Volume growth to improve post capex… - ICICI Directcontent.icicidirect.com/mailimages/IDirect_ACC_Q3CY16.pdf · 2016. 10. 25. · Considering this, we expect the company to report

October 24, 2016

ICICI Securities Ltd | Retail Equity Research

Result Update

Volume growth to improve post capex… • ACC’s Q3CY16 numbers came in below our estimate led by a fall in

sales volume • Revenues dipped 9.8% YoY to | 2,472.8 crore (below I-direct

estimate of | 2,719.6 crore) led by 9.6% YoY decline in volumes to 5.1 MT (vs. I-direct estimate of 5.6 MT). Realisation was flat at | 4,877 (vs. I-direct estimate of | 4,824)

• The EBITDA margin fell 51 bps YoY to 9.1% (vs. I-direct estimate of 12.7%) due to an increase in employee expenses (up 17.8% YoY)

• The company has commissioned Jamul clinkering project (2.8 MT) and grinding unit (1.1 MT) during the quarter. Grinding units at Sindri (1.4 MT) is expected to be commissioned by October 2016

Capacity expansion in east to drive revenues in coming years Over the past few years, ACC reported subdued volume growth (2.1% CAGR in CY10-15) led by a poor macro environment and absence of new capacity addition. However, going forward, we expect cement demand to improve on the back of healthy monsoon, Seventh Pay Commission and strong infrastructure push by the government. Consequently, cement demand is expected to reach 305 MT by FY18E (i.e. at CAGR of 7.5%) vs. (3.5% CAGR in last five years). Apart from improving macro demand, the company is also expanding its capacity in the eastern region by ~5 MT. Considering this, we expect the company to report growth in volumes (6.8% CAGR in CY16-17E) in the coming few years. ACC’s acquisition by Ambuja to drive cost synergies… The acquisition of ACC by Ambuja is expected to reduce cost through consolidation of shared services (like finance, HR and marketing) vendor consolidation and swapping of plants (to reduce lead distance). The proposed restructuring is expected to result in synergy benefits of ~| 900 crore resulting in long term benefits for ACC and Ambuja. We expect the benefits of synergies to start flowing in CY17E. …further operational efficiency to drive margins ACC has one of the oldest manufacturing plants in the industry, resulting in higher operating costs for the company. However, ACC is taking steps to rationalise cost by increasing share of pet coke consumption. Similarly, usage of alternative fuel is expected to rise from the current 3% to 5% in the next 12 months. The company is also focusing on increasing the volume of premium products (up 17.5% YoY in Q3FY16) and higher ex factory sales to reduce lead distance resulting in higher margins. Key beneficiary of upturn in cement cycle; maintain BUY Cement demand is expected to increase at 7.5% CAGR in the next few years mainly led by healthy monsoons, Seventh Pay Commission and infrastructure push by the government. ACC being a pan-India player is expected to be a key beneficiary of this improvement in demand. Further, capacity expansion of 5 MT (i.e. 16% of capacity) is expected to result in 7.1% CAGR in revenues in CY15-18E. Further, cost control initiatives like higher share of pet coke, better sales mix and reduction of employees will help the company in margin expansion, going forward. We expect the OPM to improve from 10.3% to 13.7%in CY17E. Further, ACC is trading at an EV/tonne of $130 below the replacement cost of $150 .Hence, we maintain our BUY rating with a revised target price of | 1,760/share (i.e. valuing the stock at CY17E EV/tonne of $150/tonne on CY17E capacity of 35 MT).

Rating matrix Rating : BuyTarget : | 1760Target Period : 12-15 monthsPotential Upside : 12%

What’s Changed? Target Changed from | 1875 to | 1760EPS CY16E Changed from | 57.8 to | 46.8EPS CY17E Changed from | 68.2 to | 61.2Rating Unchanged

Quarterly Performance

Q3CY16 Q3CY15 YoY (%) Q2CY16 QoQ (%)Revenue 2,472.8 2,740.0 -9.8 2,869.8 -13.8EBITDA 225.1 263.4 -14.5 410.2 -45.1EBITDA (%) 9.1 9.6 -51 bps 14.3 -519 bpsPAT 82.0 115.2 -28.9 239.1 -65.7

Key Financials | Crore CY14 CY15 CY16E CY17E

Net Sales 11480.2 11432.8 11649.6 13122.9

EBITDA 1254.8 1173.0 1483.9 1803.9

PAT 1161.8 587.6 879.0 1149.1EPS (|) 61.8 31.3 46.8 61.2 Valuation summary

CY14 CY15 CY16E CY17E

PE (x) 25.4 39.2 33.5 25.6

Target PE (x) 28.5 56.3 37.6 28.8

EV to EBITDA (x) 22.3 24.1 19.0 15.6

EV/Tonne(US$) 152 153 139 134

Price to book (x) 3.6 3.5 3.3 3.1

RoNW (%) 14.1 7.0 9.9 12.0

RoCE (%) 8.3 6.0 9.8 11.9 Stock data

Amount

Mcap | 29463 crore

Debt (CY15) Nil

Cash & Invest (CY15) | 1334 crore

EV | 28129 crore

52 week H/L | 1738 / 1173

Equity cap | 187.8 crore

Face value | 10

Particular

Price performance (%)

1M 3M 6M 12M

ACC -2.6 0.5 10.0 15.4

Ambuja Cement -6.0 -4.4 9.9 19.6

Shree Cement 3.5 7.3 33.4 40.4

UltraTech Cement 1.1 15.0 18.4 39.1

ACC (ACC) | 1568

Research Analyst

Rashesh Shah [email protected] Devang Bhatt [email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q3CY16 Q3CY16E Q3CY15 YoY (%) Q2CY16 QoQ (%) Comments

Net Sales 2,472.8 2,719.6 2,740.0 -9.8 2,869.8 -13.8 Revenues declined 9.8% YoY mainly led by 9.6% YoY decline in volumesOther Incomes 75.0 70.0 68.3 9.8 69.2 8.3Raw Material Expenses 381.0 398.9 440.2 -13.4 433.0 -12.0 The decline in RM cost was due to lower cost of gypsum, flyash and slagEmployee Expenses 196.2 180.4 166.5 17.8 190.3 3.1Change in stock -71.2 45.1 -45.0 58.2 64.1 NM

Power and fuel 536.6 524.3 619.0 -13.3 522.9 2.6Decline in power expenses mainly led by increased usage of pet coke (from 19.0% to 63.0% in Q3FY16)

Freight 595.4 552.5 609.2 -2.3 649.0 -8.3

Others 609.8 673.7 686.8 -11.2 600.4 1.6Decline in other expenses was due to lower marketing & selling overheads and packing material cost

EBITDA 225.1 344.8 263.4 -14.5 410.2 -45.1EBITDA Margin (%) 9.1 12.7 9.6 -51 bps 14.3 -519 bps Higher employee cost impacted EBITDA marginsInterest 18.6 17.5 14.1 32.3 17.4 7.1Depreciation 155.4 142.1 163.4 -4.9 143.5 8.3PBT 126.0 255.2 154.2 -18.3 318.5 -60.4Total Tax 43.0 65.1 39.1 10.0 81.2 -47.1

Adjusted PAT 82.0 190.1 115.2 -28.9 239.1 -65.7The decline in PAT was due to poor performance at operating level and higher interest expenses

Key Metrics

Volume (MT) 5.1 5.6 5.6 -9.6 6.1 -17.2 The decline in volumes was mainly due to heavy rains in Bihar, Jharkhand, UP and MPRealisation (|) 4,877 4,824 4,884 -0.1 4,689 4.0EBITDA per Tonne (|) 444 612 469 -5.4 670 -33.8 EBITDA/tonne declined due to higher employee cost/t

Source: Company, ICICIdirect.com Research Change in estimates

CY17E(| Crore) Old New % Change Old New % Change Comments

Revenue 12,395.5 11,649.6 -6.0 14,070.3 13,122.9 -6.7 We expect revenues to increase at a CAGR of 7.1% over CY15-17EEBITDA 1,679.0 1,483.9 -11.6 2,041.0 1,803.9 -11.6

EBITDA Margin (%) 13.5 12.7 -81 bps 14.5 13.7 -76 bpsWe have revised our EBITDA margin downwards due to anticipated increase in pet coke prices

PAT 1,086.8 879.0 -19.1 1,282.1 1,149.1 -10.4EPS (|) 57.8 46.8 -19.1 68.2 61.2 -10.3

CY16E

Source: Company, ICICIdirect.com Research Assumptions

CommentsCY12 CY13 CY14 CY15 CY16E CY17E CY16E CY17E

Volume (MT) 24.1 23.9 24.2 23.6 24.5 27.0 26.0 28.9We expect volumes to increase at a CAGR of 6.8% in CY15-17E led by higher government spending and capacity expansion

Realisation (|) 4,566 4,556 4,742 4,838 4,763 4,869 4,772 4,873EBITDA per Tonne (|) 825 572 518 496 607 669 641 707 We expect EBITDA/t of | 669/t in CY17E

EarlierCurrent

Source: Company, ICICIdirect.com Research


Annual Report Analysis • In CY15, the company had not undertaken any expansion unlike

its other larger peers, which expanded aggressively resulting in market share loss. Further, the company had also suffered volume loss due to temporary suspension of mining at Chaibasa and Bargarh, which led to 2.4% YoY decline in volumes

• On the cost side, the company undertook several cost saving measure like increased usage of pet coke (increased 1.0% to 17.0% in CY15) & alternative fuels (increased from 1.0% to 3.0%), higher generation from waste heat recovery system (WHRMS) and slag prices that were negotiated to achieve a reduction of 27.0% YoY. However, the company faced a host of cost pressures like suspension of mining operation at Bargarh and Chaibasa resulting in higher clinker and freight cost. Further, as the company relies heavily on rail (road rail mix of 56: 44), freight cost of the company was negatively impacted by an increase in rail freight by 6.0%. Consequently, cost/t increased 2.8% YoY

• During the year, the company reduced the number of employees by 703 to 8368. We believe this will enable ACC to rationalise employee cost in the coming years

• The company has paid | 112.8 crore (increased from nil in CY12 to 19.2% of PAT in CY15) as technology know how fees to Holcim Technology for technical support received by the company. In addition, remuneration to top management, independent directors and non-executive directors accounted for 3.0% of PAT

• Finance cost during the year reduced by | 18 crore due to a reduction in interest on income tax

• ACC’s dividend per share declined from | 34.0/share to | 17.0/share mainly led by 50.0% fall in profit (driven by higher operating and depreciation expenses)

Exhibit 1: Trend in technology know how fees

0.0

107.7 112.91 112.76

0.0

20.0

40.0

60.0

80.0

100.0

120.0

CY12 CY13 CY14 CY15

0.00

5.00

10.00

15.00

20.00

25.00

Technology know how fees as % of PAT


Technology know how fees increased from nil in CY12 to

0.94% of sales in CY15


Company Analysis Pan-India presence to reduce regional risk

ACC is a pan-India player with an installed capacity of 30.5 MTPA distributed across all regions, thereby insulating the company from any weakness in a particular region. Out of the total capacity, the company has ~10 MTPA capacity in the southern region, ~6.2 MTPA capacity in the eastern region, ~6 MTPA capacity in the northern region, ~4.5 MTPA capacity in the central region and ~4 MTPA capacity in the western region.

Higher government spending to drive growth Over long term the demand environment looks healthy, owing to increase in government focus on infrastructure and higher budgetary allocation to roads and housing sector. The company has also indicated 7-8% YoY growth in volumes over the next three years mainly led by higher government spending. However, growth in realisation remains a key challenge for the company.

Recovery in southern region to benefit company

ACC has a third of its total capacity in the southern region. With the resolution of political problems in the region along with expectations of an overall recovery in the demand environment, going forward, ACC should benefit from its presence in the southern market.

To increase capacity to ~35 MT by CY17E

ACC’s capacity will be 35MT by CY17E mainly led by commissioning of Jamul clinker (2.8 MT) & grinding unit (1.1 MT) and Sindri grinding unit (1.4 MT). Further another expansion of 2.7 MT is expected in Kharagpur.

Higher free operating cash flow sufficient for expansion plans

ACC has consistently been generating healthy operating cash flows for many years. Higher operating cash flow has ensured that the company does not require debt for further expansion. At the end of CY13, ACC was a totally debt-free company. Going by the present scenario, the company will not need to raise debt for the planned expansion of 5 MT given strong cash flows. Exhibit 2: Healthy operating cash flow

1166 1343934

1987

9361401 1495

-300

200

700

1200

1700

2200

CY11 CY12 CY13 CY14 CY15 CY16E CY17E

| Cr

ore

Operating Cashflow


Regional presence

Central14%

East22%

West13%

South32%

North19%


Old, inefficient plants lead to higher cost of production…

ACC has one of the oldest manufacturing plants in the industry, resulting in higher operating costs for the company. As can be seen from the chart below, its other costs per tonne, which includes maintenance costs of the plants, as percentage of industry average, is much higher than ‘total costs except other costs’, on a per tonne basis. For example, for CY07, if the industry’s ‘average costs per tonne after deduction of other costs’ was | 100, the same for ACC was | 91 while the industry’s ‘average other costs per tonne’ was | 100 while that for ACC was | 143.3. Higher other costs are the result of older machinery of the company. Exhibit 3: Costs as percentage of industry average costs

102.2106.9

143.3139.9

136.3

124.6

115.9

129.8126.0 124.1

90.5 90.1 90.0 89.9103.7 102.5

107.7114.0

80

90

100

110

120

130

140

150

CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15

Total Costs except Other cost Other Costs


…but efforts on to improve efficiency and reduce cost To improve efficiency and reduce overall cost, the company has adopted a two-pronged approach. One is phasing out of old and inefficient plants. As a result, ACC has reduced power usage per tonne from 85 Kwhr in CY07 to 80 Kwhr in CY14. The second approach is to reduce dependency on power purchase from outside. Captive power plant capacity of the company has increased from ~237 MW in CY08 to ~384 MW till CY12. The company met ~69% of its power requirement through captive sources in CY07 and the remaining through the state grid while the contribution of captive source increased to ~77% in CY15. This helped in reducing overall cost per tonne for the company. Further, with proposed synergies from the Holcim restructuring, we expect efficiencies to improve, going ahead.

Exhibit 4: Fuel mix

56 44

25

1617

25 301 3

020406080

100120

CY14 CY15

Linkage Coal E-Auction Coal Petcoke

Imported Coal Alternative Fuels


Exhibit 5: Purchased power share stands at 23.0% in CY15

31.4 30.4 24.7 25.1 28.2 25.6 23.5 24.5 23.0

68.6 69.6 75.3 74.9 71.8 74.4 76.5 75.5 77.0

0

20

40

60

80

100

CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15*

(%)

Purchased Own Generation



Expect revenue CAGR at ~7.1% during CY15-17E

Going forward, we expect revenue CAGR of 7.1% in CY15-17E with volume growth at 6.8% CAGR. Realisation growth is expected at 0.3% CAGR due to pricing pressure in the industry on account of oversupply. The company is well on track on the capacity expansion front and will likely achieve its target of 35 MT by CY17E.

Exhibit 6: Expect revenue CAGR of 7.1% during CY15-17E

7717

959411010 10904 11480 11433 11650

13123

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

CY10 CY11 CY12 CY13 CY14 CY15 CY16E CY17E

Sales (| crore)


Exhibit 7: Capacity addition plans Existing Capacity (MT) 30.5

Planned capacity addition

Jamul (Moderanisation of existing plant) 1.1

Sindri 1.4

Kharagpur 2.7

Total 5.15

Total Capacity by CY16E (MT) 35.7


Exhibit 8: Volume to grow at 6.8% CAGR during CY15-17E

23.7 24.1 23.9 24.223.6

24.5

27.0

20.0

22.0

24.0

26.0

28.0

30.0


MT

Sales Volumes


Exhibit 9: Realisation to grow at 0.3% CAGR during CY15-17E

4043

4566 45564742

4838 47634869

3500

4000

4500

5000

5500


| / t

onne

-4.0-2.00.02.04.06.08.010.012.014.0

(%)

Realisation (|/tonne) -LS Growth (%) -RS


Exhibit 10: Q3CY16 volume declines 9.6% YoY

5.62 5.76 5.82 6.205.61 6.00 6.36 6.12

5.07

0.0

6.0

Q3CY

14

Q4CY

14

Q1CY

15

Q2CY

15

Q3CY

15

Q4CY

15

Q1CY

16

Q2CY

16

Q3CY

16

In M

T

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

(%)

Sales volumes -LHS Growth (%) -RHS


Exhibit 11: Realisation during Q3CY16 was flat YoY

4879 47964958

4776 48844744

4603 46894877

3500

4000

4500

5000

5500

Q3CY

14

Q4CY

14

Q1CY

15

Q2CY

15

Q3CY

15

Q4CY

15

Q1CY

16

Q2CY

16

Q3CY

16

|

-10.0

0.0

10.0

20.0

30.0

(%)

Realisation-LHS Growth (%) -RHS



Margins to improve but excess capacity in industry to limit its expansion Despite an expected recovery in demand, we expect ACC’s operating margins expansion to be limited given the pressure on pricing led by excess capacity in the industry coupled with higher operating costs on account of freight costs and legacy plants.

Exhibit 12: Expect EBITDA/tonne of | 669 in CY17E

719825

572 518 496607

669

0

200

400

600

800

1000


EBITDA/Tonne


Exhibit 13: Margins to improve led by improvement in realisations

20.1

16.9 17.7

12.610.9 10.3

12.713.7

10

15

20

25

CY10 CY11 CY12 CY13 CY14 CY15 CY16E CY17E

(%)

EBITDA Margin (%)


Exhibit 14: Q3CY16 EBITDA/tonne at | 444/t

544317

713

453 469356

582 670444

0100200300400500600700800

Q3CY

14

Q4CY

14

Q1CY

15

Q2CY

15

Q3CY

15

Q4CY

15

Q1CY

16

Q2CY

16

Q3CY

16

| pe

r ton

ne


Exhibit 15: Margin trend (%)

6.6

12.714.3

9.111.2

14.4 9.5

9.67.5

02468

10121416

Q3CY

14

Q4CY

14

Q1CY

15

Q2CY

15

Q3CY

15

Q4CY

15

Q1CY

16

Q2CY

16

Q3CY

16

(%)

EBITDA Margin


Expect net profit CAGR of 39.8% during CY15-17E After witnessing a sharp decline in profit in CY15, we expect net margins to improve to 8.8% in CY17E from 5.1% in CY15E. Overall, we expect net profit to grow at a CAGR of 39.8% during CY15-17E. Exhibit 16: Profitability trend

1293.21094.6 1161.8

879.0

1149.1

587.68.8

7.5

5.1

10.110.09.5

0200400600800

100012001400

CY12 CY13 CY14 CY15 CY16E CY17E

| cr

ore

0

4

8

12

(%)

Net profit - LS Net profit margin -RS



Outlook and valuation With a capacity expansion of 2.8 MT in Jamul (Chhattisgarh) and 1.4 MT in Sindri (Jharkhand), we expect CY16 to witness an improvement in the volume growth. We expect sales volume and realisation CAGR of 6.8% and 0.3%, respectively, during CY15-17E. Cement demand is expected to increase at a CAGR of 7.5% over the next few years mainly led by healthy monsoon, Seventh Pay Commission and infrastructure push by the government. ACC being a pan-India player is expected to be a key beneficiary of this improvement in demand. Further, capacity expansion of 5 MT (i.e. 16% of capacity) is expected to result in 7.1% CAGR in revenues in CY15-18E. Further, cost control initiatives such as higher share of pet coke, better sales mix, reduction of employees to help the company in margin expansion going forward. We expect the OPM to improve from 10.3% to 13.7%in CY17E. Further, ACC is trading at an EV/tonne of $130 which is below the replacement cost of $150. Hence, we maintain our BUY recommendation with a revised target price of | 1,760/share (i.e. valuing the stock at CY17E EV/tonne of $150/tonne on CY17E capacity of 35 MT). Exhibit 17: Key assumptions | per tonne CY12 CY13 CY14 CY15E CY16E CY17E

Sales Volume (mtpa) 24.1 23.9 24.2 23.6 24.5 27.0

Net Realisation 4566 4556 4742 4838 4763 4869

Total Expenditure 3741 3984 4224 4342 4157 4200

Stock Adjustment 8 3 -5 0 -39 0

Raw material 632 698 819 782 767 785

Power & Fuel 987 996 1010 1014 976 1000

Employees 253 277 309 327 323 305

Freight 916 963 1065 1144 1106 1100

Others 945 1048 1026 1074 1024 1010

EBITDA per Tonne 825 572 518 496 607 669 Source: ICICIdirect.com Research


Exhibit 18: One year forward EV/EBITDA

20001200022000320004200052000620007200082000

Oct-0

8

Apr-0

9

Oct-0

9

Apr-1

0

Oct-1

0

Apr-1

1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

Apr-1

4

Oct-1

4

Apr-1

5

Oct-1

5

Apr-1

6

Oct-1

6

(| c

rore

)

EV 30.0x 25.0x 20.0x 15.0x 5.0x 10.0x


Exhibit 19: One year forward EV/tonne

1000

2000

3000

4000

5000

6000

7000

Oct-0

8

Apr-0

9

Oct-0

9

Apr-1

0

Oct-1

0

Apr-1

1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

Apr-1

4

Oct-1

4

Apr-1

5

Oct-1

5

Apr-1

6

Oct-1

6

Milli

on $

EV $172 $151 $131 $111 $91 $70


Exhibit 20: Valuation

Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) ($) (x) (%) (%)CY14 11480.2 3.1 61.8 3.3 25.4 151.7 22.3 14.1 8.3CY15 11432.8 -0.4 31.3 -49.4 39.2 153.3 24.1 7.0 6.0CY16E 11649.6 1.9 46.8 49.6 33.5 138.5 19.0 9.9 9.8CY17E 13122.9 12.6 61.2 30.7 25.6 134.2 15.6 12.0 11.9



Recommendation history vs. Consensus estimate

1,0001,1001,2001,3001,4001,5001,6001,7001,8001,9002,000

Oct-16Jul-16Apr-16Jan-16Oct-15Jul-15May-15Feb-15Nov-14

(|)

0.010.020.030.040.050.060.070.080.090.0100.0

Price Idirect target Consensus Target Mean % Consensus with SELL

Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventFeb-12 The company looks to set up a new clinker production facility of 2.79 MTPA and allied grinding facility at Jamul. The existing clinkering and grinding lines at Jamul May-12 CCI completes probe into alleged cartilsation by 39 cement companies and finds these companies, including ACC, guilty of cartelisation

Jun-12 CCI passes an order against several cement manufacturers including ACC and imposes a penalty of 0.5 times the profit for 2009-10 and 2010-11. For ACC, the penalty works out to | 1147.59 crore

Oct-12 The company's wholly-owned subsidiary company, ACC Concrete Ltd amalgamated with the company

Nov-12 Files petition with COMPAT against CCI order that imposed penalty of | 1,147.6 crore on ACC

Dec-12 Holcim hikes royalty payment to 1% of sales with effect from January 1, 2013

Jul-13 Holcim Group to consolidate its holding in ACC through Ambuja Cements. The transaction will result in Ambuja holding 50% stake in ACC, in which Holcim India currently holds 50.01%

Sep-13 To expand its capacity by nearly 4 MTPA in the eastern region in the next three years with an investment of over | 3000 crore

Oct-14 Suspension of limestone mining operations at Chaibasa and Bargarh

Feb-15 Resumption of limestone mining at Chaibasa Plant in Jharkhand

Jun-15 Resumption of limestone mining at Bargarh Plant in Odhisa

Jul-16 Commisions 2.79 MT clinker facility at Jamul

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Holcim Group 30-Sep-16 50.3 94.5 0.02 Life Insurance Corporation of India 30-Sep-16 11.3 21.2 -1.13 JPMorgan Asset Management U.K. Limited 30-Sep-16 2.3 4.4 0.04 Aberdeen Asset Management (Asia) Ltd. 30-Sep-16 1.8 3.3 0.05 Capital Research Global Investors 30-Sep-16 1.3 2.3 0.16 J.P. Morgan Asset Management (Hong Kong) Ltd. 30-Jun-16 1.1 2.1 0.07 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Aug-16 0.8 1.5 -0.18 ICICI Prudential Asset Management Co. Ltd. 31-Aug-16 0.8 1.5 -0.29 The Vanguard Group, Inc. 31-Aug-16 0.7 1.3 0.010 BlackRock Institutional Trust Company, N.A. 30-Sep-16 0.7 1.3 0.0

(in %) Sep-15 Dec-15 Mar-16 Jul-16 Sep-16Promoter 50.30 50.30 50.30 50.34 50.34FII 13.22 15.30 14.84 15.71 16.83DII 17.65 18.08 18.38 17.69 18.39Others 18.83 16.32 16.48 16.26 14.44

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value Shares Investor name Value SharesBNP Paribas Investment Partners Asia Ltd. 6.55 0.26 Life Insurance Corporation of India -26.34 -1.10HDFC Asset Management Co., Ltd. 4.27 0.17 British Columbia Investment Management Corp. -9.28 -0.44Capital Research Global Investors 3.35 0.14 ICICI Prudential Asset Management Co. Ltd. -5.76 -0.23BNP Paribas Asset Management India Pvt. Ltd. 2.55 0.10 Franklin Templeton Asset Management (India) Pvt. Ltd. -1.28 -0.05Columbia Threadneedle Investments (US) 1.80 0.07 JPMorgan Asset Management U.K. Limited -1.17 -0.05

Buys Sells

Source: Reuters, ICICIdirect.com Research


Financial summary Profit and loss statement | Crore (Year-end March) CY14 CY15 CY16E CY17E

Total operating Income 11,480.2 11,432.8 11,649.6 13,122.9

Growth (%) 5.3 -0.4 1.9 12.6

Raw material 1981.9 1848.1 1874.6 2115.6

Power & Fuel 2444.5 2396.7 2387.2 2695.0

Employees 748.1 772.2 790.5 822.0

Freight 2578.4 2704.2 2705.2 2964.5

Others 2484.0 2538.6 2504.1 2722.0

Total Operating Exp. 10,236.7 10,259.7 10,261.6 11319.0

EBITDA 1,243.5 1,173.1 1,388.0 1,803.9

Growth (%) -9.2 -5.7 18.3 30.0

Depreciation 567.6 662.6 601.8 650.8

Interest 82.7 64.6 70.2 70.2

Other Income 515.1 484.2 384.2 500.0

Exceptional items 0.0 164.5 0.0 0.0

PBT 1,108.3 765.6 1,100.2 1,582.9

Total Tax -31.1 190.0 326.4 443.2

PAT 1,139.4 587.6 773.8 1,139.7

Adjusted PAT 1,161.8 752.0 879.0 1,149.1

Growth (%) 6.1 -35.3 16.9 30.7

EPS (|) 61.8 31.3 46.8 61.2


Cash flow statement | Crore (Year-end March) CY14 CY15 CY16E CY17E

Profit after Tax 1,161.8 587.6 879.0 1,149.1

Add: Depreciation 567.6 662.6 601.8 650.8

(Inc)/dec in Current Assets -297.2 -300.1 129.3 -882.1

Inc/(dec) in CL and Prov. 554.7 -14.3 -208.7 577.4

CF from operating activities 1,986.9 935.8 1,401.4 1,495.2

(Inc)/dec in Investments 737.8 73.6 0.0 0.0

(Inc)/dec in Fixed Assets -1,793.2 -773.5 -1,000.0 -1,000.0

Others -369.9 -67.6 0.1 0.0

CF from investing activities -1,425.3 -767.5 -999.9 -1,000.0

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

Dividend paid & dividend tax -753.2 -376.6 -417.7 -417.7

Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0

Others -4.3 -7.5 0.0 0.0

CF from financing activities -757.5 -384.1 -417.7 -417.7

Net Cash flow -195.9 -215.8 -16.2 77.5

Opening Cash 505.8 309.9 94.1 77.9

Closing Cash 309.9 94.1 77.9 155.4


Balance sheet | Crore (Year-end March) CY14 CY15 CY16E CY17E

Liabilities

Equity Capital 187.9 187.9 187.9 187.9

Reserve and Surplus 8,029.8 8,233.2 8,694.5 9,425.9

Total Shareholders funds 8,217.7 8,421.2 8,882.4 9,613.9

Total Debt 100.0 100.0 100.0 100.0

Other Liabilities 443.9 373.1 373.2 373.2

Total Liabilities 8,761.6 8,894.2 9,355.6 10,087.0

Assets

Gross Block 11,008.7 11,782.3 12,782.3 13,782.3

Less: Acc Depreciation 5,158.2 5,820.8 6,422.6 7,073.4

Net Block 5,850.6 5,961.5 6,359.7 6,708.9

Capital WIP 1,749.8 1,749.8 1,749.8 1,749.8

Total Fixed Assets 7,600.4 7,711.4 8,109.5 8,458.7

Investments+Goodwill 1,406.6 1,329.7 1,329.7 1,329.7

Inventory 1,256.4 1,189.4 1,300.1 1,504.3

Debtors 410.6 484.4 427.6 600.7

Loans and Advances 1,683.3 1,935.9 1,792.0 2,276.1

Other Current Assets 14.6 55.1 15.9 36.6

Cash 309.9 94.1 77.9 155.4

Total Current Assets 3,674.7 3,758.9 3,613.4 4,573.1

Creditors 2,866.8 3,146.6 2,981.5 3,562.0

Provisions 1,053.2 759.2 715.5 712.4

Total Current Liabilities 3,920.0 3,905.8 3,697.0 4,274.4

Net Current Assets -245.3 -146.8 -83.6 298.6

Application of Funds 8,761.6 8,894.2 9,355.6 10,087.0


Key ratios (Year-end March) CY14 CY15 CY16E CY17E

Per share data (|)

EPS 61.8 40.0 46.8 61.2

Cash EPS 92.0 66.5 78.8 95.8

BV 437.3 448.1 472.7 511.6

DPS 34.0 17.0 19.0 19.0

Cash Per Share 16.5 5.0 4.1 8.3

Operating Ratios (%)

EBITDA Margin 10.9 10.3 12.7 13.7

PAT Margin 10.1 5.1 7.5 8.8

Inventory days 37.8 39.0 39.0 39.0

Debtor days 12.8 14.3 14.3 14.3

Creditor days 80.5 96.0 96.0 91.0

Return Ratios (%)

RoE 14.1 7.0 9.9 12.0

RoCE 8.3 6.0 9.8 11.9

RoIC 17.7 12.7 8.8 14.0

Valuation Ratios (x)

P/E 25.4 50.2 33.5 25.6

EV / EBITDA 22.3 24.1 19.0 15.6

EV / Net Sales 2.4 2.5 2.4 2.1

Market Cap / Sales 2.6 2.6 2.5 2.2

Price to Book Value 3.6 3.5 3.3 3.1

Solvency Ratios

Debt/EBITDA 0.1 0.1 0.1 0.1

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 0.9 1.0 1.0 1.1

Quick Ratio 0.9 0.9 1.0 1.0



ICICIdirect.com coverage universe (Cement)

CMP M Cap(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

ACC* 1568 1760 Buy 29,469 31.3 46.8 61.2 24.1 19.0 15.6 153 139 134 6.0 9.8 11.9 7.0 9.9 12.0Ambuja Cement* 249 300 Buy 38,744 5.2 7.9 8.4 23.5 17.5 15.8 164 162 162 7.9 12.3 13.3 7.8 11.2 11.3UltraTech Cem 4005 4000 Buy 109,842 79.3 104.3 127.8 26.0 20.8 17.5 279 266 259 10.8 13.2 15.4 10.5 12.0 13.5Shree Cement 17238 18650 Hold 60,639 131 494 624 46.9 22.8 15.2 378 349 344 5.3 20.3 23.5 7.4 22.1 22.1Heidelberg Cem 145 135 Hold 3,059 1.7 4.8 7.0 19.2 12.0 9.8 125 121 118 7.1 13.5 16.2 4.3 10.8 13.7India Cement 155 190 Buy 4,792 4.4 8.6 5.8 9.9 7.9 8.7 84 81 79 8.4 10.9 8.8 4.1 6.9 4.5JK Cement 950 855 Buy 6,622 14.9 39.3 42.5 17.9 12.1 12.1 126 121 123 8.8 13.1 13.1 6.1 14.6 13.4JK Lakshmi Cem 507 480 Buy 5,967 0.5 5.5 12.8 28.1 18.5 13.1 152 129 93 3.4 7.6 11.6 0.5 4.7 10.0Mangalam Cem 362 365 Buy 966 0.0 30.6 31.8 36.9 6.9 6.3 67 55 51 1.4 16.6 17.0 NA 14.6 13.3SFCL 114 132 Buy 2,531 4.1 1.8 4.3 8.2 10.5 7.8 175 172 128 12.0 7.6 11.9 12.3 5.3 11.4

CompanyEV/Tonne ($)EV/EBITDA (x)EPS (|) RoCE (%) RoE (%)

Source: Company, ICICIdirect.com Research *December year ending ^June year ending


RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. 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Volume growth to improve post capex… - ICICI Directcontent.icicidirect.com/mailimages/IDirect_ACC_Q3CY16.pdf · 2016. 10. 25. · Considering this, we expect the company to report