3QCY2012 Result Update | Cement

October 19, 2012

Ambuja Cements
Performance Highlights
Quarterly results (Standalone)
Y/E Dec. (` cr) Net Sales Operating profit OPM (%) Rep. Net Profit 3QCY2012 2,168 522 24.0 304 2QCY2012 2,566 735 28.5 469 % chg qoq (15.5) (29.0) (451)bp (35.2) 3QCY2011 1,805 319 17.4 171 % chg yoy 20.1 63.4 657bp 77.3

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 31,802 (3,243) 0.8 221/136 250,277 2 18,682 5,684 ABUJ.BO ACEM@IN

`206 -

Source: Company, Angel Research

During 3QCY2012, Ambuja Cements (ACEM) posted a strong 77.3% yoy improvement in its bottom-line, which was in-line with our estimates. The growth in the bottom-line was on account of a healthy 18.6% yoy improvement in realization. However, volume growth remained modest at 1.4% on a yoy basis.

ACEMs top-line grew by 17.9% yoy to `2,168cr aided by an 18.6% yoy growth in realization. However, the volume growth was muted at 1.4% on a yoy basis. Strong realization resulted in a 657bp yoy improvement in operating margins. The companys per tonne operating cost was higher by 7.8% on a yoy basis, with raw material and freight and forwarding costs going up by 10.0% yoy and 19.0% yoy respectively.
OPM at 24.0%, up 657bp yoy: Outlook and valuation: We expect ACEM to register a 17.6% and 26.9% CAGR in its top-line and bottom-line, respectively, over CY2011-13E. At the current market price, the stock is trading at a rich valuation of EV/tonne of US$173 on CY2013E capacity, which we believe factors in the positives of a favorable locational presence. Hence, we continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.7 10.6 28.9 9.8

Abs. (%) Sensex ACEM

3m 8.1 23.6

1yr 9.3 43.0

3yr 7.8 68.9

Key financials (Standalone)

Y/E Dec. ( ` cr) Net sales % chg Adj. net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales EV/tonne (US$) Installed capacity (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

CY2010
7,390 4.4 1,237 1.5 26.4 8.1 25.5 4.3 17.9 20.8 3.9 239 25 14.9

CY2011
8,514 15.2 1,253 1.3 23.4 8.2 25.3 4.3 16.3 18.6 3.4 206 27 14.5

CY2012E
10,183 19.6 1,757 40.2 26.4 11.5 18.0 3.9 20.8 23.9 2.7 182 27 10.3

CY2013E
11,774 15.6 1,980 12.7 26.1 12.9 16.0 3.5 21.1 25.4 2.2 176 27 8.6

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 3QCY2012 Result Update

Exhibit 1: 3QCY2012 performance (Standalone)

Y/E Dec. (` cr) Net sales Other operating income Total operating income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income Exceptional Inc./(Exp.) PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

3QCY12 2,168 7 2175 46 2.1 562 25.9 115 5.3 503 23.2 426 19.7 1,653 522 24.0 17 137 89 457 154 33.6 304 14.0 2.0

2QCY12 2,566 13 2578 116 4.5 599 23.3 124 4.8 587 22.9 418 16.3 1,844 735 28.5 18 122 78 674 205 30.4 469 18.3 3.1

% chg qoq (15.5) (45.5) (15.6) (60.2) (6.1) (6.9) (14.2) 2.0 (10.3) (29.0) (451)bp (8.3) 13.0 14.2 (32.1) (25.0) (35.2) (426)bp (35.2)

3QCY11 1,805 29 1834 144 8.0 495 27.4 103 5.7 416 23.1 356 19.7 1,514 319 17.4 14 108 57 255 83 32.7 171 9.5 1.1

% chg yoy 20.1 (76.2) 18.6 (68.0) 13.6 11.5 21.0 19.8 9.2 63.4 657bp 20.0 27.3 56.6 79.5 84.1 77.3 452bp 77.3

9MCY12 7,370 40 7,410 328 4.4 1,788 24.3 342 4.6 1,694 23.0 1,235 16.8 5,387 2,023 27.3 51 380 261 279 1,573 488 31.0 1,085 14.7 7.1

9MCY11 6,197 37 6,233 299 4.8 1,540 24.9 308 5.0 1,425 23.0 1,133 18.3 4,705 1,529 24.5 43 321 181 1,346 420 31.2 927 15.0 6.1

% chg 18.9 9.4 18.9 9.7 16.1 11.1 18.9 9.0 14.5 32.3 278bp 20.2 18.2 43.7 16.9 16.4 17.1 (23)bp 17.1

Exhibit 2: Financial performance

3,000 2,500 2,000 (` cr) 1,500 1,000 500 0 2QCY11 3QCY11 Net Sales Source: Company, Angel Research 4QCY11 1QCY12 2QCY12 3QCY12 Net Profit OPM (RHS) 348 302 171 312 469 20.0 304 15.0 2,173 1805 (%) 25.0 2329 2,633 35.0 2,566 2168 30.0

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Ambuja Cements | 3QCY2012 Result Update

Exhibit 3: 3QCY2012 Actual vs Angel estimates

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

Actual 2,168 522 24.0 304

Estimates 2,123 497 23.2 307

Variation (%) 2.1 4.9 81bp (1.0)

Performance highlights
Higher realization drives top-line growth
ACEM posted a 20.1% yoy growth in its net sales to `2,168cr during 3QCY2012, aided by a 18.6% yoy growth in realization to `4,614 per tonne and a moderate 1.4% yoy volume growth to 4.7mn tonne. Even on a qoq basis realization was down only by 0.4% as delayed monsoon resulted in prices remaining healthy in this seasonally weak quarter. Cement prices in fact rose in the month of July before witnessing a decline in the month of August and September.

Realizations lead to marginal expansion in OPM on yoy basis

A strong realization growth on a yoy basis resulted in the OPM going up by 657bp on a yoy basis, despite the increase in operating costs. The companys per tonne operating costs were higher by 7.8% on a yoy basis, with raw material and freight and forwarding costs going up by 10.0% yoy and 19.0% yoy, respectively.

Per tonne analysis

For 3QCY2012, ACEMs realization/tonne improved strongly by 18.6% to `4,614. Power and fuel expenses/tonne increased by 12.1% yoy and 10.6% qoq to `1,196. Freight cost/tonne also rose by 19.4 yoy to `1,071 due to higher petroleum products costs and railway freight charges. The operating profit/tonne stood at `1,096, higher by 74.8% yoy.

Exhibit 4: Per tonne analysis

(`) Realization/tonne Net raw-material cost/tonne Power and fuel cost/tonne Freight cost/tonne Other costs/tonne Operating profit/tonne
Source: Company, Angel Research

3QCY12 4,614 395 1,196 1,071 907 1,096

2QCY12 4,632 275 1,081 1,060 754 1,304

3QCY11 % chg (yoy) % chg (qoq) 3,891 312 1,067 897 767 627 18.6 26.8 12.1 19.4 18.2 74.8 (0.4) 43.6 10.6 1.1 20.3 (16.0)

October 19, 2012

Ambuja Cements | 3QCY2012 Result Update

Investment rationale
Most favorable capacity location among cement majors
ACEM has 81% of its total capacity located in states where supply is either less than demand or if in excess, can be economically sold to nearby supply-deficit states. Logically, capacities in these states are expected to report relatively high utilization and margins.

Capacity addition to aid volume growth

During the past two years, ACEM added ~5mtpa of grinding capacities at various locations to reach its current overall capacity of ~27mtpa. Going ahead, we expect these capacity expansions to drive the companys volume growth.

New clinker capacities to aid margin expansion

Stabilization of production at the company's new clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri has resulted in elimination of external high-cost clinker purchase.

Outlook and valuation

We expect ACEM to register a 17.6% and 26.9% CAGR in its top-line and bottomline, respectively, over CY2011-13E. At the current market price, the stock is trading at rich valuations of EV/tonne of US$173 on CY2013E capacity, which we believe factors in the positives of a favorable locational presence. Hence, we continue to remain Neutral on the stock.

Exhibit 5: Change in estimates

Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

CY12E Earlier
10,074 7,602 2,561 496 40 2,047 614 1,712

CY13E Var. (%)

1.1 (0.2) 4.9 6.2 13.2 2.6

Revised
10,183 7,585 2,687 496 40 2,173 695 1,757

Earlier
11,619 8,836 2,893 507 35 2,736 821 1,915

Revised
11,774 8,815 3,069 507 35 2,912 932 1,980

Var. (%)
1.3 (0.2) 6.1 6.4 13.5 3.4

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Ambuja Cements | 3QCY2012 Result Update

Exhibit 6: One-year forward EV/tonne

350,000 300,000 250,000 EV (` mn) 200,000 150,000 100,000 50,000 0 May-06 May-07 May-08 May-09 May-10 May-11 May-12 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Jan-12 Sep-12 136 184 63 50 65 138 209

EV/tonne Source: BSE, Company, Angel Research

$110

$140

$170

$200

Exhibit 7: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,408 206 98 116 187 4,206 2,010 Tgt. Price (`) Upside (%) FY2014E P/BV (x) 3.1 3.5 0.8 0.9 1.6 3.5 3.2 FY2014E P/E (x) 17.0 16.0 8.0 6.5 10.3 16.1 18.2 FY2012-14E EPS CAGR 8.5 25.7 12.8 41.7 6.2 20.0 11.3 FY2014E RoE (%) 19.2 21.1 10.2 14.6 17.0 23.6 18.7 EV/tonne^ US $

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

Company Background
Swiss cement major, Holcim acquired a controlling stake in ACEM in 2005. In India, the Holcim Group currently controls one-fifth of the total cement capacity through ACEM and ACC. On a standalone basis, ACEM is the third largest cement player in India with total capacity of 27mtpa. The company majorly focuses on northern and western India, with no plants in southern India. Of its current total capacity, 40% capacity is in the western, 38% in northern, 16% in eastern and northeastern and 6% in central region.

October 19, 2012

Ambuja Cements | 3QCY2012 Result Update

Profit & loss statement (Standalone)

Y/E Dec. (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY08
6,168 9.5 4,461 519 1,326 266 2,350 1,707 (16.5) 27.7 260 1,447 (20.0) 23.5 32 246 15 1,662 (13.7) (308) 1,970 568 28.8 1,402 1,183 (5.9) 19.2 7.8 7.8 (5.9)

CY09
7,181 16.4 5,210 1,014 1,423 273 2,501 1,971 15.5 27.9 297 1,674 15.7 23.7 22 151 8 1,803 8.5 1,803 585 32.4 1,218 1,218 3.0 17.2 8.0 8.0 2.9

CY10
7,518 4.7 5,567 542 1,697 344 2,984 1,951 (1.0) 26.4 387 1,564 (6.6) 21.2 49 120 7 1,635 (9.3) (27) 1,662 398 24.0 1,264 1,237 1.5 16.7 8.1 8.1 1.1

CY11
8,603 14.4 6,608 634 2,006 433 3,535 1,994 2.2 23.4 445 1,549 (0.9) 18.2 53 230 13 1,727 5.6 24 1,703 474 27.8 1,229 1,253 1.3 14.7 8.2 8.2 1.0

CY12E
10,272 19.4 7,585 593 2,418 477 4,097 2,687 34.7 26.4 496 2,192 41.5 21.5 40 301 12 2,452 42.0 279 2,173 695 32.0 1,478 1,757 40.2 17.3 11.5 11.5 40.2

CY13E
11,884 15.7 8,815 716 2,766 529 4,804 3,069 14.2 26.1 507 2,562 16.9 21.8 35 386 13 2,912 18.7 2,912 932 32.0 1,980 1,980 12.7 16.8 12.9 12.9 12.7

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Ambuja Cements | 3QCY2012 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets
5,707 2,514 3,193 1,947 332 2,339 852 300 1,188 1,474 865 4 6,342 6,224 2,784 3,440 2,714 727 1,979 881 253 846 1,741 238 3 7,122 8,779 3,151 5,628 931 626 3,135 1,648 441 1,047 2,394 741 0 7,926 9,702 3,516 6,186 532 864 3,874 2,116 568 1,189 2,694 1,179 0 8,762 9,934 4,011 5,923 785 914 5,054 2,989 619 1,446 3,122 1,932 0 9,555 10,169 4,519 5,651 1,543 914 6,061 3,636 688 1,737 3,553 2,508 0 10,617 305 5,368 5,673 289 381 6,342 305 6,166 6,471 166 486 7,122 307 7,023 7,330 65 531 7,926 339 7,730 8,069 49 644 8,762 339 8,523 8,862 49 644 9,555 339 9,585 9,924 49 644 10,617

CY08

CY09

CY10

CY11E

CY12E

CY13E

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Ambuja Cements | 3QCY2012 Result Update

Cash flow statement (Standalone)

Y/E Dec. (` cr) Profit before tax Depreciation Change in WC Interest expenses Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Dec in Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY08 1,970 260 (252) 32 246 568 1,196 (1,726) 957 246 (523) 1 (42) 390 32 (463) 209 643 852 CY09 1,803 297 698 22 151 585 2,085 (1,284) (395) 151 (1,528) 8 (123) 390 22 (528) 29 852 881 CY10 1,662 387 257 49 120 398 1,836 (771) 101 120 (550) 55 (101) 425 49 (519) 767 881 1,648 CY11E 1,703 445 (51) 53 230 474 1,445 (525) (238) 230 (533) 30 (16) 570 (111) (444) 468 1,648 2,116 CY12E 2,173 496 119 40 301 695 1,832 (485) (50) 301 (234) 685 40 (725) 872 2,116 2,989 CY13E 2,912 507 71 35 386 932 2,208 (993) 386 (607) 918 35 (953) 648 2,989 3,636

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Ambuja Cements | 3QCY2012 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.)
(0.1) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.8) 32.1 (0.3) (1.0) 29.4 (0.3) (1.1) 55.0 (0.4) (1.2) 72.3 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (38) 0.9 39 8 141 (39) 1.0 36 10 140 (35) 1.2 37 11 138 (34) 24.7 38.2 22.9 24.9 47.4 20.1 20.8 35.2 17.9 18.6 27.0 16.3 23.9 36.8 20.8 25.4 45.7 21.1 23.5 71.2 1.2 20.2 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.0 18.0 72.2 1.3 17.3 21.3 68.0 1.6 22.6 21.6 68.0 1.8 25.7 7.8 7.8 10.9 2.2 37.3 8.0 8.0 9.9 2.4 42.4 8.1 8.1 10.7 2.6 47.7 8.2 8.2 9.9 3.2 47.6 11.5 11.5 11.6 3.8 52.3 12.9 12.9 14.7 5.2 58.6 26.6 18.9 5.5 1.1 4.7 17.0 4.6 25.8 20.8 4.9 1.2 3.9 14.1 3.9 25.5 19.2 4.3 1.3 3.9 14.9 3.7 25.3 20.9 4.3 1.6 3.4 14.5 3.3 18.0 17.7 3.9 1.9 2.7 10.3 2.9 16.0 14.1 3.5 2.5 2.2 8.6 2.5

CY08

CY09

CY10

CY11E

CY12E

CY13E

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Ambuja Cements | 3QCY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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

Ambuja Cements No No No No

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

Ratings (Returns) :

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

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

Neutral (-5 to 5%)

October 19, 2012

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