BINANI CEMENT LIMITED

BUY Target Price:Rs.84.00

CMP: Rs. 69.85 Market Cap: Rs.14186.5mn.
Date: 24 Feb,2010.

Key Ratios:
Particulars FY09 A FY10E FY11E SYNOPSIS
OPM(%) 20 32 32
PAT(%) 7 19 18 • The flagship subsidiary of BIL, the Braj Binani Group
ROE(%) 23 41 32 is Binani Cement Ltd with gross asset value of Rs
ROCE(%) 18 30 28 26940 million and gross income of Rs 19110 million
P/BV(x) 1.22 1.75 1.20 as of December 31st , 2009 and cement
P/E(x) 5.35 4.27 3.76 manufacturing capacity of 8.5MTPA, with
subsidiaries in Dubai and China.
EV/EBDITA(x) 4.63 2.68 2.56
Debt Equity(x) 1.63 1.01 0.72
• The company’s product portfolio includes Ordinary
Portland Cement,Pozzolona Portland Cement and
Key Data:
Ground Granulated Blast furnace Slag (GGBFS
Sector Cement
in Dubai).
Face Value 10.00
52 wk. High/Low (Rs.) 85.00/24.95 • The products are marketed under the premium
Volume (2 wk. 0.52 “Binani Cement” brand name and enjoy significant
Avg.)(lakh) market share in Rajasthan and other regions in
BSE Code 532849 northern and western India, sharing top-notch
status with many of the nation’s leading cement
brands.

• The topline of the company are expected to grow

V.S.R. Sastry at a CAGR of 28% over 2008A to 2011E
Vice President
Equity Research Desk Share Holding Pattern:
91-22-25276077
vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer
drsastry@firstcallindia.com
 Table of Content

Investment Highlights ................................................................................................................................... 3

Peer Group Comparison................................................................................................................................ 6

Financials....................................................................................................................................................... 7

Charts .......................................................................................................................................................... 10

Outlook and Conclusion .............................................................................................................................. 12

Industry Overview ....................................................................................................................................... 13

Investment Highlights

• Results Updates (Q3 FY10)

The bottomline of the company for the quarter increased at 573% yoy that is Rs.571.70mn
from Rs.84.90mn of same period of last yea. Total revenue for the third quarter stood at
Rs.4033.20 mn from Rs.3623.70 which is 11.3% increase than that of a year ago.EPS for the
quarter stood at Rs.2.81 per equity share of Rs.10.00 each.

Expenditure of the company decreased 8% YoY to Rs.2892.70mn from Rs.3151.70mn of

same period of last year. Interest expenses for the quarter stood at Rs.190.2mn. OPM &
NPM for the quarter stood at 29% and 14% respectively.

Quarterly Results - Standalone (Rs in mn)

As at Dec - 09 Dec - 08 %Change

Net Sales 4033.20 3623.70 11.3

Net Profit 571.70 84.90 573

Basic EPS 2.81 0.42 573

Equity Capital 2031.00 2031.00

• New cement Mill and Packer at Binanigram has been commissioned from Dec’ 09 to
augment cement dispatches

• Up gradation of Railway siding with additional railway line has been completed

• Extension of wagon loading belt to third loading point in both sides expected to be
commissioned by March ‘ 10

• To enhance availability of packers interconnectivity with silos shall be done by March’ 10

• Binani Cement ltd has a limestone reserve sufficient for the next 30 yrs situated in
Binanigram, Rajasthan

• Lignite Mines: Nimri Lignite Block near Nagor district, Rajasthan comprises a polygonal area
of 56.4 sq km. Exploration and mining lease application has been confined to the Nimri
mine site area of 3.5 sq km located in the north central part of the block. The extractable
reserve in the mine site area is about 5.5 million tones. Further exploration of the block
would enhance the lignite resources

• BCL has CAPEX plans of Rs 1700 crores to be spent over the next 2-3 years which includes
Greenfield expansion in Gujarat, Grinding unit in Mauritius, Expansion in China & mine
development in Nimbri Chandawatan, Rajasthan.

• Binani has made long term arrangement of coal for captive purpose by acquiring coal
mines in Indonesia near the coastal belt with a total investment of up to 15 million USD.

• Binani is setting up a Singapore subsidiary for the purpose of coal which will basically
control the interest in coal mines of Indonesia.

• If the Government is able to build strong infrastructural developments of railways and

roadway, Binani is looking to invest Rs.52 million in the coal blocks.

• Additional cement grinding and packing plants at Binanigram have been commissioned on
31.12.09 and 7.1.10 respectively. Consequently, the Company's cement manufacturing
capacity has gone up from 6 MTPA to 6.25 MTPA.
• Approval for mines for the proposed greenfield project in Gujarat having 2.5 Million Tonne
Clinker/Cement production capacity is awaited from the Government of Gujarat.

• The Board of Directors has approved investment of US $ 30 million in its overseas

subsidiaries for their ongoing projects and creating marketing infrastructure in East African
countries to widen their operations geographically consistent with the Company's
proactive strategy.

• Shandong Binani Rong'An Cement Co. Ltd., China, a Subsidiary of BCL, has started
implementation of its expansion project for increasing Cement manufacturing capacity
from 0.50 Million MT to 3.00 Million MT. The project is expected to go into production by
mid 2011.

Company Profile
The flagship subsidiary of BIL, the Braj Binani Group is Binani Cement Ltd with gross asset
value of Rs 26940 million and gross income of Rs 19110 million as of December 31st , 2009
and cement manufacturing capacity of 8.5MTPA, with subsidiaries in Dubai and China. The
company’s product portfolio includes Ordinary Portland Cement,Pozzolona Portland Cement
and Ground Granulated Blast furnace Slag (GGBFS in Dubai). The products are marketed under
the premium “Binani Cement” brand name and enjoy significant market share in Rajasthan
and other regions in northern and western India, sharing top-notch status with many of the
nation’s leading cement brands. The company is certified as ISO 9001, ISO 14001 and OHSAS
18001 compliant within a short span of commencement, an achievement that clearly
illustrates the management's commitment to quality, efficiency, and the environment.
Peer Group Comparison

CMP Market
Name of the EPS P/E P/BV
(As on 24 Cap. Dividend(%)
company (Rs.) (x) (x)
Feb, 2010) (Rs. Mn.)

Binani Cement
69.85 14186.5 14.04 4.98
Limited 2.98 21

JK Cement 168.00 11747.8 34.5 4.86

1.29 35

Dalmia
Cement(Bharat) 212.10 17167.2 22.15 9.58
1.42 100
Ltd

The India Cements

116.30 32864.2 14.50 8.02
Ltd 1.11 20

Key Concerns

• Any change in the existing policies of Government of India and/or State Governments or
new policies, providing or withdrawing support to the industries in which the company
operates or otherwise affecting these industries, would adversely affect the supply and
demand balance and competition in markets in which the company operate there by
impacting the margins of the company.

• The Company's exposure to currency risk arises out of the import of materials like coal
for its cement plants and machinery and equipment for its projects.
Financials
12 Months Ended Profit & Loss Account (Standalone)

Particulars FY 08 A FY 09 A FY 10 E FY11 E

(Rs.Mn) 12m 12m 12m 12m

Net Sales 9,786.70 14,973.20 17901.69 20586.95

Other Income 131.4 53.7 109.97 115.47

Total Income 9,918.10 15,026.90 18011.66 20702.41

Expenditure -6,448.40 -11,963.10 -12197.13 -14040.30

Operating Profit 3,469.70 3,063.80 5814.53 6662.12

Interest -464.7 -715.2 -775.40 -837.43

Gross Profit 3,005.00 2,348.60 5039.13 5824.68

Depreciation -556.7 -803.1 -898.60 -988.5

Profit before Tax 2,448.30 1,545.50 4140.53 4836.23

Tax -690.2 -458.9 -818.02 -1064.0

Net Profit 1,758.10 1,086.60 3322.51 3772.26

Equity Capital 2,031.00 2,031.00 2,031.00 2,031.00

Reserves 2,145.40 2,733.00 6,055.51 9,827.77

EPS 8.66 5.35 16.36 18.57

Quarterly Ended Profit & Loss Account (Standalone)

Particulars June 09 A Sep 09 A Dec 09 A Mar 10 E

(Rs.Mn) 3m 3m 3m 3m

Net Sales 5,247.10 4,346.20 4,033.20 4275.19

Other Income 28.2 21.5 29.4 30.87

Total Income 5,275.30 4,367.70 4,062.60 4306.06

Expenditure -3,576.90 -2,734.90 -2,892.70 -2992.63

Operating Profit 1,698.40 1,632.80 1,169.90 1313.43

Interest -200.6 -192.5 -190.2 -192.10

Gross Profit 1,497.80 1,440.30 979.70 1121.33

Depreciation -212.6 -222.1 -227.4 -236.50

Profit before Tax 1,285.20 1,218.20 752.30 884.83

Tax -218.2 -206.8 -180.6 -212.42

Net Profit 1,067.00 1,011.40 571.70 672.41

Equity Capital 2,031.00 2,031.00 2,031.00 2031.00

EPS 5.25 4.98 2.81 3.31

*A=Actual, E=Estimated
Charts
Comparative Graph

BINANI CEMENT LTD BSE SENSEX

Outlook and Conclusion

• At the current market price of Rs.69.85, the stock trades at a P/E of 4.27x and 3.76x for
FY10E and FY11E respectively.

• On the basis of EV/EBDITA, the stock trades at 2.68x and 2.56x for FY10E and FY11E
respectively.

• Price to Book Value of the stock is expected to be at 1.75 and 1.20 respectively for FY10E
and FY11E.

• The Net sales of the company are expected to grow at a CAGR of 28% over 2008 to 2011E.

• BCL has CAPEX plans of Rs 1700 crores to be spent over the next 2-3 years which includes
Greenfield expansion in Gujarat, Grinding unit in Mauritius, Expansion in China & mine
development in Nimbri Chandawatan, Rajasthan.

• Shandong Binani Rong'An Cement Co. Ltd., China, a Subsidiary of BCL, has started
implementation of its expansion project for increasing Cement manufacturing capacity
from 0.50 Million MT to 3.00 Million MT. The project is expected to go into production by
mid 2011.

• Extension of wagon loading belt to third loading point in both sides expected to be
commissioned by March ‘ 10

• To enhance availability of packers interconnectivity with silos shall be done by March’ 10

• We recommend ‘BUY’ in this particular scrip with a target price of Rs.84.00. for Medium to
Long Term Gains.
Industry Overview

India is the world's second largest producer of cement after China, with cement companies
adding nearly 11 million tonnes (MT) capacity during April-September 2009, taking the total
installed capacity to around 231 MT by September 2009.

With the boost given by the government to various infrastructure projects, road networks and
housing facilities, growth in the cement consumption is anticipated in the coming years.
According to Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, cement
production could rise to 236.16 MT in FY11 and touch 262.61 MT in FY12.

With almost total capacity utilisation levels in the industry, cement despatches have maintained
a 10 per cent growth rate. Total despatches grew to 170 MT during 2007–08 as against 155 MT
in 2006–07.

According to the Cement Manufacturer’s Association, cement despatches were 14.13 MT in

December 2009, showing a growth of 13 per cent as compared to 12.48 MT in December 2008.
During December 2009, cement production was 13.91 MT, registering a growth of 13 per cent
as compared to 12.31 MT in December 2008. Between April to December 2009, cement
production totaled 116.01 MT while cement despatches totaled 115.31 MT.

A few of the leading manufacturers are UltraTech/Grasim combine, Dalmia Cements, India
Cements, Holcim etc.

Technological change

Continuous technological upgrading and assimilation of latest technology has been going on in
the cement industry. Presently, 93 per cent of the total capacity in the industry is based on
modern and environment-friendly dry process technology and only 7 per cent of the capacity is
based on old wet and semi-dry process technology. There is tremendous scope for waste heat
recovery in cement plants and thereby reduction in emission level.

New Investments

• Dalmia Cement, South India’s second largest cement maker, will invest over US$ 652.6
million to add 10 MT capacity over the next 2-3 years.
• India Cements Ltd will invest US$ 104 billion to set up two thermal power plants in the
southern states of Tamil Nadu and Andhra Pradesh.
 • Anil Ambani Group company Reliance Infrastructure will invest US$ 2.1 billion to set up
cement plants with a total capacity of 20 mtpa over the next five years.
• Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company, plans to set
up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$
463.2 million.
• Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield
manufacturing plants in India in the next five years. The expansion will take the
company’s total cement-making capacity to 60 mtpa from 50 mtpa currently.
• Jaiprakash Associates Ltd will invest US$ 973.07 million to take its cement
manufacturing capacity from 20 mtpa to 33 mtpa by 2012.
• Chettinad Cement, the flagship company of the diversified Chettinad group, has chalked
out an aggressive expansion plan to boost its capacity to 13 mtpa in another four years
from its current capacity of 7.5 mtpa at an investment of US$ 259.42 million.
• Kolkata-based Shree Cement plans to invest US$ 432.38 million to increase its cement
output by two million tonnes to 12 MT by March 2010 and raise power generation
capacity by over four-fold by FY'12.

Mergers and Acquistions (M&As)

• Holcim strengthened its position in India by increasing its holding in Ambuja Cement
from 22 per cent to 56 per cent through various open market transactions with an open
offer for a total investment of US$ 1.8 billion. Moreover, it also increased its stake in
ACC Cement with US$ 486 million, being the single largest acquirer in the cement sector.
• UltraTech Cement, a unit of conglomerate Aditya Birla Group, is absorbing sister unit
Samruddhi Cement, to form India's biggest cement firm.
• Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund
and Emerging Market Fund have together bought around 7.5 per cent in India's third-
largest cement firm, India Cements (ICL), for US$ 124.91 million.
• Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim Industries'
53.63 per cent stake in Shree Digvijay Cement.
• Vicat SA, a French cement maker acquired a 6.67 per cent stake in Hyderabad-based
Sagar Cement for US$ 14.35 million.
• Dalmia Cement has increased its stake in OCL India to 45.4 per cent from 21.7 per cent
at an investment of US$ 38.26 million as part of its plan to expand its footprint in
eastern India.

Government Initiatives
Government initiatives in the infrastructure sector, coupled with the housing sector boom and
urban development, continue being the main drivers of growth for the Indian cement industry.

• Increased infrastructure spending has been a key focus area over the last five years
indicating good times ahead for cement manufacturers.
• The government has increased budgetary allocation for roads under National Highways
Development Project (NHDP).
• Appointing a coal regulator is looked upon as a positive move as it will facilitate timely
and proper allocation of coal (a key raw material) blocks to the core sectors, cement
being one of them.

Keeping in mind the global meltdown which is impacting the cement companies in India, the
government re-imposed the counter-veiling duty (CVD) and special CVD on imported cement in
January. This is likely to provide a level playing field to domestic companies.

Road Ahead

According to a report by the ICRA Industry Monitor, the installed capacity is expected to
increase to 241 MTPA by FY 2010-end. India's cement industry is likely to record an annual
growth of 10 per cent in the coming years with higher domestic demand resulting in increased
capacity utilisation.

_______________________________________ _____________

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