EXECUTIVE SUMMARY

India is the second largest cement producer with nearly 300 million tons of cement

production capacity and hence the second largest market in the world. By 2020, cement

production expected to reach 550 million tons production capacity. It is characterized by the

domination of private players having 98% of capacity and rest lies with public sector. Further

large plants holds higher share and major production is from south and west region. Demand

recovery has being faster and higher than expected. This coupled with slow capacity addition

and higher capital expenditure and operating cost would support cement prices and

profitability going forward. The increase in GDP growth will be major factor for growth and

expenditure from government infrastructure projects will add to the growth. ACC is uniquely

position to benefit from the growth as it has over 10% market share as well as adding

capacity to cater the future demand. However, certain factors which could deteriorate its

growth could be the high operating cost, vintage plants, and power and freight charges. They

are able to reduce power cost by efficiency measure and new power plant.

This project will help the investors to make a

buying decision based on the fundamental analysis of ACC Ltd. The method used is widely

accepted DCF valuation technique and market multiple method for terminal value

calculation. At present the share is overvalued due to more optimism in the market, and on

the intrinsic value determination it is advisable to not invest in the stock. The approach used

is highly conservative and traditional tools are used.

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TABLE OF CONTENTS

1. Introduction ........................................................................................................................ 2

Problem Statement ............................................................................................................................. 3

Purpose of the study ........................................................................................................................... 4

Research Methodology ....................................................................................................................... 5

Scope of the study .............................................................................................................................. 7

Limitations of the study ...................................................................................................................... 8

2 Introduction to Indian Cement Sector ................................................................................ 9

Demand drivers ................................................................................................................................. 11

Demand Inhibitors ............................................................................................................................ 14

New Trend in the Industry ................................................................................................................ 17

3 Introduction to ACC LTD ................................................................................................ 18

4 Investment Arguement ..................................................................................................... 20

5 Assumptions ..................................................................................................................... 21

6 Projection .......................................................................................................................... 22

7 Analysis & Findings ......................................................................................................... 25

Sensitivity Analysis ............................................................................................................................ 26

8 Recommendation .............................................................................................................. 27

9 Biblography ...................................................................................................................... 28

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1. INTRODUCTION

The project undertaken is on “Equity Valuation of ACC Ltd. In

financial markets, stock valuation is the method of calculating theoretical values

of companies and their stocks. The main use of these methods is to predict

future market prices, or more generally, potential market prices, and thus to

profit from price movement – stocks that are judged undervalued (with respect

to their theoretical value) are bought, while stocks that are judged overvalued

are sold, in the expectation that undervalued stocks will, on the whole, rise in

value, while overvalued stocks will, on the whole, fall.

In the view of fundamental analysis, stock valuation based on

fundamentals aims to give an estimate of the intrinsic value of a stock, based on

predictions of the future cash flows and profitability of the business.

Fundamental analysis may be replaced or augmented by market criteria – what

the market will pay for the stock, without any necessary notion of intrinsic

value. These can be combined as "predictions of future cash flows/profits",

together with "what will the market pay for these profits?" Fundamental

Analysis enables to read the pulse of the company. One can understand the

financial dynamics within the company and determine whether it is in a good

state or are there some problems.

Fundamental Analysis also helps to identify potential companies before

the general market. If some company that is in a market or sector that is poised

to grow for the next few years, then it would present a good investing

opportunity if the company is still priced way below the potential value.

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Problem Statement

The key problems faced by retail investors are:

Difficulty in getting timely, accurate, and honest opinion about various

stock and often fall prey to ill advising

Most of them are financially illiterate and thus unable to make sound

decision regarding investment in stocks

Lot of manipulation and malpractices in stock prices hurt the investor

having passive investing approach

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Purpose of the study

The objectives of this project were mainly to come up with fundamental

valuation of ACC stock and generate recommendation on whether to

purchase it or not.

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Research Methodology

This project requires a detailed understanding of the concept financial analysis and valuation.

The methodology used in this project is described as below

Standardization of financial results of company from the annual report of company in

different reporting format

Projection of future performance based on assumptions relevant to industry from the

present financial statements

Determining the cost of equity by using CAPM model

A model that describes the relationship between risk and expected return and that is

used in the pricing of risky securities .The general idea behind CAPM is that investors

need to be compensated in two ways: time value of money and risk. The time value of

money is represented by the risk-free (rf) rate in the formula and compensates the

investors for placing money in any investment over a period of time. The other half of

the formula represents risk and calculates the amount of compensation the investor

needs for taking on additional risk. This is calculated by taking a risk measure (beta)

that compares the returns of the asset to the market over a period of time and to the

market premium (Rm-rf).

WACC equation is used to determine the cost of capital

The WACC equation is the cost of each capital component multiplied by its

proportional weight and then summing:

Where Re = cost of equity, Rd = cost of debt, E = market value of the firm's equity, D

= market value of the firm's debt, V = E +D, Tc = corporate tax rate

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Terminal Value is determine using EBITDA multiple Approach

The EBITDA multiple or the earnings method is based on the premise that the value

of a business is directly related to the quantum of its gross profits. The net profits are

adjusted to reflect the operating recurring profits of the business on a standalone basis

(i.e. after deducting extraordinary or unusual items, or items of a non-recurring

nature). Further, the profits are adjusted for non-cash items (including depreciation

and amortization) and other factors, such as interest and taxation (which vary from

business to business) to derive EBITDA (Earnings Before Interest, Taxation,

Depreciation and Amortizations).

The EBITDA multiple method takes into account the value or consideration paid by

acquirers of similar businesses, and is computed by dividing the total consideration

paid (after adjusting for any debt assumed) by the EBITDA to derive a multiple,

which can be applied to the EBITDA figure of the business being valued i.e. adjusted

maintainable EBITDA are capitalized by an appropriate factor ("capitalization

factor") to arrive at the business value.

EBITDA multiple = Enterprise Value / EBITDA

Where

Enterprise Value (EV) = Market value of Equity + Market value of Debt

EBITDA = Earnings before Interest, Tax, Depreciation and Amortization

All the cash flows are brought into present value and aggregate to obtain the

Enterprise value

This enterprise value is reduced by debt to determine the value of company for

shareholders

Sensitivity analysis is carried out to determine which assumed variable affects the

share price most

Generate recommendation based on intrinsic value determination and future prospects

of the business

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Scope of the study

This project is vital to me in a significant way. It does have some importance

for the company too. These are as follows –

This project will offer a chance to long term investor to determine

whether to invest in a company or not

It gives an intrinsic picture about the financial situation of the company

and its long term prospects

By providing a genuine advice to the clients company can also earn the

confidence of long term investor

This project will cover the financial aspects of the company under

research

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Limitations of the study

This study will be basic study about the financial prospects if an

investment is made in ACC Ltd

For carrying out a detailed research data has to be taken over multiple

years to find out the financial prospects

The future plans of the company has been taken from the news available

over the web and hence more deeper analysis is required

Lastly, due to shortage of time it is not possible to cover all the factors

and details (such as non-financial) regarding the subject of study.

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2 INTRODUCTION TO INDIAN CEMENT SECTOR

The indigenous Indian cement industry traces its history back to 1914, at the time the market

was dominated by imports. Today, the Indian cement industry is very large and second to

China in terms of installed capacity. It has grown at a very fast pace in recent years. Since

1992 India's cement production has increased from 50Mt/yr to more than 300Mt/yr.

Although the Indian cement industry has some multinational cement giants, like Holcim and

Lafarge, which have interests in companies such as ACC, Ambuja Cement and Lafarge Birla

Cement, the Indian cement industry is broadly home-grown. The Indian cement industry is

now globally competitive with lowest energy consumption and CO2 emissions. A part from

fulfilling domestic cement requirements, the industry also exports cement and clinker to

around 30 countries across the globe.

The Industry recorded an exponential growth with the introduction of partial decontrol in

1982 culminating in total decontrol in 1989. Being largest Cement Producing Country in the

World (refer figure 1) , next only to China, the capacity, which was 29 Mn.t in 1981-82, rose

to 340 Mn.t at the end of FY12. While it took 8 decades to reach the 1st 100 Mn.t capacity,

the second 100 Mt was added in 11 years and the third 100 Mt was added in just 3 years. The

industry has around 65 companies having around 200 cement plants. Industry is producing

World class high quality& different varieties of cement to suit a host of applications matching

the world's best in quality. Industry can produce cement conforming to any of the

International standards viz. BS, ASTM, DIN etc. The Industry has been facing a chronic

problem of insufficient availability of the main fuel coal, driving the manufacturers to resort

to use of alternatives at steep cost. Taxes and Government levies on cement are high

compared to countries in Asia pacific region.

Cement Industry, which was branded as the highest polluter of environment, now

meets the pollution standards, and no longer a polluter today. Contributes to environmental

cleanliness by consuming hazardous wastes like Fly Ash (around 30 Mn.t) from Thermal

Power Plants and the entire 8 Mn.t of granulated Slag produced by Steel manufacturing units

and also using alternate fuels and raw materials. The cement industry is using advanced and

environment friendly technologies. The industry has Implemented Waste Heat Recovery

System for co-generation of power in cement plants thereby reducing CO2 emission.

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Performance of best plant of the Industry w.r.t. Power & Fuel consumption of 68 kwh/ton of

cement & 667 kcal/kg of clinker compares well with best Japanese levels of 68 kwh and 650

kcal.

Figure 1

As a part of Corporate Social Responsibility (CSR), the Cement Industry takes care of the

social needs not only of the employees in the field of Education, Health, Environment ,Water

Supply, Power but also adopts several villages around the factories providing free drinking

water, electricity, medical and educational facilities. Cement Industry employs approx.

Around 5 lakh people in direct and indirect employment in the country and ccontributes

approx. Rs. 32500-35000 crore annually to the national exchequer through various taxes and

levies. Exports Cement/Clinker to around 30 countries across the globe and earns precious

foreign exchange. For marketing the country is divided into five regions namely North, East,

West, South, Central and different companies hold strong position in different regions(refer

figure 2).

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Figure 2

Demand drivers

Government Spending

Government’s investment in infrastructure is around USD 1 Trillion during the 12th five year

plan which is 10% of GDP as compared to 7.6% under 11th five year plan which would be the

major growth driver for it. Lower tax elasticity to mean a slower pace of government

spending, weaker corporate capital expenditure parameters to mean a delayed recovery in

investment spend and slower wage increments amidst high inflation means a decisive

downward shift in demand growth trajectory. Expect a new normal demand CAGR of 6.3%

over FY13-16E, FY14E growth at 5.5%. Though the monsoons have been good, the analysis

shows very little correlation to agriculture GDP. Macro-recovery theme unlikely to play out

and see disappointment on expected election spends and good monsoons.(refer figure 3)

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Figure 3

Unmet demand of North-East

The North Eastern (NE) region has consistently been in cement deficit for several years. At

present, cement demand in the NE is about 5.2 MT/yr. Cement manufactured locally is

inadequate to meet the local demand for cement, presently the deficit is met through cement

purchased from other parts of India and high transportation costs causes the landed costs of

cement to increase considerably. Demand could considerably rise as the Government has

approved a package of fiscal incentives and other concessions for the North Eastern Region,

namely the North East Industrial and Investment Policy, 2007, effective from 1 April, 2007

The major policy and fiscal initiatives are expected to catalyze infrastructure and industrial

development in the region, spurring the demand for cement. (Refer figure 4)

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Figure 4

Housing sector and commercial

The Housing segment accounts for a major portion of the total domestic demand for cement

in India. Real estate market is expected to grow at a CAGR of 17.2 per cent over 2011–15 to

USD126 billion.

•Growing urbanization, an increasing number of households and higher employment are

primarily driving the demand for housing

•Initiatives by the government are expected to provide an impetus to construction activity in

rural and semi-urban areas through large infrastructure and housing development projects

respectively

The demand for Commercial Real Estate segments, comprising retail space, office space and

hotels, as well as civic facilities including hospitals, multiplexes and schools, has been rising

due to the growth in economy

•The demand for office space in India is being driven by the increasing number of

multinational companies and the growth of the services sector

•Strong growth in tourism, including both business and leisure travel, has boosted the

construction of hotels in the country

•Estimated demand by real estate segment between 2010 and 2014: Office (240 million sq ft),

Retail (55 million sq ft), Hospitality (78 million room nights)

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Demand Inhibitors

High Inflation

Consistent high inflation is reducing the saving rating and thus decrease the purchasing

power of people. (Refer figure 5)

Figure 5

Slower macro-recovery

As per the RBI report, for 2014-15, real GDP growth is projected to lie between 5 per cent

and 6 per cent, with a central estimate of 5.5 per cent. This projection remains unchanged

from the April projection with a better than expected industrial growth compensating for the

likely decline in agricultural growth. For 2015-16, real GDP growth is projected to rise to 6.3

per cent. Any movement towards the lower side of the estimate would result in lower cement

demand as cement demand is highly co-related to the GDP. (Refer figure 6)

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Figure 6

Major Risk to profitability

Pricing power unlikely to recover meaningfully

Despite receding capacity additions (67mt to be add over the next 4 years), according to

estimates the incremental supply would largely meet incremental demand, leading to

sustenance of the current high surplus (55-60mtpa). Moreover, the consolidation in the

industry has been declining with the top-2 groups now controlling a mere 30% of the capacity

compared to peak levels of 42%. With surplus at 3x the demand growth and further

weakening of consolidation with the new entrants entering/expanding, we expect pricing

power to remain vulnerable

Operating inefficiency of vintage plants to be exposed

Vintage plants with old layout and grinding technology lead to 10-30% higher energy

consumption and 25-30% lower cement output. Also, they tend to be logistically inefficient,

as these plants are close to limestone mines and farther from consuming centers. Also

partial/full de-controlled diesel prices, rising railway freights, and shrinking low-cost linkage

coal would expose operating inefficiencies of vintage plants. Players with a larger share of

vintage plants in their total capacity would see their inefficiencies exposed making it difficult

to improve their cost structure

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Increase in energy cost

There is almost two fold rise in the energy cost over last 10 years which poses a major

problem for the entire sector. (Refer figure 7)

Figure 7

Underutilization of installed capacity

Entire sector is having overcapacity and underutilization thus if demand is not turn out as

expected it will reduce the profitability considerably. (Refer figure 8)

Figure 8

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New Trend in the Industry

Asset acquisition to be the preferred mode of growth driver

To achieve a normative return with RoCE of 10-12% on new plant, the industry today

requires cement prices of more than Rs320/bag. In a scenario of sub-par demand growth and

sub-optimal new plant economics, we believe that the asset acquisition would provide a better

IRR than asset build-up. Hence, strategic/complementary location plants to be rabbed by

growth hungry un-leveraged players. As most global cement majors already have a presence

in India, and balance sheets of most MNCs are stretched, M&A would be largely driven by

domestic players. In such a scenario, peak M&A valuations are behind us and expect the

premium to shrink.

Logistics cost-efficiency the key to sustaining cost leadership

Contrary to the general perception that the energy cost has gone of control, we notice that it

has actually declined 440bps as % of realization over the last 10 years, despite the fuel cost

rising at a CAGR of 12.4%. It is the logistics/bulk handling cost that has been the

unmanageable part, which has increased 700bps as % of realization during the period. With

partial/fully de-controlled diesel prices and rising railway freights likely to be the new norm,

logistic/bulk handling efficiencies and not energy efficiencies to be the key criteria for cost

leadership.

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3 INTRODUCTION TO ACC LTD

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC

stands out as the most unique and successful merger in Indian business history, in

which the distinct identities of the constituent companies were melded into a new

cohesive organization - one that has survived and retained its position of leadership in

industry. In a sense, the formation of ACC represents a quest for the synergy of good

business practices, values and shared objectives. The use of the plural in ACC's

original name, The Associated Cement Companies Limited, itself indicated the

company's origins from a merger. In January 2005, Holcim announced its plans to

enter into a long-term strategic alliance with the Ambuja Group by acquiring a

majority stake in Ambuja Cements India Ltd. (ACIL), which at the time held 13.8 per

cent of the total equity shares in ACC. Holcim simultaneously announced its bid to

make an open offer to ACC shareholders, through Holdcem Cement Pvt Limited and

ACIL, to acquire a majority shareholding in ACC. (Refer Figure 9)

Figure 9

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Products

Following are the different type of products manufacture by ACC Ltd as shown below

Products

Ordinary Cement

*43 Grade Cement

*53 Grade Cement

Blended Cement

*Portland Pozzolana

Cement (Fly Ash)

*Portland Slag

Cement

Bulk Cement Ready Mix

Concrete

Concrete Value

Added Product

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4 INVESTMENT ARGUEMENT

Main reason for potential investment choice

Market leader with strong national presence with overall market share of ~10%.

High sensitivity to cement prices and hence increase in price would result in further

improvement in profitability

Focused on reducing power cost by setting up captive power plants and increasing

usage of alternate fuels

Targeting 35 mtpa capacity by 2016

Major investment risks

Very limited scope to increase production through blending as 85% of cement sold is

blended.

Cost base to trend higher as high dependence on domestic coal would necessitate shift

towards imported coal as availability of domestic linkage coal reduces

High freight charges could dampen the profitability as railways is increasing its

freight charges

ACC to incur highest obsolescence cost on upgrading vintage plants

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5 ASSUMPTIONS

Following are the assumption made for projecting the revenue, expense and profitability.

Various reports for the sector has been referred and meaningful assumption has been drawn

out. Freight and forwarding expenses were higher values are taken as because of increasing

fuel prices and freight hike by railway would substantially increase the cost. Price and

utilization level has been taken from sector report, so that, appropriate future prospects can be

incorporated.( Refer table 1)

Particulars 2014E 2015E 2016E Source

Assumption for Statement of Profit and Loss

Utilization 78% 79% 80% India Rating Report

Sales Volume growth 4% 5% 5% Average Rate

Price Increase 5% 5% 5% India Rating Report

Excise Duty(% sales) 10% 10% 10% Past Trend

Other Income 1.75% 1.75% 1.75% Past Trend

Traded goods 2% 2% 2% Average Rate

Other operating revenue 2% 2% 2% Average Rate

Cost of material consumed (as % of sales) 13% 13% 13% Average Rate

Purchase of stock-in-trade (as % of sales) 2% 2% 2% Average Rate

Employee benefits expense 14% 14% 14% Average Rate

Power and fuel (as % of sales) 18% 18% 18% Average Rate

Freight and Forwarding expense (as % of sales) 19% 20% 20% Emkay Sector Report

Other expenses 19% 19% 19% Past Trend

Tax Rate 30% 30% 30%

Assumption for Balance Sheet Assumption

Capital Work in Progress as % of Sales 10% 10% 10% Average Rate

Trade Receivable as % of Gross Block 3% 3% 3% Average Rate

Days of Inventory 245.42 245.42 245.42 Past Trend

Loans & Advances Growth Rate 10% 10% 10% Average Rate

Finished Goods Inventory as % of Total Inventory 12% 12% 12% Average Rate

Trade payables as of gross block 6% 6% 6% Past Trend

Other current liabilities 15% 15% 15% Past Trend

Short-term provisions 13% 13% 13% Average Rate

Table 1

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6 PROJECTION

From the assumed data values projection for future has been made. (Refer table 2, 3, 4)

Statement Of Profit & Loss

all figures in crore

Particulars 2014E 2015E 2016E

Revenue from operations (gross) 13610.12 14999.90 16546.85

Less - Excise duty 1361.01 1499.99 1654.69

Revenue from operations (net) 12249.11 13499.91 14892.17

Other Income 238.75 263.13 290.27

Total Revenue 12487.86 13763.05 15182.44

Expenses

Cost of material consumed 1811.92 1996.94 2202.89

Purchase of stock-in-trade 206.31 227.38 250.83

Employee benefits expense 753.02 855.31 971.50

Power and fuel 2484.34 2738.02 3020.39

Freight and Forwarding expense 2585.92 2999.98 3309.37

Depreciation and amortization expense 578.36 633.36 688.36

Other expenses 2585.92 2849.98 3143.90

Total Expenses 11005.80 12300.98 13587.24

Profit before Tax 1482.07 1462.07 1595.19

Current tax 444.62 438.62 478.56

Profit after Tax 1037.45 1023.45 1116.64

Table 2

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Balance Sheet

all figures in crore

Particulars 2014E 2015E 2016E

Equity and Liabilities

Shareholders’ funds

Share capital 187.95 187.95 187.95

Reserves and surplus 8025.84 8425.43 8918.21

Sub - Total 8213.79 8613.38 9106.16

Minority Interest 2.70 2.70 2.70

Non-current liabilities

Long-term borrowings 0.00 0.00 0.00

Deferred tax liabilities (Net) 512.84 512.84 512.84

Other Long-term liabilities 406.75 406.75 406.75

Long-term provisions 89.09 89.09 89.09

Sub - Total 1008.68 1008.68 1008.68

Current liabilities

Trade payables 694.03 760.03 826.03

Other current liabilities 1735.08 1900.08 2065.08

Short-term provisions 1152.85 1234.55 1327.12

Sub - Total 3581.96 3894.66 4218.23

TOTAL 12807.13 13519.42 14335.77

Assets

Non-current assets

Fixed Assets:

Tangible assets 6063.38 6530.02 6941.66

Intangible assets 21.91 15.58 9.25

Capital work-in-progress 1419.47 1564.41 1725.75

Intangible assets under development 8.65 8.65 8.65

Non-current investments 86.66 86.66 86.66

Long-term loans and advances 737.09 737.09 737.09

Other non-current assets 308.24 308.24 308.24

Sub - Total 8645.40 9250.66 9817.31

Current assets

Current investments 1438.91 838.91 238.91

Inventories 1218.33 1342.74 1481.21

Trade receivables 377.49 413.39 449.29

Cash and bank balances 573.58 912.66 1359.71

Short-term loans and advances 374.43 411.87 453.06

Other current assets 178.93 349.19 536.28

Sub - Total 4161.67 4268.76 4518.46

TOTAL 12807.06 13519.41 14335.76

Table 3

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Cash Flow Statement

all figures in crore

Particulars 2014E 2015E 2016E

Cash Flow from Operations

PAT 1037.45 1023.45 1116.64

Add: Depreciation 578.36 633.36 688.36

Less: Increase in Deferred Tax Assets 0.00 0.00 0.00

Less: Increase in Inventory -96.03 -124.41 -138.48

Less: Increase in Trade Recieveables 19.69 -35.90 -35.90 Less: Increase in short term loans and advances 34.04 37.44 41.19

Add: Increase in Current Liabilities 305.66 312.70 323.57

Add: Increase in Minority Interests 0.00 0.00 0.00

Add: Increase in Deferred Tax Liabilities 0.00 0.00 0.00

Other Income -219.13 -238.75 -263.13

Net Cash Flow from Operations 1660.04 1607.89 1732.25

Cash Flow from Investment Activities

Less: Increase in Gross Block -1100.00 -1100.00 -1100.00

Less: Increase in Other provisions 0.00 0.00 0.00

Less: Increase in CWIP -595.93 -144.95 -161.34

Less: Increase in Investments 600.00 600.00 600.00

Less: Increase in Long Term loan and advances 142.87 0.00 0.00

Net Cash Flow from Investment Activities -953.06 -644.95 -661.34

Cash Flow from Financing Activities

Add: Increase in Reserves 104.93 120.00 120.00

Less: Appropriations -743.86 -743.86 -743.86

Add: Increase in Long Term Borrowings 0.00 0.00 0.00

Add: Increase in Share Capital 0.00 0.00 0.00

Others Long term Liabilities 0.00 0.00 0.00

Net Cash Flow from Financing Activities -638.93 -623.86 -623.86

Opening Balance 505.53 573.58 912.66

Cash Utilized 68.05 339.08 447.05

Closing Balance 573.58 912.66 1359.71

Table 4

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7 ANALYSIS & FINDINGS

Following assumptions has been made while calculating the share intrinsic value.

Explanation about each assumption and its source has been provided. (Refer table 5, 6, 7, 8)

Assumption Values Source

Risk Free Rate 8.30% Yield on Govt. 10 year Bond

Market Rate 15% Report by E&Y

Beta 0.97 Calculated from past prices

Cost of Equity 15% Using CAPM Model

Tax Rate 30%

No of shares Outstanding 18.795

Table 5

Particulars 2014E 2015E 2016E

Net Income 1037.45 1023.45 1116.64

Add: Depreciation 578.359 633.359 688.359

Add: Interest*(1-Tax Rate) 0 0 0

Less: Fixed Capital Investment -1100 -1100 -1100

Less: Working Capital Change 195.28 114.95 108.01

Free Cash Flow to firm 711.087 671.757 813.003

Less: Interest*(1-Tax Rate) 0 0 0

Add: Net Borrowing 0 0 0

Free Cash Flow to Equity 711.087 671.757 813.003

Table 6

Particular Value Source

Terminal Year EBIDTA 2283.55 FY16e EBIDTA

Multiple Used 11 Ambuja Cement Sale 2013

Terminal Value 25119.06

Table 7

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Present Value of FCFE 1665.67

Discounted Terminal Value 16176.24 Total Free Cash Flow to Equity 17841.92

Value Per share 949.29

Table 8

Our analysis shows us that the fair value of the ACC Ltd stood at Rs 949/ Share.

Sensitivity Analysis

Variable Changes

Existing value per share

Effected value per share Change

1% Increase in price of cement 949.29 987 4%

1% Decrease in price of cement 949.29 911 -4%

1% Increase in sales 949.29 987 4%

1% Decrease in sales 949.29 911 -4%

1% Increase in Cost of material consumed 949.29 894 -6%

1% Decrease in Cost of material consumed 949.29 1054 11%

1% Increase in Power and fuel cost 949.29 893 -6%

1% Decrease in Power and fuel cost 949.29 1043 10%

1% Increase in Freight and Forwarding expense 949.29 874 -8%

1% Decrease in Freight and Forwarding expense 949.29 1024 8%

Table 9

On carrying out sensitivity analysis, it has been found that fair value per share is highly

sensitive to cost of material consumed , power and freight charges and any changes in this

factors will affect the assessment has been given by us (Refer table 9).

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8 RECOMMENDATION

The current market price is overvalued as market is filled with optimism and it is advisable to

caution in investing in cement stock as one the risk materializes it could hurt the share price

badly. Also, we would like to clarify that the view expressed are our own view and could be

more conservative approach. A correction in the price of ACC could be better opportunity to

enter into the stock.

Current Market Price Rs 1377

Fair Value RS 949

Recommendation Reduce

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9 BIBLOGRAPHY

Books

Equity Valuation: Models from Leading Investment Banks Edited by Jan

Viebig Thorsten Poddig Armin Varmaz

Damodaran on Valuation by A. Damodaran

Websites

http://www.rbi.org.in

http://www.wikipedia.com

http://rbi.org.in/scripts/FAQView.aspx?Id=84

http://www.stern.nyu.edu/~adamodar/

Investopedia.com

Moneycontrol.com

Economic Times

Reports

Motilal Oswal Cement Sector Report 2014

Emkay Cement Sector Report 2013

E&Y Cost of Capital Survey 2014

ACC Annual reports