Page 1
Thematic Note on Cement Large Caps
December 2015
Page 2
India Cement Sector
Market data
BSE SENSEX 25,803
NIFTY 7,845
Date Dec 18th, 2015
The four cement majors have shown contrasting stock price performance over the last two years, with SRCM and UTCEM
outperforming ACEM and ACC significantly. Despite, SRCM and UTCEM posting muted EBITDA CAGR of -1% and 2%
respectively over the last three years, the stocks have seen a re-rating led by superior volume growth and
organic/inorganic expansions. ACEM and ACC have been laggards largely due to volume growth concerns and the merger
getting delayed and hence the synergies. Going ahead, we see the scenario to change and expect ACEM to outperform
SRCM and UTCEM over next two years. The long pending merger with ACC is now closer, with the proposal now on
Foreign Investment Promotion Board’s (FIPB) agenda in December 2015. The merger can potentially remove the overhang
on the stock and can lead to gradual re-rating, as a result we upgrade ACEM to BUY from ADD with a target price of Rs.
225/share.
Key Investment thesis for Ambuja Cements upgrade:
• Approval of merger with ACC and the potential consolidation of Lafarge’s India assets will see scale up in capacities and allay past
concerns of volume growth;
• Merger will help realise synergy benefits to the tune of Rs. 9bn over the next two years, which is 34% of ACEM + ACC CY15 EBITDA.
Comfort on synergy delivery as 40% of management payouts are dependent on synergy realisation;
• Earnings comfort with limited downside risks. Buying into decade low CY15 EBITDA with conservative assumptions of 4% and 3%
volumes and realisation CAGR over CY15-CY17E respectively. Also, ACEM offers superior EBITDA CAGR over FY16-FY18E versus its
peers.
• Play ACC through ACEM. Indirect beneficiary through higher volume growth in ACC (commissioning of plant in Eastern region) and
synergy realisations. ACC forms ~25% of ACEM’s target price in our SoTP;
• Attractive valuations; Stock trades at 10.3x CY17E EBITDA on par with five year average. ACEM trades at discount to ACC and the
discount to UTCEM has widened in the recent past. Expect re-rating in the stock led by scale up in operations and synergy benefits.
• At the CMP, the stock is not factoring in the merger and potential synergy benefits (refer slide 27), hence risk reward is favorable
Large caps ranking and valuations: We have profiled the cement large caps in this report. We have evolved a rating methodology which
ranks the players on both operating and financial parameters. Based on the ranking we ascribe valuation premium/discount within the four
large-cap stocks. Based on our analysis, UTCEM ranks the best, followed by SRCM, ACEM, and ACC. As a result we ascribe premium
valuations of 14.5x FY17E EBITDA for UTCEM, 14x for SRCM, 13x CY17E for ACEM, and 12x for ACC.
Stock calls – Upgrade ACEM to BUY and is our preferred pick amongst the large cap names. We remain positive on UTCEM’s prospects,
however at CMP the stock has factored in most of the positives. Maintain ADD on UTCEM. On SRCM, While we continue to like cost
leadership, timely capacity additions, strong balance sheet and return metrics, we believe stock is richly valued. The stock trades at 17.6x
FY17E EV/EBITDA, Rs. 12,000/t on EV/t basis, and 36x FY17E EPS. Combination of strong earnings expectations and expensive
valuations makes a case for unfavorable risk reward scenario. As a result, we downgrade SRCM from ADD to SELL. Maintain ADD on ACC,
however we prefer to play ACC via ACEM.
Cement Sector Strategy: Large caps over Mid-caps? Mid-caps have outperformed large-caps significantly over the last two years led by
re-rating and anticipated demand recovery. The valuation premium of large caps over mid-caps has narrowed to ~40% level currently
versus last five year average of 45% and last ten year average of 60%. The premiums have narrowed despite reducing leverage profile of
large-caps versus high leverage profile of mid-caps. From current levels, we see more value in large caps (ACEM, UTCEM, and ACC) over
mid-caps due to combination of (1) leveraged balance sheets of mid-caps and (2) narrowing valuation discount versus large-caps. As a
result, in a scenario wherein the anticipated demand recovery is delayed, we see more downside risks to mid-caps than large-caps. Within
mid-caps, our approach is bottom-up with preference for companies which have completed the capex phase, operating and financial
leverage beneficiaries with reasonable valuations, which are Dalmia Bharat and Ramco Cements.
Performance (%)
1M 3M 12M 24M
Sensex -1 -1 -5 -5
ACC 2 -1 -5 24
ACEM -1 -6 -13 10
UTCEM 6 -1 15 61
SRCM 3 -2 26 161
TRCL -2 15 17 116
ICEM 7 21 12 51
BCORP 7 -1 -2 82
DBL 9 18 61 475
ORCMNT 1 5 10 305
JKLC -2 -8 -17 355
PRSC 3 -10 3 210
OCL -3 -7 9 217
HEID 3 4 -6 108
GIRISH CHOUDHARY [email protected] +91 44 4344 0021
VIJAYARAGHAVAN SWAMINATHAN [email protected] +91 44 4344 0022
GAURAV NAGORI, CFA [email protected] +91 44 4344 0072
Find Spark Research on Bloomberg (SPAK <go>),
Thomson First Call, Reuters Knowledge and Factset
Upgrade Ambuja Cements to BUY- “Heads I Win and Tails I Don’t Lose Much”
Cement Sector Strategy
Page 3
India Cement Sector
Snapshot of views on stocks
Company View
UltraTech
Cement
(UTCEM)
Rating:
ADD
TP: Rs. 3,030
We maintain our positive stance on UTCEM given (1) organic/inorganic expansions will aid superior volume growth and continued market share gains in FY16-
18E; and (2) Robust cash generation and balance sheet will support further capacity expansions.
Expect UTCEM to generate significant operating cash flows to the tune of ~75bn over the next two years. And with robust balance sheet, we do not rule out a
possibility of further acquisitions. Expect RoEs to expand from 11% in FY15 to ~13% by FY17E.
We expect EBITDA CAGR of 15% over FY15-FY17E, factoring in volume and realisations growth of 7% and 3% respectively.
We value UTCEM based on 14.5x FY17E EBITDA, which is ~15% premium to last three year average. We believe UTCEM deserves premium valuations
due to superior volume growth, margin expansion led by cost saving initiatives and balance sheet strength. At CMP, the stock trades at 14.0x
FY17E EV/EBITDA and $180/t. In our view the stock has factored in most of the positives at CMP and would wait for a better entry price for favorable
risk reward. Maintain ADD with a revised target price of Rs. 3,030/share.
Shree Cement
(SRCM)
Rating:
Downgrade to
SELL from ADD
TP: Rs. 9,200
• While we continue to like SRCM’s cost leadership, gradual and timely capacity additions, strong balance sheet and return metrics, we believe stock is richly
valued despite factoring in healthy volume growth and margin benefits. The stock trades at 17.6x FY17E EV/EBITDA, Rs. 12,000/t on EV/t basis, and 36x
FY17E EPS. Combination of strong earnings expectations and expensive valuations makes a case for unfavorable risk reward scenario. Downgrade the
stock from ADD to SELL with a revised target price of Rs. 9,200/share based on 14x FY17E EBITDA. Our target multiple of 14x FY17E EBITDA for
SRCM is premium over its peers given its low cost base, superior execution, market share gains, healthy balance sheet and return ratios.
• We factor in realisations/t and costs/t CAGR of 4% and 2% CAGR respectively. As a result EBITDA margins will increase from 21% in FY15 to 24% in FY17E.
Importantly, the current stock price implies realisations/t CAGR of 7% over FY15-FY17E where we believe downside potential is higher.
• We expect SRCM to generate Rs. 30bn of operating cash flows over FY16-FY17E. As a result, we believe SRCM will have enough appetite to expand both
organically/inorganically in a gradual manner without impacting the balance sheet quality. The company currently has a capacity of 25.6mt and with 1.6mt
expansion in Bihar by end of FY17E, the capacity will reach 27.2mt.
Ambuja
Cement
(ACEM)
Rating:
Upgrade to
BUY from ADD
TP: Rs. 225
We expect ACEM to be a big beneficiary of the restructuring of LafargeHolcim’s global operations. The long pending merger approval with ACC will lead to
gradual re-rating in the stock and also aid in realising synergies over the next two to three years.
Earnings comfort with limited downside risks. Buying into decade low CY15 EBITDA with conservative assumptions of 4% and 3% volumes and realisation
CAGR over CY15-CY17E respectively. Also, ACEM offers superior EBITDA CAGR over FY16-FY18E versus its peers.
Play ACC through ACEM. Indirect beneficiary through higher volume growth in ACC (commissioning of plant in Eastern region) and synergy realisations. ACC
forms ~25% of ACEM’s target price in our SoTP;
Attractive valuations; Stock trades at 10.3x CY17E EBITDA on par with five year average. ACEM trades at discount to ACC and the discount to UTCEM has
widened in the recent past. Expect re-rating in the stock led by scale up in operations and synergy benefits.
ACC
Rating:
ADD
TP: Rs. 1,400
We maintain our long term positive stance on ACC. The company’s current inefficient cost structure and the proposed synergies (post consolidation with
Ambuja Cement) would aid earnings growth.
We expect EBITDA CAGR of 26% over CY15-CY17E, factoring in volume and realisations growth of 5% and 3% respectively. We expect ACC’s volumes
trajectory to improve going ahead largely due to commissioning of its 3.5mt plant in East by 2HCY16E.
We value ACC based on 12x CY17E EBITDA, which is ~20% premium to last five year average. We expect ACC to trade at premium to historicals on
improving cost structure and balance sheet. At CMP, ACC is trading at 11.6x CY17E EBITDA, hence limited upside from the current levels. Maintain ADD with
a TP of Rs. 1,400/share. However, we prefer to play ACC via ACEM, given ACEM will be a indirect beneficiary of synergies and volumes growth in ACC.
Page 4
India Cement Sector
Comparative valuations
Company
Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) FY16-FY18E CAGR
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E Revenue EBITDA PAT
ACC 1,12,689 1,20,800 1,33,039 12,328 15,159 19,457 7,515 8,832 12,442 40.0 47.0 66.2 8.7% 25.6% 28.7%
ACEM 95,162 1,00,957 1,10,225 14,308 17,240 22,937 9,594 13,407 17,964 6.2 6.8 9.1 7.6% 26.6% 36.8%
SRCM 76,020 88,500 99,784 17,329 21,371 24,418 6,432 10,593 13,109 184.6 304.1 376.3 14.6% 18.7% 42.8%
UTCEM 2,49,163 2,81,267 3,15,474 46,595 55,643 62,516 22,199 28,147 31,921 80.9 102.6 116.3 12.5% 15.8% 19.9%
Company
EBITDA margins % EBITDA/t (Rs/t) RoCE RoAE Net Debt to Equity (x)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
ACC 10.9% 12.5% 14.6% 511 607 731 11.0% 10.9% 14.5% 9.0% 10.3% 13.8% -0.1 -0.1 -0.1
ACEM 15.0% 17.1% 20.8% 649 759 953 9.8% 9.5% 12.2% 9.3% 9.0% 9.2% -0.5 -0.1 -0.1
SRCM 22.8% 24.1% 24.5% 856 937 982 11.2% 15.9% 17.1% 11.6% 16.9% 18.1% -0.2 -0.2 -0.2
UTCEM 18.7% 19.8% 19.8% 963 1,048 1,092 12.2% 14.2% 15.7% 11.2% 12.8% 12.9% 0.1 0.1 0.0
ACC and Ambuja are Dec-ending; Shree – June ending and the rest March ending
Company CMP Shares MCAP EV/EBITDA EV/t (Rs/t) PE Target
price
(Rs.)
Rating Rs. mn Rs. mn FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
ACC 1,355 188 2,54,672 19.7x 15.5x 11.6x 8,059 6,975 6,722 33.9x 28.8x 20.5x 1,400 Add
ACEM 195 1,550 3,02,200 17.0x 14.2x 10.3x 8,248 8,265 7,987 31.4x 22.5x 16.8x 225 Buy
SRCM 1,150 35 40,063 22.0x 17.6x 15.1x 13,064 12,093 11,140 60.4x 36.7x 29.6x 9,200 Sell
UTCEM 2,890 274 7,93,016 17.0x 14.0x 12.0x 12,231 11,665 11,313 35.7x 28.2x 24.8x 3,030 Add
Page 5
India Cement Sector
Evaluating Large Cap Cement Companies
Page 6
India Cement Sector Primer on “BIG 4” of Indian Cement Sector
Big 4 total capacity to increase by 8% versus 1% for other players in
next 2 years
Source: Spark Capital
Big 4 have significant market share in west, north, and east region,
whereas Southern region has many regional players
Source: Spark Capital
Consolidation to continue with lot of potential assets sales in the
market going to UTCEM/SRCM in the coming 2 years
Source: Spark Capital
UTCEM, ACEM, ACC and SRCM together control ~42% of Indian Cement Industry capacity
Big 4 players have utilization of 75% versus 61% for others indicating
favorable regional exposure and wide spread dealers network
Source: Spark Capital
15.9 15.2 14.9 15.1 16.1 16.6 17.9
8.1 8.5 8.2 7.8 7.7 7.5 8.78.8 9.4 8.8 8.4 8.1 7.7 8.44.4 4.2 4.0 4.9 6.3 6.5
6.8
62.8 62.8 64.1 63.8 61.8 61.7 58.2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Cap
acit
y m
ark
et sh
are
%
Ultratech Ambuja ACC Shree Others
75
8280
77
74 7375
6563 62 62 62
60 61
50
55
60
65
70
75
80
85
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Cap
acit
y u
tilisati
on
%
Top 4 players Others
58 56 66
18
36 42
42 44 34
82
64 58
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
North East West South Central All India
Cap
acit
y m
ark
et
sh
are
%
Top 4 players Others
114 120 122 129 143 150 167.0
193 202 218 229 230
242 232.9
308 322
341 358
373 392 400
0
50
100
150
200
250
300
350
400
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Cap
acit
y in
mt
Top 4 players Others Industry capacity
Page 7
India Cement Sector Why we Prefer Large caps over Midcaps
Large cap valuations premium to Midcaps have come down to 41%
below last 5 years average of 43%
Source: Spark Capital
Large caps have net cash balance sheets whereas Midcaps cement
companies have high gearing due to significant capacity additions
Source: Spark Capital
Midcap cement companies have rerated significantly in the recent past; Risk reward favourable in large caps
41.3
10
15
20
25
30
35
40
45
50
55
60
Jan-1
1
Apr-
11
Jul-11
Oct-
11
Jan-1
2
Apr-
12
Jul-12
Oct-
12
Jan-1
3
Apr-
13
Jul-13
Oct-
13
Jan-1
4
Apr-
14
Jul-14
Oct-
14
Jan-1
5
Apr-
15
Jul-15
Oct-
15 L
arg
e c
ap
s v
ers
us
Mid
cap
s
pre
miu
m b
ased
on
EV
to
EB
itd
a
78%
-10%
-40%
-20%
0%
20%
40%
60%
80%
100%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Net d
eb
t to
Eq
uit
y
Large caps Mid caps
In a delayed demand recovery scenario, Mid-caps carry higher downside risks given combination of high leverage and high valuations
Source: Spark Capital
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
-10%
-5%
0%
5%
10%
15%
20%
25%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Change in average prices Total demand growth (%) Utilisation % (RHS)
Strong demand
Minimal capacity additions
Increasing utilizations
High pricing power
Healthy demand
Influx of higher capacity additions
Decreasing utilisations
Decreasing pricing power
Weak demand
Influx of capacity additions
Decreasing utilisations
Weak pricing power
Page 8
India Cement Sector
Geographical
Spread
Volumes
Cost
Profitability
Balance Sheet
Quality
Valuations
EBITDA
Sensitivity
Realizations
Volumes
Valuations EV/Ebitda and
EV/ton
Net debt to Equity and
Balance sheet expansion
scope
Asset turnover
Ebitda growth
ROCE
Total cost per ton
Scope of cost savings
Volume growth
Favorable region
Diversification
1 2 3 4
1 3 4 2
1 2 3 4
1 3 4 2
1 2 3 4
1 2 3 4
1 3 4 2
4 2 3 1
1 2 3 4
1
2 3 4 1
2 3 4
1 2 3 4
1 2 3 4
Overall Ranking
1
2
3
4
Ebitda margins
Business Evaluation Matrix
In this section, we profile four
Large cap cement companies and
evaluate their inherent business
models, understand their risk-
reward equation and present our
top picks.
To do this, we have devised a
rating scale and have ranked the
companies on a few key
parameters, which we believe will
have a significant impact on the
operations and the profitability of
the companies. We present below
our key parameters, their
rationale and the companies we
like/dislike on each parameter.
Page 9
India Cement Sector
From an industry perspective, expect higher demand growth in East, South,
and Central markets
Source: Spark Capital
UTCEM capacity is more diversified across regions whereas SRCM is concentrated only in North and East
Source: Assuming Lafarge consolidation in UTCEM by FY17E. Spark Capital
18%
28%
12%
29%
13%
ACC FY17E capacity 33.6
MTPA
33%
23%
39%
5%
ACEM FY17E capacity 29.6
MTPA
20%
16%
28%
22%
15%
UTCEM FY17E capacity
71.3 MTPA
68%
25%
7%
SRCM FY17E capacity 28.1
MTPA
Demand supply equation most favorable in Central; South remains the worst
Source: Spark Capital
1. Geographical Spread
3%
6%
3%
-3%
6%
4%
7%
4%
6% 6%6%
9%
6%
10%9%
-4%
-2%
0%
2%
4%
6%
8%
10%
North East West South Central
Dem
an
d g
row
th %
FY16E FY17E FY18E
81% 79%86%
45%
82%81%
73%
86%
48%
85%81%
76%
86%
53%
90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
North East West South Central
Cap
acit
y u
tilisati
on
%
FY16E FY17E FY18E
UTCEM SRCM
Page 10
India Cement Sector
UTCEM and SRCM will continue to post superior volume growth over the
next two years led by investment in capacities
Source: Spark Capital
Despite minimal additions from ACEM and ACC, both the players have sufficient idle capacity
Source: Spark Capital
UTCEM and SRCM added substantial capacities in last 2 years vis-à-vis
ACEM and ACC
Source: Spark Capital
2. Volume Growth
0% 2%
6%
14%
6%
0%
5%7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
ACC Ambuja UltraTech Shree Cement
To
tal C
ap
acit
y g
row
th (C
AG
R)
FY14-16e Cagr FY16-18e Cagr
FY1330.1
FY18E33.6
FY1328.0
FY18E29.6
FY1350.9
FY18E71.5
FY1317.5
FY18E29.2
Total Capacity in MTPA
-1%
1%
4%
8%4%
3%6%
7%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
ACC Ambuja UltraTech Shree Cement
Vo
lum
e g
row
th (C
AG
R)
FY14-16 Cagr FY16-18e Cagr
82%80%
79%81%
78%76%
80%78%
75% 76% 76%77%
81% 81%
78%77%
74%
78%
92% 92%
79%
72%
75%
70%
75%
80%
85%
90%
95%
FY12 FY13 FY14 FY15 FY16E FY17E
Cap
acit
y u
tilisati
on
%
ACC Ambuja UltraTech Shree Cement
SRCM ACC
Page 11
India Cement Sector
SRCM ranks the best in total costs/t followed by ACEM; Adjusted for
UTCEM’s white cement business, the total cost/t would be ~3,850/t
Source: Spark Capital
Raw material cost trends across the large caps - ACEM ranks the best
Source: Spark Capital
ACEM overall cost will go down due to synergies realization from ACC
merger
Source: Spark Capital
3. Cost savings
12% 19% 18% 17%
28%25% 25% 25%
23%24% 25% 22%
7%8% 7% 11%
30% 24% 25% 25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ACEM ACC UTCEM SRCM
To
tal c
ost b
reaku
p (F
Y15
-16
avg
)
Raw material Power & Fuel Freight Employee Others
3,665/t 3,950/t 4127/t 2736/tTotal cost
per ton
329370 361
428466
533
698727
792
873
571
670 683712
768
390 407 420465 474
0
100
200
300
400
500
600
700
800
900
FY12 FY13 FY14 FY15 FY16E
Raw
mate
rial c
ost p
er to
n
ACEM ACC UTCEM SRCM
ACEM ACC
1% 1%
3% 3%
1% 1%
2% 2%
0%
-2%
4% 4%
-2%
-1%
0%
1%
2%
3%
4%
5%
ACC ACEM SRCM UTCEM
To
tal C
os
t p
er
ton
Yo
Y g
row
th
FY16E FY17E FY18E
Page 12
India Cement Sector
Power source mix across companies
Source: Spark Capital
SRCM is the most cost efficient in Fuel and Power generation due to higher
reliance on Pet coke and WHRS
Source: Spark Capital
Power capacity mix. ACC and ACEM lag in WHRS capacities
Source: Spark Capital
Fuel source mix across companies; SRCM 100% reliant on petcoke and ACC
has higher exposure to domestic coal
Source: Spark Capital
3. Fuel and Power
457 469390
178
557 540621
485
0
100
200
300
400
500
600
700
800
900
1,000
ACEM ACC UTCEM SRCM
Fu
el a
nd
Po
wer co
st/
t (F
Y15
-16
avg
)
Fuel Power
53
13
65
100
14
25
23 26
57
12 7 5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ACEM ACC UTCEM SRCM
Fu
el c
on
su
mp
tion
bre
aku
p
Pet coke Imported Domestic coal AFR
281 360
717
501 5
5
53
96
0
100
200
300
400
500
600
700
800
ACEM ACC UTCEM SRCM
Cap
acit
y in
MW
TPP WHRS
70 77 82
66
30 21
14 4
0
2 4 30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ACEM ACC UTCEM SRCM
Po
wer so
urc
e b
reaku
p
TPP WHRS External grid
Page 13
India Cement Sector
Lead distance of cement majors
Source: Spark Capital
SRCM freight cost is lowest due to efficient logistics operations
Source: Spark Capital
Road freight cost has been inching upwards in last 2 months after falling from
Sept14-Sept15
Source: Spark Capital
ACEM’s Sea freight mode contribution is almost 10% which is cheapest
compared to other modes
Source: Spark Capital
550
450
375
330
200
250
300
350
400
450
500
550
600
SRCM UTCEM ACC ACEM
Le
ad
dis
tan
ce in
Km
80
85
90
95
100
105
110
115
120
Jan12
Mar1
2
May12
Jul1
2
Oct1
2
Dec12
Fe
b13
Apr1
3
Jun13
Aug13
Oct1
3
Dec13
Fe
b14
Apr1
4
Jun14
Aug14
Oct1
4
Dec14
Fe
b15
Mar1
5
May15
Jul1
5
Sep15
Nov15
Ro
ad
fre
igh
t in
de
x
Mumbai Nagpur Kolkata Guwahati Hyderabad Chennai
3. Freight Cost
1,052
954
841
596
200
300
400
500
600
700
800
900
1,000
1,100
UTCEM ACC ACEM SRCM
Fre
igh
co
st p
er to
n
6957
65 60
2943 25 40
310
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UTCEM ACC ACEM SRCM
Fri
eg
ht m
od
e m
ix %
Road Rail Sea
Page 14
India Cement Sector
Higher Ebitda growth for ACEM and ACC due to low base and synergy
benefits
Source: Spark Capital
SRCM and UTCEM have superior return ratios than ACC and ACEM
Source: Spark Capital
SRCM ranks best in margins driven by low cost operations
Source: Spark Capital
4. Profitability
-1%
-23%
29%
11%
23%20%
23%19%
28%33%
14% 12%
-30%
-20%
-10%
0%
10%
20%
30%
40%
ACC ACEM SRCM UTCEM
Eb
itd
a Y
oY
gro
wth
FY16 FY17 FY18
11%
15%
23%
19%
13%
17%
24%
20%
15%
21%
24%
20%
0%
5%
10%
15%
20%
25%
ACC ACEM SRCM UTCEM
Eb
itd
a m
arg
ins
FY16 FY17 FY18
11%10%
11%12%
11%10%
16%
14%15%
12%
17%16%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
ACC ACEM SRCM UTCEM
RO
CE
%
FY16 FY17 FY18
SRCM ACC
Page 15
India Cement Sector
Leverage profile of large caps
Source: Spark Capital
ACC has high asset turns due to legacy plants
Source: Spark Capital
5. Balance sheet quality
-0.12
-0.47
-0.19
0.14
-0.09 -0.10
-0.25
0.04
-0.13 -0.12
-0.23
-0.05
-0.55
-0.45
-0.35
-0.25
-0.15
-0.05
0.05
0.15
0.25
ACC ACEM SRCM UTCEM
Net d
eb
t to
Eq
uit
y (x)
FY16 FY17 FY18
0.90
0.82 0.84
0.75
0.84 0.83
0.89
0.78
0.91 0.88
0.89
0.83
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
ACC ACEM SRCM UTCEM
Asset tu
rno
ver (x
)
FY16 FY17 FY18
Around 5% or 20mt of industry up for sale- UTCEM and SRCM most probable buyers
Source: Spark Capital
Potential capacities for sales Capacity
(mt) Location
Reliance Cement 5.6 Clinker unit in Madhya Pradesh
Jaypee SAIL 2.2 Bhilai, Chhattishgarh
ABG Cement 5.8 Kutch, Gujarat
Binani Cement 1.2 Neem Ka Thana, Rajasthan
Other mini plants 5 Mini plants in Andhra Pradesh and
Telangana
Total 19.8
% of FY16 installed based 5%
SRCM ACEM
Page 16
India Cement Sector
SRCM is the most expensive whereas ACEM is the cheapest on FY18
EBITDA basis
Source: Spark Capital
ACC is the cheapest among major cement players on EV/ton basis
Source: Spark Capital
6. Valuations and Sensitivity analysis
ACC is most sensitive to realizations due to higher fixed cost
Source: Spark Capital
UTCEM has lowest sensitivity to volumes due to scale of operations
Source: Spark Capital
7%
6%
4% 3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
ACC ACEM UTCEM SRCM
Eb
itd
a s
en
sit
ivit
y t
o R
eali
sati
on
2%
1% 1%
1%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
ACEM ACC SRCM UTCEM
Eb
itd
a s
en
sit
ivit
y t
o V
olu
mes
6,975
8,265
12,09311,665
6,722
7,987
11,140 11,313
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
ACC ACEM SRCM UTCEM
EV
/to
n
FY17E FY18E
15.5
14.2
17.6
14.0
11.6
10.3
15.1
12.0
10
11
12
13
14
15
16
17
18
ACC ACEM SRCM UTCEM
EV
/Eb
ita (x)
FY17E FY18E
ACEM SRCM
Page 17
India Cement Sector
Ambuja Cements Upgrade to BUY Preferred Large cap pick
“Heads I Win and Tails I don’t Lose Much”
Page 18
India Cement Sector Proposed merger with ACC – Deal Dynamics
Ambuja to hold 50.01% stake in ACC through Holcim India
Total group entity will have capacity at par to UTCEM with presence in all major regions
LafargeHolcim
Ambuja ACC
LafargeHolcim India
ACL acquires
stake of 24%
in Holcim
India for cash
Merge Holcim
India into ACL
by issuing
equity shares
in ACL
9.76% 50.01%
LafargeHolcim
Ambuja ACC
61.39% 0.29%
50.01%
40.79% 0.29%
Source: Holcim presentation, Spark Capital
Ambuja acquires Holcim’s 50% equity stake in ACC as under:
Ambuja to acquire 24% stake in Holcim India for Rs. 35bn in cash
Holcim India to merge into Ambuja under a scheme of amalgamation by
issuing shares to Holcim; Holcim India’s 9.8% stake in Ambuja to be cancelled
Currently proposal lies with Foreign Investment Promotion Board (FIPB) to be
considered on 21st December 2015 after approval from CCEA
Evolution of current to target shareholder structure
ACEM Equity dilution after ACC merger
Post deal shares outstanding (mn shares)
Pre deal shares outstanding 1,550
Add: Shares issue to Holcim India (HI) 584
Less: Cancellation of ACEM shares held by HI 151
Post deal shares outstanding of ACME 1,982
Net Dilution 432.7
Page 19
India Cement Sector
Total group entity will have capacity at par to UTCEM with presence in all major regions
Source: Spark Capital
Capacity market share of the group will be in excess of 20% in North, East
and West markets
Source: Spark Capital
27%
28%
23%
14%
9%
Group capacity in FY17: 68.4MT
North East West South Central
11.0 10.3
21.7
0.0
2.9
20.7
28.7 29.2
6.8
11.8
0
5
10
15
20
25
30
35
North East West South Central
Cap
acit
y m
ark
et sh
are
%
Ambuja alone Group
Making of a “GIANT”
Consolidation of Indian operations; Favourable regional exposure with sizeable market share in North, East, and West
Volume growth concerns will be allayed due to investment in ACC and
potential merger with Lafarge’s India assets
Source: Spark Capital
3.0
5.0
14.8
0
2
4
6
8
10
12
14
16
CY16E CY17E
Vo
lum
e g
row
th %
Ambuja only Group Entity
33%
23%
39%
5%
Ambuja capacity in CY17: 29.6MT
North East West South Central
18%
28%
12%
29%
13%
ACC capacity in CY17: 33.6MT
North East West South Central
50% 50%
Lafarge capacity in CY17: 5.2MT
North East West South Central
Page 20
India Cement Sector
Focus on Synergies and Higher payouts augurs well for the Shareholders
The global parent of Ambuja and ACC, LafargeHolcim
listed out the broad vision of the group in its analyst meet
held on 1st December 2015.
The focus is on free cash flow generation, improvement in
return ratios and cash returns to share holders. This will
be driven by combination of operating synergies and strict
control over capex. The management of LafargeHolcim is
targeting CHF1.1bn of synergies by the end of CY17, of
which ~60% will be led by procurement and SG&A.
We expect the management to be committed to these
targets as the bonus payouts are based on FCF and
EBITDA.
LafargeHolcim’s India operations account for ~18% of
total capacity. And ~14% (CHF 150mn) of the targeted
synergies will come from Indian operations. Given the
importance of Indian operations and compensation
linked to FCF and synergies, we expect management
to lay emphasis on delivering the synergies. This
augurs well for both ACEM and ACC shareholders.
Free Cash Flow
At least CHF 10.0bn
cumulative 2016-2018
CHF 3.5-4.0bn run rate by
2018
At least CHF 6 per share run
rate by 2018
Medium Term Group Targets
Capex
Max CHF 3.5bn cumulative
2016-2017
ROIC
At least 300bps
improvement from 2015 level
by 2018 from operational
improvement
Operating EBITDA
At least CHF 8.0bn in 2018
Credit Rating
Maintain solid investment
grade rating
Cash Returns to
Shareholders
DPS CHF 1.50 for 2015
Progressively grow DPS and
50% pay-out over cycle
Return excess cash to
shareholders commensurate
with a solid investment grade
credit rating
CHF mn EBITDA synergies,
run rate end CY2017 Levers identified and taken over by countries
Operational
Performance 220
6 cement productivity best-practices deployed
Network optimization in overlapping countries
Procurement 380
~2% reduction of external spending by:
− Renegotiating top 2000 contracts
− Switching to best supplier
− Implementing a Category management approach
SG&A 280
Combination and right-sizing of headquarters and in
overlapping countries
Leverage Regional shared services
Growth and
Innovaiton 220
Best-practice roll-out 9 specific markets / segments
Optimization of customer and geography mix
Cross-selling actions and product offering optimization
Total Synergies
at EBITDA level
1,100
(€ 1,000mn)
Annual Bonus Plan linked to Synergies and FCF
30%
40%
30%
CEO
30%
40%
30%
Exco
40%
20%
40%
Senior Executives
EBITDA Free Cash Flow Strategic/Personal Objectives
Implications of LafargeHolcim’s vision on ACEM and ACC
Source: LafargeHolcim presentation, Spark Capital Source: LafargeHolcim presentation, Spark Capital
Page 21
India Cement Sector
Mapping out the key Synergies Sources
ACEM’s current petcoke usage is
~53%. ACC’s current petcoke
usage is 13%. Hence there is lot of
scope in improvement in power &
fuel cost for ACC.
ACEM’s current alternate fuel mix
is 7%. ACC’s current alternate fuel
mix is 5%. Both companies target
this to be ~10%. Alternate fuel
costs ~70% cheaper than coal
Clinker swaps – 2 ACC plants
supply clinker to 2 ACEM plants. 2
ACEM plants supply clinker to 4
ACC plants.
Cement swaps – 13 ACEM plants
supply in parts of 21 states for
ACC. 10 ACC plants supply in
parts of 16 states for ACEM.
Cost savings from logistics
optimisation will be ~Rs. 4bn
Both ACC and Ambuja are well
established brands. Management
focus on investing in brand can
aid in premium pricing. The recent
Ambuja ad featuring “The Great
Khali” received widespread
publicity.
ACC has recently announced its
entry in Aerated Concrete Blocks
(AAC) business.
Scope for savings in fixed costs remain high for ACEM + ACC combined – 2% savings can realise Rs. 4bn of synergies
Fixed costs profile ACC ACEM ACEM + ACC UTCEM
Rs. Mn 2014 2015 2014 2015 2014 2015 2014 2015
Employee costs 6,613 7,466 5,022 5,816 11,634 13,282 10,146 12,183
Advertisement and publicity 1,161 1,068 885 872 2,045 1,941 1,496 1,580
Other fixed costs 8,525 8,604 4,486 4,546 13,011 13,150 5,525 6,215
Total fixed costs (Rs. nn) 16,298 17,138 10,392 11,234 26,690 28,372 17,168 19,978
Net revenues 1,09,084 1,14,811 90,891 99,109 1,99,975 2,13,920 2,02,798 2,29,362
% of net revenues 15% 15% 11% 11% 13% 13% 8% 9%
Commercial
transformation
Logistics
Optimization
Organization &
Operational
Efficiency
Continue to strengthen dealer network to maximize premiums, investing in our 2
strong brands, strengthening technical support and providing end user support
Increase premium product and service offering through product portfolio leverage in
Commercial / Infrastructure segment
Swap clinker and cement volumes between ACC and ACL
Margin maximization using Transaction Price Management (TPM) tool, which
minimizes distribution costs through maximizing volumes in proximity to LH plants
Changing manufacturing mindset to maintain our leadership in cost competitiveness
Increase usage of low cost Petcoke in both companies
Increase Use of alternative fuels
Implement Business Shared Service (BSC) to integrated backend
processes (Finance, HR, Commercial) and Common Procurement
organization
Improvement
objective
CHF 150m
EBITDA
1
2
3
4
5
6
7
8
LafargeHolcim investors meet takeaways
Source: LafargeHolcim presentation, Spark Capital
Page 22
India Cement Sector Illustration of Cost savings due to Clinker and Cement Swaps
ACC and ACEM capacities geographical location – Scope for logistic
savings remains high An illustration on how Clinker and Cement swap will work out
Swap opportunity: Supply markets from the closest plants to lower cost-to-serve
ACC Context: Lead reduction of 273 km and freight saving of INR 256 per ton
ACL Context: Lead reduction of 71 km and freight saving of INR 156 per ton
Significant scope of cost savings due to clinker and cement swaps in North
and West
Source: Spark Capital, LafargeHolcim presentation
18% 33%
28%
23% 12%
39% 29%
13%
5%
0%
20%
40%
60%
80%
100%
ACC Ambuja
Reg
ion
al cap
acit
y b
reaku
p
North East West South Central
Scope for logistics optimisation remains high
Page 23
India Cement Sector
Focus on Increasing Utilisations over organic capacity growth
LafargeHolcim is committed to higher
FCF generation, ROIC, and DPS. As a
result the management is scaling down
its capex by 30-40% over the next two
to three years. The group intends to
reduce the capex to less than CHF 2bn
by 2018 vs. Average of CHF 2.9bn
over the last four years.
The focus will be on (1) increasing
utilisations from 68% currently; (2)
complete the on-going projects; and (3)
growing capacities by de-bottlenecking.
From Indian perspective, ACC is
currently working Jamul expansion,
which will increase the capacity by
3.5mt.
Further, we expect ACEM to incur
capex on consolidation of Lafarge’s
India assets, which has a capacity of
5.2mt.
Both the Indian entities, ACEM and
ACC have been consistently paying
dividend payout ratio in the range of
50%. With the global management
focus on increase in DPS, we expect
the payout to sustain going ahead.
Significantly Lower Capex (CHF Bn)
1.0
1.8
Average 2010-14
2.0
1.5
2016 2017 2018
2.8 - 2.9
Plan Looking Forward Historical
Maintenance
Development
Maintenance
Completion of
on-going projects
New Development
3.5 < 2.0
(run-rate)
Strict Capital Allocation Policy
2016-18E
Cumulative FCF Target
>CHF 10bn
Return excess cash to shareholders
Excess cash returned to shareholders through special dividends or
share buybacks
Maintain a solid investment grade rating through the cycle
Maintain credit ratios commensurate with BBB/Baa2 credit ratings 1
Strict management of capex and dynamic portfolio management 2
Progressive dividend policy
Grow DPS p.a.; 50% pay-out over cycle 3
LafargeHolcim investors meet takeaways
Source: LafargeHolcim presentation, Spark Capital
Page 24
India Cement Sector
ACEM CY15 earnings have been lowest in last decade due to decline in
volume growth and realizations
Source: Spark Capital
ACEM volume growth will continue to be lower than the industry. However,
ACEM will be an indirect beneficiary in ACC’s volume growth
Source: Spark Capital
ACEM earnings to head north due to lower base and synergy benefits post
ACC merger
Source: Spark Capital
ACEM and ACC have sufficient capacity to meet the demand in case of
Industry volumes recovers significantly
Source: Spark Capital
Ambuja Cement- A Value Trade
High comfort on earnings due to Bottom Cycle earnings base and conservative realisation assumptions
21 20 18 19 19 19 24 16 19 14 17 23
34%36%
28% 27%25%
23%25%
17% 19%15%
17%21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
10
13
15
18
20
23
25
Ebitda in Rsbn Ebitda margins (RHS)
Decade low marginsand earnings 27%
26%
19%
16%
10%
15%
20%
25%
30%
ACEM ACC SRCM UTCEM
FY
16-1
8E
Eb
itd
a C
AG
R %
-1%
3%
6%
-4%
4%
7%
-6%
-4%
-2%
0%
2%
4%
6%
8%
CY15 CY16E CY17E
Vo
lum
e g
row
th %
Ambuja ACC
76%77%
81%
78%76%
77%
50%
55%
60%
65%
70%
75%
80%
85%
CY15 CY16E CY17E
Cap
acit
y u
tlilis
ati
on
%
Ambuja ACC
ACEM’s earnings growth is
expected superior over its
peers over FY16-FY18E
Page 25
India Cement Sector
EPS accretion of 5% from CY17 onwards due to better operational synergies
Source: Spark Capital
Assuming same payout ratio of 50% for next 2 years
Source: Spark Capital
RoCE dilution in CY16 whereas with Synergies realized in CY17 will aid
improvement to normal levels
Source: Spark Capital
DPS growth of 32% in CY17 on back of synergies and management
emphasis on increasing payouts
Source: Spark Capital
Prudent Capital Allocation
Ambuja’s investment in ACC will be Earnings accretive and neutral on return rations
6.2
6.8
9.1
6.2
7.5
8.6
4
5
6
7
8
9
10
CY15 CY16 CY17
Am
bu
ja E
PS
With ACC Merger Without ACC Merger
Assuming
synergies benefits
to flow only by
CY17
3.0 3.5
2.2 2.4 2.4
3.2 3.6 3.6
5.0
3.2 3.4
4.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Div
ide
nd
pe
r sh
are
Assuming constant dividend
payout ratio, DPS to grow
considerably in FY17
31% 30%
24%
30% 29%
40% 43% 44%
52% 52% 50% 50%
0%
10%
20%
30%
40%
50%
60%
Div
ide
nd
pa
yo
ut
%
13%
17%
15%
17%
5%
7%
9%
11%
13%
15%
17%
19%
CY16 CY17
Am
bu
ja P
re-T
ax R
OC
E %
With ACC Merger Without ACC Merger
Page 26
India Cement Sector
ACEM trading at attractive valuations of $118 /t post incorporating ACC
merger
Source: Spark Capital
UTCEM premium to ACEM based on12MF EV/Ebitda is at high of 13.6%
versus historical average of 7-8%
Source: Spark Capital
ACC is trading at premium to ACEM based on12MF EV/Ebitda. With merger
in pipeline, one can invest in ACC through ACEM itself
Source: Spark Capital
Cheapest Stock among the “Big 4”
Ambuja Cement’s valuations discount to UTCEM and ACC should narrow down due to Merger Synergies and Increasing Scale
13.6
-20
-15
-10
-5
0
5
10
15
20
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
UT
CE
M p
rem
ium
to
AC
EM
b
ased
on
EV
/Eb
itd
a
2.9
-25
-20
-15
-10
-5
0
5
10
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5 A
CC
pre
miu
m t
o A
CE
M b
ased
o
n E
V/E
Bit
da
Ambuja’s implied valuation based on ACC's proportional capacities
Shares outstanding post dilution (mn) 1,982
CMP 195
Market cap post diltuon (Rs. Mn) 386,586
Less:
Net cash (Rs.mn) 30,472
Enterprise value (Rs. Mn) 356,114
ACEM Capacity (mt) 29.6
ACC Capacity (mt) - pro rate at 50.01% 16.8
EV/t based on INR 7,683
EV/t based on INR at 65 118
Page 27
India Cement Sector Scenario analysis around merger and realisation of synergies
Ambuja’s compelling Valuations provide “High Margin of Safety”
Scenario analysis around merger and realisation of synergies
Scenario
Bear Case 1 Bear Case 2 Base Case Bull Case
No merger and hence no
synergies
Merger with 30% of targeted
synergies realised in CY17
Merger with 70% of targeted
synergies realised in CY17
Merger with 30% of
synergies realised in CY16
and the rest 70% in CY17
Targeted synergies (Rs. mn) 10,000 10,000 10,000 10,000
Realised synergies for ACEM (Rs.mn)
CY16E 0 0 0 1,350
CY17E 0 1,350 3,150 3,150
EBITDA (Rs. mn)
CY16E 17,240 17,240 17,240 18,590
CY17E 19,445 20,795 22,595 22,595
EV/EBITDA
CY16E 13.8 14.4 13.8 12.8
CY17E 12.0 11.6 10.2 10.0
EV/t
CY16E 124 133 128 128
CY17E 121 129 124 123
Target price 195 203 225 250
Assumed target multiple on CY17E 12.0 12.5 13.0 14.0
% upside/(downside) from CMP 0% 4% 15% 28%
Page 28
India Cement Sector
ACC - Financial Summary
Abridged Standalone Financial Summary
Rs. mn CY14 CY15E CY16E CY17E CY14 CY15E CY16E CY17E
Profit & Loss
Revenues 1,14,811 1,12,689 1,20,800 1,33,039 Sales volumes (mt) 24.2 23.4 24.3 26.0
EBITDA 12,501 12,328 15,159 19,457 Realisations/t 4,428 4,461 4,595 4,733
Other Income 5,254 6,162 5,272 5,272 EBITDA/t 502 511 607 731
Depreciation 5,576 6,438 8,155 7,639
EBIT 12,180 12,051 12,276 17,089 Revenues 5.2% -1.8% 7.2% 10.1%
Interest 828 500 500 500 EBITDA -8.6% -1.4% 23.0% 28.4%
PBT 11,352 11,551 11,776 16,589 PBT -7.5% 1.8% 1.9% 40.9%
Exceptionals loss/(Income) - 1,532 - - PAT 6.6% -35.7% 17.5% 40.9%
Tax (331) 2,505 2,944 4,147
Adjusted PAT (pre exceptionals) 11,683 7,515 8,832 12,442 EBITDA 10.9% 10.9% 12.5% 14.6%
PBT 9.9% 10.3% 9.7% 12.5%
Networth 82,356 84,392 87,744 92,515 PAT 10.2% 6.7% 7.3% 9.4%
Total Debt - - - -
Deferred Tax 5,356 5,356 5,356 5,356 Net Debt to Equity (x) -0.2 -0.1 -0.1 -0.1
Total Networth & Liabilities 87,712 89,747 93,100 97,871 RoE (%) 14.5% 9.0% 10.3% 13.8%
Gross Block 1,09,507 1,41,507 1,44,507 1,48,007 RoCE (%) 16.0% 11.0% 10.9% 14.5%
Net Block + CWIP 77,197 83,759 88,604 89,465 Gross Asset Turnover (x) 1.1 0.9 0.8 0.9
Investments 15,730 10,730 7,730 5,730
Net working capital (ex cash) (8,258) (6,965) (6,653) (6,249) Shares Outstanding (mn)
Cash 3,043 2,224 3,419 8,925 Market Cap (Rs. mn) 2,54,672 2,54,672 2,54,672 2,54,672
Net working capital (5,215) (4,742) (3,234) 2,676 Enterprise Value (Rs. mn) 2,17,595 2,42,414 2,34,219 2,25,713
Total Assets 87,712 89,747 93,100 97,871 EV/EBITDA (x) 17.4 19.7 15.5 11.6
EV/t (Rs/t) 7,234 8,059 6,975 6,722
Cash flows from operating 13,317 6,998 11,903 14,905 P/E(x) 21.8 33.9 28.8 20.5
Cash flows from investing (14,367) (1,838) (4,728) (1,228) Price to Book (x) 3.1 3.0 2.9 2.8
Cash flows from financing (8,371) (5,979) (5,979) (8,171) FCF Yield (%) -1.1% -2.6% -0.6% 2.3%
Free Cash Flows after interest (2,781) (6,502) (1,597) 5,905 Dividend yield (%) 2.2% 2.5% 1.8% 1.8%
Cash Flows
Performance Ratios
Valuation metrics
188
Balance Sheet
Growth ratios
Margins Ratios
Key metrics
Operational metrics
Page 29
India Cement Sector
Ambuja - Financial Summary
Abridged Standalone Financial Summary Key metrics
Rs. mn CY14 CY15E CY16E CY17E CY14 CY15E CY16E CY17E
Profit & Loss
Revenues 99,109 95,162 1,00,957 1,10,225 Sales volumes (mt) 22.2 22.0 22.7 24.1
EBITDA 18,612 14,308 17,240 22,937 Realisations/t 4,474 4,318 4,447 4,581
Other Income 4,962 5,604 7,955 8,895 EBITDA/t 840 649 759 953
Depreciation 5,095 6,227 6,357 6,162
EBIT 18,479 13,685 18,838 25,670 Revenues 9.0% -4.0% 6.1% 9.2%
Interest 645 720 720 720 EBITDA 17.8% -23.1% 20.5% 33.0%
PBT 17,834 12,965 18,118 24,950 PBT 19.7% -27.3% 39.7% 37.7%
Exceptionals loss/(Income) - - - - PAT 17.8% -35.9% 39.7% 34.0%
Tax 2,871 3,371 4,711 6,986
Adjusted PAT 14,964 9,594 13,407 17,964 EBITDA 18.8% 15.0% 17.1% 20.8%
PBT 18.0% 13.6% 17.9% 22.6%
Networth 1,01,033 1,04,730 1,91,910 1,99,265 PAT 15.1% 10.1% 13.3% 16.3%
Total Debt 191 - - -
Deferred Tax 5,890 5,890 5,890 5,890 Net Debt to Equity (x) -0.4 -0.5 -0.1 -0.1
Total Networth & Liabilities 1,07,115 1,10,620 1,97,801 2,05,155 RoE (%) 15.3% 9.3% 9.0% 9.2%
Gross Block 1,14,291 1,18,791 1,23,291 1,27,791 RoCE (%) 15.8% 9.8% 9.5% 12.2%
Net Block + CWIP 69,173 69,946 70,589 71,926 Gross Asset Turnover (x) 0.9 0.8 0.8 0.9
Investments 21,727 21,727 1,33,516 1,33,516
Net working capital (ex cash) (8,367) (9,445) (9,204) (8,419) Shares Outstanding (mn) 1,550 1,550 1,982 1,982
Cash 24,581 28,393 2,900 8,131 Market Cap (Rs. mn) 3,01,443 3,01,443 3,01,443 3,01,443
Net working capital 16,215 18,947 (6,304) (287) Enterprise Value (Rs. mn) 2,50,238 2,43,736 2,44,234 2,36,003
Total Assets 1,07,115 1,10,620 1,97,801 2,05,155 EV/EBITDA (x) 13.4 17.0 14.2 10.3
EV/t (Rs/t) 8,704 8,248 8,265 7,987
Cash flows from operating 16,753 12,015 12,288 15,166 P/E (x) 20.1 31.4 22.5 16.8
Cash flows from investing (4,601) (1,396) (1,10,834) 1,395 Price to Book (x) 3.0 2.9 2.0 1.9
Cash flows from financing (7,171) (6,808) 73,053 (11,330) FCF Yield (%) 2.6% 1.4% -37.2% 2.3%
Free Cash Flows 7,874 4,295 (1,12,221) 6,946 Dividend Yield (%) 2.6% 1.6% 1.7% 2.3%
Operational metrics
Performance Ratios
Balance Sheet
Cash Flows
Growth ratios
Valuation metrics
Margins Ratios
Page 30
India Cement Sector
Ultratech - Financial Summary
Abridged Financial Statements Key metrics
Rs. mn FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E
Revenues 2,02,798 2,29,362 2,49,163 2,81,267 Total sales volumes (mt) 42.6 46.1 48.4 53.1
EBITDA 38,179 41,950 46,595 55,643 Blended realisations/t 4,756 4,978 5,150 5,298
Other Income 3,290 3,718 3,746 4,220 EBITDA/Tonne 895 910 963 1,048
Depreciation 10,523 11,331 13,350 14,350
EBIT 30,947 34,337 36,992 45,513 Revenues 1.3% 13.1% 8.6% 12.9%
Interest 3,192 5,475 5,190 5,190 EBITDA -15.5% 9.9% 11.1% 19.4%
PBT 27,755 28,863 31,802 40,323 PBT -27.4% 4.0% 10.2% 26.8%
Exceptionals loss/(Income) - - - - PAT -19.2% -6.0% 10.2% 26.8%
Tax 6,310 8,715 9,603 12,176
PAT after exceptionals 21,445 20,147 22,199 28,147 EBITDA 18.8% 18.3% 18.7% 19.8%
PBT 13.7% 12.6% 12.8% 14.3%
Networth 1,70,975 1,88,577 2,07,888 2,33,149 PAT 10.6% 8.8% 8.9% 10.0%
Total Debt 51,993 74,142 74,142 74,142
Deferred Tax 22,958 27,920 27,920 27,920 Net Debt to Equity (x) 0.00 0.14 0.14 0.04
Total Networth & Liabilities 2,45,927 2,90,639 3,09,950 3,35,211 RoE (%) 13.3% 11.2% 11.2% 12.8%
Gross Block 2,50,778 3,18,741 3,48,741 3,68,741 RoCE (%) 17.1% 13.5% 12.2% 14.2%
Net Block + CWIP 1,86,497 2,36,319 2,52,969 2,58,620 Gross Asset Turnover (x) 0.9 0.8 0.7 0.8
Investments 53,917 52,088 52,088 52,088
Net working capital (ex cash) 2,738 93 4,067 5,590 Shares Outstanding (mn)
Cash 2,775 2,139 827 18,914 Market Cap (Rs. mn) 7,93,016 7,93,016 7,93,016 7,93,016
Net working capital 5,513 2,232 4,893 24,503 Enterprise Value (Rs. mn) 7,65,374 7,93,100 7,94,412 7,76,325
Total Assets 2,45,927 2,90,639 3,09,950 3,35,211 EV/EBITDA (x) 20.0 18.9 17.0 14.0
EV/t (Rs/t) 14,187 13,185 12,231 11,665
Cash flows from operating 32,416 40,829 33,019 41,944 P/E (x) 37.0 39.4 35.7 28.2
Cash flows from investing (22,096) (18,797) (26,254) (15,780) Price to Book (x) 4.6 4.2 3.8 3.4
Cash flows from financing (8,972) (22,668) (8,077) (8,077) FCF Yield (%) 0.9% 1.2% -0.3% 2.1%
Free Cash Flows 6,942 9,556 (2,171) 16,754 Dividend Yield (%) 0.4% 0.3% 0.3% 0.3%
Growth ratios
Valuation metrics
Cash Flows
Profit & Loss
Margins Ratios
Operational metrics
Performance Ratios
Balance Sheet
274
Page 31
India Cement Sector
Shree Cement - Financial Summary
Rs. mn FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E
Operational metrics
Revenues 58,873 64,536 76,020 88,500 Sales volumes (mt) 14.3 16.2 17.8 19.9
EBITDA 13,898 13,439 17,329 21,371 Realisations/Tonne 3,680 3,556 3,720 3,850
Other Income 1,849 1,379 1,369 1,693 EBITDA/Tonne 929 761 856 937
Depreciation 5,499 9,248 9,614 8,777
EBIT 10,249 5,569 9,085 14,286 Revenues 5.3% 9.6% 17.8% 16.4%
Interest 1,292 1,206 1,045 1,045 EBITDA -11.0% -3.3% 29.0% 23.3%
PBT 8,957 4,363 8,040 13,241 PBT -20.1% -45.8% 50.9% 64.7%
Exceptionals loss/(Income) 805 355 - - PAT -21.6% -45.8% 50.9% 64.7%
Tax 279 (255) 1,608 2,648 Margins Ratios
PAT after exceptionals 7,872 4,263 6,432 10,593 EBITDA 23.6% 20.8% 22.8% 24.1%
PBT 15.2% 6.8% 10.6% 15.0%
Networth 47,109 52,764 58,224 67,198 PAT 13.4% 6.6% 8.5% 12.0%
Total Debt 11,999 9,166 9,166 9,166 Performance Ratios
Deferred Tax (1,429) (1,952) (1,952) (1,952) Net Debt to Equity (x) -0.3 -0.2 -0.2 -0.2
Total Networth & Liabilities 57,679 59,978 65,439 74,412 RoAE (%) 18.4% 8.5% 11.6% 16.9%
Gross Block 69,076 86,496 93,496 1,05,496 RoCE (%) 17.9% 9.8% 11.2% 15.9%
Net Block + CWIP 32,947 38,350 40,736 43,959 Gross Asset Turnover (x) 0.9 0.8 0.8 0.9
Liquid Investments 22,444 16,626 16,626 16,626 Valuation metrics
Net working capital (ex cash) 695 1,927 4,558 4,809 Shares Outstanding (mn)
Cash 1,593 3,075 3,518 9,018 Market Cap (Rs. mn) 3,88,435 3,88,435 3,88,435 3,88,435
Net working capital 2,288 5,002 8,076 13,827 Core Enterprise Value (Rs. mn) 3,35,675 3,39,880 3,34,437 3,28,937
Total Assets 57,679 59,979 65,439 74,412 Cement EV/EBITDA (x) 25.4 27.6 22.0 17.6
Cement EV/t (Rs.) 19,181 14,402 13,064 12,093
Cash flows from operating 14,007 12,453 13,091 18,472 P/E (x) 49.3 91.1 60.4 36.7
Cash flows from investing (12,339) (9,969) (10,631) (10,307) Price to Book (x) 8.2 7.4 6.7 5.8
Cash flows from financing (1,558) (2,586) (2,017) (2,664) FCF Yield (%) -0.8% 0.0% 0.0% 1.4%
Free Cash Flows (3,131) (70) 46 5,427 Dividend yield (%) 0.2% 0.2% 0.2% 0.4%
Balance Sheet
Cash Flows
Key metricsAbridged Financial Statements
Profit & Loss
Growth ratios
34.84
Page 32
India Cement Sector
Disclaimer
Spark Disclaimer
Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and
infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We
have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of
time.
Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered
with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure
advisory services.
This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should
be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of
companies referred to in this document.
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), and should consult its own advisors to determine the merits and risks of such an investment. This
document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published,
copied, in whole or in part, for any purpose. 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 Spark Capital
and/or its 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. This
material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.
Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this
document. Spark Capital , its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or
deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit
investment banking or other business from, any company referred to in this report.
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark
Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information.
Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective
directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents
or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or
damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of
or reliance on this report.
Absolute
Rating
Interpretation
BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year
horizon
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year
horizon SELL Stock expected to fall >10% over a 1-year horizon
Page 33
India Cement Sector
Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,
Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Disclosure of interest statement Yes/No
Analyst financial interest in the company No
Group/directors ownership of the subject company covered No
Investment banking relationship with the company covered No
Spark Capital’s ownership/any other financial interest in the company covered No
Associates of Spark Capital’s ownership more than 1% in the company covered No
Any other material conflict of interest at the time of publishing the research report No
Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:
Managing/co-managing public offering of securities
Investment banking/merchant banking/brokerage services
products or services other than those above
in connection with research report
No
Whether Research Analyst has served as an officer, director or employee of the subject company covered No
Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No
Cont’d
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research
analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
Additional Disclaimer for US Institutional Investors
This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under
the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange
Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities
discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne
by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you
if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available
to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material
concerning investment to you under relevant legislation and regulations;