Cement

India I Equities
Results preview

15 July 2010

India Cement Sector Nifty: 5379

1QFY11 preview Sensex: 17909

 Jun ’10 quarter preview. Revenues of cement companies during

1QFY11 are expected to rise 4% yoy, mainly driven by volume
growth. We expect aggregate EBITDA margin to decline 520bp Jaspreet Singh Arora
yoy and estimate aggregate net profit to fall 19% yoy. +9122 6626 6727
jaspreet@rathi.com
 Volumes to aid revenue growth. Cement companies’ revenue Manish Valecha
growth would average 4% yoy (down 2.6% qoq). Key driver +9122 6626 6552
would be aggregate volume growth of 6.1% yoy (down 4% qoq). manishvalecha@rathi.com
Stabilization of new capacities along with lower demand led to
decline in cement prices; we expect cement companies’ average
realization to fall 6.5% yoy.

 EBITDA margin to decline yoy. We expect EBITDA margin to

decline 520bp yoy, mainly on the back of lower realization. The Company Target (Rs / share) Rating
hike in diesel and coal costs would further pressure margins. ACC 1,125 Buy
However qoq, we expect margins to be stable. Ambuja 148 Buy
Grasim 2,375 Buy
 Profits to be 19% lower yoy. Aggregate profit of companies UltraTech 1,255 Buy
under coverage is estimated to decline 19% yoy, owing to 13% yoy India 142 Buy
Shree 2,730 Buy
dip in EBITDA and higher depreciation expenses.
Birla Corp. 490 Buy
Orient 85 Buy
 Factors to watch. Updates on commissioning of fresh capacities
Source: Anand Rathi Research
and outlook on price would be key events to watch.

Cement sector: Jun '10 quarter forecast Sensex vs Cement majors

Company Sales (Rsm) YoY chg (%) QoQ chg (%) Net profit (Rs m) YoY chg (%) QoQ chg (%)
ACC 20,491 (1.5) (2.5) 3,554 (26.8) (12.3)
140
Ambuja 20,612 11.6 3.6 4,140 27.5 (6.4) 135 Cement
130
Grasim 33,679 10.6 (0.1) 5,926 11.7 (1.7) 125
120
UltraTech 17,693 (9.4) (7.3) 2,339 (44.0) 2.3 115 Sensex
110
India Cements 9,705 1.8 0.6 298 (75.8) 14.2 105
100
Shree 8,963 (2.8) (5.1) 1,483 (49.8) 455.0 95
90
Birla Corp. 5,499 12.1 (8.6) 1,111 (28.5) (19.2)
Aug-09

Sep-09

Nov-09

Dec-09

Feb-10

Mar-10
Jul-09

Oct-09

Jan-10

Apr-10

May-10

Jun-10

Jul-10

Orient Paper 4,376 26.8 (20.1) 337 0.6 (38.6)

Source: Anand Rathi Research Source: Anand Rathi Research

Anand Rathi Financial Services, its affiliates and subsidiaries, do and seek to do business with companies covered in its research reports. Thus, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making
their investment decision. Disclosures and analyst certifications are located in Appendix 1.

Anand Rathi Research India Equities

15 July 2010 India Cement Sector – 1QFY11 preview

Fig 1 - 1QFY11 results preview

1QFY11 Sales 1QFY11 EBITDA 1QFY11 PAT
Company Bloomberg code Price (Rs) Market cap (US$ bn) YoY (%) QoQ (%) YoY (bps) QoQ (bps) YoY (%) QoQ (%) Result date
(Rsm) margin (%) (Rsm)
nd
ACC ACC.IN 810 3.4 20,491 (1.5) (2.5) 27.8 (746) (181) 3,554 (26.8) (12.3) 22 July
nd
Ambuja ACEM.IN 110 3.7 20,612 11.6 3.6 32.4 648 116 4,140 27.5 (6.4) 22 July
Grasim GRASIM.IN 1812 3.7 33,679 10.6 (0.1) 28.2 -89 138 5,926 11.7 (1.7) Last week of July
th
UltraTech UTCEM.IN 844 2.3 17,693 (9.4) (7.3) 24.7 (1198) 364 2,339 (44.0) 2.3 29 July
India Cements ICEM.IN 108 0.7 9,705 1.8 0.6 13.7 (1636) 60 298 (75.8) 14.2 Last week of July
Shree SRCM.IN 1923 1.5 8,963 (2.8) (5.1) 34.9 (1122) (60) 1,483 (49.8) 455.0 Last week of July
st
Birla Corp. BCORP.IN 364 0.6 5,499 12.1 (8.6) 25.8 1004 308 1,111 (28.5) (19.2) 21 July
Orient OPI.IN 56 0.2 4,376 26.8 (20.1) 17.5 105 173 337 0.6 (38.6) Last week of July
Cement Sector 16.2 121020 4.0 (2.6) 27.2 (519) 70 19186 (18.9) (0.0)
Prices as on 15 Apr ’10
Source: Anand Rathi Research

Fig 2 – Operational parameters – 1QFY11e

Volume (m tons) * Realization / ton (Rs) EBITDA / ton (Rs)
Company 1QFY11e 1QFY10 yoy change % 4QFY10 qoq change % 1QFY11e 1QFY10 yoy change % 4QFY10 qoq change % 1QFY11e 1QFY10 yoy change % 4QFY10 qoq change %
ACC 5.43 5.53 (1.9) 5.69 (4.6) 3,776 3,761 0.4 3,696 2.2 1,049 1,326 (20.9) 1,094 (4.1)
Ambuja 5.46 4.87 12.1 5.27 3.6 3,776 3,793 (0.4) 3,776 - 1,225 985 24.4 1,181 3.7
Grasim 5.37 4.99 7.6 5.47 (2.0) 4,104 4,302 (4.6) 4,196 (2.2) 1,069 1,420 (24.7) 1,016 5.3
UltraTech 5.06 5.29 (4.4) 5.62 (10.0) 3,497 3,689 (5.2) 3,397 2.9 865 1,354 (36.1) 716 20.7
India Cements 2.92 2.46 18.8 2.95 (1.0) 3,320 3,677 (9.7) 3,120 6.4 454 1,164 (61.0) 427 6.3
Shree 2.49 2.55 (2.4) 2.74 (9.3) 3,284 3,478 (5.6) 3,249 1.1 1,096 1,558 (29.7) 1,141 (4.0)
Birla Corp. 1.48 1.23 20.1 1.65 (10.2) 3,428 3,650 (6.1) 3,478 (1.4) 940 1,395 (19.3) 986 (18.4)
Orient 1.06 0.66 59.7 1.09 (2.6) 2,568 3,246 (20.9) 2,518 2.0 717 1,071 (33.1) 756 (5.2)
Source: Anand Rathi Research * including clinker sale
Note: Grasim figures include white cement

Anand Rathi Research 2

15 July 2010 India Cement Sector - 1QFY11 preview

1QFY11 – Results preview

Revenues of cement companies during 1QFY11 are expected to rise
4% yoy, mainly driven by strong volume growth. We expect
aggregate EBITDA margin to decline 520bp yoy and estimate
aggregate net profit to fall 19% yoy.

Revenue led by volume growth

During 1QFY11, cement companies’ revenue growth would stem from
strong volume growth. Aggregate volumes of the eight companies in our
coverage rose 6.1% yoy, slightly lower than the industry dispatch growth
of 6.8%. The North and West outshone, with yoy demand growing 11.3%
and 9% respectively, while the South, East and Central lagged, growing
only 5.9%, 5% and 4.3% yoy respectively.
Lower demand from the infrastructure segment and slow pick-up in real
estate activity continued in 1QFY11 as well.
Average realizations are expected to be flat qoq. The average utilization
rate during 1QFY11 was 80% (90% in the previous quarter). All-India
average cement prices were up 1% qoq (albeit down 4.5% yoy).
The hike in prices includes the passing-on of the excise duty and diesel
price hike. With the onset of monsoons in most parts of the country and
lower demand from infrastructure projects, we expect demand to be
muted. This, coupled with stabilization of new capacities, could put
pressure on capacity utilization and, hence, cement prices.

Fig 3 – Cement prices to drive revenues

(Rs/ bag) 1QFY11e 1QFY10 yoy (%) 4QFY10 qoq (%)
North 257 248 3.6 251 2.7
South 234 258 (9.3) 211 10.8
East 261 252 3.5 255 2.5
West 225 239 (5.6) 221 1.8
Central 241 250 (3.6) 245 (1.6)
All-India 244 249 (2.3) 237 3.0
Source: CMA, Anand Rathi Research

EBITDA margin to decline

We expect EBITDA margin to decrease ~520bp yoy on an average,
though increasing ~70bp qoq. Average international coal prices have
started looking up during the quarter, rising 5% qoq. Diesel prices too rose
~5% in the quarter. We expect aggregate EBITDA for companies in our
coverage to decline 13% yoy and be flat qoq.

Anand Rathi Research 3

15 July 2010 India Cement Sector - 1QFY11 preview

Fig 4 – Average coal-price movement

(US$/Ton)
110

100

90

80

70

60

50

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11
Source: Bloomberg, Anand Rathi Research,

Profit trend
We expect lower revenue growth and weak operating performances to
impact profitability of cement companies during the quarter. We estimate
aggregate net profit would decline 19% yoy (and 0.3% qoq). Ambuja is
likely to register 27% yoy profit growth, while India Cements is expected
to underperform, with 75% yoy drop in profit.
Factors to watch
 Update on commissioning of fresh capacities
 Outlook on cement prices

Key developments in previous quarter

Major capacity additions in the quarter
No capacity was added during the quarter. About 53m tons were added in
the past year, boosting industry capacity to 273m tons.
Cement price hikes
Last quarter, cement companies hiked prices Rs3/bag on an all-India
basis. The southern region saw the highest rise, of ~Rs18/bag; the Central
lagged, registering decline of Rs9/bag. Prices further decreased Rs5-
15/bag across India in Jul ’10.

Anand Rathi Research 4

Appendix 1
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report.

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking
revenues.
Anand Rathi Ratings Definitions
Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below.

Ratings Guide
Buy Hold Sell
Large Caps (>US$1bn) >20% 5-20% <5%
Mid/Small Caps (<US$1bn) >30% 10-30% <10%

Anand Rathi Research Ratings Distribution (as of 31 Mar 10)

Buy Hold Sell
Anand Rathi Research stock coverage (118) 61% 12% 27%
% who are investment banking clients 8% 0% 0%

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