1QFY2014 Result Update | Cement

August 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
4QFY13 1,199 176 14.7 26 % chg qoq 3.3 8.4 73bp (36) 1QFY13 1,201 278 23.1 62 % chg yoy 3.1 (31.2) (769)bp (72.9)

`47 -

1QFY14 1,238 191 15.4 17

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 1,435 2,863 1.2 105/43 157,772 10 18,598 5,508 ICMN.BO ICEM@IN

India Cements (ICEM) posted a 72.9% yoy decline in bottom-line to `17cr on account of a huge yoy fall in realization. While net realization fell 8.1% yoy, the decline in the companys net plant realization (NPR) was higher at 10.3% yoy. NPR declined on account of steep price correction in Andhra Pradesh during the quarter. The operating profit is down 31.2% on a yoy basis. OPM down 769bp yoy: ICEMs Net sales rose by 3.1% yoy to `1,238cr. Cement sale volumes rose by a healthy 13.5% yoy to 2.65mn tonne, with the company increasing its sales in Maharashtra and Eastern India. However, the NPR fell by 10.3% yoy to `3,185/tonne. While the IPL franchisee posted a revenue of `108cr, Shipping and Wind businesses posted a revenue of `15cr and `5cr respectively. The companys OPM plunged by 769bp yoy, largely on account of lower cement realization. The IPL business posted an EBITDA of `33cr during the quarter, while the EBITDA of the Shipping business stood at `1cr. The bottom-line fell by 73% yoy to `17cr. 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$50 on FY2015E 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 Abs. (%) Sensex ICEM 3m (8.1) 1yr 4.9 28.2 14.8 37.1 19.9 3yr 3.0 (55.5)

(47.5) (46.6)

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) FY2012 4,066 19.0 297 641.1 9.7 18.8 4.8 0.4 8.6 7.2 1.0 51 5.1 FY2013 4,461 9.7 184 (38.2) 6.0 15.8 7.8 0.4 5.3 5.5 0.9 49 5.9 FY2014E 4,796 7.5 225 22.5 7.3 16.4 6.4 0.4 6.4 6.2 0.9 44 5.3 FY2015E 5,357 11.7 292 29.7 9.5 16.1 4.9 0.4 7.9 7.0 0.8 50 4.7

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

Source: Company, Angel research; Note: *does not include IPL revenue; CMP as of August 16, 2013

Please refer to important disclosures at the end of this report

India Cements | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 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 (%) 1QFY14 1,238 144 11.7 330 26.7 84 6.8 265 21.4 224 18.1 1,047 191 15.4 100 68 3 26 26 9 34.6 17 1.4 4QFY13 1,199 153 12.3 341 27.6 92 7.4 275 22.2 162 13.1 1,023 176 14.7 64 72 40 40 14 34.8 26 2.2 (36.0) (0.8) (36.2) (36.6) 2.4 8.4 73bp 56.4 (5.7) (36.2) 38.1 (3.5) (8.7) (3.2) % chg qoq 3.3 (5.6) 1QFY13 1,201 136 11.0 288 23.3 79 6.4 223 18.0 198 16.0 924 278 23.1 95 69 3.7 117 (20) 97 35 36.2 62 5.2 (72.9) (3.8) 13.4 (31.2) (769)bp 5.2 (1.8) (31.9) (78.1) (100.0) (73.6) (74.7) 13.2 18.9 6.7 14.6 % chg yoy 3.1 5.9

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

Exhibit 2: Financial performance

(` cr) 1,400 1,200 1,000 800 20 600 400 200 0 4QFY12 1QFY13 2QFY13 3QFY13 Source: Company, Angel Research 65 62 49 26 10 26 4QFY13 17 1QFY14 1,118 1,201 1,123 1,199 1,082 30
Net revenue (LHS) Rep Net Profit (LHS) OPM (RHS)

(%) 40

1,238

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India Cements | 1QFY2014 Result Update

Exhibit 3: 1QFY2014 Actual vs Angel estimates

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

Actual 1,238 191 15.4 17

Estimates 1,235 211 17.1 46

Variation (%) 0.3 (9.3) (167)bp (63.4)

Operating performance
During the quarter, ICEM sold 2.65mn tonne of cement (incl. clinker), registering a 13.5% yoy growth. However, net plant realization was down by 10.3% yoy and stood at `3,185/tonne, due to the sharp correction in cement prices in Andhra Pradesh during the quarter. The raw-material cost per tonne rose 2.1% on a yoy basis. Power and fuel cost per tonne stood at `1,246, flat on a yoy basis. Freight cost per tonne rose by 4.7% yoy to `1,000 due to increased cost of diesel, and higher railway freight charges. The operating profit per tonne of cement stood at `573 down 43.9% on a 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 1QFY14 4,186 3,185 600 1,246 1,000 845 573 4QFY13 4,251 3,250 559 1,229 990 584 600 1QFY13 4,554 3,550 588 1,234 955 847 1,022 yoy chg (%) (8.1) (10.3) 2.1 0.9 4.7 (0.3) (43.9) qoq chg (%) (1.5) (2.0) 7.4 1.3 1.0 44.7 (4.5)

ICEMs subsidiary, Trinetra Cement (Trinetra), posted an EBITDA of `14.5cr during the quarter. Trinetra posted a loss of `5cr for the the quarter.

Performance of other divisions

The companys IPL franchise, Shipping business and the Windmill division posted revenues of `108cr, `15cr and `5cr respectively during the quarter. On the operating front, the IPL franchise posted a profit of `33cr, while the windmill division and the shipping business reported an EBITDA of `5cr and `1cr respectively during the quarter.

Update on projects
The company has commissioned phase I (25MW) of the Vishnupuram captive power plant (CPP). Phase 2 is expected to be commissioned by September 2013. The commissioning of CPP is expected to reduce the reliance on grid power. The company received the first shipment of coal from its captive mines in Indonesia during May.

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India Cements | 1QFY2014 Result Update

Recommendation rationale
Pre-dominant presence in low growth Southern region: About 93% of ICEMs consolidated total capacity is located in Tamil Nadu (TN), Andhra Pradesh (AP) and Rajasthan. The company has a pre-dominant presence in the southern region which has been facing a problem of low growth and large capacity additions. In fact the companys main market is in Andhra Pradesh which is the worst affected in terms of demand over the last few years due to political uncertainty. For FY2013 the companys capacity utilization stood at a low 71.5%.

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$50 on FY2015E 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 4,929 4,071 859 294 334 405 132 273

FY2014E Revised
4,796 4,010 786 294 334 333 108 225

FY2015E Var (%)

(2.7) (1.5) (8.4) (17.8) (17.8) (17.8)

Earlier
5,434 4,507 927 307 315 496 161 335

Revised
5,357 4,494 863 307 315 432 140 292

Var (%)
(1.4) (0.3) (6.9) (13.0) (13.0) (13.0)

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India Cements | 1QFY2014 Result Update

Exhibit 6: EV/tonne band

120,000 100,000 80,000 EV (` mn) 60,000 40,000 20,000 0 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jul-01 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 Buy Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,162 173 47 65 159 3,927 1,683 Tgt. Price (`) 1,361 79 Upside (%) 17.2 22.2 FY2015E P/BV (x) 2.5 2.6 0.4 0.5 1.2 2.4 2.3 FY2015E P/E (x) 14.3 15.6 4.9 3.5 8.7 11.5 14.8 FY2013-15E EPS CAGR 4.5 4.4 26.0 6.1 3.7 8.7 8.2 FY2015E RoE (%) 18.2 17.2 7.9 14.3 15.2 22.7 16.6 EV/tonne^ US $ 99 126 45 23 67 111 165

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

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India Cements | 1QFY2014 Result Update

Pofit 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 FY2010 FY2011 FY2012 FY2013 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 4,461 9.7 3,754 559 1,255 334 1,606 707 (7.8) 15.8 282 425 (17.5) 9.5 308 155 61.5 272 (29.2) 20 252 89 35.2 164 184 (38.2) 4.1 6.0 6.0 (38.2) FY2014E 4,796 7.5 4,010 620 1,239 361 1,790 786 11.3 16.4 294 492 15.8 10.3 334 175 52.4 333 22.3 333 108 32.5 225 225 22.5 4.7 7.3 7.3 22.5 FY2015E 5,357 11.7 4,494 707 1,383 390 2,014 863 9.7 16.1 307 556 13.0 10.4 315 191 44.2 432 29.7 432 140 32.5 292 292 29.7 5.4 9.5 9.5 29.7

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

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India Cements | 1QFY2014 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 2,645 54 1,869 722 1,042 1,602 6,538 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 6,802 2,651 4,151 330 958 1,916 1,447 5 481 962 897 550 7,906 7,102 2,945 4,157 280 958 1,916 1,515 4 481 1,030 858 657 7,968 7,402 3,252 4,150 230 1,053 1,916 1,639 3 481 1,154 974 664 8,014 6,538 307 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 3,782 4,090 2,717 330 160 609 7,906 307 3,895 4,202 2,667 330 160 609 7,968 307 4,041 4,348 2,567 330 160 609 8,014 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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India Cements | 1QFY2014 Result Update

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 FY2010 FY2011 FY2012 FY2013E 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 3 252 282 (165) 155 89 125 (485) (106) 155 (436) 449 82 55 312 2 3 5 FY2014E 333 294 (107) 175 108 237 (250) 175 (75) (50) 112 (162) (0) 5 4 FY2015E 432 307 (9) 191 140 399 (250) (95) 191 (154) (100) 146 (246) (1) 4 3

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India Cements | 1QFY2014 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 2.8 3.6 0.4 5.1 0.7 0.6 3.0 1.8 0.7 3.8 1.4 0.6 3.4 1.5 0.6 3.0 1.8 0.7 40 30 136 121 0.6 50 27 124 85 0.7 46 21 103 19 0.7 42 28 84 38 0.7 39 37 80 46 0.7 38 36 74 45 8.2 9.6 9.7 1.6 1.7 1.2 7.2 7.4 8.6 5.5 5.7 5.3 6.2 6.5 6.4 7.0 7.2 7.9 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 9.5 64.8 0.6 3.6 8.0 0.6 0.9 10.3 67.5 0.6 4.2 8.4 0.6 1.5 10.4 67.5 0.7 4.7 8.1 0.6 2.6 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 6.0 6.0 14.5 2.7 113.4 7.3 7.3 16.9 3.7 117.0 9.5 9.5 19.5 4.7 121.8 4.6 2.4 0.4 5.0 0.8 3.7 0.4 35.8 4.6 0.4 3.7 0.9 9.2 0.5 4.8 2.6 0.4 10.2 1.0 5.1 0.5 7.8 3.2 0.4 5.7 0.9 5.9 0.5 6.4 2.8 0.4 7.8 0.9 5.3 0.5 4.9 2.4 0.4 10.2 0.8 4.7 0.5 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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India Cements | 1QFY2014 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

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%)

August 19, 2013

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