INSTITUTIONALEQUITYRESEARCH

ABGCement(Unlisted)

Attemptinganambitiousdiversionfromtraditionalbusinessdynamics

31March2015
INDIA|CEMENT|MANAGEMENTMEETUPDATE
WemetupwiththeManagementofABGCement(ABG)tounderstandtheircurrentstatus
ofbusinessoperationsandalsototakeanupdateontheircurrentandfuturegrowthplans.
ABG sounds to be a serious cement manufacturer and the management also sounds very
committedtothisbusinessopportunity.Thoughtheydidnotdenyfinancialissues(largely
onworkingcapitalfront),theysoundedveryfirmonthefutureprospectsofthisbusiness.

They expressed strong hopes of addressing financial issues and debuting in the Indian
cementmarketwithfullcommitmentveryshortly.Themeetinghadsomeveryinteresting

andattentiongrabbingtakeawaysashighlightedbelow.

ABGclaimstohavethebiggestsinglelocationKilnintheworldandcurrentlyoperatingat

~5060%:ItwassaidbyABGthattheyhavethebiggestkilnintheglobe(95metersinlength
and6metersindiameter).Thepeakproductioncapacityofthiskilnwasclaimedat12,500
TPD(declaredannualcapacityisat3.8mntnp.a.forclinker).Thiskilniscurrentlyoperating

at~5060%utilisationandthecompanyhasalreadyexported~2.3mntnofclinkeroverthe
last 18 months (where initial 67 months virtually was zero production). Interestingly, the
clinkersitehasnogrindingsetup.Thegrindingsetup(3grindingmillsoflargelyequivalent

capacity each) is at Surat with a capacity of ~6.1mn tns of cement grinding. This setup is
likelytocommissioninthenextcoupleofmonths.


Strong hopes to redefine traditional business dynamics as and when the current financial
issues are resolved: ABG mentioned that they are hopeful to address the current funding

issues in the company very shortly and are aggressively working towards this. The
management very clearly denied any plans of exiting / selling out the business to any other
existingcementmanufacturer.Assumingthatthecurrentworkingcapitalissuesareresolved,

ABG expects and remains hopeful to redefine the traditional business dynamics of cement
industry.Thecompanyplanstobringinclinkerthroughsearoutefromtheclinkersitetothe
grindingsite(expectedcost@Rs625/tonne)andbelievesthistobethebeautyofthewhole

project.ABGhasalreadysetupajettyatitsclinkersiteatThumdi,Kutchandisintheprocess
ofsettingupofajettyatSurat(likelytobecompletedshortly).Theyexpectthemselvestobe
oneofthelowestcostproducersofcementinthecountry.


Grindingunittohaveadvantageofallmodesoftransportation:ThegrindingunitatSuratwill
havetheadvantageofrailconnectivity,roadtransportation(asitissaidtobelocatednextto

theNationalHighway)andalsoseatransportation(withthecommencementofABGscaptive
jettyoperations).ABGbelievesthatthisisaverystrategiclocationforanygrindingunitand

looks forward to take full advantage of all modes of transportation. Though, initially the
companytargetsonlythewesternmarkets,themanagementdidnotruleoutthepossibilityof
exploringSouthIndiathroughsearoute(coastalKarnatakaandKerala),asandwhentheneed

arises. As of now, ABG targets Nashik, Mumbai and Pune in Maharashtra and Vadodara,
Ahmedabad and Surat in Gujarat as their current key markets. ~300 channel partners have
alreadybeenshortlistedbythecompany.


Slag grindingtoprovideadditionalcostadvantagetoABG:ABGclaimstohaveatieupfor
1.2mn tn of slag with Essar Steel (which is about 15kms from grinding site). This will mean

~2.4mntnofslagbasedcementandrestoftheclinkerwillbeblendedwithflyashtoproduce
PPC.OPCisalsotargetedbutthequantitymaynotbeveryhugehere.Amixtureofslagand
flyashbasedgrindingwillmeandefinitecostadvantagestoABG.
VaibhavAgarwal(+912266679967)
vagarwal@phillipcapital.in
Operational efficiencies at plant level also very likely: Even on operational efficiencies
(power,fueletc.),ABGclaimsthatitwillbeonthebettersideofthecostcurveoftheindustry.
The spends on the setup of ~6mn tn p.a. cement capacity & 100 MW captive power is at
~Rs41bn (including cost escalations) which means ~US$110/tonne of cement capacity. The
debt:equityiscurrentlyfundedinratioof~60:40.
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ABGCEMENT MANAGEMENTMEETUPDATE

Management
VineetBhatnagar(ManagingDirector) (9122)23002999
KinshukBhartiTiwari(HeadInstitutionalEquity) (9122)66679946
JigneshShah(HeadEquityDerivatives) (9122)66679735

Research
Automobiles Engineering,CapitalGoods Pharma
DhawalDoshi (9122)66679769 AnkurSharma (9122)66679759 SuryaPatra (9122)66679768
PriyaRanjan (9122)66679965 HrishikeshBhagat (9122)66679986
Retail,RealEstate
Banking,NBFCs Infrastructure&ITServices AbhishekRanganathan,CFA (9122)66679952
ManishAgarwalla (9122)66679962 VibhorSinghal (9122)66679949 NehaGarg (9122)66679996
PradeepAgrawal (9122)66679953 DeepanKapadia (9122)66679992
PareshJain (9122)66679948 Technicals
Midcap SubodhGupta,CMT (9122)66679762
Consumer,Media,Telecom VikramSuryavanshi (9122)66679951
NaveenKulkarni,CFA,FRM (9122)66679947 ProductionManager
JubilJain (9122)66679766 Metals GaneshDeorukhkar (9122)66679966
DhawalDoshi (9122)66679769
AnkitGor (9122)66679987
Cement
VaibhavAgarwal (9122)66679967 Oil&Gas,AgriInputs
GauriAnand (9122)66679943 Sr.ManagerEquitiesSupport
Economics DeepakPareek (9122)66679950 RosieFerns (9122)66679971
AnjaliVerma (9122)66679969
Sales&Distribution CorporateCommunications
AshvinPatil (9122)66679991 SalesTrader ZarineDamania (9122)66679976
ShubhangiAgrawal (9122)66679964 DileshDoshi (9122)66679747
KishorBinwal (9122)66679989 SuniilPandit (9122)66679745
SidharthAgrawal (9122)66679934 Execution
BhavinShah (9122)66679974 MayurShah (9122)66679945

SINGAPORE
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Tel:(81)336662101Fax:(81)336640141
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UNITEDSTATES
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TheChicagoBoardofTradeBuilding
Chicago,IL60604USA
Tel(1)3123569000Fax:(1)3123569005
No.1,18thFloor,UrmiEstate,95GanpatraoKadamMarg,LowerParelWest,Mumbai400013
ContactInformation(RegionalMemberCompanies)
MALAYSIA HONGKONG
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INDONESIA CHINA
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FRANCE UNITEDKINGDOM
King&ShaxsonCapitalLtd. King&ShaxsonLtd.
3rdFloor,35RuedelaBienfaisance 6thFloor,CandlewickHouse,120CannonStreet
75008ParisFrance London,EC4N6AS
Tel(33)145633100Fax:(33)145636017 Tel(44)2079295300Fax:(44)2072836835
www.kingandshaxson.com www.kingandshaxson.com
AUSTRALIA SRILANKA
PhillipCapitalAustralia AshaPhillipSecuritiesLimited
Level37,530CollinsStreet Level4,MillenniumHouse,46/58NavamMawatha,
Melbourne,Victoria3000,Australia Colombo2,SriLanka
Tel:(61)396298380Fax:(61)396148309 Tel:(94)112429100Fax:(94)112429199
www.phillipcapital.com.au www.ashaphillip.net/home.htm
INDIA
PhillipCapital(India)PrivateLimited
Tel:(9122)23002999Fax:(9122)66679955www.phillipcapital.in

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ABGCEMENT MANAGEMENTMEETUPDATE

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