5QFY2012 Result Update | Cement

August 28, 2012

Shree Cement
Performance highlights

NEUTRAL
CMP Target Price
Investment Period
% Chg qoq 5.8 28.7 586bp 206.3 1QFY2012 1,034 259 25.1 55 % Chg yoy 40.8 85.3 792bp 537.3

`3,493 Cement 12,168 (308) 0.8 3,575/1,571 4,102 10 17,632 5,335 SHCM.BO SRCM@IN

Quarterly results - Standalone

Y/E Mar. (` cr) Net sales Operating profit OPM (%) Net profit 5QFY2012 1,456 480 33.0 351 4QFY2012 1,376 373 27.1 114

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Source: Company, Angel Research

Shree Cement (SRCM) posted a strong performance on the bottom-line front (up 537% yoy) in 5QFY2012 which was well ahead of both, our as well as consensus estimates. The stellar performance was on account of a 25% yoy growth in cement volumes, coupled with an 11.6% yoy growth in cement realization. The bottom-line was also boosted on account of a 15.7% yoy reduction in the companys per tonne freight cost despite the increase in rail freight fare and higher road freight charges (due to increase in diesel costs). We remain Neutral on the stock. OPM at 33%, up 792bp yoy: SRCMs cement business posted EBITDA/tonne of `1,320 for the quarter (up 39% on a y-o-y basis). The sharp improvement in EBITDA/tonne was aided by higher realization and a 15.7% yoy decline in freight costs. Merchant power volumes rose by 63.6% on a y-o-y basis to 390MUs, aided by higher generation capacity. However, on a sequential basis merchant power volumes were down by 10%. EBITDA/unit of merchant power sold stood at `0.9 vs `0.6 in 4QFY2012. Thus, the companys OPM stood at 33%, up 792bp on a y-o-y basis. Apart from a strong operational performance, the bottom-line was also boosted by lower depreciation which stood at `82cr, down 48.8% yoy (down 65.1% qoq). Other income at `32cr too was higher by 103% on a y-o-y basis. Outlook and valuation: At the current market price, SRCM's cement business is trading at EV/tonne of US$125 on current capacity (US$67 on FY2014E capacity), which we believe is fair. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 64.8 5.3 8.4 21.5

Abs.(%) Sensex SRCM

3m 7.4

1yr 11.2

3yr 10.7

35.6 112.9 127.0

Key financials
Y/E March (` cr) Net Sales % chg Net Profit % chg FDEPS(`) OPM (%) P/E(x) P/BV(x) RoE(%) RoCE(%) EV/Sales (x) FY2011 3,454 (5.2) 210 (69.0) 74.1 25.6 47.1 6.1 13.5 5.3 3.3 167 FY2012E* 5,898 70.8 618 194.7 180.9 27.9 19.3 4.5 26.7 19.3 1.7 125 FY2013E 5,767 (2.2) 756 22.3 216.9 28.4 16.1 3.6 24.7 23.0 1.5 93 FY2014E 6,337 9.9 882 16.8 253.3 26.9 13.8 2.9 23.4 21.7 1.2 67

EV/tonne

V.Srinivasan
+91 22 39357800 Ext. 6831 v.srinivasan@angelbroking.com

EV/EBITDA 12.8 6.0 5.4 4.5 Source: Company, Angel Research; Note:* The company has changed its accounting period to June-end, hence FY2012 consists of 15 months.

Please refer to important disclosures at the end of this report

Shree Cements | 5QFY2012 Result Update

Exhibit 1: 5QFY2012 Performance

Y/E March (` cr) Total Operating Income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT Extr. (Income)/Expense PBT Provision for tax (%) of PBT Reported PAT PATM (%)
Source: Company, Angel Research

5QFY2012 1,456 136 9.3 341 23.4 75 5.1 236 16.2 188 12.9 976 480 33.0 48 82 32 383 383 32 8.4 351 24.1

4QFY2012 % Chg qoq 1,376 147 10.7 361 26.2 61 4.2 246 16.9 189 13.0 1,003 373 27.1 41 235 77 175 3 172 58 33.5 114 8.3 206.3 122.3 (44.5) (2.7) 28.7 586bp 16.7 (65.1) (58.5) 118.7 (0.2) (4.2) 23.6 (5.4) 5.8 (7.4)

1QFY2012 % Chg yoy 1,019 129 12.7 273 26.8 61 4.2 223 15.3 89 6.1 775 244 23.9 32 160 16 68 8 60 4 7.2 55 5.4 532.3 26.0 96.9 904bp 50.5 (48.8) 103.0 462.1 (100.0) 540.0 638.8 112.6 5.6 22.3 25.2 42.9 5.3

Exhibit 2: Financial performance

(` cr) 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 5QFY12 Total operating income Source: Company, Angel Research Net Profit OPM (RHS) 27 66 55 38 59 114 351 780 1,070 1,034 855 1,259 (%) 1,376 1,456 29.0 27.0 25.0 23.0 21.0 19.0 17.0 15.0

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Exhibit 3: 5QFY2012 Actual vs Angel estimates

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

Actual 1,456 480 351

Estimates 1,382 360 161

Variation (%) 5.4 33.5 117.7

Performance highlights
Total operating income up 40.8% yoy, led by strong growth in cement business
During 5QFY2012, SRCMs total operating income grew by 40.8% yoy to `1,456cr, primarily on account of a 39.8% yoy increase in revenues of the cement business. The stellar performance of the cement business was lead by a robust 25% yoy growth in cement volumes (vs industry growth rate of ~9%) and a healthy 11.6% yoy growth in realization. Revenue of the power business also grew by 45.3% yoy to `170cr aided by a 63.6% increase in sale volumes to 390MUs. However, volumes were down by 9.5% on a sequential basis. Power volumes growth was aided by 300MW of new capacity commissioned during the year. Higher realization coupled with lower freight and power and fuel costs results in 39% yoy increase in EBITDA/tonne On the operating front, net raw-material cost per tonne of cement fell by 16% yoy to `404/tonne. Freight cost/per tonne fell by 15.7% yoy. Power and fuel cost per tonne too was down by 9.7% yoy due to lower pet coke prices. Higher realization coupled with fall in per tonne freight and power and fuel costs resulted in OPM expanding by 792bp yoy to 33% (up 586bp qoq). The operating profit per tonne of cement increased to `1,320 (up 39.6% yoy).

Exhibit 4: Cement operational performance

Particulars (`) Realization/tonne Net Raw material cost/tonne Power & fuel cost/tonne Freight cost/tonne Other costs Operating profit/tonne Source: Company, Angel Research 5QFY12
3,805 404 620 699 559 1,320

4QFY12
3,427 423 579 709 544 1,000

1QFY12
3,409 480 686 829 329 992

chg(%) yoy
11.6 (16.0) (9.7) (15.7) 69.7 33.1

chg(%) qoq
11.0 (4.6) 7.1 (1.4) 2.7 32.0

Exhibit 5: Segment-wise revenue break-up

Particulars (` cr) Revenue Cement Power EBIT Cement Power 336 65 251 (67) 179 (80) 87.6 33.9 1282 173 1189 187 917 102 39.8 69.9 7.8 (7.6) 5QFY12 4QFY12 1QFY12 chg (%) yoy chg (%) qoq

Source: Company, Angel Research

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Investment rationale
One of the lowest-cost cement producers: SRCM is one of the lowest-cost cement producers in north India, primarily because of its captive power plant and lesser power consumption per tonne of cement (one of the lowest in the industry due to higher proportion of portland pozzolana cement PPC [~80%] in overall sales volumes) and lower freight cost as its grinding units are close to demand centers. Growth to be driven by capacity addition: SRCM has recently added 3.3mtpa of cement capacity by commissioning new grinding plants and by de-bottlenecking. The company has also commissioned new merchant power capacity of 300MW in two phases in October 2011 and January 2012. We expect these capacity additions to drive its revenue growth going ahead. Outlook and valuation: At the current market price, SRCM's cement business is trading at an EV/tonne of US$125 on current capacity (US$67 on FY2014E capacity), which we believe is fair. Hence, we maintain our Neutral recommendation on the stock.

Exhibit 6: One-year forward EV/tonne

90,000 80,000 70,000 60,000 EV (` mn) 50,000 40,000 30,000 20,000 10,000 0 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 EV/tonne US $70 US $90 US $110 US $130

Source: Bloomberg, Angel Research

Exhibit 7: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco CMP (`) Tgt. Price (`) Upside (%) FY2014E P/BV (x) FY2014E P/E (x) FY2012-14E EPS CAGR FY2014E EV/tonne^ RoE (%) US $

Neutral Neutral Neutral Neutral Neutral

Neutral

1,334 187 86 95 182

3,493

3.0 3.2 0.7 0.7 1.6

2.9

16.4 15.5 6.7 5.3 10.1

13.8

7.3 21.4 14.1 41.7 5.8

18.3

19.0 19.8 10.6 14.6 16.9

23.4

129 162 59 45 65
125

Neutral

1,732

2.7

16.1

9.9

18.3

160

Source: Company, Angel Research; Note: *Y/E December; # Y/E June; ^ Computed on TTM basis

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Company background
Shree Cements is a leading cement company in north India, with a current total capacity of 13.5mtpa spread across Rajasthan (11.7mtpa) and Uttarakhand (1.8mtpa). The company has ambitiously grown its cement capacity by five times in the past six years. In FY2011 alone, the company added 3.3mtpa of cement capacity and 1mtpa of clinker capacity. Also, the company has ventured into the power generation business and is expected to have 560MWof capacity by FY2012end post the commissioning of the new 300MW capacity.

Profit and loss statement

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of net Sales) Depreciation& Amortization EBIT % chg (% of net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 2,715 28.8 1,793 262 606 104 821 922 11.9 34.0 205 717 107.5 26.4 77 83 11.5 723 96.3 723 145 20.1 578 122.0 21.3 166 166 122.0 3,642 34.2 2,204 313 610 159 1,121 1,439 56.0 39.5 570 868 21.1 23.8 129 129 14.8 868 20.1 868 192 22.1 676 17.0 18.6 194 194 17.0 3,454 (5.2) 2,569 342 905 199 1,124 885 (38.5) 25.6 676 209 (75.9) 6.1 175 125 78.8 159 (81.7) 48 110 (99) (90.0) 258 (61.8) 7.5 74 74 (61.8) FY2012 FY2013E FY2014E 5,898 70.8 4,252 598 1,500 319 1,835 1,646 86.0 27.9 873 773 269.5 13.1 235 163 23.3 700 340.7 12 688 70 10.1 630 144.2 10.7 181 181 144.2 5,767 (2.2) 4,128 532 1,491 310 1,795 1,639 (0.4) 28.4 677 962 24.6 16.7 124 106 11.2 945 35.0 945 189 20.0 756 19.9 13.1 217 217 19.9 6,337 9.9 4,635 595 1,651 338 2,051 1,702 3.9 26.9 707 995 3.4 15.7 88 131 12.6 1,038 9.9 1,038 156 15.0 882 16.8 13.9 253 253 16.8

Note: FY2012 Consists of 15 months; Some of the figures from FY2012 are reclassified and hence not comparable with previous year numbers

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long term liab Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Long term loans and adv Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,466 509 744 213 721 745 2,696 1,582 416 725 441 967 615 3,927 2,256 1,629 627 479 845 2,951 2,199 752 967 1,592 4,042 2,875 1,167 729 1,196 308 1,467 499 456 512 892 575 3,976 5,188 3,748 1,440 178 2,535 205 1,545 459 401 684 1,889 (344) 4,014 5,488 4,425 1,063 278 2,835 205 1,860 722 454 684 1,877 (17) 4,365 5,738 5,132 606 478 3,235 205 2,392 1,094 524 774 2,092 300 4,824 2,696 3,927 35 1,175 1,210 1,496 (10) 35 1,798 1,833 2,106 (12) 35 1,951 1,986 1,689 (72) 357 16 3,976 35 2,699 2,734 963 (70) 370 17 4,014 35 3,349 3,384 663 (70) 370 17 4,365 35 4,109 4,143 363 (70) 370 17 4,824 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Note: FY2012 consists of 15 months; Some of the figures from FY2012 are reclassified and hence not comparable with previous year numbers

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Cash Flow from Financing Others Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 25 484 509 (92) 509 416 82 416 499 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 723 205 (80) 83 164 601 (254) 83 165 41 125 868 570 33 129 190 1,152 (747) 129 610 53 557 110 676 156 125 (71) 888 (853) 125 (0) (417) 57 (474) 688 873 1,233 163 70 2,561 (595) 163 (726) 86 (812) 18 (40) 499 459 263 459 722 372 722 1,094 945 677 (64) 106 189 1,262 (400) (300) 106 (594) (300) 105 (405) 1,038 707 55 131 156 1,514 (450) (400) 131 (719) (300) 123 (423)

(530) (1,183)

396 (1,339) (332) (1,771)

(700) (1,802)

Note: FY2012 consists of 15 months; some of the figures from FY2011 onwards are reclassified and hence not comparable with previous year numbers

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.1 0.2 9.3 0.1 0.1 6.7 (0.0) (0.0) 1.2 (0.7) (1.2) 3.3 (0.9) (1.8) 7.8 (1.0) (2.3) 11.3 1.2 22 7 124 25 1.4 26 7 140 22 1.0 40 10 132 15 1.3 28 9 119 (22) 1.1 32 12 166 (49) 1.1 31 11 156 (44) 30.6 81.7 65.0 26.2 95.7 45.2 5.3 16.7 13.5 19.3 64.5 26.7 23.0 140.3 24.7 21.7 363.7 23.4 26.4 79.9 1.5 31.1 4.4 0.9 55.9 23.8 77.9 1.3 23.7 5.6 0.9 40.9 6.1 190.0 1.0 11.4 17.6 0.8 6.4 13.1 89.9 1.7 19.7 16.0 0.4 21.4 16.7 80.0 1.6 21.4 12.2 0.2 23.4 15.7 85.0 1.7 22.9 14.5 0.1 24.0 165.9 165.9 224.8 11.7 333.2 194.0 194.0 357.8 15.2 526.2 74.1 74.1 254.2 16.3 570.1 180.9 180.9 428.0 24.7 784.8 216.9 216.9 411.1 30.3 971.4 253.3 253.3 456.3 35.3 1,189.4 21.1 15.5 10.5 0.3 4.4 12.8 4.4 18.0 9.8 6.6 0.4 3.1 7.8 2.9 47.1 13.7 6.1 0.5 3.3 12.8 2.9 19.3 8.2 4.5 0.7 1.7 6.0 2.5 16.1 8.5 3.6 0.9 1.5 5.4 2.0 13.8 7.7 2.9 1.0 1.2 4.5 1.6 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

August 28, 2012

Shree Cements | 5QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Shree Cement No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 28, 2012