3QCY2011 Result Update | Cement

November 2, 2011

Ambuja Cements
Performance Highlights
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Net profit 3QCY2011 1,805 319 17.4 171 2QCY2011 2,173 598 27.3 348 % chg qoq (16.9) (46.6) (992)bp (50.7) 3QCY2010 % chg yoy 1,564 302 19.1 152 15.4 5.7 (167)bp 12.7

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 23,987 0.7 167/112 223457 2 17,465 5,252 ABUJ.BO ACEM@IN

`157 -

Source: Company, Angel Research

For 3QCY2011, Ambuja Cements (Ambuja) reported 12.7% growth in its bottom line, which was lower than ours and consensus estimates. Lower-than-expected performance was on account of lower realization and higher input costs. The companys realization, though higher by 7.3% yoy, fell by 5.8% on a sequential basis. Further, the company faced substantial margin pressure due to higher

input costs, which negated the improvement in realization, resulting in a 167bp decline in OPM to 17.4%. We maintain our Neutral view on the stock.
OPM at 17.4%, down 167bp yoy: During 3QCY2011, Ambujas net sales

increased by 15.4% yoy to `1,805cr due to higher realization and growth in dispatches. Realization for the quarter improved by 7.3% yoy to `3,849/tonne, while dispatches grew by 7.6% yoy to 4.69mn tonnes. However, margins were under pressure because higher raw-material, power and fuel and freight costs, which negated the increase in realization. OPM for the quarter stood at 17.4%, down by 167bp on a yoy basis. However, the bottom line was boosted by sale of surplus power amounting to `4.1cr (vs. `0.4cr in 3QCY2010) included in other operating income.
Outlook and valuation: We expect Ambuja to register a 13.4% CAGR in its top line over CY2010-12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 5.6% over the mentioned period due to higher operating costs. At current levels, the stock is trading at fair valuations of 8.9x EV/EBITDA and EV/tonne of US$168 on CY2012 estimates. We maintain our Neutral view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.4 15.1 27.2 7.4

Abs. (%) Sensex Ambuja Cement

3m 21.9

1yr 5.8

3yr 78.4 156.8

(3.6) (14.2)

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

CY2009 7,077 14.7 1,218 11.4 27.9 8.0 19.7 3.7 20.1 24.9 2.9 191 22 10.3

CY2010 7,390 4.4 1,237 1.5 26.4 8.2 19.1 3.3 17.9 20.8 2.9 187 25 11.0

CY2011E 8,324 12.6 1,197 (3.2) 23.9 7.8 20.2 3.0 15.5 18.7 2.6 175 27 10.9

CY2012E 9,518 14.3 1,408 17.6 24.4 9.2 17.1 2.7 16.4 20.4 2.2 168 27 8.9

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com Sourabh Taparia 022-39357800 Ext 6815 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 3QCY2011 Result Update

Exhibit 1: 3QCY2011 performance

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 PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

3QCY11
1,805 28.6 1,834 144.2 8.0 495.0 27.4 103 5.7 416 23.1 355.8 19.7 1,514 319 17.4 13.8 107.9 57.1 255 83.4 32.7 171 9.5 1.1

2QCY11
2,173 15.8 2,189 26.2 1.2 563.3 25.9 110 5.1 498 22.9 393.2 18.1 1,591 598 27.3 15.2 107.4 56.2 532 184.5 34.7 348 16.0 2.3

% chg qoq
(16.9) 80.7 (16.2) 449.6 (12.1) (6.1) (16.4) (9.5) (4.8) (46.6) (992) (9.2) 0.5 1.7 (52.1) (54.8) (50.7) (50.7)

3QCY10
1,564 19.0 1,583 60.9 3.9 442.6 28.3 99 6.3 343 21.9 335.9 21.5 1,281 302 19.1 8.9 101.8 30.5 222 69.9 31.5 152 9.7 1.0

% chg yoy
15.4 50.2 15.8 136.6 11.8 4.3 21.5 5.9 18.2 5.7 (167) 54.3 6.0 87.1 14.8 19.3 12.7 12.7

9MCY11
6,185 59.8 6,245 299 4.8 1,540 24.9 308 5.0 1,423 23.0 1,131 18.3 4,700 1,545 24.7 43 321.4 165.3 1,346 420 31.2 926 15.0 6.1

9MCY10
5,602 88.5 5,690 377 6.7 1,251 22.3 266 4.8 1,202 21.5 1,049 18.7 4,145 1,545 27.2 28 278.6 155.0 1,394 388 27.8 1,005 17.9 6.6

% chg
10.4 (32.4) 9.8 (20.7) 23.1 15.6 18.3 7.8 13.4 (0.0) (115)bp 53.7 15.3 6.6 (3.4) 8.1 (7.9) (7.9)

Exhibit 2: Financial performance

2,500 2,048 2,000 1,564 1,500 1,788 2,207 2,173 1805 35 30 25 1,000 500 0 2QCY10 3QCY10
Net Sales

(` cr)

(%)

391 152

258

407

348

20 171 15 3QCY11

4QCY10

1QCY11

2QCY11
OPM (RHS)

Net Profit

Source: Company, Angel Research

November 2, 2011

Ambuja Cements | 3QCY2011 Result Update

Exhibit 3: 3QCY2011 Actual vs. Angel estimates

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

Actual
1,805 319 17.4 171

Estimates
1,957 400 20.3 225

Variation (%)
(7.8) (20.2) (288)bp (23.9)

Performance highlights
Higher realization results in top-line growth
During 3QCY2011, Ambuja posted 15.4% yoy growth in its net sales to `1,805cr, aided by higher realization (up 7.3% yoy). The companys yoy realization growth was lower than its peers, ACC and UltraTech, since Ambuja has no presence in the southern region where prices remained strong during the quarter. Further, the company had higher base for 3QCY2010 with respect to its peers, as cement prices touched extremely low levels in the southern region during the period. On the volume front, Ambuja posted 7.6% yoy growth, aided by higher capacity. During the quarter, Ambuja commissioned one cement mill of 1.1mn tonnes capacity at its unit in Bhatapara.

Higher power and fuel costs offset improvement in realization Despite improved realization, the company faced margin pressure during the quarter on account of increased input costs. Power and fuel costs rose substantially during the quarter because of higher coal prices in the domestic as well as international markets. Prices of domestic linkage coal also increased by 30% in March 2011 due to the price hike taken by Coal India, the impact of which was felt in 3QCY2011. Global coal prices were higher by ~20% during the quarter at US$120/tonne. Further, a substantial decline in INR vs. USD increased the cost of imports. The companys OPM for the quarter fell by 167bp yoy to 17.4%. Per tonne analysis
For 3QCY2011, Ambujas realization/tonne improved by 7.3% yoy to `3,849. Power and fuel cost/tonne stood higher by 3.5% yoy due to the substantial increase in coal prices. Freight cost/tonne rose by 12.9% yoy due to higher diesel costs. Operating profit/tonne stood at `620, down by 4.5% on a yoy basis.

Exhibit 4: Per tonne analysis

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

3QCY11 2QCY11 3QCY10 % chg (yoy) % chg (qoq) 3,849 288 1,065 887 759 620 4,085 282 1,083 936 739 1,095 3,587 279 1,028 786 770 649 7.3 3.0 3.5 12.9 (1.5) (4.5) (5.8) 2.0 (1.7) (5.2) 2.6 (43.4)

November 2, 2011

Ambuja Cements | 3QCY2011 Result Update

Investment arguments
Capacity addition to lead to volume growth
In CY2010, Ambuja expanded its clinker capacity by 4.4mn tonnes per annum (mtpa) by setting up clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri. The company also commissioned grinding units at Nalagarh and Dadri (with capacities of 1.5mn tonnes each) during the year. Further, the company has added 2mtpa of grinding capacity at Bhatapara and Maratha in CY2011, resulting in overall capacity of 27mn tonnes. In October 2010, the company signed an agreement with the Rajasthan State Industrial Development and Investment Corporation for setting up a 2.2mtpa clinkerization plant at Nagauri District. Going ahead, we expect capacity expansions undertaken by the company to drive its growth. Further, a major positive for the company is its strong balance sheet (minimal debts of `49cr as of 2QCY2011), which can be leveraged for future funding requirements.

Exhibit 5: Installed capacity

30 25 20 22 24 25 27 27

(mtpa)

15 10 5 0 CY2008 CY2009 CY2010 CY2011E CY2012E

Source: Company, Angel Research

Substantial presence in the high-growth northern region

Ambuja currently derives a major portion of its revenue from the northern region. Although this region is currently facing low demand, the long-term demand outlook for the region is good due to a number of real-estate projects that are likely to come up there.

New clinker capacities to aid margin expansion

Production at the companys clinker plants has stabilized, resulting in elimination of external clinker purchase since 3QCY2010. This has resulted in boosting the companys OPM, which was down by 400bp in CY2009 due to external purchase of close to 1.7mn tonnes of high-cost clinker. Ambuja is also expected to record savings in energy cost following the commissioning of 66MW of new captive power capacities in CY2010, which has taken its overall captive power capacity beyond 400MW.

November 2, 2011

Ambuja Cements | 3QCY2011 Result Update

Outlook and valuation

We expect Ambuja to register a 13.4% CAGR in its top line over CY2010-12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 5.6% over the mentioned period due to higher operating costs. At current levels, the stock is trading at fair valuations of 8.9x EV/EBITDA and EV/tonne of US$168 on CY2012 estimates. We remain Neutral on the stock.

Exhibit 6: Key assumptions

Earlier estimates CY11E Installed capacity (mtpa) Utilization (%) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates CY11E 27 77 994 901 893 CY12E 27 85 1,027 937 949 27 85

CY12E

27 79 1,013 897 1,002

1,045 942 1,043

Exhibit 7: Change in estimates

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

CY2011E Earlier 8,589 6,466 2,185 438 37 1,881 583 1,298 Revised 8,324 6,457 1,990 438 56 1,686 489 1,197 Var. (%) (3.1) (0.1) (8.9) 0.0 50.8 (10.3) (16.1) (7.7) Earlier 9,684 7,288 2,458 458 37 2,150 697 1,452

CY2012E Revised 9,518 7,338 2,324 458 37 2,011 603 1,408 Var. (%) (1.7) 0.7 (5.5) 0.0 0.0 (6.4) (13.5) (3.1)

November 2, 2011

Ambuja Cements | 3QCY2011 Result Update

Exhibit 8: One-year forward EV/EBITDA

(EV ` cr) 30,000

12x
20,000

9x 6x

10,000

3x
0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Source: Company, Angel Research

Exhibit 9: One-year forward EV/tonne

30,000 $70 $100 $130 $160

20,000

( EV ` cr)
10,000

0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Source: Company, Angel Research

Exhibit 10: Recommendation summary

Company ACC* Ambuja Cements* India Cement JK Lakshmi Madras Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral CMP (`) 1,186 157 79 44 105 1,143 Tgt. price (`) 52 Upside (%) 18.0 FY2013E P/BV (x) 2.8 2.7 0.6 0.5 1.1 2.2 FY2013E P/E (x) 16.6 17.1 8.0 5.5 8.5 14.9 FY2011-13E EPS CAGR (%) 9.6 5.6 111.2 28.4 18.4 22.5 FY2013E RoCE (%) 22.1 20.4 6.6 7.3 10.2 16.7 FY2013E RoE (%) 17.6 16.4 8.3 8.4 13.9 16.1

Source: Company, Angel Research; Note: *December year end.

November 2, 2011

Ambuja Cements | 3QCY2011 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& Amortisation 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 CY07 5,631 (10.3) 3,586 398 1,020 209 1,960 2,045 (4.4) 36.3 236 1,809 (0.2) 32.1 76 194 10 1,926 7.4 (786) 2,712 943 34.8 1,769 1,257 (32.5) 17.5 11.6 11.6 17.5 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 11.3 17.7 9.2 9.2 (20.6) CY09 7,181 16.4 5,210 1,446 1,423 273 2,068 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 11.4 17.2 8.0 8.0 (13.3) CY10 7,518 4.7 5,567 1,043 1,697 344 2,483 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 8.2 8.2 2.9 CY11E 8,447 12.4 6,457 1,146 2,078 406 2,828 1,990 2.0 23.9 438 1,552 (0.8) 18.6 56 190 11 1,686 3.1 1,686 489 29.0 1,197 1,197 (3.2) 14.4 7.8 7.8 (5.3) CY12E 9,662 14.4 7,338 1,314 2,360 446 3,218 2,324 16.8 24.4 458 1,866 20.3 19.6 37 182 9 2,011 19.3 2,011 603 30.0 1,408 1,408 17.6 14.8 9.2 9.2 17.6

November 2, 2011

Ambuja Cements | 3QCY2011 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 Mis. Exp. not written off Total Assets
5,231 2,271 2,960 697 1,289 1,587 643 205 739 1,169 418 6 5,370 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 1,748 341 1,047 2,394 741 7,926 9,710 3,589 6,121 439 676 3,796 1,947 526 1,322 2,325 1,470 8,706 10,148 4,047 6,102 728 726 4,676 2,524 582 1,571 2,609 2,067 9,623 305 4,356 4,661 330 378 5,370 305 5,368 5,673 289 381 6,342 305 6,166 6,471 166 486 7,122 307 7,023 7,330 65 531 7,926 307 7,802 8,110 65 531 8,706 307 8,719 9,027 65 531 9,623

CY07

CY08

CY09

CY10

CY11E

CY12E

November 2, 2011

Ambuja Cements | 3QCY2011 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)/ Decin 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 CY07 2,712 236 (154) 76 194 943 1,734 (750) (156) 194 (713) 32 (535) 178 76 (757) 265 378 643 CY08 1,970 260 (464) 32 246 568 983 (1,726) 957 246 (523) 1 (42) 178 32 (251) 209 643 852 CY09 1,803 297 522 22 151 585 1,909 (1,284) (395) 151 (1,528) 8 (123) 214 22 (352) 29 852 881 CY10 1,662 387 395 49 120 398 1,974 (771) 101 120 (550) 55 (101) 462 49 (557) 867 881 1,748 CY11E 1,686 438 (530) 56 190 489 971 (439) (50) 190 (298) 417 56 (473) 199 1,748 1,947 CY12E 2,011 458 (20) 37 182 603 1,700 (728) (50) 182 (596) 491 37 (528) 576 1,947 2,524

November 2, 2011

Ambuja Cements | 3QCY2011 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 / Interest)
(0.1) (0.2) 23.8 (0.1) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.9) 32.1 (0.2) (0.9) 27.7 (0.3) (1.1) 50.2 1.2 32 8 95 (4) 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (40) 0.9 43 8 133 (32) 1.0 44 10 123 (18) 35.8 46.6 30.8 24.7 38.2 22.9 24.9 47.4 20.1 20.8 35.6 17.9 18.7 26.8 15.5 20.4 29.4 16.4 32.1 65.2 1.2 26.0 23.5 71.2 1.2 20.2 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.1 18.4 71.0 1.3 17.0 19.3 70.0 1.4 18.9 11.6 11.6 13.2 1.2 30.6 9.2 9.2 10.9 1.2 37.3 8.0 8.0 9.9 1.4 42.4 8.2 8.2 10.7 3.0 47.7 7.8 7.8 10.6 2.7 52.8 9.2 9.2 12.1 3.2 58.7 13.5 11.9 5.1 0.7 3.9 10.8 4.1 17.0 14.4 4.2 0.7 3.5 12.6 3.4 19.7 15.8 3.7 0.9 2.9 10.3 2.8 19.1 14.6 3.3 1.9 2.9 11.0 2.7 20.2 14.8 3.0 1.7 2.6 10.9 2.5 17.1 12.9 2.7 2.0 2.2 8.9 2.2

CY07

CY08

CY09

CY10

CY11E

CY12E

November 2, 2011

10

Ambuja Cements | 3QCY2011 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

November 2, 2011

11