ultratech cement ltd - credit suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

21 April 2016

Asia Pacific/India

Equity Research

Cement

Ultratech Cement Ltd

(ULTC.BO / UTCEM IN) DOWNGRADE RATING

Past upcycle earnings growth already priced in

■ Downgrade to NEUTRAL as Ultratech is already pricing in a large part of

the earnings recovery in the current upcycle. Our analysis of cement up-

cycles in the past two decades suggests there have been four up-cycles, with

one of five-year duration (FY04-08) and the rest with a duration of 2-3 years.

Earnings CAGR in the past three up-cycles has been 20-30%, and Ultratech is

already pricing in 25% EPS CAGR over the next five years. Implied return

assumptions are already equal to the past up-cycles with FY04-08 upcycle's

exception when returns were higher, as utilisation increased from 85% to 95%,

but currently the sector utilisation is low at 65%. We admit there are multiple

demand triggers that could sustain volume growth longer in this upcycle, such

as: (1) 7th pay commission payouts, (2) govt's new schemes for rural and urban

housing, and (3) strong trend in awarding of road projects. However, we expect

volume growth to be back-ended, and with the stock outperforming the market

by 24% over the past 12 months, we look for a better entry point.

■ Limestone royalty under MMDR Act reduces attractiveness of acquired

JPA assets. The amendment to the MMDR Act has provision for transfer

charges, which should be defined post the clearance in Rajya Sabha. As a

sensitivity, every Rs50/t in transfer charges impacts post synergies EBITDA of

JPA assets by 5% and delays the breakeven period (expected to be 3 years).

■ Strong volume growth trend of Jan-16 and Feb-16 may not sustain.

Expectations have increased after 9% volume growth in Jan-Feb-16 (day

adjusted). However, water shortages are intensifying and impacting

construction activities. Mar-16 volume growth is low at about 5% (despite a

weak base) and with the onset of the monsoon, we do not expect material

price increases in the next 4-5 months.

Share price performance

80

100

120

140

160

2000

2500

3000

3500

4000

Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the S&P

BSE SENSEX IDX which closed at 25880.38 on 21/04/16

On 21/04/16 the spot exchange rate was Rs66.27/US$1

Performance over 1M 3M 12M Absolute (%) 2.1 20.3 16.9 — Relative (%) -0.0 14.3 24.1 —

Financial and valuation metrics

Year 3/15A 3/16E 3/17E 3/18E Revenue (Rs mn) 243,489.6 253,468.7 282,981.2 327,692.4 EBITDA (Rs mn) 44,254.8 44,098.7 54,896.7 72,306.8 EBIT (Rs mn) 32,220.6 30,744.0 41,059.1 58,375.6 Net profit (Rs mn) 20,983.4 21,425.8 30,827.3 43,419.0 EPS (CS adj.) (Rs) 76 78 112 158 Change from previous EPS (%) n.a. 0 0 0 Consensus EPS (Rs) n.a. 84 115 151 EPS growth (%) -4.9 2.1 43.9 40.8 P/E (x) 42.8 41.9 29.1 20.7 Dividend yield (%) 0.28 0.28 0.41 0.59 EV/EBITDA (x) 21.3 21.6 17.4 13.1 P/B (x) 4.8 4.4 3.9 3.4 ROE (%) 11.7 10.9 14.1 17.4 Net debt/equity (%) 24.8 27.6 25.1 18.4

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating (from Outperform) NEUTRAL* Price (21 Apr 16, Rs) 3,269.60 Target price (Rs) 3,150.00¹ Upside/downside (%) -3.7 Mkt cap (Rs mn) 897,281 (US$13,540 mn) Enterprise value (Rs mn) 954,211 Number of shares (mn) 274.43 Free float (%) 34.6 52-week price range 3,406.9 - 2,602.6 ADTO - 6M (US$ mn) 13.8

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

Research Analysts

Anubhav Aggarwal

91 22 6777 3808

[email protected]

Badrinath Srinivasan

91 22 6777 3698

[email protected]

21 April 2016


(ULTC.BO / UTCEM IN) 2

Focus tables and charts Figure 1: Reverse DCF—Ultratech pricing in 25% EPS CAGR over next five years

Description Unit Value of metric

Historical 1 year forward P/E multiple (x) 18

Current Market Price Rs/share 3,350

Implied FY17 E EPS Rs/share 186

CS-Est FY17 EPS Rs/share 112.2

Implied 2-year EPS CAGR (FY17-19) % 45%

Implied 5-year EPS CAGR (FY17-22) (12% discounting factor) % 25%

Impact of 1% volume growth on ULTC EPS % 1.6%

Impact of 1% accretive ASP increase on ULTC EPS % 4.5%

Source: Company data, Credit Suisse estimates

Figure 2: Past cycle trend—last three up-cycles had earnings CAGR of 20-30%

Cycle Duration Time period Industry EBITDA CAGR

Upcycle 3 years FY94-96 40%

Downcycle 3 years FY97-99 -4%







Source: Company data, Credit Suisse research

Figure 3: Implied RoCE for Ambuja already at similar level

to past upcyle

Figure 4: Implied RoCE for Ultratech assumes sharp

recovery

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

ABUJ EV/Ton % replacement cost (LHS) RoCE (RHS)

Market implied RoCE (RHS)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18 implied

Ultratech RoCE (%)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: Acquisition of JPA cement assets of 21.2mt will be EPS dilutive for three years;

transfer charges on limestone could further delay the breakeven period

Current Yr 1 Yr 2 Yr 3

Capacity (mt) 17.2 17.2 17.2 21.2

Utilisation 65% 70% 75% 70%

EBITDA/t 470 650 800 950

Base EBITDA (Rs mn) 5,255 7,826 10,320 14,098

Synergies (Rs mn) 3,994 4,951 6,184

Total EBITDA (Rs mn) 5,255 11,820 15,271 20,282

EPS impact without transfer charges -12% -6% 1%

EPS impact including transfer charge @ Rs 50/t -13% -7% 0%


21 April 2016



Past upcycle earnings growth already priced in Risk-reward unfavourable with stock already pricing

in 25% EPS CAGR over next five years

The cement up-cycle has just started and based on our analysis, Ultratech's stock is

already pricing in 25% EPS CAGR over the next five years. In the past two decades, there

have been four up-cycles with one of five-year duration (FY04-08) and the rest with

durations of 2-3 years. Earnings growth in the past three up-cycles has been about 20-

30%, and therefore, Ultratech is already pricing-in a large extent of recovery and risk-

reward is unfavourable currently. Implied return assumptions are already equal to past up-

cycles with the exception of the FY04-08 upcycle when returns were much higher as

utilisations increased from 85% to 95%, but currently utilisations are low at 65%.

We admit that there are multiple demand triggers, which should sustain volume growth for

the industry in this upcycle, such as: (1) the benefit of 7th pay commission payouts, (2)

Central government's new schemes for rural and urban housing, and (3) the strong trend

in awarding of road projects. However, we expect the volume growth benefit to be more

back-ended, and look for a better entry point.

Limestone transfer charges under MMDR Act

reduces attractiveness of JPA deal

The MMDR Act is being amended to allow the transfer of mines via other than the auction

route. However, the amendment also has the provision of transfer charges, which have not

been defined so far. We expect clarity on transfer charges post the clearances in Rajya

Sabha. Post the JPA deal, Ultratech's stock has outperformed both Ambuja and ACC,

which shows the market has already valued the upside from the deal, and the imposition

of the transfer charge should be a negative surprise. The transfer charges could be

defined as an upfront payment or in the form of royalty that Ultratech may have to pay as it

starts mining from acquired assets. In our view, the latter is more likely.

In the mine auctions, the premium paid by the companies has varied, but even if we take

the lower end of the premium of about Rs50/t, then it could impact the current profitability

of the acquired assets by 10% and post synergies EBITDA could be impacted by 5% for

every Rs50/t as the royalty. Thus, the extent of transfer charge impacts the breakeven

period for the acquisition (we expect the deal to be EPS accretive only after three years).

Water shortages could spoil near-term volume

growth momentum

Cement demand growth in 4Q16 picked up to 8-9%, largely due to low base of 4Q15.

Within the quarter, the demand growth in the months of Jan-16 and Feb-16 was strong at

9% (day-adjusted) but demand growth in Mar-16 was low at just 5%, despite a very weak

base of Mar-15 (where several companies reported sales decline of 8-10%). Our checks

suggest that water shortage is intensifying and already impacting construction activities in

several states like Karnataka, Maharashtra, Madhya Pradesh and Uttar Pradesh. This may

continue to impact volume growth momentum in the near term and impact abilities of

companies to push through new price increase.

Recently, the Central government updated Supreme Court about water shortages in 10

states, namely Karnataka, Odisha, Maharashtra, Madhya Pradesh, Chhattisgarh,

Jharkhand, Uttar Pradesh, Andhra Pradesh, Telangana and Rajasthan. As per the collated

data, 254 districts across these ten states have been affected by the drought.

In the past three up-cycles,

earnings growth was 20-

30%, while Ultratech

currently is already pricing in

earnings growth of 25%

We expect volume growth to

be more back-ended, and

look for a better entry point

Transfer charges on

acquired JPA assets will be

a negative surprise

Every Rs50/t in transfer

price will likely impact post

synergies EBITDA of

acquired assets by 5%

Post strong volume growth

in Jan and Feb-16, volume

growth for Mar-16 has been

weak

With onset of monsoon, we

do not expect material price

increase in next 4-5 months

21 A

pril 2

016

Ultra

tec

h C

em

en

t Ltd

(UL

TC

.BO

/ UT

CE

M IN

) 4

Regional Cement valuation table Figure 6: Valuation table

Company MCAPCurrent

Price

Target

PriceRec. EV/Ton

($ mn) (lc) (lc) FY17E FY18E FY17E FY18E FY16E FY17E FY18E FY17E FY18E FY17E FY18E FY17

E

FY18

E

FY16E FY17E FY18E $/t

India - Large Caps

ACC Limited 4,067 1,436 1,250 N 1,985 2,270 149 220 -50% 68% 48% 27.4x 18.5x 3.1x 3.0x 15.3x 11.3x 7% 11% 16% 117

Ambuja Cements Ltd 5,174 221 200 N 1,582 1,886 181 283 -44% 42% 57% 28.6x 18.3x 3.2x 2.9x 16.2x 10.8x 8% 11% 16% 155

Ultratech Cement Ltd 13,540 3,270 3,150 N 4,270 4,945 465 655 2% 44% 41% 29.1x 20.7x 3.9x 3.4x 17.2x 13.2x 10% 13% 16% 211

Shree Cement 6,710 12,765 1,312 1,452 194 246 33% 96% 27% 32.6x 23.6x 6.1x 5.1x 17.6x 13.8x 12% 21% 23% 242

India - Mid Caps

Birla 446 384 516 n.a. 24 n.a -44% 36% n.a 17.3x 9.0x 1.1x 1.0x 9.8x 5.3x 4% 6% n.a. 72

Dalmia Bharat Ltd. 1,150 859 625 U 1,233 1,384 52 70 n.a. 187% 33% 21.9x 16.5x 1.9x 1.7x 10.9x 8.5x 4% 9% 10% 98

India Cements 411 89 709 721 33 41 354% 52% 23% 11.9x 9.0x 0.7x 0.7x 3.0x 2.6x 4% 6% 6% 54

JK Cement Ltd. 660 625 715 O 648 734 36 60 -47% 212% 69% 18.5x 10.9x 2.5x 2.1x 10.7x 8.5x 5% 13% 19% 94

JK Lakshmi Cement Ltd. 636 358 380 O 480 591 20 50 n.a. n.a. 146% 31.5x 12.8x 3.1x 2.6x 13.3x 8.5x -2% 10% 20% 97

Ramco Cements 1,635 455 590 605 76 87 70% 11% 15% 21.2x 17.4x 3.2x 2.8x 9.6x 8.5x 16% 16% 18% 148

Mexico

Cemex 10,402 8 8 O 14,535 15,431 188 426 -103% 1190% 126% 57.0x 21.3x 1.1x 1.0x 3.7x 3.3x 0% 2% 5%

Indonesia

Holcim Indonesia 672 1,155 R R 835 898 29 37 -74% 97% 26% 20.9x 16.8x 1.0x 1.0x 5.1x 4.8x 2% 4% 5%

Indocement 5,588 20,000 21,600 N 1,462 1,572 342 367 -27% 5% 7% 16.0x 14.1x 2.9x 2.6x 11.2x 10.2x n.a 18% 19%

Semen Indonesia 4,738 10,525 16,000 O 2,154 2,330 359 392 -28% 6% 9% 12.9x 11.3x 2.2x 1.9x 8.0x 7.4x 18% 18% 18%

China

Anhui Conch Cement Co. Ltd.14,062 22 24 O 8,320 8,904 1,102 1,267 -33% -8% 15% 12.4x 10.6x 1.2x 1.1x 6.9x 5.5x 11% 10% 10%

China National Building Material Co3,014 4 3 N 15,967 16,439 193 253 -83% 19% 31% 15.5x 11.2x 0.4x 0.4x 8.9x 0.9x 2% 3% 3%

Thailand

Siam Cement 16,653 486 500 O 12,938 13,856 1,299 1,355 28% -2% 4% 12.6x 11.4x 2.4x 2.0x 9.6x 7.3x 24% 20% 19%

Siam City Cement 2,154 328 335 O 889 927 130 138 -15% -3% 6% 16.1x 14.5x 3.2x 2.9x 11.1x 9.8x 21% 20% 20%

Taiwan

Taiwan Cement 3,833 34 35 O 2,861 3,144 200 240 -49% 10% 20% 18.6x 14.8x 1.1x 1.0x 10.7x 6.6x 5% 5% 6%

Asia Cement 3,083 30 28 N 2,017 2,074 178 196 -50% 16% 10% 17.0x 14.1x 0.7x 0.6x 14.4x 8.0x 4% 4% 4%

Europe

Lafargeholcim 31,530 50 30,564 32,675 1,490 2,064 -42% 83% 38% 21.1x 14.4x 0.9x 0.8x 8.0x 4.7x 3% 4% 6%

CRH 23,773 26 31,700 33,843 1,393 1,723 38% 37% 24% 16.3x 12.5x 1.6x 1.4x 8.8x 6.1x 7% 10% 11%

Sales (US$ mn)Net Profit (US$

mn)Earnings growth P/E (x) P/B (x)

EV/EBITDA

(x)RoE (%)

Source: Company data, IBES, Credit Suisse estimates for covered companies

21 April 2016



Risk-reward unfavourable with stock pricing in 25% EPS CAGR over 5 years The cement up-cycle has just started, and based on our analysis, Ultratech's stock is

already pricing in 25% EPS CAGR over the next five years. In the past two decades, there

have been four up-cycles, with one of five-year duration (FY04-08), and the rest with

durations of 2-3 years. Earnings growth in the past three up-cycles has been about 20-

30%, and therefore, Ultratech is already pricing in a large extent of recovery, and risk-

reward is unfavourable currently. Implied return assumptions are already equal to past up-

cycles with the exception of the FY04-08 upcycle when returns were much higher as

utilisations increased from 85% to 95%, but currently utilisations are low at 65%.

We admit that there are multiple demand triggers, which should sustain volume growth for

the industry in this upcycle, such as (1) the benefit of 7th pay commission payouts, (2)

Central government's new schemes for rural and urban housing, and (3) the strong trend

in the awarding of road projects. However, we expect the volume growth benefit to be

more back-ended, and look for a better entry point.

Ultratech already pricing in 25% EPS CAGR over

next five years

The cement up-cycle has just started, and based on our analysis (Figure 7), Ultratech's

stock is already pricing in 25% EPS CAGR over the next five years. We admit that there

are multiple demand triggers, which should sustain volume growth for the industry in this

upcycle, such as: (1) the benefit of the 7th pay commission payouts, (2) Central

government's new schemes for rural and urban housing, and (3) the strong trend in the

awarding of road projects. However, our analysis of the past cement cycles suggests that

Ultratech is already pricing in a large extent of earnings growth during the past upcycles

(Figure 8), and therefore currently risk-reward is unfavourable.

Figure 7: Reverse DCF—Ultratech pricing in 25% EPS CAGR over next 5 years

Description Unit Value of metric

Historical 1 year forward P/E multiple (x) 18

Current Market Price Rs/share 3,350

Implied FY17 E EPS Rs/share 186

CS-Est FY17 EPS Rs/share 112.2

Implied 2-year EPS CAGR (FY17-19) % 45%

Implied 5-year EPS CAGR (FY17-22) (12% discounting factor) % 25%

Impact of 1% volume growth on ULTC EPS % 1.6%

Impact of 1% accretive ASP increase on ULTC EPS % 4.5%


Historical returns: Upcycles have seen 20-40%

EBITDA CAGR

We analyse past upcycles and downcycles in the past two decades to understand the

typical growth in EBITDA during those periods; as seen in Figure 8, in upcycles, we

typically see a 20-40% EBITDA CAGR typically. On the duration front, the longest up-cycle

was in FY04-08, otherwise up-cycle and downcycles have typically lasted for 2-3 years.

In past three up-cycles,

earnings growth was 20-

30% while Ultratech

currently is already pricing in

earnings growth of 25%

We expect volume growth to

be more back ended and

look for a better entry point

21 April 2016



Figure 8: Past cycles in Indian cement sector—past 3 up-cycles had earnings CAGR of

20-30%

Cycle Duration Time period Industry EBITDA CAGR









Source: Company data, Credit Suisse research

Ultratech already implies a five-year upcycle with 22% EBITDA CAGR

We believe the stock is already pricing in a five-year upcycle with ~22% EBITDA CAGR

over the period. Further stock outperformance is contingent on the upcycle transpiring to

be either longer (duration), or higher profitability than that. The longest upcycle lasted five

years (seen from FY04-08), and the industry witnessed a 30% EBITDA CAGR over the

period. This was driven by utilisations trending up from ~85% to ~95% (Figure 10). With

utilisations currently at ~65-70%, we do not expect the current upcycle to be as strong.

Figure 9: Identifying upcycles—areas shaded green have

seen 20-40% EBITDA CAGR

Figure 10: Past upcycles have seen strong EBITDA

growth, but utilisations were 85-95%, which helped

industry acquire pricing power; currently ~65-70%

-50%

-25%

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25%

50%

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Industry EBITDA growth (%; RHS) Industry Volume growth (%)

60%

65%

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100%

FY

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Utilization


Implied RoCE is at similar level to past upcycles

Figure 11 and Figure 12 show that implied return assumptions in the current up-cycle are

already equal to past up-cycles with the exception of the FY04-08 upcycle when returns

were much higher, as utilisations increased from 85% to 95%, but currently utilisations are

low at 65% and we do not expect them to reach 90% in the current up-cycle.

21 April 2016



Figure 11: Implied RoCE for Ambuja is already at similar

level to past-upcyle

Figure 12: Implied RoCE for Ultratech assumes sharp

recovery

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

1-Jan-00 1-Jan-03 1-Jan-06 1-Jan-09 1-Jan-12 1-Jan-15

Ambuja EV/Ton as % replacement cost RoCE Market implied RoCE

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18 implied

Ultratech RoCE (%)


21 April 2016



Limestone royalty under MMDR Act reduces attractiveness of JPA deal The Mines and Minerals Development and Regulation Act (MMDR) is being amended to

allow the transfer of mines other than auction route. However, the amendment also has

the provision of transfer charges, which have not been defined so far. The bill empowers

the Central government to define these transfer charges. The amendment to the MMDR

Act has been cleared in Lok Sabha, and requires clearance in Rajya Sabha now. Post the

clearance in Rajya Sabha, we expect clarity on transfer charges on the acquired mines.

In our view, the market currently is not assuming any impact of transfer charges on 21.2mt

cement assets that Ultratech is buying from JPA. The transfer charges could be defined as

an upfront payment or in the form of royalty that Ultratech may have to pay as it starts

mining from the acquired assets. In our view, the latter is more likely. In the mine auctions,

the premiums paid by the companies have varied, but even if we take the lower end of the

premium of about Rs50/t (paid by Century Textile), then it could impact the current

profitability of the acquired assets by 10% and post synergies EBITDA could be impacted

by 5% for every Rs50/t as the royalty.

Figure 13: Acquisition of JPA cement assets of 21.2mt will be EPS dilutive for three

years; transfer charges on limestone could further delay the breakeven period

Current Yr 1 Yr 2 Yr 3

Capacity (mt) 17.2 17.2 17.2 21.2

Utilisation 65% 70% 75% 70%

EBITDA/t 470 650 800 950

Base EBITDA (Rs

mn)

5,255 7,826 10,320 14,098

Synergies (Rs mn) 3,994 4,951 6,184

Total EBITDA (Rs

mn)

5,255 11,820 15,271 20,282

Interest (Rs mn) (13,505) (13,505) (13,893)

Depr (Rs mn) (5,500) (5,500) (5,500)

PBT (Rs mn) (7,185) (3,734) 889

EPS impact -12% -6% 1%

Including impact of transfer charges

Limeston transfer

charge (Rs /t)

50 50 50

PBT Impact (Rs mn) 602 645 745

Total EPS impact -13% -7% 0%


The acquired assets from JPA are complementary to Ultratech and the deal value was

almost at the replacement cost. Therefore, the deal was attractive for Ultratech. Post the

deal, the Ultratech stock has outperformed both Ambuja and ACC, which shows that the

market has already valued the upside from the deal. Given that the deal size is large

(increasing capacity of Ultratech by 33%), execution is critical to realise the synergies, and

successfully transition brand from JPA to Ultratech and realise the premium pricing.

Additionally, if the transfer charges turn out to be higher than Rs50/t, the breakeven period

could be longer.

Transfer charges on

acquired JPA assets will be

a negative surprise

Every Rs50/t in transfer

price will likely impact post

synergies EBITDA of

acquired assets by 5%

21 April 2016



Water shortages could spoil near-term volume growth momentum Cement demand growth in 4Q16 picked up to 8-9%, largely due to the low base of 4Q15.

Within the quarter, demand growth in months of Jan-16 and Feb-16 was strong at 9%

(day-adjusted) but demand growth in Mar-16 was low at just 5%, despite a very weak base

of Mar-2015 (where several companies reported sales decline of 8-10%). Our checks

suggest that the water shortage is intensifying and already impacting construction

activities in several states like Karnataka, Maharashtra, Madhya Pradesh and Uttar

Pradesh. This may continue to impact volume growth momentum in the near term, and

impact abilities of companies to push through new price increases.

Figure 14: 1H FY17 volume growth may remain supported by a weak base but water

shortage could impact the ability to push through price increase

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Quarterly Demand Growth YoY

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: IIP data, Credit Suisse estimates

Recently, the Central government updated the Supreme Court about water shortages in

ten states, namely Karnataka, Odisha, Maharashtra, Madhya Pradesh, Chhattisgarh,

Jharkhand, Uttar Pradesh, Andhra Pradesh, Telangana and Rajasthan. As per the collated

data, 254 districts across these ten states are affected by the drought.

Figure 15: Drought affected districts in key states

States Districts affected by drought

UP 50 / 75

MP 46 / 51

Maharashtra 21 / 36

Karnataka 27 / 30

Jharkhand 22 / 24

Chattisgarh 25 / 27

Andhra Pradesh 9 / 13

Rajasthan 19 / 33

Telangana 7 / 10

Source: Credit Suisse research

21 April 2016



Companies Mentioned (Price as of 21-Apr-2016)

Ambuja Cements Ltd (ABUJ.BO, Rs220.95) Jaiprakash Associates Ltd. (JAIA.BO, Rs8.32) Ultratech Cement Ltd (ULTC.BO, Rs3269.6, NEUTRAL, TP Rs3150.0)

Disclosure Appendix

Important Global Disclosures

Anubhav Aggarwal and Badrinath Srinivasan each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Ambuja Cements Ltd (ABUJ.BO)

ABUJ.BO Closing Price Target Price

Date (Rs) (Rs) Rating

05-May-13 188.20 205.00 O

22-Jul-13 198.65 205.00 N

24-Oct-13 193.95 180.00

06-Feb-14 155.80 155.00

24-Apr-14 218.75 160.00 U

29-Jul-14 205.95 184.00

18-Feb-15 269.50 230.00

30-Apr-15 234.20 218.00

03-Jul-15 241.70 210.00

28-Oct-15 208.75 210.00 N

18-Jan-16 191.05 200.00

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Ultratech Cement Ltd (ULTC.BO)

ULTC.BO Closing Price Target Price

Date (Rs) (Rs) Rating

05-May-13 1885.55 1950.00 N

20-Jan-14 1719.95 1700.00

20-Feb-14 1700.20 1430.00 U

24-Apr-14 2170.50 1535.00

29-Jul-14 2406.45 2200.00 N

20-Oct-14 2450.55 2300.00

27-Jan-15 3120.30 3900.00 O

27-Apr-15 2656.45 3700.00

03-Jul-15 3061.95 3525.00

18-Jan-16 2638.75 3150.00

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

U N D ERPERFO RM

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within

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an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 Jul y 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 57% (39% banking clients)

Neutral/Hold* 32% (28% banking clients)

Underperform/Sell* 10% (50% banking clients)

Restricted 1%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indi vidual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Ultratech Cement Ltd (ULTC.BO)

Method: Our target price of Rs3,150 for Ultratech Cement is based on 20x FY18E EPS (earnings per share), which is a 10% premium to large-cap multiple and also accounts for benefits from the acquisitions of BK Birla group assets. We are positive on the cement upcycle and have an NEUTRAL rating for Ultratech as the upside is limited - stock is already at 20x earnings, and is pricing in 45% 2-year EPS CAGR.

Risk: Risks to our NEUTRAL rating and Rs3,150 target price for Ultratech Cement include: (1) demand growth weaker than expected at 8% for the industry; (2) cement prices weaker than expected at less than 8% annual increase ; (3) input prices could surprise; and (4) further delays in commissioning/ramping up new capacities in a bad environment.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (ULTC.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

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Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ULTC.BO) within the next 3 months.

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (JAIA.BO, ULTC.BO, ABUJ.BO)

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (India) Private Limited .................................................................................... Anubhav Aggarwal ; Badrinath Srinivasan

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

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