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Thematic Note on Cement Large Caps

December 2015

India Cement Sector

Market data

BSE SENSEX 25,803

NIFTY 7,845

Date Dec 18th, 2015

The four cement majors have shown contrasting stock price performance over the last two years, with SRCM and UTCEM

outperforming ACEM and ACC significantly. Despite, SRCM and UTCEM posting muted EBITDA CAGR of -1% and 2%

respectively over the last three years, the stocks have seen a re-rating led by superior volume growth and

organic/inorganic expansions. ACEM and ACC have been laggards largely due to volume growth concerns and the merger

getting delayed and hence the synergies. Going ahead, we see the scenario to change and expect ACEM to outperform

SRCM and UTCEM over next two years. The long pending merger with ACC is now closer, with the proposal now on

Foreign Investment Promotion Board’s (FIPB) agenda in December 2015. The merger can potentially remove the overhang

on the stock and can lead to gradual re-rating, as a result we upgrade ACEM to BUY from ADD with a target price of Rs.

225/share.

Key Investment thesis for Ambuja Cements upgrade:

• Approval of merger with ACC and the potential consolidation of Lafarge’s India assets will see scale up in capacities and allay past

concerns of volume growth;

• Merger will help realise synergy benefits to the tune of Rs. 9bn over the next two years, which is 34% of ACEM + ACC CY15 EBITDA.

Comfort on synergy delivery as 40% of management payouts are dependent on synergy realisation;

• Earnings comfort with limited downside risks. Buying into decade low CY15 EBITDA with conservative assumptions of 4% and 3%

volumes and realisation CAGR over CY15-CY17E respectively. Also, ACEM offers superior EBITDA CAGR over FY16-FY18E versus its

peers.

• Play ACC through ACEM. Indirect beneficiary through higher volume growth in ACC (commissioning of plant in Eastern region) and

synergy realisations. ACC forms ~25% of ACEM’s target price in our SoTP;

• Attractive valuations; Stock trades at 10.3x CY17E EBITDA on par with five year average. ACEM trades at discount to ACC and the

discount to UTCEM has widened in the recent past. Expect re-rating in the stock led by scale up in operations and synergy benefits.

• At the CMP, the stock is not factoring in the merger and potential synergy benefits (refer slide 27), hence risk reward is favorable

Large caps ranking and valuations: We have profiled the cement large caps in this report. We have evolved a rating methodology which

ranks the players on both operating and financial parameters. Based on the ranking we ascribe valuation premium/discount within the four

large-cap stocks. Based on our analysis, UTCEM ranks the best, followed by SRCM, ACEM, and ACC. As a result we ascribe premium

valuations of 14.5x FY17E EBITDA for UTCEM, 14x for SRCM, 13x CY17E for ACEM, and 12x for ACC.

Stock calls – Upgrade ACEM to BUY and is our preferred pick amongst the large cap names. We remain positive on UTCEM’s prospects,

however at CMP the stock has factored in most of the positives. Maintain ADD on UTCEM. On SRCM, While we continue to like cost

leadership, timely capacity additions, strong balance sheet and return metrics, we believe stock is richly valued. The stock trades at 17.6x

FY17E EV/EBITDA, Rs. 12,000/t on EV/t basis, and 36x FY17E EPS. Combination of strong earnings expectations and expensive

valuations makes a case for unfavorable risk reward scenario. As a result, we downgrade SRCM from ADD to SELL. Maintain ADD on ACC,

however we prefer to play ACC via ACEM.

Cement Sector Strategy: Large caps over Mid-caps? Mid-caps have outperformed large-caps significantly over the last two years led by

re-rating and anticipated demand recovery. The valuation premium of large caps over mid-caps has narrowed to ~40% level currently

versus last five year average of 45% and last ten year average of 60%. The premiums have narrowed despite reducing leverage profile of

large-caps versus high leverage profile of mid-caps. From current levels, we see more value in large caps (ACEM, UTCEM, and ACC) over

mid-caps due to combination of (1) leveraged balance sheets of mid-caps and (2) narrowing valuation discount versus large-caps. As a

result, in a scenario wherein the anticipated demand recovery is delayed, we see more downside risks to mid-caps than large-caps. Within

mid-caps, our approach is bottom-up with preference for companies which have completed the capex phase, operating and financial

leverage beneficiaries with reasonable valuations, which are Dalmia Bharat and Ramco Cements.

Performance (%)

1M 3M 12M 24M

Sensex -1 -1 -5 -5

ACC 2 -1 -5 24

ACEM -1 -6 -13 10

UTCEM 6 -1 15 61

SRCM 3 -2 26 161

TRCL -2 15 17 116

ICEM 7 21 12 51

BCORP 7 -1 -2 82

DBL 9 18 61 475

ORCMNT 1 5 10 305

JKLC -2 -8 -17 355

PRSC 3 -10 3 210

OCL -3 -7 9 217

HEID 3 4 -6 108

GIRISH CHOUDHARY [email protected] +91 44 4344 0021

VIJAYARAGHAVAN SWAMINATHAN [email protected] +91 44 4344 0022

GAURAV NAGORI, CFA [email protected] +91 44 4344 0072

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

Upgrade Ambuja Cements to BUY- “Heads I Win and Tails I Don’t Lose Much”

Cement Sector Strategy

India Cement Sector

Snapshot of views on stocks

Company View

UltraTech

Cement

(UTCEM)

Rating:

ADD

TP: Rs. 3,030

We maintain our positive stance on UTCEM given (1) organic/inorganic expansions will aid superior volume growth and continued market share gains in FY16-

18E; and (2) Robust cash generation and balance sheet will support further capacity expansions.

Expect UTCEM to generate significant operating cash flows to the tune of ~75bn over the next two years. And with robust balance sheet, we do not rule out a

possibility of further acquisitions. Expect RoEs to expand from 11% in FY15 to ~13% by FY17E.

We expect EBITDA CAGR of 15% over FY15-FY17E, factoring in volume and realisations growth of 7% and 3% respectively.

We value UTCEM based on 14.5x FY17E EBITDA, which is ~15% premium to last three year average. We believe UTCEM deserves premium valuations

due to superior volume growth, margin expansion led by cost saving initiatives and balance sheet strength. At CMP, the stock trades at 14.0x

FY17E EV/EBITDA and $180/t. In our view the stock has factored in most of the positives at CMP and would wait for a better entry price for favorable

risk reward. Maintain ADD with a revised target price of Rs. 3,030/share.

Shree Cement

(SRCM)

Rating:

Downgrade to

SELL from ADD

TP: Rs. 9,200

• While we continue to like SRCM’s cost leadership, gradual and timely capacity additions, strong balance sheet and return metrics, we believe stock is richly

valued despite factoring in healthy volume growth and margin benefits. The stock trades at 17.6x FY17E EV/EBITDA, Rs. 12,000/t on EV/t basis, and 36x

FY17E EPS. Combination of strong earnings expectations and expensive valuations makes a case for unfavorable risk reward scenario. Downgrade the

stock from ADD to SELL with a revised target price of Rs. 9,200/share based on 14x FY17E EBITDA. Our target multiple of 14x FY17E EBITDA for

SRCM is premium over its peers given its low cost base, superior execution, market share gains, healthy balance sheet and return ratios.

• We factor in realisations/t and costs/t CAGR of 4% and 2% CAGR respectively. As a result EBITDA margins will increase from 21% in FY15 to 24% in FY17E.

Importantly, the current stock price implies realisations/t CAGR of 7% over FY15-FY17E where we believe downside potential is higher.

• We expect SRCM to generate Rs. 30bn of operating cash flows over FY16-FY17E. As a result, we believe SRCM will have enough appetite to expand both

organically/inorganically in a gradual manner without impacting the balance sheet quality. The company currently has a capacity of 25.6mt and with 1.6mt

expansion in Bihar by end of FY17E, the capacity will reach 27.2mt.

Ambuja

Cement

(ACEM)

Rating:

Upgrade to

BUY from ADD

TP: Rs. 225

We expect ACEM to be a big beneficiary of the restructuring of LafargeHolcim’s global operations. The long pending merger approval with ACC will lead to

gradual re-rating in the stock and also aid in realising synergies over the next two to three years.

Earnings comfort with limited downside risks. Buying into decade low CY15 EBITDA with conservative assumptions of 4% and 3% volumes and realisation

CAGR over CY15-CY17E respectively. Also, ACEM offers superior EBITDA CAGR over FY16-FY18E versus its peers.

Play ACC through ACEM. Indirect beneficiary through higher volume growth in ACC (commissioning of plant in Eastern region) and synergy realisations. ACC

forms ~25% of ACEM’s target price in our SoTP;

Attractive valuations; Stock trades at 10.3x CY17E EBITDA on par with five year average. ACEM trades at discount to ACC and the discount to UTCEM has

widened in the recent past. Expect re-rating in the stock led by scale up in operations and synergy benefits.

ACC

Rating:

ADD

TP: Rs. 1,400

We maintain our long term positive stance on ACC. The company’s current inefficient cost structure and the proposed synergies (post consolidation with

Ambuja Cement) would aid earnings growth.

We expect EBITDA CAGR of 26% over CY15-CY17E, factoring in volume and realisations growth of 5% and 3% respectively. We expect ACC’s volumes

trajectory to improve going ahead largely due to commissioning of its 3.5mt plant in East by 2HCY16E.

We value ACC based on 12x CY17E EBITDA, which is ~20% premium to last five year average. We expect ACC to trade at premium to historicals on

improving cost structure and balance sheet. At CMP, ACC is trading at 11.6x CY17E EBITDA, hence limited upside from the current levels. Maintain ADD with

a TP of Rs. 1,400/share. However, we prefer to play ACC via ACEM, given ACEM will be a indirect beneficiary of synergies and volumes growth in ACC.

India Cement Sector

Comparative valuations

Company

Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) FY16-FY18E CAGR

FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E Revenue EBITDA PAT

ACC 1,12,689 1,20,800 1,33,039 12,328 15,159 19,457 7,515 8,832 12,442 40.0 47.0 66.2 8.7% 25.6% 28.7%

ACEM 95,162 1,00,957 1,10,225 14,308 17,240 22,937 9,594 13,407 17,964 6.2 6.8 9.1 7.6% 26.6% 36.8%

SRCM 76,020 88,500 99,784 17,329 21,371 24,418 6,432 10,593 13,109 184.6 304.1 376.3 14.6% 18.7% 42.8%

UTCEM 2,49,163 2,81,267 3,15,474 46,595 55,643 62,516 22,199 28,147 31,921 80.9 102.6 116.3 12.5% 15.8% 19.9%

Company

EBITDA margins % EBITDA/t (Rs/t) RoCE RoAE Net Debt to Equity (x)

FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E

ACC 10.9% 12.5% 14.6% 511 607 731 11.0% 10.9% 14.5% 9.0% 10.3% 13.8% -0.1 -0.1 -0.1

ACEM 15.0% 17.1% 20.8% 649 759 953 9.8% 9.5% 12.2% 9.3% 9.0% 9.2% -0.5 -0.1 -0.1

SRCM 22.8% 24.1% 24.5% 856 937 982 11.2% 15.9% 17.1% 11.6% 16.9% 18.1% -0.2 -0.2 -0.2

UTCEM 18.7% 19.8% 19.8% 963 1,048 1,092 12.2% 14.2% 15.7% 11.2% 12.8% 12.9% 0.1 0.1 0.0

ACC and Ambuja are Dec-ending; Shree – June ending and the rest March ending

Company CMP Shares MCAP EV/EBITDA EV/t (Rs/t) PE Target

price

(Rs.)

Rating Rs. mn Rs. mn FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E

ACC 1,355 188 2,54,672 19.7x 15.5x 11.6x 8,059 6,975 6,722 33.9x 28.8x 20.5x 1,400 Add

ACEM 195 1,550 3,02,200 17.0x 14.2x 10.3x 8,248 8,265 7,987 31.4x 22.5x 16.8x 225 Buy

SRCM 1,150 35 40,063 22.0x 17.6x 15.1x 13,064 12,093 11,140 60.4x 36.7x 29.6x 9,200 Sell

UTCEM 2,890 274 7,93,016 17.0x 14.0x 12.0x 12,231 11,665 11,313 35.7x 28.2x 24.8x 3,030 Add

India Cement Sector

Evaluating Large Cap Cement Companies

India Cement Sector Primer on “BIG 4” of Indian Cement Sector

Big 4 total capacity to increase by 8% versus 1% for other players in

next 2 years

Source: Spark Capital

Big 4 have significant market share in west, north, and east region,

whereas Southern region has many regional players


Consolidation to continue with lot of potential assets sales in the

market going to UTCEM/SRCM in the coming 2 years


UTCEM, ACEM, ACC and SRCM together control ~42% of Indian Cement Industry capacity

Big 4 players have utilization of 75% versus 61% for others indicating

favorable regional exposure and wide spread dealers network


15.9 15.2 14.9 15.1 16.1 16.6 17.9

8.1 8.5 8.2 7.8 7.7 7.5 8.78.8 9.4 8.8 8.4 8.1 7.7 8.44.4 4.2 4.0 4.9 6.3 6.5

6.8

62.8 62.8 64.1 63.8 61.8 61.7 58.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Cap

acit

y m

ark

et sh

are

%

Ultratech Ambuja ACC Shree Others

75

8280

77

74 7375

6563 62 62 62

60 61

50

55

60

65

70

75

80

85


Cap

acit

y u

tilisati

on

%

Top 4 players Others

58 56 66

18

36 42

42 44 34

82

64 58

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

North East West South Central All India

Cap

acit

y m

ark

et

sh

are

%

Top 4 players Others

114 120 122 129 143 150 167.0

193 202 218 229 230

242 232.9

308 322

341 358

373 392 400

0

50

100

150

200

250

300

350

400


Cap

acit

y in

mt

Top 4 players Others Industry capacity

India Cement Sector Why we Prefer Large caps over Midcaps

Large cap valuations premium to Midcaps have come down to 41%

below last 5 years average of 43%


Large caps have net cash balance sheets whereas Midcaps cement

companies have high gearing due to significant capacity additions


Midcap cement companies have rerated significantly in the recent past; Risk reward favourable in large caps

41.3

10

15

20

25

30

35

40

45

50

55

60

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

Jul-15

Oct-

15 L

arg

e c

ap

s v

ers

us

Mid

cap

s

pre

miu

m b

ased

on

EV

to

EB

itd

a

78%

-10%

-40%

-20%

0%

20%

40%

60%

80%

100%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Net d

eb

t to

Eq

uit

y

Large caps Mid caps

In a delayed demand recovery scenario, Mid-caps carry higher downside risks given combination of high leverage and high valuations


50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

-10%

-5%

0%

5%

10%

15%

20%

25%

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Change in average prices Total demand growth (%) Utilisation % (RHS)

Strong demand

Minimal capacity additions

Increasing utilizations

High pricing power

Healthy demand

Influx of higher capacity additions

Decreasing utilisations

Decreasing pricing power

Weak demand

Influx of capacity additions

Decreasing utilisations

Weak pricing power

India Cement Sector

Geographical

Spread

Volumes

Cost

Profitability

Balance Sheet

Quality

Valuations

EBITDA

Sensitivity

Realizations

Volumes

Valuations EV/Ebitda and

EV/ton

Net debt to Equity and

Balance sheet expansion

scope

Asset turnover

Ebitda growth

ROCE

Total cost per ton

Scope of cost savings

Volume growth

Favorable region

Diversification

1 2 3 4

1 3 4 2

1 2 3 4

1 3 4 2

1 2 3 4

1 2 3 4

1 3 4 2

4 2 3 1

1 2 3 4

1

2 3 4 1

2 3 4

1 2 3 4

1 2 3 4

Overall Ranking

1

2

3

4

Ebitda margins

Business Evaluation Matrix

In this section, we profile four

Large cap cement companies and

evaluate their inherent business

models, understand their risk-

reward equation and present our

top picks.

To do this, we have devised a

rating scale and have ranked the

companies on a few key

parameters, which we believe will

have a significant impact on the

operations and the profitability of

the companies. We present below

our key parameters, their

rationale and the companies we

like/dislike on each parameter.

India Cement Sector

From an industry perspective, expect higher demand growth in East, South,

and Central markets


UTCEM capacity is more diversified across regions whereas SRCM is concentrated only in North and East

Source: Assuming Lafarge consolidation in UTCEM by FY17E. Spark Capital

18%

28%

12%

29%

13%

ACC FY17E capacity 33.6

MTPA

33%

23%

39%

5%

ACEM FY17E capacity 29.6

MTPA

20%

16%

28%

22%

15%

UTCEM FY17E capacity

71.3 MTPA

68%

25%

7%

SRCM FY17E capacity 28.1

MTPA

Demand supply equation most favorable in Central; South remains the worst


1. Geographical Spread

3%

6%

3%

-3%

6%

4%

7%

4%

6% 6%6%

9%

6%

10%9%

-4%

-2%

0%

2%

4%

6%

8%

10%

North East West South Central

Dem

an

d g

row

th %

FY16E FY17E FY18E

81% 79%86%

45%

82%81%

73%

86%

48%

85%81%

76%

86%

53%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Cap

acit

y u

tilisati

on

%

FY16E FY17E FY18E

UTCEM SRCM

India Cement Sector

UTCEM and SRCM will continue to post superior volume growth over the

next two years led by investment in capacities


Despite minimal additions from ACEM and ACC, both the players have sufficient idle capacity


UTCEM and SRCM added substantial capacities in last 2 years vis-à-vis

ACEM and ACC


2. Volume Growth

0% 2%

6%

14%

6%

0%

5%7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

ACC Ambuja UltraTech Shree Cement

To

tal C

ap

acit

y g

row

th (C

AG

R)

FY14-16e Cagr FY16-18e Cagr

FY1330.1

FY18E33.6

FY1328.0

FY18E29.6

FY1350.9

FY18E71.5

FY1317.5

FY18E29.2

Total Capacity in MTPA

-1%

1%

4%

8%4%

3%6%

7%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


Vo

lum

e g

row

th (C

AG

R)

FY14-16 Cagr FY16-18e Cagr

82%80%

79%81%

78%76%

80%78%

75% 76% 76%77%

81% 81%

78%77%

74%

78%

92% 92%

79%

72%

75%

70%

75%

80%

85%

90%

95%

FY12 FY13 FY14 FY15 FY16E FY17E

Cap

acit

y u

tilisati

on

%


SRCM ACC

India Cement Sector

SRCM ranks the best in total costs/t followed by ACEM; Adjusted for

UTCEM’s white cement business, the total cost/t would be ~3,850/t


Raw material cost trends across the large caps - ACEM ranks the best


ACEM overall cost will go down due to synergies realization from ACC

merger


3. Cost savings

12% 19% 18% 17%

28%25% 25% 25%

23%24% 25% 22%

7%8% 7% 11%

30% 24% 25% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ACEM ACC UTCEM SRCM

To

tal c

ost b

reaku

p (F

Y15

-16

avg

)

Raw material Power & Fuel Freight Employee Others

3,665/t 3,950/t 4127/t 2736/tTotal cost

per ton

329370 361

428466

533

698727

792

873

571

670 683712

768

390 407 420465 474

0

100

200

300

400

500

600

700

800

900

FY12 FY13 FY14 FY15 FY16E

Raw

mate

rial c

ost p

er to

n

ACEM ACC UTCEM SRCM

ACEM ACC

1% 1%

3% 3%

1% 1%

2% 2%

0%

-2%

4% 4%

-2%

-1%

0%

1%

2%

3%

4%

5%

ACC ACEM SRCM UTCEM

To

tal C

os

t p

er

ton

Yo

Y g

row

th

FY16E FY17E FY18E

India Cement Sector

Power source mix across companies


SRCM is the most cost efficient in Fuel and Power generation due to higher

reliance on Pet coke and WHRS


Power capacity mix. ACC and ACEM lag in WHRS capacities


Fuel source mix across companies; SRCM 100% reliant on petcoke and ACC

has higher exposure to domestic coal


3. Fuel and Power

457 469390

178

557 540621

485

0

100

200

300

400

500

600

700

800

900

1,000

ACEM ACC UTCEM SRCM

Fu

el a

nd

Po

wer co

st/

t (F

Y15

-16

avg

)

Fuel Power

53

13

65

100

14

25

23 26

57

12 7 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ACEM ACC UTCEM SRCM

Fu

el c

on

su

mp

tion

bre

aku

p

Pet coke Imported Domestic coal AFR

281 360

717

501 5

5

53

96

0

100

200

300

400

500

600

700

800

ACEM ACC UTCEM SRCM

Cap

acit

y in

MW

TPP WHRS

70 77 82

66

30 21

14 4

0

2 4 30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ACEM ACC UTCEM SRCM

Po

wer so

urc

e b

reaku

p

TPP WHRS External grid

India Cement Sector

Lead distance of cement majors


SRCM freight cost is lowest due to efficient logistics operations


Road freight cost has been inching upwards in last 2 months after falling from

Sept14-Sept15


ACEM’s Sea freight mode contribution is almost 10% which is cheapest

compared to other modes


550

450

375

330

200

250

300

350

400

450

500

550

600

SRCM UTCEM ACC ACEM

Le

ad

dis

tan

ce in

Km

80

85

90

95

100

105

110

115

120

Jan12

Mar1

2

May12

Jul1

2

Oct1

2

Dec12

Fe

b13

Apr1

3

Jun13

Aug13

Oct1

3

Dec13

Fe

b14

Apr1

4

Jun14

Aug14

Oct1

4

Dec14

Fe

b15

Mar1

5

May15

Jul1

5

Sep15

Nov15

Ro

ad

fre

igh

t in

de

x

Mumbai Nagpur Kolkata Guwahati Hyderabad Chennai

3. Freight Cost

1,052

954

841

596

200

300

400

500

600

700

800

900

1,000

1,100

UTCEM ACC ACEM SRCM

Fre

igh

co

st p

er to

n

6957

65 60

2943 25 40

310

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

UTCEM ACC ACEM SRCM

Fri

eg

ht m

od

e m

ix %

Road Rail Sea

India Cement Sector

Higher Ebitda growth for ACEM and ACC due to low base and synergy

benefits


SRCM and UTCEM have superior return ratios than ACC and ACEM


SRCM ranks best in margins driven by low cost operations


4. Profitability

-1%

-23%

29%

11%

23%20%

23%19%

28%33%

14% 12%

-30%

-20%

-10%

0%

10%

20%

30%

40%

ACC ACEM SRCM UTCEM

Eb

itd

a Y

oY

gro

wth

FY16 FY17 FY18

11%

15%

23%

19%

13%

17%

24%

20%

15%

21%

24%

20%

0%

5%

10%

15%

20%

25%

ACC ACEM SRCM UTCEM

Eb

itd

a m

arg

ins

FY16 FY17 FY18

11%10%

11%12%

11%10%

16%

14%15%

12%

17%16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

ACC ACEM SRCM UTCEM

RO

CE

%

FY16 FY17 FY18

SRCM ACC

India Cement Sector

Leverage profile of large caps


ACC has high asset turns due to legacy plants


5. Balance sheet quality

-0.12

-0.47

-0.19

0.14

-0.09 -0.10

-0.25

0.04

-0.13 -0.12

-0.23

-0.05

-0.55

-0.45

-0.35

-0.25

-0.15

-0.05

0.05

0.15

0.25

ACC ACEM SRCM UTCEM

Net d

eb

t to

Eq

uit

y (x)

FY16 FY17 FY18

0.90

0.82 0.84

0.75

0.84 0.83

0.89

0.78

0.91 0.88

0.89

0.83

0.50

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

ACC ACEM SRCM UTCEM

Asset tu

rno

ver (x

)

FY16 FY17 FY18

Around 5% or 20mt of industry up for sale- UTCEM and SRCM most probable buyers


Potential capacities for sales Capacity

(mt) Location

Reliance Cement 5.6 Clinker unit in Madhya Pradesh

Jaypee SAIL 2.2 Bhilai, Chhattishgarh

ABG Cement 5.8 Kutch, Gujarat

Binani Cement 1.2 Neem Ka Thana, Rajasthan

Other mini plants 5 Mini plants in Andhra Pradesh and

Telangana

Total 19.8

% of FY16 installed based 5%

SRCM ACEM

India Cement Sector

SRCM is the most expensive whereas ACEM is the cheapest on FY18

EBITDA basis


ACC is the cheapest among major cement players on EV/ton basis


6. Valuations and Sensitivity analysis

ACC is most sensitive to realizations due to higher fixed cost


UTCEM has lowest sensitivity to volumes due to scale of operations


7%

6%

4% 3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

ACC ACEM UTCEM SRCM

Eb

itd

a s

en

sit

ivit

y t

o R

eali

sati

on

2%

1% 1%

1%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

ACEM ACC SRCM UTCEM

Eb

itd

a s

en

sit

ivit

y t

o V

olu

mes

6,975

8,265

12,09311,665

6,722

7,987

11,140 11,313

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

ACC ACEM SRCM UTCEM

EV

/to

n

FY17E FY18E

15.5

14.2

17.6

14.0

11.6

10.3

15.1

12.0

10

11

12

13

14

15

16

17

18

ACC ACEM SRCM UTCEM

EV

/Eb

ita (x)

FY17E FY18E

ACEM SRCM

India Cement Sector

Ambuja Cements Upgrade to BUY Preferred Large cap pick

“Heads I Win and Tails I don’t Lose Much”

India Cement Sector Proposed merger with ACC – Deal Dynamics

Ambuja to hold 50.01% stake in ACC through Holcim India

Total group entity will have capacity at par to UTCEM with presence in all major regions

LafargeHolcim

Ambuja ACC

LafargeHolcim India

ACL acquires

stake of 24%

in Holcim

India for cash

Merge Holcim

India into ACL

by issuing

equity shares

in ACL

9.76% 50.01%

LafargeHolcim

Ambuja ACC

61.39% 0.29%

50.01%

40.79% 0.29%

Source: Holcim presentation, Spark Capital

Ambuja acquires Holcim’s 50% equity stake in ACC as under:

Ambuja to acquire 24% stake in Holcim India for Rs. 35bn in cash

Holcim India to merge into Ambuja under a scheme of amalgamation by

issuing shares to Holcim; Holcim India’s 9.8% stake in Ambuja to be cancelled

Currently proposal lies with Foreign Investment Promotion Board (FIPB) to be

considered on 21st December 2015 after approval from CCEA

Evolution of current to target shareholder structure

ACEM Equity dilution after ACC merger

Post deal shares outstanding (mn shares)

Pre deal shares outstanding 1,550

Add: Shares issue to Holcim India (HI) 584

Less: Cancellation of ACEM shares held by HI 151

Post deal shares outstanding of ACME 1,982

Net Dilution 432.7

India Cement Sector

Total group entity will have capacity at par to UTCEM with presence in all major regions


Capacity market share of the group will be in excess of 20% in North, East

and West markets


27%

28%

23%

14%

9%

Group capacity in FY17: 68.4MT


11.0 10.3

21.7

0.0

2.9

20.7

28.7 29.2

6.8

11.8

0

5

10

15

20

25

30

35


Cap

acit

y m

ark

et sh

are

%

Ambuja alone Group

Making of a “GIANT”

Consolidation of Indian operations; Favourable regional exposure with sizeable market share in North, East, and West

Volume growth concerns will be allayed due to investment in ACC and

potential merger with Lafarge’s India assets


3.0

5.0

14.8

0

2

4

6

8

10

12

14

16

CY16E CY17E

Vo

lum

e g

row

th %

Ambuja only Group Entity

33%

23%

39%

5%

Ambuja capacity in CY17: 29.6MT


18%

28%

12%

29%

13%

ACC capacity in CY17: 33.6MT


50% 50%

Lafarge capacity in CY17: 5.2MT


India Cement Sector

Focus on Synergies and Higher payouts augurs well for the Shareholders

The global parent of Ambuja and ACC, LafargeHolcim

listed out the broad vision of the group in its analyst meet

held on 1st December 2015.

The focus is on free cash flow generation, improvement in

return ratios and cash returns to share holders. This will

be driven by combination of operating synergies and strict

control over capex. The management of LafargeHolcim is

targeting CHF1.1bn of synergies by the end of CY17, of

which ~60% will be led by procurement and SG&A.

We expect the management to be committed to these

targets as the bonus payouts are based on FCF and

EBITDA.

LafargeHolcim’s India operations account for ~18% of

total capacity. And ~14% (CHF 150mn) of the targeted

synergies will come from Indian operations. Given the

importance of Indian operations and compensation

linked to FCF and synergies, we expect management

to lay emphasis on delivering the synergies. This

augurs well for both ACEM and ACC shareholders.

Free Cash Flow

At least CHF 10.0bn

cumulative 2016-2018

CHF 3.5-4.0bn run rate by

2018

At least CHF 6 per share run

rate by 2018

Medium Term Group Targets

Capex

Max CHF 3.5bn cumulative

2016-2017

ROIC

At least 300bps

improvement from 2015 level

by 2018 from operational

improvement

Operating EBITDA

At least CHF 8.0bn in 2018

Credit Rating

Maintain solid investment

grade rating

Cash Returns to

Shareholders

DPS CHF 1.50 for 2015

Progressively grow DPS and

50% pay-out over cycle

Return excess cash to

shareholders commensurate

with a solid investment grade

credit rating

CHF mn EBITDA synergies,

run rate end CY2017 Levers identified and taken over by countries

Operational

Performance 220

6 cement productivity best-practices deployed

Network optimization in overlapping countries

Procurement 380

~2% reduction of external spending by:

− Renegotiating top 2000 contracts

− Switching to best supplier

− Implementing a Category management approach

SG&A 280

Combination and right-sizing of headquarters and in

overlapping countries

Leverage Regional shared services

Growth and

Innovaiton 220

Best-practice roll-out 9 specific markets / segments

Optimization of customer and geography mix

Cross-selling actions and product offering optimization

Total Synergies

at EBITDA level

1,100

(€ 1,000mn)

Annual Bonus Plan linked to Synergies and FCF

30%

40%

30%

CEO

30%

40%

30%

Exco

40%

20%

40%

Senior Executives

EBITDA Free Cash Flow Strategic/Personal Objectives

Implications of LafargeHolcim’s vision on ACEM and ACC

Source: LafargeHolcim presentation, Spark Capital Source: LafargeHolcim presentation, Spark Capital

India Cement Sector

Mapping out the key Synergies Sources

ACEM’s current petcoke usage is

~53%. ACC’s current petcoke

usage is 13%. Hence there is lot of

scope in improvement in power &

fuel cost for ACC.

ACEM’s current alternate fuel mix

is 7%. ACC’s current alternate fuel

mix is 5%. Both companies target

this to be ~10%. Alternate fuel

costs ~70% cheaper than coal

Clinker swaps – 2 ACC plants

supply clinker to 2 ACEM plants. 2

ACEM plants supply clinker to 4

ACC plants.

Cement swaps – 13 ACEM plants

supply in parts of 21 states for

ACC. 10 ACC plants supply in

parts of 16 states for ACEM.

Cost savings from logistics

optimisation will be ~Rs. 4bn

Both ACC and Ambuja are well

established brands. Management

focus on investing in brand can

aid in premium pricing. The recent

Ambuja ad featuring “The Great

Khali” received widespread

publicity.

ACC has recently announced its

entry in Aerated Concrete Blocks

(AAC) business.

Scope for savings in fixed costs remain high for ACEM + ACC combined – 2% savings can realise Rs. 4bn of synergies

Fixed costs profile ACC ACEM ACEM + ACC UTCEM

Rs. Mn 2014 2015 2014 2015 2014 2015 2014 2015

Employee costs 6,613 7,466 5,022 5,816 11,634 13,282 10,146 12,183

Advertisement and publicity 1,161 1,068 885 872 2,045 1,941 1,496 1,580

Other fixed costs 8,525 8,604 4,486 4,546 13,011 13,150 5,525 6,215

Total fixed costs (Rs. nn) 16,298 17,138 10,392 11,234 26,690 28,372 17,168 19,978

Net revenues 1,09,084 1,14,811 90,891 99,109 1,99,975 2,13,920 2,02,798 2,29,362

% of net revenues 15% 15% 11% 11% 13% 13% 8% 9%

Commercial

transformation

Logistics

Optimization

Organization &

Operational

Efficiency

Continue to strengthen dealer network to maximize premiums, investing in our 2

strong brands, strengthening technical support and providing end user support

Increase premium product and service offering through product portfolio leverage in

Commercial / Infrastructure segment

Swap clinker and cement volumes between ACC and ACL

Margin maximization using Transaction Price Management (TPM) tool, which

minimizes distribution costs through maximizing volumes in proximity to LH plants

Changing manufacturing mindset to maintain our leadership in cost competitiveness

Increase usage of low cost Petcoke in both companies

Increase Use of alternative fuels

Implement Business Shared Service (BSC) to integrated backend

processes (Finance, HR, Commercial) and Common Procurement

organization

Improvement

objective

CHF 150m

EBITDA

1

2

3

4

5

6

7

8

LafargeHolcim investors meet takeaways

Source: LafargeHolcim presentation, Spark Capital

India Cement Sector Illustration of Cost savings due to Clinker and Cement Swaps

ACC and ACEM capacities geographical location – Scope for logistic

savings remains high An illustration on how Clinker and Cement swap will work out

Swap opportunity: Supply markets from the closest plants to lower cost-to-serve

ACC Context: Lead reduction of 273 km and freight saving of INR 256 per ton

ACL Context: Lead reduction of 71 km and freight saving of INR 156 per ton

Significant scope of cost savings due to clinker and cement swaps in North

and West

Source: Spark Capital, LafargeHolcim presentation

18% 33%

28%

23% 12%

39% 29%

13%

5%

0%

20%

40%

60%

80%

100%

ACC Ambuja

Reg

ion

al cap

acit

y b

reaku

p


Scope for logistics optimisation remains high

India Cement Sector

Focus on Increasing Utilisations over organic capacity growth

LafargeHolcim is committed to higher

FCF generation, ROIC, and DPS. As a

result the management is scaling down

its capex by 30-40% over the next two

to three years. The group intends to

reduce the capex to less than CHF 2bn

by 2018 vs. Average of CHF 2.9bn

over the last four years.

The focus will be on (1) increasing

utilisations from 68% currently; (2)

complete the on-going projects; and (3)

growing capacities by de-bottlenecking.

From Indian perspective, ACC is

currently working Jamul expansion,

which will increase the capacity by

3.5mt.

Further, we expect ACEM to incur

capex on consolidation of Lafarge’s

India assets, which has a capacity of

5.2mt.

Both the Indian entities, ACEM and

ACC have been consistently paying

dividend payout ratio in the range of

50%. With the global management

focus on increase in DPS, we expect

the payout to sustain going ahead.

Significantly Lower Capex (CHF Bn)

1.0

1.8

Average 2010-14

2.0

1.5

2016 2017 2018

2.8 - 2.9

Plan Looking Forward Historical

Maintenance

Development

Maintenance

Completion of

on-going projects

New Development

3.5 < 2.0

(run-rate)

Strict Capital Allocation Policy

2016-18E

Cumulative FCF Target

>CHF 10bn

Return excess cash to shareholders

Excess cash returned to shareholders through special dividends or

share buybacks

Maintain a solid investment grade rating through the cycle

Maintain credit ratios commensurate with BBB/Baa2 credit ratings 1

Strict management of capex and dynamic portfolio management 2

Progressive dividend policy

Grow DPS p.a.; 50% pay-out over cycle 3

LafargeHolcim investors meet takeaways

Source: LafargeHolcim presentation, Spark Capital

India Cement Sector

ACEM CY15 earnings have been lowest in last decade due to decline in

volume growth and realizations


ACEM volume growth will continue to be lower than the industry. However,

ACEM will be an indirect beneficiary in ACC’s volume growth


ACEM earnings to head north due to lower base and synergy benefits post

ACC merger


ACEM and ACC have sufficient capacity to meet the demand in case of

Industry volumes recovers significantly


Ambuja Cement- A Value Trade

High comfort on earnings due to Bottom Cycle earnings base and conservative realisation assumptions

21 20 18 19 19 19 24 16 19 14 17 23

34%36%

28% 27%25%

23%25%

17% 19%15%

17%21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

10

13

15

18

20

23

25

Ebitda in Rsbn Ebitda margins (RHS)

Decade low marginsand earnings 27%

26%

19%

16%

10%

15%

20%

25%

30%

ACEM ACC SRCM UTCEM

FY

16-1

8E

Eb

itd

a C

AG

R %

-1%

3%

6%

-4%

4%

7%

-6%

-4%

-2%

0%

2%

4%

6%

8%

CY15 CY16E CY17E

Vo

lum

e g

row

th %

Ambuja ACC

76%77%

81%

78%76%

77%

50%

55%

60%

65%

70%

75%

80%

85%

CY15 CY16E CY17E

Cap

acit

y u

tlilis

ati

on

%

Ambuja ACC

ACEM’s earnings growth is

expected superior over its

peers over FY16-FY18E

India Cement Sector

EPS accretion of 5% from CY17 onwards due to better operational synergies


Assuming same payout ratio of 50% for next 2 years


RoCE dilution in CY16 whereas with Synergies realized in CY17 will aid

improvement to normal levels


DPS growth of 32% in CY17 on back of synergies and management

emphasis on increasing payouts


Prudent Capital Allocation

Ambuja’s investment in ACC will be Earnings accretive and neutral on return rations

6.2

6.8

9.1

6.2

7.5

8.6

4

5

6

7

8

9

10

CY15 CY16 CY17

Am

bu

ja E

PS

With ACC Merger Without ACC Merger

Assuming

synergies benefits

to flow only by

CY17

3.0 3.5

2.2 2.4 2.4

3.2 3.6 3.6

5.0

3.2 3.4

4.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Div

ide

nd

pe

r sh

are

Assuming constant dividend

payout ratio, DPS to grow

considerably in FY17

31% 30%

24%

30% 29%

40% 43% 44%

52% 52% 50% 50%

0%

10%

20%

30%

40%

50%

60%

Div

ide

nd

pa

yo

ut

%

13%

17%

15%

17%

5%

7%

9%

11%

13%

15%

17%

19%

CY16 CY17

Am

bu

ja P

re-T

ax R

OC

E %

With ACC Merger Without ACC Merger

India Cement Sector

ACEM trading at attractive valuations of $118 /t post incorporating ACC

merger


UTCEM premium to ACEM based on12MF EV/Ebitda is at high of 13.6%

versus historical average of 7-8%


ACC is trading at premium to ACEM based on12MF EV/Ebitda. With merger

in pipeline, one can invest in ACC through ACEM itself


Cheapest Stock among the “Big 4”

Ambuja Cement’s valuations discount to UTCEM and ACC should narrow down due to Merger Synergies and Increasing Scale

13.6

-20

-15

-10

-5

0

5

10

15

20

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

UT

CE

M p

rem

ium

to

AC

EM

b

ased

on

EV

/Eb

itd

a

2.9

-25

-20

-15

-10

-5

0

5

10

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5 A

CC

pre

miu

m t

o A

CE

M b

ased

o

n E

V/E

Bit

da

Ambuja’s implied valuation based on ACC's proportional capacities

Shares outstanding post dilution (mn) 1,982

CMP 195

Market cap post diltuon (Rs. Mn) 386,586

Less:

Net cash (Rs.mn) 30,472

Enterprise value (Rs. Mn) 356,114

ACEM Capacity (mt) 29.6

ACC Capacity (mt) - pro rate at 50.01% 16.8

EV/t based on INR 7,683

EV/t based on INR at 65 118

India Cement Sector Scenario analysis around merger and realisation of synergies

Ambuja’s compelling Valuations provide “High Margin of Safety”

Scenario analysis around merger and realisation of synergies

Scenario

Bear Case 1 Bear Case 2 Base Case Bull Case

No merger and hence no

synergies

Merger with 30% of targeted

synergies realised in CY17

Merger with 70% of targeted


Merger with 30% of


and the rest 70% in CY17

Targeted synergies (Rs. mn) 10,000 10,000 10,000 10,000

Realised synergies for ACEM (Rs.mn)

CY16E 0 0 0 1,350

CY17E 0 1,350 3,150 3,150

EBITDA (Rs. mn)

CY16E 17,240 17,240 17,240 18,590

CY17E 19,445 20,795 22,595 22,595

EV/EBITDA

CY16E 13.8 14.4 13.8 12.8

CY17E 12.0 11.6 10.2 10.0

EV/t

CY16E 124 133 128 128

CY17E 121 129 124 123

Target price 195 203 225 250

Assumed target multiple on CY17E 12.0 12.5 13.0 14.0

% upside/(downside) from CMP 0% 4% 15% 28%

India Cement Sector

ACC - Financial Summary

Abridged Standalone Financial Summary

Rs. mn CY14 CY15E CY16E CY17E CY14 CY15E CY16E CY17E

Profit & Loss

Revenues 1,14,811 1,12,689 1,20,800 1,33,039 Sales volumes (mt) 24.2 23.4 24.3 26.0

EBITDA 12,501 12,328 15,159 19,457 Realisations/t 4,428 4,461 4,595 4,733

Other Income 5,254 6,162 5,272 5,272 EBITDA/t 502 511 607 731

Depreciation 5,576 6,438 8,155 7,639

EBIT 12,180 12,051 12,276 17,089 Revenues 5.2% -1.8% 7.2% 10.1%

Interest 828 500 500 500 EBITDA -8.6% -1.4% 23.0% 28.4%

PBT 11,352 11,551 11,776 16,589 PBT -7.5% 1.8% 1.9% 40.9%

Exceptionals loss/(Income) - 1,532 - - PAT 6.6% -35.7% 17.5% 40.9%

Tax (331) 2,505 2,944 4,147

Adjusted PAT (pre exceptionals) 11,683 7,515 8,832 12,442 EBITDA 10.9% 10.9% 12.5% 14.6%

PBT 9.9% 10.3% 9.7% 12.5%

Networth 82,356 84,392 87,744 92,515 PAT 10.2% 6.7% 7.3% 9.4%

Total Debt - - - -

Deferred Tax 5,356 5,356 5,356 5,356 Net Debt to Equity (x) -0.2 -0.1 -0.1 -0.1

Total Networth & Liabilities 87,712 89,747 93,100 97,871 RoE (%) 14.5% 9.0% 10.3% 13.8%

Gross Block 1,09,507 1,41,507 1,44,507 1,48,007 RoCE (%) 16.0% 11.0% 10.9% 14.5%

Net Block + CWIP 77,197 83,759 88,604 89,465 Gross Asset Turnover (x) 1.1 0.9 0.8 0.9

Investments 15,730 10,730 7,730 5,730

Net working capital (ex cash) (8,258) (6,965) (6,653) (6,249) Shares Outstanding (mn)

Cash 3,043 2,224 3,419 8,925 Market Cap (Rs. mn) 2,54,672 2,54,672 2,54,672 2,54,672

Net working capital (5,215) (4,742) (3,234) 2,676 Enterprise Value (Rs. mn) 2,17,595 2,42,414 2,34,219 2,25,713

Total Assets 87,712 89,747 93,100 97,871 EV/EBITDA (x) 17.4 19.7 15.5 11.6

EV/t (Rs/t) 7,234 8,059 6,975 6,722

Cash flows from operating 13,317 6,998 11,903 14,905 P/E(x) 21.8 33.9 28.8 20.5

Cash flows from investing (14,367) (1,838) (4,728) (1,228) Price to Book (x) 3.1 3.0 2.9 2.8

Cash flows from financing (8,371) (5,979) (5,979) (8,171) FCF Yield (%) -1.1% -2.6% -0.6% 2.3%

Free Cash Flows after interest (2,781) (6,502) (1,597) 5,905 Dividend yield (%) 2.2% 2.5% 1.8% 1.8%

Cash Flows

Performance Ratios

Valuation metrics

188

Balance Sheet

Growth ratios

Margins Ratios

Key metrics

Operational metrics

India Cement Sector

Ambuja - Financial Summary

Abridged Standalone Financial Summary Key metrics

Rs. mn CY14 CY15E CY16E CY17E CY14 CY15E CY16E CY17E

Profit & Loss

Revenues 99,109 95,162 1,00,957 1,10,225 Sales volumes (mt) 22.2 22.0 22.7 24.1

EBITDA 18,612 14,308 17,240 22,937 Realisations/t 4,474 4,318 4,447 4,581

Other Income 4,962 5,604 7,955 8,895 EBITDA/t 840 649 759 953

Depreciation 5,095 6,227 6,357 6,162

EBIT 18,479 13,685 18,838 25,670 Revenues 9.0% -4.0% 6.1% 9.2%

Interest 645 720 720 720 EBITDA 17.8% -23.1% 20.5% 33.0%

PBT 17,834 12,965 18,118 24,950 PBT 19.7% -27.3% 39.7% 37.7%

Exceptionals loss/(Income) - - - - PAT 17.8% -35.9% 39.7% 34.0%

Tax 2,871 3,371 4,711 6,986

Adjusted PAT 14,964 9,594 13,407 17,964 EBITDA 18.8% 15.0% 17.1% 20.8%

PBT 18.0% 13.6% 17.9% 22.6%

Networth 1,01,033 1,04,730 1,91,910 1,99,265 PAT 15.1% 10.1% 13.3% 16.3%

Total Debt 191 - - -

Deferred Tax 5,890 5,890 5,890 5,890 Net Debt to Equity (x) -0.4 -0.5 -0.1 -0.1

Total Networth & Liabilities 1,07,115 1,10,620 1,97,801 2,05,155 RoE (%) 15.3% 9.3% 9.0% 9.2%

Gross Block 1,14,291 1,18,791 1,23,291 1,27,791 RoCE (%) 15.8% 9.8% 9.5% 12.2%


Investments 21,727 21,727 1,33,516 1,33,516

Net working capital (ex cash) (8,367) (9,445) (9,204) (8,419) Shares Outstanding (mn) 1,550 1,550 1,982 1,982


Net working capital 16,215 18,947 (6,304) (287) Enterprise Value (Rs. mn) 2,50,238 2,43,736 2,44,234 2,36,003

Total Assets 1,07,115 1,10,620 1,97,801 2,05,155 EV/EBITDA (x) 13.4 17.0 14.2 10.3

EV/t (Rs/t) 8,704 8,248 8,265 7,987

Cash flows from operating 16,753 12,015 12,288 15,166 P/E (x) 20.1 31.4 22.5 16.8

Cash flows from investing (4,601) (1,396) (1,10,834) 1,395 Price to Book (x) 3.0 2.9 2.0 1.9

Cash flows from financing (7,171) (6,808) 73,053 (11,330) FCF Yield (%) 2.6% 1.4% -37.2% 2.3%

Free Cash Flows 7,874 4,295 (1,12,221) 6,946 Dividend Yield (%) 2.6% 1.6% 1.7% 2.3%

Operational metrics

Performance Ratios

Balance Sheet

Cash Flows

Growth ratios

Valuation metrics

Margins Ratios

India Cement Sector

Ultratech - Financial Summary

Abridged Financial Statements Key metrics

Rs. mn FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E

Revenues 2,02,798 2,29,362 2,49,163 2,81,267 Total sales volumes (mt) 42.6 46.1 48.4 53.1

EBITDA 38,179 41,950 46,595 55,643 Blended realisations/t 4,756 4,978 5,150 5,298

Other Income 3,290 3,718 3,746 4,220 EBITDA/Tonne 895 910 963 1,048

Depreciation 10,523 11,331 13,350 14,350

EBIT 30,947 34,337 36,992 45,513 Revenues 1.3% 13.1% 8.6% 12.9%

Interest 3,192 5,475 5,190 5,190 EBITDA -15.5% 9.9% 11.1% 19.4%

PBT 27,755 28,863 31,802 40,323 PBT -27.4% 4.0% 10.2% 26.8%

Exceptionals loss/(Income) - - - - PAT -19.2% -6.0% 10.2% 26.8%

Tax 6,310 8,715 9,603 12,176

PAT after exceptionals 21,445 20,147 22,199 28,147 EBITDA 18.8% 18.3% 18.7% 19.8%

PBT 13.7% 12.6% 12.8% 14.3%

Networth 1,70,975 1,88,577 2,07,888 2,33,149 PAT 10.6% 8.8% 8.9% 10.0%

Total Debt 51,993 74,142 74,142 74,142

Deferred Tax 22,958 27,920 27,920 27,920 Net Debt to Equity (x) 0.00 0.14 0.14 0.04

Total Networth & Liabilities 2,45,927 2,90,639 3,09,950 3,35,211 RoE (%) 13.3% 11.2% 11.2% 12.8%

Gross Block 2,50,778 3,18,741 3,48,741 3,68,741 RoCE (%) 17.1% 13.5% 12.2% 14.2%

Net Block + CWIP 1,86,497 2,36,319 2,52,969 2,58,620 Gross Asset Turnover (x) 0.9 0.8 0.7 0.8

Investments 53,917 52,088 52,088 52,088

Net working capital (ex cash) 2,738 93 4,067 5,590 Shares Outstanding (mn)

Cash 2,775 2,139 827 18,914 Market Cap (Rs. mn) 7,93,016 7,93,016 7,93,016 7,93,016

Net working capital 5,513 2,232 4,893 24,503 Enterprise Value (Rs. mn) 7,65,374 7,93,100 7,94,412 7,76,325

Total Assets 2,45,927 2,90,639 3,09,950 3,35,211 EV/EBITDA (x) 20.0 18.9 17.0 14.0

EV/t (Rs/t) 14,187 13,185 12,231 11,665



Cash flows from financing (8,972) (22,668) (8,077) (8,077) FCF Yield (%) 0.9% 1.2% -0.3% 2.1%

Free Cash Flows 6,942 9,556 (2,171) 16,754 Dividend Yield (%) 0.4% 0.3% 0.3% 0.3%

Growth ratios

Valuation metrics

Cash Flows

Profit & Loss

Margins Ratios

Operational metrics

Performance Ratios

Balance Sheet

274

India Cement Sector

Shree Cement - Financial Summary

Rs. mn FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E

Operational metrics

Revenues 58,873 64,536 76,020 88,500 Sales volumes (mt) 14.3 16.2 17.8 19.9

EBITDA 13,898 13,439 17,329 21,371 Realisations/Tonne 3,680 3,556 3,720 3,850

Other Income 1,849 1,379 1,369 1,693 EBITDA/Tonne 929 761 856 937

Depreciation 5,499 9,248 9,614 8,777

EBIT 10,249 5,569 9,085 14,286 Revenues 5.3% 9.6% 17.8% 16.4%

Interest 1,292 1,206 1,045 1,045 EBITDA -11.0% -3.3% 29.0% 23.3%

PBT 8,957 4,363 8,040 13,241 PBT -20.1% -45.8% 50.9% 64.7%

Exceptionals loss/(Income) 805 355 - - PAT -21.6% -45.8% 50.9% 64.7%

Tax 279 (255) 1,608 2,648 Margins Ratios

PAT after exceptionals 7,872 4,263 6,432 10,593 EBITDA 23.6% 20.8% 22.8% 24.1%

PBT 15.2% 6.8% 10.6% 15.0%

Networth 47,109 52,764 58,224 67,198 PAT 13.4% 6.6% 8.5% 12.0%

Total Debt 11,999 9,166 9,166 9,166 Performance Ratios

Deferred Tax (1,429) (1,952) (1,952) (1,952) Net Debt to Equity (x) -0.3 -0.2 -0.2 -0.2

Total Networth & Liabilities 57,679 59,978 65,439 74,412 RoAE (%) 18.4% 8.5% 11.6% 16.9%

Gross Block 69,076 86,496 93,496 1,05,496 RoCE (%) 17.9% 9.8% 11.2% 15.9%


Liquid Investments 22,444 16,626 16,626 16,626 Valuation metrics

Net working capital (ex cash) 695 1,927 4,558 4,809 Shares Outstanding (mn)


Net working capital 2,288 5,002 8,076 13,827 Core Enterprise Value (Rs. mn) 3,35,675 3,39,880 3,34,437 3,28,937

Total Assets 57,679 59,979 65,439 74,412 Cement EV/EBITDA (x) 25.4 27.6 22.0 17.6

Cement EV/t (Rs.) 19,181 14,402 13,064 12,093



Cash flows from financing (1,558) (2,586) (2,017) (2,664) FCF Yield (%) -0.8% 0.0% 0.0% 1.4%

Free Cash Flows (3,131) (70) 46 5,427 Dividend yield (%) 0.2% 0.2% 0.2% 0.4%

Balance Sheet

Cash Flows

Key metricsAbridged Financial Statements

Profit & Loss

Growth ratios

34.84

India Cement Sector

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Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon

India Cement Sector

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