India Cement

1QFY2011 Result Update | Cement
August 4, 2010

India Cements BUY
CMP Rs105
Performance Highlights Target Price Rs139
Y/E Mar (Rs cr) 1QFY2011 4QFY2010 % chg qoq 1QFY2010 % chg yoy Investment Period 12 Months
Net Revenue 883 974 (9.4) 960 (8.1)
Stock Info
Operating Profit 91 160 (43.5) 314 (71.2)
Sector Cement
OPM (%) 10.3 15.2 (495)bp 32.7 (2,244)bp
Market Cap (Rs cr) 3,215
Net Profit 25 38 (34.8) 144 (82.7)
Beta 0.9
Source: Company, Angel research
52 Week High / Low 156/97
India Cements’ net sales de-grew by 8.1% yoy during 1QFY2011 on account Avg. Daily Volume 361266
of the substantial decline in prices in Andhra Pradesh, which contributes
Face Value (Rs) 10
around 45% of the company’s overall revenues. The net plant realisation
NPR) for the quarter stood at Rs2,501/tonne, down 21% yoy. The BSE Sensex 18,217
management indicated that it is looking at increasing the proportion of its Nifty 5,468
sales volume from Tamil Nadu and Kerala to 60% (from the current 50%) to Reuters Code ICEM.BO
achieve better realisation. We maintain a Buy on the stock. ICEM@IN
Bloomberg Code

Operating profit down 71.2%: On the operating front, the company’s
margins fell by 2,244bp yoy to 10.3% (32.7%) on account of the fall in
Shareholding Pattern (%)
realisations and increase in raw material and freight costs. The company’s
operating profit stood at Rs91cr, down 71.2% yoy. Net profit dropped 82.7% Promoters 25.2
yoy to Rs25cr primarily due to the poor operating performance. Bottom-line MF / Banks / Indian Fls 19.0
was however, bolstered by the Rs26.4cr of profit booked from the stake sale FII / NRIs / OCBs 32.0
in Bharati Cement. Adjusting the foreign exchange translation loss of Indian Public / Others 23.8
Rs11.6cr (Rs21cr gain in 1QFY2010) and exceptional income from stake
sale, net profit stood at Rs Rs10.2cr.

Outlook and Valuation: We expect the pricing pressure in the southern region Abs. (%) 3m 1yr 3yr
to continue over the next few quarters on the back of excess capacity and lack Sensex 6.3 15.1 20.3
of demand particularly in Andhra Pradesh due to reduced government India Cements (13.1) (32.3) (51.7)
spending on infrastructure and housing projects. We maintain a Buy on the
stock with the SOTP-based Target Price of Rs139.

Key Financials - standalone
Y/E March ( Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 3,427 3,771 3,680 4,167
% chg 12.1 10.1 (2.4) 13.2
Net Profit 432 354 87 130
% chg (32.2) (18.0) (75.5) 49.9
OPM (%) 29.1 21.9 12.4 15.0
FDEPS(Rs) 15.3 11.5 2.8 4.2
P/E(x) 6.8 9.1 37.0 24.7
P/BV(x) 1.0 0.9 0.9 0.9 Rupesh Sankhe
RoE(%) 14.7 9.1 2.1 3.0 022-40403800 Ext:319
RoCE(%) 14.1 9.6 2.7 4.5 rupeshd.sankhe@angeltrade.com
EV/Sales (x) 1.4 1.4 1.5 1.2
V Srinivasan
EV/tonne 59 69 74 68
022-40403800 Ext:330
EV/EBITDA 4.9 6.4 11.9 8.0
v.srinivasan@angeltrade.com
Source: Company, Angel Research

Please refer to important disclosures at the end of this report 1

India Cements| 1QFY2011 Result Update

Exhibit 1: 1QFY2011 Performance
Y/E March (Rs cr) 1QFY2011 4QFY2010 % chg qoq 1QFY2010 % chg yoy FY2010 FY2009 % chg
Net Revenue 883 974 (9.4) 960 (8.1) 3,771 3,427 10.0
Net Raw Material Costs 116 154 (24.5) 84 37.9 480 357 34.6
(% of Sales) 13.2 15.8 8.8 12.6 10.3
Power & Fuel 275 261 5.4 244 12.8 1,000 892 12.1
(% of Sales) 31.2 26.8 25.4 26.3 25.7
Staff Costs 63 80 (21.5) 52 22.1 250 198 26.0
(% of Sales) 7.1 8.2 5.4 6.6 5.7
Freight & Forwarding 184 191 (3.6) 131 40.5 643 486 32.3
(% of Sales) 20.8 19.6 13.6 16.9 14.0
Other Expenses 154 128 20.5 136 13.6 494 534 (7.5)
(% of Sales) 17.4 13.1 14.1 13.9 16.7
Total Expenditure 792 814 646 22.6 2,901 2,511 15.5
Operating Profit 91 160 (43.5) 314 (71.2) 904 960.8 (5.9)
OPM 10.3 15.2 32.7 21.9 29.1
Interest 30 37 (19.3) 38 (22.7) 143 112 27.2
Depreciation 60 62 (2.8) 57 4.9 233 203 14.7
Other Income 26 3 - 3 3 (5.4)
PBT (incl. Extr. Items) 27 53 (47.9) 219 (87.5) 531 648 (18.0)
Extr. Income/(Expense) (13) 12 21 (161.7) 29 (54)
PBT (excl. Extr. Items) 14 65 (77.7) 240 (94.0) 560 595 (5.8)
Provision for Taxation 2 14 74 177 216 (18.1)
(% of PBT) 16.6 27.1 31.1 31.6 36.3
Reported PAT 25 38 (34.8) 144 (82.7) 354 432 (18.0)
PATM 2.8 3.9 15.0 9.3 12.4
EPS (Rs) 1 1 (34.8) 5 (84.1) 12 14 (18.0)

Exhibit 2: Financial performance
(Rs cr) (%)
960 995 974
1,000 897 876 883 40

800
30
600
20
400
144 137 10
200 94
35 38 25
0 0
4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

Net Sales (LHS) Net Profit (LHS) OPM (RHS)


August 4, 2010 2


Exhibit 3: 1QFY2011 - Actual v/s Angel estimates
(Rs cr) Actual Estimates Variation (%)
Net Sales 883 936 (5.7)
Operating Profit 91 134 (32.6)
Net Profit 25 53 (53.1)

Operating performance

During the quarter, India Cements dispatched 2.65mt of cement, up 11% yoy.
While the company’s net plant realisation declined by 21.2% yoy to Rs2,501,
raw material and freight costs per tonne also increased by 27.8% and 30.3%
yoy to Rs439 and Rs693 respectively, during the quarter. Freight costs rose due
to the increased lead distance as the company recorded higher dispatches to
the Tamil Nadu market. Power costs also increased due to higher use of
generators on account of the power shortage in Andhra Pradesh. Operating
profit per tonne of cement stood at Rs393, down by a whopping 68.1% yoy.

Exhibit 4: Per tonne analysis
Particulars (Rs/tonne) 1QFY2011 4QFY2010 1QFY2010 yoy ch (%) qoq ch (%)
NPR/tone 2,501 2,488 3,173 (21.2) 0.5
Raw Material Cost/tonne 439 531 343 27.8 (17.5)
Power & Fuel Cost /tonne 1,037 900 991 4.7 15.3
Freight Cost/tonne 693 658 532 30.3 5.4
Operating Profit/tonne 393 428 1,235 (68.1) (8.0)
Depreciation/tonne 226 134 232 (2.8) 68.4
Adj Net Profit/tonne 47 12 545 (91.4) 298.4

Cement demand scenario in 1QFY2011

During 1QFY2011, the all-India demand grew by 7% yoy. The central region
reported the highest growth of 12.3% yoy, while the western region was the second
best with 11.4% yoy growth. The northern and eastern regions posted 9.2% and
9.1% yoy growth respectively, during the quarter. However, the southern region
reported a marginal 0.7% yoy growth. Among the southern states, Karnataka
reported a healthy 10.5% yoy growth, while Tamil Nadu posted 3% yoy growth.
However, Andhra Pradesh and Kerala de-grew by 5% each. The cement prices
started to decline in most regions across India due to low demand and increase in
capacities.

August 4, 2010 3


Exhibit 5: All-India demand growth scenario (1QFY11) Exhibit 6: South demand growth scenario (1QFY11)

(%) (%)
15 15
12.3 10.5
11.4
12 10
9.2 9.1
9 7
5 3
6
0
3 0.7
(5) Karnataka Tamil Nadu Andhra Kerala
0
(5.0) (5.0)
Central West North East South All-India
(10)

Source: Company, Angel Research Source: Company, Angel Research

Capacity expansions well on track

The company is currently setting up a 1.5mtpa green-field plant at Rajasthan,
through its subsidiary, Indo Zinc. The plant is at an advanced stage of completion
and is expected to be commissioned in 2QFY2011. The company is also in the
process of setting up two captive power plants (CPPs) of 50MW each in Tamil
Nadu and Andhra Pradesh. While the Tamil Nadu plant is expected to be
operational in 1QFY2012, the Andhra Pradesh plant is expected to be operational
in 4QFY2012. The company has also completed the formalities for obtaining the
coal mining rights in Indonesia to meet its coal requirements for power generation
and cement manufacturing. India Cements plans to incur total capex of Rs1,100cr
over the next three years towards capacity expansion.

Exhibit 7: Installed capacity

(mtpa)
20

15.8 15.8
14.3 14.3
15

10 8.5 9.1

5

0
FY07 FY08 FY09 FY10 FY11E FY12E


August 4, 2010 4


Conference call highlights

India Cements currently derives a major portion (45%) of its revenue from
Andhra Pradesh. Going ahead, it plans to increase the proportion of sale in
Tamil Nadu and Kerala to 60% to achieve better NPR.

During the quarter, the company sold its entire stake in Bharati Cement and
booked a profit Rs25.8cr.

The 1.5mtpa green-field expansion in Rajasthan is on schedule and expected
to be commissioned in 2QFY2011. The 50MW CPP in Tamil Nadu is expected
to be commissioned in 1QFY2012E, while the 50MW CPP in Andhra Pradesh
is expected to be commissioned in 4QFY2012E.

The company intimated that it is currently in the process of developing its coal
mine in Indonesia and expects to produce approximately 1mt of coal a year.
The company expects to start mining in five to six months. The management
indicated that the calorific value of the coal would be approximately 5,500kcal
and the average cost of raising coal would be in the range of US $30-35per
tonne.

Investment Arguments

Foray into northern region to reduce company’s concentration in the south:
India Cements, with 14mtpa capacity, is the second largest cement player in
the south with a market share of close to 19% in the region. Currently, the
southern region is witnessing a decline in prices due to excess supply and
slow-down in demand. The company is foraying into the northern region with
the commissioning of the 1.5mtpa green-field plant at Rajasthan, which would
reduce its exposure to the southern region. Post commencement of this new
plant, the company will have access to the high-growth northern and eastern
regions.

Higher use of captive power to reduce energy costs: The company is also in
the process of setting up two CPPs of 50MW each in Tamil Nadu and Andhra
Pradesh in its bid to reduce its power costs considerably. The EPC order has
been finalised for the Tamil Nadu plant and is expected to be completed by
1QFY2012. The company has already completed the formalities for leasing a
1,400 acre coal mine in Kalimantan, Indonesia and is in the process of
identifying a mining contractor. The company’s dependence on external coal
would be reduced substantially once the mining starts in these mines in the
next 5-6 months as indicated by management.

August 4, 2010 5


Outlook and Valuation: We expect the pricing pressure in the southern region
to continue over the next few quarters on the back of excess capacity and lack
of demand, particularly in Andhra Pradesh, due to reduced government
spending on infrastructure and housing projects. We maintain a Buy on the
stock with a SOTP-based Target Price of Rs139.

Exhibit 8: SOTP-based target price (FY2012E)
Particulars Parameter Value (Rs cr)
Target EV/Tonne US $65 4,676
CPP(200 MW) Rs3.25cr/MW 650
IPL, Shipping 356
Market Cap (Rs cr) 4,261
No of shares (cr) 30.72
Target Price (Rs) 139
Source: Angel Research

Exhibit 9: Change in estimates
(Rs cr) FY2011E FY2012E
Earlier Revised Var (%) Earlier Revised Var (%)
Net Sales 4,479 3,680 (17.8) 5050 4,167 (7.0)
Operating Exp 3,611 3,223 (10.7) 4,096 3,541 (13.5)
Operating Profit 869 456 (47.5) 954 626 (34.4)
Depreciation 303 277 (8.6) 346 315 (9.0)
Interest 149 174 16.8 143 192 34.3
PBT 470 116 (75.3) 541 181 (66.5)
Tax 160 29 (81.9) 184 51 (72.3)
PAT 354 87 (75.4) 357 130 (63.6)

Exhibit 10: Key assumptions
Earlier Estimates Revised Estimates
FY11E FY12E FY11E FY12E
Installed Capacity - Cement (mtpa) 15.8 15.8 15.8 15.8
yoy Growth (%) 10.5 - 10.5 -
Utilisation (%) 72 81 71 79
Despatch growth (%) 10.6 10.8 8.9 10.6
Realisation growth (%) (12) 3.5 (16) 3
Source: Company, Angel research

August 4, 2010 6


Exhibit 11: One-year forward EV/tonne band

12,000
EV $50 $70 $90 $110

9,000

EV (Rs cr)
6,000

3,000

0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10

Exhibit 12: Recommendation summary
Company Reco. CMP Tgt. Price Upside FY2012E FY2012E FY2010-12E FY2012E FY2012E
(Rs) (Rs) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)
ACC Neutral 820 - - 1.9 10.9 (7.5) 21.3 19.0
Ambuja Cements Neutral 117 - - 2.2 14.8 (3.5) 19.1 16.3
Grasim Ind. Buy 1,876 2,216 18.1 0.9 7.5 (10.9) 14.1 12.4
India Cements Buy 105 139 33.0 0.9 24.7 (39.7) 4.5 3.0
JK Lakshmi Buy 60 92 53.0 0.6 4.2 (2.3) 12.8 14.9
Madras Cements Buy 100 141 41.4 1.3 9.8 (15.3) 8.4 10.7
Ultratech Cement Buy 858 1,087 26.7 1.5 11.4 (7.9) 15.2 14.0

August 4, 2010 7


Profit and loss statement - standalone
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 2,255 3,058 3,427 3,771 3,680 4,167
Total operating income 2,255 3,058 3,427 3,771 3,680 4,167
% chg
Total Expenditure 1,521 1,965 2,431 2,945 3,223 3,541
Net Raw Materials 238 283 357 480 484 564
Other Mfg costs 549 691 892 1,000 1,089 1,191
Personnel 103 188 198 250 275 308
Other 631 804 984 1,215 1,375 1,477
EBITDA 734 1,093 996 827 456 626
% chg 181.4 48.8 (8.8) (17.0) (44.8) 37.1
(% of Net Sales) 32.6 35.7 29.1 21.9 12.4 15.0
Depreciation& Amortisation 103 128 203 233 277 315
EBIT 632 965 793 593 179 310
% chg 246.9 52.8 (17.8) (25.2) (69.8) 73.1
(% of Net Sales) 28 32 23 16 5 7
Interest & other Charges 150 110 112 143 174 192
Other Income 10 28 47 81 110 62
(% of PBT) 2 3 7 15 95 35
Share in profit of Associates
Recurring PBT 492 883 728 531 116 181
% chg 1,117 79 (18) (27) (78) 56
Extraordinary Expense/(Inc.) - 38 79 - - -
PBT (reported) 492 845 648 531 116 181
Tax 13 207 216 177 29 51
(% of PBT) 2.7 24.5 33.3 33.3 25.0 28.0
PAT (reported) 479 638 432 354 87 130
ADJ. PAT 479 676 512 354 87 130
% chg 1,239.5 41.1 (24.3) (30.7) (75.5) 49.9
(% of Net Sales) 21 22 15 9 2 3
Basic EPS (Rs) 18.4 22.6 15.3 11.5 2.8 4.2
Fully Diluted EPS (Rs) 18.4 22.6 15.3 11.5 2.8 4.2
% chg 832 23 (32) (25) (76) 50

August 4, 2010 8


Balance sheet - standalone
SOURCES OF FUNDS
Equity Share Capital 260 282 282 307 307 307
Preference Capital - - - - - -
Reserves& Surplus 1,948 3,039 3,349 3,829 3,976 3,993
Shareholders’ Funds 2,209 3,321 3,631 4,136 4,283 4,300
Total Loans 2,059 1,812 1,988 2,133 2,318 2,478
Deferred Tax Liability 43 226 256 269 269 269
Total Liabilities 4,310 5,358 5,875 6,538 6,871 7,047
APPLICATION OF FUNDS
Gross Block 3,856 4,709 5,314 5,710 6,160 7,010
Less: Acc. Depreciation 1,060 1,244 1,505 1,792 2,069 2,384
Net Block 2,796 3,464 3,808 3,919 4,091 4,626
Capital Work-in-Progress 143 575 904 703 1,033 583
Goodwill - - - - - -
Investments 55 129 159 314 314 314
Current Assets 1,718 2,149 2,144 2,876 3,024 3,121
Cash 230 426 85 54 73 91
Loans & Advances 979 1,062 1,313 1,869 2,069 2,069
Other 509 662 745 953 882 960
Current liabilities 434 984 1,153 1,274 1,591 1,596
Net Current Assets 1,284 1,166 990 1,602 1,432 1,525
Mis. Exp. not written off 33 24 14 - - -
Total Assets 4,310 5,358 5,875 6,538 6,871 7,047

August 4, 2010 9


Cash flow statement - standalone
Profit before tax 492 845 648 531 116 181
Depreciation 103 128 203 233 277 315
Change in Working
125 576 (16) (488) 285 (178)
Capital
Less: Other income 10 28 47 81 110 62
Direct taxes paid 13 207 216 177 29 51
Cash Flow from
697 1,314 573 19 539 205
Operations
(Inc)/ Decin Fixed Assets (965) (1,285) (934) (195) (780) (400)
(Inc)/ Dec in Investments (20) (74) (30) (155) - -
Other income 10 28 47 81 110 62
Cash Flow from Investing (975) (1,332) (917) (270) (670) (338)
Issue of Equity 81 601 5 284 - -
Inc./(Dec.) in loans 534 (247) 177 145 186 160
Dividend Paid (Incl. Tax) - 30 66 66 35 9
Others 150 110 112 143
Cash Flow from Financing 465 213 4 220 150 151
Inc./(Dec.) in Cash 187 195 (340) (31) 20 18
Opening Cash balances 44 230 426 85 54 73
Closing Cash balances 230 426 85 54 73 91

August 4, 2010 10


Key ratios
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 5.7 4.6 6.8 9.1 37.0 24.7
P/CEPS 4.7 3.9 4.7 5.5 8.8 7.2
P/BV 1.9 1.1 1.0 0.9 0.9 0.9
Dividend yield (%) - 1.0 2.2 2.1 1.1 0.3
EV/Sales 2.0 1.4 1.4 1.4 1.5 1.2
EV/EBITDA 6.2 4.0 4.9 6.4 11.9 8.0
EV / Total Assets 1.1 0.8 0.8 0.8 0.8 0.7
Per Share Data (Rs)
EPS (Basic) 18.4 22.6 15.3 11.5 2.8 4.2
EPS (fully diluted) 18.4 22.6 15.3 11.5 2.8 4.2
Cash EPS 22.3 27.2 22.5 19.1 11.9 14.5
DPS - 1.1 2.3 2.2 1.2 0.3
Book Value 54.8 92.1 105.0 113.0 117.8 118.3
Dupont Analysis
EBIT margin 28.0 31.6 23.1 15.7 4.9 7.4
Tax retention ratio 97.3 75.5 66.7 66.7 75.0 72.0
Asset turnover (x) 0.6 0.7 0.6 0.6 0.6 0.6
ROIC (Post-tax) 16.7 16.2 9.9 6.5 2.0 3.3
Cost of Debt (Post Tax) 8.1 4.3 3.9 4.6 5.9 5.8
Leverage (x) 0.8 0.6 0.5 0.5 0.5 0.5
Operating ROE 23.9 23.6 12.7 7.4 0.1 1.9
Returns (%)
ROCE (Pre-tax) 16.5 20.0 14.1 9.6 2.7 4.5
Angel ROIC (Pre-tax) 17.6 23.3 17.2 11.1 3.1 5.1
ROE 24.2 24.4 14.7 9.1 2.1 3.0
Turnover ratios (x)
Asset Turnover (Gross
0.7 0.7 0.7 0.7 0.6 0.6
Block)
Inventory / Sales (days) 34.1 33.3 38.4 41.6 50.7 52.2
Receivables (days) 40.5 34.1 35.4 40.6 40.3 28.5
Payables (days) 96.8 131.7 160.4 150.4 162.2 164.3
Working capital cycle
173.9 107.0 87.6 118.7 144.2 122.4
(ex-cash) (days)
Solvency ratios (x)
Net debt to equity 0.8 0.4 0.5 0.5 0.5 0.6
Net debt to EBITDA 2.5 1.3 1.9 2.5 4.9 3.8
Interest Coverage (EBIT
4.2 8.8 7.1 4.2 1.0 1.6
/ Interest)

August 4, 2010 11


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement India Cements
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

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

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

August 4, 2010 12

India Cement

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