1QFY2013 Result Update | Cement

October 16, 2012

Shree Cement
Performance highlights

NEUTRAL
CMP Target Price
% Chg qoq (9.1) (18.1) (327)bp (34.9) 2QFY2012 852 198 23.2 36 % Chg yoy 55.4 98.8 649bp 536.8

`4,049 -

Quarterly results - Standalone

Y/E Mar. (` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

1QFY2013 1,324 393 29.7 228

5QFY2012 1,456 480 33.0 351

Investment Period
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 Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex SRCM 3m 8.6 1yr 8.8

Cement 14,105 (308) 0.8 4442/1823 12,719 10 18,578 5,648 SHCM.BO SRCM@IN

Shree Cement (SRCM) posted a strong performance on the bottom-line front (up 537% yoy) in 1QFY2013 which was ahead of our estimates. The stellar performance was on account of a 22% yoy growth in cement volumes, coupled with a better-than-estimated 14.8% yoy growth in cement realization. We remain Neutral on the stock. OPM at 29.7%, up 649bp yoy: SRCMs cement business posted an EBITDA/tonne of `1,186 for the quarter (up 27% on a yoy basis). The sharp improvement in EBITDA/tonne was aided by higher realization. Cement prices remained high during the quarter due to delayed monsoons. Thus, cement realization was higher by 2.7% even on a qoq basis. Merchant power volumes rose multifold on a yoy basis to 307MUs, aided by higher generation capacity. The EBITDA/unit of merchant power sold stood at `1.05. The OPM stood at 29.7%, up 649bp on a yoy basis. Apart from a strong operational performance, the bottom-line was also boosted by lower depreciation which stood at `94cr, down 41.9% yoy. Outlook and valuation: We expect SRCM to post a 2.6% and 20.3% growth in its top-line and bottom-line respectively over FY2012-14E. The companys dominant presence in the high growth northern market is expected to result in a strong profit growth. The stock has run up steeply over the past few months, which is largely on the back of strong volume growth in the cement business and the same is way ahead of the industry growth rate. However, at the current market price, we believe SRCM's cement business is trading at fair valuations of EV/tonne of US$138 on current capacity (US$91 on FY2014E capacity). Hence, we maintain our Neutral recommendation on the stock.

64.8 5.3 8.4 21.5 3yr 7.2

39.9 121.8 155.5

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 54.6 7.1 13.5 5.3 3.9 199 FY2012* 5,898 70.8 618 194.7 180.9 27.9 22.4 5.2 26.7 19.3 2.0 154 FY2013E 5,701 (3.3) 839 35.7 240.7 29.7 16.8 4.1 27.1 25.4 1.9 120 FY2014E 6,210 8.9 908 8.3 260.7 28.1 15.5 3.3 23.6 23.4 1.5 91

EV/tonne

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

EV/EBITDA 15.0 7.2 6.4 5.5 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 | 1QFY2013 Result Update

Exhibit 1: 1QFY2013 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

1QFY2013 1,324 130 9.8 330 24.9 70 5.3 213 16.1 188 14.2 931 393 29.7 54 94 30 275 1 274 45 16.6 228 17.2

5QFY2012 % Chg qoq 1,456 136 9.3 341 23.4 75 5.7 236 17.8 188 14.2 976 480 33.0 48 82 32 383 383 32 8.4 351 24.1 (34.9) (28.4) 42.0 (4.7) (18.1) (327)bp 13.3 15.1 (6.7) (28.2) (0.4) (9.6) (5.9) (3.5) (9.1) (4.4)

2QFY2012 % Chg yoy 852 109 12.8 203 23.9 59 4.5 192 14.5 91 6.9 654 198 23.2 29 162 2 9 1 8 (28) (340.3) 36 4.2 536.8 42.2 98.8 649bp 87.2 (41.9) 1,129.1 2,858.3 (15.2) 3,261.7 (263.9) 106.2 11.0 18.8 62.1 55.4 19.6

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 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Total operating income Net Profit 5QFY12 1QFY13 OPM (RHS) 66 55 38 59 114 351 228 1,070 1,034 855 1,259 1,376 1,456 1,324 (%) 35.0 33.0 31.0 29.0 27.0 25.0 23.0 21.0 19.0 17.0 15.0

Source: Company, Angel Research

October 16, 2012

Shree Cements | 1QFY2013 Result Update

Exhibit 3: 1QFY2013 Actual vs Angel estimates

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

Actual 1,324 393 228

Estimates 1,249 347 145

Variation (%) 6.0 13.4 57.2

Performance highlights
Total operating income up 55.4% yoy, led by strong growth in cement business
During 1QFY2013, SRCMs total operating income grew by 55.5% yoy to `1,324cr, primarily on account of a 40.1% yoy increase in revenues of the cement business. The stellar performance of the cement business was led by a robust 22% yoy growth in cement volumes and a healthy 14.6% yoy growth in realization. The revenue of the power business also grew exponentially to `136cr (`4.2cr in 2QFY2012) aided by 300MW of new generation capacity commissioned during FY2012.

Higher realization results in 49.3% yoy increase in EBITDA/tonne

On the operating front, net raw-material cost per tonne of cement fell by 3.8% yoy to `420/tonne. The freight cost per tonne fell by 9.0% yoy. The power and fuel cost per tonne too was down by 7.6% yoy due to lower pet coke prices. The operating profit per tonne of cement increased to `1,186, up 49.3% 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 1QFY13
3,909 420 745 701 617 1,186

5QFY12
3,805 404 620 699 559 1,321

2QFY12
3,405 437 806 771 365 794

chg(%) yoy
14.8 (3.8) (7.6) (9.0) 69.0 49.3

chg(%) qoq
2.7 4.1 20.2 0.3 10.5 (10.2)

Exhibit 5: Segment-wise revenue break-up

Particulars (` cr) Revenue Cement Power EBIT Cement Power 240 60 336 65 123 (83) 94.9 (28.7) (7.2) 1167 136 1282 173 848 4 37.7 3,115.1 (9.0) (21.4) 1QFY13 5QFY12 2QFY12 chg (%) yoy chg (%) qoq

Source: Company, Angel Research

October 16, 2012

Shree Cements | 1QFY2013 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 the companys revenue growth going ahead.

Outlook and valuation

We expect SRCM to post a 2.6% and 20.0% growth in top-line and bottom-line respectively over FY2012-14E. The companys dominant presence in the high growth northern market is expected to result in strong profit growth. The stock has run up steeply over the past few months, which is largely on the back of strong volume growth in the cement business and the same is way ahead of the industry growth rate. However, at the current market price, we believe SRCM's cement business is trading at fair valuations of EV/tonne of US$138 on current capacity (US$91 on FY2014E capacity). Hence, we maintain our Neutral recommendation on the stock.

Exhibit 6: Change in estimates

(` cr) Earlier Net Sales Operating Exp Operating Profit Depreciation PBT Tax PAT
Source: Company, Angel Research 5,630 3,966 1,663 677

FY2013E Revised
5,701 4,007 1,694 622

FY2014E Var (%)

1.3 1.0 1.8 (8.1)

Earlier
6,187 4,460 1,727 707

Revised
6,210 4,464 1,747 650

Var (%)
0.4 0.1 1.1 (8.1)

969 194 775

1,048 210 839

8.2 8.2 8.2

1,063 159 903

1,135 227 908

6.8 42.4 0.6

October 16, 2012

Shree Cements | 1QFY2013 Result Update

Exhibit 7: One-year forward EV/tonne

120,000 100,000 EV (` mn) 80,000 60,000 40,000 20,000 0 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 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 Source: Bloomberg, Angel Research

US $80

US $110

US $140

US $170

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,445 209 99 118 186 4,049 2,028 Tgt. Price (`) Upside (%) FY2014E P/BV (x) 3.2 3.6 0.8 0.9 1.6 3.3 3.2 FY2014E P/E (x) 17.6 16.8 8.1 6.6 10.2 15.5 18.3 FY2012-14E EPS CAGR 8.0 23.6 12.8 41.7 6.2 20.0 11.3 FY2014E RoE (%) 19.1 20.5 10.2 14.6 17.0 23.6 18.7 EV/tonne^ US $ 142 190 69 50 70 138 209

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

Company background
SRCM 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 currently has 560MW of power generation capacity post the addition of 300MW in FY2012.

October 16, 2012

Shree Cements | 1QFY2013 Result Update

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 5,701 -3.3 4,007 559 1,304 310 1,835 1,694 2.9 29.7 622 1,072 38.8 18.8 129 106 10.1 1,048 49.8 1,048 210 20.0 839 33.0 14.7 241 241 33.0 6,210 8.9 4,464 625 1,444 338 2,056 1,747 3.1 28.1 650 1,097 2.3 17.7 92 131 11.5 1,135 8.3 1,135 227 20.0 908 8.3 14.6 261 261 8.3

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

October 16, 2012

Shree Cements | 1QFY2013 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 4,370 1,118 278 2,835 205 1,872 741 465 666 1,873 (1) 4,436 5,738 5,020 718 478 3,235 205 2,364 1,079 538 747 2,083 281 4,918 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 3,421 3,456 663 (70) 370 17 4,436 35 4,202 4,237 363 (70) 370 17 4,918 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

October 16, 2012

Shree Cements | 1QFY2013 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)/ Dec 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) 499 459 282 459 741 338 741 1,079 1,048 622 (62) 106 210 1,293 (400) (300) 106 (594) (300) 117 (417) 1,135 650 57 131 227 1,484 (450) (400) 131 (719) (300) 127 (427)

(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

October 16, 2012

Shree Cements | 1QFY2013 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 (0.8) (1.7) 8.3 (0.9) (2.3) 11.9 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 12 171 (49) 1.1 30 11 162 (45) 30.6 81.7 65.0 26.2 95.7 45.2 5.3 16.7 13.5 19.3 64.5 26.7 25.4 150.5 27.1 23.4 309.7 23.6 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 18.8 80.0 1.6 23.7 12.7 0.2 26.0 17.7 80.0 1.6 23.3 14.4 0.1 24.4 165.9 165.9 224.8 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 24.7 784.8 240.7 240.7 419.2 33.6 991.9 260.7 260.7 447.3 36.4 1,216.3 24.4 18.0 12.2 0.3 5.1 14.9 5.1 20.9 11.3 7.7 0.4 3.6 9.2 3.4 54.6 15.9 7.1 0.4 3.9 15.0 3.3 22.4 9.5 5.2 0.6 2.0 7.2 2.9 16.8 9.7 4.1 0.8 1.9 6.4 2.4 15.5 9.1 3.3 0.9 1.5 5.5 2.0 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

October 16, 2012

Shree Cements | 1QFY2013 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%)

October 16, 2012

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