CEMENT SNIPPETS

VOLUME II
Issue (i)
16 January 2007 ALCHEMY EQUITY RESEARCH Urmik Chhaya +91 22 6639 9176 urmik.chhaya@alchemyonline.com Nirav Parikh +91 22 6639 9147 nirav.parikh@alchemyonline.com

Go South
Cement prices in the south has already started moving up as mentioned in our Cement Snippets Volume I, Issue (iv) dated January 5, 2007.

Price Outlook
South India Andhra Pradesh A price hike of Rs3/bag per week has been affected from January 5, 2007. Thus, cement prices will increase by Rs12/bag in the current month. (Refer Cement Snippets, Volume I, Issue (iv)). Karnataka Currently, retail cement prices quote between Rs206-216/bag and no price hikes have been announced as yet. Tamil Nadu Prices are expected to increase by Rs4/bag from January 18, 2007. Kerala No price hikes are expected in Kerala. Major players in South India
Table 1: India Cements (As % of domestic dispatches) 2QFY07 South 97.48 Andhra Pradesh 19.46 Tamil Nadu 38.57 Karnataka 20.36 Table 2: Madras Cements (As % of domestic dispatches) 2QFY07 96.35 South Andhra Pradesh 13.97 48.89 Tamil Nadu Karnataka 9.67

Table 3: Kesoram Industries (As % of domestic dispatches) 2Q FY07 51.35 South 22.32 Andhra Pradesh 2.26 Tamil Nadu 26.50 Karnataka
Source: CMA

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16 January 2007

Cement Snippet

East Cement prices in the region were stable and are not expected to move up before February 2007. Cement stocks with stockists are at high levels and would curtail price hikes even as demand is expected to pick up. West Mumbai The current retail price is at Rs215-220/bag. Cement prices are expected to increase by Rs3-5/bag from January 10, 2007. Cement prices are expected to touch Rs240/bag in the peak season. Pune Some areas in Pune have seen cement being sold at around Rs250+/bag primary due to wagon availability in the south, which disrupted cement supply. However, there is no change in the prices charged by companies. Nagpur Cement prices in the region are expected to move up by Rs5/bag from February 2007. North Cement prices in the region are expected to increase from February 2007. Currently, retail cement prices in the region quote between Rs205-215/bag. Though price hikes were earlier expected from the second half of January, 2007, the same did not take place due to slower than expected demand. Central Currently, retail prices of cement in the region were Rs197-200/bag and are expected to increase by Rs5/bag from tomorrow. Outlook We maintain our recommendation to switch to south India based cement companies (Refer to our report Cycle Elongates Look South dated November 27th, 2006) and our Buy on Madras Cement and India Cements.

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Valuations Summary
Madras Cements
Earnings Model

Y/E March Net Sales (Rs Mn) EBIDTA (Rs Mn) EBIDTA (%) Net Profit (Rs Mn) EPS (Rs.) (Fully Diluted) EPS Growth (%) Per Ton Analysis Net Realisation (Net of Freight) (Rs) P & F (Rs) Freight (Rs) EBIDTA (Rs) EV (US$) Valuations D/E (x) P/E (x) EV/EBIDTA (x) ROE (%) ROCE (%)

FY06 10,057.93 2,106.15 20.89 797.22 65.43

FY07E 15,092.45 6,094.04 40.38 3,444.29 285.12 335.80

FY08E 17,691.53 7,527.58 42.55 4,308.74 356.68 25.10 FY08E 3,045.84 509.52 431.97 1,313.23 142.69 FY08E 0.93 10.15 6.42 47.70 33.91

FY09E 22,777.84 8,666.99 38.05 4,832.25 400.02 12.15 FY09E 2,953.10 525.09 540.32 1,130.99 134.39 FY09E 0.71 9.05 5.61 36.75 29.50

FY06 1,974.83 538.64 378.90 447.04

FY07E 2,886.26 527.85 366.66 1,165.56 189.88

FY06 1.54

FY07E 0.95 12.70 8.04

21.94 12.52

62.65 38.66

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Cement Snippet

India Cements
Earnings Model

Y/E March Net Sales (Rs Mn) EBIDTA (Rs Mn) EBIDTA (%) Net Profit (Rs Mn) EPS (Rs) (Fully Diluted) EPS Growth (%) Per Ton Analysis Net Realization (Net of Freight) (Rs) P&F (Rs) Freight (Rs) EBIDTA (Rs) EV (US $) Valuations P/E EV/EBIDTA ROE (%) ROCE (%)

FY05 11514.31 1254.18 10.89 -588.23

FY06 15293.81 2502.70 16.36 357.46 1.56

FY07 21589.88 7656.24 35.46 4882.78 20.34 1203.46 FY07 2917.56 694.38 405.19 1030.83 190.61 FY07 12.37 9.64 40.00 17.64

FY08 24998.74 9671.05 38.69 6128.63 25.53 25.52 FY08 3119.01 676.25 425.45 1205.54 184.84 FY08 9.85 7.55 32.41 20.87

FY09 26528.58 9455.58 35.64 5929.81 24.70 -3.24 FY09 3052.15 669.25 446.73 1086.85 160.13 FY09 10.18 7.49 23.76 18.47

FY05 2099.62 790.06 257.48 228.32

FY06 2097.34 651.17 337.66 344.63

FY05

FY06

5.89 5.83

Publications
Reports Cement Monthly May Cement Monthly June Cement ACC Cement Industry Gujarat Ambuja Cements Ltd Shree Cement ACC Ultratech Cement Grasim Industries Cement Monthly - August Cement Snippets - Volume I, Issue (i) Cement Industry India Cements Madras Cement Cement Snippets Volume I, Issue (ii) Cement Snipptes Volume I, Issue (iii) Cement Monthly - November Cement Snipptes Volume I, Issue (iv) Theme Published Date 22-Jun-06 25-Jul-06 16-Aug-06 25-Aug-06 25-Aug-06 25-Aug-06 25-Aug-06 25-Aug-06 25-Aug-06 25-Sep-06 14-Nov-06 Cycle Elongates - Look South 27-Nov-06 27-Nov-06 27-Nov-06 4-Dec-06 18-Dec-06 27-Dec-06 5- Jan - 07

Cycle Comparisons Till FY08

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Cement Snippet

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