1QCY2013 Result Update | Cement

May 7, 2013

Ambuja Cements
Performance Highlights
Quarterly results (Standalone)
Y/E Dec. (` cr) Net Sales Operating profit OPM (%) Rep. Net Profit 1QCY2013 2,545 553 21.6 488 4QCY2012 2,313 450 19.3 212 % chg qoq 10.0 22.9 236bp 130.3 1QCY2012 2,633 772 29.0 312 % chg yoy (3.4) (28.3) (738)bp 56.3

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 28,695 (3,737) 0.8 221/136 148,581 2 19,889 6,044 ABUJ.BO ACEM@IN

`186 -

Source: Company, Angel Research

During 1QCY2013, Ambuja Cements (ACEM) posted a weak performance on the operational front with a 4% yoy de-growth in volumes and a flat yoy performance on the realization front. This is the second consecutive quarter of yoy volume de-growth for the company. EBITDA fell by 28.3% on a yoy basis, with EBITDA/tonne at `909 down by 24.6% on yoy basis. OPM down 738bp yoy: Top-line fell by 3.4% yoy to `2,545cr due to lower volumes. Realizations although flat on a yoy basis, fell by 2.6% on a sequential basis indicating the current poor demand scenario. OPM at 21.6% was down by 738bp on yoy basis impacted by higher input costs. However, during the quarter company had `28cr of write back towards interest on income tax, which boosted its other income. The company also wrote back `117cr of income tax provision pertaining to previous which reduced its tax expense. Thus PAT came in higher than estimates at `488cr, although EBITDA was below estimates at `553cr. Outlook and valuation: We expect ACEM to register a 9.7% and 9.0% CAGR in its top-line and bottom-line, respectively, over CY2012-14E. At the current market price, the stock is trading at EV/tonne of US$141 on CY2014E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.6 9.5 32.4 7.5

Abs. (%) Sensex ACEM

3m 0.7

1yr 18.2

3yr 18.6 66.7

(5.4) 30.7

Key financials (Standalone)

Y/E Dec. ( ` cr) Net sales % chg Adj. net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales EV/tonne (US$) Installed capacity (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

CY2011
8,514 15.2 1,253 1.3 23.4 8.2 22.8 3.5 16.3 18.4 3.0 183 27 12.9

CY2012
9,675 13.6 1,576 25.8 25.7 10.2 18.2 3.3 18.7 20.7 2.6 162 27 10.0

CY2013E
10,143 4.8 1,587 0.7 23.5 10.3 18.1 3.0 17.2 18.2 2.3 149 27 9.8

CY2014E
11,653 14.9 1,874 18.1 24.5 12.2 15.3 2.7 18.6 20.9 1.9 141 27 7.7

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 1QCY2013 Result Update

Exhibit 1: 1QCY2013 performance (Standalone)

Y/E Dec. (` cr) Net sales Other operating income Total operating income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income Exceptional Inc./(Exp.) PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

1QCY13 2,545 12 2557 244 9.6 549 21.6 121 4.7 645 25.3 445 17.5 2,004 553 21.6 13 120 150 569 81 14.3 488 19.2 3.2

4QCY12 2,313 22 2335 143 6.2 547 23.7 137 5.9 582 25.1 476 20.6 1,885 450 19.3 24 186 88 328 116 35.5 212 9.2 1.4

% chg qoq 10.0 (44.3) 9.5 70.4 0.4 (11.6) 10.9 (6.7) 6.3 22.9 236bp (45.4) (35.1) 69.7 73.3 (30.3) 130.3 1001bp 130.3

1QCY12 2,633 28 2661 165 6.3 627 23.8 103 3.9 602 22.8 392 14.9 1,889 772 29.0 17 121 87 279 442 130 29.4 312 11.9 2.0

% chg yoy (3.4) (55.9) (3.9) 47.7 (12.4) 17.2 7.2 13.5 6.1 (28.3) (738)bp (21.2) -0.4 71.7 28.7 (37.7) 56.3 732bp 56.3

CY12 9,675 55 9,730 471 4.9 2,329 24.1 479 4.9 2,276 23.5 1,703 17.6 7,257 2,473 25.4 76 565 349 279 1,902 605 31.8 1,297 13.4 8.5

CY11 8,504 50 8,554 634 7.5 2,001 23.5 433 5.1 1,933 22.7 1,575 18.5 6,577 1,977 23.1 53 445 248 24 1,703 474 27.8 1,229 14.4 8.1

% chg 13.8 10.9 13.7 (25.8) 16.4 10.5 17.7 8.1 10.3 25.1 230bp 43.8 27.0 40.7 11.7 27.6 5.5 (104)bp 5.5

Exhibit 2: Financial performance

3,000 2,500 2,000 (` cr) (%) 1,500 1,000 469 500 0 4QCY11 1QCY12 Net Sales Source: Company, Angel Research 2QCY12 3QCY12 4QCY12 1QCY13 Net Profit OPM (RHS) 302 312 304 212 15.0 488 20.0 25.0 2,329 2,633 35.0 2,566 2,168 2,313 30.0 2,545

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Ambuja Cements | 1QCY2013 Result Update

Exhibit 3: 1QCY2013 Actual vs Angel estimates

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

Actual 2,545 553 21.6 343

Estimates 2,834 595 21.0 378

Variation (%) (10.2) (7.0) 67bp (9.3)

Performance highlights
Volume de-growth leads to top-line contraction
ACEMs 1QCY2013 volumes and realizations were both lower than estimates. The companys cement volumes fell by 4% yoy to 5.8mn tonne during the quarter. While the realizations were flat on a yoy basis, it was lower by 2.6% on a sequential basis.

OPM down steeply on a yoy basis

Ambuja reported a 738bp decline on a yoy basis due to the surge in input costs. The companys cost per tonne rose by 10.1% on a yoy basis to `3,364. Higher input costs was on account of increase in prices of raw materials, higher freight charges and other costs. Freight costs rose on account of higher diesel prices and higher railway freight charges

Per tonne analysis

For 1QCY2013, ACEMs realization/tonne remained flat on a yoy basis, but declined by 2.6% on a sequential basis. Power and fuel expenses/tonne fell by 9% yoy to `923. Freight cost/tonne rose by 11.2% yoy to `1,083. The operating profit/tonne stood at `909, down by 24.6% yoy.

Exhibit 4: Per tonne analysis

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

1QCY13 4,273 273 923 1,083 747 909

4QCY12 4,388 282 1,038 1,103 904 812

1QCY12 4,260 247 1,014 973 634 1,204

% chg (yoy) 0.3 10.7 (9.0) 11.2 17.8 (24.6)

% chg (qoq) (2.6) (3.4) (11.1) (1.8) (17.4) 11.9

May 7, 2013

Ambuja Cements | 1QCY2013 Result Update

Investment rationale
Capacity addition to aid growth
ACEM recently added ~5mtpa of grinding capacities at various locations to reach its current overall capacity of ~27mtpa. The company has also embarked upon certain new projects such as the bulk cement terminal in Mangalore and the brown-field expansion at Sankrail grinding unit. Further the company is also planning to set up a new 4.5mtpa integrated cement capacity at Marwar Mundra in Rajasthan. Environment clearance has been obtained fro this project and land acquisition is in advanced stage. Going ahead, we expect these capacity expansions to drive the companys growth.

New clinker capacities to aid margin expansion

Stabilization of production at the company's new clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri has resulted in elimination of external high-cost clinker purchase.

Outlook and valuation

We expect ACEM to register a 9.7% and 9.0% CAGR in its top-line and bottomline, respectively, over CY2012-14E. At the current market price, the stock is trading at EV/tonne of US$141 on CY2014E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock.

Exhibit 5: EV/tonne band

350,000 300,000 250,000 EV (` mn) 200,000 150,000 100,000 50,000 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Mar-13 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

EV/tonne Source: BSE, Company, Angel Research

$110

$140

$170

$200

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Ambuja Cements | 1QCY2013 Result Update

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,225 186 88 105 245 4,622 1,927 Tgt. Price (`) 1,361 143 Upside (%) 11.1 36.6 FY2015E P/BV (x) 2.5 2.7 0.7 0.7 1.7 2.9 2.6 FY2015E P/E (x) 12.4 15.3 8.1 4.7 8.7 12.5 16.1 FY2013-15E EPS CAGR 15.0 9.1 24.6 13.9 24.6 15.2 9.3 FY2015E RoE (%) 21.4 18.6 8.8 15.8 21.3 25.4 17.3 EV/tonne^ US $ 117 157 64 36 86 153 184

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis;#Y/E June

Company Background
Swiss cement major, Holcim acquired a controlling stake in ACEM in 2005. In India, the Holcim Group currently controls one-fifth of the total cement capacity through ACEM and ACC. On a standalone basis, ACEM is the third largest cement player in India with total capacity of 27mtpa. The company majorly focuses on northern and western India, with no plants in southern India. Of its current total capacity, 40% capacity is in the western, 38% in northern, 16% in eastern and northeastern and 6% in the central region of the country.

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Ambuja Cements | 1QCY2013 Result Update

Profit & loss statement (Standalone)

Y/E Dec. (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amort. EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY09 7,181 16.4 5,210 1,014 1,423 273 2,501 1,971 15.5 27.9 297 1,674 15.7 23.7 22 151 8 1,803 8.5 1,803 585 32.4 1,218 1,218 3.0 17.2 8.0 8.0 2.9 CY10 7,518 4.7 5,567 542 1,697 344 2,984 1,951 (1.0) 26.4 387 1,564 (6.6) 21.2 49 120 7 1,635 (9.3) (27) 1,662 398 24.0 1,264 1,237 1.5 16.7 8.1 8.1 1.1 CY11 8,603 14.4 6,608 634 2,006 433 3,535 1,994 2.2 23.4 445 1,549 (0.9) 18.2 53 230 13 1,727 5.6 24 1,703 474 27.8 1,229 1,253 1.3 14.7 8.2 8.2 1.0 CY12 9,744 13.3 7,257 471 2,329 479 3,979 2,486 24.7 25.7 565 1,921 24.0 19.9 76 336 15 2,181 26.3 279 1,902 605 31.8 1,297 1,576 25.8 16.3 10.2 10.2 25.1 CY13E 10,232 5.0 7,848 758 2,353 512 4,224 2,384 (4.1) 23.5 564 1,821 (5.2) 18.0 68 483 22 2,235 2.5 2,235 648 29.0 1,587 1,587 0.7 15.6 10.3 10.3 0.7 CY14E 11,762 15.0 8,909 1,067 2,545 548 4,749 2,853 19.7 24.5 580 2,273 24.8 19.5 68 552 20 2,756 23.3 2,756 882 32.0 1,874 1,874 18.1 16.1 12.2 12.2 18.1

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Ambuja Cements | 1QCY2013 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Other long-term liab Long term provision Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Other non current assets Intangible assets Investments Long term Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 1,979 881 253 846 1,741 238 3 7,122 3,135 1,648 441 1,047 2,394 741 0 7,926 727 626 6,224 2,784 3,440 2,714 8,779 3,151 5,628 931 9,635 3,450 6,185 487 2 2 864 507 3,495 2,069 237 1,190 2,597 899 8,945 10,116 4,254 5,862 520 8 0 1,656 647 3,731 2,253 249 1,228 2,815 916 9,610 10,087 4,818 5,268 850 8 2,156 647 4,619 2,923 325 1,371 3,138 1,480 10,410 10,387 5,398 4,988 1,559 8 2,856 647 4,791 2,757 415 1,618 3,495 1,296 11,354 7,122 7,926 305 6,166 6,471 166 486 307 7,023 7,330 65 531 307 7,763 8,069 49 644 4 179 8,945 308 8,497 8,805 43 548 5 209 9,610 308 9,297 9,605 43 548 5 209 10,410 308 10,241 10,550 43 548 5 209 11,354 CY09 CY10 CY11 CY12 CY13E CY14E

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Ambuja Cements | 1QCY2013 Result Update

Cash flow statement (Standalone)

Y/E Dec. (` cr) Profit before tax Depreciation Change in WC Interest expenses Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Dec in Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY09 1,803 297 698 22 151 585 2,085 (1,284) (395) 151 (1,528) 8 (123) 390 22 (528) 29 852 881 CY10 1,662 387 257 49 120 398 1,836 (771) 101 120 (550) 55 (101) 425 49 (519) 767 881 1,648 CY11 1,703 445 182 53 230 472 1,680 (623) (238) 230 (631) 30 (16) 570 73 (628) 421 1,648 2,069 CY12 1,902 565 167 76 336 640 1,735 (687) (792) 336 (1,143) 91 (7) 643 (152) (407) 184 2,069 2,254 CY13E 2,235 564 105 68 483 648 1,841 (300) (500) 483 (317) 787 67 (854) 670 2,254 2,923 CY14E 2,756 580 18 68 552 882 1,989 (1,009) (700) 552 (1,157) 930 68 (998) (165) 2,923 2,757

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Ambuja Cements | 1QCY2013 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) (0.1) (0.4) 74.7 (0.2) (0.8) 32.1 (0.3) (1.0) 29.4 (0.3) (0.9) 25.4 (0.3) (1.2) 26.7 (0.3) (1.0) 33.3 1.2 41 10 113 (16) 1.0 38 7 136 (38) 0.9 39 8 138 (44) 1.0 36 9 136 (47) 1.0 37 8 138 (50) 1.1 36 9 136 (45) 24.9 47.4 20.1 20.8 35.2 17.9 18.4 26.4 16.3 20.7 29.1 18.7 18.2 27.0 17.2 20.9 33.2 18.6 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.0 18.0 72.2 1.3 17.0 19.7 68.2 1.4 18.4 17.8 71.0 1.4 17.4 19.3 68.0 1.5 19.2 8.0 8.0 9.9 2.4 42.4 8.1 8.1 10.7 2.6 47.7 8.2 8.2 10.9 3.2 52.6 10.2 10.2 12.1 3.6 57.1 10.3 10.3 13.9 4.4 62.3 12.2 12.2 15.9 5.2 68.4 23.3 18.7 4.4 1.3 3.5 12.5 3.5 23.0 17.3 3.9 1.4 3.5 13.2 3.3 22.8 17.0 3.5 1.7 3.0 12.9 2.9 18.2 15.4 3.3 1.9 2.6 10.0 2.6 18.1 13.3 3.0 2.4 2.3 9.8 2.2 15.3 11.7 2.7 2.8 1.9 7.7 1.9 CY09 CY10 CY11 CY12 CY13E CY14E

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Ambuja Cements | 1QCY2013 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Ambuja Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 7, 2013

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