cement sector most

8/10/2019 Cement Sector MOST

1/12

8 July 2014 1

Jinesh Gandhi ([email protected]); +91 22 3982 5416

Sandipan Pal([email protected]); +91 22 3982 5436

Demand recovery continues with ~8% growthUpgrading FY16 EPS, led by increase in pricing improvement to ~INR20/bag

Demand recovery continues; expect ~8% growth for our Cement universe

Cement demand recovery continued in 1QFY15, driven by strong rural housing

demand and partial resolution of sand mining issue. We estimate growth of 8.3%

YoY (decline of 4.5% QoQ) for our Cement universe. Capacity utilization would

remain stable YoY at ~74% (down 4pp QoQ). Cement dealers across regions indicate

improved sentiment and sustenance of demand recovery in 2HFY15.

Pre-monsoon price hikes across markets, estimate INR6/bag QoQ increase

While cement prices retraced from the highs of March-April 2014, especially in

North India, as the Binani plant commenced operations, blended prices were still

higher than in 4QFY14. Overall, we expect weighted average national prices to

increase by INR6/bag QoQ (and INR14/bag YoY) in 1QFY15. This includes specific

trends of (a) ~INR14/bag QoQ average increase in South India, benefiting from upto

~INR100/bag price increase in June 2014, (b) ~INR6/bag increase in West and

Central India, (c) INR3/bag increase in North India, and (d) ~INR4/bag decline in East

India. We now factor in INR12.5/INR20/INR20 per bag increase in realizations in

FY15/FY16/FY17 on back of ~INR5/bag decline in FY14 (v/s earlier assumption of

~INR12.5/12.5/15 per bag increase).

Profitability stable QoQ; south players to enjoy partial benefits of price hike

Profitability is likely to remain stable QoQ, as the benefit of higher price gets offset

by freight cost pressure and negative operating leverage, resulting in EBITDA/ton of

~INR731 (down INR73/ton YoY). While players focused on South India would benefit

significantly from sharp pricing recovery, weak pricing would impact profitability of

players based in North and East India. We estimate EBITDA/ton at

INR795/1,075/1,345 for FY15/FY16/FY17, against ~INR673/ton in FY14.

Valuation and view

While our FY15E EPS has seen downgrades, our assumption of higher pricing change

has led to up to 39% upgrade in FY16E EPS. While demand recovery would begradual, slowing capacity addition coupled with higher capex and opex cost would

support cement prices and profitability. Demand recovery would be critical for

operating and stock performance. Among large caps, we prefer ACC, UTCEM and

SRCM, and DBEL, JKCE, JKLC, and PRSC inmid-caps.

Company name

ACC

Ambuja Cements

Birla Corporation

Grasim Industries

India Cements

Shree Cement

Ultratech Cement

Technology

June Results Preview | 8 July 2014

Cement

Investors are advised to refer through disclosures made at the end of the Research Report.


2/12

8 July 2014 2

Expected quarterly performance summary (INR m)

Sector Sales EBDITA PAT

CMP

(INR)Rating Jun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQ

ACC 1,452 Buy 29,833 6.7 0.5 3,889 -10.3 6.5 2,656 2.5 -13.9

Ambuja Cements 224 Neutral 25,053 6.8 -5.1 5,172 5.1 -10.5 3,771 16.3 -15.7Birla Corporation 418 Buy 8,083 4.7 3.9 650 -2.7 17.2 392 -14.8 20.3

Grasim Industries 3,388 Buy 12,999 13.1 -15.0 1,148 -43.3 -16.9 1,199 -46.8 -3.4

India Cements 116 Neutral 12,624 1.9 16.9 1,342 -29.7 81.0 -46 PL Loss

Jaiprakash Associates 73 Buy 34,727 4.8 2.1 8,592 9.5 -1.5 59 -71.8 -93.7

Shree Cement 7,276 Buy 16,345 13.4 -1.5 4,498 18.4 5.6 3,048 7.2 34.1

Ultratech Cement 2,604 Buy 55,830 12.6 -4.3 10,203 -2.7 -10.7 6,186 -8.0 -18.9

Sector Aggregate 195,493 8.5 -1.7 35,495 -1.4 -2.8 17,264 -6.6 -11.4

Cement demand recovery apparent in 1QFY15 (%)

-5

0

5

10

15

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15E

IIP Data MOSL Universe

Source: Company, MOSL

MOSL cement universe volumes to grow 8% YoY (3% QoQ)

6.4

3.6 4

.34.0

9.4 1

0.4 13

.8

8.4

2.7

1.9

-2.0 0

.4 3.4

1.5

6.1

8.3

-2

3

8

13

18

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15E

Volumes (MT) - RHS Volume growth (%)


Utilizations fail to improve in a seasonally strong quarter

60%

70%

80%

90%

100%

1Q

FY10

3Q

FY10

1Q

FY11

3Q

FY11

1Q

FY12

3Q

FY12

1Q

FY13

3Q

FY13

1Q

FY14

3Q

FY14

1Q

FY15


Trend in average quarterly cement price (INR/bag)

259

316

275

289

262

281

245

307

272

294

264 2

77

245

308

271

300

266 2

79

269

328

281

281 2

93

289

272

324

287

295

298

295

North East West South Central National

Average

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15


June 2014 Results Preview | Sector: Cement


3/12


4/12

8 July 2014 4

Quarterly Performance (Standalone) (INR Million)

Y/E December CY13 CY14 CY13 CY14E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 0 0

Cement Sales (m ton) 6.42 6.12 5.54 5.85 6.48 6.36 5.76 6.28 23.9 24.89

YoY Change (%) -4.5 1.2 2.6 -1.5 0.9 4.0 4.0 7.4 -0.7 4.0

Cement Realization 4,269 4,298 4,235 4,307 4,304 4,404 4,304 4,554 4,278 4,393

YoY Change (%) 0.9 -5.7 -5.9 3.4 0.8 2.5 1.6 5.7 -1.8 2.7

QoQ Change (%) 2.5 0.7 -1.5 1.7 -0.1 2.3 -2.3 5.8 0.0 0.0

Net Sales 29,111 27,952 25,087 26,934 29,671 29,833 26,500 30,444 109,084 116,448

YoY Change (%) 2.4 1.4 3.2 -13.1 1.9 6.7 5.6 13.0 -2.0 6.8

EBITDA 4,468 4,335 2,254 2,626 3,653 3,889 2,110 4,123 13,683 13,776

Margins (%) 15.3 15.5 9.0 9.8 12.3 13.0 8.0 13.5 12.5 11.8Depreciation 1,383 1,387 1,444 1,526 1,366 1,400 1,440 1,448 5,740 5,654

Interest 108 179 110 120 108 106 106 104 517 425

Other Income 1,205 908 1,023 1,438 1,668 1,000 1,200 1,382 4,573 5,250

PBT before EO Item 4,182 3,677 1,722 2,419 3,848 3,383 1,764 3,953 12,000 12,947

PBT after EO Item 5,861 3,677 1,722 3,178 4,975 3,383 1,764 3,953 14,437 14,075

Tax 1,484 1,086 514 396 988 727 379 861 3,479 2,956

Rate (%) 25.3 29.5 29.8 12.5 19.9 21.5 21.5 21.8 24.1 21.0

Reported PAT 4,377 2,591 1,208 2,781 3,987 2,656 1,384 3,092 10,958 11,119

Adjusted PAT 3,124 2,591 1,208 2,117 3,084 2,656 1,384 3,092 9,108 10,228

Margins (%) 10.7 9.3 4.8 7.9 10.4 8.9 5.2 10.2 8.3 8.8

YoY Change (%) -19.1 -38.0 -51.4 -11.5 -1.3 2.5 14.6 46.0 -29.5 12.3

E: MOSL Estimates; * Merger of RMC business from 4QCY12

June 2014 Results Preview | Sector: Cemen

ACCCMP: INR1,452 Buy

We expect dispatches to grow 4% YoY (decline 2% QoQ) in 2QCY14 to

6.36m tons. Average realization is likely to grow 2.3% QoQ (+2.5%

YoY) to INR4,404/ton.

Revenue would grow 6.7% YoY (1% QoQ) to INR29.8b. EBITDA margin

would shrink 2.5pp YoY (but expand 0.7pp QoQ) to 13% due to

moderate realization growth. We estimate cement EBITDA/ton at

INR600 (INR102 lower YoY; INR48 higher QoQ).

PAT would grow 2.5% YoY (but decline 14% QoQ) to INR2.65b.

We are cutting our CY14 EPS estimate (ex-synergies) by 9.9% to

INR54.4, while raising our CY15 EPS estimate by 6.2% to INR84.1 to

factor in for deferred recovery and higher pricing in FY15.

The stock trades at 16.2x CY15E EPS, and at an EV of 9.9x CY15E

EBITDA and USD120/ton. Maintain Buy with a target price of

INR1,804 (CY15E EV of USD152/ton).

Key issues to watch for

Volume growth recovery and outlook

Cement pricing outlook and sustainability

Progress in ongoing capex for 5m-ton Jamul expansion

Update on synergies and other guided cost saving measures

Bloomberg ACC IN

Equity Shares (m) 187.9

M. Cap. (INR b)/(USD b) 273 / 5

52-Week Range (INR) 1524 / 9121,6,12 Rel Perf. (%) -3 / 9 / -16

Financial and Valuation Summary (INR b)

Y/E Dec 2013 2014E 2015E 2016E

Sales 109.1 116.4 137.0 163.0

EBITDA 13.7 13.8 22.7 33.7

NP 9.1 10.2 15.8 22.5

Adj. EPS (INR) 48.6 54.4 84.1 119.9

EPS Gr. (%) -29.3 12.1 54.6 42.5

BV/Sh (INR) 416.4 434.9 472.5 545.9

RoE (%) 12.0 12.8 18.5 23.5

RoCE (%) 15.3 15.7 24.1 31.3

Payout (%) 60.2 68.8 55.3 38.8

Valuations

P/E (x) 30.3 27.0 17.5 12.3

P/BV (x) 3.5 3.4 3.1 2.7

EV/EBITDA (x) 17.6 16.4 10.7 6.8

EV/Ton (x) 133.2 124.9 120.6 113.0


5/12

8 July 2014 5

Quarterly Performance (INR Million)Y/E December CY13 CY14 CY13 CY14E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 0 0

Sales Volume (m ton)* 5.96 5.46 4.89 5.29 6.03 5.62 5.03 5.67 21.60 22.36

YoY Change (%) -3.6 -3.1 2.0 -1.8 1.2 3.0 3.0 7.1 -1.8 3.5

Realization (INR/ton) 4,271 4,297 4,103 4,142 4,376 4,456 4,356 4,556 4,207 4,437

YoY Change (%) 0.3 -5.7 -9.2 -3.5 2.5 3.7 6.1 10.0 -4.4 5.5

QoQ Change (%) -0.5 0.6 -4.5 0.9 5.6 1.8 -2.2 4.6 0.0 0.0

Net Sales 25,448 23,457 20,049 21,913 26,398 25,053 21,920 25,820 90,868 99,191

YoY Change (%) -3.3 -8.6 -7.4 -5.3 3.7 6.8 9.3 17.8 46.1 40.2

EBITDA 5,118 4,920 2,554 2,890 5,776 5,172 3,224 4,522 15,482 18,694

Margins (%) 20.1 21.0 12.7 13.2 21.9 20.6 14.7 17.5 17.0 18.8

Depreciation 1,204 1,223 1,246 1,228 1,197 1,225 1,275 1,272 4,901 4,969

Interest 132 171 178 169 161 160 160 160 651 641

Other Income 1,339 1,051 940 1,019 1,414 1,175 1,100 1,311 4,349 5,000

PBT before EO Item 5,121 4,578 2,070 2,512 5,832 4,962 2,889 4,400 14,280 18,084

Extraordinary Inc/(Exp) 1,741 0 481 1,046 948 0 0 0 3,269 948

PBT after EO Exp/(Inc) 6,862 4,578 2,551 3,558 6,780 4,962 2,889 4,400 17,549 19,031

Tax 1,983 1,336 891 393 1,579 1,191 693 1,057 4,603 4,521

Rate (%) 28.9 29.2 34.9 11.0 23.3 24.0 24.0 24.0 26.2 23.8

Reported Profit 4,879 3,242 1,660 3,165 5,200 3,771 2,196 3,343 12,946 14,510

Adj PAT 3,641 3,242 1,346 2,234 4,473 3,771 2,196 3,343 10,464 13,788

YoY Change (%) -28.3 -30.9 -60.1 -2.8 22.9 16.3 63.1 49.6 -32.2 31.8

E: MOSL Estimates


Ambuja CementsCMP: INR224 Neutral

We expect dispatches to grow 3% YoY (decline 7% QoQ) to 5.62m

tons in 2QCY14. Average realization would grow 3.7% YoY (1.8% QoQ)

to INR4,456/ton. We estimate revenue at INR25.1b (up 6.8% YoY, but

down 5% QoQ).

EBITDA margin would remain flat YoY (decline 1.3pp QoQ) to 20.6%.

We estimate EBITDA/ton at ~INR920 (up INR19/ton YoY; down

INR38/ton QoQ).

Adjusted PAT is likely to grow 16% YoY (decline 16% QoQ) to INR3.8b.

We are raising our CY15 EPS estimate (ex-synergies) by 11.6% to

factor in higher realizations. Our CY14 EPS estimate is unchanged.

Maintain Neutral with a target price of INR247 (CY15E EV of

USD160/ton).




Progress in ongoing mining land acquisition and capex in 4.5m-ton

Nagaur (Rajasthan) plant.

Bloomberg ACEM IN


M. Cap. (INR b)/(USD b) 443 / 7

52-Week Range (INR) 244 / 1481,6,12 Rel Perf. (%) -7 / 1 / -15


Y/E Dec 2013 2014E 2015E 2016E

Sales 90.9 99.2 114.6 136.5

EBITDA 15.5 18.7 25.8 35.0

NP 10.5 13.8 17.9 24.3

Adj. EPS (INR) 6.8 7.0 9.0 12.3

EPS Gr. (%) -32.4 2.9 29.7 36.1

BV/Sh. (INR) 61.2 51.5 56.0 63.8

RoE (%) 11.5 14.0 16.8 20.5

RoCE (%) 16.3 19.0 23.7 28.9

Payout (%) 49.9 55.7 50.2 36.9

Valuations

P/E (x) 32.7 31.8 24.5 18.0

P/BV (x) 3.6 4.3 4.0 3.5

EV/EBITDA (x) 19.0 21.0 14.8 10.6

EV/Ton (USD) 173.3 224.5 218.0 211.1


6/12

8 July 2014 6

Quarterly Performance (INR Million)Y/E March FY14 FY15 FY14 FY15

1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 0 0

Cement Sales (m ton) 1.87 1.85 1.81 1.91 1.98 1.96 1.95 2.06 7.43 7.96

YoY Change (%) 14.8 17.3 16.5 11.6 6.0 6.0 8.0 8.0 15.0 7.0

Cement Realization 3,864 3,541 3,579 3,753 3,813 3,713 3,913 4,212 3,686 3,916

YoY Change (%) -3.9 -10.0 -5.4 4.8 -1.3 4.8 9.3 12.2 -3.7 6.2

QoQ Change (%) 7.9 -8.3 1.1 4.8 1.6 -2.6 5.4 7.6 0.0 0.0

Net Sales 7,720 7,107 7,098 7,780 8,083 7,818 8,169 9,203 29,705 33,273

YoY Change (%) 17.3 13.3 15.9 16.9 4.7 10.0 15.1 18.3 15.9 12.0

EBITDA 668 585 299 555 650 555 885 1,118 2,107 3,208

Margins (%) 8.7 8.2 4.2 7.1 8.0 7.1 10.8 12.1 7.1 9.6

Depreciation 302 311 319 393 360 365 380 391 1,326 1,496

Interest 207 249 202 198 200 205 215 222 856 842

Other Income 367 422 323 485 400 450 350 690 1,598 1,890

Profit before Tax 525 448 101 448 490 435 640 1,194 1,523 2,759

Tax 66 32 -59 186 98 87 128 239 225 552

Rate (%) 12.5 7.1 -58.0 41.6 20.0 20.0 20.0 20.0 14.8 20.0

Reported PAT 460 416 160 262 392 348 512 955 1,298 2,207

EO Income/(Expense) 0 0 0 -109 0 0 0 0 -109 0

PAT 460 416 160 326 392 348 512 955 1,391 2,207

Margins (%) 6.0 5.9 2.3 4.2 4.8 4.5 6.3 10.4 4.7 6.6

YoY Change (%) -45.7 -48.2 -50.4 -55.1 -14.8 -16.3 220.4 193.1 -48.5 58.7

E: MOSL Estimates


Birla CorporationCMP: INR418 Buy

We expect volumes to grow 6% YoY (3.9% QoQ) to 1.98m tons in

1QFY15. Average realization is likely to grow 1.6% YoY (decline 1.3%

QoQ) to INR3,813/ton.

EBITDA margin would shrink 0.7pp YoY (but expand 0.9pp QoQ) to

8%. EBITDA/ton (including non-cement business) is likely to decline by

INR29 YoY (but increase by ~INR37 QoQ).

We estimate PAT at INR392m, down 14.8% YoY.

We are cutting our EPS estimate for FY15 by 21% to factor in lower

realizations for the year, but raising our EPS estimate for FY16 by

3.9% to factor in better realizations.

The stock trades at 8.1x FY16E EPS, and at an EV of 3.8x FY16E EBITDA

and USD40/ton. We maintain Buy, with a target price of INR566

(FY16E EV of USD60/ton).




Timeline and clarity on Rajasthan Mining permission

Bloomberg BCORP IN


M. Cap. (INR b)/(USD b) 32 / 1

52-Week Range (INR) 429 / 1911,6,12 Rel Perf. (%) 4 / 32 / 46


Y/E March 2014 2015E 2016E 2017E

Sales 29.7 33.3 38.5 43.5

EBITDA 2.1 3.2 5.8 8.5

NP 1.3 2.2 4.0 6.0

Adj. EPS (INR) 16.9 28.7 51.4 77.6

EPS Gr. (%) -51.9 70.1 79.3 50.9

BV/Sh. (INR) 328.0 346.2 386.0 452.0

RoE (%) 5.1 8.3 13.3 17.2

RoCE (%) 6.1 9.0 14.0 18.1

Payout (%) 55.5 36.5 22.6 15.0

Valuations

P/E (x) 24.8 14.6 8.1 5.4

P/BV (x) 1.3 1.2 1.1 0.9

EV/EBITDA (x) 11.5 7.4 3.8 2.1

EV/Ton (x) 43.4 42.6 39.9 31.7


7/12


8/12

8 July 2014 8

Quarterly Performance (Standalone)(INR Million

Y/E March FY14 FY15 FY14E FY15E

1Q 2Q 3Q 4QE 1QE 2QE 3QE 4QE

Sales Dispatches (m ton) 2.65 2.44 2.29 2.65 2.73 2.56 2.45 2.91 10.04 10.65

YoY Change (%) 11.3 -2.9 -5.2 -4.4 3.0 5.0 7.0 9.5 -0.2 6.1

Realization (INR/ton) 4,188 4,116 4,429 4,009 4,209 4,609 4,409 4,609 4,178 4,460

YoY Change (%) -6.2 -5.5 1.5 -5.0 0.5 12.0 -0.4 15.0 -4.2 6.8

QoQ Change (%) -0.8 -1.7 7.6 -9.5 5.0 9.5 -4.3 4.5 0.0 0.0

Net Sales 12,384 10,859 10,365 10,801 12,624 12,483 11,107 13,757 44,409 49,972

YoY Change (%) 3.1 -3.3 -4.2 -9.3 1.9 15.0 7.2 27.4 -3.4 12.5

EBITDA 1,910 1,276 1,444 742 1,342 1,989 1,444 2,373 5,371 7,148

Margins (%) 15.4 11.7 13.9 6.9 10.6 15.9 13.0 17.3 12.1 14.3

Depreciation 680 682 686 716 680 700 706 710 2,764 2,796

Interest 999 988 773 778 750 800 825 852 3,537 3,227

Other Income 25 80 19 272 30 50 60 30 396 170

PBT before EO expense 257 -314 4 -480 -58 539 -27 841 -533 1,296

Extra-Ord expense 0 0 0 1,091 0 0 0 0 1,091 0

PBT 257 -314 4 -1,571 -58 539 -27 841 -1,624 1,296

Tax 89 -89 0 0 -12 108 -5 168 0 259

Rate (%) 34.6 28.3 0.0 0.0 20.0 20.0 20.0 20.0 0.0 20.0

Reported PAT 168 -225 4 -1,571 -46 431 -22 673 -1,624 1,036

Adj PAT 168 -225 4 -480 -46 431 -22 673 -533 1,036

YoY Change (%) -77.5 -145.9 -98.4 -282.2 -127.4 -291.5 -622.1 -240.2 -130.2 -294.5

Margins (%) 1.4 -2.1 0.0 -4.4 -0.4 3.5 -0.2 4.9 -1.2 2.1

E: MOSL Estimates


India CementsCMP: INR116 Neutral

We expect volumes to grow 3% YoY (3% QoQ) to 2.73m tons. Strong

uptick in prices in June 2014 should aid 1QFY15 realizations. We

expect 0.5% YoY decline (but 5% QoQ increase) in realizations to

INR4,209/ton.

We estimate EBITDA at INR1.34b, up 81% QoQ. EBITDA margin is

likely to shrink 4.8pp YoY (but expand 3.7pp QoQ) to 10.6%,

translating into net loss of INR46m (v/s INR480m in 4QFY14).

Pure Cements EBITDA/ton is likely to increase by ~INR108/ton QoQ

to INR375/ton.

We are revising our EPS estimates for FY15/FY16 by -26%/+29% to

factor in deferred uptick in cement realizations in FY16.

The stock trades at 11x FY16E EPS, and at an EV of 6.1x FY16E EBITDA

and USD73/ton. Maintain Neutral, with a target price of INR126

(FY16E EV of USD75/ton).


Demand and pricing outlook, especially in South India

Expected timeline and potential cost savings from captive coal

block in Indonesia and AP power plant

Timeline and capex plan for TN expansion of 2.6m tons

Bloomberg ICEM IN


M. Cap. (INR b)/(USD b) 36 / 1

52-Week Range (INR) 131 / 431,6,12 Rel Perf. (%) 1 / 72 / 73


Y/E March 2014 2015E 2016E 2017E

Sales 44.4 50.0 59.1 69.9

EBITDA 5.4 7.1 10.3 13.6

NP -0.5 1.0 3.3 5.7

Adj. EPS (INR) -7.9 2.9 10.6 19.0

EPS Gr. (%) -235.7 -136.2 269.8 79.7

BV/Sh (INR) 125.4 126.4 133.6 148.7

RoE (%) -1.3 2.7 8.2 13.2

RoCE (%) 4.2 6.4 10.8 14.8

Payout (%) 0.0 68.9 32.7 18.7

Valuations

P/E (x) -14.7 40.7 11.0 6.1

P/BV (x) 0.9 0.9 0.9 0.8

EV/EBITDA (x) 12.0 9.4 6.1 4.2

EV/Ton (USD) 78.5 78.1 72.9 65.9


9/12

8 July 2014 9

Quarterly performance (INR Million)Y/E June FY13 FY14 FY13 FY14E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Sales Dispat. (m ton) 3.04 3.00 3.26 3.17 3.26 3.44 3.84 3.86 12.46 14.39

YoY Change (%) 22.4 5.2 -6.2 -6.0 7.2 14.7 17.8 21.8 -16.2 15.5

Realization (INR/Ton) 3,815 3,724 3,498 3,578 3,334 3,430 3,863 3,925 3,628 3,656

YoY Change (%) 12.2 4.1 -1.7 -4.6 -12.6 -7.9 10.4 9.7 3.4 0.8

QoQ Change (%) 1.7 -2.4 -6.1 2.3 -6.8 2.9 12.6 1.6 0.0 0.0

Net Sales 12,964 14,281 14,281 14,414 12,475 13,170 16,600 16,345 55,671 58,590

YoY Change (%) 52.2 19.4 0.3 0.4 -3.8 -7.8 16.2 13.4 -4.0 5.2

EBITDA 3,902 3,717 4,058 3,800 2,494 2,694 4,261 4,498 15,378 13,947

Margins (%) 30.1 26.0 28.4 26.4 20.0 20.5 25.7 27.5 27.6 23.8

Depreciation 942 818 1,265 1,332 1,139 1,156 1,667 1,639 4,356 5,600

Interest 543 563 447 378 312 309 363 394 1,931 1,378

Other Income 328 323 572 913 740 111 546 804 2,114 2,200

PBT before EO Exp 2,745 2,659 2,918 3,003 1,783 1,339 2,777 3,269 11,205 9,169

Extra-Ord Expense 10 120 1 0 11 32 59 -48 11 0

PBT 2,736 2,539 2,917 3,002 1,773 1,308 2,719 3,317 11,194 9,169

Tax 454 365 176 159 50 153 494 225 1,155 921

Rate (%) 16.6 14.4 6.0 5.3 2.8 11.7 18.2 6.8 10.3 10.1

Reported PAT 2,281 2,174 2,741 2,843 1,722 1,155 2,225 3,093 10,040 8,248

Adj PAT 2,289 2,277 2,741 2,843 1,732 1,183 2,273 3,048 10,049 8,248

YoY Change (%) 438.0 284.6 85.2 -19.1 -24.3 -48.0 -17.1 7.2 59.6 -17.9

E:MOSL Estimates


Shree CementCMP: INR7,276 Buy

We expect 4QFY14 cement volumes to grow 22% YoY (12% QoQ) to

3.86m tons (including clinker) and realizations to grow 9.7% YoY

(1.6% QoQ) to INR3,925/ton. Moderate rise in realizations and

benefit of positive operating leverage QoQ would lead to Cement

business profitability at INR1,139/ton (up INR63/ton QoQ).

We estimate merchant power sales at 368m units (v/s 536m units

QoQ and 795m QoQ) at ~INR3.3/unit (v/s INR3.3/unit in 3QFY14 and

INR3.88/unit in 4QFY13). Power EBITDA contribution would be

INR104m (v/s INR130m in 4QFY13 and INR840m in 3QFY14). Adjusted

PAT would be INR3b (v/s INR2.8b in 4QFY13 and INR2.3b in 3QFY14).

We are raising our EPS estimates by 8.7% for FY15 and 28% for FY16

to factor in higher volumes and realizations.

The stock trades at 16.9x FY16E EPS, and at an EV of 8.7x FY15E

EBITDA and USD162/ton. Buy with a target price of INR8,250 (FY16E

EV of USD190/ton).


Volume and pricing outlook for North India

Pet coke price trend and update on any forward agreements for

merchant power

Update on planned expansion and progress in capex plans

Bloomberg SRCM IN


M. Cap. (INR b)/(USD b) 253 / 4

52-Week Range (INR) 7982 / 34131,6,12 Rel Perf. (%) -4 / 41 / 26


Y/E March 2014 2015E 2016E 2017E

Sales 58.6 70.7 85.8 102.9

EBITDA 13.9 18.4 25.4 33.7

NP 8.2 9.8 15.0 21.3

Adj EPS (INR) 236.7 280.2 431.1 610.3

EPS Gr. (%) -17.9 18.4 53.9 41.6

BV/Sh. (INR) 1,312 1,562 1,958 2,534

RoE (%) 19.6 19.5 24.5 27.2

RoCE (%) 19.6 22.0 27.2 31.1

Payout (%) 11.9 10.8 8.1 5.7

Valuations

P/E (x) 30.7 26.0 16.9 11.9

P/BV (x) 5.5 4.7 3.7 2.9

EV/EBITDA (x) 17.4 13.2 8.7 5.8

EV/Ton (USD) 197.7 174.1 161.9 143.2


10/12

8 July 2014 10

Quarterly Performance (INR Million)

Y/E March FY14 FY15E FY14 FY15E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Sales (m ton) 10.09 9.23 9.98 12.18 11.57 10.16 11.18 13.33 41.5 46.2

YoY Change (%) -2.3 -0.6 0.4 9.4 14.7 10.0 12.0 9.4 2.0 11.5

Grey Cement

Realn.(INR/ton) * 4,120 3,973 3,936 3,912 4,032 3,932 4,182 4,493 3,982 4,179

YoY Change (%) 0.0 -5.8 -2.8 -2.5 -2.2 -1.0 6.2 14.9 -2.9 4.9

QoQ Change (%) 2.7 -3.6 -0.9 -0.6 3.1 -2.5 6.4 7.5 0.0 0.0

Net Sales 49,575 45,021 47,864 58,319 55,830 49,250 57,013 72,513 200,779 234,606

YoY Change (%) -2.3 -4.2 -1.5 8.2 12.6 9.4 19.1 24.3 0.3 16.8EBITDA 10,491 6,597 7,641 11,429 10,203 6,050 10,437 17,948 36,160 44,638

Margins (%) 21.2 14.7 16.0 19.6 18.3 12.3 18.3 24.8 18.0 19.0

Depreciation 2,521 2,573 2,645 2,785 2,850 3,000 3,200 3,348 10,523 12,398

Interest 660 888 905 739 800 825 835 855 3,192 3,315

Other Income 1,882 574 996 1,858 1,750 800 1,000 1,600 5,310 5,150

PBT before EO expense 9,192 3,711 5,088 9,763 8,303 3,025 7,402 15,345 27,755 34,076

Extra-Ord expense 0 0 0 -956 0 0 0 0 -956 0

PBT after EO Expense 9,192 3,711 5,088 10,719 8,303 3,025 7,402 15,345 28,711 34,076

Tax 2,466 1,070 1,391 2,340 2,117 771 1,887 3,913 7,266 8,689

Rate (%) 26.8 28.8 27.3 21.8 25.5 25.5 25.5 25.5 25.3 25.5

Reported PAT 6,726 2,641 3,698 8,379 6,186 2,254 5,514 11,432 21,445 25,386

Adj PAT 6,726 2,641 3,698 7,632 6,186 2,254 5,514 11,432 20,731 25,386

YoY Change (%) -13.6 -52.0 -38.5 5.1 -8.0 -14.7 49.1 49.8 -21.9 22.5

E: MOSL Estimates; * Grey cement realization is our estimate


Ultratech CementCMP: INR2,604 Hold

We expect cement volumes to grow 14.7% YoY (but decline 5% QoQ)

to 11.57m tons. Realizations are likely to grow 3.1% QoQ (but decline

2.2% QoQ) to INR4,032/ton.

White cement volumes and realizations are likely to grow 8.8% YoY

and 12% YoY, respectively. RMC volumes and realizations would grow

7.1% YoY and 2% YoY, respectively.

We estimate EBITDA/ton at INR871 (down INR55/ton QoQ). EBITDA

margin would decline by 2.9pp YoY (and 1.3pp QoQ) to 18.3%.

EBITDA is likely to de-grow 3% YoY (and 11% QoQ) to INR10.2b,

translating into PAT de-growth of 8% YoY to INR6.2b.

We are revising our FY15/FY16 EPS estimates by -3.7%/+10.9% to

factor in deferred uptick in realizations.

The stock trades at 19.6x FY16E EPS, and at an EV of 10.9x FY16E

EBITDA and USD185/ton. Maintain Buy, with a target price of

INR2,906 (EV of FY16E USD200/ton).




Progress and timeline of JPA deal

Update on financial performance of Star Cement, UAE

Bloomberg UTCEM IN


M. Cap. (INR b)/(USD b) 714 / 12

52-Week Range (INR) 2868 / 14051,6,12 Rel Perf. (%) -3 / 26 / 3


Y/E March 2014 2015E 2016E 2017E

Sales 200.8 234.6 280.8 334.1

EBITDA 36.2 44.2 62.8 85.9

NP 20.7 25.0 36.5 51.8

Adj EPS (INR) 75.6 91.3 133.0 189.0

EPS Gr. (%) -21.2 20.8 45.7 42.1

BV/Sh (INR) 623.5 703.1 823.4 998.4

RoE (%) 12.8 13.8 17.4 20.7

RoCE (%) 14.4 15.9 20.9 26.2

Payout (%) 13.5 12.7 9.6 7.4

Valuations

P/E (x) 34.5 28.5 19.6 13.8

P/BV (x) 4.2 3.7 3.2 2.6

EV/EBITDA (x) 18.7 15.5 10.9 7.4

EV/Ton (USD) 191.7 193.7 185.5 171.2


11/12

8 July 2014 11

N O T E S

June 2014 Results Preview | Sector: Cement


12/12

8 July 2014 12

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