3QFY2013 Result Update | Cement

February 19, 2013

India Cements
Performance Highlights
Quarterly results (standalone)
Y/E Mar (` cr) Net revenue Operating profit OPM (%) Reported Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
2QFY13 1,123 205 18.3 49 % chg qoq (3.6) (6.0) (46)bp (47) 3QFY12 944 197 20.9 56 % chg yoy 14.7 (2.2) (306)bp (53.6)

`84 -

3QFY13 1,082 193 17.8 26

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 Cement 2,586 2,714 1.1 119/71 207,110 10 19,636 5,940 ICMN.BO ICEM@IN

India Cements (ICEM) posted a 53.6% yoy decline in bottom-line to `26cr on account of steep increase in freight costs. However, the performance on the volume front was encouraging with the company posting a 10% yoy growth in sales volume during the quarter aided by healthy demand scenario in Tamil Nadu, Karnataka and Kerala. OPM down 306bp yoy: ICEM posted a 14.7% yoy growth in top-line to `1,082cr, which was higher than our estimates. The top-line growth was aided by a 10% increase in sales volume during the quarter. The companys OPM fell by 306bp yoy to 17.8% on account of steep increase in freight costs. The companys freight cost/tonne rose by 25.6% yoy to `982. Net Plant Realization stood at `3,359/tonne (vs `3,461/tonne in 3QFY2012). Finance costs went up by 9.7% yoy to `82cr. However, there was a reduction in the power and fuel cost/tonne on a sequential basis (higher marginally by 1.3% on a yoy basis) due to decline in imported coal prices and stabilization of Sankar Nagar CPP. Thus, the bottomline fell by 53.6% yoy to `26cr. Outlook and valuation: We expect ICEMs return ratios to remain subdued due to substantial investments in subsidiaries. At the current market price, though the stock is trading at a low valuation of EV/tonne of US$62 on FY2014E capacity, we believe the same is justified considering the company's unfavorable locational presence. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 28.2 18.4 32.6 20.8

Abs. (%) Sensex ICEM

3m 7.1

1yr 7.4

3yr 21.3

(0.1) (18.8) (29.9)

Key Financials (Standalone)

Y/E March (` cr) Net sales* % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne (US $) EV/EBITDA (x) FY2011 FY2012 FY2013E FY2014E

3,417 (7.3) 40 (88.7) 1.3 10.2 64.6 0.7 1.2 1.6 1.3
68

4,066 19.0 297 641.1 9.7 18.8 8.7 0.7 8.6 7.2 1.2
67

4,439 9.2 209 (29.7) 6.8 16.6 12.4 0.7 5.9 6.0 1.2
64

4,789 7.9 279 33.7 9.1 17.2 9.3 0.7 7.7 6.8 1.1
62

V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

12.5

6.6

7.0

6.2

Source: Company, Angel research; *does not include IPL revenue

Please refer to important disclosures at the end of this report

India Cements | 3QFY2013 Result Update

Exhibit 1: 3QFY2013 performance (Standalone)

Y/E March (` cr) Net Revenue* 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 Recurring PBT Extraordinary expense PBT Provision for Taxation (% of PBT) Reported PAT PATM (%) 3QFY13 1,082 129 11.9 297 27.5 83 7.6 237 21.9 143 13.2 890 193 17.8 82 71 3 43 43 17 39.3 26 2.4 2QFY13 1,123 140 12.9 328 30.3 81 7.4 224 20.7 145 13.4 918 205 18.3 67 70 3 72 72 23 31.5 49 4.4 (46.8) (2.0) (40.0) (25.0) (3.0) (6.0) (46)bp 23.3 1.3 5.7 (40.0) (1.3) 6.2 2.5 (9.5) % chg qoq (3.6) (7.8) 3QFY12 944 114 10.6 267 24.7 71 6.5 171 15.8 124 11.4 747 197 20.9 75 62 2.2 62 62 6 9.2 56 6.0 (53.6) (3.6) 19.1 (2.2) (306)bp 9.7 13.8 56.3 (30.6) ! (30.6) 198.1 15.5 38.7 16.6 11.5 % chg yoy 14.7 13.0

Source: Company, Angel Research; Note: * includes IPL revenue

Exhibit 2: Financial performance

(` cr) 1,400 1,200 1,000 800 600 400 200 0 2QFY12 3QFY12 4QFY12 1QFY13 70 56 65 82 49 2QFY13 26 3QFY13 1,092 944 1,118
Net revenue (LHS) Rep Net Profit (LHS) OPM (RHS)

(%) 40

1,201

1,123

1,082 30 20 10 0

Source: Company, Angel Research

February 19, 2013

India Cements | 3QFY2013 Result Update

Exhibit 3: 3QFY2013 Actual vs Angel estimates

(` cr) Net revenue Operating profit OPM (%) Reported net profit
Source: Company, Angel Research

Actual 1,082 193 17.8 26

Estimates 976 198 20.3 41

Variation (%) 10.9 (2.5) (245)bp (36.4)

Operating performance
During the quarter, ICEM sold 2.42mn tonne of cement, registering a 10% yoy growth. There was healthy demand in Tamil Nadu and Karnataka which led to the relatively strong 10% volume growth. However, net plant realization was down by 2.9% yoy and stood at `3,359/tonne, due to the sharp correction in cement prices in Andhra Pradesh during the quarter and the steep increase in freight costs. The raw-material cost per tonne remained flat on yoy basis. Power and fuel cost per tonne stood at `1,323, up 1.3% yoy. Power and fuel costs increased on account of increase in power tariffs in both Tamil Nadu and Andhra Pradesh. Freight cost per tonne rose by 26.1% yoy to `983 due to increased costs of diesel, and higher railway freight charges. The operating profit per tonne of cement stood at `792 up 8.6% on yoy basis.

Exhibit 4: Per tonne analysis

Particulars (`/tonne) Net Realization/tonne Net Plant Realization/tonne Raw-Material Cost/tonne Power and Fuel cost/tonne Freight Cost/tonne Other Cost/tonne Operating Profit/tonne Source: Company, Angel Research 3QFY13 4,373 3,359 588 1,232 983 592 792 2QFY13 3QFY12 4,407 3,529 577 1,323 901 584 777 4,234 3,461 581 1,216 780 564 729 yoy chg (%) 3.3 (2.9) 1.1 1.3 26.1 5.0 8.6 qoq chg (%) (0.8) (4.8) 1.8) (6.9) 9.1 1.5 1.8

ICEMs subsidiary, Trinetra Cement (Trinetra) posted a flat performance on the volume front and dispatched 0.27mn tonne of cement in 3QFY2013. Trinetras EBITDA for the quarter stood at `17cr vs `7cr in 3QFY2012. Its NPR stood at `2,942/tonne vs `2,704/tonne in 3QFY2012.

February 19, 2013

India Cements | 3QFY2013 Result Update

Performance of other divisions

The companys IPL franchise, shipping business and the windmill division posted revenues of `9cr, `14.8cr and `2.5cr respectively during the quarter. On the operating front, the IPL franchise posted a loss of `9cr, while the windmill division and the shipping business reported an EBITDA of `8cr and `2cr respectively during the quarter.

Recommendation rationale
Worst plant location compared to all companies in our coverage universe: About 93% of ICEMs consolidated total capacity is located in Tamil Nadu (TN), Andhra Pradesh (AP) and Rajasthan. As per our estimates, for FY2013, the capacity situation in TN is expected to be slightly better than the other two, as a large part of its excess of 18.1mt can be supplied to Kerala (where the total deficit is expected to be 8.6mt). However, AP is expected to have India's highest indigenous demand supply gap (42mt) and there is no nearby supply-deficit state where the excess output could be sold more economically than other states.

Outlook and valuation

We expect ICEMs return ratios to remain subdued due to substantial investments in subsidiaries. At the current market price, though the stock is trading at a low valuation of EV/tonne of US$62 on FY2014E capacity, we believe the same is justified considering the company's unfavorable locational presence. Hence, we maintain our Neutral recommendation on the stock.

Exhibit 5: Change in estimates

(` cr) Earlier Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT
Source: Company, Angel Research 4,293 3,533 760 265 310 348 104 264

FY2013E Revised
4,439 3,700 739 282 320 277 89 209

FY2014E Var (%)

3.4 4.7 (2.7) 6.5 3.1 (20.4) (15.1) (20.9)

Earlier
4,666 3,824 843 278 292 472 142 330

Revised
4,789 3,966 823 296 301 398 119 279

Var (%)
2.6 3.7 (2.3) 6.5 3.2 (15.6) (15.6) (15.6)

February 19, 2013

India Cements | 3QFY2013 Result Update

Exhibit 6: One-year forward EV/tonne

120,000 100,000 EV (` mn) 80,000 60,000 40,000 20,000 0 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 EV/tonne $40 $60 $80 $100

Source: BSE, Company, Angel Research

Exhibit 7: Recommendation summary

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

1,297 194 84 131 244 4,400 1,947

143 -

9.0 -

3.0 3.1 0.7 1.0 2.0 3.3 3.0

17.3 17.1 9.3 5.8 11.6 13.2 16.6

3.1 17.8 (3.1) 37.3 14.1 35.9 14.5

18.1 19.0 7.7 17.7 18.9 28.4 19.5

126 165 64 52 91 150 191

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

Company Background
India Cements is the largest cement company in south India, with a capacity 14mtpa spread across four plants each in TN and AP and a plant at Parli Maharashtra (1.1mtpa). It has also commissioned a plant of 1.5mtpa capacity Banswara in Rajasthan through its subsidiary, Trinetra Cement, thereby taking consolidated capacity to 15.6mtpa. The company has bought franchise rights IPL team - Chennai Super Kings, for ten years in 2008 for US$91mn. of in at its of

February 19, 2013

India Cements | 3QFY2013 Result Update

Profit and loss statement standalone

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 (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012
3,359 9.9 2,432 357 891 198 986 927 (15.1) 27.6 203 724 (25.0) 21.6 112 115 17.8 727 (17.6) 79 648 216 33.4 432 511 (24.3) 15.2 18.1 18.1 (24.5) 3,687 9.8 2,945 480 999 250 1,215 743 (19.9) 20.1 233 509 (29.7) 13.8 143 121 22.8 488 (32.9) (44) 531 177 33.3 354 311 (39.2) 8.4 10.1 10.1 (44.1) 3,417 (7.3) 3,067 505 1,020 253 1,289 350 (52.9) 10.2 244 106 (79.2) 3.1 142 98 108.5 62 (87.3) (28) 90 22 24.2 68 40 (87.1) 1.2 1.3 1.3 (87.1) 4,066 19.0 3,300 544 1,094 303 1,359 766 118.9 18.8 251 515 385.7 12.7 287 157 41.1 385 522.5 4 381 88 23.1 293 297 641.1 7.3 9.7 9.7 641.1

FY2013E
4,439 9.2 3,700 569 1,186 339 1,606 739 (3.6) 16.6 282 457 (11.3) 10.3 320 160 57.8 297 (22.7) 20 277 89 32.0 189 209 (29.7) 4.7 6.8 6.8 (29.7)

FY2014E
4,789 7.9 3,966 622 1,225 356 1,763 823 11.4 17.2 296 527 15.3 11.0 301 173 43.4 398 34.0 398 119 30.0 279 279 33.7 5.8 9.1 9.1 33.7

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 19, 2013

India Cements | 3QFY2013 Result Update

Balance sheet standalone

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
2,144 85 1,313 745 1,153 990 14 5,875 2,645 54 1,869 722 1,042 1,602 6,538 5,314 1,505 3,808 904 159 5,710 1,792 3,919 703 314 5,928 2,093 3,834 288 160 2,537 1,118 33 334 752 1,035 84 6,904 6,502 2,369 4,133 145 852 1,916 1,204 3 465 736 820 384 7,430 6,852 2,651 4,201 145 852 1,916 1,497 62 457 979 862 635 7,749 7,202 2,947 4,255 145 852 1,916 1,572 62 457 1,053 952 621 7,789 5,875 6,538 282 3,349 3,631 1,988 256 307 3,829 4,136 2,133 269 307 3,783 4,090 1,837 274 195 508 6,904 307 3,760 4,068 2,269 325 160 609 7,430 307 3,855 4,162 2,494 325 160 609 7,749 307 3,994 4,301 2,394 325 160 609 7,789

FY2009

FY2010

FY2011

FY2012

FY2013E

FY2014E

Cash flow statement - standalone

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Dec in Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc/(Dec) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc/(Dec) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012
648 203 (165) 115 216 355 (934) (30) 115 (848) 5 177 66 (37) 153 (340) 426 85 531 233 (644) 121 177 (177) (195) (155) 121 (229) 284 145 72 (18) 375 (31) 85 54 90 244 (204) 98 22 11 (553) 154 98 (302) 323 54 (0) 270 (21) 54 33 381 251 292 157 88 680 (431) (692) 157 (966) 432 147 29 256 (30) 33 3

FY2013E
277 282 (192) 160 89 118 (350) 160 (190) 225 94 131 59 3 62

FY2014E
398 296 15 173 119 417 (350) 173 (177) (100) 139 (239) 1 62 62

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India Cements | 3QFY2013 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.)
0.5 2.0 6.5 0.5 2.8 3.6 0.4 5.1 0.7 0.6 3.0 1.8 0.6 3.3 1.4 0.5 2.8 1.7 0.7 38 36 160 89 0.7 40 30 136 121 0.6 50 27 124 85 0.7 46 21 103 19 0.7 46 25 83 39 0.7 47 31 83 43 12.9 15.7 18.4 8.2 9.6 9.7 1.6 1.7 1.2 7.2 7.4 8.6 6.0 6.2 5.9 6.8 7.0 7.7 21.6 66.6 0.6 9.0 3.9 0.5 11.8 13.8 66.7 0.6 5.5 4.6 0.5 6.0 3.1 75.8 0.5 1.2 5.4 0.5 (0.8) 12.7 76.9 0.6 5.5 10.7 0.5 2.9 10.3 68.0 0.6 4.1 9.1 0.6 1.2 11.0 70.0 0.6 4.8 8.6 0.6 2.6 18.1 18.1 22.5 2.3 105.0 10.1 10.1 19.1 2.3 113.0 1.3 1.3 10.2 1.7 113.4 9.7 9.7 17.7 4.8 112.6 6.8 6.8 15.3 3.1 115.7 9.1 9.1 18.7 4.5 120.3

FY2009 FY2010 FY2011 FY2012

FY2013E

FY2014E

4.7 3.7 0.8 2.8 1.0 3.7 0.6

8.3 4.4 0.7 2.8 1.1 5.3 0.6

64.6 8.3 0.7 2.1 1.3 12.5 0.6

8.7 4.8 0.7 5.7 1.2 6.6 0.7

12.4 5.5 0.7 3.6 1.2 7.0 0.7

9.3 4.5 0.7 5.4 1.1 6.2 0.7

February 19, 2013

India Cements | 3QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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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

India Cements 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%)

February 19, 2013