Neutral view on the stock.

August 16, 2011

India Cements | 1QFY2012 Result Update

Exhibit 6: Change in estimates

(` cr) Earlier Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT
Source: Company, Angel Research

FY2012 Revised
3,793 3,156 637 249 196 310 84 226

FY2013 Var (%)

(2.6) (6.5) 22.3 0.0 (0.1) 53.4 52.1 53.8

Earlier
4,394 3,670 724 259 178 399 130 269

Revised
4,219 3,472 746 263 185 416 135 281

Var (%)
(4.0) (5.4) 3.1 1.6 4.1 4.2 3.9 4.3

3,896 3,376 521 249 196 202 55 147

Exhibit 7: Key assumptions

Earlier Estimates FY12E Installed Capacity - Cement (mtpa) yoy Growth (%) Despatch growth (%) Realisation growth (%)
Source: Company, Angel Research

Revised Estimates FY12E 14.05 (1.0) 13 FY13E 14.05 10.0 1 14.05 9 4

FY13E

14.10 7 7

Exhibit 8: One-year forward EV/tonne

120,000 100,000 80,000

EV (` mn)

60,000 40,000 20,000 0 April-06 April-07 EV April-08 $70 $90 April-09 $110 April-10 $130 April-11

Source: Company, Angel Research

Exhibit 9: Recommendation summary

Company ACC^ Ambuja Cements^ India Cements JK Lakshmi Madras Cements UltraTech Cement Reco. Neutral Neutral Neutral Buy Neutral Neutral CMP (`) Tgt. price (`) Upside (%) FY2013E P/BV (x) FY2013E P/E (x) FY2011-13E EPS CAGR (%) FY2013E RoCE (%) FY2013E RoE (%)

990 133 68 41 86 1,018 52 26.1

2.3 2.3 0.6 0.4 0.9 1.9

15.2 15.3 7.4 5.7 7.6 11.9

4.6 2.7 103.0 22.8 12.7 29.1

20.4 19.9 6.9 7.8 9.9 18.2

16.2 15.6 7.7 7.8 13.1 17.5

Source: Company, Angel Research; Note: ^Numbers pertain to CY2012

August 16, 2011

India Cements | 1QFY2012 Result Update

Profit and loss statement Standalone

Y/E March (` 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 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
3,058 36 1,965 283 691 188 804 1,093 48.8 35.7 128 965 52.8 32 110 28 3 883 79 38 845 207 24.5 638 676 41.1 22 22.6 22.6 23 3,359 10 2,432 357 891 198 986 927 (15.1) 27.6 203 724 (25.0) 22 112 115 18 727 (18) 79 648 216 33.4 432 511 (24.3) 15 15.3 15.3 (32) 3,687 10 2,945 480 999 250 1,215 743 (19.9) 20.1 233 509 (29.7) 14 143 121 23 488 (33) (44) 531 177 33.3 354 311 (39.2) 8 11.5 11.5 (25) 3,417 (7) 3,067 505 1,020 253 1,289 350 (52.9) 10.2 244 106 (79.2) 3 142 123 137 88 (82) (2) 90 22 24.2 68 66 (78.8) 2 2.2 2.22 (81) 3,793 11 3,156 428 1,040 273 1,415 637 82.0 16.8 249 388 266.0 10 196 118 38 310 254 310 84 27.0 226 226 243.6 6 7.4 7.4 232 4,219 11 3,472 477 1,121 298 1,576 746 17.2 17.7 263 483 24.6 11 185 118 28 416 34 416 135 32.5 281 281 24.1 7 9.1 9.1 24

August 16, 2011

India Cements | 1QFY2012 Result Update

Balance sheet Standalone

Y/E March (` cr) SOURCES OF FUNDS Equity Share 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 Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 4,709 1,244 3,464 575 129 2,149 426 1,062 662 984 1,166 24 5,358 5,314 1,505 3,808 904 159 2,144 85 1,313 745 1,153 990 14 5,875 5,710 1,792 3,919 703 314 2,645 54 1,869 722 1,042 1,602 6,538 5,926 2,092 3,834 1,040 160 2,904 33 2,099 772 1,118 1,785 6,820 6,226 2,341 3,885 1,040 160 3,025 98 2,099 828 1,122 1,903 6,988 6,576 2,604 3,972 940 160 3,088 77 2,099 913 1,167 1,921 6,993 282 3,039 3,321 1,812 226 5,358 282 3,349 3,631 1,988 256 5,875 307 3,829 4,136 2,133 269 6,538 307 3,783 4,090 2,456 274 6,820 307 3,896 4,203 2,511 274 6,988 307 4,036 4,343 2,376 274 6,993 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

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India Cements | 1QFY2012 Result Update

Cash flow statement Standalone

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital 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 FY2008 FY2009 FY2010
845 128 313 28 207 1,051 (1,285) (74) 28 (1,332) 601 (247) 66 (188) 476 195 230 426 648 203 (165) 115 216 355 (934) (30) 115 (848) 5 177 66 (37) 153 (340) 426 85 531 233 (644) 121 177 (177) (195) (155) 121 (229) 284 145 72 (18) 375 (31) 85 54

FY2011 FY2012E FY2013E

90 244 (204) 123 22 (15) (553) 154 123 (276) 323 54 (0) 270 (21) 54 33 (58) 65 33 98 (275) (21) 98 77 310 249 (52) 118 84 305 (300) 118 (182) 55 113 416 263 (40) 118 135 386 (250) 118 (132) (135) 140

August 16, 2011

India Cements | 1QFY2012 Result Update

Key ratios
Y/E March 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) Cost of Debt (Post Tax) Leverage (x) Operating ROE 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.)
0.4 1.3 8.8 0.5 2.0 6.5 0.5 2.8 3.6 0.6 6.9 0.7 0.6 3.8 2.0 0.5 3.1 2.6 0.7 33 34 132 107 0.7 38 36 160 89 0.7 40 30 136 121 0.6 50 27 129 176 0.6 48 27 130 171 0.7 45 29 120 158 20.0 23.3 33.6 12.9 15.7 18.4 8.2 9.6 9.7 1.6 1.8 1.9 5.6 6.7 6.4 6.9 8.2 7.7 31.6 75.5 0.7 16.2 4.3 0.6 23.2 21.6 66.6 0.6 9.0 3.9 0.4 11.2 13.8 66.7 0.6 5.5 4.6 0.5 6.0 3.1 75.8 0.5 1.2 4.7 0.5 (0.5) 10.2 73.0 0.6 4.1 5.8 0.5 3.3 11.5 67.5 0.6 4.7 5.1 0.5 4.5 22.6 22.6 27.2 2.3 92.1 15.3 15.3 22.5 2.3 105.0 11.5 11.5 19.1 2.3 113.0 2.2 2.2 10.2 1.7 113.4 7.4 7.4 15.5 3.7 117.0 9.1 9.1 17.7 4.6 121.6

FY2008 FY2009 FY2010

FY2011 FY2012E FY2013E

3.0 2.5 0.7 3.5 0.9 2.6 0.5

4.4 3.0 0.6 3.5 0.9 3.2 0.5

5.9 3.5 0.6 3.5 0.9 4.6 0.5

30.5 6.6 0.6 2.6 1.0 10.2 0.5

9.2 4.4 0.6 5.4 0.9 5.6 0.5

7.4 3.8 0.6 6.8 0.8 4.8 0.5

August 16, 2011

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India Cements | 1QFY2012 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

India 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 16, 2011

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