India Cement Sector SECTOR REVIEW. Figure 1: Cement majors continue to remain in a sweet spot

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1 Asia Pacific/India Equity Research Cement Research Analysts Sandeep Mathew Kush Shah India Cement Sector SECTOR REVIEW Pricing resilience; upgrade ACC to NEUTRAL Figure 1: Cement majors continue to remain in a sweet spot 1,600 1,400 1,200 1, (200) (400) Regional Players FY12 Avg EBITDA/tonne 1027 Avg PBT/tonne 471 Avg utilization 62% Capacity share 18% Cement Majors FY12 Avg EBITDA/tonne 858 Avg PBT/tonne 558 Avg utilization 78% Capacity share 45% High Utilization players FY12 Avg EBITDA/tonne 438 Avg PBT/tonne 218 Avg utilization 92% Capacity share 7% DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NONUS ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, 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. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS FY12 EBITDA/Tonne FY12 PBT/Tonne FY12 Capacity Utilisation (RHS) FY12 Industry Utilisation (RHS) Source: Company data, CMA, Credit Suisse estimates Cement prices continue to remain firm. Our recent channel checks suggest that cement prices continue to surprise positively and have declined only 2% versus our expectation of a 4% decline in the September quarter. The cement industry s pricing power has been aided by factors such as recovery in utilisation rates of cement majors (ACC, Ambuja and UltraTech), lower breakeven points of cement majors, and production discipline, which increasingly appears likely to be sustained. With higherthanindustry utilisations, lower leverage and higher profitability, cement majors remain well positioned in the industry, as smaller regional players face either leverage concerns or high utilisations with low profits. The key negative catalysts we anticipated largely played out. We had three key concerns about the sector: (1) adverse impact of rising costs, low industry utilisations and weak demand; (2) impact of adverse ruling on cartel, and (3) valuation risk arising from multiple and earnings derating. The industry, however, has navigated the challenging phase by maintaining production discipline (sacrificing volume to protect margins) despite ruling on cartelisation by the CCI, and weak demand. Outlook incrementally turning favourable. Cement industry s cost pressures are beginning to subside (coal, etc.), and capacity pressures are easing (utilisations near trough). Continued production discipline (lower cash flow volatility) and pricing power pose the risk of consensus estimates lagging. We revise up our estimates of cement majors to factor in higher cement prices. Upgrade ACC; prefer ICEM as a beneficiary of mean reversion. Valuations of cement majors (exacc) are above historical averages and do not factor in any impact of CCI penalty (~4% impact on valuation). ACC s underperformance vs Ambuja and UltraTech post the CCI order makes its valuation more reasonable (Figure 9). We upgrade ACC to NEUTRAL, and prefer ICEM as a mean reversion beneficiary given its significant valuation divergence to cement majors. BEYOND INFORMATION ClientDriven Solutions, Insights, and Access

2 Focus charts Figure 2: Cement prices remain firm despite adverse CCI order and weak demand 320 Date of CCI order % % % Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 Cement Prices (Rs. per bag) YoY despatch growth (cement majors) Source: Company data, CMA, Credit Suisse estimates Note: Jul & Aug YoY growth numbers are based on ACC & Ambuja only Figure 3: Cement majors utilisations have recovered; industry utilisations to improve from FY14E Avg Cement Prices (Rs. Per bag) Industry Utilisation(RHS) Cement major Utilisation(RHS) Source: Company data, CMA, Credit Suisse estimates Figure 4: Cement majors profitability set to improve 1, , , FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14E EBITDA/Tonne PBT/Tonne Capacity Utilisation (RHS) Figure 6: Grinding excesses remain an unlikely threat 50 12% % 30 6% 20 4% 10 2% FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E (10) 2% (20) 4% Excess Grinding Capacity (mn tonnes) % of total capacity (RHS) Source: Company data, CMA, Credit Suisse estimates Figure 5: as industry capacity pressures decline FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E Capacity Additions (mn tonnes) % of Production (RHS) Source: Company data, CMA, Credit Suisse estimates Figure 7: and cost pressures begin to subside Jun11 Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 Coal Price (USD per tonne) Coal Price (INR per tonne) (RHS) Source: Company data, Bloomberg, Credit Suisse estimates 35% 3 25% 2 15% 1 5% 6,400 6,200 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4,600 Figure 8: Consensus upgrades likely to continue Apr11 Jun11 Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 Ambuja CY13E ACC CY13E Ultratech FY13E Source: Company data, Thomson Reuters, Credit Suisse estimates Figure 9: ACC is cheapest among cement majors FY14E EV/EBITDA FY14E P/E FY13E EV per tonne ('000) Source: Company data, Thomson Reuters, Credit Suisse estimates India Cement Sector 2

3 Pricing resilience; upgrade ACC to NEUTRAL Cement prices continue to remain firm Our recent channel checks suggest that cement prices continue to surprise positively and have declined by only 2% versus our expectation of a 4% decline in the September quarter. The cement industry's pricing power has been aided by factors such as recovery in utilisation rates of cement majors, lower breakeven points of cement majors versus smaller cement players, and production discipline, which increasingly appears likely to be sustained. With higherthanindustry utilisations, lower leverage and higher profitability, cement majors remain well positioned in the industry, as smaller regional players face either leverage concerns or high utilisations with low profits. The key negative catalysts we anticipated largely played out We had three key concerns on the sector: (1) adverse impact of rising costs driven by power and freight costs, low industry capacity utilisations and weak cement demand; (2) impact of adverse ruling on cartelisation by the Competition Commission of India; and (3) valuation risk arising from multiple and earnings derating. The industry, however, has navigated the challenging phase by maintaining production discipline (sacrificing volume to protect margins) despite ruling on cartelisation by the CCI, and low demand. Outlook incrementally turning favourable Cement industry s cost pressures are beginning to subside (coal, etc.), and capacity pressures are easing (utilisations near trough). Continued production discipline (lower cash flow volatility) and pricing power, raises risk of consensus estimates lagging. We upgrade estimates of cement majors (ACC, Ambuja, UltraTech) to factor higher cement prices. Valuations high, but unlikely to derate; ACC a safer haven Valuations of cement majors (exacc) trade above historical averages and do not factor in any impact of the CCI penalty (~4% impact to valuation). ACC s underperformance vs Ambuja and UltraTech over the past three months make its valuation more reasonable (Figure 9). We upgrade ACC to NEUTRAL. We prefer India Cements due to the potential cost savings arising from its newly setup captive power plant, and it being a potential beneficiary of mean reversion given its significant valuation divergence to cement majors over the past 18 months. Cement prices have declined by only 2% versus our expectation of a 4% decline in the September quarter CCI penalty on industry has not impacted pricing power. Cost pressures beginning to subside, utilisations near trough ACC more attractively valued than UltraTech and Ambuja India Cement Sector 3

4 Valuation summary Figure 10: Key recommendations Company Rating Share price Target price Target multiple +/ EV EBIDTA Core P/E (x) EV per tonne (x) (Rs) (Rs) (x) (%) FY12 FY13E FY14E FY12 FY13E FY14E FY13E ACC Limited N 1,375 1, x EV EBIDTA UltraTech Cement Ltd U 1,835 1, x EV EBIDTA Ambuja Cements Ltd N x EV EBIDTA India Cements O x EV per tonne 6% ,895 15% , ,790 36% ,385 Figure 11: Global cement company valuation snapshot Company Current Target Mcap Rating P/E (x) P/B (x) ROE EV / EBITDA India Price (lc) Price (lc) US$ bn FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E ACC Limited 1, , N 16.2x 15.5x 3.3x 3.1x 14% 14% 9.4x 8.2x Ultratech Cement Ltd 1, , U 17.6x 17.5x 3.4x 3.0x 15% 12% 10.4x 9.4x Ambuja Cements Ltd N 19.2x 16.3x 3.4x 3.2x 14% 14% 10.1x 9.3x India Cements O 8.9x 7.4x 0.6x 0.6x 8% 8% 5.4x 4.6x Mexico Cemex U N.M. N.M. 0.8x 0.8x 1% 1% 9.9x 8.5x Thailand Siam Cement O 17.6x 11.5x 2.8x 2.5x 19% 23% 12.9x 9.8x Europe Lafarge N 15.6x 12.6x 0.7x 0.7x 4% 5% 7.4x 6.6x Holcim N 18.4x 15.2x 1.1x 1.1x 6% 7% 7.6x 6.8x CRH N 17.7x 17.4x 1.0x 1.0x 6% 7% 8.4x 7.5x Indonesia Holcim Indonesia TBK PT 2, , N 17.7x 15.1x 2.5x 2.3x 14% 15% 8.4x 7.7x Indocement 20, , N 17.4x 15.1x 4.0x 3.3x 23% 22% 10.0x 8.3x Semen Gresik (Persero) 14, , O 17.7x 14.5x 4.9x 4.1x 28% 27% 10.6x 8.7x China Anhui Conch Cement U 17.0x 14.0x 2.1x 1.9x 15% 16% 8.0x 6.3x China National Building U 8.6x 6.5x 1.3x 1.1x 14% 16% 7.8x 5.8x China Shanshui Cement N 9.0x 8.7x 1.4x 1.2x 19% 18% 4.9x 4.9x India Cement Sector 4

5 Financial summary Figure 12: Changes in rating and target price ACC Ambuja Ultratech India Cements Rating Old Underperform NEUTRAL UNDERPERFORM OUTPERFORM New NEUTRAL NEUTRAL UNDERPERFORM OUTPERFORM Target price (Rs) Old 1, , New 1, , Change (%) 43% 4 29% Figure 13: Ambuja estimate revisions CY12E CY13E CY14E Old New Variance Old New Variance Old New Variance Revenue 93, ,629 7% 103, ,778 9% 114, ,734 1 EBITDA 20,503 26,546 29% 21,256 28,231 33% 22,665 31,688 4 Net profit 12,503 15,517 24% 13,372 18,255 37% 14,366 20,682 44% Volume (mn tonne) % % Average realisation (Rs/tonne) 4,219 4,535 7% 4,351 4,763 9% 4,508 4,986 11% Figure 14: ACC estimate revisions CY12E CY13E CY14E Old New Variance Old New Variance Old New Variance Revenue 106, ,153 4% 116, ,612 7% 129, ,288 7% EBITDA 19,127 24, ,772 27,106 37% 20,725 30,404 47% Net profit 10,797 12,500 16% 11,243 16,537 47% 11,619 18,395 58% Volume (mn tonne) % % % Average realisation (Rs/tonne) 4,205 4,507 7% 4,352 4,753 9% 4,508 4,977 1 Figure 15: UltraTech estimate revisions FY13E FY14E Old New Variance Old New Variance Revenue 202, ,298 5% 221, ,586 9% EBITDA 42,799 49,411 15% 44,169 54,074 22% Net profit 21,838 28, ,847 28,376 36% Volume (mn tonne) % % Average realisation (Rs/tonne) 3,950 4,311 9% 4,134 4,468 8% India Cement Sector 5

6 Cement prices continue to be firm Our monthly channel checks with cement dealers suggest that cement companies have managed to hold onto prices better than our expectation, despite weak demand and low industry utilisations. Cement prices have on average only declined by 2% in September quarter versus our expectation of a 4% decline. We estimate that every 1% improvement in average realisations improves EBITDA by approximately 4.6% for the cement majors. A 1% improvement in average realisations improves EBITDA by approximately 4.6% for the cement majors Figure 16: Cement prices have remained firm despite low demand and adverse CCI order Figure 17: Cement majors utilisations have recovered; industry utilisations to improve from FY14E Date of CCI order Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug % 1 5% 5% Cement Prices (Rs. per bag) YoY despatch growth (cement majors) Avg Cement Prices (Rs. Per bag) Industry Utilisation(RHS) Cement major Utilisation(RHS) Source: Company data, CMA, Credit Suisse estimates Note: Jul & Aug YoY growth numbers are based on ACC & Ambuja only Source: Company data, CMA, Credit Suisse estimates While cement prices have fallen by approximately 5% from June to September, with the delayed monsoon, and unusual increase in cement prices in the month of July, average cement prices for the quarter are only down approximately 2%. Figure 18: Average cement prices (Rs/bag) Month North South East West Central India Jun Jul Aug Sep Variation (QoQ) Jun to Sep 2% 2% 13% 6% 5% Cement majors remain in a sweet spot Enjoy higher utilisations, low leverage and better profitability Cement majors (ACC, Ambuja, Ultratech) which account for 32% of total industry capacity, have seen utilisations improve since FY11 (refer Figure 19) and are operating above industry averages with net cash balance sheets, which continues to position them very favourably in the industry. India Cement Sector 6

7 PBT/Tonne 26 September 2012 Figure 19: Cement majors continue to remain in a sweet spot 1,600 1,400 1,200 1, (200) (400) Regional Players FY12 Avg EBITDA/tonne 1027 Avg PBT/tonne 471 Avg utilization 62% Capacity share 18% FY12 EBITDA/Tonne FY12 PBT/Tonne FY12 Capacity Utilisation (RHS) FY12 Industry Utilisation (RHS) Source: Company data, CMA, Credit Suisse estimates Cement Majors FY12 Avg EBITDA/tonne 858 Avg PBT/tonne 558 Avg utilization 78% Capacity share 45% High Utilization players FY12 Avg EBITDA/tonne 438 Avg PBT/tonne 218 Avg utilization 92% Capacity share 7% Smaller regional cement companies (primarily Southbased) despite earning higher EBITDA per tonne at low utilisations do not appear in a position to force price wars due to leverage as seen in their lower PBT per tonne (see Figure 20) Cement major s utilisations are above industry utilisations. Even smaller regional players with high utilisation rates (Birla Corp, Heidelberg, etc.) are less profitable than cement majors due to aggressive pricing resulting in lower EBITDA per tonne. The focus of such companies, going forward, is likely to be to enhance margins as there is limited scope to further improve utilisations. Figure 20: Smaller regional cement companies unlikely to threaten pricing power weighed down by leverage and low profitability 1, (200) (400) Chettinad OCL India Dalmia India Cements Steady utilisations, High profit Jaypee Madras Cement Ambuja JK Cement Shree Cement Ultratech ACC Century Tex Binani High utilisations, low profit Heidelberg BIrla Corp Smaller regional players, face leverage concerns, or high utilisations with low profits. Capacity Utilisation Note: Size of bubble represents EV India Cement Sector 7

8 Debt/Equity 26 September 2012 Figure 21: Cement majors (exjaypee) are comfortably placed with strong balance sheets 5.0 Jaypee Binani 2.0 Madras Cement Century Tex Chettinad 1.0 India Cements OCL India Dalmia Ultratech Heidelberg JK Cement BIrla Corp Shree Cement 9 10 (1.0) Ambuja ACC Capacity Utilisation Note: Size of bubble represents EV Further, the cost structures of the top 15 cement manufacturers (7 of current industry capacity) suggest that there is not much of a significant cost advantage for the smaller players visàvis cement majors. Thus, improvement in utilisations will have to be primarily driven by aggressive pricing, which in the current environment is unlikely. Breakeven level for cement majors average 23% versus smaller players of 42% Figure 22: Comparable cost structures seen for smaller and larger cement firms 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Realisation EBITDA Raw Material Power Freight Other Costs Total Costs Cement Majors (Rs. per tonne) Smaller Companies (Rs. per tonne) Cement majors breakeven points have been on the decline Breakeven levels for top three cement majors are low at 23% and have been declining. While smaller cement companies have higher breakeven levels (approximately 42%), their current utilisations remain well above the breakeven levels, which is one of the key reasons for lack of distress despite low utilisations. Lower breakeven points have been aided by factors including declining leverage as large cement companies have been generating strong cash flows over the past few years. Further, the variable costs (power, freight) have structurally risen at a faster pace over the past few years. India Cement Sector 8

9 Figure 23: BEP for cement majors is at 23% 12 Figure 24: Smaller manufacturers have higher BEP than cement majors, but still a comfortable cushion FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Break Even Utilisation Capacity Utilisation Break Even Utilisation Capacity Utilisation Figure 25: Variable cost per tonne has almost doubled in the past five years for cement majors 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500 FY07 FY08 FY09 FY10 FY11 FY12 Variable Cost (Rs. per tonne) India Cement Sector 9

10 The key negative catalysts we anticipated have largely played out We anticipated industry profitability to be impacted by rising freight and power costs, upcoming capacity additions, and adverse CCI order. Majority of the cost pressures seem to be behind us and industry appears to have dealt with the cost hikes. Freight cost pressures appear largely done Freight costs amount to approximately 28% of the total cost and 2 of sales of cement majors. While rail freight was hiked by approximately 25% in March 2012, diesel prices were hiked by approximately 14% last week. Rail freight hike of 25% and diesel price hike of 14% is behind us. The industry s dependence on road transport is significant at 45%; however, smaller regional cement companies have higher dependence on road transport, leaving them more vulnerable to diesel price hikes. In addition, captive diesel power plants and gensets account for 2% of total power produced in FY12. The increase in diesel prices is likely require a price hike of approximately 2% to offset the cost increase. Figure 26: EBITDA per tonne has improved sharply Figure 27: despite rising freight and power costs 5,000 1,300 1,100 4,500 4,000 3,500 3,000 2,500 1,200 1,100 1, , ,000 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Jun FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Jun12 Realisation (Rs. per tonne) EBITDA (Rs. per tonne) (RHS) Power cost (Rs. per tonne) Freight cost (Rs. per tonne) Note: Data for cement majors Note: Data for cement majors Capacity additions have come onstream, but pricing power continues Approximately 16mn tonne of cement capacity, which started operations in FY12, and approximately 23mn tonne of new cement capacity in 1HFY13 has been activated, totaling almost 12% of FY12 industry capacity. India Cement Sector 10

11 Figure 28: Major capacity additions seen in FY12 and 1HFY13 Company State Capacity Commissioning Year Shree Cement Rajasthan 1.4 FY12 KCP Ltd Andhra Pradesh 1.7 FY12 Chettinad Cement Tamil Nadu 2.5 FY12 Jaypee Jharkhand 2.1 FY12 Lafarge Jharkhand 1.2 FY12 JSW Cement Andhra Pradesh 4.5 FY13 ABG Cement Gujarat 5.8 FY13 Heidelberg Cement MP and UP 2.9 FY13 Jaypee Andhra Pradesh 5.0 FY13 Sagar Cements Karnataka 2.5 FY13 Wonder Cement Rajasthan 2.5 FY13 Activation of FY10 and FY11 capacity additions, totalling 33 mn t, 33% of industry has not impacted pricing power. While rampups of new capacities are likely to take time, we believe the full impact of erstwhile capacity rampups seen in FY10 and FY11 (totaling 110 mn tonne, 33% of industry capacity) should have begun to take full effect. However, these capacities have not impacted pricing power, and appear less likely to impact as almost 25% of total cement capacity additions between FY0712 (totaling 43 mn tonne) have been pure grinding capacities, which are cheaper cost and easier to idle. Going forward, the pace of new capacity additions in FY13E is expected to be around 14% of FY12 production and gradually slow down. Pace of capacity additions to slow. Figure 29: Pace of capacity additions set to slow Figure 30: Pure grinding capacities have accounted for 25% of FY0712 capacity additions % % 2 15% FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E 5% 10 Greenfield Brownfield Grinding Capacity Additions (mn tonnes) % of Production (RHS) Capacity additions during FY07 to FY12 (mn tonnes) Pure grinding additions likely to continue running at low utilisations While total rated cement capacity in India is 337mn tonne, clinker capacity is 225mn tonne, which can support a total effective production of only 311 mn tonne of cement (assuming current 25:67:8 OPC:PPC:Slag ratio and 10 clinker utilisation). The differential between 311 mn tonne and 337mn tonne of pure grinding capacity will remain a structural excess, in our view. Clinker utilisations have bottomed, in our view, despite overall cement capacity utilisations only troughing in FY13E (assuming demand grows at 9% in FY13). Current grinding capacity excesses of approximately 26 mn t (8% of cement capacity) would increase to 35 mn t in FY13E and 38 mn t in FY14E. India Cement Sector 11

12 Figure 31: Clinker utilisations have bottomed in FY12 10 Figure 32: grinding capacity excesses unlikely threat 50 12% 95% % 8 75% 7 65% (10) FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E 8% 6% 4% 2% 2% 6 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E (20) 4% Clinker Capacity Utilisation Excess Grinding Capacity (mn tonnes) % of total capacity (RHS) Why set up the excess grinding capacity? Tightly control the supply chain The new grinding capacities have been largely set up near flyash production centers (power plants) and near demand centers to largely produce blended cement particularly PPC (currently approximately 67% of overall cement demand in India). The industry s shift towards a hubandspoke model enables them to more efficiently control the supply chain (move from push to pull ). Further, the cost of idling cement capacity in comparison to idling clinker capacity is also lower as the capex related to grinding units is only USD30/tonnein comparison to overall cement capex of USD140160/tonne. Current grinding capacity excesses of approximately 26 mn tonne (8% of cement capacity) would increase to 35 mn tonne in FY13E and 38 mn tonne in FY14E. We believe these excess capacities are unlikely to be a significant threat to break production discipline, considering the lower costs required for setting up and running the grinding plants. Figure 33: Cost of setting up grinding capacity is low (US$/tonne) The industry s shift towards a hubandspoke model enables them to more efficiently control the supply chain Cost of setting up grinding capacity is only US$30/tonne 0 Greenfield Capacity Brownfield Capacity Grinding Capacity Cost of setting up capacity in 2012 (USD per tonne) India Cement Sector 12

13 Figure 34: Excess grinding capacities unlikely to impact pricing FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E Capacity Clinker Capacity OPC PPC Slag Others Effective Capacity OPC PPC Slag Others Production Cement Capacity Utilisation 84% 91% 91% 86% 84% 74% 71% 69% 69% 71% Clinker Capacity Utilisation 85% 88% 94% 88% 96% 82% 78% 73% 74% 75% Over/Under capacity (9.8) (9.6) (17.1) (2.7) % of total cement capacity 6% 6% 1 1% 1% 5% 1 8% 1 1 CCI ruling has not impacted pricing power The ruling on cartelisation by cement companies issued by the Competition Commission of India in June 2012 was expected to impact the pricing power of cement companies (through breakdown of production discipline, etc.). Cement companies were fined 0.5% of profits for alleged cartelisation by the CCI. While the order is unlikely to result in immediate cash outflows for the companies as they are likely to challenge the order with the COMPAT and if unsuccessful, with the Supreme Court, the legal process is expected to remain longdrawn. Cement prices have stayed resilient, despite CCI order. While we anticipated CCI order to impact pricing power, cement companies, on the contrary, have been able to successfully defend profitability through cement price increases as early as July Figure 35: Cement prices are up 2 in one year and seasonal decline has been lower Date of CCI order Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 Cement Prices (Rs. per bag) Source: Company data, CMA, Credit Suisse estimates India Cement Sector 13

14 Demand growth has disappointed 2H recovery key Demand growth of cement majors (ACC, Ambuja and Ultratech) continues to remain weak as shown by the monthly dispatch data (refer to Figure 36). Growth for the four months from Apr12 onwards has averaged at 3% YoY for the cement majors versus 8% YoY in the preceding three months. Figure 36: YoY growth has slowed 9% 8% 8% 8% 8% 7% 6% 5% 5% 4% 4% 3% 2% 1% ACC Amubja Ultratech YoY volume growth (JanMar) YoY volume growth (AprJul) Figure 37: price increases continue to remain strong 18% 17% 16% 14% 12% 12% 1 8% 8% 6% 4% 3% 2% YoY volume growth for cement majors YoY cement price increase Mar12 Jul12 Strong rural demand base unlikely to materially derate cement demand growth As shown in our initiation report, rural concretisation trends provide a strong underlying demand driver for the cement sector. Despite lower forecasted GDP growth of 6.5% for FY13E, we expect cement demand to grow at 8% in FY13, and 9% in FY14 as rural housing contributes approximately 4 of total demand. Dispatch growth has averaged at 3% from April to Jul versus 8% from JanMar Further, any incremental demand push from government orders and infrastructure (government orders largely use OPC, and same for readymix concrete, etc.) will also favorably impact clinker utilisations due from higher OPC usage. Figure 38: Cement demand largely driven by housing Infrastructure / Others 25% Commercial Real Estate 15% Figure 39: Rural housing concretisation trends provide a strong support for demand Housing 6 0. Housing stock Concrete roofed houses Cementwalled houses Cement floored houses Total Rural Urban Source: Census 2011, Credit Suisse estimates; Note: Ten year CAGR used India Cement Sector 14

15 Incrementally, outlook improving Cost pressures beginning to ease Lower imported coal prices can positively impact margins International coal prices have fallen 23% (YoY) and adjusted for rupee depreciation have still declined by 7% (YoY). The larger players (ACC, Ambuja and Ultratech) currently source approximately 3 of their total coal requirements from FSAs with Coal India (CIL). The remaining 7 is met through eauction, petcoke and imported coal. Given the industry s increasing dependence on imported coal (due to supply delays by CIL, etc.), we expect a positive impact to margins from falling international coal prices. Figure 40: International coal prices have eased.. CS estimates of US$100/tonne in CY13E 140 6,400 Imported coal prices, adjusted for rupee depreciation have declined by 7% (YoY) Jun11 Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 6,200 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4,600 Coal Price (USD per tonne) Coal Price (INR per tonne) (RHS) Source: Bloomberg, Thomson Reuters breakeven for new capacities set to increase... Bulk of the cheaper cement capacity additions (capex cost of US$110/tonne) initiated during is expected to be completed by FY13. The high breakeven for higher cost capacities in future is likely to ensure that cement companies continue to focus on enhancing margins. Figure 41: Bulk of cheaper capex expansions done; higher capex/tonne additions to start in FY Figure 42: Capex costs of historical additions have been significantly lower than current costs mn tonnes FY 13 FY 14 FY 15 Greenfield additions Brownfield additions Grinding additions 0 mn tonnes Greenfield Capacity Brownfield Capacity Grinding Capacity Cost per tonne (USD) in 2007 Cost per tonne (USD) in 2012 India Cement Sector 15

16 new players likely to fall in norm New capacities coming onstream in the second half of FY13 of new players, ABG Cement (5.8 mn tonne plant) and JSW Cement (4.5 mn tonne) account for onethird of FY13 capacity additions. Based on the estimated cost of setting up the plants for these two players and leverage profiles, we expect their break even EBITDA to be at around Rs.450/tonne running at 10 utilisation. Working backwards, we find that the ability of these plants to challenge current pricing will be muted. New capacities unlikely to challenge current pricing. Figure 43: Higher leverage of new players unlikely to lead to price wars ABG Cement JSW Cement Capacity (mn tonne) Capital cost (Rs.mn) 24,330 15,000 Debt (Rs.mn) 14,974 11,250 Depreciation (Rs.mn) Interest (Rs.mn) 1,797 1,350 EBITDA required to breakeven (Rs.mn) 2,607 1,850 Implied breakeven EBITDA/ utilization Additional Dealer discount (@ Rs.5/bag) Average operating cost / tonne 3,000 3,000 Minimum realization to breakeven at net profit 3,550 3,511 Average net industry realization (FY12) 3,835 3,835 % discount to current realizations 7.4% 8.4% Source: Credit Suisse estimates Profitability of cement majors set to improve With industry capacity utilisations neartrough, and smaller players unlikely to materially deteriorate pricing, we believe the profitability of larger cement majors are likely to improve, going forward. Figure 44: Profitability of cement majors to rerate as utilisations pick up 1,400 1,200 1, FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E EBITDA/Tonne PBT/Tonne Capacity Utilisation India Cement Sector 16

17 Production discipline lowers cash flow volatility and can help sustain high multiples While cement majors continue to trade at high multiples in comparison to longterm averages, we believe these multiples are likely to sustain on account of improving fundamentals, and lower cash flow volatility. Figure 45: Current EV/EBITDA multiples are higher than longterm averages ACC Ambuja Ultratech India Cements 1 year 9.5x 9.4x 9.3x 5.0x 2 years 9.0x 9.1x 8.9x 6.2x 5 years 7.7x 8.1x 7.1x 5.7x 10 years 8.5x 8.7x 8.1x 7.6x Source: Thomson Reuters, Credit Suisse estimates Consolidation likely to continue and help sustain premium multiples While the top five cement companies and top ten cement companies accounting for 44% and 6 of total industry capacity respectively, the consolidated group holdings indicate that concentration is higher. The Birla Group (Ultratech, Kesoram, Century Textiles and Mangalam cements, the latter three owned by the BK Birla Group) together own approximately 66.5mn tonnes of cement capacity, while Holcim controls approximately 57.4mn tonnes (through ACC and Ambuja). Top ten cement companies account for 6 of total industry capacity. Figure 46: Capacity share of top 10 groups likely to remain significant over the next two years % 42% 6 57% 53% % Top 5 Companies Top 5 Groups Top 10 Companies Top 10 Groups FY12 FY14E We believe consolidation of cement capacities in the industry will continue given the strong balance sheets of cement majors, continued interest from foreign players (CRH in talks to buy out Jaypee cement assets in Gujarat for US$160 EV/tonne), and large capacity additions by new noncore cement players (ABG, JSW, etc.). India Cement Sector 17

18 Valuations high, but unlikely to derate; ACC a safer haven Valuations of cement majors (exception of ACC) trade above historical averages and do not appear to factor in the impact of CCI penalty (~4% impact to valuation). We continue to value cement stocks on the basis of a throughcycle 10year average EV/EBITDA multiple. Figure 47: Current EV/EBITDA multiples are higher than longterm averages ACC Ambuja Ultratech India Cements 1 year average multiple 9.5x 9.4x 9.3x 5.0x 2 year average multiple 9.0x 9.1x 8.9x 6.2x 5 year average multiple 7.7x 8.1x 7.1x 5.7x 10 year average multiple (CS valuation) Source: Thomson Reuters, Credit Suisse estimates 8.5x 8.7x 8.1x 7.6x Further, the implied CY13E/ FY14E EBITDA/tonne being priced in for average historical multiples to sustain appears high in the case of Ultratech, which is factoring in significant improvement in EBITDA/tonne (from improvement in cement prices) versus FY13E levels. We believe this is unlikely as a slow rampup of new capacities from 1QFY14E especially in the Southern region for Ultratech is likely to keep its profitability prospects muted. Figure 48: FY14E implied EBITDA per tonne at historical multiples EBITDA/tonne required (Rs) ACC Ambuja Ultratech 1 year avg multiple 1,019 1,305 1,270 2 year avg multiple 1,076 1,348 1,331 5 year avg multiple 1,261 1,512 1, year avg multiple 1,138 1,404 1,461 ACC more attractively valued than Ultratech and Ambuja FY12A EBITDA/tonne ,019 CS FY13E EBITDA/tonne 1,018 1,186 1,177 ACC is most attractive among cement majors at current valuations The recent underperformance of ACC relative to its larger peers (Ambuja and Ultratech) makes it relatively more attractive, as it appears to be factoring in reasonable improvement in EBITDA/tonne assumptions. India Cement Sector 18

19 Figure 49: ACC is more attractively valued relative to peers FY14E EV/EBITDA FY14E P/E FY13E EV per tonne ('000) Figure 50: ACC has underperformed the larger cement peers post the CCI ruling May12 30Jun12 31Jul12 31Aug12 ACC Ambuja Ultratech Source: Thomson Reuters, Credit Suisse estimates ACC more immune to forthcoming cost pressures Less dependence on road ACC has the lowest exposure to road transport and, thus, is more favorably placed among cement majors to tackle the diesel price hike. We estimate that cement manufacturers have to raise prices by approximately 2% to offset cost pressures should the current diesel price hike of 14% sustain. Figure 51: ACC has the least dependence on road transport ACC Ambuja Cement Ultratech Cement Rail Road Sea India Cements Industry Average Figure 52: resulting in the least impact of diesel price hike ACC Ambuja Ultratech India Cements FY14 Impact on EBITDA FY14 Impact on Net profit Higher renewable energy exposure Given the recent order by the Rajasthan High Court ruling captive power generation companies are liable to pay penalties in case they do not comply with renewable energy requirements of the State, in our view ACC is better placed than peers to meet renewable energy requirements. India Cement Sector 19

20 Figure 53: % of generation through renewable sources in FY12 2.5% 2.2% % % 0.5% 0.5% 0. ACC Ambuja Ultratech % of power generation through renewable sources FY12 Figure 54: ACC has higher renewable power capacity % % % ACC Ambuja Ultratech % of power capacity through renewable sources FY12 Consensus upgrades likely to continue As seen in the past one year, earnings have been upgraded by 25% primarily driven by improving realisations. With easing cost pressures, improving utilisation outlook, and realisations continue to improve, we believe consensus upgrades are likely to continue. Figure 55: Ambuja consensus upgrades Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 CY12E CY13E Source: Thomson Reuters, Credit Suisse estimates Figure 57: Ultratech consensus upgrades Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 FY13E FY14E Source: Thomson Reuters, Credit Suisse estimates Figure 56: ACC consensus upgrades Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 CY12E CY13E Source: Thomson Reuters, Credit Suisse estimates Figure 58: India Cements consensus upgrades Aug11 Oct11 Dec11 Feb12 Apr12 Jun12 Aug12 FY13E FY14E Source: Thomson Reuters, Credit Suisse estimates India Cement Sector 20

21 ICEM appears to be a mean reversion beneficiary Valuation discount to cement majors has widened considerably mean reversion points to significant upside India Cements trades at 4.5x FY14E EV/EBITDA (a 29% discount to historical multiple) and FY13E EV/tonne of Rs3,385, which is at a 6 discount to replacement cost. On EV/EBITDA, the stock trades at a 5 discount to the cement majors, versus its historical average discount of 12% (refer to the figure below). We believe improvement in fundamentals driven by cost improvements is likely to narrow the discount to historical averages. Figure 59: ICEM s discount to cement majors (EV/EBITDA) has widened considerably mean reversion can provide strong upside Jan05 Aug05 Mar06 Oct06 May07 Dec07 Jul08 Feb09 Sep09 Apr10 Nov10 Jun11 Jan12 Aug12 EV/EBITDA Cement Majors EV/EBITDA India Cements India Cement Sector 21

22 Key risks Threat of government intervention Cement companies have seen increasing political pressure on account of rising cement prices in 2012 (primarily in cement producing states which account for approximately 35% of total cement demand). Some of the local governments have threatened to withdraw subsidies in case cement companies do not cut prices. Figure 60: States action to curb cement prices could be crucial Date Region Allegations Result Jul12 North East Cement firms asked to cut prices after reports that firms get high subsidies and earn high profits Prices cut by 78% (25 30/bag) in Assam TN CM threatens to withdraw subsidies and concessions to cement companies if prices go unchecked Prices have remained stable over 4 months May & AP, Rayalseema July 2012 Jan12 Opposition parties ask for CM intervention to check rising cement prices Himachal Pradesh CM meets cement companies, and industries minister threatens to withdraw subsidies Jan & Chattisgarh, Raipur Protests over rising cement prices by both Feb 2012 opposition and ruling party Prices have fallen by 2 in Hyderabad over 2 months Cement prices decreased by Rs.25/ bag from Rs. 330 /bag Cement prices decrease by Rs.50/ bag Apr12 Maharashtra, Chandrapur Former Congress MP demands cement prices be brought down and intervention by CM Penalties arising from adverse cartel ruling by CCI Cement companies have been fined by the Competition Commission of India for alleged cartelisation to the extent of 0.5% of profits. While we believe this remains an overhang, cement companies are likely to challenge the order with the COMPAT and if unsuccessful with the Supreme Court. The legal process is expected to remain longdrawn. Figure 61: Fines still have not been accounted for Company Penalty (Rs bn) Jaiprakash Associates Ultratech Ambuja ACC Lafarge 4.80 Shree Cement 3.98 Century 2.74 Madras 2.59 India Cements 1.87 Binani 1.67 JK Cement 1.29 Source: CCI order Threat of imports In 2007, India witnessed imports from China at Rs. 160 per bag, as compared to average price of Rs. 230 per bag locally. Imports were facilitated by the sharp price increases seen during that period (prices increased by 27% over a period of a year). India Cement Sector 22

23 Currently, average realisations in China are at approximately Rmb305 (Rs 2,100) per t as compared to Rs 4,200 in India. A key constraint, however, is obtaining BIS certification (currently only two Chinese companies possess the same). Pakistani imports likely to remain low Despite granting of MFN status and removal of trade barriers, cement imports from Pakistan have been fairly low due to procedural bottlenecks at the border and high dependence on rail (almost 7) wherein service availability is poor. Figure 62: Cement imports have been on decline Figure 63: as imports from Pakistan/China have declined Value of imports (Rs. mn) FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Value of Imports (USD mn) Pakistan Bangladesh China Others Source: Ministry of Commerce, Credit Suisse estimates Source: Ministry of Commerce, Credit Suisse estimates India Cement Sector 23

24 Companies India Cement Sector 24

25 Asia Pacific / India Cement ACC Ltd. Rating (from Underperform) NEUTRAL* Price (25 Sep 12, Rs) 1, Target price (Rs) (from 1,022.00) 1,462.00¹ Upside/downside (%) 6.3 Mkt cap (Rs mn) 258,206 (US$ 4,825) Enterprise value (Rs mn) 227,678 Number of shares (mn) Free float (%) week price range 1, ,079.4 ADTO 6M (US$ mn) 9.2 *Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. Share price performance Price (LHS) Research Analysts Sandeep Mathew sandeep.mathew@creditsuisse.com Rebased Rel (RHS) 800 Oct10 Feb11 Jun11 Oct11 Feb12 Jun The price relative chart measures performance against the BSE SENSEX IDX which closed at on 25/09/12 On 25/09/12 the spot exchange rate was Rs53.52/US$1 Performance Over 1M 3M 12M Absolute (%) Relative (%) (ACC.BO / ACC IN) UPGRADE RATING A safe haven Exposure to regions with resilient pricing driving EBITDA/tonne improvements. Cement prices continue to perform better than our expectation in September quarter (down 2% versus our expectation of 4%). The decline has been least in Central and Southern regions, where ACC has a 49% capacity exposure. We are factoring EBITDA/tonne to improve to Rs.1,018/tonne in CY12E (from Rs.709/tonne in CY11A) and stay flat in CY13E. While ACC s recent underperformance could be attributable to weaker volume growth (YTD 2.3% YoY, vs Ambuja at 6.4% and Ultratech at 4.6%), its utilizations (81%) remain well above industry average (69%). Higher immunity to upcoming cost pressures. ACC s lower dependence on road freight (approximately 45% of total freight compared to 6 for Ambuja and Ultratech) makes it least exposed to the recent 14% hike in diesel prices. Further, its focus on renewable energy (currently generates 2.2% of captive power through renewable and can increase up to 7.5% of total) assumes significance due to the recent order by the Rajasthan High Court ruling captive power generation companies are liable to pay penalties in case they do not comply with renewable energy requirements of the State. We believe the order can set a precedent for other states to enforce such minimum renewable energy requirements. While minimum renewable energy power generation norms vary, it is between 41 for the major cement producing states in FY13. The benefit of lower international coal prices (approximately 25% of total consumption), is also likely to help ACC to sustain profitability in CY12/CY13E. Valuations below historical multiples; Upgrade to NEUTRAL. ACC is currently trading at 8.2x CY13E EV/EBITDA, versus its historical average of 8.5x and is most attractively valued among cement majors. It also appears lower risk as current valuations do not price in significant CY13E EBITDA/tonne improvement compared to Ambuja and Ultratech. At Rs. 7,895 CY12E EV/t, it is trading at a 18% discount to Ambuja and Ultratech, and a 7% discount to replacement cost. We upgrade estimates of ACC to reflect improved realizations and anticipate CY12E EBITDA/tonne to sustain in CY13E as industry utilizations improve. We upgrade ACC to NEUTRAL, with a target price of Rs. 1,462 (based on 8.5x EV/EBITDA). Financial and valuation metrics Year 12/11A 12/12E 12/13E 12/14E Revenue (Rs mn) 94, , , ,288.4 EBITDA (Rs mn) 16, , , ,404.0 EBIT (Rs mn) 12, , , ,520.5 Net profit (Rs mn) 13, , , ,394.8 EPS (CS adj.) (Rs) Change from previous EPS (%) n.a Consensus EPS (Rs) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) net cash net cash net cash net cash Source: Company data, our estimates. India Cement Sector 25

26 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 26 September 2012 Focus Charts Figure 64: Cement prices in South and Central India have remained steady Jun12 Jul12 Aug12 Sep12 South Central India Source: Credit Suisse estimates Figure 66: Volume growth expected to pick up, as base effect kicks in 28% % % 15% 5% 9% 9% 8% 7% % 1% 3% 3% 5% 0.5 6% 7% 5% 1 Despatch (mn tonnes) YoY Despatch Growth (RHS) Figure 68: resulting in least impact of diesel price hike ACC Ambuja Ultratech India Cements FY14 Impact on EBITDA FY14 Impact on Net profit Figure 70: ACC s stock has underperformed Ambuja and Ultratech since the CCI ruling May12 30Jun12 31Jul12 31Aug12 ACC Ambuja Ultratech Source: Thomson Reuters, Credit Suisse estimates Figure 65: Lower than expected fall in cement prices should continue to positively impact EBITDA/t 5,000 4,500 4,000 3,500 3,000 Realisation per tonne EBITDA per tonne (RHS) Figure 67: ACC has lowest dependence on road ACC Ambuja Cement Ultratech India Cements Cement Rail Road Sea 1,600 1,400 1,200 1, Industry Average Figure 69: ACC appears better placed to meet renewable energy requirements % 2.2% 4.2% 0.8% 0.7% 0.5% ACC Ambuja Ultratech % of power capacity through renewable sources FY12 % of power generation through renewable sources FY12 Figure 71: ACC is the cheapest amongst cement majors FY14E EV/EBITDA FY14E P/E FY13E EV per tonne ('000) Source: Thomson Reuters, Company data, Credit Suisse estimates India Cement Sector 26

27 Financial summary Figure 72: ACC income statement Yearend Dec 31 (Rs mn) E 2013E 2014E Revenue 72,829 80,272 77,173 94, , , ,288 Expenses (55,497) (55,475) (61,634) (77,396) (86,732) (97,506) (107,884) EBIDTA 17,332 24,797 15,540 16,991 24,851 27,106 30,404 Depreciation (2,942) (3,421) (3,927) (4,753) (5,266) (5,343) (5,883) EBIT 14,390 21,376 11,613 12,238 19,585 21,763 24,520 Interest expense (400) (843) (568) (969) (1,049) (928) (924) Other income 2,887 2,411 3,569 4,135 2,662 2,790 2,681 Profit before tax 16,877 22,944 14,615 15,404 21,197 23,624 26,278 Income tax (5,238) (6,877) (3,414) (2,152) (5,344) (7,087) (7,883) Profit before minority 11,639 16,067 11,200 13,253 15,854 16,537 18,395 Extraordinaries 489 (3,354) PAT 12,128 16,067 11,200 13,253 12,500 16,537 18,395 EPS Dividend per share Figure 73: ACC balance sheet Yearend Dec 31 (Rs mn) E 2013E 2014E Assets Cash 9,842 7,464 10,800 17,526 23,754 32,209 42,108 Receivables 3,102 2,037 1,783 2,604 3,079 3,438 3,815 Inventories 7,933 7,790 9,150 10,997 13,001 14,519 16,112 Other current assets 6,720 5,654 5,801 5,053 5,199 5,471 5,798 Current Liabilities 18,018 20,603 20,940 26,104 30,945 34,453 38,220 Provisions 9,639 10,919 16,525 10,540 10,636 10,746 10,858 Net current assets 61 8,578 9, ,450 10,437 18,755 Fixed assets 34,697 41,583 50,824 62,075 56,867 56,523 65,640 Capital WIP 16,029 21,562 15,628 4,353 12,603 15,853 9,103 Investments 6,791 14,756 17,027 16,250 16,250 16,250 16,250 Total Assets 57,456 69,324 73,548 82,214 89,170 99, ,748 Liabilities Share capital 1,879 1,879 1,880 1,880 1,880 1,880 1,880 Reserves 47,399 58,282 62,815 70,043 77,046 86,986 97,685 Shareholder funds 49,277 60,162 64,695 71,923 78,925 88,866 99,564 Debt 4,820 5,669 5,238 5,107 5,061 5,014 5,000 Others 3,358 3,493 3,615 5,184 5,184 5,184 5,184 Total liabilities 57,456 69,324 73,548 82,214 89,170 99, ,748 India Cement Sector 27

28 Asia Pacific / India Cement Ambuja Cements Ltd. Rating NEUTRAL* Price (25 Sep 12, Rs) Target price (Rs) (from ) ¹ Upside/downside (%) 0.41 Mkt cap (Rs mn) 299,751 (US$ 5,601) Enterprise value (Rs mn) 264,546 Number of shares (mn) 1, Free float (%) week price range ADTO 6M (US$ mn) 7.9 *Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. Research Analysts Sandeep Mathew sandeep.mathew@creditsuisse.com (ABUJ.BO / ACEM IN) INCREASE TARGET PRICE Defensively positioned, but lacks upside Attractive cost structure, and high clinker utilizations: An attractive cost structure versus industry peers (mainly on account of lower raw material cost), and lack of exposure to low margin RMC business, has enabled the company to maintain its strong EBITDA margins (22.5% in CY11, as compared to 18% for ACC, 22.6% for Ultratech). Low dependence on Southern markets (exposure limited to coastal Kerala/Karnataka through the port route) is likely to help the company maintain its higher than industry average utilizations of 77%. Further, clinker utilizations of Ambuja currently hover around 85%, implying capacity excesses primarily lie on the lower cost grinding front. Supply concerns to ease in its core markets. Ambuja currently enjoys most favorable positioning among cement majors as its capacities are located along the Western, Northern and Eastern markets. We anticipate limited supply pressures in the Eastern and Northern markets and should excess capacities from other regions find its way, Ambuja will still continue to enjoy a significant cost advantage. We believe capacity utilisations have troughed in its core markets (refer to Figure 77) which is likely help improve its overall EBITDA/tonne to Rs. 1,196 in CY12E and sustain going forward. Valuations appear fair; significant upside unlikely. Ambuja currently trades at high valuations (9.3x CY13E EV/EBITDA, at 7% premium to historical average multiple and CY12E EV/tonne of Rs9,790, which is 15% premium to replacement cost) and does not appear to factor in any adverse impact of CCI penalty (approximately Rs11.6 bn). We estimate that for a 1 upside to stock from current levels, CY13E EBITDA/tonne has to significantly rerate to Rs1,410/tonne (cement price increase of approximately 10.2%), which appears unlikely. We maintain NEUTRAL and revise target price to Rs194 (based on 8.7x EV/EBITDA). Share price performance Price (LHS) Rebased Rel (RHS) 100 Oct10 Feb11 Jun11 Oct11 Feb12 Jun The price relative chart measures performance against the BSE SENSEX IDX which closed at on 25/09/12 On 25/09/12 the spot exchange rate was Rs53.52/US$1 Performance Over 1M 3M 12M Absolute (%) Relative (%) Financial and valuation metrics Year 12/11A 12/12E 12/13E 12/14E Revenue (Rs mn) 85, , , ,734.1 EBITDA (Rs mn) 19, , , ,687.9 EBIT (Rs mn) 14, , , ,117.4 Net profit (Rs mn) 12, , , ,681.9 EPS (CS adj.) (Rs) Change from previous EPS (%) n.a Consensus EPS (Rs) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) net cash net cash net cash net cash Source: Company data, Credit Suiisee estimates India Cement Sector 28