Ambuja Cement Ltd - Initiating Coverage - Aug'11breport.myiris.com/JCSL/GUJAMBCE_20110810.pdf · Ambuja Cement Ltd (ACL) has increased its grinding capacity by 22% in the past 1 year,

Jaypee

JPAmbuja Cement Limited - Initiating Coverage

10 August 2011

Jaypee

JP

Ambuja Cement Limited 10 August 2011

Jaypee Research Desk

www.jaypeeindia.com www.jaypeeusa.com

Our reports are available on Bloomberg < JAYP >

Please refer to the disclaimer at the end of the report

Table of Contents

Muted volume growth ................................................................................................................................. 2

High exposure towards Northern and Western regions ............................................................................ 3

Cost Structure ............................................................................................................................................... 4

Lower clinker purchase cost ................................................................................................................. 4

Higher coal and freight cost ................................................................................................................. 4

Capex story ................................................................................................................................................... 5

Financial Performance in Q2CY11 ................................................................................................................ 6

Industry Analysis ......................................................................................................................................... 7

Cement Demand Analysis ....................................................................................................................... 7

Pace of capacity expansion to slow down ............................................................................................. 9

Driving cement prices ........................................................................................................................... 10

Earnings sensitivity .................................................................................................................................... 11

Financial projection ................................................................................................................................... 12

Valuation ................................................................................................................................................... 13

Company Description ................................................................................................................................ 14




Service offerings: Research & Advisory Execution Corporate Access & Events





1

As on August 09, 2011.

Market Cap. (` mn) 198,005

52 Week High/Low 166.50/112.00

Book Value `47.84

Face Value `2

Shareholding pattern June 2011 Mar 2011 Dec 2010

Promoters 50.4 46.2 46.2

FII 23.7 27.2 27.7

DII 14.6 14.7 14.7

Others 9.5 10.1 10.2 Share price pattern

Share Price Returns (%) 1M 3M 6M 12M

Absolute ‐0.1 ‐13.6 3.3 10.3

Relative ‐3.8 10.8 ‐5.5 ‐10.9

Jinal Joshi [email protected] +91‐22‐4354 2012

Codes

BSE Code 500425

NSE Symbol AMBUJACEM

Bloomberg Code ACEM IN

Reuters Code ABUJ.BO

Ambuja Cement Ltd (ACL) has increased its grinding capacity by 22% in the past 1 year, however, same has not translated into volume growth for the company due to slowdown in demand. Despite capacity addition, we are expecting the company to record just 6% CAGR in its volume over CY09‐12E due to overall slowdown in cement demand. Also, we are expecting the company’s profitability to remain stagnant due to not fully passing on the increase in costs to the end users on account of oversupply in the industry.

Hence, in the near term, we are not expecting any upside in the stock price of the company. We are initiating our coverage on the stock with a ‘Hold’ view and target price of `128. However, we feel that any further downside in the stock will trigger an opportunity for the investors to enter the stock.

Investment Rationale Volume growth to remain muted: Volume growth of the company deteriorated in CY11 on YTD basis to 4% mainly due to lull demand from infrastructure projects and slowdown in housing demand due to inflationary pressure and rising interest costs. Consequently, we are expecting mere 4.7% YoY volume growth for the company in CY11E.

Higher exposure towards North and West regions – risk to earnings: ACL has almost 75% of its exposure towards North and West regions in which we are expecting over supply in coming years. We appreciate that ACL does not have any exposure towards Southern region which currently is in worst situation, but, major exposure towards Northern and Western regions in which over capacity is likely to observe, is expected to limit the capacity utilization of the company.

Steep rise in input costs: Despite lower clinker purchase cost due to commission of clinkerization units, we are expecting total cost of the company to go up significantly in coming years due to higher coal cost and freight cost. We are expecting total cost/tonne of the company to move up by 9% YoY in CY11E to `2,991 mainly due to 30% hike in coal cost by Coal India and increase in fuel prices.

Financial Summary:

Source: Company, Jaypee Research

90

110

130

150

Aug‐10 Nov‐10 Feb‐11 May‐11

Nifty Ambuja Cements Ltd

(` in.mn) CY09 CY10 CY11E CY12E

Net Sales 70,769 73,902 84,323 93,372

EBIDTA 18,669 18,231 21,233 23,560

EBIDTA margin (%) 26.4% 24.7% 25.2% 25.2%

Net profit 12,184 12,630 13,011 14,722

Net Profit margin (%) 17.2% 17.1% 15.4% 15.8%

EPS 8 8 9 10

EV/EBIDTA 7.6 10.7 7.5 6.2

PE 12.9 17.3 15.1 13.3

EV/tonne ($) 144 174 131 120

Initiating Coverage CMP: `119 Target: `128 Hold





2

Muted volume growth in CY11

Ambuja Cement reported 6.4% YoY growth in its volumes to 20MT in CY10 as compared to 18.8MT in CY09. However, growth of the company remained deteriorated in CY11 on YTD basis to 4% mainly due to lull demand from infrastructure projects and slowdown in housing demand due to inflationary pressure and rising interest costs.

Consequently, we are expecting mere 5% YoY volume growth for the company in CY11‐12E due to overall slowdown in the economy.

Chart 1: Trend in Capacity and volume growth


4%

7%

8%

5%

5%

3%

4%

5%

6%

7%

8%

0

5

10

15

20

25

30

CY08 CY09 CY10 CY11E CY12E

figures in M

T

Capacity volume volume growth (RHS)





3

Higher exposure towards North and West regions – risk to earnings

Ambuja Cement has almost 75% of its exposure towards North and West regions in which we are expecting over supply in coming years. We appreciate that ACL does not have any exposure towards Southern region which currently is in worst situation, but, major exposure towards Northern and Western regions in which over capacity is likely to observe, is expected to limit the capacity utilization of the company.


Northern RegionMillion tonnes FY08 FY09 FY10 FY11 FY12E FY13E

Installed Capacity 35.5 47.8 58.0 70.0 70.0 73.0

Effective capacity 30.7 43.0 53.2 65.0 70.0 70.0

Production 36.5 41.1 46.2 50.4 53.9 59.3

Eff Capacity Utilisation (%) 119% 96% 87% 78% 77% 85%

Western RegionMillion tonnes FY08 FY09 FY10 FY11 FY12E FY13EInstalled Capacity 29.3 32.1 43.2 50.0 52.4 62.9

Effective capacity 24.5 27.3 38.4 40.0 50.3 52.9

Production 28.7 28.5 30.6 31.9 34.1 37.5Capacity Utilisation (%) 117% 104% 80% 80% 68% 71%





4

Lower clinker purchase cost……..

In CY10, the company has purchased only 0.36MT of clinker as compared to 1.7MT in CY09 due to commissioning of two new clinkerization units at Bhatapara and Rauri in Q1CY10. As a result of these new clinker plants, the company’s clinker purchase cost has gone down significantly in CY10 to `1,237mn from `5,707mn in CY09. Going ahead, we are expecting no major cost of clinker purchased due to substituting own produced clinker for purchased clinker to a large extent.

… will be nullified by higher coal & freight costs

Despite lower clinker purchase cost, we are expecting total cost of the company to go up significantly in coming years due to higher coal and freight cost. We are expecting total cost/tonne of the company to move up by 9% YoY in CY11E to `2,991 mainly due to 30% hike in coal cost by Coal India and increase in fuel prices.

Table 2: Cost structure (per tonne)


Chart 2: Break‐up of coal linkages Chart 3: Break up of power requirement


(`/tonne) CY08 CY09 CY10 CY11E CY12E

Raw material 319 503 288 303 318

Power & fuel cost 754 757 836 939 1003

Freight cost 623 717 793 872 916

Total cost 2546 2772 2742 2991 3126

Growth (%) 15% 9% ‐1% 9% 5%

Linkages40%

Open mkt30%

Imported 23%

Petcoke7%

80 79 77 80 80

20 21 23 20 20

0

10

20

30

40

50

60

70

80

90

CY06 CY07 CY08 CY09 CY10

Cap

acity (M

W)

Captive Purchased





5

Completion of major capex cycle…..

Ambuja Cement has just commissioned 2MTPA grinding capacity at Bhatapara and Maratha (1MTPA each) in June‐July’11, taking total cement grinding capacity to 27MTPA. The company is also planning to increase its clinker capacity by setting up 2.2MTPA clinkerization unit in Rajasthan. The company is in right direction to maintain its objective of maintaining its market share of around 10%.

….to increase free cash flow

The company has completed its capex of ~`27,000mn in CY10 by commissioning two clinkerization units of 2.2MTPA each and two new grinding units of 1.5MTPA each along with 63MW CPPs. In CY11, with commissioning of another 2MTPA grinding units at Bhatapara and Maratha, the company’s long term capex plan has got over. With the completion of capex cycle and reaping of benefits from newly commissioned plants, we are expecting the company to generate free cash flow of `14,966mn and `15,378mn in CY11‐12E respectively.

Table 3: Generation of Free cash flow


Improving efficiency of logistic operations

Currently, the company is having 7 ships with 20,500DWT capacity to transport the cement from Ambujanagar to Panvel and Surat. These ships are just sufficient to meet the present requirement. To cater the growing market needs of South Gujarat and Mumbai, the company had ordered three more ships with total capacity of 11800 DWT. Out of these three ships, one ship was delivered in CY10 for western coastal transportation and the remaining two ships are expected to be brought into the system in the 2HCY11. The said ships are expected to improve the efficiency of logistic operations of the company and is expected to save cost , however, we have not considered the same in our valuation as it is very difficult to calculate savings in freight cost on account of the logistic improvement.


PBT 19698 18033 16613 15861 18647

Add: Depreciation 2598 2970 3872 4339 4385

Less: Direct Tax 5600 4790 3535 5234 6153

Less: Inc/(Dec) in working capital 2486 ‐7613 ‐4128 0 0

Less: Extra‐ordinary income/(expenses) 1926 1689 619 0 0

Cash flow from Operations 12284 22137 20458 14966 16878

less: Capex 17054 12844 7742 0 1500

FREE CASH FLOW (4,770) 9,293 12,717 14,966 15,378





6

Financial performance in Q2CY11

Realization driven Net sales: ACL reported 6% YoY growth in its Net sales to `21,733mn as against `20,476mn in Q2CY10. Volumes of the company in Q2CY11 were down by 1.7% YoY to 5.3MT due to slowdown in cement demand. On the other hand, realization of the company increased by 8% YoY to `4,085/tonne due to overall increasing trend in realization in Apr‐May’11.

EBIDTA affected by higher costs: Rise in Gypsum, Fly ash and coal cost clearly reflected in the current quarter performance of the company. ACL’s total cost/tonne increased by 13% YoY to `3,007 dragging down EBIDTA margin by 260bps to 26.8%.

Net profit came down by 11% YoY (14.7% QoQ) to `3,475mn in Q2CY11 mainly due to de‐growth at EBIDTA level coupled with higher depreciation and interest cost. Net profit margin of the company also declined by 300bps to 19%.


(` in mn.) Q2CY11 Q2CY10 Growth (YoY) Q1CY11 Growth (QoQ)

Net Sales 21733 20476 6.1% 22071 ‐1.5%

Other Inc. 0 ‐‐‐ 0 ‐‐‐

Total Inc. 21733 20476 6.1% 22071 ‐1.5%

Raw Mat. 262 829 ‐68.4% 1283 ‐94.6%

per tonne 50 153 ‐67.6% 228 ‐94.2%

Power & Fuel 5633 4534 24.2% 4816 10.8%

per tonne 1065 838 27.0% 854 18.1%

Freight Exp. 4980 4474 11.3% 5086 426.3%

per tonne 941 827 13.8% 902 461.1%

Employee cost 1099 901 22.0% 946 ‐71.2%

per tonne 208 167 24.8% 168 ‐69.3%

Other Exp. 3932 3706 6.1% 3823 ‐35.7%

per tonne 743 685 8.5% 678 ‐31.2%

PBDIT 5826 6032 ‐3.4% 6116 ‐4.7%

per tonne 1095 1115 ‐1.8% 1081 1.4%

Other Inc. 720 667 7.8% 675 6.6%

Depreciation 1074 1001 7.3% 1061 1.2%

Interest (Net) 152 81 87.5% 138 10.2%

excp item 0 0 0.00% 0 0.0%

PBT 5320 5618 ‐5.3% 5592 ‐4.9%

Tax 1845 1705 8.2% 1517 21.6%

PAT 3475 3912 ‐11.2% 4075 ‐14.7%

PBDIT Margin 26.8% 29.5% ‐2.6% 27.7% ‐0.9%

PAT Margin 16.0% 19.1% ‐3.1% 18.5% ‐2.5%





7

INDUSTRY ANALYSIS

What went wrong in Q1FY12???

Cement demand remained muted during Q1FY12 on YoY basis due to lower off‐take from infrastructure projects and housing segment on account of inflationary pressure coupled with rising interest rate.

Higher infrastructure investment to fuel the Cement demand……..

Infrastructure investment doubled to US$1trillion in XII five year plan

India’s 11th Five Year Plan envisages an infrastructure spend of US$461bn (~2.3x of the Tenth Five Year Plan's US$220b), an average of 7.5% of GDP (~5.5% in the Tenth Plan).

In India, demand from infrastructure has increased but supply has remained the same, consequently, in the 12th five year plan, Government has planned a spending of ~US$1trillon on infrastructure against US$461bn in 11th five year plan. Also, it is observed that cement demand tends to increase when the country is in investment phase and peaks out when construction is done. Hence, massive investment in infrastructure would provide boost to the Indian Cement industry.

Also, we are heading towards the last year of 11th five year plan policy; investment in infrastructure is likely to get a boost (as in line with historical trend) indicating strong demand for Cement in FY12E. Even due to high quantum of planned amount (US$1trillion) in infrastructure investment in 12th five year plan, we are expecting Cement demand to remain robust in FY13E & onwards.

Chart 5: Investment in Infrastructure

Source: Planning Commission, Jaypee Research

2598 3202 3892 46825741 6431 7200 8054

900410060

66.5

7.2

8.1

9 9.3 9.5 9.8 10 10.3

4

5

6

7

8

9

10

11

12

0

2000

4000

6000

8000

10000

12000

FY'08 FY'09 FY'10 FY'11E FY'12E FY'13E FY'14E FY'15E FY'16E FY'17E

percentage

Rs.in.Bn

Thrust of the Govt on Infrastructure investment

Investment in infrastructure ( ` Bn) as a % of GDP





8

Rural housing demand ‐ key ingredient to cement demand

Rural housing segment providing boost to cement demand

During the past few years, production of Wheat, Rice, Cotton etc has shown marked increased and at the same time Average support prices (ASPs) have also gone up, resulting in higher rural income. Even, the real estate players are now focusing more on affordable housings. According to HUDCO and NHB, rural housing shortage was around 550 lacs units at the starting of 11th five year plan and is likely to increase to 770 lacs units in FY13. It is assumed that at least 90% of this shortage pertains to BPL families. The government’s various programs like NREGS; Indira Awas Yojana etc are likely to enhance rural income, translating into more rural housing demand.

Chart 6: Rural housing shortages


240

577 550

770

0

200

400

600

800

1000

2001 2002‐07 2007‐12 2013

Units in Lacs

Rural Housing shortage

A

Service

Ambuja

e offerings: Res Exe Cor

Pace of capa

Cement enti

years. Majo

added huge

capacity exp

by any playe

Alongwith t

available and

players have

non availab

project and

through Brow

Table 4: All

Million ton

Installed Ca

Effective ca

Demand

Growth (%)

Capacity Ut

Consumptio

Surplus/De

Source: Company

70%

75%

80%

85%

90%

95%

100%

Percentage

a Ceme

search & Advisecution rporate Access

acity expansio

ities have an

ority of expan

capacity of

pansion is like

ers and player

his, land acq

d have also b

e also deferre

ility of the l

now it is com

wnfield expan

India level D

nnes

apacity

apacity

)

tilisation (%)

on

eficit

y, Jaypee Research

84%

FY05 FY06

ent Lim10 Augu

sory

s & Events

on to slow do

nnounced hug

nsions have b

129MT dur

ely to slow do

rs are also int

quisition and

become a maj

ed their Green

land. For ex

mmissioning

nsion.

‐S scenario

FY08

172

167

167

100%

167

4

h

91%94%

6 FY07 FY0

mited ust 2011

own

ge capacity e

been comple

ing FY08‐11.

own as no ma

tentionally de

d licensing of

jor issue for t

nfield capacit

: UltraTech

9MTPA capa

FY09 FY1

204 25

199 23

181 19

8.4 10

91% 86

181 20

22 5

97%

88%

86

08 FY09 F

Jaypee Re

www.jaype www.jaype

expansion pla

eted and indu

Going ahe

ajor plan has

elaying their c

f mining are

the cement p

ty expansion

have deferre

cities at its e

10 FY11

57 301

33 272

99 208

.2 4.4

6% 77%

00 208

57 93

6%

77%

FY10 FY11

on acccapacitydemand,is likelymoveonwards

search Desk

eeindia.com eeusa.com

9

ans in past th

ustry has alre

ead, pace of

been announ

capacities.

e also not e

players. Coupl

programs du

ed its Greenf

existing sites

FY12E FY1

306 3

302 3

223 2

7.0 1

74% 8

223 2

83

74%

80%

FY12E FY13

count of slowaddition and hig, capacity utilizatto bottom out aup from FY

s

hree

eady

the

nced

asily

le of

ue to

field

only

13E

342

307

245

0.0

80%

245

97

3E

werghertionand12E

Chart

Source

`/Bag

t 7: Trend in C

e: Company, Jaype

200210220230240250260270280290

Sep'10

'

`/Bag

Cement price

e Research

Oct'10

Nov'10

Dec'10

Jan'11

Mumbai

A

Service

es

Feb'11

mar'11

Apr'11

Delhi

Ambuja

e offerings: Res Exe Cor

Players joini

After witnes

joined hands

the market

despite not

trend from S

are intention

situation in t

…..Increasin

Total cost of

raw materia

quarters affe

coal & fuel

expected in d

Table 5: Tren

`/tonne Total cost

Source: Company

..Driving cem

Profitability

depressed r

Q4FY11, cem

passing on i

seen margin

levels. Henc

May'11

June'11

July'11

a Ceme

search & Advisecution rporate Access

ng hands tog

ssing decline

s and decided

and thereby

much spurt

Sep’10 onwa

nally delaying

the market.

Char

g costs ...

f the cement

l prices. Tot

ecting EBIDTA

costs to mo

diesel and pe

nd in soaring

Q1FY11

2809

y, Jaypee Research

ment prices…

of the ceme

realizations a

ment players

nput costs a

ns of the ce

e, going ahe

65

70

75

80

85

ent Lim10 Augu

sory

s & Events

gether……

in profitabili

d to produce

maintaining

in cement d

ards till starti

g their expan

rt 8: Trend in

industry is on

al cost/tonne

A margin of th

ove up furth

etrol prices.

cost

Q2FY11

2959

h

ent industry w

and soaring

have started

nd to mainta

ment players

ead, due to s

5%

0%

5%

0%

5%

Q1FY11

sup

mited ust 2011

ty, cement p

as much qua

g/increasing c

emand, cem

ng of June’1

nsion plans d

Capacity utili

n the rise due

e have gone

he industry. G

er due to st

Q3FY11

2981

was affected

input costs.

d increasing

ain their mar

s again com

strict product

Q2FY11 Q3F

table capacity utlization due to stproduction discipli

Jaypee Re

www.jaype www.jaype

producers cam

ntity only wh

cement price

ent prices w

1. Alongwith

due to witnes

zation

e to the spurt

up significant

Going ahead,

trong coal de

1 Q4FY11

3027

d badly in Q2

However, fr

cement price

rgins. Conseq

ing back to

tion disciplin

FY11 Q4FY11

trict ne

search Desk

eeindia.com eeusa.com

10

me together

hich is require

es. Conseque

witnessed upw

h this, produ

ssing over‐su

t in coal, fuel

tly from past

we are expec

emand and

1 Q1FY1

3100

2‐Q3FY11 du

rom the star

es on accoun

quently, we h

the comfort

e and increa

Q1FY12

and

ed in

ntly,

ward

ucers

pply

and

t 4‐5

cting

hike

12

0

e to

rt of

nt of

have

able

asing





11

costs, we are expecting cement prices to remain firm or to move up in order to

maintain the margins at the current level. We have assumed 5% YoY increase in

cement prices in CY12E in our financial projections for ACL.

Table 5: Trend in EBIDTA margin

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Realization/tonne 3370 3061 3233 3625 3766

EBIDTA margin 21% 8% 12% 20% 22%


Earnings more sensitive towards realization

Earnings of Ambuja Cement are more sensitive towards realization change. A

1% change in realization is hampering earnings of the company by 4% where as

a 1% change in volume is affecting earnings of the company by just 1.5%.

Hence, cost led hikes in Cement prices is expected to have positive impact on

earnings of the company. In our assumption model, we have assumed 5%

growth in realization and volumes to arrive at EPS of `9.6/share in CY12E.

Table 5: EPS sensitivity for CY12

Volume g (%

)

Realization growth (%) ‐5% ‐3% 0% 3% 5%

‐5% 4.77 5.02 5.41 5.8 6.11

‐3% 5.4 5.66 6.07 6.49 6.81

0% 6.35 6.63 7.07 7.52 7.87

3% 7.3 7.6 8.07 8.54 8.92

5% 7.93 8.25 8.74 9.23 9.62






12

Financial projection

Net sales to grow at a CAGR of 9.7% over CY09‐12E

Ambuja Cement’s Net sales grew at a CAGR of 8.7% over CY07‐10 mainly driven by robust volume growth. Volume of the company recorded strong growth of 20% during the same period while realization increased by 6.5%. Going ahead, due to capacity addition, we are expecting the company to report volume growth of 19% during CY09‐12E. Realization of the company during same period is likely to increase by 3% driven largely by cost push increases. We are expecting the company’s Net sales to grow at a CAGR of 9.7% over CY09‐12E.


Margins to remain constant

EBIDTA of the company remained stagnant in CY10 at `18,231mn as compared to `18,669mn in CY09 mainly due to soaring input costs. Power & fuel cost of the company on per tonne basis increased by 10% YoY to `836 in CY10 largely due to increase in coal prices. Freight cost/tonne also increased by 11% YoY to `793 in the same period mainly due to increase in fuel cost.

Going ahead, we are expecting the company’s EBIDTA margin to remain constant at CY10 levels due to just passing on hikes in input costs. We are expecting EBIDTA margin of 25% in CY11‐12E while PAT margin of 15‐16% in CY11‐12E.


18.522 22

25 27 27

17 18 19 20 2122

3417 35373766 3640

39684167

3200

3700

4200

4700

0

10

20

30

CY07 CY08 CY09 CY10 CY11E CY12E

`/tonne

in M

T

Capacity volume Realization (RHS)

1742418669 18231

2123323560

1402312184

12630 1301114722

10000

13000

16000

19000

22000

25000


`in m

n

EBIDTA Net Profit

28%

26%

25%25% 25%

23%

17% 17% 15% 16%13%

18%

23%

28%

22%

24%

26%

28%

30%


EBIDTA margin Net Profit margin





13

No major upside in the stock…

At CMP of `119, stock is trading at EV/EBIDTA of 6.7x and EV/tonne of $130 discounting its CY12E earnings and capacity respectively. We initiate our coverage on the company with ‘Hold’ rating and target price of `128. We have valued the company at EV/tonne of $120 (in‐line with ACC’s valuation) for its CY12E year end capacity.

We believe that any further downside in the stock will be an entry level for the investors given Ambuja cement being one of the cost efficient players, completion of its capex plan and locational advantage.





14

Company Description

Ambuja Cements Ltd. (ACL) is one of the leading cement manufacturing companies in India. The Company, initially called Gujarat Ambuja Cements Ltd., was founded by Narotam Sekhsaria in 1983 with a partner, Suresh Neotia. Sekhsaria’s business acumen and leadership skills put the company on a fast track to growth. The Company commenced cement production in 1986. The global cement major Holcim acquired management control of ACL in 2006. Holcim today holds ~50% equity in ACL.

ACL has grown dynamically over the past decade. Its current cement capacity is about 25MTPA. The Company has five integrated cement manufacturing plants and eight cement grinding units across the country. ACL enjoys a reputation of being one of the most efficient cement manufacturers in the world.

Management

Suresh Neotia, Chairman Emeritus

Co‐promoter and Chairman Emeritus of Ambuja Cements Limited, Mr. Neotia is a businessman and an industrialist of repute. A member of the Central Board of the Reserve Bank of India, Mr. Neotia is also known for his association with numerous cultural institutions as well as charitable organizations. The President of India conferred upon him the Padma Bhushan in the year 2008.

N. S. Sekhsaria, Chairman

An industrialist reputed for his business acumen, Mr. Sekhsaria is the main promoter of Ambuja Cements Limited. He has created new benchmarks in the cement industry with path‐breaking and innovative thinking and turned cement from a commodity into a brand. He is Chairman of ACC Ltd. and also of Ambuja Cements Limited.

Paul Hugentobler, Vice Chairman

Mr, Hugentobler, a Swiss national, joined Holcim Group Support Limited in 1980 as Project Manager and in 1994 was appointed Area Manager. He has been a member of the Executive Committee of Holcim since January 2002 with responsibility for South Asia and ASEAN excluding Philippines. He joined the Board in May 2006 and in September 2009 was made Non‐executive Vice Chairman.





15

Operational Performance Balance‐sheet

Particulars (` mn) CY09 CY10 CY11E CY12E Particulars (`mn) CY09 CY10 CY11E CY12E

Assets

Net Sales 70,769 73,902 84,323 93,372 Fixed Assets 61545 65627 61382 58497

Other Income ‐ ‐ ‐ ‐ Investments 7270 6211 16211 26211

Total Income 70,769 73,902 84,323 93,372 NCA/NWC ‐2476 2074 5841 9959

Cost of Sales 52,100 55,672 63,090 69,812 Current Assets 19793 31353 36620 42239

PBDILT 18,669 18,231 21,233 23,560 Current Liabilities 22269 29280 30780 32280

Depreciation 2,970 3,872 4,244 4,385 Total Cap. Empld 66339 73911 83434 94668

PBILT 15,699 14,359 16,989 19,176 Liabilities

Finance charges 224 487 293 62 Share Capital 3047 3060 3060 3060

Op. Profit bfr Tax 15,475 13,872 16,696 19,114 Reserves 61659 70192 79714 90948

Extra‐ord. Items 2,558 2,741 2,723 2,859 Misc exp not w/o 27 5 5 5

PBT 18,033 16,613 19,419 21,973 Net Worth 64682 73261 82784 94018

Less: Tax 5,849 3,983 6,408 7,251 Term Liabilities 1657 650 650 650

PAT 12,184 12,630 13,011 14,722 Total Cap. Empld 66339 73911 83434 94668

Cash Flows Financial Ratio

Particulars (` mn) CY09 CY10 CY11E CY12E CY09 CY10 CY11E CY12E

PBT 18033 16613 19419 21973 Profitability and Return Ratios (%)

Add: Depreciation 2970 3872 4244 4385 PBDIT Margin 26% 25% 25% 25%

Less: Direct tax 4790 3535 6408 7251 PAT Margin 17% 17% 15% 16%

Less: Inc/(Dec) in Working Capital ‐7613 ‐4128 500 500 ROCE/ROI 29% 24% 25% 25%

Less:Exceptional income/(Exp) 1689 619 0 0 RONW 20% 18% 17% 17%

Cash flow from operating activities 22137 20458 16755 18607

Per Share Data

Capital Expenditure 12844 7742 0 1500 EPS 8.0 8.3 8.5 9.6

Investments 3946 ‐1059 10000 10000 Book Value 42 48 54 61

Miscellaneous Exp.W/off ‐16 ‐23 0 0 Dividend 2 3 2 2

Cash flow from investing activities ‐16775 ‐6660 ‐10000 ‐11500

Liquidity Ratio

Inc/(dec) Equity Capital 2 12 0 0 Current Ratio (x) 0.9 1.1 1.2 1.3

Payment of Dividend ‐3350 ‐3972 ‐3060 ‐3060 Cash Ratio (x) 0.7 0.8 0.7 0.8

Payment of Dividend tax ‐569 ‐653 ‐428 ‐428

Inc/(dec) Share Premium 73 499 0 0 Turnover and Leverage ratio

Inc/(dec) Debt ‐1230 ‐1007 0 0 Overall Gearing Ratio (x) 0.0 0.0 0.0 0.0

Cash flow from financing activities ‐5074 ‐5120 ‐3488 ‐3488 Interest Coverage 70.0 29.5 58.1 310.4

Inc/(Dec) in Cash 289 8678 3267 3619 Valuation Ratio

PE 12.9 17.3 15.1 13.3

Opening Cash Balance 8518 8807 17484 20751 P/BV 2.4 3.0 2.4 2.1

Closing Cash Balance 8807 17484 20751 24370 EV/EBIDTA 7.6 10.7 7.5 6.2

EV/Tonne 144 174 131 120





Notes





From Jaypee Institutional Equities Desk

Equity Research Products

1. Initiating Coverage In depth analysis coupled with detailed explanation of investment rationale

2. IPO Note In depth analysis of an IPO with a recommendation for the same

3. Result Preview Prediction of results to be announced with a view on margins for the stock

4. Result Review Analysis of the results and view on the stock after the results

5. Event Update Analysis of stock/sector specific event which has occurred and its impact

6. Economic Update Analysis of IIP, GDP, Inflation and six core industries

7. Commodity Outlook Future outlook on bullion, base metals and energy products

Derivatives Research Products

1. Pair Trades Identification of stock pairs based on co integration and correlation

2. NIFTY Strategies Strategies based on market view e.g., straddle, skew, condor etc

3. Arbitrage Trades Cash Future and Special Situation Arbitrage

4. Numero‐Mania Monthly repository of trading strategies from the Derivatives Desk

Daily Reports

1. Morning Glance Daily update of global news before the Indian markets open

2. Post Market Update Daily market action and key statistics in a nutshell

3. Currency Update Analysis of the domestic currency market with an outlook for the day

4. Commodity Update Snapshot of the commodity market with an outlook for the day

5. Derivatives Daily Daily update of the activities in the Derivatives segment

6. Derivatives Weekly Weekly update of the activities in the Derivatives segment

7. Rollover Analysis Daily analysis of the rolls during the expiry week every month





Jaypee’s Institutional Equities Desk

RESEARCH

Head of Equity Research Telecom & Media Pharmaceuticals

Abbas Merchant +91 22 4354 2010 Archit Singhal +91 22 4354 2009 Divya Agarwal +91 22 4354 2011

Banking Cement, Metals and Mining Capital Goods, Power & Shipping

Vinay Chhoda +91 22 4354 2014 Jinal Joshi +91 22 4354 2012 Jyotsna Sawdekar +91 22 4354 2017

Mithilesh Shetty +91 22 4354 2014 Sumit Poddar +91 22 4354 2016 Ruchika Dalmia +91 22 4354 2017

Information Technology Oil & Gas Quantitative

Vijay Gautam +91 22 4354 2019 Chirag Dhaifule +91 22 4354 2015 Vinit Jain +91 22 4062 1016

Krupa Shah +91 22 4354 2019 Kavita Jaiswal +91 22 4354 2001

FMCG Real Estate & Construction

Pulkeshin Shah +91 22 4354 2013 Hitendra Gupta +91 22 4354 2023

SALES

Sales (Asia) Sales Trading (Derivatives) Sales Trading (Equity)

Vishad Turakhia +91 22 4062 1012 Dhruval Gala +91 22 4062 1032 Jaiprakash Kataria +91 22 4062 1003

Hitash Dang +91 22 4354 1017 Deep Shroff +91 22 4062 1008 Gaurav Shah +91 22 4062 1007

Rajat Vohra +91 22 4062 1011 Jakil Dedhia +91 22 4062 1052 Mahesh Bohra +91 22 4062 1005

Krishnakant Purohit +91 22 4062 1018 Deepak Purohit +91 22 4062 1099 Yogesh Dhumal +91 22 4062 1002

Nupur Barve +91 22 4062 1052 Vishal Vadel +91 22 4062 1099 Jitendra Tolani +91 22 4062 1001

Kaustubh Chheda +91 22 4062 1052

Sales (United States)

Amit Bansal +1 405 269 1322





Disclaimer:

This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an

official confirmation of any transaction. This document is subject to changes without prior notice and is intended only

for the person or entity to which it is addressed and may contain confidential and/or privileged material and is not

for any type of circulation. Any review, retransmission, or any other use is prohibited.

The information contained herein is from publicly available data or other sources believed to be reliable. While we

would endeavor to update the information herein on reasonable basis, Jaypee Capital Services Limited, its

subsidiaries and associated companies, their directors and employees are under no obligation to update or keep the

information current. Also, there may be regulatory, compliance, or other reasons that may prevent Jaypee Capital

Services Limited and affiliates from doing so. We do not represent that information contained herein is accurate or

complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended

to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any

use made of this information. Each recipient of this document should make such investigations as it deems necessary

to arrive at an independent evaluation of an investment in the securities of companies referred to in this document

(including the merits and risks involved).

The investment discussed or views expressed may not be suitable for all investors. It does not have regard to the

specific investment objectives, financial situation and the particular needs of any specific Person/ Institutions etc.

who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any

securities or investment strategies discussed or recommended in this report and should understand that statements

regarding future prospects may not be realized and there is substantial risk of loss. Jaypee Capital Services Limited

does not take responsibility thereof. This is further clarified that no kind of negligence, misconduct or default

whatsoever on the part of Jaypee Capital Services Limited can be attributed by any person on the basis of this

research publication or any part thereof.

Reports based on technical analysis centers on studying charts of a stock's price movement 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. Affiliates of Jaypee Capital Services Limited may have issued other reports that are inconsistent with

and reach different conclusions from, the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of

or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use

would be contrary to law, regulation or which would subject Jaypee Capital Services Limited and affiliates to any

registration or licensing requirement within such jurisdiction. The securities described herein may or may not be

eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document

may come are required to inform themselves of, and to observe, such applicable restrictions. Though disseminated to





all the customers simultaneously, not all customers may receive this report at the same time. Jaypee Capital Services

Limited will not treat recipients as customers by virtue of their receiving this report.

We and our affiliates, officers, directors, and employees will from time to time have long or short positions in, act as

principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading

strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions

expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may

make investment decisions that are inconsistent with the recommendations or views expressed in this research.

Our research personnel may participate in company events such as site visits and are generally prohibited from

accepting payment by the company of associated expenses unless pre‐approved by authorized members of Research

Management.

Trading in securities, futures, options or other financial instruments entails significant risk and is not appropriate for

all investors. Electronic trading also entails significant risk. Losses may exceed the principal invested, and the past

performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.

“Jaypee” refers to all of Jaypee’s worldwide branches and subsidiaries. Jaypee International Inc. is a member of BATS,

CBOT, CME, COMEX, ECX, EUREX, ICE, LME, NASDAQ, NYSE LIFFE, SGX, TOCOM. Jaypee International Inc. is also a

member of FINRA, NFA and SIPC and is regulated by SEC and CFTC in USA. Jaypee Capital Services Limited is a

member of USE, NSE and BSE and is regulated by SEBI in India. Indian services are offered through Jaypee Capital

Services Limited. Not all services are available from all Jaypee organizations or personnel. Kindly consult your local

office for details.

Recommendation Structure:

A Buy recommendation implies an upside of 10% or more from the current levels. A Sell recommendation implies a downside of 10% or more from the current levels.

A Neutral recommendation implies an upside/downside of less than 10% from the current levels.





Jaypee Offices Worldwide: New York

150 Broadway

Suite 2200

New York, NY 10038

+1 212 537 6271

[email protected]

Chicago

30 South Wacker Drive

Suite 1700

Chicago, IL 60606

+1 312 254 5044

[email protected]

Delhi NCR

11th Floor, Building ‐ 9A

DLF Cyber City, Phase III

Gurgaon ‐ 122 002, India

+91 124 3075 880

[email protected]

Mumbai

505, Arcadia

195, Nariman Point,

Mumbai ‐ 400 021, India

+91 22 4354 2000

[email protected]

Singapore

2 Shenton Way

#10‐02 SGX Centre 1

Singapore 068804

+65 6438 0095

[email protected]

Documents

Ambuja Cement Ltd - Initiating Coverage - Aug'11breport.myiris.com/JCSL/GUJAMBCE_20110810.pdf · Ambuja Cement Ltd (ACL) has increased its grinding capacity by 22% in the past 1 year,