Cement Sector-Nadir Not Yet-190309

INDIA
19 March 2009 Cement Sector
Nadir? Not Yet Rajan Kumar

rajan.kumar@centrum.co.in
91 22 4215 9640
INDIA
Cement Cement
Initiation 19 March 2009
Underweight Sector valuations over cycles

Nadir? Not Yet 14 P/BV --ACC VS AMBUJA
12
Valuations to remain subdued: We expect valuations 10
8
to remain subdued for at least one year due to 6
oversupply. Initiating coverage on the sector with an 4

2
Underweight rating, Sell on ACC and India Cements, 0
Reduce on Ambuja Cements Hold on Grasim,
Aug-91
Aug-92
Jul-93
Jun-94
May-95
Apr-96
Mar-97
Feb-98
Jan-99
Dec-99
Nov-00
Nov-01
Oct-02
Sep-03
Aug-04
Jul-05
Jun-06
May-07
Apr-08
Accumulate on UltraTech and Buy on Shree Cements. ACC Ambuja
Easing cement prices and deteriorating return ratios As on 17 March 2009

over FY10-11E are likely to keep valuations under
pressure.
One-year indexed performance-
Utilization levels to decline on increased capacity: Centrum cement universe vs Nifty
The oversupply situation will lead to a fall utilization 140
levels from 98% in FY08 to 91% in FY09, and further to 120
80% and 76% in FY10 and FY11, respectively. 100
80
Incrementally, effective capacity is slated to register 60
17% CAGR over FY08-FY11 vs demand 8% CAGR. 40
20
Sharp correction in cement prices inevitable:
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Declining utilization levels will likely result in a sharp Centrum Cement Index Nifty
correction in cement prices in FY10 with the

fragmented southern region witnessing the maximum
decline. We expect downward pressure across regions
Al l Indi a Demand Supply Ba lance
in FY11 on higher supplies from new capacities. mn MT FY07 FY08 FY09E FY10E FY11E
Effective Capacity 162 171 198 249 277
Easing cost pressure, efficiency drives insufficient Cement Production 155 168 181 195 210
to sustain margins: Commissioning of new CPPs and Consumption Gr. (%) 10.2 9.8 7.6 8 8
Consumption 149 164 177 191 206
split grinding units would only partly neutralize higher
Clinker Exports 3 2 2.4 1.9 1.4
energy costs despite the easing of international coal Cement Exports 5.9 3.6 3.6 4.1 3.6
prices. We estimate EBIDTA/tonne to decline by 16.5% Capacity Utilization 96 98 91 78 76
over FY09-11 to Rs674.
Key risks: Upside risk: Better price and production

discipline, lower input costs and favourable Average Cement Price Assum ption
Rs per Bag Dec-08 FY10E FY11E
government intervention. Downside risk: Breakdown
of production and price discipline, increased cost Nor th 227 207 192
East 227 207 192
pressure.
South 259 234 219
Rajan Kumar West 232 207 192

rajan.kumar@centrum.co.in All India 235 215 200
91 22 4215 9640
EV/Ton (USD) P/BV (x) ROE (%) ROCE (%)

Mkt Cap CMP Target % Upside
Company Name Rating Rsbn Rs Price (Rs) /Downside FY09E FY10E FY11E FY09 FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
ACC * Sell 104 555 436 (21.4) 79.9 74.3 75.1 2.1 1.9 1.9 23.6 17.7 9.8 20.9 16.2 9.2
Ambuja Cements* Reduce 102 67 61 (8.9) 95.4 88.5 86.5 1.8 1.6 1.5 21.2 15.7 13.0 19 14.4 12
Grasim Industries Hold 134 1461 1474 0.9 61.7 54.2 1.2 1.1 1.0 20.8 15.5 11.9 15.2 12.1 9.5
Ultratech Cement Accumulate 60 480 527 10.0 70.9 66.7 56.9 1.7 1.4 1.2 30.5 22.8 15.4 18.6 15.3 11.5
India Cements Sell 28 98 83 (14.6) 66.0 57.8 55.3 0.9 0.9 0.8 17.3 13.0 8.5 12.3 9.4 6.8
Shree Cements Buy 21 603 823 36.6 44.8 40.2 27.9 2.0 1.6 1.4 58.2 25.6 21.1 25.5 14.8 13.4
* Year ending December
Source: Bloomberg, Centrum Research
Table of Contents
Executive Summary ………………………………………………………………………….………4

Investment Argument ………………………………………………………………………….……6
Downside risk remains despite undemanding valuations…………………………………..6
Oversupply concerns to outweigh compelling long-term demand dynamics……………..8
Sharp correction in cement prices inevitable………………………………………………10
Easing cost pressure and efficiency drives insufficient to sustain current margins……….12
Valuation ……………………………………………………………………………………………15
Key Risk……………………………………………………………………………………..20
Annexure……………………………………………………………………………………21
Companies
ACC ………………………………………………………………………………….……...22
Ambuja Cements…………………………………………………………………………...31
Grasim Industries…………………………………………………………….…………….40
UltraTech Cement……………………………………………………………..…………...50
India Cements……………………………………………………………….……………..59
Shree Cements…………………………………………………………………………….68
3
Cement Sector
Executive Summary
We initiate coverage on the Indian cement sector with an Underweight rating as oversupply and
loss of pricing power would weigh on valuations for at least one year. We have covered six
companies (ACC, Ambuja Cements, Grasim Industries, Ultra Tech Cement, India Cements and
Shree Cements), which had a combined 50.5% market share in FY08. Between 17 March 2008 and
17 March 2009, our cement index, as measured by the cumulative market capitalization of these
six companies, has performed in-line with the S&P CNX Nifty giving a negative return of 40% (the
Nifty had a negative 39% return).
The meltdown in equities post the sub-prime financial crisis in the US, tightening of FII inflows and
hardening interest rates in India coupled with sharp increase in energy cost and expectations that
cement prices would decline on new capacity led to this steep correction. Valuations of the stocks
under our coverage have come off from a peak of 3.2-6.9x P/BV and EV/tonne of US$154-280 in
Oct 2007 to 0.9-1.9x P/BV and US$34-90/tonne as on 17 March 2009. Valuation could see further
contraction during FY10 as 95mt of capacity additions over FY09-11 would bring down utilization
levels resulting in a sharp drop in cement prices. We estimate 17.5% earnings decline over FY09-
11 despite correction of energy prices. ROE would contract by 11.1pp from 23.5% in FY09E to
12.4% in FY11E, comparable with FY03 ROE of 10.2% (excluding India Cement and UltraTech). The
decline in return ratios coupled with the lack of acquisition triggers is expected to result in the
valuations of ACC and Ambuja Cements further contracting to their FY03 average of 1.5x P/BV and
at a 10-30% discount to asset replacement cost. We have a Sell rating on ACC and India Cements,
Reduce on Ambuja Cements, Hold on Grasim Industries, Accumulate on UltraTech and Buy on
Shree Cements.
Oversupply concerns outweigh compelling long-term demand dynamics
For India with 1bn plus population and US$3tn economy (in PPP terms, World Bank estimates) on a
high-growth trajectory, the long-term demand dynamics for cement remains compelling. Cement
demand is a proxy of economic growth and would be supported by the following factors.
Rise in urban population (2.6% CAGR over 2001-2025) to 533mn on migration to cities for
better jobs (Source: Planning Commission)
Estimated shortage of 24.7mn dwelling units in urban areas (Source: Planning Commission)
The imperative for building sound physical infrastructure for sustained growth
Also supporting our argument of compelling demand dynamics is the fact that only 44% of urban
houses and 11.9 % of rural houses are made from concrete roofs (Source: India Census 2001).
Further, the government’s thrust of providing affordable houses to the economically and socially
weak groups could give a significant boost to cement demand as demonstrated by the
experience in states like Andhra Pradesh where an ambitious project for providing houses to low-
income groups coupled with higher spending on infrastructure boosted cement consumption to
25% CAGR over FY05-FY08.
Historically, cement demand has grown by about 1.1-1.2x GDP growth (see annexure) and
registered 8% CAGR over the last 10 years. We believe higher GDP growth and thrust on
infrastructure could translate into a higher cement demand at over 9% CAGR over the next 5
years.
Slowdown in GDP growth to impact demand in near-term
However, over FY09-11E demand growth is expected to be subdued on account of the economic
slowdown and growth would primarily be a function of counter-cyclical measures to revive
infrastructure and realty growth. Centrum Research has forecast GDP growth at 5.5% and 7.5% in
FY10 and FY11, respectively. In such a scenario, maintaining an 8% CAGR in cement would be a
challenge.
Utilization levels to fall on increased capacity
On the supply side, we estimate that cement industry would be adding about 95mt capacity over
FY09-11E with the southern region alone accounting for 44mt. We expect utilization levels to
decline from 98% during FY08 to 91% in FY09 and further to 80% in FY10 and 76% in FY11. In such
a scenario, maintaining production and price discipline would become increasingly difficult with
the southern region worst hit. We expect average cement prices to decline by Rs25 per bag in the
southern region and by Rs20 in other regions from the current levels of Rs235 at all-India level
with a further decline of Rs15 across regions in FY11.
On the cost front, easing of international coal prices and sea freight is expected to provide relief to
coast-based plants dependent on international coal. However, freight costs would increase
marginally as benefits of lower road freights would be offset by 8% hike in rail freight on account
of reclassification of cement in December 2008 by Indian railways.
4
Cement Sector
Recent government interventions to provide only temporary relief
Over the last three months, the government has reversed most of the measures it had initiated in
CY07 to curtail the rise in cement prices. The reduction of excise duty by 4% has given cement
companies a cushion of Rs8-10 per bag (Rs4-6 per bag passed on to consumers) and the re-
imposition of CVD on imported cement prices has brought import of cement from Pakistan to a
halt. Besides cement demand would also be supported by counter-cyclical measures aimed at
reviving growth.
However, government intervention can at best be expected to sustain 8% demand CAGR over
FY09-11. Capacity additions being far in excess of demand, we expect that government measures
would be able to sustain the prices only temporarily. In this context, we view the recent price hike
by the cement companies are only an aberration.
Earnings outlook and valuations-Worsening return ratios to weigh down valuation
We estimate companies under our coverage would register a 16.6% decline in earnings over FY08-
11 with EBIDTA/tonne falling from a peak of Rs1,092 in FY08 to Rs674 in FY11. We expect the
overall universe’s ROE to decline from a high of 34.4% in FY08 to 12.4% in FY11E. This would be
comparable to the ACC’s ROE of 9% registered during FY03. Grasim and Ambuja Cements (then
Gujarat Ambuja) had recorded ROEs of 12% and 14%, respectively, in FY03.
Under an overcapacity scenario when cement prices could possibly take a sharp hit and the
sensitivity of cement companies’ earnings to prices is very high, we believe P/BV and asset-based
(EV/tonne) methodology is more appropriate than earnings-based matrix like P/E multiple or
EV/EBIDTA to value the space. Cement companies are trading at about 0.9-2x FY10E P/BV, and
US$33-94 on an EV/tonne basis, a 59% discount to 18% premium to FY10E replacement cost of
US$75-90/tonne. Though these valuations look reasonable in absolute terms, they are still at
premium to the P/BV of 1.43x commanded by Gujarat Ambuja between July 2002 and June 2003.
We believe that with ROEs set to decline to their FY03 levels in FY11, valuations should also fall to
the levels of FY03. Historically, ACC commanded higher P/BV of 1.9x during FY03 as compared to
1.5x by Gujarat Ambuja on account of acquisition triggers. Now, we believe valuations would be
primarily determined by growth in profitability and return ratios. Besides lack of M&A trigger
could be drag on valuations. Hence we have an Underweight stance on the sector.
Among the covered companies, we believe ACC (Sell) and Ambuja Cements (Reduce) are
expensive, while UltraTech (Accumulate) and Grasim (Neutral) are better placed on account of
benefits of efficiency enhancement drives and ongoing capacity expansions. Sharp correction in
pet coke prices and new revenue stream from merchant power sales would sustain Shree Cement
(Buy) robust earning. India Cements’ (Sell) valuation would be under stress over concerns of
inevitable oversupply coupled with fragmentation in its key southern India market.
Exhibit 1: Valuation Summary
Mkt Cap CMP Target % Upside
Company Name Rating Rs (Bn) Rs Price /Downside FY09E FY10E FY11E FY09 FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
ACC * Sell 104 555 436 (21.4) 79.9 74.3 75.1 2.1 1.9 1.9 23.6 17.7 9.8 20.9 16.2 9.2
Source: Bloomberg Centrum Research
5
Cement Sector
Investment Argument
Downside risks remain despite undemanding valuations
We expect valuations of major cement manufacturers to remain under stress over FY09-10E as
expectations of a sharp correction in cement prices and deteriorating ROEs would result in the
P/BV multiples contracting. We expect valuations to stabilize at about 1.5x FY10E P/BV and at 10-
30% discounts from current replacement cost of US$75-90/tonne. This means cement stocks are
susceptible to further downsides from current levels. Further, the lack of pricing power precludes
a trigger for any re-rating of the sector before the end of FY10.
Using ACC and Ambuja Cements as proxies for the cement sector, we see the P/BV multiple fell
from a peak of 5.2x and 4.2x in Dec 2007 to 1.96x and 1.61x on 17 march 2009. The asset
valuations also fell from US$250-300/tonne to US$75-$88/tonne during the same time period.
This was in-line with the last two cement cycles of 1994-96 and 2001-02 when valuations
contracted sharply following the drop in cement prices as return ratios deteriorated. Going ahead,
we expect valuations to track the previous cycles when after correcting sharply from their peaks in
2001-02, stocks traded in a narrow band till the time visibility on improving demand supply
balance emerged and brought an expectation of cement price hike and consequent improvement
in return ratios.
Exhibit 2: Asset valuations - ACC and Ambuja Cements Exhibit 3: P/BV multiples – ACC and Ambuja Cements
(x)
600 Asset Value -ACC Vs Ambuja 14 P/BV --ACC VS AMBUJA
500 12
400 10
EV/Ton($)
300 8
6
200
4
100
2
0
0
Jul-91
Sep-92
Nov-93
Jan-95
Mar-96
May-97
Jul-98
Sep-99
Nov-00
Feb-02
Apr-03
Jun-04
Aug-05
Oct-06
Dec-07
Feb-09
Aug-91
Aug-92
Jul-93
Jun-94
May-95
Apr-96
Mar-97
Feb-98
Jan-99
Dec-99
Nov-00
Nov-01
Oct-02
Sep-03
Aug-04
Jul-05
Jun-06
May-07
Apr-08
ACC Ambuja $50 $80
ACC Ambuja
Source: Bloomberg, Company, Centrum Research
We believe valuations during FY10E would be impacted by negative news flows, chiefly decline in
cement prices as supplies from newly commissioned plants enter the market. We expect ROEs of
ACC and Ambuja Cements to decline from their peaks of 34% and 32%, respectively, in CY07 to
17.7% and 15.7% in CY09E, and further to 9.8% and 13% in CY10E. Further, with utilization levels
declining, we believe valuations would tests their lows. Any up-tick is likely only on increased
utilization levels post FY11.
Exhibit 4: ROEs over cycle (%)
ROE
45
40
35
30
25
20
15
10
5
0
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
ACC Ambuja Cements
Source: Company, Centrum Research
6
Cement Sector
P/BV and EV/tonne a more appropriate valuation methodology
In a cyclical downturn, we prefer valuation methodologies like P/BV multiple and asset-based
multiple (EV/tonne) against earning-based multiples like P/E and EV/EBIDTA. During a downturn,
earnings contract significantly on account of the companies’ high earnings sensitivity to cement
prices. The P/BV and EV/tonne multiple gives a better picture to find the bottom of the sector.
(Refer Annexure-II Sensitivity of earning to cement price decline.)
Replacement cost to decline in-line with commodity cycle

In-line with the commodity cycle, the cost of setting up a green-field cement plant increased from
US$75-90 in FY06 to US$100-120 in FY08. With commodity prices easing, replacement costs are
expected to come down to U$75-90/tonne, which would be reflected in the cement sector’s asset
valuations.
Strong balance sheets precludes M&A activities
Buoyed by robust earnings during FY05-09, cement manufacturers cleaned their balance sheet by
paying-off old debts, added new capacity and initiated efficiency enhancement drives like setting
up coal-based captive power plants and split grinding units. We expect the sector to have a net
debt-equity ratio of 0.1x in FY11 against 0.6x in FY04. We believe strong balance sheets and
prospects of reasonable earnings would help the industry tide over the ensuing downturn with
relative ease. The flip side is that this would also result in the absence of any significant trigger for
M&A activities as smaller cement players would not be desperate to sell.
Exhibit 5: Debt-equity ratios to decline
Net Debt/Equity
FY02 FY04 FY08 FY09E FY11E
ACC 1.5 0.9 (0.2) (0.2) 0.2
Ambuja Cements 0.5 0.3 (0.3) (0.1) (0.1)
UltraTech Cements 2.0 0.7 0.7 0.3
Shree Cement 1.8 1.4 0.4 0.2 (0.2)
Grasim Industries 0.4 0.1 0.5 0.4 0.2
India Cement 3.2 5.7 0.6 0.5 0.4
Centrum Cement Universe 0.9 0.6 0.2 0.2 0.1
Source: Company, Centrum Estimates
7
Cement Sector
Near-term oversupply concerns outweigh compelling long-term
demand dynamics
Historically, cement demand has grown at 1.1-1.2x GDP growth and register 8% CAGR over last 10
years (FY1998-2008). We believe that with increased thrust on infrastructure, a 9-10 % CAGR over
next 5 years is a distinct possibility.
However, in the near-term (FY09-11), demand is expected to be subdued on account the

slowdown in the economy as India faces global headwinds. In this scenario, demand growth
would be primarily be determined by the efficacy of government’s counter-cyclical measures like
increased spending on infrastructure and cheap loans for the housing sector. According to
Centrum Research estimates, GDP is expected to grow 5.5% in FY10 and 7.5% in FY11. In such a
scenario, an 8% demand CAGR over FY10-11 would be a challenge.
Exhibit 6: Cement consumption and GDP growth

(Rsbn) (Rsbn)
35,000 12,000
30,000 10,000
25,000
8,000
20,000
6,000
15,000
4,000
10,000
5,000 2,000
- -
40 60 80 100 120 140 160 180
FY91 (mn ton) FY08
GDP GFCF
Source: Centrum Research
For India with a 1bn plus population and the 3rd largest economy in PPP terms (World Bank
Estimates) in a high-growth phase, long-term demand dynamics remain compelling. India’s
cement demand, a proxy of economic growth and urbanization, remains a compelling long term
story primarily due to lower per capita consumption (144kg in FY08), as against the 400kg world
average and 1,000kg in China.
Exhibit 7: Per capita cement consumption in India still low Exhibit 8: Indian cement sector has scope to grow
(Mn mt) Market Size
(kg) Per Capita Cement Consumption 2008
1,200 1,600
1014 1349
1,000 1,400
800 1,200
549 524 1,000
600
417 405
339 305 305 800
400
143 128 600
200
400
- 164
200 115
58 58 58
Americas (Ex US)
Asia (Ex China)

CIS
US
China
India
Africa
EU
World
Japan
-
China India USA Japan Russia Spain
Source: Centrum Research Source: Centrum Research
8
Cement Sector
The following reasons make us sanguine that long-term demand dynamics for cement remain
intact.
India’s urban population is expected to increase to 533mn by 2025 (2.6% CAGR over 2001-
2025) on back of migration to cities for better jobs and prospects (Source: Report of 11th Five-
Year Plan Working Group on Urban Housing, Ministry of Housing & Urban Poverty Alleviation).
There was an estimated shortage of 24.7mn urban housing units at the beginning of 11th
Five-Year Plan (Source: Report of 11th Five-Year Plan Working Group on Urban Housing,
Ministry of Housing & Urban Poverty Alleviation).
Out of the existing 145mn housing units nationwide, only 44% of urban houses and 11.9 % of
rural houses were made with concrete roofs (Source: Census 2001).
In a bid to boost and upgrade infrastructure, the government has more than doubled the
allocation for infrastructure to Rs20.7tn during the 11th Five-Year Plan with focus on creating
long-term physical infrastructure assets like roads, bridges, ports, irrigation dams,
hydroelectric and thermal power and railways. Besides, the shift of building roads on a BOT
basis may encourage the creation of RMC roads vs. bitumen-paved roads, as they are cost-
effective over long term, owing to lower maintenance costs.
Government role in providing affordable houses to the economically and socially weaker
groups/low income groups, either through interest subsidies or direct incentives could give a
significant boost to cement demand as demonstrated in states like Andhra Pradesh..
Utilization levels to fall on capacity build-up

On the supply side, we estimate that the industry would be adding about 95mt of additional
capacity over FY09-11 with southern region alone accounting for 45mt. We estimate 17% CAGR in
effective available capacity to 277mt over FY08-11. Under our demand growth assumption of 8%
CAGR over FY09-11, the capacity utilization would come off from a peak of 98% in FY08 to 92% in
FY09 and further to 80% and 76% in FY10E and FY11E.
Exhibit 9: Capacity utilisation levels to come down
(mn MT) FY06 FY07 FY08 FY09E FY10E FY11E
Capacity at Beginning of year 155 161 168 199 222 276
Operative Capacity 152 158 163 189 215 270
Capacity Addition During the Year 6 7 31 24 54 17
Add On Capacity 2 4 8 8.8 29 7
Effective Capacity 155 162 171 197 245 277
Cement Production 142 155 168 181 195 210
Consumption Growth assumption 12.0 10.2 9.8 8.0 8.0 8.0
Consumption 136 149 164 177 191 207
Clinker Exp 3.2 3.1 2.4 2.4 1.9 1.4
Cement Exports 6.0 5.9 3.6 3.6 4.1 3.6
Capacity Utilization (%) 92 96 98 92 80 76

Besides, of the 95mt capacity added during FY09-11, the top six groups which command a market
share of 73% in FY08 would add 57mt (60% of new capacity added).This would bring down
consolidation in industry below FY08 level.
Exhibit 10: Market shares of cement companies in India (FY08)
Market Share All India
Others
27% Birla
32%
Shree Cement
4%
Jaypee Group
4%
JK Group
4% Holc im
23%
India cement
6%
Source: CMA
9
Cement Sector
A surplus scenario and fragmentation in the industry would make price understanding among
players increasingly difficult. This is especially so in the southern market, which looks most
promising at present on account of higher growth and a tightened demand scenario, would get
much more fragmented with about 24.8mt (55%) of new capacity being added by smaller players
and utilization levels falling to 73% and 71% in FY10 and FY11 respectively from a high of 98% in
FY08.
Options of increasing blending and better product mix already exhausted
Cement manufacturers have been increasing the sale of blended cement over the years by using
fly ash and slag, by-products of power plants and steel plants respectively as blending material for
producing Portland Pozzolana Cement (PPC) and Portland Blast Furnace Slag Cement (PBFC). The
sale of blended cement constituted 75% of the total cement sales in FY08 as against 50% in FY03
and blending ratio (cement production/clinker used) increased from 1.19x to 1.33x. This leaves
very little possibility of improving the product mix by increasing blending ratio. In fact, the
industry will either reduce the blending ratio on its own to curtail supplies to maintain production
and price discipline among players or just see more of OPC supplies coming from new players as
they try to establish their foothold (A scenario of pricing pressure coupled with worsening
product mix). Though it is difficult to visualize the industry’s manoeuvrability to maintain price
discipline through adjusting product mix, we hazard to say that overall trade-off of changing
product mix to maintain could at best be neutral.
Exhibit 11: Product mix over the years
Product Mix
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Production (Mn Ton) 93.6 102.5 111.4 117.5 127.6 141.8 155.7 168.2
OPC (%) 62.0 56.3 50.3 45.5 43.9 39.4 31.2 25.5
PPC (%) 26.2 31.5 38.7 44.4 47.2 52.2 60.1 66.1
PBFC (%) 11.0 11.6 10.4 9.6 8.4 8.0 8.3 8.1
Others (%) 0.8 0.6 0.5 0.5 0.5 0.4 0.4 0.4
Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Blending Ratio 1.1 1.2 1.2 1.2 1.2 1.3 1.3 1.3
Source: CMA
Exhibit 12: Blending ratio has peaked out

(X) Blending ratio
1.50
1.40
1.30
1.33
1.30 1.26
1.23
1.21
1.19
1.17
1.20
1.13
1.10
1.00
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Source: CMA
10
Cement Sector
Sharp correction in cement prices inevitable
With new supplies expected to bring down utilization levels to 80% in FY10 and 76% in FY11, we
believe a sharp correction in cement prices is inevitable. We expect prices would correct by about
Rs21 per bag from Q4FY09 levels. We have assumed an Rs20/bag decline in prices in the eastern,
western and northern regions and Rs25/bag decline in the southern region in FY10 (from Q4FY09
levels), with a further decline of Rs15 bag across all regions in FY11.
A tight supply scenario had led to significant increase in cement prices from 2006 onwards with
the average all-India prices rising from Rs160 in Jan 2006 to Rs239 in Oct 2008. Prices were Rs234
per bag in Jan 2009 post the reduction in excise duty in Dec 2008. The extent of cement price fall
would vary across regions and would be determined by the ability of players to effect production
and price discipline based on new capacity addition and consolidation level in each zone.
In our view, the eastern and western regions are relatively better placed due to lower capacity
addition and already high levels of consolidation. The northern region’s consolidation advantage
would be partly offset by higher capacity additions. In the southern region, lower consolidation
and higher capacity addition would make any price understanding increasingly difficult.
Exhibit 13: Cement prices headed south

Average Cement Prices (All India)
260
240
220
Rs/50 Kg Bag
200
180
160
140
120
100
Jul- 09E
Jul- 10E
Jan-93
Dec-93
Nov-94
Oct-95
Sep-96
Jul-98
Jun-99
May-00
Apr-01
Mar-02
Feb-03
Jan-04
Dec-04
Nov-05
Oct-06
Sep-07
Aug-08
Aug-97
Source: Industry, Centrum Research
Overview of the four zones

Exhibit 14: Demand-supply dynamics by zone
Zone North* West East South
FY06 FY07 FY08 FY09E FY10E FY11E FY06 FY07 FY08 FY09E FY10E FY11E FY06 FY07 FY08 FY09E FY10E FY11E FY06 FY07 FY08 FY09E FY10E FY11E
Capacity at Beginning of year 53.7 56.1 59.4 74.1 80.5 99.4 29.4 28.9 28.9 31.8 31.8 39.2 23.0 24.2 25.4 30.0 30.9 37.1 49.0 51.4 53.9 62.6 79.0 100.1
Operative Capacity 52.6 55.1 58.3 68.7 77.9 97.3 29.4 28.9 28.9 31.4 30.8 38.2 23.0 24.2 23.5 27.9 29.5 35.7 47.5 49.9 52.4 60.6 77.0 98.6
Capacity Add ition D uring th e Year 2.5 3.3 14.7 6.4 18.9 1.5 (0.4) - 2.9 - 7.4 9.1 1.3 1.1 4.6 0.9 6.1 1.0 2.4 2.5 8.7 16.4 22.0 5.5
Add On Cap aci ty 0.6 1.9 4.4 1.5 8.4 1.0 (0.4) - - - 4.5 4.5 - - 1.0 0.8 3.8 0.9 2.0 1.8 2.6 6.5 12.9 0.5
Effective Capacity 53.2 56.9 62.7 70.3 86.3 98.3 28.9 28.9 28.9 31.4 35.3 42.7 23.0 24.2 24.5 28.6 33.3 36.6 49.5 51.6 54.9 67.1 89.9 99.0
Produc tion 52.2 56.1 61.5 66.7 72.1 77.4 27.1 30.0 30.7 30.4 31.2 33.1 20.1 22.1 23.8 26.4 28.6 31.0 45.4 50.2 54.2 60.1 65.4 70.1
Con sumpt ion 47.6 52.3 57.3 61.0 65.9 71.2 25.9 28.3 32.2 34.2 36.9 39.9 22.7 24.0 25.3 27.9 30.1 32.5 39.4 44.8 49.2 54.1 58.4 63.1
Growth assumptio n 6.6 9.8 12.2 6.5 8.0 8.0 5.5 9.1 14.0 6.0 8.0 8.0 11.5 5.9 5.7 10.0 8.0 8.0 24.9 13.8 9.7 10.0 8.0 8.0
Expor ts 1.0 0.8 0.8 0.8 0.8 0.8 6.9 7.8 5.1 5.1 5.1 4.1 0.2 0.1 0.0 0.0 0.0 0.0 1.1 0.3 0.1 0.1 0.1 0.1
Transfer to other Zone 5.4 4.5 4.7 6.2 6.7 6.7 2.1 1.9 1.7 1.7 1.7 1.7 1.2 1.0 1.0 1.0 1.0 1.0 6.0 6.2 6.2 7.2 8.2 8.2
Transfer from ot her Zo ne 1.9 1.5 1.3 1.3 1.3 1.3 7.8 7.9 8.6 10.6 12.6 12.6 4.0 3.0 2.5 2.5 2.5 2.5 1.1 1.2 1.2 1.2 1.2 1.2
Net Transfer From o ther Z one (3.6) (3.0) (3.4) (4.9) (5.4) (5.4) 5.7 6.1 6.9 8.9 10.9 10.9 2.7 2.0 1.5 1.5 1.5 1.5 (4.9) (5.1) (5.0) (6.0) (7.0) (7.0)
Capacity Utilization 98.1 98.5 98.2 95.0 83.6 78.7 93.6 103.7 106.0 96.8 88.3 77.5 87.6 91.1 97.4 92.2 86.0 84.8 91.7 97.2 98.6 89.6 72.8 70.8
*Equivalent of North plus Central Regions of CMA

Northern region: The northern region is a structurally strong market with high consolidation. The
top 5 players had an 88% market share in FY08. The addition of 26mn new capacity over FY09-11,
all by the top 5 players, would keep the northern market fairly consolidated. The region would
also benefit from reinstatement of CVD on imported cement as the northern market, especially
Punjab, was earlier affected by imports from Pakistan. However, declining utilization level to
83.6% in FY10E and 78.7% in FY11E from a peak of 98.2% in FY08 would lead to softening of
prices.
11
Cement Sector
Exhibit 15: Market share of players in the north (FY08)
Market Share in North
260 Cement Price-All India Vs North Zone
Others
12% 240
Holcim 220
29%
Rs/50 kg bags
Jaypee Group 200
10%
180
160
JK Group 140
10% 120
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Shree Cement North All India
11% Birla
28%
Source: CMA, Centrum Research
Eastern region: The top 4 players command 87% market share. Capacity addition of 8mt over
FY09-11 with 6mt by major players would keep the industry fairly consolidated. Utilization levels
should stay at about 86% in FY10 and 85% in FY11.
Exhibit 16: Market share of players in the east (FY08)

Market Share in East
Cement Price-All India Vs East Zone
Others 260
13%
240
OCL INDIA 220
Rs/50 kg bags
Birla
8% 34% 200
180
160
140
Lafarge India
19% 120
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Holcim East All India
26%
Western region: The western market has been a fairly consolidated market with top 5 players
having a 90% market share in FY08. Capacity additions of 16.5mt over FY 09-11 with 11mt (66%)
coming from top 5 players would keep the industry fairly consolidated. Utilisation levels are
estimates at 88% in FY10E and 78% in FY11E. However, the slowdown in exports (which
constituted 18% of FY08 capacity) and increased supplies from southern region and diversion of
exports to domestic markets could disrupt the demand-supply balance and price understanding
amongst players.
Exhibit 17: Market share of players in the west (FY08)
Mar ket Share in West
Cement Price-All India Vs West Zone
Others 260
10 %
240
JK G roup
4%
Rs/50 kg bags
220
Sanghi Indus Ltd 200
5%
180
Mehata Group Birla 160
6% 47 %
140
120
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
West All India
Holcim
28 %
12
Cement Sector
Southern region: The southern market has been relatively fragmented market with top 4 player
commanding 64% market share in FY08. Capacity addition of 45mt during FY09-11 is expected to
bring down the capacity utilization to 73% in FY10E and 71% in FY11E from 98% in FY08. Further,
25mt capacity addition (55% of total) by new/smaller players would further fragment the industry
putting a sharp pressure on prices.
Exhibit 18: Market share of players in the south (FY08)
Market Share of South
280 Cement Price-All India Vs South Zone
others, 9.54 260
My Home Indus
LTD, 5.29 Birla, 24.12 240
220
Rs/50 kg bags
Penna Cement,
6.13 200
180
160
Zurai, 7.13
140
120
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Dalmia Cement,
7.32 India cement,
18.98
South All India
Holcim, 9.10
Madras Cement,
12.39
Efficiency drives, easing cost pressure insufficient to sustain current margins
With falling cement prices, we believe savings from easing cost pressure would not be sufficient
to sustain current margins. Power and freight costs constitute about 55% of total cost. Cement
companies have been undertaking measure to enhance efficiency like commissioning CPPs to
control power costs and installing split-grinding units to rationalize freight costs. They would also
benefit from the steep fall in international coal and sea freights.
We believe that the savings from these measures would be able to partly neutralize the cost push
on energy front which are still higher than the FY08 average despite significant the easing of
international coal prices. Despite these measures, unit operational cost of production would fall
by mere 2.1% CAGR over FY09-11 to Rs2,359 in FY11 against 5.1 % CAGR fall in realization (to
Rs3,033) leading to significant 16.5% CAGR reduction in EBIDTA per tonne to Rs674 in FY11E.
The major cost element of cement are power & fuel (29%), freight (26.1%) and other expenses
(23.9%), which include packing cost, repair and maintenance, and spares and consumables,
employee cost (6.4%) and raw materials (limestone, gypsum and blending materials).
Exhibit 19: Cost structure of cement industry

Operating CAGR % Cost % Cost
Expenses/Ton (Rs) FY04 FY08 FY04-08 (FY08) FY09E FY11E CAGR (FY11)
Energy Cost 470 646 8.2 29.1 806 683 (8.0) 28.9
Freight 320 578 15.9 26.1 604 639 2.8 27.1
Other Expenses 405 530 7.0 23.9 592 579 (1.1) 24.5
Staff Cost 95 142 10.7 6.4 161 155 (2.0) 6.6
Raw Material 209 319 11.2 14.4 299 304 0.8 12.9
Total Op. Cost 1,500 2,215 10.2 100.0 2,463 2,359 (2.1) 100.0
Realization/Ton 1,805 3,307 16.3 3,429 3,033 (5.9) 128.6
EBIDTA/Ton 306 1,092 37.5 966 674 (16.5) 28.6
Energy cost: We expect the cost of coal to peak at Rs491/tonne in FY09E and decline by 8.5%
CAGR to Rs411 per tonne in FY11E. Increase in prices of domestic linkage coal prices (10% in June
2004 and 10% for Coal India Ltd and 15 % for North Eastern Collieries in Dec 2007) and the sharp
rise in international coal prices and sea freight coupled with reduction of fixed price linkage to the
sector, resulted in coal cost for the sector rising at 10% CAGR from Rs241 in FY04 to Rs352 in FY 08
and by further 39% in FY09E to Rs491. However, now with international coal easing and freight
rates down, we expect the cost of coal to decline at 8.5% CAGR over FY09-11E to Rs400 assuming
US$85 CIF for international coal and constant prices of domestic linkage coal.
13
Cement Sector
Exhibit 20: Coal prices and freight rates have declined
Price/Ton Newcastle Spot Coal (USD) 14,000 Baltic Freight Index
(USD)
250 12,000
10,000
200
8,000
150
6,000
100 4,000
50 2,000
-
0
May 05
Jan 07
May 07
Jan 04
May 04
Sep 04
Jan 05
Sep 05
Jan 06
May 06
Sep 06
Sep 07
Jan 08
May 08
Sep 08
Jan 09
Jan 06
Jan 09
Oct 05
Ju 06
Oct 06
Jan 07
Apr 07
Ju 07
Jan 08
Apr 08
Oct 08
Ju 05
Apr 06
Oct 07
Ju 08
Cement manufacturing is a power-intensive business and 1 tonne of cement requires about

85kWh of electricity. Electricity cost per tonne increased 5% CAGR from Rs244 in FY04 to Rs297 in
FY08 caused by increase in tariffs (state grid rates increased 4.4% CAGR to Rs3.8 per unit, liquid
fuel-based power plant rates surged 18% CAGR to Rs4.5 per unit and that from coal-based captive
power plants increased 8.8% CAGR to Rs2.2 per unit). Dependence on state grid for power
declined from 48% of total requirement in FY04 to 43% in FY08, while that from coal-based CPPs
increased from 32% to 47%.
Power sourced from high-cost liquid fuel based CPPs decreased from 19.7% to 9.2%. The cost
savings on reduced dependence on grid power and DG sets was neutralized by increased cost of
energy (international coal prices rose to Rs0.61/kCal in FY08 from Rs0.35/kCal in FY04.) We believe
the commissioning of CPPs and softening fuel prices would lead to an 8.6% CAGR decline in the
average cost of power over FY09-11 to Rs256 per tonne in FY11E after peaking at Rs306 per tonne
in FY09.
We expect power & fuel costs to peak at Rs806 per tonne in FY09. Thereafter, as the benefits of
softening energy costs and coal-based CPP starts flowing, we expect the cost to decline 8% CAGR
over FY09-11 to Rs683/tonne. The major beneficiaries of falling coal prices would be UltraTech,
Grasim Industries, India Cements and Ambuja Cements which are dependent to the extent of
30-70% of their energy requirements on international coal. We have assumed CIF cost of
international coal at US$85 per tonne and an exchange rate of Rs51.5/US$1 in FY10 and FY11.
Shree Cements would be also benefit as it is completely dependent on pet coke whose prices
have fallen over 50% from their peak of Rs8,100/tonne to Rs4,000/tonne at present.
Despite softening of international coal prices, coal cost would still be under pressure as CIL is
reducing the supplies of fixed-price linkage coal. Linkages were reduced from 100% to 75% of coal
requirement. Actual supplies of linkage coal to Industry have come down in absolute term by 14%
YoY in 3QFY09. In this scenario the industry would be forced to purchase coal from e- auction or
international sources which are far costlier than linkage coal even at US$85 per tonne,
Exhibit 21: International coal still costlier than domestic sources

Cost (Rs/KCAL)
Distance From Port/Pithead (Km)
Source 100 500 1,000 2,000
Domestic-Linkage(AV of C/D/E/F) 0.30 0.39 0.49 0.67 Current Cost Structure
Domestic-Non Linkage 0.51 0.60 0.70 0.88 100% premium to Coal
International(CIF $37) 0.30 0.34 0.40 FY04 Average Cost
International(CIF $93) 0.61 0.65 0.71 FY08 Average Cost
International(CIF $85) 0.71 0.76 0.81 FY10 Average cost Assumption
International(CIF $200) 1.51 1.56 1.61 Peak cost
Pet Coke @ 4000/ton 0.494 Current Landed Cost at Shree cement plant
14
Cement Sector
Logistics costs to stay high: We estimate the average logistic cost/tonne would increase at 2.7%
CAGR over FY09-11 to Rs639 in FY11 based on 8% growth in rail freight cost in FY10 and flat road
freight cost over FY09-11. During FY04-08 freight costs registered 16% on account of (1) Reporting
of sales as freight inclusive instead of ex works after the implementation of VAT in March 2005; (2)
The Supreme Court’s verdict against overloading on trucks in November 2005; and (3) Increase in
diesel prices. During FY08, the cement sector’s dependence on rail and road was 38% and 62%,
respectively. For shorter routes (below 400km) roadways are preferred mode of freight
movements as it does not involve secondary transportation while railways become economical for
lead distance above 400km.
However, in an overcapacity scenario, the average lead distance might increase as companies
explore new markets. Besides, despite the recent cut in diesel prices, there has not been any
softening in the road freight cost due to pick up in demand for freight and recent reclassification
of cement from by railways in December 2008 would lead to a hike of about 8% in rail freight
transport in FY10E.
Exhibit 22: Average road freight rates firm despite the recent cut in diesel prices
200
180
160
140
120
100
80
60
40
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
Source: Capitaline
Other expenses to remain under control: Other expenses comprising packing charges (linked to
crude price), stores & spares and repair & maintenance registered 7% CAGR over FY04-08. We
expect these costs to decline marginally over FY09-11E due to lower crude prices translating into
lower cost of packing materials and benefit of possible reduction in maintenance cost due to
modernization is offset by some decline in utilization level.
15
Cement Sector
Valuations
Valuations have corrected significantly from their peak in Oct 2007 and stocks are available at
what we believe is a reasonable P/BV range of 0.9-2.0x and EV/tonne of US$34-94. However,
expectations of a sharp correction in cement prices due to oversupply during FY10-11 would keep
valuations under further stress. We expect the sector’s valuation to contract to FY03 level, in-line
with the decline in overall ROE to 12.4%.
We are negative on ACC (Sell) and Ambuja Cements (Reduce) due to expensive valuations.
UltraTech Cement (Accumulate) and Grasim (Hold) are better placed on account of benefits of
efficiency enhancement drives and ongoing capacity expansions. We believe a sharp correction in
pet coke prices and new revenue stream from merchant power sales would sustain Shree
Cement’s (Buy) robust earning. India Cements is a Sell as its valuations would be under stress over
concerns of inevitable oversupply coupled with fragmentation in its key southern market.
Exhibit 23: ACC – P/BV ACC – Asset value

(x) USD/Ton
14
250
12
200
10
En terp rise valu e

150
8
6 100
4 50
2 0
A pr-0 5
A pr-0 6
A pr-0 8
A pr-91
A pr-92
A pr-93
A pr-9 4
A pr-9 5
A pr-96
Ap r-9 7
Ap r-9 8
Apr -9 9
Ap r-0 0
Apr -0 1
Apr -0 2
Apr -0 3
Apr -0 4
A pr-07
0
Mar-92
Jan-95
Jul-04
Jul-05
Apr-91
Feb-93
Feb-94
Dec-95
Oct-99
Aug-02
Aug-03
May-07
May-08
Sep-00
Sep-01
Jun-06
Dec-96
Nov-97
Nov-98
$50 $100 $150 $200 ACC
Exhibit 24: Ambuja Cement – P/BV Ambuja Cement – Asset value

(x) 600
6.0 500
USD/Ton
5.0 400
4.0 300
3.0 200
2.0
100
0
1.0
Jul-91
Jul-93
Jul-95
Jul-97
Jul-99
Jul-01
Jul-03
Jul-05
Jul-07
0.0
Jun-91
May-92
Apr-93
Feb-94
Jan-95
Dec-95
Oct-96
Sep-97
Aug-98
Jun-99
May-00
Apr-01
Feb-02
Jan-03
Nov-03
Oct-04
Sep-05
Jul-06
Jun-07
May-08
USD50 USD150 Ambuja cement
Exhibit 25:India Cement – P/BV India Cement – Asset value

(x) 250
4.5
4.0 200
3.5
150
USD/Ton
3.0
2.5 100
2.0
1.5 50
1.0
0
0.5
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
-
Apr-01
Apr-03
Apr-05
Apr-00
Apr-02
Apr-04
Apr-06
Apr-07
Apr-08
India Cement 50x 100x 150x 200x

India Cement 2X 2.5X 3.5X 1.5X
16
Cement Sector
Exhibit 26: Grasim – P/BV
(x)
5
4
3
2
1
0
Apr-01
Apr-02
Apr-03
Apr-05
Apr-07
Apr-04
Apr-06
Apr-08
Grasim 1.5X 2X 2.5X 3.5X
Exhibit 27: Shree Cement – P/BV Shree Cement - Asset Value

(x)
20 0 EV/Ton Band of Shree Cement
10 18 0
9 16 0
8 14 0
7 12 0
USD/Ton
6 10 0
5 80
4 60
3 40
2 20
1 0
Apr-05
Apr-08
Apr-01
Oct-01
Apr-02
Apr-03
Oct-03
Apr-04
Oct-04
Oct-05
Apr-06
Oct-06
Apr-07
Oct-02
Oct-07
Oct-08
0
Apr-02
Apr-01
Oct-01
Apr-03
Oct-03
Apr-04
Oct-04
Apr-05
Apr-06
Oct-06
Apr-07
Apr-08
Oct-02
Oct-05
Oct-07
Oct-08
EV/Ton $ 30 x 80 x 13 0x 18 0x
Exhibit 28:UltraTech – P/BV UltraTech – Asset value

(x)
20 0
7 18 0
6 16 0
14 0
5 12 0
USD/Ton
4 10 0
80
3 60
2 40
20
1
0
Apr-06
Aug-04
Dec-04
Apr-05
Aug-05
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Dec-05
0
Nov-04
Aug-05
Aug-04
Feb-05
May-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
May-07
Ultrate ch 50 X 80 X 13 0X 13 0X 18 0
Ultratech 2x 4x 5x 6x
17
Cement Sector
ACC: The high sensitivity of ACC’s earnings to cement prices makes is vulnerable in a declining
realizations scenario. Besides its old assets make the company a high-cost producer despite the
benefits of low-price linkage coal (60% dependence), coal-based CPPs (70%) and optimum product mix
leaving very little option of improving its operating cost structure. At CMP, the stock trades at a PE of
11.3x CY09E and 19.3x CY10E, EV/EBIDTA of 5.7x and 8.4x and 1.9x and 1.9x on P/BV. We initiate
coverage with a Sell rating and one-year price target of Rs436, valuing the stock at 1.5x CY09 P/BV.
Y/E Dec (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY % Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) EV/EBITDA (x)
CY07 58.5 73.1 16.6 28.3 11.3 229.3 60.0 42.7 29.0 3.3 9.2 5.7
CY08 70.7 20.8 19.3 27.3 12.7 12.6 67.5 34.8 29.1 2.5 8.2 4.5
CY09E 77.2 9.2 16.6 21.5 10.7 (15.6) 58.5 23.6 20.9 2.1 9.5 4.9
CY10E 78.3 1.4 16.3 20.8 9.2 (13.9) 49.1 17.7 16.2 1.9 11.3 5.7
CY11E 79.1 1.0 12.4 15.7 5.4 (41.4) 28.8 9.8 9.2 1.9 19.3 8.4

Ambuja Cements: Though Ambuja Cements would benefit from falling international coal prices
(40% dependence) and commissioning of new CPPs, its cost advantage would narrow as other
cement manufacturers implements efficiency enhancement measures. At CMP, the stock trades at
1.6x P/BV and US$88.5/tonne on EV/tonne for CY09. Current valuation is still on the higher side of
bear care average of 1.5x P/BV. Initiate with Reduce and one-year target price of Rs61.
CY06* 62.7 140.6 21.3 34.0 14.6 212.1 9.6 34.4 24 2.9 7.0 3.9
CY07 56.3 (10.2) 20.5 36.3 13.1 (10.2) 8.6 32.2 28.8 2.2 7.8 3.9
CY08 62.3 10.7 17.8 28.5 10.9 (16.6) 7.2 21.2 19 1.8 9.4 5.0
CY09E 61.9 (0.7) 15.6 25.1 9.4 (14.4) 6.1 15.7 14.4 1.6 10.9 6.1
CY10E 63.3 2.3 15.3 24.2 8.4 (10.8) 5.5 13.0 12 1.5 12.3 6.1
UltraTech Cements: Ultratech Cements is in process of ramping up its newly commissioned plant
at Tadpatri in Andhra Pradesh that would help it boost volumes to offset lower realisations. The
company would also benefit significantly from the fall in international coal prices and savings from
its CPPs (225MW over FY09-10). At CMP, the stock trades at a PE of 6.6x FY10E and 8.2x FY11E, 1.4x
and 1.2x P/BV, 4.4x and 4.5x EV/EBIDTA and US$67 and US$57 per tonne on EV/tonne. We believe
this discount to ACC is not warranted given UltraTech’s better operating matrix. Accumulate with a
one-year target price of Rs527, valuing the stock at 1.5x P/BV on FY10E.
Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY % Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) EV/EBITDA (x)
FY07 49.7 46.8 14.3 28.8 7.8 248.7 63.1 55.9 24.2 3.4 7.6 5.3
FY08 56.2 13.2 17.3 30.8 10.1 28.7 81.1 45.2 23.8 2.2 5.9 4.6
FY09E 62.5 11.1 17.1 27.3 9.6 (5.1) 77.0 30.5 18.6 1.7 6.2 4.9
FY10E 67.2 7.5 17.2 25.5 9.1 (5.5) 72.7 22.8 15.3 1.4 6.6 4.4
FY11E 68.1 1.4 15.2 22.4 7.2 (20.0) 58.2 15.4 11.5 1.2 8.2 4.5

Grasim Industries: Grasim is ramping up its 4.4mt cement capacity at Sambhupura (Rajasthan) and
expected to commission another 4.4mt plant in Kotputli in Rajasthan in Q1FY10. The company
would also benefit from softening of international coal and pet coke prices (50%) and
commissioning of CPPs. However, performance of the VSF division would remain subdued due to
global slowdown and competition from substitutes. At CMP, the stock trades at 7.2x FY10E and 8.6x
FY11E on P/E, 4.5x and 4.6x EV/EBIDTA, 1.1x and 0.95x P/BV. Initiate with a Hold rating and one-year
SOTP-based price target of Rs1,474.
EV/EBITDA
Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY % Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) (x)
FY07 140.7 37.6 39.7 28.2 19.7 89.6 214.6 34.5 21.4 2.0 6.8 4.1
FY08 169.7 20.6 49.6 29.2 26.2 33.4 286.2 33.4 21.1 1.5 5.1 3.6
FY09E 178.3 5.1 43.5 24.4 21.2 (19.3) 231.0 20.8 15.2 1.2 6.3 4.4
FY10E 182.8 2.5 42.0 22.9 18.5 (12.8) 201.5 15.5 12.1 1.1 7.2 4.5
FY11E 190.6 4.3 37.3 19.6 15.6 (15.8) 169.8 11.9 9.5 1.0 8.6 4.6
18
Cement Sector
Shree Cements: A key player in the northern market, Shree Cements would benefit from the steep
fall in pet coke prices. We believe the judicious capital allocation in CPP would enable it to sustain its
earning through sale of merchant power. At CMP, the stock trades at a P/E of 7.1x FY10E and 7.1x
FY11E (P/CEPS of 2.6 x and 2.4x), EV/EBIDTA of 2.7x and 1.9x, and P/BV of 1.6x and 1.4x. In asset value
terms, the stock trades at US$39 and US$23 per tonne its FY10 and FY11 capacity. With ROCE
estimated at 14.48 and 13.4% in FY10E and FY11E and ROE at 25.6% and 21.1%, valuation looks
compelling. We initiate coverage with Buy and one-year price target of Rs823, an upside of 36%
from current level. At the target price, the stock would be valued at 2.2x P/BV on FY10E and EV/ton
of US$55.
Y/E Mar(Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY % Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) EV/EBITDA (x)
FY07 14.1 102.3 5.9 42.1 1.6 899.6 45.6 42.3 15.2 4.2 13.2 4.4
FY08 21.1 50.1 8.6 40.9 2.9 81.3 82.6 51.1 18.9 3.1 7.3 3.1
FY09E 26.1 23.9 8.8 33.5 5.0 72.7 142.7 58.2 25.5 2.0 4.2 2.4
FY10E 24.1 (7.9) 8.1 33.9 3.0 (40.2) 85.4 25.6 14.8 1.6 7.1 2.7
FY11E 26.0 8.0 8.4 32.2 3.0 (0.3) 85.2 21.1 13.4 1.4 7.1 1.9

India Cements: India Cement’s key southern market would witness serious price pressure on
account huge capacity build up and fragmentation. The company would not be able to reap the full
benefits of the decline in international coal prices which would be offset by its foray into shipping.
At CMP, the stock trades at a PE of 6.9x FY10E and 9.8x FY11E, 4.4x and 5x on EV/EBIDTA, and 0.9x
and 0.8x on P/BV. This is a significant premium to Shree Cements, a comparable peer, which has
exposure to the northern market and 100% dependence on captive power and a superior balance
sheet. We recommend Sell with a one-year price target of Rs83, valuing the stock at an EV/tonne of
US$50/tonne and P/BV of 0.65x on FY10E and assigning a value of Rs 9 /share to its IPL franchise.
FY07 22.6 46.3 7.3 32.6 4.8 791.4 18.4 41.9 20.9 1.8 5.3 5.9
FY08 30.4 35.0 10.8 35.5 6.5 36.2 23.1 32.4 18.9 1.1 4.2 3.7
FY09E 34.6 13.6 10.4 30.2 4.8 (26.5) 17.0 17.3 12.3 0.9 5.8 4.0
FY10E 34.0 (1.7) 9.3 27.2 4.0 (16.4) 14.2 13.0 9.4 0.9 6.9 4.4
FY11E 34.7 1.9 7.6 22.0 2.8 (29.8) 10.0 8.5 6.8 0.8 9.8 5.0
Valuation matrix table

Company Name Mkt Cap CMP Target % Upside
Rating Rs (Bn) Rs Price /Downside FY09E FY10E FY11E FY09 FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
ACC * Sell 104 555 436 (21.4) 79.9 74.3 75.1 2.1 1.9 1.9 23.6 17.7 9.8 20.9 16.2 9.2
19
Cement Sector
Key risks
Upside risks
Better-than-expected demand growth would allow cement manufacturers to maintain

production and price discipline leading to lower fall in cement prices
Further easing of cost pressure
Favourable government intervention
Downside risks
Early breakdown of production and price discipline due to weak demand or earlier than
scheduled commissioning of plants
Unanticipated cost pressure
Adverse government intervention
20
Cement Sector
Annexure - I
Cement demand grew 8% CAGR over FY98-08 with cement /GDP growth multiple of 1.24
(%) (x)
GDP Vs Cement Demand Growth
14 3.5
12 3.0
10 2.5
8 2.0
6 1.5
4 1.0
2 0.5
- -
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
(2) (0.5)
(4) (1.0)
GDP Growth Consumption Growth - Cement Cement Growth Multiple
Source: CSO, CMA
Annexure - II
Sensitivity of earnings To Rs 5/ bag cement price fall
EPS (Rs) Sensitivity (%) ROCE (%) Sensitivity (bps) ROE (%) Sensitivity (bp)
Company Name FY10 E FY11E FY10 FY11 FY10 E FY11E FY10 FY11 FY10 E FY11E FY10 FY11
ACC 49.1 28.8 11.6 21.6 16.2 9.2 168.6 158.2 17.7 9.8 206.2 210.9
Ambuja Cements 6.1 5.5 10.1 12.5 14.4 12.0 134.2 124.6 15.7 13.0 148.3 135.5
Ultratech Cements 72.7 58.2 11.9 14.7 15.3 11.5 150.1 126.3 22.8 15.4 242.6 180.1
Grasim Industries 201.5 169.8 8.0 10.4 12.1 9.5 98.1 90.6 15.5 11.9 115.2 104.1
India Cements 14.2 10.0 12.8 20.8 9.4 6.8 95.7 101.2 13.0 8.5 156.4 159.5
Shree Cements 85.4 85.2 14.7 15.7 14.8 13.4 165.6 141.0 25.6 21.1 335.7 240.8
21
Cement Sector
INDIA
Cement ACC
Sell Key Data

Weak construct
Bloomberg Code ACC IN
Target Price: Rs436
Valuations to track operating performance: Reuters Code ACC.BO
CMP: Rs555* Historically, ACC has been commanding high valuations Current Shares O/S (mn) 187.7
Downside: 22% despite its subdued performance, primarily on account of Diluted Shares O/S(mn) 187.7
*as on 17 March 2009
acquisition triggers. We expect the market to value ACC Mkt Cap (Rsbn/USDbn) 105.6/2.0
purely on its earnings, with Holcim now having close to
52 Wk H / L (Rs) 860/365
majority stake.
Daily Vol. (3M NSE Avg.) 552,694
Earnings highly sensitive to cement prices: ACC’s Face Value (Rs) 10

earnings are highly sensitive to cement prices. With 1 USD = Rs51.5
prices set to decline, we estimate 29% de-growth y-o-y in Source: Bloomberg ; * As on 17 Mar 2009
earnings over CY08-10 with ROE declining 13.8pp to
9.8%.
Shareholding Pattern
Foreign, 10.6
High-cost structure makes ACC susceptible to Public & Others, 17.0
worsening product mix: ACC was a high cost producer

at Rs2,149/tonne in CY08 vs industry average of
Institutions, 23.0
Rs1,859/tonne. This exposes the company to further cost
pressures in a scenario of worsening product mix.
Govt Holding, 0.2
Little room to contain energy costs: The company’s Non Promoter Corp.
Hold., 3.0
high dependence on coal-based CPPs (70% of power Promoters, 46.2
As on 31 December 2008
requirement) and low-cost domestic coal linkages (60%)
gives ACC little leeway in controlling energy cost at a
One Year Indexed Stock Performance
time when domestic coal linkages are being reduced.
140
Premium valuations not justified: At CMP, ACC trades 120
100
at 11.3x CY09E and 19.3x CY10E, 5.7x and 8.4x EV/EBIDTA,
80
and 1.9x and 1.9x P/BV. On an asset replacement basis, it
60
is valued at US$74/tonne for CY09E and US$75/tonne for
40
CY10E, which is a substantial premium to UltraTech, a
20
company of same scale and superior earnings. Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
ACC LIMITED NSE S&P CNX NIFTY INDEX
Sell with target price of Rs436: We initiate coverage
with a Sell rating and target price of Rs436 valuing the
stock at 1.5x CY09 P/BV. At our target price, the stock
Rajan Kumar would trade at a P/E of 8.9x, EV/EBIDTA of 4.44x and Price Performance (%)
rajan.kumar@centrum.co.in EV/tonne of US$58.
1M 6M 1Yr
91 22 4215 9640
ACC 2.5 (6.2) (27.8)
NIFTY 0.2 (30.7) (38.3)

CY07 58.5 73.1 16.6 28.3 11.3 229.3 60.0 42.7 29.0 3.3 9.2 5.7
CY08 70.7 20.8 19.3 27.3 12.7 12.6 67.5 34.8 29.1 2.5 8.2 4.5
CY09E 77.2 9.2 16.6 21.5 10.7 (15.6) 58.5 23.6 20.9 2.1 9.5 4.9
CY10E 78.3 1.4 16.3 20.8 9.2 (13.9) 49.1 17.7 16.2 1.9 11.3 5.7
CY11E 79.1 1.0 12.4 15.7 5.4 (41.4) 28.8 9.8 9.2 1.9 19.3 8.4
Shareholding pattern (%)
Company Background
Q408 Q109 Q209 Q309
ACC is the largest and oldest player in the Indian cement sector with a capacity of
Promoters 43.0 43.0 46.2 46.21
23.2mt and 12% market-share in FY08. It was formed in 1936 with the merger of 10
Foreign 15.12 9.13 8.9 9.4 existing cement companies and was part of the Tata Group until 2000 when the
Institutions 20.91 22.39 23.2 23.0 Tatas sold their 14.45% stake to Ambuja Cements. In 2005, ACC became part of Swiss
cement major, Holcim, through a structured deal between Holderind Investments,
Public & Others 21.0 25.5 21.7 21.4
an investment arm of Holcim and Ambuja Cement in which Holderind Investment
Total 100 100 100 100 acquired a two-third stake in Ambuja Cement India, a subsidiary of Ambuja Cement
(later raised to 100% with the exercise of a call option to acquire the remaining one-
third stake) which in turn acquired a further 20% stake in ACC through an open offer.
Pan India presence Key events/timelines
1936 Established 1n 1936 as a result of merger of 10 existing companies.
2000 Ambuja Cements (then Gujarat Ambuja Cements) acquires 14.5% Tata’s stake
through its investment arm Ambuja Cements India Limited (ACIL) valuing the
company at US$ 144/ton
2005 ACC became part of Swiss cement major, Holcim, through a structured deal
between Holderind Investments, an investment arm of Holcim and Ambuja
Cement in which Holderind Investment acquired a two-third stake in ACIL which
in turn acquired a further 20% stake in ACC through an open offer.
2006-08 Holcim raises its stake to 46.2 through raising its stake in ACIL from 67% to 100%
through exercise of call option and also open market purchases of ACC Shares.
June Commissioning of 1.12mt brownfield expansion and 30MW CPP at Bargarh in
2009 Orissa
Sept Commissioning of 3mt brownfield expansion and 50MW CPP at Wadi (New) in
2009 Karnataka
June Commissioning of 3mt brownfield expansion and 30MW CPP at Chanda in
2010 Maharashtra
Source: Company
Source: Company
Key management personnel

Name Position
Mr Sumit Banerjee Managing Director
Mr Sunil Nayak Chief Financial Officer
Mr J DattaGupta Chief Commercial Officer
Source: Company
23
ACC
Investment Rationale ACC is a high-cost producer despite high dependence
on CPP and domestic coal (CY08/FY09)
With no more acquisition triggers, valuations will now track Rs/ton Cost of Production- Ex freight
2,400
operating performance 2,149
2,200
ACC’s adverse cost structure makes it susceptible to 2,000

1,960
1,859
1,825
worsening product mix 1,800 1,750
1,600
The company has little leeway in containing energy costs due 1,449
to high dependence on CPPs and fixed cost domestic coal 1,400
1,200
1,000
ACC Ambuja Ultratech Shree India Industry AV
Source: Companies, Centrum Research
Summary Financials
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E
Key Income Statement
Revenue 58,512 70,674 77,197 78,276 79,084
YoY growth (%) 73.1 20.8 9.2 1.4 1.0
Operating profit 16,554 19,311 16,624 16,292 12,409
YoY growth (%) 180.1 16.7 (13.9) (2.0) (23.8)
Operating margin 28.3 27.3 21.5 20.8 15.7
Depreciation 2,610 3,130 3,205 3,559 4,552
Interest expenses 792 744 400 550 990
Other non operating income 1,573 1,718 2,780 1,551 1,177
PBT 14,726 17,156 15,822 13,757 8,067
Provision for tax 2,662
3,939 4,981 5,252 4,540
Minority interest (8.3) (1.9) (0.2) (0.2)
(0.2) Sharp profit decline in CY10E
PAT (adjusted) 11,270 12,688 10,708 9,217 5,405
YoY growth (%) 229.3 12.6 (15.6) (13.9) (41.4)
PAT margin 19.3 18.0 13.9 11.8 6.8
Key CF Statement
Cash generated from operations 14,112 20,242 17,079 10,421 11,091
Cash flow from investing activities (6,724) (10,504) (11,773) (13,031) (13,800)
Cash flow from financing activities (4,273) (10,571) (2,985) (4,947) 2,613
Net cash increase/decrease 5,162 1,240 2,499 (7,557) (96)
Key Balance Sheet Data
Shareholders' fund 31,645 41,623 48,242 53,063 54,071
Debt 7,832 3,147 4,820 4,820 12,820
Minority Interest 79 81 25 25 25
Total Capital Employed 42,820 48,230 56,508 61,328 70,337
Fixed Assets 35,345 40,384 52,717 62,358 74,606
Investments 4,757 7,906 5,169 5,000 2,000
Net current assets 2,708 (74) (1,390) (6,044) (6,283)
Total Assets 42,820 48,230 56,507 61,328 70,337
Key Ratio
ROCE 29.0 29.1 20.9 16.2 9.2
ROIC 34.4 33.4 23.8 18.3 9.9
ROE 42.7 34.8 23.6 17.7 9.8
Per share Ratios (Rs)
Fully diluted EPS 60.0 67.5 58.5 49.1 28.8
Book value 167.4 221.1 262.3 290.7 298.5
Solvency Ratio (x)
Debt-equity 0.3 0.2 0.2 0.2 0.3
Net Debt-Equity 0.0 (0.2) (0.1) 0.0 0.2
Interest coverage ratio 21.6 26.0 43.4 29.6 12.5
Valuation parameters (x)
P/E (Fully Diluted) 9.2 8.2 9.5 11.3 19.3
P/BV 3.3 2.5 2.1 1.9 1.9
EV/EBITDA 5.7 4.5 4.9 5.7 8.4
EV/Sales 1.8 1.3 1.2 1.3 1.4
EV/Ton 127.2 87.6 79.9 74.3 75.1
24
ACC
Investment Argument
Acquisition triggers gone, valuations to track operating performance
Historically, ACC commanded premium valuations over peers despite its poor earnings matrix
primarily on account of the acquisition trigger. However, now with Swiss cement major Holcim
having acquired a near majority (46.21%) stake in ACC and also majority stake in Ambuja Cements,
the market would value both companies purely on earnings.
We believe that given the high sensitivity of its earnings to cement prices, ACC’s earnings and
therefore valuations would be impacted in a declining prices scenario. We estimate 27% de-
growth in earnings over CY08-10 with ROE declining 13pp to 11% which compares with the 11.6%
ROE of FY03.
With ROE falling to FY02-03 range of 11-12%, we expect the average P/BV multiple of ACC and
Ambuja Cements to contract to 1.5x the average valuation commanded by Ambuja Cements
(then Gujarat Ambuja) in FY03. ACC’s valuation during FY03 would not be a right benchmark as
acquisition trigger kept valuations at a premium at 1.9x.
Exhibit 1: ACC’s P/BV multiple (during FY02- Exhibit 2: … despite lower ROEs (%)
03) was higher …Due to Acquisition trigger
(x) ROE
6 P/BV --ACC VS AMBUJA 45
5
40
35
4 30
3
25
20
2 15
1
10
5
0
0
Jan-97
Mar-98
May-99
Jan-00
Aug-00
Mar-01
Oct-01
Jun-02
Jan-03
Aug-03
Oct-04
Jun-05
Jan-06
Aug-06
Mar-07
Nov-07
Jun-08
Jan-09
Aug-97
Oct-98
Mar-04
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08FY09EFY10EFY11E
ACC Ambuja
ACC Ambuja Cements
High-cost structure makes ACC susceptible to worsening product mix

ACC remains a high-cost producer at Rs2,173/tonne in CY08 vs the industry average of
Rs1,859/tonne on account of its old plants. This exposes the company to further cost pressures in
a scenario of worsening product mix for the industry. ACC already has among the best product
mix in the industry with blended cement in the form of PPC/PBFC accounting for 90% of its sales
against the industry average of 75%. However with more capacities and thereby competition
emerging, the product mix of the industry as well as ACC is bound to shift to lower proportion of
blended cements.
Exhibit 3: ACC’s cost of production is the highest among peers
Rs/ton Cost of Production- Ex freight
2,400
2,200 2,149
1,960
2,000
1,825 1,859
1,800 1,750
1,600
1,449
1,400
1,200
1,000
ACC Ambuja Ultratech Shree India Industry AV
25
ACC
Little leeway in containing energy costs
The company’s high dependence on coal-based CPPs (70% of power requirement) and low-cost
domestic coal linkages from Coal India (60%) gives ACC very little leeway in controlling energy
costs. This is in contrast to other cement producers which are expected to see a substantial
savings in energy cost in FY10 due to commissioning of coal-based CPP across plants (UltraTech
and Grasim) or benefit from the fall in international coal/pet coke prices (Ambuja Cements, Shree
Cement, UltraTech, Grasim and India Cements).
Exhibit 4: ACC’s power and fuel costs to stay high
(Rs/ton) Power and Fuel Cost Trend ACC Vs Industry

1,000
800
600
400
200
-
ACC Ambuja Ultratech Shree India Industry
Cements Cement Cements Cements Average
FY08 FY09 FY10 FY11
26
ACC
Financial Analysis
29% earnings de-growth over CY08-10E
We expect ACC to post flat revenue growth over CY08-10E to Rs77.85bn on back of 7% CAGR in
volumes and 6.4% Y-o-Y decline in realizations. We expect 13.6% Y-o-Y decline in operating profit
to Rs12.4 bn over CY08-10E and net profit to decline 29% Y-o-Y to Rs5.4 bn over the same period.
We expect EBIDTA/tonne to decline 35% from Rs779/tonne in CY08 to Rs506/tonne in CY10 and
EBIDTA margin contract 584bp to 15.7%.
We have assumed an 8% CAGR in RMC revenue and a PBIT loss of Rs800mn and Rs600mn
respectively in CY09E and CY10E, respectively.
Exhibit 5: ACC’s operating and net profit to decline sharply
(Rsmn) CY06 CY07 CY08 CY09E CY10E
Revenue 58,512 70,674 77,197 78,276 79,084
EBIDTA 16,554 19,311 16,624 16,292 12,409
Margin (%) 28.3 27.3 21.5 20.8 15.7
Net Profit 11,270 12,688 10,708 9,217 5,405
Exhibit 6: Operating performance

CY06 CY07 CY08 CY09E CY10E
Cement sale (mt) 18.8 20.0 21.3 22.5 24.5
Cement sale (Rsmn) 53,107 64,001 70,489 72,061 72,791
Realization/tonne (Rs) 2,893 3,282 3,405 3,291 3,050
EBIDTA/ton (Rs) 882 964 779 723 507
RMC Sale (Rsmn) 2,998 3,670 5,493 6,222 6,386

RMC PBIT 27 (607) (918) (800) (600)
Margin (%) 0.9 (16.5) (16.7) (12.9) (9.4)
Strong balance sheet, cash flow to finance ongoing expansion

ACC is incurring an Rs30 bn capex over CY08-10 to increase its capacity by 7.2mt to 30.4mt. The
expansions would strengthen the company's position in the southern and eastern regions and
would be financed by internal accruals and debt leaving the company with a net debt of Rs11.9bn
and debt-equity ratio of 0.2 x in CY10E.
Exhibit 7: Expansion projects underway
Project Capacity Time of commissioning

Bargarh Expansion 1.12mt cement and 30MW power plant Mid 2009
Waddi- New 3mt cement and 50MW power plant 2HCY09
Chanda 3mt cement and 30MW power plant Mid 2010
Source: Company
27
ACC
Valuations
Valuations have come down significantly from Oct 2007 peaks
ACC’s valuations have come down significantly from their peak one-year rolling forward P/BV of
4.92x in Oct 2007 to 2.1x at present. On a one-year rolling forward EV/tonne basis, valuations have
plunged from US$275/tonne in Oct 2007 to US$74/tonne on17, March 2009.
Exhibit 8: ACC’s valuations down but still higher than UltraTech’s
ACC Ultratech
CY09E CY10E FY10E FY11E
Capacity (mt) 27.3 30.3 23.1 25.1
Sale Volume (mt) 22.5 24.5 20.1 20.8
EBIDTA/Ton (Rs) 723.2 506.6 851.6 732.8
ROCE (%) 16.2 9.2 15.3 11.5
ROE (%) 17.7 9.8 22.8 15.4
P/BV (x) 1.9 1.9 1.4 1.2
EV/Ton (x) 74.3 75.1 66.7 56.9
EV/EBIDTA (x) 5.7 8.4 4.4 4.5
P/E (x) 11.3 19.3 6.6 8.2
At 1.9x CY09E P/BV, the stock trades at a significant premium to the average P/BV of 1.5X
commanded by Ambuja Cement (then Gujarat Ambuja) in FY02-03. With earnings expected to de-
grow 29% CAGR over CY08-10, and ROE to dip to 11%, we expect the stock would come under
significant pressure. We initiate coverage with a Sell rating and one-year price target of Rs423
valuing the stock at 1.5x CY09 P/BV. At our target price, the stock would trade at P/E of 8.9x CY09E,
4.44x on EV/EBIDTA and US$58 per tonne on EV/tonne.
Exhibit 9: P/BV multiple to stay in lower narrow band
(x)
14
12
10
0
Apr-91
Mar-92
Feb-93
Feb-94
Jan-95
Dec-95
Dec-96
Nov-97
Nov-98
Oct-99
Sep-00
Sep-01
Aug-02
Aug-03
Jul-04
Jul-05
Jun-06
May-07
May-08
Exhibit 10: Asset value has declined

USD/Ton
250
200
150
100
50
0
Apr-05
Apr-06
Apr-08
Apr-91
Apr-92
Apr-93
Apr-94
Apr-95
Apr-96
Ap r-97
Ap r-98
Apr-99
Ap r-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-07
$50 $100 $150 $200 ACC
28
ACC
Key risks
Upside risks
Better production and price discipline in the cement industry could result in higher-than-
estimated prices, thereby improving ACC’s earnings and valuations
Government intervention that would boost demand like increased funds for infrastructure, boost
to housing tax benefits specific to the sector could result in improved earnings
Downside risks
A breakdown of production and price discipline among cement players could impact ACC’s
earnings
Supplies from newly-commissioned plants hitting the market ahead our assumed schedule
Any increase in the price of key inputs
29
ACC
Financials
Exhibit 11: Income Statement Exhibit 13: Cash flow
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E
Revenues 58,512 70,674 77,197 78,276 79,084 CF from operating

Profit before tax 14,726 17,156 15,822 13,757 8,067
Growth in revenues (%) 73.1 20.8 9.2 1.4 1.0
Depreciation 2,610 3,130 3,205 3,559 4,552
Power and Fuel 9,791 11,986 16,118 15,961 17,207
Interest expenses/other 660 578 (66) 550 990
% of Sales 16.7 17.0 20.9 20.4 21.8
OP profit bef. WC change 17,995 20,864 18,961 17,866 13,609
Freight 8,119 9,379 9,975 11,005 11,995 Working capital adj. (47) (1,299) (1,311) 2,906 (144)
% of Sales 13.9 13.3 12.9 14.1 15.2 Gross cash from op. 18,042 22,163 20,272 14,960 13,753
Other Expenses 12,206 15,709 18,469 17,506 19,072 Direct taxes paid 3,930 1,921 3,193 4,540 2,662
% of Sales 20.9 22.2 23.9 22.4 24.1 Cash from operations 14,112 20,242 17,079 10,421 11,091
EBITDA 16,554 19,311 16,624 16,292 12,409 Extraordinary (Inc) 2,047 2,073 178 - -
Cash From Op and EI 16,158 22,315 17,257 10,421 11,091
EBITDA Margin 28.3 27.3 21.5 20.8 15.7
CF from investing
EBIDTA/Ton (Rs) 882 964 779 723 507
Dec (Inc) in FA (5,333) (8,319) (15,772) (13,200) (16,800)
Depreciation 2,610 3,130 3,205 3,559 4,552 Pur (Sale) of Investment (1,392) (2,185) 3,999 169 3,000
PBIT 13,944 16,181 13,419 12,732 7,857 Cash from investment (6,724) (10,504) (11,773) (13,031) (13,800)
Interst expenses 792 744 400 550 990 CF from financing
PBIT from operations 13,152 15,437 13,019 12,182 6,867 Procds. from sh cap & prem. 216 40 14 - -
Other non op. income 1,573 1,718 2,780 1,551 1,177 Borrowings/ (Repayments) (1,917) (4,393) 1,766 - 8,000
Interest paid (890) (862) (413) (550) (990)
PBT bef. extra-ord. items 14,725 17,156 15,799 13,733 8,043
Dividend paid (1,681) (5,356) (4,351) (4,396) (4,396)
Extra-ord. income/ (exp) 1,609 2,099 425 - -
Cash from financing (4,273) (10,571) (2,985) (4,947) 2,613
PBT 16,334 19,254 16,224 13,733 8,043 Net cash increase/ (dec) 5,162 1,240 2,499 (7,557) (96)
Provision for tax 3,939 4,981 5,252 4,540 2,662 Source: Company, Centrum Research
Effective tax rate 24.1 25.9 32.4 33.1 33.1
PAT 12,395 14,273 10,972 9,193 5,381
Minority Interest 41.3 (8.3) (1.9) (0.2) (0.2) Exhibit 14: Key Ratios
Sh. of profit in associates 9.0 1.8 23.9 23.9 23.9 Y/E Dec CY06 CY07 CY08 CY09E CY10E
PAT after minority int. 12,363 14,283 10,998 9,218 5,405 Margin Ratios (%)
Adjusted PAT 11,270 12,688 10,708 9,217 5,405 EBITDA Margin 28.3 27.3 21.5 20.8 15.7
Growth in PAT (%) 229.3 12.6 (15.6) (13.9) (41.4) PBIT Margin 26.5 25.3 21.0 18.2 11.4
PAT margin 19.3 18.0 13.9 11.8 6.8 PBT Margin 25.2 24.3 20.5 17.6 10.2
PAT Margin 19.3 18.0 13.9 11.8 6.8
Growth Ratios (%)
Revenues 73.1 20.8 9.2 1.4 1.0
Exhibit 12: Balance Sheet EBITDA 180.1 16.7 (13.9) (2.0) (23.8)
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E Net Profit 229.3 12.6 (15.6) (13.9) (41.4)
Return Ratios (%)
Share Capital 1,875 1,878 1,878 1,878 1,878
ROCE 29.0 29.1 20.9 16.2 9.2
Reserves 29,770 39,744 46,364 51,184 52,193
ROIC 34.4 33.4 23.8 18.3 9.9
Shareholders' fund 31,645 41,623 48,242 53,063 54,071 ROE 42.7 34.8 23.6 17.7 9.8
Minority Interest 79 81 25 25 25 Turnover Ratios
Debt 7,832 3,147 4,820 4,820 12,820 Asset turnover ratio (x) 1.4 1.5 1.3 1.2 1.1
Deferred Tax Liability 3,264 3,380 3,421 3,421 3,421 Working capital cycle (days) (50.1) (61.7) (79.6) (65.0) (65.0)
Total Cap. Employed 42,820 48,230 56,508 61,328 70,337 Avg collection period (days) 13.3 15.8 16.9 17.0 17.0
Avg payment period (days) 104.3 115.8 134.4 120.0 120.0
Gross Block 49,447 55,923 61,139 84,339 105,139
Inventory holding (days) 40.8 38.3 37.8 38.0 38.0
Accumulated dep. 19,618 21,993 24,536 28,095 32,647
Per share (Rs)
Net Block 29,829 33,931 36,603 56,244 72,492 Fully diluted EPS 60.0 67.5 58.5 49.1 28.8
Capital WIP 5,515 6,453 16,114 6,114 2,114 CEPS 79.9 92.7 75.6 68.0 53.0
Total Fixed Assets 35,345 40,384 52,717 62,358 74,606 Book Value 167.4 221.1 262.3 290.7 298.5
Investments 4,757 7,906 5,169 5,000 2,000 DPS 15.0 20.0 20.0 20.0 20.0
Inventories 6,539 7,417 7,993 8,149 8,233 Solvency ratios
Debtors Debt/ Equity 0.3 0.2 0.2 0.2 0.3
2,290 3,058 3,579 3,646 3,683
Net Debt/Equity 0.0 (0.2) (0.1) 0.0 0.2
Cash & bank balances 6,225 7,464 9,915 2,355 2,259
Interest coverage 21.6 26.0 43.4 29.6 12.5
Loans and Advances 4,486 4,400 5,541 5,541 5,541
Valuation parameters (x)
Total current assets 19,540 22,340 27,028 19,691 19,717 P/E 9.2 8.2 9.5 11.3 19.3
Current lia & provisions 16,832 22,413 28,418 25,735 26,000 P/BV 3.3 2.5 2.1 1.9 1.9
Net current assets 2,708 (74) (1,390) (6,044) (6,283) EV/ EBITDA 5.7 4.5 4.9 5.7 8.4
Misc. Expenditure 10 14 11 14 14 EV/ Sales 1.8 1.3 1.2 1.3 1.4
Total Assets 42,820 48,230 56,507 61,328 70,337 M-Cap/ Sales 1.8 1.5 1.3 1.3 1.3
EV/Ton (US$) - - - 74.3 75.1
30
ACC
INDIA
Cements Ambuja Cements

Reduce Key Data

Premium drivers dissipating
Bloomberg Code ACEM IN
Target Price: Rs61
Reuters Code ABUJ.BO
CMP: Rs67* Acquisition triggers gone, cost advantage narrowing:
With Holcim acquiring close to majority stake (45.68%) in Current Shares O/S (mn) 1,522.6
Downside: 9% Ambuja Cements, we see no more acquisition triggers. Diluted Shares O/S(mn) 1,522.6
*as on 17 March 2009 Further, with competitors catching up, its cost advantage Mkt Cap (Rsbn/USDbn) 105.4/2.0
is expected to narrow with EBIDTA/tonne advantage 52 Wk H / L (Rs) 129/43
sliding from Rs212 in FY04 to Rs72 in FY11E. Daily Vol. (3M NSE Avg.) 17,55,304
Face Value (Rs) 2
Valuations at premium to bear-case average:
1 USD = Rs51.5
Valuations continue to be on the higher side of bear case
Source: Bloomberg ; * As on 17 Mar 2009
average of 1.5x P/BV, despite a significantly fall from a
peak of 4.1x P/BV in Oct 2007 to 1.65x currently and
EV/tonne of US$304 to US$88.5. Shareholding Pattern
Public & Others, 9.7
Expansions to strengthen presence in relatively Foreign, 26.6
consolidated market: The company is adding 4.4mt

clinker capacity in Himachal Pradesh and Chhattisgarh to
enhance presence in the structurally strong northern and
eastern markets. It is also adding 5.5mn grinding capacity
and CPPs to rationalize freight and power costs and a Promoters, 46.5
Institutions, 15.9
bulk terminal in Kochi to tap the deficit market in Kerala.
Non Promoter Corp.
Hold., 1.4
Diversified fuel mix, new CPPs to result in lower As on 31 December 2008

energy cost: Ambuja Cements will likely benefit from the
fall in international coal/pet coke prices and from savings One Year Indexed Stock Performance
at its new CPPs, thanks to the diversified fuel mix at its 140
kiln and power plants. 120
100
Reduce with target price of Rs61: We believe valuations 80

60
are expensive at CY09E and CY10E P/E of 10.9x and
40
12.26x, EV/EBIDTA of 6.1 and 6.1x and EV/tonne of
20
US$88.5 and US$86, respectively. Initiating coverage on Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
the stock with a reduce rating and one-year price target AMBUJA CEMENTS L NSE S&P CNX NIFTY INDEX
of Rs61, implying a P/BV of 1.5x.
Price Performance (%)
Key risks: Upside: Higher cement prices on account of
better production and price discipline. Downside: 1M 6M 1Yr
Rajan Kumar Worsening export market and cost push through energy Ambuja (3.3) (14.6) (43.0)
rajan.kumar@centrum.co.in price rally.
91 22 4215 9640 NIFTY 0.2 (30.7) (38.3)
CY06* 62.7 140.6 21.3 34.0 14.6 212.1 9.6 34.4 26.4 2.9 7.0 3.9
CY07 56.3 (10.2) 20.5 36.3 13.1 (10.2) 8.6 32.2 33.1 2.2 7.8 3.9
CY08 62.3 10.7 17.8 28.5 10.9 (16.6) 7.2 21.2 24.6 1.8 9.4 5.0
CY09E 61.9 (0.7) 15.6 25.1 9.4 (14.4) 6.1 15.7 17.5 1.6 10.9 6.1
CY10E 63.3 2.3 15.3 24.2 8.4 (10.8) 5.5 13.0 12.6 1.5 12.3 6.1
Shareholding Pattern (%)
Company Background
Q408 Q109 Q209 Q309
Promoter 46.5 46.5 46.5 46.5 Ambuja Cements is the fourth largest cement producer in India with a capacity
Foreign 23.1 21.2 21.6 22.0 of 18.3mt and had a 10% market share in FY08. It is also the largest exporter of
cement from India. Promoted by Seksaria and Neotia families, Ambuja Cement
Institutions 13.7 15.8 15.6 15.9 became one of the most efficient cement producers due to its focus on cost
Public & Others 16.8 16.5 16.4 15.6 control in energy and logistics by creating supporting infrastructure like CPPs, a
Total 100.0 100.0 100.0 100.0 captive port, ships, bulk terminals and split-grinding units. The company is now
part of the Holcim group.
Strong presence in structurally strong markets Key events/timeline

1986 Started with 0.7 million mt capacity in Gujarat. India
1997 Enters Eastern Market through acquisition of Modi Cement
2001 Acquires DLF Cements in Rajasthan
2000 Buys14.5% stakes in ACC from Tatas through its investment vehicle ACIL
2005 ACIL restructured as JV with Holcim and increase stake in ACC.
2006 Founder promoters sold part of stake to Holcim and Ambuja Cements
becomes Holcim Group Company.
Mid 2009 Clinkerization unit (2.2mt) at Rauri in Himachal Pradesh, grinding unit
(1.5mt) in Dadri (UP) , bulk terminal at Cochin and 90MW coal-based plants
at Ambuja Nagar, Bhatapara and Maratha cement
2nd half 09 Clinkerization unit (2.2mt) and grinding augmentation (1mt) at Bhatapara
2010 Grinding units at Nalagarh (1.5mt) and Ahmedabad (1.5mt)
Source: Company
Source: Company

Name Position
Mr. A. L. Kapur Managing Director

David Atkinson Chief Financial Officer
Mr. A Kapur Head Marketing and Commercial
Mr. P. B. Kulkarni Director
Mr. N. P. Ghuwalewala Director
Mr. B. L. Taparia Director and Company Secretary
Source: Company
32
Ambuja Cement
Investment Rationale Cost advantage over peers narrowing
Acquisition trigger gone, narrowing cost advantages to result 1400 Operating Performance - Ambuja Cement Vs Industry
in lower premium for company’s assets 1200
1000
Though valuations have come down significantly, they are still
EBIDTA/TON (Rs)
800
on the higher side of a bear-case average of 1.5x P/BV 600
400
Diversified fuel mix, new CPPs to result in lower energy cost 200
0
FY04 FY08 FY09E FY11E
Ambuja Cement ACC Ultratech Shree India Cements Industry Average
Summary Financials
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E
Revenue 62,683 56,314 62,347 61,910 63,327
YoY growth (%) 140.6 16.0 10.7 (0.7) 2.3
YoY growth (%) 194.6 15.7 (13.1) (12.4) (1.6)
Depreciation 3,261 2,363 2,598 2,926 4,183
Other non operating income 1,003 1,935 1,754 931 994
PBT 17,941 19,265 16,615 13,372 11,933
Provision for tax 3,384 9,433 5,676 4,012 3,580
Minority interest
PAT (adjusted) 14,617 13,122 10,939 9,360 8,353
YoY growth (%) 212.1 (10.2) (16.6) (14.4) (10.8)
PAT margin 23.3 23.3 17.5 15.1 13.2
Key CF Statement
Cash flow from financing activities (8,889) (11,244) (4,821) (4,121) (4,121)
Net cash increase/decrease 2,826 2,652 2,093 (3,880) 2,284
Debt 8,654 3,304 2,887 2,887 2,887
Minority Interest
Fixed Assets 30,311 34,699 47,535 58,518 61,607
Investments 11,331 12,889 3,324 3,324 3,324
Net current assets 5,690 6,050 12,521 6,979 8,324
Total Assets 47,410 53,701 63,423 68,864 73,298
Key Ratio
ROCE 24.0 28.8 19.0 14.4 12.0
ROIC 37.3 54.7 33.1 16.9 12.6 RoE declining to FY03
ROE 34.4 32.2 21.2 15.7 13.0 levels
Cash EPS 11.8 10.2 8.9 8.1 8.2
DPS 3.4 2.2 2.2 2.2 2.2
Book value 23.0 30.6 37.3 40.8 43.7
Solvency Ratio (x)
Debt-equity 0.2 0.1 0.1 0.0 0.0
Net Debt-Equity (0.2) (0.3) (0.2) (0.1) (0.1)
Valuation parameters(x)
P/E (Fully Diluted) 7.0 7.8 9.4 10.9 12.3
P/BV 2.9 2.2 1.8 1.6 1.5
EV/EBITDA 4.3 3.9 5.0 6.1 6.1
EV/Sales 1.5 1.5 1.6 1.6 1.6
EV/Ton 114.5 99.8 95.4 88.5 86.5
33
Ambuja Cement
Investment Argument
Acquisition triggers gone, narrowing cost advantages to result in lower
premium
With Holcim having acquired a near majority stake (45.68%), we believe the lack of acquisition
triggers would lead to lowering of premium commanded by Ambuja Cements. Further, the
company’s cost advantage over other cement players in terms operating performance (measured
by EBIDTA/tonne) has been narrowing. We estimate a decline in the company’s advantage over
Industry in EBIDTA/tonne from Rs212 in FY04 to Rs73 in FY11.
Gujarat Ambuja is among the most efficient cement manufacturers in India with assets like captive
ports, bulk terminals and ships. It was the first company to introduce the concept of bulk transport
of cement by sea. It has also pioneered cost-cutting by setting up its own CPPs and split grinding
units. This resulted in substantial savings in power & fuel and logistics costs making the company
among the lowest-cost cement producers in the country which was the main reason why the
stock has commanded a premium over peers. But now with competitors also setting up their own
CPPs and split-grinding units, Ambuja Cement’s cost advantages would reduce translating into
lower premium of its assets.
Exhibit 1: Cost advantage narrowing
1400 Operating Performance - Ambuja Cement Vs Industry
1200
1000
EBIDTA/TON (Rs)
800
600
400
200
0
FY04 FY08 FY09E FY11E
Ambuja Cement ACC Ultratech Shree India Cements Industry Average
Valuations still at premium to bear-case average

Though valuations have come down significantly from a peak of 4.1x P/BV in Oct 2007 to 1.61x 8
17 March 2009 and from US$304 to US$88 on EV/tonne over the same period, they are still on the
higher side of a bear case average of 1.5x P/BV achieved during FY03.
With ROE expected to come decline from 32.2% in CY07 to 15.7% and 13% in CY09E and CY10E,
respectively, which compares with ROE of 12% and 13% in FY02 and FY03, we expected the P/BV
multiple to decline to 1.5x in CY09E (this was the average multiple commanded by Ambuja
Cements in FY03).
34
Ambuja Cement
Exhibit 2: Stock still trading above average FY02-03 P/BV of 1.5x
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Apr-93
Feb-94
Jan-95
Dec-95
Oct-96
Sep-97
Aug-98
Apr-01
Feb-02
Jan-03
Oct-04
Sep-05
Jul-06
Jun-91
May-92
Jun-99
May-00
Nov-03
Jun-07
May-08
Expansion to strengthen presence in relatively consolidated markets

The company is adding a total of 4.4mt clinker capacity by end CY09 which along with its
associated grinding capacity would take its total capacity to 22.4mt by the end of CY10. It is also
setting up a bulk terminal at Kochi (Kerala) to tap the deficit market.
Ambuja Cements has a strong presence in relatively consolidated cement markets of northern
India, which accounted for 40% of sales in FY08, western region (38%) and eastern region (13%)
and derives 7% of its sales from exports. It is India’s largest exporter of cement and commands a
19% of overall cement exports. The two Holcim companies ACC and Ambuja Cements, command
a share of 29% 28% and 26% in northern, western and eastern markets, respectively.
The company’s expansion in the northern and eastern regions complements ACC’s expansions in
the southern and western regions. That way, Holcim would have a uniform presence across
country. Ambuja Cements expansion would strengthen its presence in relatively consolidated
markets while the bulk terminal at Kochi would allow it access to cement-deficit Kerala market
through sea route.
Exhibit 3: Expansions to consolidate Holcim’s presence across regions
Holcim's share in Indian cement market
ACC (%) Ambuja (%) Holcim (%) Market size (mt)
North 16.5 12 29 57
East 17.0 9 26 25
South 7.5 1 8 49
West 8.1 20 28 32
Exports 0.0 19 19 6
All India 12 10 22 170
Holcim capacity share (mt)

ACC Ambuja Holcim Total
FY09 End 23.4 18.2 41.6 215
% Share In Capacity 10.88 8.47 19.35
FY11 End 30.52 22.2 52.72 287
% Share In Capacity 10.63 7.74 18.37
Addition of 3mt each in North, South, East and West
Diversified fuel mix, new CPPs to result in lower energy cost

The company’s diversified fuel mix (35% imported coal, 35% domestic linkage coal and 30%
others) and benefits of new coal-based CPP would lead to a lower energy cost with power and
fuel cost declining 13.6% in CY09 to Rs645/tonne and then rise 2.5% to Rs666/tonne in CY10 on
account of higher clinker production post commissioning of new plants . Lower dependence on
fixed price domestic linkages makes Ambuja Cements less vulnerable to reduction in fixed price
domestic linkages.
35
Ambuja Cement
Financial Analysis
Flat revenue growth over CY08-10E
We estimate almost flat 0.8% revenue CAGR over CY08-10 to Rs63.2bn as the 7.3% CAGR in
cement volumes would be off-set by the 6% y-o-y decline in domestic realizations and 8.5% y-o-
ydecline in export realizations.
EBIDTA would decline 7.2% y-o-y to Rs15.32bn over CY08-10E and PAT would decline 12.6% to
Rs8.35bn. EBIDTA/tonne would decline 13.5% to Rs751. ROCE and ROE are expected to decline
7.1pp and 8.2pp to 12% and 13%, respectively, in CY10.
Exhibit 4: Flat growth in sales, declining profitability
CY06 CY07 CY08 CY09E CY10E
Cement sale (mt) 22.6 16.8 17.7 18.6 20.4
Net Sale (Rsmn) 62,683 56,314 62,347 61,910 63,327
EBIDTA (Rsmn) 21,331 20,451 17,779 15,569 15,325
EBIDTA/tonne (Rs) 945 1,221 1,003 838 751
PAT 14,617 13,122 10,939 9,360 8,353
Strong balance sheet and cash-flow to finance on going capex

Ambuja Cements is adding 4.4mt clinker unit, 5.5mt grinding capacity, 90MW CPP, a bulk terminal
and three ships. The expansions would require a capex of Rs35 bn which would be financed
through the internal accruals and income from sale of ACIL’s stake to Holcim. We estimate Ambuja
Cement would have a strong balance sheet post these expansions with net cash of Rs3.5bn in
CY10.
36
Ambuja Cement
Valuation
Sell with target price of Rs61
At CMP of Rs67, the stock trades at 10.9x CY09E and 12.3x CY10E on a P/E basis, EV/EBIDTA of 6.1x
CY09E and 6.1x Cy10E , EV/tonne of US$88.4 for CY09E and US$86.4 for CY10E. On a P/BV basis, it
trades at 1.61x CY09E and 1.51x CY10E, which is on the higher side of the 1.5x P/BV valuation
commanded by the stock during the period of last down cycle in FY02-03. We recommend Reduce
with a one-year price target of Rs61, valuing the stock at P/BV of 1.5x. At our target price, the stock
would trade at a P/E of 10.14x CY10E, 5.39x FY10E EV/EBIDTA and EV/tonne of US$82 for CY10.
Exhibit 5: P/BV has declined sharply from peak but still higher than bear case Average 1.5X
(x)
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jun-91
May-92
Apr-93
Feb-94
Jan-95
Dec-95
Oct-96
Sep-97
Aug-98
Jun-99
May-00
Apr-01
Feb-02
Jan-03
Nov-03
Oct-04
Sep-05
Jul-06
Jun-07
May-08
Exhibit 6: Asset value has declined. Stock to trade in lower narrow band
600
500
USD/Ton
400
300
200
100
0
Jul-91
Jul-93
Jul-95
Jul-97
Jul-99
Jul-01
Jul-03
Jul-05
Jul-07
USD50 USD150 Ambuja cement

37
Ambuja Cement
Key risks
Upside risks
Better production and price discipline could result in higher-than-expected cement prices.
Favourable government intervention towards demand generation as well as tax benefits specific
to the sector.
Downside risks
Early breakdown of production and price discipline with higher supplies hitting from newly
commissioned plants. Competition’s supplies hitting the market ahead our assumed schedule.
An increase in international coal prices which increase Ambuja Cements’ costs and impact
margins
Worsening of exports market (particularly the Middle East) in terms of lower demand and
realization getting depressed by new capacity coming up
38
Ambuja Cement
Financials
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E Y/E Dec (Rs mn) CY06 CY07 CY08 CY09E CY10E

Growth in revenues (%) 16.0 10.7 (0.7) 2.3
Depreciation 3,261 2,363 2,598 2,926 4,183
Power and Fuel 12,399 10,042 13,257 11,997 13,596
Interest expenses/other 825 (435) (1,015) 202 202
% of Sales 19.8 17.8 21.3 19.4 21.5
OP profit before WC chg 22,503 29,052 21,281 16,500 16,318
Freight 11,719 11,175 12,205 14,070 15,299 Working capital adj. 463 (1,179) (2,612) (702) (60)
Other Expenses 10,972 8,580 10,949 10,961 12,043 Direct taxes paid (4,449) (4,489) (5,924) (4,012) (3,580)
EBITDA 21,331 20,451 17,779 15,569 15,325
Extraordinary (Inc) (475) (7,859) (3,083) - -
EBITDA Margin 34.0 36.3 28.5 25.1 24.2
Cash From Op Ex OI 18,042 15,525 9,662 11,786 12,678
EBIDTA/Ton (Rs) 945 1,221 1,003 838 751
Depreciation 3,261 2,363 2,598 2,926 4,183 CF from investing
PBIT 18,070 18,088 15,182 12,643 11,141 Capex (7,564) (5,215) (16,415) (11,544) (6,273)
Interst expenses 1,132 759 321 202 202 Investment 1,238 3,586 13,666 - -
PBIT from operations 16,937 17,329 14,861 12,441 10,939 Cash from investment (6,327) (1,629) (2,749) (11,544) (6,273)
Other non op. income 1,003 1,935 1,754 931 994
CF from financing
Procds from sh cap & prem. 481 323 12 - -
Extra-ord. income/ (exp) 475 7,859 3,083 - -
Borrowings/ (Repayments) (3,402) (5,253) (434) - -
PBT 18,416 27,124 19,698 13,372 11,933 Interest paid (1,202) (483) (497) (202) (202)
Provision for tax 3,384 9,433 5,676 4,012 3,580 Dividend paid (4,766) (5,831) (3,902) (3,919) (3,919)
Effective tax rate 18.4 34.8 28.8 30.0 30.0 Cash from financing (8,889) (11,244) (4,821) (4,121) (4,121)
PAT 15,033 17,691 14,023 9,360 8,353 Net cash increase/ (dec) 2,826 2,652 2,093 (3,880) 2,284
Adjusted PAT 14,617 13,122 10,939 9,360 8,353 Source: Company, Centrum Research
Growth in PAT (%) 212.1 (10.2) (16.6) (14.4) (10.8)
PAT margin 23.3 23.3 17.5 15.1 13.2
Exhibit 10: Key Ratios
Y/E Dec CY06 CY07 CY08 CY09E CY10E
Margin Ratios (%)
EBITDA Margin 34.0 36.3 28.5 25.1 24.2
Exhibit 8: Balance Sheet
PBIT Margin 28.8 32.1 24.4 20.4 17.6
Y/E Dec (Rsmn) CY06 CY07 CY08 CY09E CY10E PBT Margin 28.6 34.2 26.6 21.6 18.8
Share Capital 3,034 3,045 3,045 3,045 3,045 PAT Margin 23.3 23.3 17.5 15.1 13.2
Reserves 31,872 43,564 53,680 59,121 63,555 Growth Ratios (%)
Revenues 140.6 16.0 10.7 (0.7) 2.3
EBITDA 194.6 15.7 (13.1) (12.4) (1.6)
Minority Interest
Net Profit 573.3 178.8 (39.8) (29.3) (10.8)
Debt 8,654 3,304 2,887 2,887 2,887 Return Ratios (%)
Deferred Tax Liability 3,839 3,784 3,808 3,808 3,808 ROCE 24.0 28.8 19.0 14.4 12.0
Total Capital Employed 47,410 53,701 63,423 68,864 73,298 ROIC 37.3 54.7 33.1 16.9 12.6
ROE 34.4 32.2 21.2 15.7 13.0
Gross Block 45,425 52,311 57,069 84,086 91,359 Turnover Ratios
Asset turnover ratio (x) 2.5 1.9 2.0 1.1 1.1
Accumulated dep. 20,533 22,712 25,142 28,068 32,251
Working capital cycle (days) 0.5 (7.1) 3.8 3.5 3.5
Net Block 24,892 29,599 31,928 56,018 59,107
Avg collection period (days) 5.2 9.4 13.1 13.5 13.5
Capital WIP 5,419 5,100 15,608 2,500 2,500 Avg payment period (days) 40.9 75.8 86.3 80.0 80.0
Total Fixed Assets 30,311 34,699 47,535 58,518 61,607 Inventory holding (days) 36.1 59.2 77.0 70.0 70.0
Investments 11,331 12,889 3,324 3,324 3,324 Per share (Rs)
Inventories 4,088 5,816 9,398 8,887 9,206 Fully diluted EPS 9.6 8.6 7.2 6.1 5.5
Debtors 950 1,578 2,480 2,524 2,576 CEPS 11.8 10.2 8.9 8.1 8.2
Cash & bank balances 3,781 6,426 8,518 4,639 6,923 Book Value 23.0 30.6 37.3 40.8 43.7
DPS 3.4 2.2 2.2 2.2 2.2
Solvency ratios
Total current assets 12,706 17,741 27,259 20,549 22,204
Debt/ Equity 0.2 0.1 0.1 0.0 0.0
Current lia & provisions 7,016 11,691 14,738 13,569 13,880 Net Debt/Equity (0.2) (0.3) (0.2) (0.1) (0.1)
Net current assets 5,690 6,050 12,521 6,979 8,324 Interest coverage 18.8 27.0 55.5 77.0 75.8
Misc. Expenditure 77 62 43 43 43 Valuation parameters (x)
Total Assets 47,410 53,701 63,423 68,864 73,298 P/E 7.0 7.8 9.4 10.9 12.3
P/BV 2.9 2.2 1.8 1.6 1.5
EV/ EBITDA 4.3 3.9 5.0 6.1 6.1
EV/ Sales 1.5 1.5 1.6 1.6 1.6
M-Cap/ Sales 1.6 1.8 1.6 1.7 1.6
39
Ambuja Cement
INDIA
Diversified Grasim Industries

Hold Key Data

Perfectly priced
Bloomberg Code GRASIM IN
Target Price: Rs1,474
Reuters Code GRAS.BO
CMP: Rs1,461* Expansion to consolidate presence in cement sector:
Grasim Industries, together with subsidiary UltraTech, is Current Shares O/S (mn) 91.7
Upside: 1% expanding its cement capacity by 13.8mt which would Diluted Shares O/S(mn) 91.7
*as on 17 March 2009 take its total capacity to 48.2mt by FY10E and help it Mkt Cap (Rsbn/USDbn) 133.9/2.6
sustain its capacity share of 17.6%, apart from 52 Wk H / L (Rs) 2,890/824
consolidating its position in the northern and southern Daily Vol. (3M NSE Avg.) 269,642
regions. Face Value (Rs) 10
1 USD = Rs51.5
Efficiency-enhancing measures, backward integration
to rationalize costs: The company is setting up CPPs
(369MW) across its cement plants, which would reduce its
dependence on grid and high-cost DG power. It is also Shareholding Pattern
setting up bulk-handling terminals, jetties and split- Public & Others, 12.4
grinding units to facilitate access to its markets and
rationalize logistics cost. Foreign, 35.7
Diversified fuel mix to ease cost pressure: We expect Promoters, 25.2
cost pressures on the energy front to ease significantly

with softening international coal prices. Currently, Grasim
depends on diversified fuel, relying on imported coal and Non Promoter Corp.
Hold., 4.4
pet coke, domestic coal (linkage) and domestic coal (e- Institutions, 22.3
auctions) and open market purchases in equal
proportions. One Year Indexed Stock Performance
Pain in VSF business to continue: The VSF business

140
120
remains challenging, as the decline in prices of
100
substitutes (PSF and cotton) exerts pressure on VSF
80
prices.
60
40
Fairly valued, Hold: At CMP, the stock trades at 7.2x and 20
8.6x P/E, 4,5x and 4.6x EV/EBIDTA and 1.06x and 0.98x Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
P/BV for FY10E and FY11E, respectively. We initiate GRASIM INDS LTD NSE S&P CNX NIFTY INDEX
coverage with a Hold rating.

Key risks: Upside: Higher-than-expected cement prices
and improvement in outlook for textiles. Downside: A 1M 6M 1Yr
Rajan Kumar rally in energy prices. Grasim 10.2 (22.9) (44.9)
91 22 4215 9640 NIFTY 0.2 (30.7) (38.3)
Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY( %) Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) EV/EBITDA (x)
FY07 140.7 37.6 39.7 28.2 19.7 89.6 214.6 34.5 21.4 2.0 6.8 4.1
FY08 169.7 20.6 49.6 29.2 26.2 33.4 286.2 33.4 21.1 1.5 5.1 3.6
FY09E 178.3 5.1 43.5 24.4 21.2 (19.3) 231.0 20.8 15.2 1.2 6.3 4.4
FY10E 182.8 2.5 42.0 22.9 18.5 (12.8) 201.5 15.5 12.1 1.1 7.2 4.5
FY11E 190.6 4.3 37.3 19.6 15.6 (15.8) 169.8 11.9 9.5 1.0 8.6 4.6
Company Background
Q408 Q109 Q209 Q309
Grasim Industries, the flagship of the Aditya Birla Group, is among India's largest
Promoter 25.2 25.2 25.2 25.2
private sector companies. Starting as a textiles manufacturer in 1948, today
Foreign 22.23 21.17 20.1 20.6 Grasim's businesses comprise viscose staple fibre (VSF), cement, sponge iron,
Institutions 20.46 20.99 21.7 22.3 chemicals and textiles. Its core businesses are VSF and cement, which contribute
to over 90% of its revenues and operating profits. In order to focus on its cement
Public & Others 32.1 32.7 33.0 31.9
and VSF business, the company sold off its sponge iron business Vikram Ispat to
Total 100.0 100.0 100.0 100.0 Welspun Power and Steel. Grasim, along with its subsidiary UltraTech Cements,
is consolidating its presence in cement through capacity expansions and
efficiency enhancements. In the VSF segment, the company is focusing on
backward integration like captive plantations in Laos and has increased its stake
in Canadian JVs for reliable sourcing of wood pulp. It is also focusing on product
innovation like introduction of specialty fibres and non-woven VSF products to
drive sales.
Pan India presence including subsidiary UltraTech Key events/timeline

1947-1977 Incorporation and expanding presence in textiles and Viscose staple
fibre.
1985 Foray in Cement with Vikram Cement Plant at Jawad MP. Expanded in
1987 and 1991.
1992-1996 Diversification into International Business, Software and Sponge Iron.
1999 Demerger of Group Company’s Aditya Birla Nuvo cement and transfer to
Grasim Industries .
2000-2002 Divestment/Spinning off of non core biz to focus on Cement, VSF and
Sponge Iron.
2004 Acquisition of L & T cement business.
2008 Arrangement with Welspun Power and Steel to sell sponge iron business.
Sep 2008 4.4mt capacity addition at Sambhupura Rajasthan. This plant is under
ramp up.
Q2FY10 4.5mt expansion at Kotputli to be commissioned.
Source: Company
Source: Company

Name Position
Mr Kumar Mangalam Birla Chairman
Mr DD Rathi CFO
Mr Shailendra K Jain Director and Business Head (VSF)
Mr Saurabh Misra Business Head (Cement)
Source: Company
41
Grasim
Investment Rationale Sum of The Part Valuation
Ongoing expansions to consolidate presence in cement and Value Valuation Parameter Rsbn Per Share (Rs)
VSF business Cement EV/Ton @US$75/Ton 186 2,030

VSF EBIDTA*4 18 200
Investments Idea *1, L&T*1 and AV Nuvo *.7 10 105
Efficiency enhancing measures and backward integration to Investments other than equities 11 119
rationalize costs Cash 10.2 111
Total Value of Firm 235 2,565
Diversified fuel mix to ease cost pressure Less Debt 68 745
Value of Share Holders Equity inc MI 167 1,820
Pain in VSF segment to continue despite softening of input Less Minority Interest 1.5X Price/Book (Minority Interest) 31.7 346
Value of Share Holders Equity 135 1,474
costs Value/Share (Rs) 1,474
Summary Financials
Y/E March (Rsmn) FY07 FY08 FY09E FY10E FY11E
Revenue 140,695 169,739 178,349 182,813 190,604
YoY growth (%) 37.6 20.6 5.1 2.5 4.3
YoY growth (%) 92.1 24.9 (12.3) (3.5) (11.0) Expansions and cost savings to
result in lesser de-growth in
operating profit
Depreciation 6,100 6,703 8,422 10,268 11,355
Interest expenses 2,286 2,221 3,317 3,317 3,317
Other non operating income 3,177 4,623 2,500 2,500 3,000
PBT 34,514 45,296 34,249 30,870 25,660
Minority interest 3,915 4,565 4,333 4,058 3,167
PAT (adjusted) 19,674 26,237 21,183 18,477 15,565
YoY growth (%) 89.6 33.4 (19.3) (12.8) (15.8)
PAT margin 14.0 15.5 11.9 10.1 8.2
Key CF Statement
Cash flow from financing activities 6,699 4,555 (8,115) (8,653) (8,653)
Net cash increase/decrease 1,318 (789) (1,694) 8,959 18,033
Debt 60,256 67,346 67,846 68,346 68,846
Minority Interest 8,587 12,760 17,093 21,151 24,317
Fixed Assets 103,165 149,136 171,184 178,496 172,900
Investments 22,719 16,607 14,607 14,607 14,607
Total Assets 134,467 171,544 197,119 215,319 229,715
Key Ratio
ROCE 21.4 21.1 15.2 12.1 9.5
ROIC 10.2 23.5 16.5 12.7 10.2
ROE 34.5 33.4 20.8 15.5 11.9
Cash EPS 281.1 359.3 322.9 313.5 293.6
DPS 27.5 33.1 40.0 45.0 45.0
Book value 715.7 997.3 1,223.5 1,372.3 45.0
Solvency Ratio (x)
Debt-equity 0.6 0.5 0.4 0.3 0.3
Net Debt-Equity 0.3 0.3 0.3 0.2 0.3
P/E (Fully Diluted) 6.8 5.1 6.3 7.2 8.6
P/BV 2.0 1.5 1.2 1.1 1.0
EV/EBITDA 4.1 3.6 4.4 4.5 4.6
EV/Sales 1.3 1.1 1.1 1.1 1.0
MCAP/Sales 1.0 0.8 0.8 0.7 0.7
42
Grasim
Investment Argument
Expansion to consolidate presence in cement sector
Grasim, together with subsidiary UltraTech Cements, is expanding its cement capacity by 13.8mt
which would take total combined capacity to 48.2mt by FY10E and help it maintain its 17.5%
capacity share, apart from consolidating its position in the northern and southern regions. The
expansions would be through both green-field and brown-field projects and are expected to
enhance the combine’s market share to 20%. The company also is aggressively expanding its
ready mix concrete (RMC) capacity by 2.4x to 22.6mn cubic meters.
Exhibit 1: AV Birla Group’s share in Indian cement sector

AV Birla Share In Indian Cement Space (FY08 sales)
Grasim (%) UltraTech(%) AV Birla (%) Market Size (mt)
North 13.0 0.6 13.6 57
East 7.1 13.2 20.3 25
South 7.9 7.5 15.4 49
West 9.3 21.5 30.8 32
Exports 0.0 40.7 40.7 6
All India 9.5 9.9 19.4 170
AV Birla share in capacity (mt)

Grasim UltraTech AV Birla All India
FY09 End 20.6 23.1 43.7 215
% Share In Capacity 9.6 10.7 20.3 100.0
FY11 End 25.1 25.1 50.2 287
% Share In Capacity 8.7 8.7 17.5 100
Adding 8.9mt in North and 4.9mt in South between FY08 and FY10
We believe Grasim’s ongoing expansion would enable the company to post a higher-than-
average volume growth of 12% CAGR over FY09-FY11E on a consolidated basis (16% on
standalone basis) vs the industry average of 7.3%, which should help partially offset the expected
declined in realizations.
Exhibit 2: Expansion to drive volume growth above industry average
Indian Cement Industry Vs AV Birla Group
FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Sales Volume (mt) 28.2 29.0 31.6 32.8 34.3 40.2 43.2
AV Birla Group Growth (%) 5% CAGR 12% CAGR
Market share (%) 20.58 20.05 19.98 19.26 18.75 20.44 20.46
Sales Volume (mt) 137 145 158 170 183 197 211
Industry
Growth (%) 7.5% CAGR 7.3% CAGR
Exhibit 3: Performance of Grasim’s cement division (standalone)

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Capacity (mt) 11.4 12.9 13.1 13.1 13.1 13.1 16.8 21.2 25.7 25.7
Sale Volume (mt) 9.7 11.2 12.0 12.6 14.0 14.5 15.5 16.5 20.1 22.4
Capacity Utilization (%) 85.1 86.4 91.2 96.3 106.6 110.7 92.4 78.0 78.0 86.9
Average Realization (Rs) 1917 1690 1712 1874 2046 2867 3192 3403 3092 2873
Cement Sale (Rsbn) 20.70 21.84 24.15 27.98 34.26 48.89 58.90 68.31 77.45 81.58
Cement EBIDTA 4.69 3.59 4.47 5.51 8.00 16.23 18.60 18.23 18.33 15.22
EBIDTA/Ton 492 324 378 443 578 1126 1181 1074 914 681
EBIT/Ton 350 198 247 311 455 998 1069 932 716 470
43
Grasim
Efficiency-enhancing moves, backward integration to cut costs
We believe Grasim’s moves to boost efficiency in its cement business and backward integration in
the VSF business would help in cutting and rationalizing costs. The company is setting up coal-
based CPPs across its cement units with a cumulative capacity of 369MW (225MW by UltraTech)
over FY09-10E, that would reduce its dependence on grid and high-cost DG power from 60% of
requirement at present to 20% by end FY10. Besides the company is also setting up two bulk-
handling terminals, one jetty and split grinding unit to facilitate access to the captive market and
rationalize logistics cost.
In the VSF segment, Grasim is focusing on backward integration through steps like plantation
project in Laos, increasing its stake in Canadian JVs AV Cell to 45% and up-gradation of another
Canadian JV’s AV Nackawick’s pulp plant to staple grade pulp to ensure captive sourcing of Staple
grade wood pulp. Post conversion of AV Nackawick facility to staple grade facility in Q3FY09, 60%
of Grasim’s pulp requirement would be met through captive sources.
Diversified fuel mix to ease cost pressure

We believe the cost pressures on energy front would ease significantly with the softening in
international coal prices. Currently, Grasim depends on a diversified fuel mix relying on imported
coal and pet coke, domestic coal (linkage) and domestic coal (e-auctions) and open market
purchases in equal proportions (25% each). With international coal prices and consequently prices
of pet coke and domestic coal (e auction) easing, Grasim would see a significant easing of cost
pressure on energy front. We estimate Rs145 per tonne savings in power and fuel cost in FY10E.
Pain in VSF business to continue

The outlook for the VSF business remains challenging as the decline in prices of substitutes (PSF
and cotton) exerts pressure on VSF prices. With cotton prices declining post a good crop and PSF
also easing with the correction in crude prices, premium of VSF prices over PSF and Cotton has
significantly widened. We believe there would be a shift in preference of cotton over VSF for
blending with PSF and shift towards more PSF in poly-viscose yarn putting further pressure on
VSF demand. This coupled with the fall in international VSF prices would keep domestic VSF prices
under pressure. We have assumed a price of Rs101/ kg for VSF in FY09 and Rs85/kg in FY10 and
FY11 while a utilization level of 65% in FY09 and 75% in FY10 on existing capacity of 334,000tpa.
Chinese VSF prices have fallen 45% from their peak of 22.2 yuan/kg (about Rs125/kg) during Oct-
Dec 2007 to 12.2Yuan/kg (Rs95/kg) in Dec 2008. The Chinese government has also announced an
export subsidy of 15% effective from Oct 2008. This brings down the import parity of Rs80/kg. As
against this Grasim has reduced domestic VSF price from Rs107 in Oct-Dec 2007 to Rs93/kg in
January 2008 on ex factory basis, which is still at a premium of over 13% over Chinese import
parity prices. Further, we expect VSF prices in China, the largest producer and consumer of the
fibre, to be subdued over CY09-10 on account of huge capacity expansion underway (60% over
CY07 capacity of 1.2mt) and higher cotton crop globally on account of higher acreage devoted to
the crop.
Exhibit 4: Premium of VSF prices over cotton and PSF has widened
Rs/Kg Fiber Price Trends
120
100
80
60
40
20
0
Apr-97
Apr-99
Apr-01
Apr-03
Apr-05
Apr-07
Dec-
Aug-
Dec-
Aug-
Dec-
Aug-
Dec-
Aug-
Dec-
Aug-
Dec-
Aug-
PSF-1.2 d VSF Ex-factory (1.5 d) Cotton-S.6

44
Grasim
Exhibit 5: Performance of VSF division to remain subdued
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Capacity 220,775 220,775 251,850 253,675 257,325 257,325 334,325 334,325 334,325 334,325
Volume Sold (MT) 181,520 227,900 229,110 231,533 242,399 250,725 269,781 215,825 248,199 268,054
Capacity Utilization 82 103 91 91 94 97 81 65 74 80
Sale Rs bn 13.3 16.4 17.6 19.6 19.1 23.1 30.0 22.4 20.9 22.6
EBIDTA 3.5 5.9 5.7 6.1 5.0 7.1 11.0 4.8 4.6 4.9
Margin 27 36 32 31 26 31 37 21.4 21.9 21.5
45
Grasim
Financial Analysis
Flat sales growth, cement segment to impact EBIDTA growth
We expect the company to register 3.4% revenue CAGR over FY09-FY11E led by 7% CAGR in
cement revenue and 0.5% CAGR in VSF revenue. Operating profit would decline 7.3% over the
same period to Rs37.3bn mainly on account of the 7.1% decline in cement segment’s EBIDTA to
Rs30.5bn. The VSF segment would likely register flat 0.7% CAGR to Rs4.86 bn. It should be noted
that the FY09 results would not comparable with FY10 and FY11 results as the company sold its
sponge iron division in FY09.
Profitability, return ratios to decline
However, higher depreciation charges (16% CAGR to Rs11.3bn in FY11E) and 10% CAGR in other
income to Rs3bn would result in PBT declining to Rs25.66bn and PAT declining 15.9% to Rs15bn.
Lower provisioning of taxes (11% lower) to Rs6.93bn and minority interest (14.3% CAGR de-
growth) to Rs15.56.
We expect ROCE and ROE would come down by 5.7pp and 8.9pp to 9.5% and 11.9% in FY11E.
Exhibit 6: Segmental performance (consolidated)
(Rs bn) FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Net sales 92.9 102.2 140.7 169.7 178.3 182.8 190.6
Sales- Cement 54.9 68.5 99.3 116.2 130.8 144.6 149.7
% of total 59.1 67.0 70.6 68.4 73.3 79.1 78.5
Sales-VSF 19.6 19.1 23.1 30.0 22.4 20.9 22.6
% of total 21.1 18.7 16.4 17.7 12.5 11.4 11.9
EBIDTA 20.3 20.7 39.7 49.6 43.5 42.0 37.3

EBIDTA- Cement 9.0 12.4 29.3 36.0 35.3 35.5 30.5
% of total 44.3 60.1 73.8 72.6 81.2 84.6 81.6
EBIDTA-VSF 6.1 5.0 7.1 11.0 4.8 4.6 4.9
% of total 30.1 23.9 17.9 22.1 11.0 10.9 13.0
46
Grasim
Valuation
Valuation at substantial discount to ACC and Ambuja Cements
At CMP, the stock trades at a PE of 7.1x FY10Eand 8.5x FY11E, EV/EBIDTA of 4.4x and 4.5x, P/BV of
1.02x and 0.94x. On asset value, the cement assets would be valued at $61.2/tonne of 48.2mt
capacity which is at substantial discount to ACC’s valuations of US$76/tonne and Ambuja
Cements US$94/tonne. We initiate coverage with a Hold rating and one-year price target of
Rs1,482 valuing Grasim cement assets at US$75/tonne.
Exhibit 7: SOTP of Grasim Industries
Value Valuation Parameter Rsbn Per Share (Rs)
Cement EV/Ton @US$75/Ton 186 2,030
VSF EBIDTA*4 18 200
Investments Idea *1, L&T*1 and AV Nuvo *.7 10 105
Investments other than equities 11 119
Cash 10.2 111
Total Value of Firm 235 2,565
Less Debt 68 745
Value of Share Holders Equity inc minority interest 167 1,820
Less Minority Interest 1.5X Price/Book (Minority Interest) 31.7 346
Value of Share Holders Equity 135 1,474
Value/Share 1,474
Exhibit 8: Price/Book Value

(x)
5
4
3
2
1
0
Apr-01
Apr-03
Apr-05
Apr-07
Apr-02
Apr-04
Apr-06
Apr-08
Grasim 1.5X 2X 2.5X 3.5X

47
Grasim
Key Risks
Upside risks
Better production and price discipline leading to higher-than-expected cement prices.
Further favorable government intervention towards demand generation as well as tax benefits
specific to the sector.
Upturn in outlook of textile sector leading to revival of VSF demand.
Downside risks
commissioned plants. Competition’s supplies hitting the market ahead our assumed schedule.
Rally in international coal price.
Worsening of Exports market in terms of demand and realization in wake of new capacity coming
up.
48
Grasim
Financials
Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E

37.6 20.6 5.1 2.5 4.3 Profit before tax 34,514 45,296 34,249 30,870 25,660
Growth in revenues (%)
Depreciation 6,100 6,703 8,422 10,268 11,355
EBITDA 39,723 49,598 43,488 41,955 37,333
Interest expenses/other 712 (382) 3,317 3,317 3,317
EBITDA Margin 28.2 29.2 24.4 22.9 19.6
OP profit bef. WC change 41,326 51,617 45,988 44,455 40,333
Depreciation 6,100 6,703 8,422 10,268 11,355 Working capital adjustment (1,132) (574) (7,223) (1,928) (1,959)
PBIT 33,623 42,895 35,066 31,687 25,977 Gross cash from op. 40,194 51,043 38,765 42,527 38,374
Interst expenses 2,286 2,221 3,317 3,317 3,317 Direct taxes paid (10,557) (14,072) (7,734) (7,335) (5,928)
PBT from operations 31,337 40,674 31,749 28,370 22,660 Cash from operations 29,638 36,972 31,031 35,192 32,445
Other non op. income 3,177 4,623 2,500 2,500 3,000 Extraordinary (Inc) - 2,980 9,180 - -
Cash From Op & EI 29,638 39,952 40,211 35,192 32,445
CF from investing
Extra-ord income/ (exp) - - - - -
Capex (26,851) (51,181) (35,790) (17,580) (5,760)
PBT 34,514 45,296 34,249 30,870 25,660 Investment (8,168) 5,885 2,000 - -
Provision for tax 10,922 14,658 8,734 8,335 6,928 Cash from investment (35,019) (45,296) (33,790) (17,580) (5,760)
Effective tax rate 31.6 32.4 25.5 27.0 27.0 CF from financing
PAT 23,593 30,639 25,516 22,535 18,732 Procds. from sh cap & prem. 3,422 634 - - -
Minority Interest 3,915 4,565 4,333 4,058 3,167 Borrowings/ (Repayments) 11,175 7,201 (500) (500) (500)
Interest paid (2,286) (3,095) (3,317) (3,317) (3,317)
PAT after minority int. 19,678 26,073 21,183 18,477 15,565
Dividend paid (5,612) (185) (4,298) (4,836) (4,836)
Adjusted PAT 19,678 26,073 21,183 18,477 15,565
Cash from financing 6,699 4,555 (8,115) (8,653) (8,653)
Growth in PAT (%) 14.0 15.5 11.9 10.1 8.2 Net cash increase/ (dec) 1,318 (789) (1,694) 8,959 18,033
PAT margin 14.0 15.4 11.9 10.1 8.2
Exhibit 12: Key Ratios

Exhibit 10: Balance Sheet Y/E Mar FY07 FY08 FY09E FY10E FY11E
Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E Margin Ratios (%)
EBITDA Margin 28.2 29.2 24.4 22.9 19.6
Share Capital 917 917 917 917 917
PBIT Margin 26.2 28.0 21.1 18.7 15.2
Reserves 64,706 90,462 111,205 124,846 135,576
PBT Margin 24.5 26.7 19.2 16.9 13.5
Shareholders' fund 65,623 91,379 112,121 125,763 136,492 PAT Margin 14.0 15.5 11.9 10.1 8.2
Minority Interest 8,587 12,760 17,093 21,151 24,317 Growth Ratios (%)
Debt 48,730 55,771 55,271 54,771 54,271 Revenues 37.6 20.6 5.1 2.5 4.3
Deferred Tax Liability 11,526 11,575 12,575 13,575 14,575 EBITDA 92.1 24.9 (12.3) (3.5) (11.0)
Total Cap. Employed 134,466 171,544 197,119 215,319 229,715 Net Profit 89.6 33.4 (19.3) (12.8) (15.8)
Return Ratios (%)
ROCE 21.4 21.1 15.2 12.1 9.5
Gross Block 143,718 157,198 200,475 236,265 253,845
ROIC 23.7 23.5 16.5 12.7 10.2
Accumulated dep. 60,125 63,397 67,319 77,587 88,942 ROE 34.5 33.4 20.8 15.5 11.9
Net Block 83,593 93,801 133,156 158,678 164,902 Turnover Ratios
Capital WIP 19,572 55,335 38,028 19,818 7,998 Asset turnover ratio (x) 1.0 1.0 0.9 0.8 0.8
Total Fixed Assets 103,165 149,136 171,184 178,496 172,900 Working capital cycle (days) (7.2) (20.2) (6.5) (4.5) (2.5)
Investments 22,719 16,607 14,607 14,607 14,607 Avg collection period (days) 21.4 21.9 23.0 25.0 27.0
Inventories 13,581 17,443 18,079 18,532 19,321
Inventory holding (days) 34.7 37.0 36.5 36.5 36.5
Debtors 8,252 10,185 11,238 12,521 14,099
Per share (Rs)
Cash & bank balances 3,692 2,903 1,207 10,167 28,199 Fully diluted EPS 214.6 286.2 231.0 201.5 169.8
Loans and Advances 7,479 12,047 13,054 14,054 15,054 CEPS 281.1 359.3 322.9 313.5 293.6
Total current assets 33,004 42,578 43,578 55,273 76,674 DPS 27.5 33.1 40.0 45.0 45.0
Current lia & provisions 24,429 36,783 32,249 33,057 34,465 Book Value 715.7 997.3 1,223.5 1,372.3 1,489.3
Net current assets 8,575 5,795 11,329 22,217 42,208 Solvency ratios
Misc. Expenditure Debt/ Equity 0.6 0.5 0.4 0.3 0.3
Net Debt/Equity 0.3 0.3 0.3 0.2 0.1
Total Assets 134,467 171,544 197,119 215,319 229,715
Interest coverage 16.1 21.4 11.3 10.3 8.7
Source: Company, Centrum Research Valuation parameters (x)
P/E 6.8 5.1 6.3 7.2 8.6
P/BV 2.0 1.5 1.2 1.1 1.0
EV/ EBITDA 4.1 3.6 4.4 4.5 4.6
EV/ Sales 1.3 1.1 1.1 1.1 1.0
M-Cap/ Sales 1.0 0.8 0.8 0.7 0.7
49
Grasim
INDIA
Cement UltraTech Cement

Accumulate Key Data

Ensconced safely
Bloomberg Code UTCEM IN
Target Price: 527
Reuters Code ULTC.BO
CMP: 480 High exposure to consolidated markets to ensure
stability in realisations: We believe UltraTech’s high Current Shares O/S (mn) 124.5
Upside: 9.8% exposure to consolidated markets would ensure stability Diluted Shares O/S(mn) 124.5
*as on 17 March 2009 in realizations and earnings. The company derived Mkt Cap (Rsbn/USDbn) 59.6/1.2
cumulatively 60% of sales in FY08 from the consolidated 52 Wk H / L (Rs) 885/245
western (40.5%) and eastern (19.6%) markets. Daily Vol. (3M NSE Avg.) 108,811
Face Value (Rs) 10
Expansion to boost growth and efficiency: UltraTech is
1 USD = Rs51.5
expected to register volume growth from its 4.9mt capex
and cost savings from CPPs. It has undertaken a capex of
Rs46.2bn (Rs22bn already incurred) over FY08-11 towards
boosting capacity and setting up CPPs (225MW) across its Shareholding Pattern
plants. Public & Others, 15.7
Foreign, 2.9
Institutions, 9.2
Adequate cashflow to fund capex: We believe its robust

Non Promoter Corp.
cashflows of Rs38bn over FY09-11E would be more than Hold., 17.4
adequate to fund the remaining Rs24.7bn capex through

internal accruals. We expect the company’s net debt-
equity ratio at 0.14x in FY11E.
Promoters, 54.8
Softening in international coal prices to result in As on 31 December 2008
significant costs savings: With international coal prices
softening and more CPPs getting commissioned, we One Year Indexed Stock Performance
estimate UltraTech’s energy cost per tonne to decline 140
22% and 5.5% to Rs705 and Rs666, respectively, in FY10E 120
and FY11E. 100
80
Accumulate at discount valuations: UltraTech trades at 60
a substantial discount to ACC, despite its superior 40
earnings matrix The stock trades at a P/E of 6.6x and 8.2x, 20

Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
P/BV of 1.4x and 1.2x , EV/EBIDTA of 4.4x and 4.5x and
ULTRATECH CEMENT NSE S&P CNX NIFTY INDEX
EV/tonne of US$66.7 and US$57 for FY10E and FY11E,
respectively. We recommend Accumulate with one-year
price target of Rs527.
Rajan Kumar
rajan.kumar@centrum.co.in 1M 6M 1Yr
91 22 4215 9640 Key risks: Upside: Higher-than-expected cement prices.
Downside: Worsening export market and rally in energy UltraTech 16.7 (9.9) (41.8)
prices. NIFTY 0.2 (30.7) (38.3)
Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY % Fully DEPS RoE (%) RoCE (%) P/BV P/E (x) EV/EBITDA (x)
FY07 49.7 46.8 14.3 28.8 7.8 248.7 63.1 55.9 24.2 3.4 7.6 5.3
FY08 56.2 13.2 17.3 30.8 10.1 28.7 81.1 45.2 23.8 2.2 5.9 4.6
FY09E 62.5 11.1 17.1 27.3 9.6 (5.1) 77.0 30.5 18.6 1.7 6.2 4.9
FY10E 67.2 7.5 17.2 25.5 9.1 (5.5) 72.7 22.8 15.3 1.4 6.6 4.4
FY11E 68.1 1.4 15.2 22.4 7.2 (20.0) 58.2 15.4 11.5 1.2 8.2 4.5
Source: Company, Centrum, Reseach

Company Background
Q408 Q109 Q209 Q309
Promoter 54.4 54.4 54.4 54.8 UltraTech Cements, a 54% subsidiary of Grasim Industries, was created through
an arrangement of hiving off of L&T cements business into a separate company
Foreign 6.7 5.8 5.9 2.2
and its acquisition by Grasim through stake sale by L&T sales and open offer.
Institutions 8.8 8.73 8.7 9.2 UltraTech is India’s second largest cement company after ACC with a capacity of
Public & Others 30.1 31.1 31.1 33.9 18.2mt. It is also the largest exporter of cement clinker from India.
Total 100.0 100.0 100.0 100.0
The company has recently expanded its capacity by 4.9mt in the southern region
and putting up coal-based CPPs (225MW) and 35MW waste heat recovery
systems at various locations to curtail it power and fuel cost.
High exposure to western and eastern markets
Key events/timelines
Demerger of L&T Cement Business into separate company, (Cemco)
2004 .Grasim acquires majority control purchasing L&T stake and through
open offer.
4.9mt cement capacity, 50MW power plant at Tadpatri in Andhta Pradesh
Sept 2008 with split-grinding unit at Ginigera in Karnataka. These plants are under
final stage of commissioning and ramp up
Completion of 175MW CPPs across plants and modernization and up-

2009 gradation of manufacturing units
Grinding and jetty capacity expansion at Pipavav /Jafrabad and bulk

2010 terminal in Mumbai
Source: Company
Source: Company

Name Position
Mr Kumar Mangalam Birla Chairman
Mr S Misra Managing Director

Mr K C Birla Executive President & Chief Financial Officer
Mr S K Maheshwari Chief Manufacturing Officer
Mr O P Puranmalka Chief Marketing Officer
Source: Company
51 Ultratech Cement
Significant savings in power & fuel costs
Investment Rationale
High exposure to consolidated markets to ensure price (Rs per MT)
1000
stability 895
900
Ongoing expansion to enhance growth and boost efficiency 800

731
705
Strong cash flow to finance ongoing capex 700

644
665 666
600
Softening international coal prices to result in significant cost 500

savings 400
FY06 FY07 FY08 FY09E FY10E FY11E

Summary Financials
Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E
Revenue 49,684 56,238 62,504 67,196 68,125
YoY growth (%) 46.8 13.2 11.1 7.5 1.4
Volume expansion and
15,249 savings from power to
Operating profit 14,316 17,308 17,080 17,157
help sustain operating
YoY growth (%) 149.1 20.9 (1.3) 0.5 (11.1) profit
Depreciation 2,287 2,396 3,252 3,992 4,497
Interest expenses 868 757 1,420 1,560 1,360
Other non operating income 592 998 800 880 1,040
PBT 11,753 15,153 13,208 12,485 10,433
Minority interest 17.5 14.6 - - -
PAT (adjusted) 7,849 10,101 9,582 9,054 7,243
YoY growth (%) 248.7 28.7 (5.1) (5.5) (20.0)
PAT margin 15.8 18.0 15.3 13.5 10.6
Key CF Statement
Cash flow from financing activities (406) 769 1,956 (6,080) (5,880)
Net cash increase/decrease 335 158 535 2,512 3,340
Debt 15,786 17,405 21,655 18,155 14,655
Minority Interest 53 57 57 57 57
Fixed Assets 32,429 48,089 58,336 61,034 61,008
Investments 4,592 1,467 1,467 1,467 1,467
Net current assets 2,121 387 4,097 6,933 10,683
Total Assets 39,142 49,942 63,900 69,434 73,157
Key Ratio
ROCE 24.2 23.8 18.6 15.3 11.5
ROIC 26.6 25.8 19.4 16.1 12.3
ROE 55.9 45.2 30.5 22.8 15.4
Book value 142.0 217.1 287.0 351.6 401.6
Solvency Ratio (x)
Debt-equity 0.9 0.6 0.6 0.4 0.3
Net Debt-Equity 0.8 0.6 0.6 0.3 0.1
P/E (Fully Diluted) 7.5 5.9 6.2 6.5 8.2
P/BV 3.3 2.2 1.7 1.4 1.2
EV/EBITDA 5.2 4.6 4.9 4.4 4.5
EV/Sales 1.5 1.4 1.3 1.2 1.1
EV/Ton 72.9 69.6 59.3
52 Ultratech Cement
Investment Argument
Exposure to consolidated markets to ensure stability in realisations
UltraTech’s has high exposure to consolidated markets of the western region (40.5% of sales in
FY08) and eastern region (19.6%). The northern region (1.88%), Southern region (21.4%) and
exports (16.6%) account for the remaining sales. We believe this high exposure (60% of sales) to
structurally strong markets would ensure stability in realizations.
Exhibit 1: Western market - A structurally strong market with declining dependence on
exports
Key statistics of western region
Effective Capacity (mt) 28.9 28.9 28.9 31.4 35.3 42.7
Consumption (mt) 25.9 28.3 32.2 34.8 37.6 40.6
Exports (mt) 6.9 7.8 5.1 5.1 5.1 4.1
% of consumption 26.6 27.6 15.9 14.7 13.6 10.1
Net Transfer From other Zones (mt) 5.7 6.1 6.9 8.9 10.9 10.9
% of consumption 22 21 21 25 29 27
Capacity Utilization (%) 93.6 104 106 99 90 79
Ongoing expansions to boost growth and efficiency

The company’s ongoing cement expansion (4.9mt) and addition of 225MW coal-based CPPs
would result in volume growth and boost efficiency. While the expansion of its Tadpatri plant in
Andhra Pradesh would allow UltraTech to post a volume growth of 8% over FY09-11,
commissioning of new CPPs would increase its dependence on coal-based CPPs from 22% in FY08
to 57% in FY09E and further to 88% and 98%, respectively, in FY10E and FY11E.
The company has undertaken an Rs46.2bn capex (Rs22bn already incurred) over FY09-11 towards
adding a 4.9mt cement unit to its Tadpatri plant, strengthening the company’s presence in the
south and 2mt split-grinding augmentation in western region. The capex would also involve
setting-up CPPs (cumulative capacity 225MW), 25MW waste heat recovery systems, expansion of
jetties and port terminals and modernizing its RMC plants.
Exhibit 2: UltraTech’s expansion projects

Projects Place Timeline Status
4.9mt cement capex and 50 MW CPP Tadpatri, AP Q3FY09 Commissioned
175MW CPP Various Places FY08-FY10 92MW commissioned
at GCW
2mt split-grinding, jetty expansion and bulk terminals Gujarat FY10-11 Underway
RMC Various Places FY09-10 Underway
Modernization/Upgradation Various Places FY09-11 Underway
The AV Birla Group’s current expansion plans focuses on attaining a balanced presence in all the
four zones with UltraTech’s 4.9mt expansions at Tadpatri (southern region) and 2mt
augmentation of grinding capacity (western) complementing Grasim’s 8.9mt expansion in the
northern region.
Exhibit 3: AV Birla Group’s share in Indian cement sector
Grasim (%) UltraTech (%) AV Birla (%) Market size (mtpa))
North 13 1 14 57
East 7 13 20 25
South 8 8 15 49
West 9 22 31 32
Exports 0 41 41 6
All India 9 10 19.4 170
AV Birla Group’s share in capacity

Grasim Ultratech AV Birla All India
FY09 End 20.6 23.1 43.7 215
% Share In Capacity 9.6 10.7 20.3 100.0
FY11 End 25.1 25.1 50.2 287
% Share In Capacity 8.75 8.75 17.49 100
Adding 8.9mt in North and 4.9mt in South between FY08 and FY10
53 Ultratech Cement
Strong cash flow to finance ongoing capex
We estimate robust cash-flows of Rs38bn over FY09-11 would allow the company to finance the
remaining Rs24.7bn capex through internal accruals. The company’s debt-equity ratio is expected
to rise from 0.16x at present to 0.3x in FY11E with the company’s net debt-equity ratio at 0.14x in
FY11E.
Softening in international coal prices to result in significant costs savings
With international coal prices softening and lower power costs from CPPs, we estimate UltraTech’s
energy cost per tonne would decline 22% YoY in FY10E to Rs705 and 5.5% YoY to Rs666 in FY11E.
The CPPs would allow the company to lower its dependence on high-cost grid power. The
company would also significantly benefit from the recent softening in international coal/pet coke
prices on account of its diversified fuel mix as it uses equal proportions of imported international
coal/ pet coke, linkage coal from Coal India (CIL) and coal sourced through e-auctions in equal
proportions. International coal prices have declined from a peak of US$200 in July 2008 to US$61.
We have assumed CIF prices of coal at US$85 per tonne in FY10E and FY11E and exchange rate of
Rs51.5/US$.
We estimate savings of Rs228/tonne in energy cost over FY09-11 would offset the decline of
average realization to a great extent resulting in an EBIDTA per tonne of Rs851 and Rs732 in FY10E
and FY11E, respectively, against FY09E EBIDTA/tonne of Rs961.
54 Ultratech Cement
Financial Analysis
4.4% sales CAGR over FY09-11E, but profitability to decline
Despite the 7.1% decline in average realizations over CY09-11E, we believe the 8.1% volume CAGR
to 20.8mt would lead to 4.4% sales CAGR to Rs68.1bn. However, operating profit and net profit
would decline by 5.5% to Rs15.2bn and 13.1% to Rs7.2bn.
EBIDTA would decline 5.5% to Rs15.2bn on 6.6% decline in energy cost and 11.2% rise in logistics
costs and 10% increase in other expenses. Higher depreciation (up 17.5% to Rs4.5bn) offset by
other income (14% CAGR to Rs1.04bn) and lower tax (down 6.2%) would result in PAT declining
13%.
Exhibit 4: UltraTech’s operating performance
FY07 FY08 FY09E FY10E FY11E
Cement volume (mt) 17.1 17.2 17.8 20.1 20.8
Average Realization (Rs /MT) 2,887 3,161 3,365 3,064 2,908
YoY (%) 28.2 9.5 6.5 (8.9) (5.1)
Net Sales (Rs mn) 49,684 56,238 62,504 67,196 68,125
YoY (%) 46.8 13.2 11.1 7.5 1.4
Energy/ton (Rs) 665 731 895 705 666
YoY (%) 3.3 9.9 22.4 (21.2) (5.5)
Freight/ton (Rs) 519 542 593 614 634
YoY (%) 0.2 4.4 9.4 3.5 3.3
Other Expenses/ton (Rs) 335 441 534 587 606
YoY (%) 4.1 31.8 20.9 10.0 3.2
EBIDTA (Rs mn) 14,316 17,308 17,080 17,157 15,249
YoY (%) 301.9 20.9 (1.3) 0.5 (11.1)
EBIDTA/tonne (Rs) 837 1,004 961 852 733
yoy (%) 301.9 20.0 (4.3) (11.4) (14.0)
Depreciation (Rs mn) 2,287 2,396 3,252 3,992 4,497

Depreciation/Ton (Rs) 134 139 183 198 216
PBIT (Rs mn) 12,030 14,912 13,828 13,165 10,753

PBIT/Ton (Rs) 703 865 778 653 517
Interest (Rs mn) 868 757 1,420 1,560 1,360
OI (Rs mn) 592 998 800 880 1,040
PBT (Rs mn) 11,753 15,153 13,208 12,485 10,433
Tax (Rs mn) 3,887 5,038 3,626 3,431 3,190
PAT (Rs mn) 7,867 10,115 9,582 9,054 7,243
ROCE (%) 24.2 23.8 18.6 15.3 11.5

ROE (%) 55.9 45.2 30.5 22.8 15.4
55 Ultratech Cement
Valuation Analysis
Stock trading at substantial discount to ACC despite superior earnings matrix
At CMP, the stock trades at a P/E of 6.6x FY10E and 8.2x FY11E, 1.4x and 1.2x on P/BV, 4.4x and 4.5x
EV/EBIDTA and EV/tonne of US$67 and US$57, respectively. This is a substantial discount to ACC
valuations 11.5x CY09E and 18x CY10E on P/E, 5.9x and 7.9x on EV/EBIDTA, 2x and 1.9x on P/BV
and EV/tonne of US$76 and US$71.6, respectively.
Given similar scale and exposure of the two companies and UltraTech’s superior earnings matrix
(EBIDTA/tonne of Rs852 and Rs733 for FY10E and FY11E, respectively, vs ACC’s Rs724 and Rs505 in
CY09E and CY10E, respectively), we believe UltraTech should trade at a premium to ACC. We
initiate coverage with an Accumulate rating and price target of Rs527 valuing the stock at P/BV of
1.5x FY10E (at par with ACC’s target valuation of 1.5x CY09 P/BV).
Exhibit 5: P/BV multiple to decline

(x)
7
6
5
0
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
Ultratech 2x 4x 5x 6x
Exhibit 6: Asset value has declined

USD/Ton
200
180
160
140
120
100
80
60
40
20
0
Dec-06
Aug-04
Dec-04
Apr-05
Dec-05
Apr-06
Aug-06
Dec-07
Aug-08
Dec-08
Aug-05
Apr-07
Aug-07
Apr-08
Ultratech 50X 80X 130X 130X 180
56 Ultratech Cement
Key Risks
Upside risks
Better production and price discipline resulting in higher-than-expected cement prices.
Further favorable government intervention towards demand generation as well as tax benefits
specific to the sector.
Downside risks
commissioned plants.
A rally in international coal price.
Worsening of exports market in terms of demand and realization in wake of new capacity coming
up.
57 Ultratech Cement
Financials

Growth in reven. (%) 46.8 13.2 11.1 7.5 1.4 Profit before tax 11,753 15,153 13,208 12,485 10,433
Depreciation 2,287 2,396 3,252 3,992 4,497
Power and Fuel 11,392 12,542 15,902 14,208 13,869
Interest exp./other 639 423 1,420 1,560 1,360
% of Sales 22.9 22.3 25.4 21.1 20.4
OP prof.bef. WC chg. 14,679 17,973 17,880 18,037 16,289
Freight 8,880 9,345 10,544 12,369 13,200 Working capital adj. 738 674 (3,175) (325) (410)
% of Sales 18 16.6 16.9 18.4 19.4 Gross cash from op. 15,418 18,646 14,705 17,712 15,879
% of Sales 15.2 16.4 16.7 18.2 18.8 Cash from op. 11,208 13,809 12,079 15,281 13,689
EBITDA 14,316 17,308 17,080 17,157 15,249
Extraordinary (Inc) - - - - -
EBITDA Margin 28.8 30.8 27.3 25.5 22.4
Cash From Op Ex OI 11,208 13,809 12,079 15,281 13,689
EBIDTA/Ton (Rs) 837 1,004 961 852 733
PBIT 12,030 14,912 13,828 13,165 10,753 Capex (7,628) (17,921) (13,500) (6,690) (4,470)
Interst expenses 868 757 1,420 1,560 1,360 Investment (2,838) 3,502 - - -
PBT from op. 11,161 14,155 12,408 11,605 9,393 Cash from investment (10,466) (14,419) (13,500) (6,690) (4,470)
Other non op. incom. 592 998 800 880 1,040
CF from financing
PBT bef. extra-ord.itm 11,753 15,153 13,208 12,485 10,433
Procds. from sh cap & prem. - - - - -
Extra-ord. inc./ (exp) - - - - -
Borrowings/ (Repayments) 1,310 1,667 4,250 (3,500) (3,500)
PBT 11,753 15,153 13,208 12,485 10,433 Interest paid (892) (890) (1,420) (1,560) (1,360)
Provision for tax 3,887 5,038 3,626 3,431 3,190 Dividend paid (824) (8) (874) (1,020) (1,020)
Effective tax rate 33.1 33.2 27.5 27.5 30.6 Cash from financing (406) 769 1,956 (6,080) (5,880)
PAT 7,867 10,115 9,582 9,054 7,243 Net cash increase/ (dec) 335 158 535 2,512 3,340
Minority Interest 17.5 14.6 - - - Source: Company, Centrum Research
PAT after minor.int. 7,849 10,101 9,582 9,054 7,243
Adjusted PAT 7,849 10,101 9,582 9,054 7,243
Growth in PAT (%) 248.7 28.7 (5.1) (5.5) (20.0) Exhibit 9: Key Ratios
PAT margin 15.8 18.0 15.3 13.5 10.6 Y/E Mar FY07 FY08 FY09E FY10E FY11E
Margin Ratios (%)
EBITDA Margin 28.8 30.8 27.3 25.5 22.4
PBIT Margin 24.2 26.5 22.1 19.6 15.8
PBT Margin 23.7 26.9 21.1 18.6 15.3
Exhibit 7: Balance Sheet PAT Margin 15.8 18.0 15.3 13.5 10.6
Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E Growth Ratios (%)
Revenues 46.8 13.2 11.1 7.5 1.4
Share Capital 1,245 1,245 1,245 1,245 1,245
EBITDA 149.1 20.9 (1.3) 0.5 (11.1)
Reserves 16,437 25,781 34,489 42,523 48,746
Net Profit 248.7 28.7 (5.1) (5.5) (20.0)
Shareholders' fund 17,682 27,026 35,733 43,768 49,991 Return Ratios (%)
Minority Interest 53 57 57 57 57 ROCE 24.2 23.8 18.6 15.3 11.5
Debt 15,786 17,405 21,655 18,155 14,655 ROIC 26.6 25.8 19.4 16.1 12.3
Deferred Tax Liability 5,621 5,454 6,454 7,454 8,454 ROE 55.9 45.2 30.5 22.8 15.4
Total Capital Employed 39,142 49,942 63,900 69,434 73,157 Turnover Ratios
Gross Block 48,199 50,050 72,884 86,384 93,074
Working capital cycle (days) (10.3) (29.4) (10.9) (11.1) (11.4)
Accumulated dep. 22,742 24,795 28,047 32,039 36,536
Net Block 25,458 25,255 44,836 54,344 56,538 Avg payment period (days) 54.9 82.0 64.0 65.0 66.9
Capital WIP 6,972 22,834 13,500 6,690 4,470 Inventory holding (days) 32.0 39.7 40.0 40.6 41.8
Total Fixed Assets 32,429 48,089 58,336 61,034 61,008 Per share (Rs)
Investments 4,592 1,467 1,467 1,467 1,467 Fully diluted EPS 63.1 81.1 77.0 72.7 58.2
Inventories 4,412 6,197 6,946 7,587 7,916 CEPS 81.4 100.4 103.1 104.8 94.3
Debtors 1,739 2,026 2,272 2,481 2,589 DPS 4.0 5.0 6.0 7.0 7.0
Book Value 142.0 217.1 287.0 351.6 401.6
Solvency ratios
Debt/ Equity 0.9 0.6 0.6 0.4 0.3
Total current assets 9,695 13,196 15,211 19,074 23,350 Net Debt/Equity 0.8 0.6 0.6 0.3 0.1
Current lia & provisions 7,574 12,809 11,115 12,140 12,667 Interest coverage 16.5 22.9 12.0 11.0 11.2
Net current assets 2,121 387 4,097 6,933 10,683 Valuation parameters (x)
Misc. Expenditure - - - - - P/E 7.6 5.9 6.2 6.6 8.2
Total Assets 39,142 49,942 63,900 69,434 73,157 P/BV 3.4 2.2 1.7 1.4 1.2
EV/ EBITDA 5.3 4.6 4.9 4.4 4.5
Source: Company, Centrum Research EV/ Sales 1.5 1.4 1.4 1.2 1.1
M-Cap/ Sales 1.2 1.1 1.0 0.9 0.9
EV/Ton (US$) 70.9 66.7 56.9
58 Ultratech Cement
INDIA
Cement India Cements

Sell Key Data

In southern quagmire
Bloomberg Code ICMN IN
Target Price: Rs82
Southern market to witness steep correction in prices: Reuters Code ICEM.BO
CMP: Rs98* Current Shares O/S (mn) 282.4
The southern region, which accounted for 92% of India
Downside: 15% Cements’ FY08 sales, is adding 44mt capacity during Diluted Shares O/S(mn) 282.4
*as on 17 March 2009 FY09-11. This would reduce utilization levels from 99% in Mkt Cap (Rsbn/USDmn) 27.6/536.2
FY08 to 90% in FY09 and further to 73% and 71% in FY10 52 Wk H / L (Rs) 203/69
and FY11, respectively, leading to a steep fall in prices Daily Vol. (3M NSE Avg.) 10,10,146
due to the high degree of fragmentation in the region. Face Value (Rs) 10
1 USD = Rs51.5
Delays in project expansion to impact volume growth:
India Cements’ ongoing expansions have seen significant Source: Bloomberg ; * As on 17 Mar 2009
delays, resulting in flat despatches despite 11.6% YoY
higher consumption in the southern zone during Shareholding Pattern
9MFY09. Going forward, the company may find it Public & Others, 7.2
challenging to increase volumes on account of the huge
capacity build-up. Foreign, 34.5
Promoters, 28.0
Benefits of fall in cost of imported coal partly offset

by foray into shipping: India Cements is unlikely to
enjoy the full benefit of fall in international coal (70%
dependence) prices, as this would be partly offset by its Non Promoter Corp.
Hold., 11.9
foray into shipping. Govt Holding, 0.0
Institutions, 18.4
IPL franchise marginal significant for valuations:
Despite the success of Indian Premier League (IPL), the One Year Indexed Stock Performance
market would value India Cements primarily on its core 140
earnings even though there could be a possible upside of 120
Rs9 per share, based on the valuation of recent stake sale 100
in Rajasthan Royals. 80
60
Expensive valuations: At CMP, the stock trades at a P/E 40
of 6.9x and 9.8x, EV/EBIDTA of 4.4x and 5.1x, P/BV of 0.85x 20
and 0.8x, FY10E and FY11E, respectively. . Its assets are Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
available at US$58 and US$55 per tonne on FY10E and INDIA CEMENTS NSE S&P CNX NIFTY INDEX
FY11E capacity. This is at a significant premium to

comparable peer Shree Cement. Price Performance (%)
1M 6M 1Yr
Sell with price target of Rs82: We rate the stock a Sell,
valuing its cement assets at US$50/tonne on EV/tonne India C. (3.7) (25.6) (42.0)
and 0.65x FY10E P/BV and IPL franchise at Rs9/share. NIFTY 0.2 (30.7) (38.3)
Rajan Kumar Source: Bloomberg, Centrum Research
Key risks: Upside: India Cements’ participation in M&A
91 22 4215 9640 as an acquisition target. Downside: A rally in
international coal prices.
FY07 22.6 46.3 7.3 32.6 4.8 791.4 18.4 41.9 20.9 1.8 5.3 5.9
FY08 30.4 35.0 10.8 35.5 6.5 36.2 23.1 32.4 18.9 1.1 4.2 3.7
FY09E 34.6 13.6 10.4 30.2 4.8 (26.5) 17.0 17.3 12.3 0.9 5.8 4.0
FY10E 34.0 (1.7) 9.3 27.2 4.0 (16.4) 14.2 13.0 9.4 0.9 6.9 4.4
FY11E 34.7 1.9 7.6 22.0 2.8 (29.8) 10.0 8.5 6.8 0.8 9.8 5.0
Company Background
Q408 Q109 Q209 Q309
India Cements is a major player in south India with 19% market share in FY08. It
Promoter 28.1 28.1 28.1 28.0
commenced operation in 1949 with the commissioning of its first cement plant at
Foreign 31.4 28.5 30.5 28.5 Sankarnagar in Tamil Nadu, which has an installed capacity of 100,000tpa. With the
Institutions 16.9 17.8 17.7 18.4 acquisition of Coromandel Cement’s plant the company grew to become the
largest cement player in the south in 1990 with 2.6mt capacity. Currently, it has a
Public & Others 23.6 25.7 23.7 25.1
capacity of 9.1mt. It is adding another 3.7mt capacity through de-bottlenecking
Total 100.0 100.0 100.0 100.0 and brown-field expansions and also expects to set up a 1.5mt greenfield plant in
Rajasthan to diversify its presence in the northern market.
Presence in southern India
Key events/timelines
1949 100,000tpa plant at Sankar Nagar
1969 Sankarnagar capacity expanded to 0.9mt
1971 Addition of 0.6mt at Sankari Durg
1990 Acquisition of Coromondel Cement (1mtpa)
1996 Set up green-field cement plant at Dalavoi, Tamil Nadu (0.9mt)
1997 Acquired cement plant of Visaka Cement Industries (0.9mt)
1998 Acquired Yerraguntla cement plant (Andhra Pradesh) of Cement
Corporation of India (0.4mt)
1998 Acquired Raasi Cements, Nalgonda Andhra Pradesh (1.8mt)
1999 Acquired Nalgonda Cement Plant (Andhra Pradesh) of Sri Vishnu Cement
(1mt) later sold to Zuari industries (2001)
2007 Merged Visaka Cement Industries with itself
Source: Company
Source: Company

Name Position
Mr N Srinivasan Vice Chairman & Managing Director
Mr N Ramachandran Executive Director

Source: Company
60
India Cement
Cement prices in south higher than all-India average
Investment Rationale
Southern region to witness steep fall in cement prices fall due to 300 Cement Prices All india Vs Southern Zone
fragmentation and huge capacity build up. 250
Delay in India Cements’ expansion to impact volume growth.
Rs/50 kg bag
200
150
Benefit from fall in cost of imported coal partly offset by foray into
shipping. 100
50
IPL success would have a marginal significance for valuation.
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
South All India
Summary Financials
Y/E March (Rsmn) FY07 FY08 FY09E FY10E FY11E
Revenue 22,552 30,443 34,577 34,004 34,656
YoY growth (%) 46.3 35.0 13.6 (1.7) 1.9
YoY growth (%) 181.5 47.0 (3.3) (11.4) (17.7)
Depreciation 1,026 1,279 1,914 2,239 2,464
Interest expenses 1,498 1,099 1,004 1,004 1,004
Other non operating income 101 511 466 407 476
PBT 4,922 8,929 7,992 6,417 4,628 Margin to decline on softening
Provision for tax 131 2,071 2,737 2,218 1,627 cement prices
Minority interest
PAT (adjusted) 4,790 6,524 4,798 4,010 2,814
YoY growth (%) 791.4 36.2 (26.5) (16.4) (29.8) Adj PAT to decline close to 30%
PAT margin 21.2 21.4 13.9 11.8 8.1 in FY11E
Key CF Statement
Cash flow from financing activities (2,224) 1,959 (1,646) (2,326) (2,326)
Net cash increase/decrease 1,811 1,955 (788) 925 1,902
Debt 20,588 18,115 18,428 18,428 18,428
Minority Interest
Fixed Assets 21,566 33,151 37,237 38,998 38,535
Investments 551 1,293 1,293 1,293 1,293
Total Assets 35,283 46,340 50,174 53,051 54,729
Key Ratio
ROCE 20.9 18.9 12.3 9.4 6.8
ROIC 22.2 20.3 12.5 10.0 7.1
ROE 41.9 32.4 17.3 13.0 8.5
CPS 22.3 27.7 23.7 22.1 18.7
DPS 1.0 2.0 3.0 4.0 4.0
Book value 54.8 92.1 104.3 114.5 120.5
Solvency Ratio (x)
Debt-equity 1.5 0.8 0.7 0.6 0.6
Net Debt-Equity 1.3 0.6 0.5 0.5 0.4
P/E (Fully Diluted) 5.3 4.2 5.8 6.9 9.8
P/BV 1.8 1.1 0.9 0.9 0.8
EV/EBITDA 5.9 3.7 4.0 4.4 5.0
EV/Sales 1.9 1.4 1.3 1.3 1.2
EV/Ton 66.0 57.8 55.3
61
India Cement
Investment Argument
Key southern market to witness steep correction in prices
The southern region is India Cements’ main market accounting for 92% of sales in FY08 (Tamil
Nadu – 33.8%, Andhra Pradesh - 23.4%, Kerala - 15.7% and Karnataka - 16.9%). The region is
adding 44mt additional capacity during FY09-11. This would bring down utilization levels from
99% in FY08 to 90% in FY09 and further to 73% and 71% in FY10 and FY11 leading to a steep fall in
prices due to high degree of fragmentation in the region. We have assumed cement prices in the
southern region would fall by Rs25/bag in FY10E and by a further Rs15/bag in FY11E from the
current level of Rs259/bag
Exhibit 1: Utilization levels in southern region to decline
Southern zone (mt) FY06 FY07 FY08 FY09E FY10E FY11E
Capacity at Beginning of year 49.0 51.4 53.9 62.6 79.0 100.1
Operative Capacity 47.5 49.9 52.4 60.6 77.0 98.6
Capacity Addition 2.4 2.5 8.7 16.4 22.0 5.5
Add On Capacity 2.0 1.8 2.6 6.5 12.9 0.5
Effective Capacity 49.5 51.6 54.9 67.1 89.9 99.0
Production 45.4 50.2 54.2 60.6 66.0 70.7
Consumption 39.4 44.8 49.2 54.6 58.9 63.6
Growth assumption (%) 24.9 13.8 9.7 11.0 8.0 8.0
Exports 1.1 0.3 0.1 0.1 0.1 0.1
Transfer to other Zone 6.0 6.2 6.2 7.2 8.2 8.2
Transfer from other Zone 1.1 1.2 1.2 1.2 1.2 1.2
Net Transfer From other Zone (4.9) (5.1) (5.0) (6.0) (7.0) (7.0)
Capacity Utilization (%) 91.7 97.2 98.6 90.3 73.4 71.4
Exhibit 2: New capacities would disrupt demand-supply balance

Expansion that could disrupt demand supply Balance in South
Capacity (mt) Start Time Status
1 Madras Cements 2 Q4FY09 Under Ramp Up
2 Dalmia Cements 2 Q4FY09 Under Ramp Up
3 Sagar Cements 2 Q3FY09 Under Ramp Up
4 Ultratech Cements 4.9 Q3FY09 Under Ramp Up
5 Kesoram Industries 1.65 Q1FY10 Expected Start April 2009
6 ACC-Wadi(N) 3 Q3FY10 Under commissioning
7 Chettinad 2 Q3FY10 Under commissioning
8 Dalmia Cements 3 Q3FY10 Under commissioning
9 JK Cements 3 Q3FY10 Under commissioning
10 Deccan Cements 1.2 Q2FY10 Under commissioning
11 NCL 1.5 Q3FY10 Under commissioning
12 Andhra Cements 1.5 Q2FY10 Under commissioning
13 India cements 1.2 Q2FY10 Under commissioning
14 Orient Paper 0.6 Q2FY10 Under commissioning
Total 29.6
62
India Cement
Delays in expansion projects to impact volume growth
India Cements’ ongoing expansion projects have seen significant delays resulting in flat
despatches vs consumption growth of 11.6% in southern zone during 9MFY09. Going ahead, the
company would find it very challenging to increase volumes on account of the huge capacity
build-up.
Exhibit 3: India Cements’ despatches vs industry growth
India Cements Vs Industry Growth
(mt) 9MFY09 9MFY08 Growth YoY (%)
Consumption -India 128.5 118.1 8.8
Consumption -Southern Zone 40.2 36.0 11.6
Cement's Sale by India Cements 6.8 6.8 0.9
Foray into shipping to offset fall in imported coal prices

We believe the savings from the decline in international coal prices (India Cements depends on
imported coal for 70% of its energy requirements) would be offset by the company’s foray into
shipping as sea freight have fallen steeply. India Cements incurred a capex of Rs2.36bn in FY08 to
acquire two second-hand ships of about 38,000dwt and 41,000dwt primarily to hedge against
rising freight cost on coal. However, the landed cost of Indonesian coal (CIF Chennai) has come
down significantly from a peak of US$140/tonne in Aug 2008 to US$85/tonne at present on
account of steep fall in coal prices and sea freight. Hence, India Cements would not be able to take
benefits of falling sea freight on account of its investments in ships.
Marginal value from IPL
Despite the success of Indian Premier League (IPL), the market would value India Cements
primarily on its core earnings even though there could be a possible upside of Rs9 per share based
on the valuation of recent stake sale in Rajasthan Royals. India Cement forayed into Indian Premier
League by acquiring franchise rights for 10 years for Chennai team for US$91mn.
63
India Cement
Financial Analysis
Flat growth in sales, operating profit and PAT to decline
On account of increased competition and sharp correction in cement realizations in the southern
region, we expect India Cements to post flat growth in sales over FY09-11E (1.7% decline in FY10
and 1.9% growth in FY11). Operating profit and adjusted PAT are expected to decline 15% and
24% over the same period.
ROCE and ROE would show a contraction of 540bp and 890bp to 6.8% and 8.5% respectively over
FY09-11E.
Exhibit 4: Lackluster performance over FY09-11E
FY07 FY08 FY09 FY10E FY11E
Cement Volume (MNMT) 8.4 9.2 9.4 10.5 11.5
YoY (%) 12.7 9.4 2.2 11.3 9.5
Cement Realization (Rs/MT) 2,667 3,282 3,530 3,171 2,952
YoY (%) 30.3 23.0 7.6 (10.2) (6.9)
Net Sales (Rs mn) 22,552 30,443 34,577 34,004 34,656
46.0 35.0 13.6 (1.7) 1.9
EBIDTA (Rs mn) 7,345 10,795 10,443 9,252 7,619
EBIDTA/TON (Rs) 871 1,170 1,107 881 663
64
India Cement
Valuation Analysis
Expensive valuations
At CMP, the stock trades at a P/E of 6.9x FY10E and 9.8x FY11E, 4.4x and 5x on EV/EBIDTA, and
0.85x and 0.8x on P/BV. Its assets are available at US$57.8 and US$55 .3 per tonne of its FY10E and
FY11E capacity. The stock trades at a significant premium to Shree Cement, a comparable peer
with similar scale, superior earning matrix and presence in relatively consolidated northern
market. Shree Cement trades at P/E of 7.1x FY10E and 7.1x FY11E (3 x and 2.8x on P/CEPS), 2.7x
and 1.9x EV/EBIDTA, and 1.6x and 1.4 x P/BV.
Sell with price target of Rs82
We believe the premium is unjustified given the imminent scenario of over capacity building up in
the southern zone. We recommend Sell with a price target of Rs82 valuing the cement assets at
FY10E EV/tonne of US$50 and 0.65x P/BV and IPL franchise at Rs9 per share based on based on the
valuation of recent stake sale in Rajasthan Royals.
Exhibit 5: Sharp decline in P/BV - to hover at these levels
(x)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
Apr-00
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-01
Ind ia Cement 2X 2.5X 3.5X 1.5X

Exhibit 6: Asset value declining – further downside likely

USD/Ton
250
200
150
100
50
0
Apr-00
Apr-02
Apr-04
Apr-05
Apr-01
Apr-03
Apr-06
Apr-07
Apr-08
India Cement 50 x 10 0x 15 0x 20 0x
65
India Cement
Risks
Upside risks
India cements participating in M&A as an acquisition target.
Super-earning and /or value unlocking from divestment of IPL franchise.
Cement prices holding to higher level for a period more than envisaged by us.
Downside risks
Rally in International Coal price.
Capacity buildup and fragmentation of south Indian cement industry ahead of our estimates.
66
India Cement
Financials

Growth in revenues (%) 46.3 35.0 13.9 (1.9) 1.9
Depreciation 1,026 1,279 1,914 2,239 2,464
Power and Fuel 5,488 6,906 8,601 8,344 9,138
Interest expenses/other 1,493 1,048 1,004 1,004 1,004
% of Sales 24.3 22.7 24.8 24.5 26.4
OP profit bef. WC chg. 7,439 11,255 10,909 9,660 8,096
Freight 3,588 4,600 4,995 5,544 6,072 Working capital adj. (375) 357 (536) (191) (240)
Other Expenses 2,735 3,436 4,692 4,630 5,010 Direct taxes paid (127) (963) (2,737) (2,218) (1,627)
EBITDA 7,345 10,795 10,485 9,186 7,565
Extraordinary Inc (Exp) (507) (481) (779) - -
EBITDA Margin 32.6 35.5 30.2 27.0 21.8
Cash From Op Inc EO 6,431 10,169 6,857 7,251 6,228
EBIDTA/Ton (Rs) 871 1,170 1,108 875 658
PBIT 6,318 9,516 8,571 6,947 5,101 Capex (1,392) (9,182) (6,000) (4,000) (2,000)
Interst expenses 1,498 1,099 1,004 1,004 1,004 Investment (1,004) (991) - - -
PBT from operations 4,820 8,418 7,568 5,943 4,097 Cash from investment (2,396) (10,173) (6,000) (4,000) (2,000)
Other non op. income 101 511 466 419 486
CF from financing
Procds. from sh cap & prem. 1,252 5,833 37 - -
Extra-ord. income/ (exp) - (481) (645) - -
Borrowings/ (Repayments) (584) (1,917) 313 - -
PBT 4,922 8,448 7,389 6,362 4,583 Interest paid (2,893) (1,958) (1,004) (1,004) (1,004)
Provision for tax 131 2,071 2,751 2,200 1,612 Dividend paid - - (992) (1,323) (1,323)
Effective tax rate 2.7 24.5 37.2 34.6 35.2 Cash from financing (2,224) 1,959 (1,646) (2,326) (2,326)
PAT 4,790 6,377 4,638 4,163 2,971 Net cash increase/ (dec) 1,811 1,955 (788) 925 1,902
Minority Interest Source: Company, Centrum Research
PAT after minority int. 4,790 6,377 4,638 4,163 2,971
Adjusted PAT 4,790 6,524 4,872 3,974 2,784
Growth in PAT (%) 791.4 36.2 (25.3) (18.4) (29.9) Exhibit 10: Key Ratios
Margin Ratios (%)
EBITDA Margin 32.6 35.5 30.2 27.2 22.0
PBIT Margin 28.0 31.3 24.7 20.6 14.9
PBT Margin 21.8 29.3 23.1 18.9 13.4
Exhibit 8: Balance Sheet PAT Margin 21.2 21.4 13.9 11.8 8.1
Y/E Mar (Rsmn) FY07 FY08 FY09E FY10E FY11E Growth Ratios (%)
Revenues 46.3 35.0 13.6 (1.7) 1.9
Share Capital 2,604 2,819 2,826 2,826 2,826
EBITDA 181.5 47.0 (3.3) (11.4) (17.7)
Reserves 11,662 23,150 26,663 29,540 31,218
Net Profit 791.4 36.2 (26.5) (16.4) (29.8)
Shareholders' fund 14,266 25,968 29,489 32,366 34,044 Return Ratios (%)
Minority Interest ROCE 20.9 18.9 12.3 9.4 6.8
Debt 20,588 18,115 18,428 18,428 18,428 ROIC 22.2 20.3 12.5 10.0 7.1
Deferred Tax Liability 430 2,257 2,257 2,257 2,257 ROE 41.9 32.4 17.3 13.0 8.5
Total Capital Employed 35,283 46,340 50,174 53,051 54,729 Turnover Ratios
Working capital cycle (days) 12.1 5.1 6.3 4.5 7.0
Gross Block 30,741 39,844 46,844 52,844 55,844
Accumulated dep. 10,602 12,442 14,356 16,595 19,058 Avg payment period (days) 70.2 74.3 74.8 76.6 74.2
Net Block 20,139 27,402 32,488 36,249 36,786 Inventory holding (days) 40.2 42.0 42.6 42.6 42.6
Capital WIP 1,428 5,749 4,749 2,749 1,749 Per share (Rs)
Total Fixed Assets 21,566 33,151 37,237 38,998 38,535 Fully diluted EPS 18.4 23.1 17.0 14.2 10.0
Investments 551 1,293 1,293 1,293 1,293 CEPS 22.3 27.7 23.7 22.1 18.7
Inventories 2,485 3,506 4,034 3,967 4,043 DPS 1.0 2.0 3.0 4.0 4.0
Book Value 54.8 92.1 104.3 114.5 120.5
Debtors 2,602 3,111 3,650 3,589 3,658
Solvency ratios
Debt/ Equity 1.5 0.8 0.7 0.6 0.6
Loans and Advances 9,786 10,621 10,621 10,621 10,621 Net Debt/Equity 1.3 0.6 0.5 0.5 0.4
Total current assets 17,175 21,494 21,773 22,570 24,617 Interest coverage 4.9 10.1 10.7 9.5 7.9
Current lia & provisions 4,340 9,835 10,366 10,048 9,953 Valuation parameters (x)
Net current assets 12,835 11,659 11,406 12,522 14,664 P/E 5.3 4.2 5.8 6.9 9.8
Misc. Expenditure 331 238 238 238 238 P/BV 1.8 1.1 0.9 0.9 0.8
EV/ EBITDA 5.9 3.7 4.0 4.4 5.0
Total Assets 35,283 46,340 50,174 53,051 54,729
EV/ Sales 1.9 1.4 1.3 1.3 1.2
Source: Company, Centrum Research M-Cap/ Sales 1.1 0.9 0.8 0.8 0.8
EV/Ton (US$) - - 66.0 57.8 55.3
67
India Cement
Initiation xx Month Year
INDIA
Cement Shree Cement

Buy Key Data

Best bet
Bloomberg Code SHCM IN
Target Price: Rs823
Reuters Code SRCM.BO
CMP: Rs603* Strong foothold in relatively consolidated market:
Shree Cement is a key player in the relatively Current Shares O/S (mn) 34.8
Upside: 36% consolidated northern zone with 11% market share Diluted Shares O/S(mn) 34.8
*as on 17 March 2009 (FY08), which will likely benefit the company from price Mkt Cap (Rsbn/USDmn) 21.0/407.8
stability in an oversupply scenario. 52 Wk H / L (Rs) 1,165/320
Daily Vol. (3M NSE Avg.) 113,07
Significant cost savings on energy front: We expect Face Value (Rs) 10
the company to register significant savings in energy
1 USD = Rs51.5
costs with easing pet coke prices. Shree Cement is totally
dependant on pet coke, where prices nearly halved from
a peak of Rs8,000/tonne in August 2008.
Shareholding Pattern
Foray into merchant power sale and judicious Public & Others, 5.7
Foreign, 15.2
investments in captive power plants to sustain high
earnings: The company forayed into merchant power in
Q2FY09 and expects to add 85MW captive power, Institutions, 10.0
primarily meant for merchant power sale, given the likely

overcapacity scenario in cement. We view this as Non Promoter Corp.
Hold., 5.4
judicious allocation of capital, which would allow it to
sustain its cash earnings over FY09-11. Promoters, 63.8
Strong balance sheet to aid organic and inorganic
growth: Strong balance sheet with net debt-equity ratio One Year Indexed Stock Performance
of 0.3x in FY10E and robust cash flow from operations of 140
Rs6.7bn give the company enough leeway for further 120
expansion, either through new capacity additions and 100
acquisitions. 80
60
Buy with target price of Rs823: On our target price, the 40
stock presents an upside of 36% from current level, 20

Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
valuing the stock at US$55/tonne and 2.2x FY10E P/BV. SHREE CEMENT NSE S&P CNX NIFTY INDEX
The stock currently trades at 7.1x and 7.1x a P/E (P/CEPS
of 2.9x and 2.8x), 2.7x and 1.9x EV/EBIDTA, 1.63x and
1.37x P/BV, and US$40 and US$28 EV/ tonne for FY10E
and FY11E, respectively. Valuations look attractive on an 1M 6M 1Yr
understated ROCE of 14.4% and 14.2% and ROE of 24.6%
and 22.4% for FY10E and FY11E, respectively. Shree C. 12.7 7.3 (41.1)
NIFTY 0.2 (30.7) (38.3)

Key risks: Upside: Favorable government intervention Source: Bloomberg, Centrum Research
like reducing duties and improved demand. Downside:
Rajan Kumar
Rajan.kumar@centrum.co.in
Higher-than-expected decline in cement prices and
91 22 4215 9640 higher pet coke prices.
FY07 14.1 102.3 5.9 42.1 1.6 899.6 45.6 42.3 15.2 4.2 13.2 4.4
FY08 21.1 50.1 8.6 40.9 2.9 81.3 82.6 51.1 18.9 3.1 7.3 3.1
FY09E 26.1 23.9 8.8 33.5 5.0 72.7 142.7 58.2 25.5 2.0 4.2 2.4
FY10E 24.1 (7.9) 8.1 33.9 3.0 (40.2) 85.4 25.6 14.8 1.6 7.1 2.7
FY11E 26.0 8.0 8.4 32.2 3.0 (0.3) 85.2 21.1 13.4 1.4 7.1 1.9
Company Background
Q408 Q109 Q209 Q309
Promoted by Kolkata-based Bangur family, Shree Cement commenced
Promoter 63.7 63.7 63.7 63.8
operations in 1986, with a capacity of 0.6mtpa at Beawar, Rajasthan. This was
Foreign 7.7 6.9 4.9 4.2 subsequently enhanced to 2.6mtpa by Dec 2001. The company’s focus on
Institutions 7.2 7.7 9.6 10.0 aggressive marketing and initiatives on cost-cutting made it a key player in the
northern market and amongst the most cost-efficient players in industry. It was
Public & Others 21.5 21.7 21.8 22.1
among the first cement manufacturer to install coal-based CPP and switch to
Total 100.0 100.0 100.0 100.0 pet coke, a by product of petroleum refineries, as the main fuel for its kiln,
which led to significant reduction in its energy cost.
Shree Cement has demonstrated an aggressive track record of executing
projects ahead of schedule and managed to tap opportunities created by the
commodity cycle through timely capacity enhancements. It increased its
capacity by over 3x during FY05-08 mainly through internal accruals. The
company is currently expanding its clinker capacity by 1mt, setting up an
85MW CPP and 3mt split-grinding unit.
Presence across northern India Key events/timelines

1986 Started operations with 0.6mt cement unit at Beawar
2001 Capacity enhanced to 2.6mt
FY05-08 Expanded capacity from 2.6mt to 9.1mt through addition of
clinker lines 3 to 6 and 3mt Kush Kera grinding unit
March - June 2009 Commissioning of 1mt clinker unit line VII
March 2010 Addition of additional 85MW power plant -35 MW waste heat
recovery plant and 50MW coal /pet coke based plant
March 2010 Addition of 3mn grinding capacity at Suratgarh and Roorkee
Source: Company

Name Position
Mr BG Bangur Executive Chairman
Mr HM Bangur Managing Director
Mr MK Singhi Executive Director
Source: Company
69
Shree Cement
Investment Rationale Energy costs have eased
Rs/Ton Rs/Ton
Strong foothold in relatively consolidated northern market 8,000
709
800
7,000 700
Significant easing of cost pressure as pet coke prices decline 6,000
489
556
506 506 600
5,000 459 500
426
Capacity enhancements, investment in CPP to help sustain high 4,000 316 400
3,000 300
earnings 2,000 200
1,000 100
- 0
FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Shree cements energy cost Average pet coke price
Summary Financials
Revenue 14,055 21,091 26,139 24,069 25,986
YoY growth (%) 102.3 50.1 23.9 (7.9) 8.0
Operating profit 5,922 8,624 8,755 8,149 8,361 Earnings from merchant power
YoY growth (%) 171.6 45.6 1.5 (6.9) 2.6 sales to help sustain operating
Operating margin 42.1 40.9 33.5 33.9 32.2 profit
Depreciation 4,331 4,788 2,074 4,111 4,505
Other non operating income 212 733 877 976 1,145
PBT 1,700 4,072 6,797 4,069 4,057
Provision for tax 124 1,079 1,514 1,095 1,091
Minority interest
PAT (adjusted) 1,588 2,879 4,971 2,975 2,966
YoY growth (%) 899.6 81.3 72.7 (40.2) (0.3)
PAT margin 11.3 13.6 19.0 12.4 11.4
Key CF Statement
Cash flow from investing activities (6,425) (9,002) (3,620) (7,900) (500)
Cash flow from financing activities 5,162 3,517 (373) (457) (288)
Net cash increase/decrease 3,345 1,157 246 (1,643) 6,439
Debt 9,314 13,307 13,307 13,307 13,307
Minority Interest
Fixed Assets 8,427 7,779 9,326 13,114 9,110
Investments 500 5,910 5,910 5,910 5,910
Total Assets 13,822 19,850 23,483 25,969 28,446
Key Ratio
ROCE 15.2 18.9 25.5 14.8 13.4 RoE and RoCE understated
ROIC 17.3 31.5 47.5 20.8 19.8 on account of aggressive
ROE 42.3 51.1 58.2 25.6 21.1 depreciation
CPS 169.9 220.1 202.3 203.5 214.5
DPS 6.0 8.0 12.0 12.0 12.0
Book value 144.6 193.1 297.4 368.8 439.7
Solvency Ratio (x)
Debt-equity 1.8 2.0 1.3 1.0 0.9
Net Debt-Equity 1.2 0.4 0.2 0.3 (0.2)
P/E (Fully Diluted) 13.2 7.3 4.2 7.1 7.1
P/BV 4.2 3.1 2.0 1.6 1.4
EV/EBITDA 4.4 3.1 2.4 2.7 1.9
EV/Sales 1.9 1.4 0.9 1.0 0.7
EV/Ton - - 44.8 37.0 24.6
70
Shree Cement
Investment Argument
Strong foothold in northern zone
Shree Cement is a key player in northern market with 11% share (FY08 sales). The company
derives its sales from Rajasthan, Haryana, UP and Delhi and commands Number 1 position in the
Rajasthan, Haryana and Delhi markets. With current capacity of 9.1mt, the company is expected to
command a 12% market share in the northern market by FY09 end.
The high level of consolidation in the northern zone would ensure better price stability in an
oversupply scenario. At the same time, some of the Shree Cement’s market, particularly Punjab,
would benefit from the re-imposition of CVD on imported cement which led to stoppage of
import from Pakistan.
Exhibit 1: Shree Cement is a major player in northern region
State Contribution to total sales (%) Market share (%)
Punjab 8.63 8.33
Rajasthan 36.12 22.16
Haryana 26.27 23.91
Delhi 9.99 17.47
Uttar Pradesh 12.48 4.85
Northern zone 100.00 11.00
Significant cost savings on energy front

We expect the company to register significant savings in energy costs on account of steep fall in
pet coke prices. We estimate power and fuel cost per ton to decline by
Rs205/tonne in FY09E and Rs506/tonne in FY10E. Shree Cement is totally dependant on pet coke,
a by-product from petroleum refineries, whose prices have declined from a peak of Rs8,000/tonne
in Aug 2008 to Rs4,000/tonne at present.
Shree Cement was among the first cement manufacturers to substitute coal with pet coke, which
made it amongst the lowest cost producers of cement. However, the company faced significant
cost pressure during FY09 when pet coke prices surged to Rs8,000/tonne as price of international
coal and crude rose. However, with both crude and coal prices falling, the price of pet coke has
plunged to Rs4,000/tonne.
Exhibit 2: Energy costs have eased
Rs/Ton Rs/Ton
8,000 800
709
7,000 700
6,000 556 600
489 506 506
5,000 459 500
426
4,000 316 400
3,000 300
2,000 200
1,000 100
- 0
FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Shree cements energy cost Average pet coke price
71
Shree Cement
Foray in merchant power sale, investments CPP to sustain high earnings
With ensuing overcapacity in cement sector, the company added another revenue stream in
Q2FY09 through sale of surplus power from its captive power plants on merchant basis. The
company is setting up another 85MW CPP which would be utilized primarily for merchant sale of
power.
Given the power deficit in the country, we view company’s foray into merchant power as an
excellent tactical move and judicious allocation of capital as incremental earnings from power
would sustain its cash earning over FY09-11E, despite overcapacity scenario in cement industry.
Shree Cement has been a prime beneficiary of the cement up-cycle of 2005-09 when it tripled its
cement capacity to 9.1mt through strong project execution capability. It is adding another 1mt
clinker capacity by Q1FY10 and augmenting grinding capacity by 3mt by setting up grinding units
at Suratgarh in Rajasthan and Roorkee in Uttaranchal.
Exhibit 3: Shree Cement’s expansion plans
Project Capacity Capex (Rs mn) Timeline
VII clinker line 1 million 2,500 Q4/FY09/Q1FY10
Grinding Units 3 million 3,200 FY10/Early FY11
Up-gradation of line I & II 1,200 FY10/Early FY11
Power Plant 50 mw
4,000 FY10 End
Waste Heat Recovery system 35 mw
TOTAL 10,900
Source: Company
The projects would require a capex of Rs10.9bn over FY09-11E and we estimate the company
would be able to finance these projects through internal accruals and end up with a net cash of
Rs2.5bn by FY11.
Strong cash flow and balance sheet to allow organic, inorganic growth
A strong balance sheet with net debt (cash)/equity of 0.3 and -0.16 in FY10E and FY11E, and a net
free cash flow of Rs 5.5 bn in over FY10-11 gives Shree Cement enough leeway for further
expansions either through new capacity additions and acquisitions.
72
Shree Cement
Financial Analysis
Revenue from merchant power sales to keep earnings intact
We expect revenue and EBIDTA to decline 8% and 6%, respectively, in FY10E as the cement space
faces an overcapacity scenario. However, in FY11E, we expect 8% growth in revenue and 3%
EBIDTA growth on account of significant contribution from the sale of merchant power (12%
contribution to revenue and 24% to operating profit).
Exhibit 4: Merchant power sales to prop earnings
FY06 FY07 FY08 FY09E FY10E FY11E
Cement Volume 3.2 4.8 6.6 8.2 8.2 8.7
Cement-Revenue 6,948 14,055 21,091 25,541 23,273 22,737
% contribution 100.0 100.0 100.0 97.7 96.7 87.5
Realization 2,169 2,908 3,192 3,098 2,833 2,614
Power Revenue 597 796 3,249
% contribution 2.3 3.3 12.5
Total revenue 6,948 14,055 21,091 26,139 24,069 25,986
EBIDT Cement 8,435 7,751 6,367

EBIDT-Power 320 397 1994
Operating Profit 2,180 5,922 8,624 8,755 8,149 8,361
Per /ton-Cement 681 1,225 1,305 1,023 944 732
Per /ton-Including profit from power sale 681 1,225 1,305 1,062 992 961
Cash earnings to remain robust over FY09-11E

Due to reporting of depreciation on WDV and accelerated depreciation on new asset, reported
profit might look depressed (48% YoY decline in FY10 and 1% increase in FY11). Therefore, we
believe cash earnings would be right criteria for looking at the company’s profitability. We expect
Shree Cement’s cash earnings to register a modest growth of 3.3% and 5.1% in FY10 and FY11,
respectively to Rs209/share and Rs220/share after the 8% de-growth in FY09.
73
Shree Cement
Valuation
Compelling valuations
At CMP, the stock trades at compelling EV/tonne of US$35.9 and US$22.5 for FY10E and FY11E
capacity of 10.1mt, despite superior earnings of EBIDTA/tonne of Rs950 and Rs730/tonne in FY10E
and FY11E, respectively. On P/BV, it trades at 1.56x FY10E and 1.33x FY11E.
On P/E multiple, the stock trades at 7.1x FY10E and 7.1x FY11E, which makes it look fairly valued.
But given the company’s policy of following WDV method of depreciation and accelerated
depreciation on newly commissioned assets, reported earning would look depressed. Therefore,
we find P/CEPS and EV/EBIDTA as a better earnings matrix for the company. The stock trades at
P/CEPS of 2.9x FY10E and 2.8x FY11E and EV/EBIDTA of 2.7x and 1.9x, which are at steep discount
to peers.
Buy with price target of Rs823
We initiate coverage with a Buy rating and target price of Rs823, valuing the stock at P/BV of 2.2x
FY10E and EV /tonne of US$55 on FY10 E.
Exhibit 5: Shree Cement’s valuation
Value of Cement assets @ US$55/ton 28,608
Additional Power Asset of 85MW 4,000
Total 32,608
Add
Investments 5,910
Cash 3,277
EV of Shree Cement 41,796
Less - Debt 13,122
Fair value of Equity 28,673
Target Price (Rs) 823
Exhibit 6: P/BV multiple

(x)
10
9
8
7
6
5
4
3
2
1
0
Apr-02
Apr-03
Apr-04
Apr-06
Apr-07
Apr-08
Apr-01
Oct-01
Oct-02
Oct-03
Oct-04
Apr-05
Oct-05
Oct-06
Oct-07
Oct-08
Exhibit 7: Asset value too low compare to robust earning

USD/Ton
200 EV/Ton Band of Shree Cement
180
160
140
120
100
80
60
40
20
0
Oct-01
Oct-02
Oct-03
Oct-04
Oct-06
Oct-08
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Oct-05
Apr-06
Apr-07
Oct-07
Apr-08
EV/Ton $ 30x 80x 130x 180x
74
Shree Cement
Key Risks
Upside risks
Better production and price discipline resulting in higher than expected cement prices.
Favourable government intervention towards demand generation as well as tax benefits specific
to the sector.
Downside risks
commissioned plants. Some supplies hitting the market ahead our assumed schedule.
Rally in international coal/crude prices leading to increase in pet coke prices.
75
Shree Cement
Financials

Growth in revenues (%) 102.3 50.1 23.9 (7.9) 8.0
Depreciation 4,331 4,788 2,074 4,111 4,505
Power and Fuel 2,345 3,672 5,849 4,157 4,401
Interest expenses/other (316) 334 1,045 (32) (201)
% of Sales 16.7 17.4 22.4 17.3 16.9
OP profit bef. WC chg. 5,909 8,804 8,755 8,149 8,361
Freight 2,243 3,598 4,407 4,220 4,468 Working capital adj. (380) (539) (1,841) (340) (43)
EBITDA 5,922 8,624 8,755 8,149 8,361
Extraordinary (Inc) 212 (389) (1,161) - -
EBITDA Margin 42.1 40.9 33.5 33.9 32.2
Cash From Op Ex OI 4,608 6,641 4,240 6,714 7,226
EBIDTA/Ton (Rs) 1,225 1,305 1,062 992 732
PBIT 1,592 3,837 6,681 4,037 3,856 Capex (5,974) (4,234) (3,620) (7,900) (500)
Interst expenses 104 497 761 944 944 Investment (452) (4,768) - - -
PBT from operations 1,488 3,339 5,920 3,093 2,912 Cash from investment (6,425) (9,002) (3,620) (7,900) (500)
Other non op. income 212 733 877 976 1,145
CF from financing
Procds from sh cap & prem. - - (0) - 0
Extra-ord. income/ (exp) 195 (389) (1,161) - -
Borrowings/ (Repayments) 5,586 3,993 - - -
PBT 1,894 3,683 5,636 4,069 4,057 Interest paid 13 (476) 116 32 201
Provision for tax 124 1,079 1,514 1,095 1,091 Dividend paid (437) - (489) (489) (489)
Effective tax rate 6.6 29.3 26.9 26.9 26.9 Cash from financing 5,162 3,517 (373) (457) (288)
PAT 1,770 2,604 4,122 2,975 2,966 Net cash increase/ (dec) 3,345 1,157 246 (1,643) 6,439
Minority Interest Source: Company, Centrum Research
PAT after minority int.
Adjusted PAT 1,588 2,879 4,971 2,975 2,966
Growth in PAT (%) 899.6 81.3 72.7 (40.2) (0.3) Exhibit 11: Key Ratios
Cash Profit 5,918 7,666 7,045 7,086 7,470 Margin Ratios (%)
Growth in Cash Profit (%) 229.1 29.5 (8.1) 0.6 5.4 EBITDA Margin 42.1 40.9 33.5 33.9 32.2
PBIT Margin 11.3 18.2 25.6 16.8 14.8
PAT margin 42.1 36.3 27.0 29.4 28.7
PBT Margin 12.1 19.3 26.0 16.9 15.6
Source: Company, Centrum Research PAT Margin 11.3 13.6 19.0 12.4 11.4
Growth Ratios (%)
Revenues 102.3 50.1 23.9 (7.9) 8.0
Exhibit 9: Balance Sheet EBITDA 171.6 45.6 1.5 (6.9) 2.6
Net Profit 899.6 81.3 72.7 (40.2) (0.3)
Cash Earning 229.1 29.5 (8.1) 0.6 5.4
Share Capital 348 348 348 348 348 Return Ratios (%)
Reserves 4,197 6,380 10,013 12,499 14,975 ROCE 15.2 18.9 25.5 14.8 13.4
Shareholders' fund 4,546 6,728 10,361 12,847 15,324 ROIC 17.3 31.5 47.5 20.8 19.8
Minority Interest ROE 42.3 51.1 58.2 25.6 21.1
Turnover Ratios
Debt 9,314 13,307 13,307 13,307 13,307
Deferred Tax Liability (38) (185) (185) (185) (185)
Working capital cycle (days) (34.0) (19.2) (10.4) (4.4) (4.4)
Total Cap. Employed 13,822 19,851 23,483 25,969 28,446 Avg collection period (days) 8.5 12.0 12.0 12.0 12.0
Gross Block 16,081 21,873 24,673 33,073 33,573 Inventory holding (days) 40.5 30.6 40.0 45.0 45.0
Accumulated dep. 11,092 14,273 16,347 20,459 24,963 Per share (Rs)
Net Block 4,990 7,600 8,326 12,614 8,610 Fully diluted EPS 45.6 82.6 142.7 85.4 85.2
Capital WIP 3,438 180 1,000 500 500 CEPS 169.9 220.1 202.3 203.5 214.5
Book Value 144.6 193.1 297.4 368.8 439.7
Total Fixed Assets 8,427 7,779 9,326 13,114 9,110
Solvency ratios
Investments 500 5,910 5,910 5,910 5,910
Debt/ Equity 1.8 2.0 1.3 1.0 0.9
Inventories 1,561 1,766 2,865 2,967 3,204 Net Debt/Equity 1.2 0.4 0.2 0.3 (0.2)
Debtors 263 494 859 791 854 Interest coverage 57.1 17.3 11.5 8.6 8.9
Cash & bank balances 3,533 4,674 4,920 3,277 9,716 Valuation parameters (x)
Loans and Advances 2,384 4,026 4,026 4,026 4,026 P/E 13.2 7.3 4.2 7.1 7.1
Total current assets 7,741 10,960 12,671 11,062 17,800 P/BV 4.2 3.1 2.0 1.6 1.4
EV/ EBITDA 4.4 3.1 2.4 2.7 1.9
Current lia & prov. 2,846 4,799 4,423 4,117 4,374
EV/ Sales 1.9 1.4 0.9 1.0 0.7
M-Cap/ Sales 1.5 1.0 0.8 0.9 0.8
Misc. Expenditure - - - - - EV/Ton (US$) 44.8 40.2 27.9
Total Assets 13,822 19,851 23,483 25,969 28,446 Source: Company, Centrum Research
76
Shree Cement
Disclaimer
Centrum Broking Pvt. Ltd.(“Centrum”) is a full-service, Stock Broking Company and a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India
Ltd. (NSE). Our holding company, Centrum Capital Ltd, is an investment banker and an underwriter of securities. As a group Centrum has Investment Banking, Advisory and
other business relationships with a significant percentage of the companies covered by our Research Group. Our research professionals provide important inputs into the
Group's Investment Banking and other business selection processes.
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses and may
receive commission, brokerage, fees or other compensation from the company or companies that are the subject of this material/report. Our Company and Group
companies and their officers, directors and employees, including the analysts and others involved in the preparation or issuance of this material and their dependants, may
on the date of this report or from, time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies
mentioned herein. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect
opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent
with the recommendations expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/
information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may
give rise to or potential conflicts of interest. We and our Group may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one
or more areas within us, or other areas, units, groups or affiliates of Centrum.
This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or
subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or
commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients of Centrum.
Though disseminated to clients simultaneously, not all clients may receive this report at the same time. Centrum will not treat recipients as clients by virtue of their
receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual
clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific
person who may receive this document. The securities discussed in this report may not be suitable for all investors. The securities described herein may not be eligible for
sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments,
voting rights or dealings in securities by nationals of other countries. The appropriateness of a particular investment or strategy will depend on an investor's individual
circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular
circumstances and, if necessary, seek professional/financial advice. Any such person shall be responsible for conducting his/her/their own investigation and analysis of the
information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document.
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and
contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and
forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts
described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a
view toward compliance with published guidelines or generally accented accounting principles. No independent accountants have expressed an opinion or any other form
of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by or
on behalf of the Company, Centrum, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For
these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the
assumptions underlying such projections and forecasts.
The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on
any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may
differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Centrum does not
provide tax advice to its clients, and all investors are strongly advised to consult regarding any potential investment. Centrum and its affiliates accept no liabilities for any
loss or damage of any kind arising out of the use of this report. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an
adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign
currencies effectively assume currency risk. Certain transactions including those involving futures, options, and other derivatives as well as non-investment-grade securities
give rise to substantial risk and are not suitable for all investors. Please ensure that you have read and understood the current risk disclosure documents before entering
into any derivative transactions.
This report/document has been prepared by Centrum, based upon information available to the public and sources, believed to be reliable. No representation or warranty,
express or implied is made that it is accurate or complete. Centrum has reviewed the report and, in so far as it includes current or historical information, it is believed to be
reliable, although its accuracy and completeness cannot be guaranteed. The opinions expressed in this document/material are subject to change without notice and have
no obligation to tell you when opinions or information in this report change.
This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and
should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be
distributed to the public used by the public media without the express written consent of Centrum. This report or any portion hereof may not be printed, sold or
distributed without the written consent of Centrum. Neither this document nor any copy of it may be taken or transmitted into the United State (to US persons), Canada, or
Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this
document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such
restrictions. Neither Centrum nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anything contained herein
shall form the basis of any contract or commitment whatsoever. This document is strictly confidential and is being furnished to you solely for your information, may not be
distributed to the press or other media and may not be reproduced or redistributed to any other person. In particular, neither this document nor any copy thereof may be
taken or transmitted into the United States, Canada or Japan or distributed, directly or indirectly, in the United States, Canada or Japan or to any US person.
The distribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselves about, and
observe any such restrictions. By accepting this report, you agree to be bound by the fore going limitations. No representation is made that this report is accurate or
complete.
The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and are given as of
this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance
that future results or events will be consistent with any such opinions, estimate or projection.
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any
other person. Information in this document must not be relied upon as having been authorised or approved by the company or its directors or any other person. Any
opinions and projections contained herein are entirely those of the authors. None of the company or its directors or any other person accepts any liability whatsoever for
any loss arising from any use of this document or its contents or otherwise arising in connection therewith.
77
Shree Cement
Sanjeev Patni Head - Institutional Equities sanjeev.patni@centrum.co.in 91-22-4215 9699
Research
Harendra Kumar Head - Research Strategy harendra.kumar@centrum.co.in 91-22-4215 9620
Dhananjay Sinha Economist Economy & Strategy dhananjay.sinha@centrum.co.in 91-22-4215 9619
Niraj Shah Sr Analyst Metals & Mining, Pipes niraj.shah@centrum.co.in 91-22-4215 9685
Mahantesh Sabarad Sr Analyst Automobiles/Auto Ancillaries mahantesh.sabarad@centrum.co.in 91-22-4215 9855
Madanagopal R Sr Analyst Power r.madanagopal@centrum.co.in 91-22-4215 9684
Abhishek Anand Analyst Media, Education a.anand@centrum.co.in 91-22-4215 9853
Anand Dama Analyst Financial Services anand.dama@centrum.co.in 91-22-4215 9644
Ankit Kedia Analyst Media ankit.kedia@centrum.co.in 91-22-4215 9634
Himani Singh Analyst Hospitality, Healthcare himani.singh@centrum.co.in 91-22-42159865
Nitin Padmanabhan Analyst Technology nitin.padmanabhan@centrum.co.in 91-22-4215 9690
Piyush Choudhary Analyst Telecom p.choudhary@centrum.co.in 91-22-4215 9862
Pranshu Mittal Analyst Sugar, Retail p.mittal@centrum.co.in 91-22-4215 9854
Rajan Kumar Analyst Cement rajan.kumar@centrum.co.in 91-22-4215 9640
Rupesh Sankhe Analyst Real Estate, Infrastructure rupesh.sankhe@centrum.co.in 91-22-4215 9636
Saikiran Pulavarthi Analyst Financial Services saikiran.pulavarthi@centrum.co.in 91-22-4215 9637
Siddhartha Khemka Analyst Logistics siddhartha.khemka@centrum.co.in 91-22-4215 9857
Sriram Rathi Analyst Pharmaceuticals s.rathi@centrum.co.in 91-22-4215 9643
Adhidev Chattopadhyay Associate Real Estate adhidev@centrum.co.in 91-22-4215 9632
Janhavi Prabhu Associate Sugar, Retail janhavi.prabhu@centrum.co.in 91-22-4215 9864
Jatin Damania Associate Metals & Mining, Pipes jatin.damania@centrum.co.in 91-22-4215 9647
Vijay Nara Associate Automobiles/Auto Ancillaries vijay.nara@centrum.co.in 91-22-42159641
Sales
V. Krishnan +91-22-4215 9658 v.krishnan@centrum.co.in +91 98216 23870
Ashish Tapuriah +91-22-4215 9675 ashish.tapuriah@centrum.co.in +91 99675 44060
Chirag Vora +91-22-4215 9677 chirag.vora@centrum.co.in +91 98207 63682
Ashvin Patil +91-22-4215 9866 ashvin.patil@centrum.co.in +91 98338 92012
Siddharth Batra +91-22-4215 9863 s.batra@centrum.co.in +91 99202 63525
Centrum Securities (Europe) Ltd., UK

Dan Harwood CEO +44-7830-134859 dan.harwood@centrum.co.in
Michael Orme Global Strategist +44 (0) 775 145 2198 michael.orme@centrum.co.in
Nicole Rappel Client Management +44 (0) 798 441 6878 nicole.rappel@centrum.co.in
Centrum Securities LLC, USA

Melrick D’Souza +1-646-701-4465 melrick.dsouza@centrumsecurities.com
Key to Centrum Investment Rankings

Buy: Expected outperform Nifty by>15%, Accumulate: Expected to outperform Nifty by +5 to 15%, Hold: Expected to outperform
Nifty by -5% to +5%, Reduce: Expected to underperform Nifty by 5 to 15%, Sell: Expected to underperform Nifty by>15%
Centrum Broking Private Limited

Member (NSE, BSE), Depository Participant (CDSL) and SEBI registered Portfolio Manager
REGD. OFFICE Address
Bombay Mutual Bldg.,2nd Floor, Dr. D. N. Road, Fort,
Regn Nos
Mumbai - 400 001
CAPITAL MARKET SEBI REGN. NO.: BSE: INB 011251130, NSE: INB231251134
DERIVATIVES SEBI REGN. NO.: NSE: INF 231251134 (TRADING & SELF CLEARING MEMBER)
Correspondence Address
CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-20-99
Centrum House, 6th Floor, CST Road, Near Vidya Nagari Marg,
PMS REGISTRATION NO.: INP000000456
Kalina, Santacruz (E), Mumbai 400 098.
Website: www.centrum.co.in
Tel: (022) 4215 9000
Investor Grievance Email ID: investor.grievances@centrum.co.in
78
Shree Cement

Cement Sector-Nadir Not Yet-190309

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Cement Sector-Nadir Not Yet-190309

Загружено:

Авторское право:

Доступные форматы

INDIA

19 March 2009 Cement Sector

Nadir? Not Yet Rajan Kumar

Underweight Sector valuations over cycles

 Valuations to remain subdued: We expect valuations 10

oversupply. Initiating coverage on the sector with an 4

Reduce on Ambuja Cements Hold on Grasim,

Easing cement prices and deteriorating return ratios As on 17 March 2009

levels from 98% in FY08 to 91% in FY09, and further to 120

80% and 76% in FY10 and FY11, respectively. 100

17% CAGR over FY08-FY11 vs demand 8% CAGR. 40

 Sharp correction in cement prices inevitable:

correction in cement prices in FY10 with the

 Key risks: Upside risk: Better price and production

Rajan Kumar West 232 207 192

EV/Ton (USD) P/BV (x) ROE (%) ROCE (%)

Executive Summary ………………………………………………………………………….………4

Source: Bloomberg, Company, Centrum Research

Source: Company, Centrum Research

Replacement cost to decline in-line with commodity cycle

Source: Company, Centrum Estimates

However, in the near-term (FY09-11), demand is expected to be subdued on account the

Exhibit 6: Cement consumption and GDP growth

Asia (Ex China)

Source: Centrum Research Source: Centrum Research

Utilization levels to fall on capacity build-up

Source: Centrum Research

Exhibit 12: Blending ratio has peaked out

Exhibit 13: Cement prices headed south

Source: Industry, Centrum Research

Overview of the four zones

*Equivalent of North plus Central Regions of CMA

Source: CMA, Centrum Research

Exhibit 16: Market share of players in the east (FY08)

Source: CMA, Centrum Research

West All India

Source: CMA, Centrum Research

Source: CMA, Centrum Research

Efficiency drives, easing cost pressure insufficient to sustain current margins

Exhibit 19: Cost structure of cement industry

Cement manufacturing is a power-intensive business and 1 tonne of cement requires about

Exhibit 21: International coal still costlier than domestic sources

Exhibit 23: ACC – P/BV ACC – Asset value

En terp rise valu e

$50 $100 $150 $200 ACC

Source: Bloomberg, Centrum Research

Exhibit 24: Ambuja Cement – P/BV Ambuja Cement – Asset value

USD50 USD150 Ambuja cement

Source: Bloomberg, Centrum Research

Exhibit 25:India Cement – P/BV India Cement – Asset value

India Cement 50x 100x 150x 200x

Source: Bloomberg, Centrum Research

Source: Bloomberg, Centrum Research

Exhibit 27: Shree Cement – P/BV Shree Cement - Asset Value

Source: Bloomberg, Centrum Research

Exhibit 28:UltraTech – P/BV UltraTech – Asset value

Source: Bloomberg, Centrum Research

Source: Company, Centrum Research

Source: Company, Centrum Research

Source: Company, Centrum Research

Source: Company, Centrum Research

Source: Company, Centrum Research

Valuations to remain subdued: We expect valuations 10

Sharp correction in cement prices inevitable:

Key risks: Upside risk: Better price and production

Better-than-expected demand growth would allow cement manufacturers to maintain

Earnings highly sensitive to cement prices: ACC’s Face Value (Rs) 10

Premium valuations not justified: At CMP, ACC trades 120

ACC’s adverse cost structure makes it susceptible to 2,000

Expansions to strengthen presence in relatively Foreign, 26.6

Diversified fuel mix, new CPPs to result in lower As on 31 December 2008

Reduce with target price of Rs61: We believe valuations 80

Diversified fuel mix to ease cost pressure: We expect Promoters, 25.2

Pain in VSF business to continue: The VSF business