An equity research report of ACC as on February 23, 2016

1. AbhirupLahiri
SwatiSingh
SreekanthKN
FINALYZE
Case Submission
Equity Research Report

2. Indian Institute of Foreign Trade | Delhi
Report Contents
This slide explains the topics we have covered in the equity research report and what we have done in each type of analysis
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents
Macroeconomic Analysis:
This section covers various macroeconomic factors that affects Indian market as a whole. In the scope of this report, six parameters have been taken,
for example GDP growth rate, exports IIP among others.
Sector Analysis:
This section includes the current scenario of the cement industry. For this analysis, few important facts and figures followed by the analysis of the
cement industry and future prospects are given.
Company Analysis:
The history of the company, followed by the key people in the company are given. Plant location strategy of ACC has been scrutinized followed by
analysis of the position of ACC in the market.
Valuations:
For valuation purpose, we have used two methods, namely DCF valuation and valuation by comparable to attain an acceptable level of accuracy. The
enterprise value is taken as the average of the result of these two valuations.
Financial Analysis:
This section includes the key highlights of Q4CY15 report of ACC. This is followed by three crucial analyses i.e. Key Ratio Analysis, Quarterly Analysis
and analysis done on the shareholding pattern. At the end, key takeaways of the financial analysis done are given.
Market Analysis
This section includes the trends and analysis of the 1-year moving average of ACC’s stock in the SENSEX. It also includes the expectations of the major
demand driving sectors – real estate and infrastructure from the Union Budget 2016 and its possible impact on the cement industry.

3. Indian Institute of Foreign Trade | Delhi
MACROECONOMICANALYSIS
Indian GDP growth
Sectoral Returns
Wholesale Inflation
Core Sector O/p
Exports
IIP
The Indian growth story seems to be
picking up some steam, parliamentary
deadlock and structural malaise
notwithstanding. However, the economy
needs some buttressing from the
government. Recently, Moody’s predicted
an expected GDP growth of 7.5% in 2016.
The Sensex has returned a disappointing
-3.94% over the last quarter. This maybe
because of the twin effect of Grexit
aftermath and Chinese currency
devaluation. Industry wise, infrastructure
industry gave a 4.3% growth in the last
quarter but with cement at negative PAT
6.6
5.1
6.9 7.3 7.5
GDP growth rate (last five years)
9.8
-71.7
21
-13
13.9
28.1
Sectoral comparison of PAT YoY
change (2014-15)
4.5
6.7 7.7
3.1
5.6
0
5
10
Core industry growth % (cement)
Of the eight core industries which
comprise 38% of the IIP, Cement
production has a weight of 2.41%. The
cumulative index during April-Dec 2015
increased by 2.2% over the previous
year. The demand seems to be picking
up since 2013-14.
-6
-4
-2
0
WPI (%)
The WPI stood at -0.9% in January
compared to -0.73% in December. This
comes at the back of cheaper vegetable
prices. Inflation in manufacturing has
more or less remained constant over the
last 5 months. WPI has been persistently
in the deflationary zone.
The IIP contracted by 1.3% in December
due to a decline in manufacturing. It
had contracted 3.4% in November due to
shutdown during Diwali. Weak exports
might lead to further contraction in the
coming quarters, but low input costs
might provide some relief.
4.24%
6.26%
3.73%
9.87%
-3.43%
-1.34%
-5.00%
0.00%
5.00%
10.00%
15.00%
Jun Jul Aug Sep Oct Nov Dec
IIP Data, 2015
-13.06
-10.27
-20.43
-24.76
-17.53
-24.41
-14.75-13.6
-30
-20
-10
0
Jun Jul AugSep OctNovDec Jan
Exports (YoY change in %)Exports fell consecutively for 14
months, because of weak global
demand and fall in shipment of
petroleum products and engineering
goods. However, this did not affect the
trade deficit much as India benefited
from cheap imports.
Sources: 1. www.ibef.org, 2. www.tradingeconomics.com, 3. www.economictimes.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

4. Indian Institute of Foreign Trade | Delhi
SECTORANALYSIS
Indian cement industry
accounts for about 8% of
the total global production
IndiaChina
Indian cement industry is
the 2nd largest market
after China
375 390
Total cement manufacturing capacity(in MT) as of 2014-15
8%
Per capita consumption of
cement (2014-15)
520kg 195kg
Indian Cement Sector Fact File
• Cyclical commodity; High correlation with GDP
• Housing sector is the biggest demand driver of
cement, accounting for about 2/3rd of the total
consumption
• Capacity doubled in the last decade, with about 70
million tonnes added in 2011-14
• Freight intensive industry
• Southern India accounts for 1/3rd of total capacity
Future Prospects
• The Modi government's thrust on housing development should augur well for cement demand.
• The crash in the global crude oil prices and other commodities should help cement companies to
reign over cost pressures and improve profitability of the sector.
• While medium term challenges remain in the form of excess capacity, slowdown in rural demand
and slow offtake of infrastructure projects, the long term drivers for cement demand remain intact.
• The demand-supply mismatch is expected to reduce in the next three years as the rate of new
capacity additions slows down and growth picks up pace.
Key Factors
High capital cost and long
gestation periods. Access
to limestone reserves acts
as a vital entry barrier.
The demand-supply situation is
highly skewed with the latter
being significantly higher. Barriers to
Entry
Supply
Housing sector acts as the main growth driver for cement. Also, industrial and infrastructure sectors
have also emerged as demand drivers.
Demand
Bargaining
power of
Suppliers
Licensing of coal and
limestone reserves, supply
of power from the state
grid, etc. are all controlled
by a single entity, which is
the government. However,
many producers are relying
more on captive power.
Cement is sold in two
segments – trade and non-
trade. The former is sold to
dealers and latter to
consumers, mainly
institutional buyers. Trade
cement demand is higher
compared to non-trade.
Bargaining
power of
Consumers
Sources: 1. www.ibef.org, 2. www.acclimited.com, 3. www.financewalk.com, 4.www.equitymaster.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

5. Indian Institute of Foreign Trade | Delhi
Companyanalysis
History
In 1936, 10 cement companies belonging
to Tata, Khataus, Killick Nixon and F E Dinshaw groups
merged to form The Associated Cement Companies (ACC)
Headquarters:- Mumbai (The Cement House)
USP
It is the first company in India to include commitment to
environment protection as a corporate objective; also the
only cement company to get a ‘Superbrand’ status
Some facts about the company
17
Cement
factories
Ready mix
concrete
plants
30
Sales
offices
21
Workforce
9000 9000
Dealers
Important figures
NS Sekhsaria
Chairman
Eric Olsen
Dy. Chairman
Harish Badami
CEO & MD
KeyPeople
Cement factories in India
1. Gagal 2. Lakheri 3. Tikarla 4. Bokarjan 5. Sindri
6. Bardhaman 7. Chaibasa 8. Chanda 9. Bargarh 10. Wadi
11. Macherla 12. Jorapokhar 13. Kymore 14. Jamul 15. Faridabad
16. Madukkarai 17. Coimbatore
6
8 9
17
10
11
16
7
5
1
2 3 4
13
14
15
12
Product Portfolio
Cement
Bulk
Cement
Blended
Cement
Cement
RMX
Ready Mix Concrete refers to concrete that
is specifically manufactured elsewhere and
transported in a Transit Mixer for delivery to
the customer's construction site in a ready-
to-use freshly mixed state.
Market Share Analysis
11
10
9.5
8.5
5
56
ACC
Grasim
Ambuja
UltraTech
India Cement
Others
There is intense competition with players expanding
reach pan India. The industry is a lot more consolidated
than a couple of decades ago with just 188 companies
holding 97% of the market share.
Market Share
Sources: 1. www.moneycontrol.com, 2. www.mapsofindia.com, 3. www.acclimited.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents
Concentration
of plants in
central and
southern India,
in consistent
with the fact
that 1/3rd of
cement is
produced in
this region

6. Indian Institute of Foreign Trade | Delhi
All data
valuations
DCF Valuation
For valuation purpose, we have used two methods, namely DCF valuation and valuation by comparable to arrive at a much accurate result
Assumptions:
1. Estimating growth: An increasing growth was considered from 2016
onwards based on past trends. Annual report for 2015 was not available.
Hence latest news source was referred for the approximate growth rate in
FY2015.
2. Estimating working capital: Trends in current assets and liabilities were
extrapolated for the next five years. Assumed the company would
continue with a negative working capital to boost sales.
3. Tax amount levied: Tax rates were assumed as per the government’s
announcement in 2015 budget, bringing down the corporate tax to 25% in
the next 5 years.
4. WACC has been used a discount rate: Data for WACC was directly taken
from the annual reports
5. Estimating terminal value: Perpetuity growth rate was assumed to be
twice the inflation rate, which has been averaged to 4% as per the Urjit
Patel committee’s inflation target of 4±2%
6. Calculating PV: Total EV is the sum of all cash flows and terminal value.
This gives the firm’s total value.
Valuation by Comparable
Assumption:
Removal of Outliers: Any outliers causing significant shift in the industry
average value of any multiples such as P/E or EV/S were removed to maintain
consistency.
Expected Stock Price from Valuation by Comparable Method
From EPS ₹ 941.95
From BV ₹ 1117.36
From S ₹ 1168.07
Stock Price ₹ 1075.79
Enterprise Value as Calculated (in crores) ₹19,309
Total outstanding shares (in crores) 18.77454
Stock Price ₹1028.47
Share price (DCF Method) ₹ 1,028.47
Share price (Comparable) ₹ 1,075.79
Target share price ₹ 1,052.13
Current Market Price ₹ 1,244.35*
Recommendation SELL
Recommendation based on evaluations
Sources: 1. www.nseindia.com 2. www.acclimited.com, 3. www.moneycontrol.com, 4.www.equitymaster.com
*as per BSE closing price of 23th February 2016
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

7. Indian Institute of Foreign Trade | Delhi
Financial ANALYSIS
Takeaways from Q4 of 2015
• Although volumes and realizations were in line, numbers disappointed on the operating front, driven by higher‐than‐expected operating expense
• It will not commission its east expansion before Q2CY16 – this will impact CY16 volume growth
• Operating expense was higher due to higher employee costs (VRS offering) and raw material costs
• On lack of earnings visibility, we downgrade ACC to SELL with target market price of ₹1,052.13 as compared to the CMP of 1,244.35, which is higher and hence
the company is overvalued
Key Highlights
• We do not see any structural recovery in the medium term
• The company continued to disappoint on the operating front. We believe it will be very hard for ACC to see a structural recovery in its operating parameters
(EBITDA), which were 18% below consensus
• Though ACC delivered savings in power and fuel costs and other expenses, these were more than negated by high‐cost inventory adjustments and higher
employee costs
• Though these concerns appear recoupable, we believe ACC lacks structural revival potential on its operating cost matrix
• Delay in commissioning its Jamul project will impact volume growth
• Delay in consolidation with Ambuja will impact near term savings. Risk of the consolidation being called off is present, given consistent delays in obtaining
necessary approvals
• In CY15, ACC’s EBITDA was on an average 16% below estimates done by various equity research firms
Key Ratio Analysis Quarterly Analysis Shareholding Pattern
Sources: 1. www.ibef.org, 2. www.acclimited.com, 3. www.moneycontrol.com, 4.www.equitymaster.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents
50%
15%
18%
17%
Dec-15 Promoters
FII/NRI
Finanial
Institutions/Mutual
Funds
Public and Others
21.3
13
10.3
17.4
21.4
7.1 6.1 5.5
0
5
10
15
20
25
Diluted EPS
16 15.5
23
20.3 20.5
0
5
10
15
20
25
Dec-10* Dec-11* Dec-12* Dec-13* Dec-14*
P/E Ratio
Key Ratio
Analysis
Quarterly
Analysis
Shareholding
Pattern

8. Indian Institute of Foreign Trade | Delhi
MarketANALYSIS
Sources: 1. www.ibef.org, 2. www.acclimited.com, 3. www.moneycontrol.com, 4.www.equitymaster.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents
In market analysis, 1-year moving average has been taken as a reference point, on which, analysis has been done. The basic objectives of
how the Sensex affects the share price of ACC and other cement companies have been found out.
Objective
Analysis of how the share price of ACC varies with
fluctuations in Sensex
0
1000
2000
0
20000
40000
25-Feb-15 5-Jun-15 13-Sep-15 22-Dec-15
Sensex ACC
ACC stands in the 3rd position in the cement
industry in terms of sensitivity of its share price to
the Sensex (75.49%). It has a beta (YoY) of 0.55.
This reiterates the fact that the cement industry is
cyclical and has a high correlation with GDP
Objective
Inference
Analysis of how the share price of other players in
the industry vary with fluctuations in Sensex
The beta fell drastically since Aug 24, when the
Chinese stock markets crashed. With China trying
to boost domestic consumption, it will move away
from sectors like steel and cement. This affected
cement exports from India.
Budget expectations
Inference
Expectations from the Union Budget towards
cement industry and new initiatives
1.032
1.073
0.605
0.489
0.936
0
0.2
0.4
0.6
0.8
1
1.2
Q1, 2015 Q2, 2015 Q3, 2015 Q4, 2015 Q1, 2016
Stock Beta by Quarter
Inference
80.35% 77.20% 75.49%
55.30%
39.03%
27.21% 26.34%
8.86%
0%
20%
40%
60%
80%
100%
R-Squared - Sensitivity to Sensex
1. Cement is a heavily taxed commodity and
should be brought on par with steel sector.
2. Import duty on cement is higher than that
on finished products and there is a scope for
improvement.
3. Government could launch schemes to boost
the housing sector with clear timeline for
implementation of the ‘Housing-for-All’
scheme.
4. Quicker implementation of REITs by
eliminating the DDT that is hurting the
scheme is needed. This along with the bill to
regulate real estate sector will boost the
demand for cement.
With the government pushing for new projects
such as 100 smart cities, the above
recommendations, if implemented, would help
improve the utilization levels, thus benefitting the
industry which is already seeing consolidation.

9. Indian Institute of Foreign Trade | Delhi
Exhibits(1/3)
Dec '14 Dec '13 Dec '12 Dec '11 Dec '10
12 mths 12 mths 12 mths 12 mths 12 mths
Total Share Capital 187.95 187.95 187.95 187.95 187.95
Equity Share Capital 187.95 187.95 187.95 187.95 187.95
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 8,047.66 7,636.89 7,194.85 7,004.32 6,281.54
Networth 8,235.61 7,824.84 7,382.80 7,192.27 6,469.49
Secured Loans 0 0 82 500 518.05
Unsecured Loans 0 0 3.03 6.08 5.77
Total Debt 0 0 85.03 506.08 523.82
Total Liabilities 8,235.61 7,824.84 7,467.83 7,698.35 6,993.31
Gross Block 10,892.28 10,340.39 10,159.98 9,590.60 8,076.95
Less: Revaluation Reserves 0 0 0 0 0
Less: Accum. Depreciation 5,293.89 4,836.43 4,296.11 3,383.07 2,994.51
Net Block 5,598.39 5,503.96 5,863.87 6,207.53 5,082.44
Capital Work in Progress 1,914.63 819.61 311.3 365.63 1,562.80
Investments 1,572.98 2,194.02 2,553.55 1,624.95 1,702.67
Inventories 1,255.59 1,121.47 1,133.55 1,099.54 914.98
Sundry Debtors 410.71 397.22 303.45 187.74 178.28
Cash and Bank Balance 304.3 503.38 678.38 1,652.56 94.96
Total Current Assets 1,970.60 2,022.07 2,115.38 2,939.84 1,188.22
Standalone Balance Sheet
Sources Of Funds
Application Of Funds
Loans and Advances 1,614.73 1,553.93 1,082.13 851.34 752.41
Fixed Deposits 0 0 0 0 985.07
Total CA, Loans & Advances 3,585.33 3,576.00 3,197.51 3,791.18 2,925.70
Deferred Credit 0 0 0 0 0
Current Liabilities 3,382.51 3,098.91 3,074.31 3,117.94 2,627.84
Provisions 1,053.21 1,169.84 1,384.09 1,173.00 1,652.46
Total CL & Provisions 4,435.72 4,268.75 4,458.40 4,290.94 4,280.30
Net Current Assets -850.39 -692.75 -1,260.89 -499.76 -1,354.60
Miscellaneous Expenses 0 0 0 0 0
Total Assets 8,235.61 7,824.84 7,467.83 7,698.35 6,993.31
Contingent Liabilities 2,410.62 3,296.75 1,715.30 565.47 474.18
Book Value (Rs) 438.66 416.78 393.23 383.09 344.59
Source: www.moneycontrol.com
Standalone Balance Sheet
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

10. Indian Institute of Foreign Trade | Delhi
Exhibits (2/3)
Dec '14 Dec '13 Dec '12 Dec '11 Dec '10
12 mths 12 mths 12 mths 12 mths 12 mths
Sales Turnover 13,108.18 12,491.07 11,357.96 9,660.29 8,609.29
Excise Duty 1,369.97 1,322.13 0 0 961.52
Net Sales 11,738.21 11,168.94 11,357.96 9,660.29 7,647.77
Other Income 268.28 223.79 -70.56 191.91 169.99
Stock Adjustments 11.28 -6.53 -20.02 94.39 56.58
Total Income 12,017.77 11,386.20 11,267.38 9,946.59 7,874.34
Raw Materials 2,828.30 2,669.78 2,178.83 1,691.06 1,520.68
Power & Fuel Cost 2,441.82 2,382.34 2,382.26 2,183.30 1,598.67
Employee Cost 746.59 661.68 616.65 533.01 461.89
Other Manufacturing Expenses 0 0 0 0 538.24
Selling and Admin Expenses 0 0 0 0 1,632.90
Miscellaneous Expenses 4,225.52 3,819.82 3,964.62 3,426.59 313.33
Preoperative Exp Capitalised 0 0 0 0 0
Total Expenses 10,242.23 9,533.62 9,142.36 7,833.96 6,065.71
Operating Profit 1,507.26 1,628.79 2,195.58 1,920.72 1,638.64
Standalone Profit & Loss account
Income
Expenditure
PBDIT 1,775.54 1,852.58 2,125.02 2,112.63 1,808.63
Interest 82.76 51.67 114.65 96.91 56.78
PBDT 1,692.78 1,800.91 2,010.37 2,015.72 1,751.85
Depreciation 557.58 573.95 558.88 475.3 392.68
Other Written Off 0 0 0 0 0
Profit Before Tax 1,135.20 1,226.96 1,451.49 1,540.42 1,359.17
Extra-ordinaryitems 0 0 0 0 185.92
PBT (Post Extra-ord Items) 1,135.20 1,226.96 1,451.49 1,540.42 1,545.09
Tax -33.09 131.2 390.3 215.16 424.15
Reported Net Profit 1,168.29 1,095.76 1,061.19 1,325.26 1,120.01
Total Value Addition 7,413.93 6,863.84 6,963.53 6,142.90 4,545.03
Preference Dividend 0 0 0 0 0
EquityDividend 638.34 563.24 563.24 525.69 572.63
Corporate Dividend Tax 119.18 95.72 91.37 85.28 95.1
Shares in issue (lakhs) 1,877.45 1,877.45 1,877.45 1,877.45 1,877.45
Earning Per Share (Rs) 62.23 58.36 56.52 70.59 59.66
EquityDividend (%) 340 300 300 280 305
Book Value (Rs) 438.66 416.78 393.23 383.09 344.59
Per share data (annualised)
Source: www.moneycontrol.com
Profit and Loss Statement
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

11. Indian Institute of Foreign Trade | Delhi
Exhibits(3/3)
Date SensexInfrastructure ACC Sensex % ACC % Infra %
UltraTec
h
Cement
Ambuja
Cement
Ramco
Cements
J.K.
Cement
Grasim
Cement
Orient
Cement
Birla
Corporati
on
OCL India
23-Feb-16 23410.18 138.24 1244.35 2814.25 193.35 368.2 473.9 3399 134.6 350.15 414.8
22-Feb-16 23788.79 140.28 1280.95 1.62% 2.94% 1.48% 2918.55 195.65 369.1 454.15 3483.15 134.8 359.9 435.2
19-Feb-16 23709.15 140.36 1276.15 -0.33% -0.37% 0.06% 2840.3 194.85 368.5 453.4 3427.2 133.1 360.7 435.5
18-Feb-16 23649.22 139.9 1259.95 -0.25% -1.27% -0.33% 2794.8 195.35 371.15 452.3 3434.85 131.85 367.6 446
17-Feb-16 23381.87 139.02 1226.15 -1.13% -2.68% -0.63% 2774.95 193.3 370.55 445.5 3447.05 131.05 368.85 430
16-Feb-16 23191.97 137.46 1227.5 -0.81% 0.11% -1.12% 2790.9 193 369.85 434.95 3419.55 133.05 367.5 430
15-Feb-16 23554.12 139.07 1255.1 1.56% 2.25% 1.17% 2803.5 197.75 375.3 453 3459.7 135.3 379.7 449.5
12-Feb-16 22986.12 133.86 1220.2 -2.41% -2.78% -3.75% 2769.4 194.6 366.6 444.8 3381.55 133.8 365.15 427.05
11-Feb-16 22951.83 136.12 1234.3 -0.15% 1.16% 1.69% 2707.8 193.55 369.15 437.25 3373.6 135.2 351.7 432.1
10-Feb-16 23758.9 143.89 1269.05 3.52% 2.82% 5.71% 2805.9 195 375.75 447.55 3423.35 140.1 373.8 455
9-Feb-16 24020.98 146.67 1278.45 1.10% 0.74% 1.93% 2763.25 197.4 373.85 450.75 3401.55 137.8 378.8 465.4
8-Feb-16 24287.42 147.02 1280.3 1.11% 0.14% 0.24% 2820.9 196.95 381 464.95 3420.95 139.75 390.05 471.05
5-Feb-16 24616.97 148.2 1270.65 1.36% -0.75% 0.80% 2842.75 195.45 383 465 3459.6 136.75 391.55 478.7
4-Feb-16 24338.43 147 1269.9 -1.13% -0.06% -0.81% 2770.2 195.75 378.75 469.85 3433.95 137.65 394.6 484.75
3-Feb-16 24223.32 145.77 1251.5 -0.47% -1.45% -0.84% 2771.05 192.4 380.35 459.75 3419.55 142.7 380.95 488
2-Feb-16 24539 149.2 1263.2 1.30% 0.93% 2.35% 2809.3 196.7 383 470.55 3441.7 144 387.2 495.2
1-Feb-16 24824.83 153.02 1274.2 1.16% 0.87% 2.56% 2812.35 199.95 385.35 492.6 3436.9 144.25 401.45 492.1
1-Year stock prices variation of ACC and its competitors
Source: www.equitymaster.com
Company
Analysis
Macroeconomic
Analysis
Sector
Analysis
Valuations
Financial
Analysis
Market
Analysis
Exhibits
Report
Contents

12. Thank you