1QCY2012 Result Update | Cement

April 20, 2012

Ambuja Cements
Performance Highlights
Y/E Dec. (` cr) Net Sales Operating profit OPM (%) Rep. Net Profit 1QCY2012 2,633 772 29.0 312 4QCY2011 2,329 450 19.1 302 % chg qoq 13.1 71.7 995bp 3.2 1QCY2011 2,207 627 28.2 407 % chg yoy 19.3 23.1 80bp (23.4)

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 24,668 0.8 182/120 259,923 2 17,374 5,291 ABUJ.BO ACEM@IN

`161 -

Source: Company, Angel Research

During 1QCY2012, Ambuja Cements (ACEM) reported a 23.4% yoy decline in its bottom line on account of one-off depreciation charge, as the company changed the depreciation method for captive power plants from straight line to written down method (excl. the extra depreciation charge, net profit would have grown by 23.2% yoy). The companys operational performance was impressive, with its top line growing by 19.3% yoy and OPM increasing by 80bp yoy. Top-line growth was on account of moderate 8.9% growth in realization and decent 9.6% improvement in volumes. We maintain our Neutral view on the stock. OPM at 29.0%, up 80bp yoy: Higher raw-material, power and fuel and freight costs almost negated the entire growth in realization, thereby limiting margin expansion to only 80bp yoy. Power and fuel costs per tonne were higher by sharp 18.7% yoy due to the substantial 30% price hike carried out by Coal India in March 2011 (low base effect). Raw-material costs on a per tonne basis were also higher by 17.2% yoy. Further, freight costs per tonne increased by 7.9% yoy due to higher petroleum products costs and railway freight charges. Outlook and valuation: We expect ACEM to register a 15.6% and 19.5% CAGR in its top line and bottom line, respectively, over CY2011-13E, mainly aided by a 9.4% CAGR in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$135 on CY2013E capacity, which we believe factors in the positives of a favorable locational presence. Hence, we continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex ACEM 3m 3.8 1.8 1yr (10.8) 4.2 50.3 12.5 28.9 8.3 3yr 58.2 100.5

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 19.9 3.4 17.9 20.8 3.0 178 25 11.3

CY2011
8,514 15.2 1,253 1.3 23.4 8.2 19.7 3.4 16.3 18.6 2.6 153 27 10.9

CY2012E
9,947 16.8 1,554 24.0 23.5 10.1 15.9 3.1 18.5 20.2 2.1 145 27 8.9

CY2013E
11,395 14.6 1,790 15.2 23.8 10.6 15.2 2.8 19.4 22.2 1.7 135 27 7.2

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com Sourabh Taparia 022-39357800 Ext 6872 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 1QCY2012 Result Update

Exhibit 1: 1QCY2012 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 Exceptional Inc./(Exp.) PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

1QCY12 2,633 28 2661 165 6.3 627 23.8 103 3.9 602 22.8 392 14.9 1,889 772 29.0 17 121 87 279 442 130 29.4 312 11.9 2.0

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 qoq 13.1 (3.3) 12.9 (50.7) 33.0 (17.9) 18.6 (16.3) (1.0) 71.7 995bp 70.4 (2.4) 33.7 24.0 139.1 3.2 (113)bp 3.2

1QCY11 2,207 15 2222 128 5.8 482 21.8 95 4.3 509 23.0 382 17.3 1,595 627 28.2 14 106 52 559 152 27.1 407 18.5 2.7

% chg yoy 19.3 79.1 19.7 28.9 30.2 8.9 18.3 2.5 18.4 23.1 80bp 21.8 13.9 67.2 (20.9) (14.2) (23.4) (661)bp (23.4)

CY2011 8,515 88 8,603 634 7.5 2,006 23.6 433 5.1 1,930 22.7 1,604 18.8 6,608 1,994 23.2 53 445 230 24 1,703 474 27.8 1,229 14.4 8.1

CY2010 7,390 127 7,518 542 7.3 1,697 23.0 344 4.7 1,610 21.8 1,374 18.6 5,567 1,951 49 387 120 (27) 1,662 398 24.0 1,264 8.3

% chg 15.2 (30.6) 14.4 17.0 18.2 26.1 19.9 16.8 18.7 2.2 8.1 15.0 91.6 2.5 19.0 (2.8) (2.8)

26.0 (277)bp

17.1 (267)bp

Exhibit 2: Financial performance

3,000 2,500 2,000
(` cr)

2,633 2,207 1,788 2,173 1805 2329

30.0

25.0
(%)

1,500 1,000 500 0 4QCY10 1QCY11 Net Sales 2QCY11 3QCY11 4QCY11 1QCY12 Net Profit OPM (RHS) 258 407 348 171 302 312 15.0 20.0

Source: Company, Angel Research

April 20, 2012

Ambuja Cements | 1QCY2012 Result Update

Exhibit 3: 1QCY2012 Actual vs. Angel estimates

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

Actual 2,633 772 29.0 312

Estimates 2,643 710 26.7 457

Variation (%) (0.4) 8.8 233bp (31.6)

Performance highlights
Higher realization drives top-line growth
ACEM posted 19.3% yoy growth in its net sales to `2,633cr during 1QCY2012, aided by reasonable 8.9% yoy growth in realization to `4,260 per tonne and moderate 9.6% yoy volume growth to 6.18mn tonnes. Reasonable realization growth was on the back of yoy improvement in cement prices. Moderate volume growth was on account of higher yoy capacity as the company commissioned two cement mills, one at Bhatapara plant in Chhattisgarh and the other at Maratha cement works in Maharashtra, which increased the companys total grinding capacity to ~27mn tonnes.

Realizations lead to marginal expansion in OPM

Growth in realization led the companys OPM to expand (though marginally by 80bp yoy) despite a significant surge witnessed in raw-material, power and fuel and freight costs. The companys OPM for the quarter increased by 80bp yoy to 29.0%. However, on a sequential basis, OPM increased by 995bp.

Per tonne analysis

For 1QCY2012, ACEMs realization/tonne improved strongly by 8.9% yoy and 4.1% qoq to `4,260. Raw-material cost on per tonne basis increased by 17.2% yoy and 12.2% qoq to `301. Further, power and fuel expenses/tonne increased by 18.7% yoy and 22.4% qoq to `1,014. Freight cost/tonne also rose by 7.9% yoy and 9.1% qoq to `973 due to higher petroleum products costs and railway freight charges. Operating profit/tonne stood at `1,204, higher by 11.1% 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

1QCY12 4,260 301 1,014 973 634 1,204

4QCY11 4,093 268 828 892 823 740

1QCY11 % chg (yoy) % chg (qoq) 3,913 256 854 902 678 1,084 8.9 17.2 18.7 7.9 (6.5) 11.1 4.1 12.2 22.4 9.1 (22.9) 62.7

April 20, 2012

Ambuja Cements | 1QCY2012 Result Update

Investment rationale
Most favorable capacity location among cement majors
ACEM has 81% of its total capacity located in states where supply is either less than demand or is in excess and can be economically sold to nearby supply-deficit states. Logically, capacities in these states are expected to report relatively high utilization and margins.

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/CPPs 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. Further, the commissioning of 66MW of new captive power capacities in CY2010, which has taken its overall captive power capacity beyond 400MW, is expected to result in overall savings in energy cost.

Outlook and valuation

We expect ACEM to register a 15.6% and 19.5% CAGR in its top line and bottom line, respectively, over CY2011-13E, mainly aided by a 9.4% CAGR in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$135 (excluding captive power capacity) on CY2013E capacity, which we believe factors in the positives of a favorable locational presence. Hence, we continue to remain Neutral on the stock.

April 20, 2012

Ambuja Cements | 1QCY2012 Result Update

Exhibit 5: Key assumptions for CY2012E

CY2012E Earlier Installed capacity (mtpa) Utilization (%) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

CY2013E Revised 27 86 962 1,034 970 Earlier 27 85 994 1,096 1,033 Revised 27 93 994 1,096 1,040

27 86 962 1,034 963

Exhibit 6: Change in estimates

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

CY2012E Earlier 9,928 7,700 2,317 456 40 2,119 636 1,483 Revised 9,947 7,701 2,334 496 40 1,821 546 1,274 Var. (%) 0.2 0.0 0.7 8.7 (14.1) (14.1) (14.1) Earlier 11,373 8,789 2,694 475 35 2,545 763 1,781

CY2013E Revised 11,395 8,790 2,713 507 35 2,557 767 1,790 Var. (%) 0.2 0.0 0.7 6.7 0.5 0.5 0.5

Exhibit 7: One-year forward EV/tonne

300,000 250,000 200,000

EV (` mn)

150,000 100,000 50,000 0

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

May-06

May-07

May-08

May-09

May-10

May-11

Sep-11

Jan-06

EV/tonne
Source: BSE, Company, Angel Research

Jan-07

Jan-08

$120

Jan-09

$140

Jan-10

$160

Jan-11

$180

April 20, 2012

Jan-12

Ambuja Cements | 1QCY2012 Result Update

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Cement Madras Cements Shree Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,226 161 95 66 151 2,840 1,461 Tgt. price (`) 79 Upside (%) 19 FY2014E P/BV (x) 2.7 2.8 0.8 0.5 1.3 3.2 2.4 FY2014E P/E (x) 15.1 15.2 7.5 4.0 8.3 15.6 15.0 FY2012-14E EPS CAGR (%) 7.3 13.7 14.1 21.5 4.7 65.4 12.0 FY2014E RoCE (%) 23.3 22.2 8.6 11.1 14.4 19.7 17.7 FY2014E RoE (%) 19.0 19.4 10.5 14.3 16.9 22.2 17.4

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

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Ambuja Cements | 1QCY2012 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
10,035 16.7 7,701 712 2,227 477 4,285 2,334 17.0 23.5 496 1,839 18.7 18.5 40 301 14 2,100 21.6 279 1,821 546 30.0 1,274 1,554 24.0 15.6 10.1 10.1 24.0

CY13E
11,504 14.6 8,790 837 2,487 529 4,938 2,713 16.2 23.8 507 2,206 20.0 19.4 35 386 15 2,557 21.8 2,557 767 30.0 1,790 1,790 15.2 15.7 10.6 10.6 4.3

April 20, 2012

Ambuja Cements | 1QCY2012 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 7,926 9,702 3,516 6,186 532 864 3,874 2,116 568 1,189 2,694 1,179 8,762 9,934 4,011 5,923 785 914 4,953 2,885 612 1,457 3,130 1,823 9,446 10,169 4,519 5,651 1,543 914 5,812 3,418 674 1,720 3,515 2,297 10,406 305 5,368 5,673 289 381 6,342 305 6,166 6,471 166 486 7,122 307 7,023 7,330 65 531 7,926 339 7,730 8,069 49 644 8,762 339 8,414 8,753 49 644 9,446 339 9,374 9,713 49 644 10,406

CY08

CY09

CY10 CY11E CY12E

CY13E

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Ambuja Cements | 1QCY2012 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 CY11E CY12E 1,662 1,703 1,821 387 257 49 120 398 (771) 101 120 (550) 55 (101) 425 49 (519) 767 445 (51) 53 230 474 (525) (238) 230 (533) 30 (16) 570 (111) (444) 468 496 124 40 301 546 (485) (50) 301 (234) 591 40 (631) 768 CY13E 2,557 507 59 35 386 767 2,006 (993) 386 (607) 830 35 (865) 534 2,885 3,418

1,836 1,445 1,633

881 1,648 2,116 1,648 2,116 2,885

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Ambuja Cements | 1QCY2012 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) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.8) 32.1 (0.3) (1.0) 29.4 (0.3) (1.2) 46.1 (0.3) (1.2) 62.3 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (38) 0.9 39 8 141 (39) 1.0 37 10 138 (36) 1.1 39 11 138 (35) 24.7 38.2 22.9 24.9 47.4 20.1 20.8 35.2 17.9 18.6 27.0 16.3 20.2 30.9 18.5 22.2 39.3 19.4 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 17.3 18.3 70.0 1.5 19.5 19.2 70.0 1.7 22.8 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 9.9 3.2 47.6 10.1 10.1 10.4 3.3 51.6 10.6 10.6 13.6 4.7 57.3 20.7 14.7 4.3 1.4 3.6 12.9 3.5 20.1 16.2 3.8 1.5 2.9 10.6 2.9 19.9 15.0 3.4 1.6 3.0 11.3 2.8 19.7 16.3 3.4 2.0 2.6 10.9 2.5 15.9 15.4 3.1 2.1 2.1 8.9 2.2 15.2 11.9 2.8 2.9 1.7 7.2 1.9

CY08 CY09 CY10 CY11E CY12E

CY13E

April 20, 2012

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Ambuja Cements | 1QCY2012 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%)

April 20, 2012

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